485APOS 1 a485apos.txt 485APOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 2000 REGISTRATION NOS.: 2-82510 811-3692 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ POST-EFFECTIVE AMENDMENT NO. 29 /X/ AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 30 /X/ ------------------------ MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES (A MASSACHUSETTS BUSINESS TRUST) (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10048 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600 BARRY FINK, ESQ. TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10048 (NAME AND ADDRESS OF AGENT FOR SERVICE) COPY TO: STUART M. STRAUSS, ESQ. MAYER, BROWN & PLATT 1675 BROADWAY NEW YORK, NEW YORK 10019-5820 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this Post-Effective Amendment becomes effective ------------------------ IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX) ___ immediately upon filing pursuant to paragraph (b) ___ on (date) pursuant to paragraph (b) ___ 60 days after filing pursuant to paragraph (a) _X_ on November 3, 2000 pursuant to paragraph (a) of rule 485 AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PROSPECTUS - NOVEMBER 3, 2000 Morgan Stanley Dean Witter VARIABLE INVESTMENT SERIES CLASS X Morgan Stanley Dean Witter Variable Investment Series is a mutual fund comprised of 17 separate Portfolios, each with its own distinctive investment objective(s) and policies. The Portfolios are: The Money Market Portfolio The European Growth Portfolio The Short-Term Bond Portfolio The Pacific Growth Portfolio The Quality Income Plus Portfolio The Equity Portfolio The High Yield Portfolio The S&P 500 Index Portfolio The Utilities Portfolio The Competitive Edge "Best Ideas" Portfolio The Income Builder Portfolio The Aggressive Equity Portfolio The Dividend Growth Portfolio The Information Portfolio The Capital Growth Portfolio The Strategist Portfolio The Global Dividend Growth Portfolio Shares of each Portfolio are sold exclusively to certain life insurance companies in connection with particular life insurance and/or annuity contracts they issue. The insurance companies invest in shares of the Portfolios in accordance with instructions received from owners of the applicable life insurance or annuity policy. This PROSPECTUS must be accompanied by a current prospectus for the variable annuity contracts issued by Northbrook Life Insurance Company, Allstate Life Insurance Company of New York or Glenbrook Life and Annuity Company or a current prospectus for the variable life insurance contracts issued by Northbrook Life Insurance Company, Glenbrook Life and Annuity Company or Paragon Life Insurance Company. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this PROSPECTUS. Any representation to the contrary is a criminal offense. CONTENTS Eligible Investors ............................................................ 1 The Portfolios The Money Market Portfolio.................................. 2 The Short-Term Bond Portfolio............................... 5 The Quality Income Plus Portfolio........................... 7 The High Yield Portfolio.................................... 10 The Utilities Portfolio..................................... 12 The Income Builder Portfolio................................ 15 The Dividend Growth Portfolio............................... 18 The Capital Growth Portfolio................................ 20 The Global Dividend Growth Portfolio........................ 22 The European Growth Portfolio............................... 24 The Pacific Growth Portfolio................................ 27 The Equity Portfolio........................................ 30 The S&P 500 Index Portfolio................................. 32 The Competitive Edge "Best Ideas" Portfolio................. 35 The Aggressive Equity Portfolio............................. 39 The Information Portfolio................................... 41 The Strategist Portfolio.................................... 43 Additional Investment Strategy Information ............................................................ 46 Additional Risk Information ............................................................ 47 Portfolio Management ............................................................ 51 Shareholder Information Pricing Fund Shares......................................... 54 Distributions............................................... 55 Tax Consequences............................................ 55 Financial Highlights ............................................................ 56
ELIGIBLE INVESTORS Morgan Stanley Dean Witter Variable Investment Series (the "Fund") is comprised of 17 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):
INSURANCE COMPANY TYPE OF POLICY ----------------------------------------------------------------------------- Northbrook Life Insurance Certain Flexible Premium Variable Annuity and Company Variable Life Insurance Contracts ----------------------------------------------------------------------------- Allstate Life Insurance Certain Flexible Premium Deferred Variable Company Annuity Contracts ----------------------------------------------------------------------------- Glenbrook Life and Annuity Certain Flexible Premium Deferred Variable Company Annuity Contracts and Certain Flexible Premium Variable Life Insurance Contracts ----------------------------------------------------------------------------- Paragon Life Insurance Certain Flexible Premium Variable Life Company Insurance Contracts (issued in connection with an employer-sponsored insurance program offered only to certain employees of Morgan Stanley Dean Witter & Co., the parent of the Fund's Investment Manager) -----------------------------------------------------------------------------
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 generally available to holders of (i) Contracts offered by Paragon Life Insurance Company, and (ii) other Contracts offered before May 1, 2000. For more information on eligibility to invest in Class X shares, contact the insurance company offering the accompanying prospectus. All Portfolio shares issued prior to May 1, 2000 have been designated Class X shares. The Fund also offers Class Y shares of each Portfolio through a separate prospectus. Class Y shares are subject to different expenses. 1 [Sidebar] MONEY MARKET A mutual fund having the goal to select securities to provide current income while seeking to maintain a stable share price of $1.00. YIELD The Portfolio's yield reflects the actual income the Portfolio pays to you expressed as a percentage of the Portfolio share price. Because the Portfolio's income from its portfolio securities will fluctuate, the income it in turn distributes to you and the Portfolio's yield will vary. [End Sidebar] THE PORTFOLIOS THE MONEY MARKET PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Money Market Portfolio seeks high current income, preservation of capital and liquidity. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio invests in high quality, short-term debt obligations. In selecting investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., seeks to maintain the Portfolio's share price at $1.00. A mutual fund's share price remaining stable at $1.00 means that the fund would preserve the principal value of the shareholders' investments. The Portfolio's investments are limited, as a matter of fundamental investment policy, which may not be changed without shareholder approval, to the following types of money market instruments: - commercial paper -- rated by Standard & Poor's Corporation ("S&P") in one of the two highest rating categories or the highest grade by Moody's Investors Services Inc. ("Moody's") or, if not rated, issued by a company having an outstanding debt issue rated at least AA by S&P or Aa by Moody's; - corporate obligations -- rated at least A by S&P or Moody's; - bank obligations -- including certificates of deposit, of U.S.-regulated banks having total assets of $1 billion or more, and investments secured by these obligations; - Eurodollar certificates of deposit -- issued by foreign branches of domestic banks having assets of $1 billion or more; - savings institution obligations -- including certificates of deposit of savings banks and savings and loan institutions having assets of $1 billion or more; - U.S. government securities -- issued or guaranteed as to principal by the U.S. government, its agencies or its instrumentalities; - insured certificates of deposit -- of banks and saving institutions having assets of less than $1 billion; and - repurchase agreements -- which may be viewed as a type of secured lending by the Portfolio.
2 The Portfolio may purchase debt obligations that have fixed, variable or floating rates of interest. The interest rates payable on variable rate or floating rate obligations may fluctuate based upon changes in market rates. The Portfolio attempts to balance its objectives of high income, capital preservation and liquidity by investing in securities of varying maturities and risks. The Portfolio does not, however, invest in securities that mature in more than one year from the date of purchase. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. Principal risks of investing in the Portfolio are associated with its debt obligation investments. All debt obligations, such as bonds, are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general level of interest rates. The Investment Manager actively manages the Portfolio's assets to reduce the risk of losing any principal investment as a result of credit or interest rate risks. The Portfolio's assets are reviewed to maintain or improve creditworthiness. In addition, federal regulations require money market funds to invest only in debt obligations of high quality and short maturities, and repurchase agreements with respect to such obligations. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. An investment in the Portfolio is not a bank deposit and is not guaranteed or insured by the FDIC or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, if it is unable to do so, it is possible to lose money by investing in the Portfolio. 3 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table shows the average annual returns of the Portfolio's Class X shares over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Money Market Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 7.93% '91 5.70% '92 3.43% '93 2.75% '94 3.81% '95 5.66% '96 5.11% '97 5.23% '98 5.18% '99 4.80%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 1.94% (quarter ended March 31, 1990) and the lowest return for a calendar quarter was 0.66% (quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ----------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS ----------------------------------------------------------------------------- Money Market Portfolio 4.80% 5.20% 4.95% -----------------------------------------------------------------------------
4 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income rather than rise in value. [End Sidebar] THE SHORT-TERM BOND PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Short-Term Bond Portfolio seeks to provide a high level of current income consistent with the preservation of capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in bonds issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities (including zero coupon securities), and investment grade corporate and other types of bonds. In selecting portfolio investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers both domestic and international economic developments, interest rate trends and other factors and seeks to maintain an overall weighted average maturity for the Portfolio of less than three years. MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government securities in which the Portfolio may invest are mortgage-backed securities. One type of mortgage-backed security, in which the Portfolio may invest, is a mortgage pass-through security. These securities represent a participation interest in a pool of residential mortgage loans originated by U.S. Governmental or private lenders such as banks. They differ from conventional debt securities, which provide for periodic payment of interest in fixed amounts and principal payments at maturity or on specified call dates. Mortgage pass-through securities provide for monthly payments that are a "pass-through" of the monthly interest and principal payments made by the individual borrowers on the pooled mortgage loans. Mortgage pass-through securities may be collateralized by mortgages with fixed rates of interest or adjustable rates. In addition, the Portfolio may invest up to 25% of its assets in investment grade fixed-income securities issued by foreign governments or corporations. The Portfolio's investments also may include "Rule 144A" fixed-income securities, which are subject to resale restrictions. Up to 5% of the Portfolio's assets may be invested in fixed-income securities rated lower than investment grade, or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. Principal risks of investing in the Portfolio are associated with the Portfolio's investments in fixed-income securities. These risks are credit risk and interest rate risk. Credit risk is the possibility that the issuer of a security will be unable to make 5 interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. There are also particular risks associated with the Portfolio's investments in mortgage-backed securities. For example mortgage-backed securities are subject to prepayment risk and in some cases may be more volatile and less liquid than other traditional types of debt securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio commenced operations on May 3, 1999 and prior to the date of this PROSPECTUS did not have a full calendar year of performance to report. 6 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income. [End Sidebar] THE QUALITY INCOME PLUS PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Quality Income Plus Portfolio seeks as a primary objective to provide a high level of current income by investing primarily in U.S. government securities and other fixed-income securities. As a secondary objective the Portfolio seeks capital appreciation but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in (i) U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, (ii) debt securities (including zero coupon securities), rated at the time of purchase within the three highest bond rating categories by Moody's or S&P or if not rated determined to be of comparable quality by the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., and (iii) Yankee government bonds rated at the time of purchase within the three highest rating categories of Moody's or S&P or if not rated determined to be of comparable quality by the Investment Manager. Yankee government bonds are U.S. dollar denominated bonds issued by foreign government agencies or instrumentalities (no more than 20% of the Portfolio's assets may be invested in Yankee government bonds). The Portfolio is not limited as to the maturities of the U.S. Government and other debt securities in which it may invest. In making investment decisions for the Portfolio, the Investment Manager considers both domestic and international economic developments, interest rate trends and other factors. The Investment Manager evaluates technical considerations such as the relative supply of and demand for corporate notes and U.S. Treasury and agencies issues before it decides upon an asset allocation. Similarly, the assessment of the strength of individual companies that issue corporate debt and the overall country risk of sovereign debt obligations contribute to the decision-making process. MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government securities in which the Portfolio may invest are mortgage-backed securities. One type of mortgage-backed security, in which the Portfolio may invest, is a mortgage pass-through security. These securities represent a participation interest in a pool of residential mortgage loans originated by U.S. Governmental or private lenders such as banks. They differ from conventional debt securities, which provide for periodic payment of interest in fixed amounts and principal payments at maturity or on specified call dates. Mortgage pass-through securities provide for monthly payments that are a "pass-through" of the monthly interest and principal payments made by the individual borrowers on the pooled mortgage loans. Mortgage pass-through securities may be collateralized by mortgages with fixed rates of interest or adjustable rates. 7 BORROWING. In seeking to increase income, the Portfolio may borrow to purchase securities. Such borrowing may not exceed 25% of the Portfolio's total assets. OTHER INVESTMENTS. The Portfolio may invest up to 15% of its assets in Yankee corporate bonds which are rated at the time of purchase within the three highest grades as determined by Moody's or S&P or which, if not rated, are of comparable quality as determined by the Investment Manager. Yankee corporate bonds are U.S. dollar denominated debt securities issued by foreign companies. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with the Portfolio's investments in fixed-income securities. These risks are credit risk and interest rate risk. Credit risk is the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. There are also particular risks associated with the Portfolio's investments in mortgage-backed securities. For example mortgage-backed securities are subject to prepayment risk and in some cases may be more volatile and less liquid than other traditional types of debt securities. The Portfolio may borrow money to purchase securities. To the extent that the Portfolio engages in such practice it may be leveraged. Leveraging generally exaggerates the effect on net asset value of any increase or decrease in the market value of the Portfolio's investments. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 8 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Quality Income Plus Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 6.84% '91 18.75% '92 8.26% '93 12.99% '94 -6.63% '95 24.30% '96 1.56% '97 11.09% '98 8.67% '99 -4.32%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 8.07% (quarter ended June 30, 1995) and the lowest return for a calendar quarter was -4.83% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS -------------------------------------------------------------------------------- Quality Income Plus Portfolio -4.32% 7.84% 7.77% -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(1) -0.82% 7.73% 7.70% --------------------------------------------------------------------------------
(1) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S. Government agency and Treasury securities, investment grade corporate debt securities, agency mortgage-backed securities and asset-backed securities. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 9 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income. [End Sidebar] THE HIGH YIELD PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The High Yield Portfolio seeks as a primary objective to provide a high level of current income by investing in a diversified portfolio consisting principally of fixed- income securities, which may include both non-convertible and convertible debt securities and preferred stocks. As a secondary objective the Portfolio will seek capital appreciation, but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in fixed-income securities (including zero coupon securities) rated Baa or lower by Moody's or BBB or lower by S&P or in nonrated securities considered by the Investment Manager to be appropriate investments for the Portfolio. These securities are commonly known as "junk bonds." They may also include "Rule 144A" securities, which are subject to resale restrictions. There are no minimum quality ratings for investments. In making investment decisions the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers an issuer's creditworthiness, economic developments, interest rate trends and other factors it deems relevant. In evaluating an issuer's creditworthiness the Investment Manager relies principally on its own analysis. A security's credit rating is simply one factor that may be considered by the Investment Manager in this regard. In addition to junk bonds, the Portfolio may invest in the following: - Higher rated fixed-income securities -- The Portfolio may invest in securities rated higher than Baa or BBB (or if not rated, determined to be of comparable quality) when the Investment Manager believes that such securities may produce attractive yields. - Foreign securities -- The Portfolio may invest up to 20% of its assets in securities issued by foreign governments and other foreign issuers (including American depository receipts or other similar securities convertible into securities of foreign issuers) but not more than 10% of its assets in these securities may be denominated in foreign currencies. - Unit Offerings -- The Portfolio may purchase units which combine debt securities with equity securities and/or warrants. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investments in junk bonds. Junk bonds are subject to greater risk of loss of income and principal than higher rated securities. The prices of junk bonds have been found generally to be less sensitive to changes in prevailing interest rates than higher rated securities but are more 10 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] likely to be sensitive to adverse economic changes or individual corporate developments. In addition, all fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the High Yield Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 -25.54% '91 58.14% '92 18.35% '93 24.13% '94 -2.47% '95 14.93% '96 11.98% '97 11.87% '98 -6.20% '99 -1.33%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 27.00% (quarter ended March 31, 1991) and the lowest return for a calendar quarter was -15.93% (quarter ended December 31, 1990).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS -------------------------------------------------------------------------------- High Yield Portfolio -1.33% 5.91% 8.44% -------------------------------------------------------------------------------- Lehman Brothers High Yield Index(1) 2.39% 9.31% 10.72% --------------------------------------------------------------------------------
(1) The Lehman Brothers High Yield Index tracks the performance of all below investment grade securities which have at least $100 million in outstanding issuance, are greater than one year to maturity and are issued in fixed-rate U.S. dollar denominations. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 11 THE UTILITIES PORTFOLIO [SIDEBAR] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Utilities Portfolio seeks both capital appreciation and current income. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in the securities of companies engaged in the utilities industry. These companies are involved in various aspects of the industry, such as communications, and gas and electric energy, but they do not include public broadcasting companies. A company will be considered engaged in the utilities industry if it derives at least 50% of its revenues or earnings from that industry or it devotes at least 50% of its assets to activities in that industry. These may include companies involved in, among other things, telecommunications, computers and other new or emerging technologies, gas and electric energy, water distribution, the Internet and Internet related services. The companies may be traditionally regulated public utilities or fully or partially deregulated utility companies as well as unregulated utility companies. The Portfolio's "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., will shift the Portfolio's assets between different segments of the utilities industry and between common stock, other equity securities and investment grade fixed-income securities based on its view of prevailing market, economic and financial conditions. The Portfolio does not have any set policies to concentrate its assets in any particular segment of the utilities industry or any particular type of security. However, the Portfolio's policy to concentrate its assets in the utilities industry is fundamental, and may not be changed without shareholder approval. In selecting common stock and other equity securities, the Investment Manager considers earnings and dividend growth, book value, dividend discount and price/earnings relationships. In addition, the Investment Manager makes continuing assessments of management, the prevailing regulatory framework and industry trends. Computer-based equity selection models also may be used. If the Investment Manager believes favorable conditions for capital growth of equity securities are not prevalent at a particular time, it may allocate the Portfolio's assets predominantly or exclusively to debt securities with the aim of obtaining current income and thus benefitting long-term growth of capital. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities and in real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. 12 [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. The Portfolio invests primarily in securities of companies in the utilities industry. The Portfolio's investments in the utilities industry are impacted by a host of risks particular to that industry. Changing regulation constitutes one of the key industry-specific risks for the Portfolio. State and other regulators monitor and control utility revenues and costs, and therefore may limit utility profits and dividends paid to investors. Regulatory authorities also may restrict a company's access to new markets, thereby diminishing the company's long-term prospects. Individual sectors of the utility market are subject to additional risks. These risks apply to all utility companies -- regulated, fully or partially deregulated and unregulated. For example, telecommunications companies have been affected by technological development leading to increased competition, as well as changing regulation of local and long-distance telephone service and other telecommunications businesses. Certain telecommunications companies have not benefitted from the new competitive climate. Electric utilities may incur unexpected increases in fuel and other operating costs. They are adversely affected when long-term interest rates rise. Long-term borrowings are used to finance most utility investment and rising interest rates lead to higher financing costs and reduced earnings. There are also the considerable costs associated with environmental compliance, nuclear waste clean-up, and safety regulation. Increasingly, regulators are calling upon electric utilities to bear these added costs, and there is a risk that these costs will not be fully recovered through an increase in revenues. Among gas companies, there has been a move to diversify into oil and gas exploration and development, making investment return more sensitive to energy prices. In the case of the water utility sector, the industry is highly fragmented, and most water supply companies find themselves in mature markets, although upgrading of fresh water and waste water systems is an expanding business. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. The Portfolio's investment in fixed-income securities are subject to credit risk and interest rate risk. Credit risk refers to a possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debts. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. 13 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 9 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Utilities Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1991 20.56% '92 12.64% '93 15.69% '94 -9.02% '95 28.65% '96 8.68% '97 27.15% '98 23.76% '99 12.71%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 12.58% (quarter ended December 31, 1997) and the lowest return for a calendar quarter was -8.19% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------ LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90) ------------------------------------------------------------------------------ Utilities Portfolio 12.71% 19.92% 14.25% ------------------------------------------------------------------------------ S&P 500 Index(1) 21.04% 28.54% 19.19% ------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 14 [Sidebar] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE INCOME BUILDER PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Income Builder Portfolio seeks as a primary objective reasonable income. Growth of capital is the secondary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in income-producing equity securities, including common stock, preferred stock and convertible securities. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., uses a value-oriented style in the selection of securities. Investments are normally made primarily in (i) common stocks of large capitalization companies with a record of paying dividends and which in the opinion of the Investment Manager have the potential for maintaining dividends, (ii) preferred stock and (iii) securities convertible into common stocks of small and midcap companies -- including synthetic and enhanced convertibles. The Portfolio's investments may also include "Rule 144A" securities, which are subject to resale restrictions. The Investment Manager follows a "bottom-up" approach in the selection of convertible securities for the Portfolio. Beginning with a universe of about 500 companies, the Investment Manager narrows the focus to small and midcap companies and reviews the issues to determine if the convertible is trading with the underlying equity security. The yield of the underlying equity security is evaluated and company fundamentals are studied to evaluate cash flow, risk/reward balance, valuation and the prospects for growth. The Portfolio may invest up to 25% of its assets in "enhanced" convertible securities. Enhanced convertible securities offer holders the opportunity to obtain higher current income than would be available from a traditional equity security issued by the same company, in return for reduced participation or a cap on appreciation in the underlying common stock of the issuer which the holder can realize. In addition, in many cases, enhanced convertible securities are convertible into the underlying common stock of the issuer automatically at maturity, unlike traditional convertible securities which are convertible only at the option of the security holder. The Portfolio may invest up to 10% of its assets in "synthetic" convertible securities. Unlike traditional convertible securities whose conversion values are based on the common stock of the issuer of the convertible security, "synthetic" convertible securities are preferred stocks or debt obligations of an issuer which are combined with an equity component whose conversion value is based on the value of the common stock of a different issuer or a particular benchmark (which may include a foreign issuer or basket of foreign stocks, or a company whose stock is not yet publicly traded). In many cases, "synthetic" convertible securities are not convertible prior to maturity, at which time the value of the security is paid in cash by the issuer. 15 The Portfolio may invest up to 20% of its assets in fixed-income securities rated lower than investment grade by S&P or Moody's (but not below B) or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). The 20% limitation is not applicable to convertible securities. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities and investment grade fixed-income securities (including zero coupon securities), common stocks that do not pay a regular dividend and real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investment in common stocks. In particular the prices of common stocks can fluctuate widely in response to activities specific to the issuer as well as general market, economic and political conditions. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. In addition, because the convertible securities in which the Portfolio invests are convertible into the common stocks of small and midcap companies, the Portfolio is subject to the specific risks associated with investing in small and midcap companies. Investments in small and medium capitalization companies involve greater risk of volatility than is customarily associated with investments in more established companies as well as certain other additional risks. There are also special risks associated with the Portfolio's investments in "enhanced" and "synthetic" convertible securities. These securities may be more volatile and less liquid than traditional convertible securities. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 16 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 2 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Income Builder Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1998 3.21% '99 7.06%
Year-to-date total return as of September 30, 2000 was %. During the period shown in the bar chart, the highest return for a calendar quarter was 10.65% (quarter ended June 30, 1999) and the lowest return for a calendar quarter was -10.46% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 1/21/97) ---------------------------------------------------------------------- Income Builder Portfolio 7.06% 10.81% ---------------------------------------------------------------------- S&P 500 Index(1) 21.04% 25.80% ----------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 17 THE DIVIDEND GROWTH PORTFOLIO [SIDEBAR] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Dividend Growth Portfolio seeks to provide reasonable current income and long term growth of income and capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will invest at least 70% of its total assets in common stock of companies with a record of paying dividends and the potential for increasing dividends. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., initially employs a quantitative screening process in an attempt to develop a number of common stocks which are undervalued and which have a record of paying dividends. The Investment Manager then applies qualitative analysis to determine which stocks it believes have the potential to increase dividends and, finally, to determine whether any of the stocks should be added to the Portfolio. The Investment Manager attempts to avoid investment in speculative securities or those with speculative characteristics. The Portfolio may invest up to 30% of its assets in convertible securities, U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and investment grade fixed-income securities (including zero coupon securities). The Portfolio may also invest any amount of its assets in foreign securities (including depository receipts) that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investments in common stock. In particular the prices of common stock may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 18 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 9 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Dividend Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1991 27.76% '92 8.16% '93 14.34% '94 -3.27% '95 36.38% '96 23.96% '97 25.61% '98 14.28% '99 -2.39%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 16.92% (quarter ended June 30, 1997) and the lowest return for a calendar quarter was -11.00% (quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90) -------------------------------------------------------------------------------- Dividend Growth Portfolio -2.39% 18.82% 13.04% -------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 19.19% --------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 19 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE CAPITAL GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Capital Growth Portfolio seeks long term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., utilizes a two-stage computerized screening process designed to find companies that demonstrate a history of consistent growth in earnings and revenues over the past several years, and have solid future earnings growth characteristics and attractive valuations. Dividend income is not a consideration in this stock selection process. Companies meeting these requirements are potential candidates for investment by the Portfolio. The Investment Manager may modify the screening process and/or may utilize additional or different screening processes in connection with the Portfolio's investments. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities, investment grade fixed-income securities (including zero coupon securities), convertible securities, unit offerings involving a combination of a debt security and a convertible security and/or warrant and real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stock. In particular the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 20 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 8 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares withthose of a broadmeasure of marketperformance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Capital Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1992 1.64% '93 -6.99% '94 -1.28% '95 32.92% '96 11.55% '97 24.54% '98 19.63% '99 33.29%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 27.65% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -13.95% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------ LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91) ------------------------------------------------------------------------------ Capital Growth Portfolio 33.29% 24.11% 15.34% ------------------------------------------------------------------------------ S&P 500 Index(1) 21.04% 28.54% 19.62% ------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 21 [Sidebar] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE GLOBAL DIVIDEND GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Global Dividend Growth Portfolio seeks to provide reasonable current income and long term growth of income and capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in dividend paying equity securities issued by issuers located in various countries around the world. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., seeks investments primarily in common stock of companies with a record of paying dividends and potential for increasing dividends. The Portfolio invests in at least three separate countries. The percentage of assets invested in particular geographic sectors will shift from time to time in accordance with the judgement of the Investment Manager. Up to 35% of the Portfolio's assets may be invested as follows: - Convertible securities, U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, fixed-income securities issued by foreign governments and international organizations and investment grade debt securities (including zero coupon securities). - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of Investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the price of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. Another principal risk relates to the Portfolio's investments in foreign securities. In particular, foreign security investments may be adversely affected by changes in currency exchange rates. In addition, investments in foreign securities may be adversely affected by among other things political, social and economic developments abroad. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 22 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 5 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Global Dividend Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1995 22.04% '96 17.59% '97 12.04% '98 12.53% '99 14.65%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 17.14% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -12.43% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94) ------------------------------------------------------------------------------- Global Dividend Growth Portfolio 14.65% 15.71% 13.33% ------------------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 19.76% 16.79% -------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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. 23 [Sidebar] CAPITAL APPRECIATION An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE EUROPEAN GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The European Growth Portfolio seeks to maximize the capital appreciation of its investments. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in securities issued by issuers located in European countries. A company is considered located in Europe if (i) it is organized under the laws of a European country and has a principal office in a European country; (ii) it derives at least 50% of its total revenue from business in Europe; or (iii) the company's equity securities are traded principally on a stock exchange in Europe. The principal countries in which the Portfolio invests are France, the United Kingdom, Germany, the Netherlands, Spain, Sweden, Switzerland and Italy. The Portfolio invests in at least three separate countries. The Portfolio generally invests principally in equity securities (which may include depository receipts or convertible securities) but may also invest without limitation in fixed-income securities issued or guaranteed by European governments when the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., or the "Sub- Advisor," Morgan Stanley Dean Witter Investment Management Inc., determine such investments to be appropriate. The Investment Manager and the Sub-Advisor generally invest Portfolio assets in companies they believe have a high rate of earnings growth potential. They also select securities, which in their view, possess, both on an absolute basis and as compared with other securities around the world, attractive price/earnings, price/ cash flow and price/revenue ratios. The Portfolio may invest up to 35% of its assets as follows: - Equity securities issued by non-European issuers, and government and convertible securities issued by non-European governmental or private issuers. - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at the current price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and securities it intends to purchase and the currencies in which they are denominated. The Portfolio may invest up to 5% of its assets in put and call options with respect to foreign currencies. The Portfolio may also purchase and sell stock index futures contracts and options thereon. Stock index futures and options thereon may be used to facilitate trading, to increase the Portfolio's market exposure or to seek to protect against an increase in the prices of securities that may be purchased. The Portfolio may invest in warrants and acquire warrants attached to other securities. 24 [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk factor associated with investment in the Portfolio relates to the Portfolio's investments in Europe. In particular, adverse political, social or economic developments in Europe, or in a particular European country, could cause a substantial decline in the value of the Portfolio. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. The conversion to a single European currency by many European countries could potentially adversely affect the value and/or increase the volatility of the Portfolio's investments. In addition, the Portfolio is subject to the risks associated with foreign securities generally. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. In addition, the Portfolio's investments in fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common and fixed-income securities. The performance of the Portfolio also will depend on whether the Sub-Advisor is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 25 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 8 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the European Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1992 3.99% '93 40.88% '94 8.36% '95 25.89% '96 29.99% '97 16.07% '98 23.96% '99 29.11%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 25.18% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -15.72% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------ LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91) ------------------------------------------------------------------------------ European Growth Portfolio 29.11% 24.90% 19.68% ------------------------------------------------------------------------------ Morgan Stanley Capital International World Index(1) 24.93% 19.76% 13.95% ------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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. 26 [Sidebar] CAPITAL APPRECIATION An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE PACIFIC GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Pacific Growth Portfolio seeks to maximize the capital appreciation of its investments. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks (including depository receipts) and other securities of companies which are (i) organized under the laws of and have a principal place of business in Asia, Australia or New Zealand or (ii) derives at least 50% of their total revenues from business in such areas. The principal Asian countries include: Japan, Malaysia, Singapore, Hong Kong, Thailand, the Philippines, India, Indonesia, Taiwan and South Korea. The Portfolio's assets are invested in at least three countries. The Portfolio may invest more than 25% of its assets in Japan, Hong Kong, South Korea and Taiwan. Thus, the investment performance of the Portfolio may be subject to the social, political and economic events occurring in these countries to a greater extent than other countries. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., and the "Sub-Advisor," Morgan Stanley Dean Witter Investment Management Inc., generally invest Portfolio assets in companies they believe have a high rate of earnings growth potential. They also select securities, which in their view, possess, both on an absolute basis and as compared with other securities around the world, attractive price/earnings, price/cash flow and price/revenue ratios. The Portfolio generally invests principally in equity securities but may also invest without limitation in fixed-income obligations issued or guaranteed by an Asian country or Australia or New Zealand when the Investment Manager or the Sub-Advisor determine such investments to be appropriate. The Portfolio may invest up to 35% of its assets as follows: - Equity, fixed-income or convertible securities (including zero coupon securities) of companies located anywhere in the world, including the United States. - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at the current price with a delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and securities it intends to purchase and the currencies in which they are denominated. The Portfolio may invest up to 5% of its assets in put and call options with respect to foreign currencies. The Portfolio may invest up to 10% of its assets in securities issued by other investment companies. The Investment Manager and/or Sub-Advisor may view these investments as necessary or advisable to participate in certain foreign markets where foreigners are prohibited from investing directly in the securities of individual companies without regulatory approval. 27 The Portfolio may invest in warrants and acquire warrants attached to other securities. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio relates to the Portfolio's investments in the Pacific region. In particular, adverse political, social or economic developments in the Pacific region or in a particular Pacific country could cause a substantial decline in the value of the Portfolio. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. In addition, the Portfolio is subject to the risks associated with foreign securities generally. These risks include among other things the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio may invest a substantial portion of its assets in developing countries. These investments carry greater risks than those associated with investment in more developed countries. In addition, the Portfolio's investments in fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The performance of the Portfolio also will depend on whether the Sub-Advisor is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 28 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 5 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Pacific Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1995 5.74% '96 3.89% '97 -37.70% '98 -10.40% '99 66.09%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 25.61% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -27.57% (quarter ended December 31, 1997).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------------ LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94) ------------------------------------------------------------------------------------ Pacific Growth Portfolio 66.09% 0.37% -0.87% ------------------------------------------------------------------------------------ Morgan Stanley Capital International World Index(1) 24.93% 19.76% 16.79% ------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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. 29 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price. [End Sidebar] THE EQUITY PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Equity Portfolio seeks as a primary objective growth of capital through investments in common stocks of companies believed by the Investment Manager to have potential for superior growth. As a secondary objective the Equity Portfolio seeks income but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in equity securities and securities convertible into equity securities. In selecting investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., may employ valuation models based on various economic and market indicators. The Investment Manager currently utilizes a process, known as sector rotation, that emphasizes industry selection over individual company selection. The Investment Manager invests in those industries that it believes will have the strongest relative earnings growth potential given the projected economic outlook. After selecting the Portfolio's target industries, the Investment Manager then selects specific companies within those industries whose prospects are deemed attractive after assessing company fundamentals and valuation screens. The Investment Manager utilizes a sector rotation process designed to respond to changing economic cycles by proactively investing in industries that the Investment Manager believes to be positioned to benefit from the current phase of the economic cycle. First, the Investment Manager attempts to identify at what stage of the business cycle the economy is in and which industries have historically outperformed the overall market during that stage of the cycle. To accomplish that task, the Investment Manager establishes an economic forecast based on its short term and long term views of the domestic and global economic cycles. As part of this process, the Investment Manager will attempt to identify secular trends, such as shifting demographics or technological developments, that could add clarity to its analysis. Also considered are competitive industry variables, such as supply and demand, pricing trends and new product cycles. The Portfolio may invest up to 35% of its assets in corporate debt securities (including zero coupon securities) rated Aa or better by Moody's or AA or better by S&P, U.S. Government securities, issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and preferred stocks. The Portfolio may invest in securities of Canadian issuers registered under the Securities Exchange Act of 1934 or American Depository Receipts. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. 30 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stock. In particular the price of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. Stocks of small and medium capitalization companies in which the Portfolio may invest pose greater risk of volatility than is customarily associated with larger established companies as well as certain other additional risks. Another principal risk relates to the Portfolio's investments in fixed-income securities. Fixed-income securities involve credit risk and interest rate risk. Credit risk relates to the possibility that an issuer could default on its obligation to pay principal and/or interest. Interest rate risk relates to the possibility that the value of securities may be adversely affected by fluctuations in interest rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Equity Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 -3.62% '91 59.05% '92 0.05% '93 19.72% '94 -4.91% '95 42.53% '96 12.36% '97 37.43% '98 30.45% '99 58.59%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 38.61% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -15.83% (quarter ended September 30, 1990).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ----------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS ----------------------------------------------------------------------------- Equity Portfolio 58.59% 35.42% 23.04% ----------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 18.20% -----------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 31 [Sidebar] TOTAL RETURN An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE S&P 500 INDEX PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The S&P 500 Index Portfolio seeks to provide investment results that before expenses, correspond to the total return (I.E., the combination of capital changes and income) of the Standard & Poor's-Registered Trademark- 500 Composite Stock Price Index. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 80% of its total assets in common stocks included in the S&P 500 Index. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., "passively" manages the Portfolio's assets by investing in stocks in approximately the same proportion as they are represented in the S&P 500 Index. For example, where the common stock of a specific company represents five percent of the Index, the Investment Manager typically will invest five percent of the Portfolio's assets in that stock. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies representing a significant portion of the market value of all common stocks publicly traded in the United States. The Portfolio may purchase and sell stock index futures to simulate investment in the S&P 500. Generally stock index futures may be employed to provide liquidity necessary to meet anticipated redemptions or for day-to-day operating purposes. The Portfolios may invest in securities referred to as SPDRs (known as "spiders") that are designed to track the S&P 500 Index. SPDRs represent an ownership interest in the SPDR Trust, which holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the S&P 500 Index. SPDRs trade on the American Stock Exchange like shares of common stock. The Portfolio may invest up to 10% of its total assets in the aggregate in SPDRs. ----------------------------------------- "Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the S&P 500 Index Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in the Portfolio. (Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations of liabilities on behalf of S&P.) [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. 32 A principal risk of investing in the Portfolio is associated with its common stock investments. In general, stock values fluctuate in response to activities specific to the issuer, as well as general market, economic and political conditions. Stock prices can fluctuate widely in response to these factors. Another risk of investing in the Portfolio arises from its operation as a "passively" managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Portfolio. The Portfolio will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the Investment Manager will not sell the Portfolio's securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Portfolio shareholders who sell (redeem) Portfolio shares. The performance of the S&P 500 is a hypothetical number which does not take into account brokerage commissions and other transaction costs, custody and other costs of investing which will be borne by the Portfolio and any incremental operating costs borne by the Portfolio (E.G., management fee, transfer agency and accounting costs). Accordingly, the performance of the Portfolio may not correlate directly with the performance of the S&P 500 Index. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 33 [Sidebar] ANNUAL TOTAL RETURNS This chart shows the performance of the Portfolio's Class X shares over the past calendar year. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the S&P 500 Index Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1999 20.23%
Year-to-date total return as of September 30, 2000 was %. During the period shown in the bar chart, the highest return for a calendar quarter was 14.69% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -6.32% (quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 5/18/98) ---------------------------------------------------------------------- S&P 500 Index Portfolio 20.23% 20.29% ---------------------------------------------------------------------- S&P 500 Index(1) 21.04% 20.77% ----------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 34 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Competitive Edge "Best Ideas" Portfolio seeks long-term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 80% of its total assets in common stock of companies included in the "Best Ideas" subgroup of "Global Investing: The Competitive Edge," a research compilation assembled by Morgan Stanley Dean Witter ("MSDW") Equity Research -- and other securities selected by the Portfolio's "Investment Manager," Morgan Stanley Dean Witter Advisors Inc. THE COMPETITIVE EDGE "BEST IDEAS" LIST. MSDW Equity Research is recognized as a world leader in global financial research and provides comprehensive research and in-depth knowledge about general markets and specific companies from around the world. It believes that companies with a sustainable competitive edge in the operations of their businesses are worth more than their weaker competitors. Through its ongoing research and analysis, MSDW Equity Research has developed and undertaken a comprehensive study which it calls "Global Investing: The Competitive Edge" which represents the list of those companies. MSDW Equity Research group's research analysts and strategists presently evaluate approximately 2,100 companies in 21 industry sectors worldwide. An initial comprehensive review was conducted in October 1996 and identified 238 of these companies as having a long-term sustainable competitive advantage in the global arena (the "Competitive Edge List"). The criteria used to select companies that have a global competitive advantage vary according to industry sector. The Competitive Edge List is currently updated quarterly. From the Competitive Edge List, MSDW Equity Research then assembles a subgroup of approximately 40 companies which it considers at that time to be the most attractive investment opportunities of the companies identified as having a long-term sustainable competitive advantage in the global arena (the "Competitive Edge 'Best Ideas' List"). The Competitive Edge "Best Ideas" List is updated continuously. It is the intention of the Investment Manager that generally at least 1% and not more than 5% of the Portfolio's assets will be invested in each company on the Competitive Edge "Best Ideas" List. The Portfolio will purchase any security which is added to the Competitive Edge "Best Ideas" List, and generally will sell a security which is eliminated from the Competitive Edge "Best Ideas" List as soon as practicable after the Competitive Edge "Best Ideas" List has been updated by MSDW Equity Research. Accordingly, securities may be purchased and sold by the Portfolio when such purchases and sales would not be made under traditional investment criteria. The Portfolio may at times purchase securities that are not included on the Competitive Edge "Best Ideas" List but are on the Competitive Edge List or, in the event that the Investment Manager believes that there are no suitable securities on the Competitive Edge List, the Portfolio may purchase securities outside the list. Securities that are not on the Competitive Edge "Best Ideas" List generally will not exceed 35% of the Portfolio's assets. 35 The Portfolio's investments may include forward currency contracts which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio invests principally in securities included on the Competitive Edge "Best Ideas" List which currently consists of 40 companies. As a result of the small universe of stocks in which the Portfolio invests it may be subject to greater risks than would a more diversified company. At times the Portfolio may be restricted in its ability to purchase or sell securities on the Competitive Edge "Best Ideas" List as a result of activities of affiliates of the Investment Manager. In addition, performance of the securities included in the List cannot be used to predict the performance of the Portfolio, an actively managed mutual fund. The Competitive Edge "Best Ideas" List is not compiled with any particular client or product in mind and is not, and will not be, compiled with the Portfolio in mind. When selecting the companies for the list, MSDW Equity Research does not take into account country or currency risks, and country or industry sector diversification concerns. MSDW publishes other lists of recommended securities that could be appropriate for Portfolio investors but which will not be used by the Investment Manager for choosing securities for the Portfolio. MSDW Equity Research could at any time cease publishing the Competitive Edge "Best Ideas" List. In that event the Board of Trustees will make a determination of how to proceed in the best interest of shareholders of the Portfolio consistent with the Portfolio's investment objective. The activities of affiliates of the Investment Manager, including but not limited to Dean Witter Reynolds Inc. or Morgan Stanley & Co. Incorporated, may from time to time limit the Portfolio's ability to purchase or sell securities on the Competitive Edge "Best Ideas" List. In addition, the List is available to other clients of MSDW and its affiliates, including the Investment Manager, as well as the Portfolio. The list is also subject to restrictions related to MSDW's other businesses, and particular securities may or may not be on the list due to other business concerns of, or legal restrictions applicable to, MSDW. As a diversified financial services firm, with three primary businesses -- securities, asset management and credit services -- MSDW provides a wide range of financial services to issuers of securities and investors in securities. MSDW and others 36 [Sidebar] ANNUAL TOTAL RETURNS This chart shows the performance of the Portfolio's Class X shares over the past calendar year. [End Sidebar] associated with it may create markets or specialize in, have positions in and affect transactions in securities of companies included on its research lists and may also perform or seek to perform investment banking services for those companies. Within the last three years MSDW may have managed or co-managed public security offerings for companies included on their research lists, and they or their employees may have a long or short position on holdings in the securities, or options on securities, or other related investments of companies included on their research lists. The Portfolio may invest a substantial portion of its assets in foreign securities. Foreign securities investments may be adversely affected by changes in currency exchange rates. In addition, investment in foreign securities may be adversely affected by among other things political, social and economic developments abroad. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Competitive Edge "Best Ideas" Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1999 26.88% Year-to-date total return as of September 30, 2000 was %. During the period shown in the bar chart, the highest return for a calendar quarter was 18.60% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was 0.10% (quarter ended September 30, 1999). 37 [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]
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 5/18/98) ---------------------------------------------------------------------- Competitive Edge "Best Ideas" Portfolio 26.88% 14.46% ---------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 20.93% ----------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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. 38 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE AGGRESSIVE EQUITY PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Aggressive Equity Portfolio seeks long-term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks and other equity securities of companies that the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., believes offer the potential for superior earnings growth. The Portfolio's other equity securities may include preferred stocks, securities convertible into common stock, rights and warrants. No more than 25% of the Portfolio's assets may be invested in foreign equity or fixed-income securities denominated in a foreign currency and traded primarily in non-U.S. markets. The Investment Manager utilizes a process, known as sector rotation, that emphasizes industry selection over individual company selection. The Investment Manager invests in those industries that it believes will have the strongest relative earnings growth potential given the projected economic outlook. After selecting the Portfolio's target industries, the Investment Manager selects specific companies within those industries whose prospects are deemed attractive after assessing company fundamentals and valuation screens. Company selection is based on the Investment Manager's own analysis and research reports as well as analysis from the equity research departments of recognized securities firms. The Investment Manager has no general criteria as to the market capitalization or asset size of the companies selected for investment and, accordingly, the Portfolio may invest in small and medium-sized companies in addition to larger, more established companies. The Investment Manager utilizes a sector rotation process designed to respond to changing economic cycles by proactively investing in industries that the Investment Manager believes to be positioned to benefit from the current phase of the economic cycle. First, the Investment Manager attempts to identify at what stage of the business cycle the economy is in and which industries have historically outperformed the overall market during that stage of the cycle. To accomplish that task, the Investment Manager establishes an economic forecast based on its short term and long term views of the domestic and global economic cycles. As part of this process, the Investment Manager will attempt to identify secular trends, such as shifting demographics or technological developments, that could add clarity to its analysis. Also considered are competitive industry variables, such as supply and demand, pricing trends and new product cycles. The Portfolio may invest up to 35% of its assets as follows: - (a) fixed-income securities of U.S. companies, (b) fixed-income securities of foreign companies and governments and international organizations, (c) U.S. Government securities, issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and (d) real estate investment trusts (commonly known as "REITs"). However, no more than 5% of the 39 Portfolio's assets may be invested in debt securities rated lower than investment grade, or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. - Put and call options and futures with respect to financial instruments, stock and interest rate indexes and foreign currencies (limit of 5% of its assets for the purchase of put and call options). Options and futures may be used to seek higher returns or to seek to protect against a decline in security or currency prices or an increase in prices of securities or currencies that may be purchased. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio may invest a substantial portion of its assets in securities issued by small and medium sized companies. Investment in small and medium size companies involves greater risk of volatility than is customarily associated with investment in larger established companies as well as certain other additional risks. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio commenced operations on May 3, 1999 and prior to the date of this PROSPECTUS did not have a full calendar year of performance to report. 40 [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 INFORMATION PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Information Portfolio seeks long-term capital appreciation. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks and investment grade convertible securities of companies located throughout the world that are engaged in the communications and information industry. The Portfolio normally holds common stocks and other equity securities of companies located in at least three countries, one of which is the United States. It may invest up to 50% of its assets in the securities (including depository receipts) of foreign companies; however, it will not invest more than 25% of its assets in any one foreign country. In addition, the Portfolio will not invest more than 10% of its assets in convertible securities. In deciding which securities to buy, hold or sell, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers business, economic and political conditions. A company is considered to be in the communications and information industry if it derives at least 35% of its revenues or earnings from, or devotes at least 35% of its assets to: - designing, developing, manufacturing, providing or enabling the following products and services: regular telephone service; communications equipment and services; electronic components and equipment; broadcasting; computer equipment, enabling software, mobile communications and cellular radio/paging; electronic mail and other electronic data transmission services; networking and linkage of word and data processing systems; publishing and information systems; video text and teletext; and emerging technologies combining telephone, television and/or computer systems; or - the creation, packaging, distribution, and ownership of entertainment and information programming. The Portfolio may invest up to 35% of its total assets in investment grade corporate fixed-income securities and U.S. government securities. The Portfolio's fixed-income investments may include zero coupon securities. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. 41 The Portfolio concentrates its investments in the communications and information industry. Because of this concentration, the value of the Portfolio's shares may be more volatile than that of mutual funds that do not similarly concentrate their investments. The communications and information industry may be subject to greater changes in governmental policies and governmental regulation than in many other industries in the United States and worldwide. Regulatory approval requirements, ownership restrictions and restrictions on rates of return and types of services that may be offered may materially affect the products and services of this industry. Additionally, the products and services of companies in this industry may be subject to faster obsolescence as a result of greater competition, advancing technological developments, and changing market and consumer preferences. As a result, the securities of companies in this industry may exhibit greater price volatility than those of companies in other industries. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio was recently organized and as of the date of this PROSPECTUS had no historical performance to report. 42 [Sidebar] TOTAL RETURN An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE STRATEGIST PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Strategist Portfolio seeks high total investment return through a fully managed investment policy utilizing equity, fixed-income and money market securities and the writing of covered call and put options. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., will actively allocate the Portfolio's assets among the major asset categories of equity securities, fixed-income securities and money market instruments. Assets are allocated by the Investment Manager based on among other things, its assessment of economic and market trends on different sectors of the market. There is no limit as to the percentage of assets that may be allocated to any one asset class. The Investment Manager does not, however, currently intend to write covered call or put options. Within the equity sector, the Investment Manager actively allocates funds to those economic sectors it expects to benefit from major trends and to individual stocks which it considers to have superior investment potential. Within the fixed-income sector of the market, the Investment Manager seeks to maximize the return on its investments by adjusting maturities and coupon rates as well as by exploiting yield differentials among different types of investment grade bonds, including short-term and intermediate-term bonds. Within the money market sector of the market, the Investment Manager seeks to maximize returns by exploiting spreads among short-term instruments. Securities in which the Portfolio may invest include common stocks, preferred stocks, convertible securities, investment grade debt securities (including zero coupon securities), U.S. Government securities, real estate investment trusts (commonly known as "REITs") and money market instruments. The Portfolio is not limited as to the maturities of the U.S. government securities and other debt securities in which it may invest. The Portfolio may invest up to 20% of its assets in securities issued by foreign governments and foreign private issuers but not more than 10% of its assets in securities denominated in a foreign currency. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. 43 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. [End Sidebar] A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio's investment in fixed-income securities are subject to credit risk and interest rate risk. Credit risk refers to a possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debts. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Strategist Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 1.56% '91 28.26% '92 7.24% '93 10.38% '94 3.94% '95 9.40% '96 15.02% '97 13.71% '98 26.55% '99 17.35%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 17.60% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -8.25% (quarter ended September 30, 1990). 44 [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]
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS -------------------------------------------------------------------------------- Strategist Portfolio 17.35% 16.27% 13.04% -------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 18.20% -------------------------------------------------------------------------------- Lehman Brothers Government/Corporate Bond Index(2) -2.15% 7.61% 7.65% --------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. (2) The Lehman Brothers Government/Corporate Bond Index tracks the performance of government and corporate obligations, including U.S. government agency and U.S. treasury securities and corporate and yankee bonds, with maturities of one to ten years. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. 45 ADDITIONAL INVESTMENT STRATEGY INFORMATION This section provides additional information relating to each Portfolio's principal strategies. INVESTMENT DISCRETION. In pursuing each Portfolio's investment objective, the Investment Manager has considerable leeway in deciding which investments it buys, holds or sells on a day-to-day basis - and which trading strategies it uses. For example, the Investment Manager in its discretion may determine to use some permitted trading strategies while not using others. The Sub-Advisor has a similar degree of discretion. DEFENSIVE INVESTING. Each Portfolio (other than the Money Market Portfolio and the S&P 500 Index Portfolio) may take temporary "defensive" positions in attempting to respond to adverse market conditions. Each Portfolio may invest any amount of its assets in cash or money market instruments in a defensive posture when the Investment Manager or Sub-Advisor, as the case may be, believes it advisable to do so. Although taking a defensive posture is designed to protect the Portfolio from an anticipated market downturn, it could have the effect of reducing the benefit of an upswing in the market. When a Portfolio takes a defensive position, it may not achieve its investment objective(s). INVESTMENT POLICIES. The percentage limitations relating to the composition of a Portfolio apply at the time a Portfolio acquires an investment and refer to the Portfolio's net assets, unless otherwise noted. Subsequent percentage changes that result from market fluctuations will not require a Portfolio to sell any Portfolio security. A Portfolio may change its principal investment strategies without shareholder approval; however you would be notified of any change. PORTFOLIO TURNOVER. Each Portfolio, other than the S&P 500 Index Portfolio and the Competitive Edge "Best Ideas" Portfolio, may engage in active and frequent trading of its portfolio securities. The Financial Highlights Table at the end of this PROSPECTUS shows recent portfolio turnover rates for each Portfolio (other than the Information Portfolio, which prior to the date of this PROSPECTUS had not commenced operations). 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. 46 ADDITIONAL RISK INFORMATION This section provides additional information relating to the principal risks of investing in the Portfolios. Shares of the Portfolios are not bank deposits and are not guaranteed or insured by the FDIC or any other government agency. * * * The risks set forth below are applicable to a Portfolio only to the extent the Portfolio invests in the investment described. See "The Portfolios" for a description of the investments which each Portfolio may make. FIXED-INCOME SECURITIES. All fixed-income securities are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. (Zero coupon securities are typically subject to greater price fluctuations than comparable securities that pay interest.) Accordingly, a rise in the general level of interest rates may cause the price of a Portfolio's fixed-income securities to fall substantially. As merely illustrative of the relationship between fixed-income securities and interest rates, the following table shows how interest rates affect bond prices. HOW INTEREST RATES AFFECT BOND PRICES
PRICE PER $1,000 OF A BOND IF INTEREST RATES: ------------------------------ INCREASE DECREASE -------------- -------------- BOND MATURITY COUPON 1% 2% 1% 2% ---------------------------------------------------------------------- 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 ----------------------------------------------------------------------
Coupons reflect yields on Treasury securities as of December 31, 1999. The table is not representative of price changes for mortgage-backed securities principally because of prepayments, and it is not representative of junk bonds. In addition, the table is an illustration and does not represent expected yields or share price changes of any Morgan Stanley Dean Witter mutual fund. MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have different risk characteristics than traditional debt securities. Although generally the value of fixed-income securities increases during periods of falling interest rates and decreases during periods of rising interest rates, this is not always the case with mortgage-backed securities. This is due to the fact that principal on underlying mortgages may be prepaid at any time as well as other factors. Generally, prepayments will increase during a period of falling interest rates and decrease during a period of rising interest rates. The rate of prepayments also may be influenced by economic 47 and other factors. Prepayment risk includes the possibility that, as interest rates fall, securities with stated interest rates may have the principal prepaid earlier than expected, requiring the Fund to invest the proceeds at generally lower interest rates. Investments in mortgage-backed securities are made based upon, among other things, expectations regarding the rate of prepayments on underlying mortgage pools. Rates of prepayment, faster or slower than expected by the Investment Manager, could reduce a Portfolio's yield, increase the volatility of the Portfolio and/ or cause a decline in net asset value. Certain mortgage-backed securities in which a Portfolio may invest may be more volatile and less liquid than other traditional types of debt securities. JUNK BONDS. A Portfolio's investments in securities rated lower than investment grade or if unrated of comparable quality as determined by the Investment Manager or Sub-Advisor (commonly known as "junk bonds") pose significant risks. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities. During an economic downturn or substantial period of rising interest rates, junk bond issuers and, in particular, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet their projected business goals or to obtain additional financing. In the event of a default, the Portfolio may incur additional expenses to seek recovery. The secondary market for junk bonds may be less liquid than the markets for higher quality securities and, as such, may have an adverse effect on the market prices of certain securities. The Rule 144A securities could have the effect of increasing the level of Portfolio illiquidity to the extent a Portfolio may be unable to find qualified institutional buyers interested in purchasing the securities. The illiquidity of the market may also adversely affect the ability of the Fund's Trustees to arrive at a fair value for certain junk bonds at certain times and could make it difficult for the Portfolios to sell certain securities. In addition, periods of economic uncertainty and change probably would result in an increased volatility of market prices of high yield securities and a corresponding volatility in a Portfolio's net asset value. SECURITIES RATED IN THE LOWEST INVESTMENT GRADE CATEGORY. Investments in the fixed-income securities rated in the lowest investment grade category by Moody's or S&P may have speculative characteristics and therefore changes in economic or other circumstances are more likely to weaken their capacity to make principal and interest payments than would be the case with investments in securities with higher credit ratings. FOREIGN SECURITIES. Foreign securities involve risks in addition to the risks associated with domestic securities. One additional risk is currency risk. While the price of Portfolio shares is quoted in U.S. dollars, a Portfolio generally converts U.S. dollars to a foreign market's local currency to purchase a security in that market. If the value of that local currency falls relative to the U.S. dollar, the U.S. dollar value of the foreign security will decrease. This is true even if the foreign security's local price remains unchanged. 48 Foreign securities (including depository receipts) also have risks related to economic and political developments abroad, including effects of foreign social, economic or political instability. Foreign companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, foreign accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. Finally, in the event of a default of any foreign debt obligations, it may be more difficult for the Fund to obtain or enforce a judgment against the issuers of the securities. Securities of foreign issuers may be less liquid than comparable securities of U.S. issuers and, as such, their price changes may be more volatile. Furthermore, foreign exchanges and broker-dealers are generally subject to less government and exchange scrutiny and regulation than their U.S. counterparts. The foreign securities in which certain of the Portfolios may invest (in particular the Pacific Growth Portfolio) may be issued by companies located in developing countries. Compared to the United States and other developed countries, developing countries may have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities. Prices of these securities tend to be especially volatile and, in the past, securities in these countries have offered greater potential loss (as well as gain) than securities of companies located in developed countries. SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's investments in smaller and medium sized companies carry more risk than investments in larger companies. While some of a Portfolio's holdings in these companies may be listed on a national securities exchange, such securities are more likely to be traded in the over-the-counter market. The low market liquidity of these securities may have an adverse impact on a Portfolio's ability to sell certain securities at favorable prices and may also make it difficult for a Portfolio to obtain market quotations based on actual trades, for purposes of valuing a Portfolio's securities. Investing in lesser-known, smaller and medium capitalization companies involves greater risk of volatility of a Portfolio's net asset value than is customarily associated with larger, more established companies. Often smaller and medium capitalization companies and the industries in which they are focused are still evolving and, while this may offer better growth potential than larger, more established companies, it also may make them more sensitive to changing market conditions. OPTIONS AND FUTURES. If a Portfolio invests in options and/or futures, its participation in these markets would subject the Portfolio to certain risks. The Investment Manager's or the Sub-Advisor's predictions of movements in the direction of the stock, bond, currency or interest rate markets may be inaccurate, and the adverse consequences to the Portfolio (e.g., a reduction in the Portfolio's net asset value or a reduction in the amount of income available for distribution) may leave the Portfolio in a worse position than if these strategies were not used. Other risks inherent in the use of options and futures include, for example, the possible imperfect correlation between the price of options and futures contracts and movements in the prices of the securities being hedged, and the possible absence of 49 a liquid secondary market for any particular instrument. Certain options may be over-the-counter options, which are options negotiated with dealers; there is no secondary market for these investments. FORWARD CURRENCY CONTRACTS. A Portfolio's participation in forward currency contracts also involves risks. If the Investment Manager or Sub-Advisor employs a strategy that does not correlate well with the Portfolio's investments or the currencies in which the investments are denominated, currency contracts could result in a loss. The contracts also may increase the Portfolio's volatility and may involve a significant risk. REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs pool investors funds for investments primarily in commercial real estate properties. Like mutual funds, REITs have expenses, including advisory and administration fees that are paid by its shareholders. As a result, you will absorb duplicate levels of fees when a Portfolio invests in REITs. The performance of any Portfolio REIT holdings ultimately depends on the types of real property in which the REITs invest and how well the property is managed. A general downturn in real estate values also can hurt REIT performance. 50 [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 September 30, 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 Pacific Growth and European Growth Portfolios) invest its assets, including the placing of orders for the purchase and sale of portfolio securities. The Investment Manager is a wholly- owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services. Its main business office is located at Two World Trade Center, New York, NY 10048. Each of the Pacific Growth and European Growth Portfolios has retained the Investment Manager to supervise the investment of its assets. The Investment Manager has, in turn, contracted with the Sub-Advisor - Morgan Stanley Dean Witter Investment Management Inc. - to invest each Portfolio's assets, including the placing of orders for the purchase and sale of portfolio securities. The Sub-Advisor also is a subsidiary of Morgan Stanley Dean Witter & Co. Its main business office is located at 1221 Avenue of the Americas, New York, NY 10020. 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.
MANAGEMENT FEES AS A PERCENTAGE OF AVERAGE NAME OF PORTFOLIO DAILY NET ASSETS ------------------------------------------------------------------------- The Money Market Portfolio 0.50% ------------------------------------------------------------------------- The Short-Term Bond Portfolio 0.45%(1) ------------------------------------------------------------------------- The Quality Income Plus Portfolio 0.50% ------------------------------------------------------------------------- The High Yield Portfolio 0.50% ------------------------------------------------------------------------- The Utilities Portfolio 0.64% ------------------------------------------------------------------------- The Income Builder Portfolio 0.75% ------------------------------------------------------------------------- The Dividend Growth Portfolio 0.51% ------------------------------------------------------------------------- The Capital Growth Portfolio 0.65% ------------------------------------------------------------------------- The Global Dividend Growth Portfolio 0.75% ------------------------------------------------------------------------- The European Growth Portfolio 0.95%(2) ------------------------------------------------------------------------- The Pacific Growth Portfolio 0.95%(2) ------------------------------------------------------------------------- The Equity Portfolio 0.49% ------------------------------------------------------------------------- The S&P 500 Index Portfolio 0.40%(3) ------------------------------------------------------------------------- The Competitive Edge "Best Ideas" Portfolio 0.65%(4) ------------------------------------------------------------------------- The Aggressive Equity Portfolio 0.75%(5) ------------------------------------------------------------------------- The Information Portfolio 0.75%(6) ------------------------------------------------------------------------- The Strategist Portfolio 0.50% -------------------------------------------------------------------------
(1) The Investment Manager assumed all operating expenses of the Short-Term Bond Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund from the Portfolio's commencement of operations on May 4, 1999 until November 4, 1999. As a result, the management fee for the Short-Term Bond Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.17% of average daily net assets. (2) 40% of the Investment Manager's compensation is paid to the Sub-Advisor. 51 (3) The Investment Manager has permanently undertaken to cap total expenses of the S&P 500 Index Portfolio (other than brokerage fees) at 0.50% of average daily net assets. (4) The Investment Manager assumed all operating expenses of the Competitive Edge "Best Ideas" Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund until April 30, 1999. As a result, the management fee for the Competitive Edge "Best Ideas" Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.47% of average daily net assets. (5) The Investment Manager assumed all operating expenses of the Aggressive Equity Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund from the Portfolio's commencement of operations on May 4, 1999 until November 4, 1999. As a result, the management fee for the Aggressive Equity Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.42% of average daily net assets. (6) Prior to the date of this PROSPECTUS, the Information Portfolio had not commenced operations. The management fee shown in the table is the contractual fee that the Fund has agreed to pay respecting the Portfolio pursuant to the Fund's Management Agreement with the Investment Manager. In addition, the Investment Manager has agreed to assume all operating expenses (except for brokerage fees) and waive the compensation provided in its Management Agreement until such time as the Portfolio has $50 million of net assets or until six months from the date of the commencement of the Portfolio's operations, whichever occurs first. The following individuals are primarily responsible for the day-to-day management of certain of the Portfolios of the Fund. Except as otherwise noted, each of these individuals has been a primary portfolio manager of the designated Portfolio for over five years or since the inception of the Portfolio (if less than five years) and has been a portfolio manager with the Investment Manager or the Sub-Advisor for over five years. SHORT-TERM BOND PORTFOLIO - Rochelle G. Siegel, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. QUALITY INCOME PLUS PORTFOLIO - Paula LaCosta, Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. HIGH YIELD PORTFOLIO - Peter M. Avelar, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. UTILITIES PORTFOLIO - Edward F. Gaylor, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio, and has been assisted by Ronald B. Silvestri, Vice President of the Investment Manager, since May 2000. INCOME BUILDER PORTFOLIO - Paul D. Vance, Senior Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since its inception. Mr. Avelar has been a primary portfolio manager of the Portfolio since January 1998. Catherine Manuscalco, Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since August 1999. DIVIDEND GROWTH PORTFOLIO - Mr. Vance is the primary portfolio manager of the Portfolio. CAPITAL GROWTH PORTFOLIO - Peter Hermann, Vice President of the Investment Manager, has been the primary portfolio manager of the Portfolio since May 1996. GLOBAL DIVIDEND GROWTH PORTFOLIO - Mr. Vance has been a primary portfolio manager of the Portfolio since its inception. Matthew T. Haynes, Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since May 1997. 52 EUROPEAN GROWTH PORTFOLIO - Jeremy Lodwick, a principal of the Sub-Advisor, has been the primary portfolio manager of the Portfolio since December 1998. Prior to joining the Sub-Advisor, Mr. Lodwick was a portfolio manager with Morgan Grenfell Investment Services Limited for over five years, where he was the Portfolio's primary portfolio manager from April 1994 to April 1998. PACIFIC GROWTH PORTFOLIO - Ashutosh Sinha, Principal of the Sub-Advisor, has been a primary portfolio manager of the Portfolio since November 1998. John R. Alkire, a Managing Director of the Sub-Advisor and President of Morgan Stanley Investment Advisory, Japan, has been a primary portfolio manager of the Portfolio since May 1999. Prior to joining the Sub-Advisor in June 1995, Mr. Sinha was an analyst at SBI Funds Management Ltd. (1993-1995). EQUITY PORTFOLIO - Michelle Kaufman, Senior Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since May 1996, and has been the sole primary portfolio manager of the Portfolio since December 1996. S&P 500 INDEX PORTFOLIO - Guy G. Rutherfurd, Jr., Senior Vice President of the Investment Manager, and Kevin Jung, Vice President of the Investment Manager, have been the primary portfolio managers of the Portfolio since May 1999. Prior to that date, Mr. Jung had assisted the former primary portfolio manager of the Portfolio since October 1998. Mr. Rutherfurd has been a portfolio manager with the Investment Manager since February 1997, prior to which time he was Executive Vice President and Chief Investment Officer of Nomura Asset Management (U.S.A.) Inc. (May 1992-February 1997). Mr. Jung has been a portfolio manager with the Investment Manager since September 1997, prior to which time he was a Vice President and portfolio manager with UBS Asset Management (NY) Inc. (April 1993-August 1997). COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO - Mark Bavoso, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. AGGRESSIVE EQUITY PORTFOLIO - Anita H. Kolleeny, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio and co-management is provided by Ms. Kaufman. INFORMATION PORTFOLIO - Mr. Rutherfurd and Armon Bar-Tur, Vice President of the Investment Manager, are the primary portfolio managers of the Portfolio. 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. STRATEGIST PORTFOLIO - Mr. Bavoso has been the primary portfolio manager of the Portfolio since September 1995. 53 SHAREHOLDER INFORMATION [ICON] PRICING FUND SHARES -------------------------------------------------------------------------------- The price of shares of each Portfolio called "net asset value," is based on the value of its portfolio securities. The net asset value for each Portfolio is calculated once daily at 4:00 p.m. Eastern time on each day the New York Stock Exchange is open (or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time). Shares will not be priced on days that the New York Stock Exchange is closed. The value of each Portfolio's securities (other than the Money Market Portfolio) is based on the securities' market price when available. When a market price is not readily available, including circumstances under which the Investment Manager (or, if applicable, the Sub-Advisor) determines that a security's market price is not accurate, a portfolio security is valued at its fair value, as determined under procedures established by the Fund's Board of Trustees. In these cases, the applicable Portfolio's net asset value will reflect certain portfolio securities' fair value rather than their market price. In addition, with respect to securities that are primarily listed on foreign exchanges, the value of the Portfolio's investment securities may change on days when shareholders will not be able to purchase or sell their shares. An exception to the general policy of using market prices concerns each Portfolio's short-term debt portfolio securities. Debt securities with remaining maturities of sixty days or less at the time of purchase are valued at amortized cost. However, if the cost does not reflect the securities' market value, these securities will be valued at their fair value. The Money Market Portfolio utilizes amortized cost in determining the value of its portfolio securities. The amortized cost valuation method involves valuing a debt obligation in reference to its acquisition cost rather than market forces. 54 [ICON] DISTRIBUTIONS -------------------------------------------------------------------------------- Each Portfolio passes substantially all of its earnings from income and capital gains along to its investors as "distributions." Each Portfolio earns income from stocks and/or interest from fixed-income investments. These amounts are passed along to the appropriate Portfolio investors as "income dividend distributions." Each Portfolio realizes capital gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as "capital gain distributions." Dividends from net investment income and capital gains distributions, if any, are declared and paid as follows:
NET REALIZED CAPITAL GAINS DIVIDENDS DISTRIBUTIONS ---------------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO Declared and paid on each day the New Declared and paid at least once per York Stock Exchange is open to calendar year, net short-term gains may shareholders as of the close of business be paid more frequently the preceding business day ---------------------------------------------------------------------------------------------------------------------------- SHORT-TERM BOND, QUALITY INCOME PLUS Declared and paid monthly Declared and paid at least once per year AND HIGH YIELD PORTFOLIOS ---------------------------------------------------------------------------------------------------------------------------- UTILITIES, INCOME BUILDER, DIVIDEND Declared and paid quarterly Declared and paid at least once per GROWTH, EQUITY AND STRATEGIST calendar year PORTFOLIOS ---------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH, EUROPEAN GROWTH, GLOBAL Declared and paid at least once per Declared and paid at least once per DIVIDEND GROWTH, PACIFIC GROWTH, S&P calendar year calendar year 500 INDEX, COMPETITIVE EDGE "BEST IDEAS," AGGRESSIVE EQUITY AND INFORMATION PORTFOLIOS ----------------------------------------------------------------------------------------------------------------------------
[ICON] TAX CONSEQUENCES -------------------------------------------------------------------------------- For information concerning the federal income tax consequences to holders of the underlying variable annuity or variable life insurance contracts, see the accompanying prospectus for the applicable contract. 55 FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the financial performance of each Portfolio's Class X shares for the past 5 fiscal years of the Fund. Prior to May 1, 2000, the Fund issued one Class of shares of each Portfolio, which, as of that date, have been designated Class X shares. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate an investor would have earned or lost on an investment in each Portfolio (assuming reinvestment of all dividends and distributions). The information for each of the periods through December 31, 1999 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. The information for the six-month period ended June 30, 2000 is unaudited.
NET ASSET VALUE NET NET REALIZED TOTAL FROM BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS ------------------------------------------------------------------------------------------------------------- MONEY MARKET ------------------------------------------------------------------------------------------------------------- 1995 $ 1.00 $0.055 -- $ 0.055 $(0.055) -- ------------------------------------------------------------------------------------------------------------- 1996 1.00 0.050 -- 0.050 (0.050) -- ------------------------------------------------------------------------------------------------------------- 1997 1.00 0.051 -- 0.051 (0.051) -- ------------------------------------------------------------------------------------------------------------- 1998 1.00 0.051 -- 0.051 (0.051) -- ------------------------------------------------------------------------------------------------------------- 1999 1.00 0.047 -- 0.047 (0.047) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- SHORT-TERM BOND ------------------------------------------------------------------------------------------------------------- 1999(c) 10.00 0.27 $(0.12) 0.15 (0.27) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS ------------------------------------------------------------------------------------------------------------- 1995 9.45 0.72 1.50 2.22 (0.71) -- ------------------------------------------------------------------------------------------------------------- 1996 10.96 0.71 (0.58) 0.13 (0.72) -- ------------------------------------------------------------------------------------------------------------- 1997 10.37 0.70 0.40 1.10 (0.70) -- ------------------------------------------------------------------------------------------------------------- 1998 10.77 0.68 0.23 0.91 (0.68) -- ------------------------------------------------------------------------------------------------------------- 1999 11.00 0.67 (1.14) (0.47) (0.67) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- HIGH YIELD ------------------------------------------------------------------------------------------------------------- 1995 6.16 0.80 0.08 0.88 (0.78) -- ------------------------------------------------------------------------------------------------------------- 1996 6.26 0.77 (0.06) 0.71 (0.79) -- ------------------------------------------------------------------------------------------------------------- 1997 6.18 0.75 (0.06) 0.69 (0.75) -- ------------------------------------------------------------------------------------------------------------- 1998 6.12 0.71 (1.05) (0.34) (0.71) -- ------------------------------------------------------------------------------------------------------------- 1999 5.07 0.68 (0.74) (0.06) (0.68) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- UTILITIES ------------------------------------------------------------------------------------------------------------- 1995 11.92 0.53 2.81 3.34 (0.58) -- ------------------------------------------------------------------------------------------------------------- 1996 14.68 0.55 0.70 1.25 (0.55) $(0.04) ------------------------------------------------------------------------------------------------------------- 1997 15.34 0.57 3.46 4.03 (0.57) (0.21) ------------------------------------------------------------------------------------------------------------- 1998 18.59 0.57 3.68 4.25 (0.57) (1.02) ------------------------------------------------------------------------------------------------------------- 1999 21.25 0.55 2.08 2.63 (0.55) (0.43) ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- INCOME BUILDER ------------------------------------------------------------------------------------------------------------- 1997(a) 10.00 0.44 1.76 2.20 (0.44) -- ------------------------------------------------------------------------------------------------------------- 1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11) ------------------------------------------------------------------------------------------------------------- 1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++ ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH ------------------------------------------------------------------------------------------------------------- 1995 11.99 0.38 3.89 4.27 (0.41) (0.26) ------------------------------------------------------------------------------------------------------------- 1996 15.59 0.41 3.22 3.63 (0.41) (0.41) ------------------------------------------------------------------------------------------------------------- 1997 18.40 0.41 4.20 4.61 (0.41) (1.00) ------------------------------------------------------------------------------------------------------------- 1998 21.60 0.41 2.58 2.99 (0.41) (2.05) ------------------------------------------------------------------------------------------------------------- 1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26) ------------------------------------------------------------------------------------------------------------- 2000(d) -------------------------------------------------------------------------------------------------------------
56 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. The financial highlights table does not cover the Information Portfolio, which had not commenced operations prior to the date of this PROSPECTUS.
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF --------------------------------- DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME ------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET ------------------------------------------------------------------------------------------------------------------------------- 1995 $(0.055) $ 1.00 5.66% $ 249,787 0.53% 5.52% ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.050) 1.00 5.11 340,238 0.52 4.97 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.051) 1.00 5.23 335,578 0.52 5.10 ------------------------------------------------------------------------------------------------------------------------------- 1998 (0.051) 1.00 5.18 442,034 0.52 5.04 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.047) 1.00 4.80 435,643 0.52 4.68 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM BOND ------------------------------------------------------------------------------------------------------------------------------- 1999(c) (0.27) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.71) 10.96 24.30 520,579 0.54 7.07 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.72) 10.37 1.56 474,660 0.53 6.84 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.70) 10.77 11.09 474,990 0.53 6.71 ------------------------------------------------------------------------------------------------------------------------------- 1998 (0.68) 11.00 8.67 547,583 0.52 6.23 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.67) 9.86 (4.32) 456,132 0.52 6.45 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.78) 6.26 14.93 154,310 0.54 12.67 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.79) 6.18 11.98 259,549 0.51 12.59 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.75) 6.12 11.87 368,061 0.53 12.44 ------------------------------------------------------------------------------------------------------------------------------- 1998 (0.71) 5.07 (6.20) 364,079 0.53 12.27 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.68) 4.33 (1.33) 279,683 0.53 14.05 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- UTILITIES ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.58) 14.68 28.65 479,070 0.68 4.00 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.59) 15.34 8.68 440,662 0.67 3.61 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.78) 18.59 27.15 458,134 0.67 3.48 ------------------------------------------------------------------------------------------------------------------------------- 1998 (1.59) 21.25 23.76 560,803 0.67 2.89 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.98) 22.90 12.71 580,487 0.67 2.51 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER ------------------------------------------------------------------------------------------------------------------------------- 1997(a) (0.44) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) ------------------------------------------------------------------------------------------------------------------------------- 1998 (0.67) 11.46 3.21 87,769 0.81 5.09 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.81) 11.44 7.06 81,616 0.81 4.98 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.67) 15.59 36.38 865,417 0.61 2.75 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.82) 18.40 23.96 1,288,404 0.57 2.46 ------------------------------------------------------------------------------------------------------------------------------- 1997 (1.41) 21.60 25.61 1,905,906 0.54 2.06 ------------------------------------------------------------------------------------------------------------------------------- 1998 (2.46) 22.13 14.28 2,249,927 0.53 1.85 ------------------------------------------------------------------------------------------------------------------------------- 1999 (3.65) 18.32 (2.39) 2,033,814 0.52 1.82 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER YEAR ENDED DECEMBER 31 RATE ------------------------- MONEY MARKET ------------------------- 1995 N/A ------------------------- 1996 N/A ------------------------- 1997 N/A ------------------------- 1998 N/A ------------------------- 1999 N/A ------------------------- 2000(d) ------------------------- SHORT-TERM BOND ------------------------- 1999(c) 56%(1) ------------------------- 2000(d) ------------------------- QUALITY INCOME PLUS ------------------------- 1995 162 ------------------------- 1996 182 ------------------------- 1997 171 ------------------------- 1998 152 ------------------------- 1999 119 ------------------------- 2000(d) ------------------------- HIGH YIELD ------------------------- 1995 58 ------------------------- 1996 57 ------------------------- 1997 95 ------------------------- 1998 93 ------------------------- 1999 48 ------------------------- 2000(d) ------------------------- UTILITIES ------------------------- 1995 13 ------------------------- 1996 9 ------------------------- 1997 13 ------------------------- 1998 7 ------------------------- 1999 10 ------------------------- 2000(d) ------------------------- INCOME BUILDER ------------------------- 1997(a) 41(1) ------------------------- 1998 54 ------------------------- 1999 43 ------------------------- 2000(d) ------------------------- DIVIDEND GROWTH ------------------------- 1995 24 ------------------------- 1996 23 ------------------------- 1997 28 ------------------------- 1998 45 ------------------------- 1999 81 ------------------------- 2000(d) -------------------------
57
NET ASSET NET VALUE INVESTMENT NET REALIZED TOTAL FROM BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS ------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH ------------------------------------------------------------------------------------------------------------- 1995 $11.52 $ 0.10 $ 3.68 $ 3.78 $(0.08) -- ------------------------------------------------------------------------------------------------------------- 1996 15.22 0.08 1.65 1.73 (0.03) $(0.27) ------------------------------------------------------------------------------------------------------------- 1997 16.65 0.01 3.90 3.91 (0.08) (2.19) ------------------------------------------------------------------------------------------------------------- 1998 18.29 (0.05) 3.59 3.54 -- (1.47) ------------------------------------------------------------------------------------------------------------- 1999 20.36 -- 6.12 6.12 -- (2.75) ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH ------------------------------------------------------------------------------------------------------------- 1995 9.82 0.24 1.90 2.14 (0.26) (0.01) ------------------------------------------------------------------------------------------------------------- 1996 11.69 0.24 1.75 1.99 (0.24) (0.31) ------------------------------------------------------------------------------------------------------------- 1997 13.13 0.22 1.37 1.59 (0.23) (0.60) ------------------------------------------------------------------------------------------------------------- 1998 13.89 0.24 1.45 1.69 (0.24) (1.52) ------------------------------------------------------------------------------------------------------------- 1999 13.82 0.27 1.71 1.98 (0.29) (1.07) ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH ------------------------------------------------------------------------------------------------------------- 1995 14.56 0.20 3.50 3.70 (0.19)* (0.54) ------------------------------------------------------------------------------------------------------------- 1996 17.53 0.17 4.91 5.08 (0.04) (1.01) ------------------------------------------------------------------------------------------------------------- 1997 21.56 0.21 3.19 3.40 (0.24) (1.18) ------------------------------------------------------------------------------------------------------------- 1998 23.54 0.15 5.53 5.68 (0.31) (1.73) ------------------------------------------------------------------------------------------------------------- 1999 27.18 0.25 6.91 7.16 (0.19) (2.68) ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH ------------------------------------------------------------------------------------------------------------- 1995 9.26 0.12 0.41 0.53 (0.09) -- ------------------------------------------------------------------------------------------------------------- 1996 9.70 0.05 0.32 0.37 (0.11) -- ------------------------------------------------------------------------------------------------------------- 1997 9.96 0.12 (3.82) (3.70) (0.14) -- ------------------------------------------------------------------------------------------------------------- 1998 6.12 0.06 (0.75) (0.69) (0.28) -- ------------------------------------------------------------------------------------------------------------- 1999 5.15 0.04 3.33 3.37 (0.06) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- EQUITY ------------------------------------------------------------------------------------------------------------- 1995 19.25 0.22 7.92 8.14 (0.25) -- ------------------------------------------------------------------------------------------------------------- 1996 27.14 0.16 2.70 2.86 (0.16) (3.45) ------------------------------------------------------------------------------------------------------------- 1997 26.39 0.18 9.27 9.45 (0.18) (2.08) ------------------------------------------------------------------------------------------------------------- 1998 33.58 0.25 9.47 9.72 (0.25) (4.47) ------------------------------------------------------------------------------------------------------------- 1999 38.58 0.22 20.48 20.70 (0.22) (5.18) ------------------------------------------------------------------------------------------------------------- 2000(d) -------------------------------------------------------------------------------------------------------------
58
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF --------------------------------- DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH ------------------------------------------------------------------------------------------------------------------------------- 1995 $(0.08) $15.22 32.92% $ 66,995 0.74% 0.70% ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.30) 16.65 11.55 86,862 0.73 0.52 ------------------------------------------------------------------------------------------------------------------------------- 1997 (2.27) 18.29 24.54 127,100 0.71 0.01 ------------------------------------------------------------------------------------------------------------------------------- 1998 (1.47) 20.36 19.63 138,603 0.70 (0.26) ------------------------------------------------------------------------------------------------------------------------------- 1999 (2.75) 23.73 33.29 171,251 0.72 0.02 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.27) 11.69 22.14 205,739 0.88 2.23 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.55) 13.13 17.49 334,821 0.85 1.94 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.83) 13.89 12.04 481,613 0.84 1.61 ------------------------------------------------------------------------------------------------------------------------------- 1998 (1.76) 13.82 12.53 484,228 0.84 1.68 ------------------------------------------------------------------------------------------------------------------------------- 1999 (1.36) 14.44 14.65 506,929 0.83 1.90 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.73) 17.53 25.89 188,119 1.17 1.25 ------------------------------------------------------------------------------------------------------------------------------- 1996 (1.05) 21.56 29.99 302,422 1.11 0.97 ------------------------------------------------------------------------------------------------------------------------------- 1997 (1.42) 23.54 16.07 391,441 1.12 1.04 ------------------------------------------------------------------------------------------------------------------------------- 1998 (2.04) 27.18 23.96 510,638 1.11 0.65 ------------------------------------------------------------------------------------------------------------------------------- 1999 (2.87) 31.47 29.11 579,705 1.04 0.87 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.09) 9.70 5.74 98,330 1.44 1.23 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.11) 9.96 3.89 144,536 1.37 1.01 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.14) 6.12 (37.70) 68,904 1.44 1.09 ------------------------------------------------------------------------------------------------------------------------------- 1998 (0.28) 5.15 (10.40) 52,842 1.51 0.91 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.06) 8.46 66.09 115.927 1.42 0.85 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- EQUITY ------------------------------------------------------------------------------------------------------------------------------- 1995 (0.25) 27.14 42.53 359,779 0.54 0.97 ------------------------------------------------------------------------------------------------------------------------------- 1996 (3.61) 26.39 12.36 521,908 0.54 0.58 ------------------------------------------------------------------------------------------------------------------------------- 1997 (2.26) 33.58 37.43 823,090 0.52 0.61 ------------------------------------------------------------------------------------------------------------------------------- 1998 (4.72) 38.58 30.45 1,138,413 0.52 0.73 ------------------------------------------------------------------------------------------------------------------------------- 1999 (5.40) 53.88 58.59 2,083,071 0.51 0.54 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER YEAR ENDED DECEMBER 31 RATE ------------------------- CAPITAL GROWTH ------------------------- 1995 34% ------------------------- 1996 98 ------------------------- 1997 139 ------------------------- 1998 248 ------------------------- 1999 575 ------------------------- 2000(d) ------------------------- GLOBAL DIVIDEND GROWTH ------------------------- 1995 55 ------------------------- 1996 39 ------------------------- 1997 48 ------------------------- 1998 52 ------------------------- 1999 43 ------------------------- 2000(d) ------------------------- EUROPEAN GROWTH ------------------------- 1995 69 ------------------------- 1996 43 ------------------------- 1997 45 ------------------------- 1998 56 ------------------------- 1999 55 ------------------------- 2000(d) ------------------------- PACIFIC GROWTH ------------------------- 1995 53 ------------------------- 1996 50 ------------------------- 1997 58 ------------------------- 1998 112 ------------------------- 1999 105 ------------------------- 2000(d) ------------------------- EQUITY ------------------------- 1995 269 ------------------------- 1996 279 ------------------------- 1997 145 ------------------------- 1998 257 ------------------------- 1999 323 ------------------------- 2000(d) -------------------------
59
NET ASSET VALUE NET NET REALIZED TOTAL FROM BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS ------------------------------------------------------------------------------------------------------------- S&P 500 INDEX ------------------------------------------------------------------------------------------------------------- 1998(b) $10.00 $ 0.06 $ 1.16 $ 1.22 -- -- ------------------------------------------------------------------------------------------------------------- 1999 11.22 0.06 2.21 2.27 $(0.03) $(0.03) ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" ------------------------------------------------------------------------------------------------------------- 1998(b) 10.00 0.07 (0.25) (0.18) -- -- ------------------------------------------------------------------------------------------------------------- 1999 9.82 0.06 2.56 2.62 (0.07) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY ------------------------------------------------------------------------------------------------------------- 1999(c) 10.00 0.05 4.55 4.60 (0.03) -- ------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------- STRATEGIST ------------------------------------------------------------------------------------------------------------- 1995 12.45 0.62 0.49 1.11 (0.67) (0.44) ------------------------------------------------------------------------------------------------------------- 1996 12.45 0.43 1.39 1.82 (0.43) (0.12) ------------------------------------------------------------------------------------------------------------- 1997 13.72 0.45 1.40 1.85 (0.45) (0.32) ------------------------------------------------------------------------------------------------------------- 1998 14.80 0.36 3.40 3.76 (0.36) (1.56) ------------------------------------------------------------------------------------------------------------- 1999 16.64 0.40 2.46 2.86 (0.40) -- ------------------------------------------------------------------------------------------------------------- 2000(d) -------------------------------------------------------------------------------------------------------------
Commencement of operations: (a) January 21, 1997. (b) May 18, 1998. (c) May 4, 1999. (d) For the six months ended June 30, 2000 (UNAUDITED). + Calculated based on the net asset value as of the last business day of the period. ++ Includes distributions from paid-in-capital of $0.02. * Includes dividends in excess of net investment income of $0.02. (1) Not annualized. (2) Annualized. (3) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 21, 1997 through December 3, 1997 for Income Builder, the ratios of expenses and net investment income to average net assets would have been 0.99% and 4.89%, respectively. (4) If the Investment Manager had not assumed all expenses and waived its management fee for the period May 18, 1998 through December 31, 1998 for Competitive Edge "Best Ideas" and S&P 500 Index, the ratios of expenses and net investment income to average net assets would have been 0.92% and 0.83%, respectively, for Competitive Edge "Best Ideas" and 0.59% and 1.26%, respectively, for S&P 500 Index. (5) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 1, 1999 through April 30, 1999 for Competitive Edge "Best Ideas" and for the period May 4, 1999 through November 4, 1999 for Short-Term Bond and Aggressive Equity and for the period January 1, 1999 through January 5, 1999 for S&P 500 Index and "capped" the expenses of S&P 500 Index at 0.50% of its daily net assets for the period January 6, 1999 through December 31, 1999, the ratio of expenses and net investment income (loss) to average net assets would have been 0.77% and 0.51%, respectively, for Competitive Edge "Best Ideas", 2.38% and 3.07%, respectively, for Short-Term Bond, 1.41% and (0.02%), respectively, for Aggressive Equity and 0.48% and 1.02%, respectively, for S&P 500 Index. 60
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF --------------------------------- DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME ------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX ------------------------------------------------------------------------------------------------------------------------------- 1998(b) $-- $11.22 12.20%(1) $ 48,732 --%(4) 1.85%(2)(4) ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.06) 13.43 20.23 185,963 0.48(5) 1.03(5) ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" ------------------------------------------------------------------------------------------------------------------------------- 1998(b) -- 9.82 (1.90)(1) 36,539 --4 1.74(2)(4) ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.07) 12.37 26.88 62,295 0.56(5) 0.72(5) ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY ------------------------------------------------------------------------------------------------------------------------------- 1999(c) (0.03) 14.57 46.08(1) 38,197 0.52(2)(5) 0.86(2)(5) ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- STRATEGIST ------------------------------------------------------------------------------------------------------------------------------- 1995 (1.11) 12.45 9.48 388,579 0.52 5.03 ------------------------------------------------------------------------------------------------------------------------------- 1996 (0.55) 13.72 15.02 423,768 0.52 3.30 ------------------------------------------------------------------------------------------------------------------------------- 1997 (0.77) 14.80 13.71 497,028 0.52 3.09 ------------------------------------------------------------------------------------------------------------------------------- 1998 (1.92) 16.64 26.55 633,934 0.52 2.32 ------------------------------------------------------------------------------------------------------------------------------- 1999 (0.40) 19.10 17.35 729,701 0.52 2.24 ------------------------------------------------------------------------------------------------------------------------------- 2000(d) ------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER YEAR ENDED DECEMBER 31 RATE ------------------------- S&P 500 INDEX ------------------------- 1998(b) 2%(1) ------------------------- 1999 1 ------------------------- 2000(d) ------------------------- COMPETITIVE EDGE "BEST IDEAS" ------------------------- 1998(b) 31(1) ------------------------- 1999 54 ------------------------- 2000(d) ------------------------- AGGRESSIVE EQUITY ------------------------- 1999(c) 108(1) ------------------------- 2000(d) ------------------------- STRATEGIST ------------------------- 1995 329 ------------------------- 1996 153 ------------------------- 1997 159 ------------------------- 1998 84 ------------------------- 1999 120 ------------------------- 2000(d) -------------------------
61 NOTES ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- 62 NOTES ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- 63 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Additional information about each Portfolio's investments is available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a discussion of the market conditions and investment strategies that significantly affected each Portfolio's performance during its last fiscal year. These reports do not cover the Information Portfolio, which prior to the date of this PROSPECTUS had not commenced operations. The Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is incorporated herein by reference (legally is part of this PROSPECTUS). For a free copy of any of these documents, to request other information about the Portfolios, or to make shareholder inquiries, please call: (800) 869-NEWS You also may obtain information about the Fund by calling your Morgan Stanley Dean Witter Financial Advisor. Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION) can be viewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Information about the Reference Room's operations may be obtained by calling the SEC at (202) 942-8090. Reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, DC 20549-0102. (THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-3692) PROSPECTUS - NOVEMBER 3, 2000 Morgan Stanley Dean Witter VARIABLE INVESTMENT SERIES CLASS Y Morgan Stanley Dean Witter Variable Investment Series is a mutual fund comprised of 17 separate Portfolios, each with its own distinctive investment objective(s) and policies. The Portfolios are: The Money Market Portfolio The Global Dividend Growth Portfolio The Short-Term Bond Portfolio The European Growth Portfolio The Quality Income Plus Portfolio The Pacific Growth Portfolio The High Yield Portfolio The Equity Portfolio The Utilities Portfolio The S&P 500 Index Portfolio The Income Builder Portfolio The Competitive Edge "Best Ideas" Portfolio The Dividend Growth Portfolio The Aggressive Equity Portfolio The Capital Growth Portfolio The Information Portfolio The Strategist Portfolio
Shares of each Portfolio are sold exclusively to certain life insurance companies in connection with particular life insurance and/or annuity contracts they issue. The insurance companies invest in shares of the Portfolios in accordance with instructions received from owners of the applicable life insurance or annuity policy. This PROSPECTUS must be accompanied by a current prospectus for the variable annuity contracts issued by Northbrook Life Insurance Company, Allstate Life Insurance Company of New York or Glenbrook Life and Annuity Company or a current prospectus for the variable life insurance contracts issued by Northbrook Life Insurance Company or Glenbrook Life and Annuity Company. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this PROSPECTUS. Any representation to the contrary is a criminal offense. CONTENTS Eligible Investors .................................... 1 The Portfolios The Money Market Portfolio.......... 2 The Short-Term Bond Portfolio....... 5 The Quality Income Plus Portfolio... 7 The High Yield Portfolio............ 10 The Utilities Portfolio............. 13 The Income Builder Portfolio........ 16 The Dividend Growth Portfolio....... 19 The Capital Growth Portfolio........ 21 The Global Dividend Growth Portfolio........................... 23 The European Growth Portfolio....... 25 The Pacific Growth Portfolio........ 28 The Equity Portfolio................ 31 The S&P 500 Index Portfolio......... 34 The Competitive Edge "Best Ideas" Portfolio........................... 37 The Aggressive Equity Portfolio..... 41 The Information Portfolio........... 43 The Strategist Portfolio............ 45 Additional Investment Strategy Information .................................... 48 Additional Risk Information .................................... 49 Portfolio Management .................................... 53 Shareholder Information Pricing Fund Shares................. 56 Plan of Distribution................ 56 Distributions....................... 57 Tax Consequences.................... 57 Financial Highlights .................................... 58
ELIGIBLE INVESTORS Morgan Stanley Dean Witter Variable Investment Series (the "Fund") is comprised of 17 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"):
INSURANCE COMPANY TYPE OF POLICY ------------------------------------------------------------------------------------ Northbrook Life Certain Flexible Premium Variable Annuity and Variable Insurance Company Life Insurance Contracts ------------------------------------------------------------------------------------ Allstate Life Insurance Certain Flexible Premium Deferred Variable Annuity Company Contracts ------------------------------------------------------------------------------------ Glenbrook Life and Certain Flexible Premium Deferred Variable Annuity Annuity Company Contracts and Certain Flexible Premium Variable Life Insurance Contracts ------------------------------------------------------------------------------------
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. The Fund also offers Class X shares through a separate prospectus. Class X shares are subject to lower expenses, but are only available through certain eligible Contracts. For more information, contact the insurance company offering the accompanying prospectus. 1 [Sidebar] MONEY MARKET A mutual fund having the goal to select securities to provide current income while seeking to maintain a stable share price of $1.00. YIELD The Portfolio's yield reflects the actual income the Portfolio pays to you expressed as a percentage of the Portfolio share price. Because the Portfolio's income from its portfolio securities will fluctuate, the income it in turn distributes to you and the Portfolio's yield will vary. [End Sidebar] THE PORTFOLIOS THE MONEY MARKET PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Money Market Portfolio seeks high current income, preservation of capital and liquidity. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio invests in high quality, short-term debt obligations. In selecting investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., seeks to maintain the Portfolio's share price at $1.00. A mutual fund's share price remaining stable at $1.00 means that the fund would preserve the principal value of the shareholders' investments. The Portfolio's investments are limited, as a matter of fundamental investment policy, which may not be changed without shareholder approval, to the following types of money market instruments: - commercial paper -- rated by Standard & Poor's Corporation ("S&P") in one of the two highest rating categories or the highest grade by Moody's Investors Services Inc. ("Moody's") or, if not rated, issued by a company having an outstanding debt issue rated at least AA by S&P or Aa by Moody's; - corporate obligations -- rated at least A by S&P or Moody's; - bank obligations -- including certificates of deposit, of U.S.- regulated banks having total assets of $1 billion or more, and investments secured by these obligations; - Eurodollar certificates of deposit -- issued by foreign branches of domestic banks having assets of $1 billion or more; - savings institution obligations -- including certificates of deposit of savings banks and savings and loan institutions having assets of $1 billion or more; - U.S. government securities -- issued or guaranteed as to principal by the U.S. government, its agencies or its instrumentalities; - insured certificates of deposit -- of banks and saving institutions having assets of less than $1 billion; and - repurchase agreements -- which may be viewed as a type of secured lending by the Portfolio.
2 The Portfolio may purchase debt obligations that have fixed, variable or floating rates of interest. The interest rates payable on variable rate or floating rate obligations may fluctuate based upon changes in market rates. The Portfolio attempts to balance its objectives of high income, capital preservation and liquidity by investing in securities of varying maturities and risks. The Portfolio does not, however, invest in securities that mature in more than one year from the date of purchase. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. Principal risks of investing in the Portfolio are associated with its debt obligation investments. All debt obligations, such as bonds, are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general level of interest rates. The Investment Manager actively manages the Portfolio's assets to reduce the risk of losing any principal investment as a result of credit or interest rate risks. The Portfolio's assets are reviewed to maintain or improve creditworthiness. In addition, federal regulations require money market funds to invest only in debt obligations of high quality and short maturities, and repurchase agreements with respect to such obligations. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. An investment in the Portfolio is not a bank deposit and is not guaranteed or insured by the FDIC or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, if it is unable to do so, it is possible to lose money by investing in the Portfolio. 3 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table shows the average annual returns of the Portfolio's Class X shares over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Money Market Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 7.93% '91 5.70% '92 3.43% '93 2.75% '94 3.81% '95 5.66% '96 5.11% '97 5.23% '98 5.18% '99 4.80%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 1.94% (quarter ended March 31, 1990) and the lowest return for a calendar quarter was 0.66% (quarter ended June 30, 1993). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) --------------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS --------------------------------------------------------------------------------------- Money Market Portfolio 4.80% 5.20% 4.95% ---------------------------------------------------------------------------------------
4 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income rather than rise in value. [End Sidebar] THE SHORT-TERM BOND PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Short-Term Bond Portfolio seeks to provide a high level of current income consistent with the preservation of capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in bonds issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities (including zero coupon securities), and investment grade corporate and other types of bonds. In selecting portfolio investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers both domestic and international economic developments, interest rate trends and other factors and seeks to maintain an overall weighted average maturity for the Portfolio of less than three years. MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government securities in which the Portfolio may invest are mortgage-backed securities. One type of mortgage-backed security, in which the Portfolio may invest, is a mortgage pass-through security. These securities represent a participation interest in a pool of residential mortgage loans originated by U.S. Governmental or private lenders such as banks. They differ from conventional debt securities, which provide for periodic payment of interest in fixed amounts and principal payments at maturity or on specified call dates. Mortgage pass-through securities provide for monthly payments that are a "pass-through" of the monthly interest and principal payments made by the individual borrowers on the pooled mortgage loans. Mortgage pass-through securities may be collateralized by mortgages with fixed rates of interest or adjustable rates. In addition, the Portfolio may invest up to 25% of its assets in investment grade fixed-income securities issued by foreign governments or corporations. The Portfolio's investments also may include "Rule 144A" fixed-income securities, which are subject to resale restrictions. Up to 5% of the Portfolio's assets may be invested in fixed-income securities rated lower than investment grade, or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. Principal risks of investing in the Portfolio are associated with the Portfolio's investments in fixed-income securities. These risks are credit risk and interest rate risk. Credit risk is the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. 5 There are also particular risks associated with the Portfolio's investments in mortgage-backed securities. For example mortgage-backed securities are subject to prepayment risk and in some cases may be more volatile and less liquid than other traditional types of debt securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio commenced operations on May 3, 1999 and prior to the date of this PROSPECTUS did not have a full calendar year of performance to report. 6 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income. [End Sidebar] THE QUALITY INCOME PLUS PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Quality Income Plus Portfolio seeks as a primary objective to provide a high level of current income by investing primarily in U.S. government securities and other fixed-income securities. As a secondary objective the Portfolio seeks capital appreciation but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in (i) U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, (ii) debt securities (including zero coupon securities), rated at the time of purchase within the three highest bond rating categories by Moody's or S&P or if not rated determined to be of comparable quality by the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., and (iii) Yankee government bonds rated at the time of purchase within the three highest rating categories of Moody's or S&P or if not rated determined to be of comparable quality by the Investment Manager. Yankee government bonds are U.S. dollar denominated bonds issued by foreign government agencies or instrumentalities (no more than 20% of the Portfolio's assets may be invested in Yankee government bonds). The Portfolio is not limited as to the maturities of the U.S. Government and other debt securities in which it may invest. In making investment decisions for the Portfolio, the Investment Manager considers both domestic and international economic developments, interest rate trends and other factors. The Investment Manager evaluates technical considerations such as the relative supply of and demand for corporate notes and U.S. Treasury and agencies issues before it decides upon an asset allocation. Similarly, the assessment of the strength of individual companies that issue corporate debt and the overall country risk of sovereign debt obligations contribute to the decision-making process. MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government securities in which the Portfolio may invest are mortgage-backed securities. One type of mortgage-backed security, in which the Portfolio may invest, is a mortgage pass-through security. These securities represent a participation interest in a pool of residential mortgage loans originated by U.S. Governmental or private lenders such as banks. They differ from conventional debt securities, which provide for periodic payment of interest in fixed amounts and principal payments at maturity or on specified call dates. Mortgage pass-through securities provide for monthly payments that are a "pass-through" of the monthly interest and principal payments made by the individual borrowers on the pooled mortgage loans. Mortgage pass-through securities may be collateralized by mortgages with fixed rates of interest or adjustable rates. 7 BORROWING. In seeking to increase income, the Portfolio may borrow to purchase securities. Such borrowing may not exceed 25% of the Portfolio's total assets. OTHER INVESTMENTS. The Portfolio may invest up to 15% of its assets in Yankee corporate bonds which are rated at the time of purchase within the three highest grades as determined by Moody's or S&P or which, if not rated, are of comparable quality as determined by the Investment Manager. Yankee corporate bonds are U.S. dollar denominated debt securities issued by foreign companies. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with the Portfolio's investments in fixed-income securities. These risks are credit risk and interest rate risk. Credit risk is the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. There are also particular risks associated with the Portfolio's investments in mortgage-backed securities. For example mortgage-backed securities are subject to prepayment risk and in some cases may be more volatile and less liquid than other traditional types of debt securities. The Portfolio may borrow money to purchase securities. To the extent that the Portfolio engages in such practice it may be leveraged. Leveraging generally exaggerates the effect on net asset value of any increase or decrease in the market value of the Portfolio's investments. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 8 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Quality Income Plus Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 6.84% '91 18.75% '92 8.26% '93 12.99% '94 -6.63% '95 24.30% '96 1.56% '97 11.09% '98 8.67% '99 -4.32%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 8.07% (quarter ended June 30, 1995) and the lowest return for a calendar quarter was -4.83% (quarter ended March 31, 1994). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) --------------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS --------------------------------------------------------------------------------------- Quality Income Plus Portfolio -4.32% 7.84% 7.77% --------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(1) -0.82% 7.73% 7.70% ---------------------------------------------------------------------------------------
(1) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S. Government agency and Treasury securities, investment grade corporate debt securities, agency mortgage-backed securities and asset-backed securities. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
9 [Sidebar] INCOME An investment objective having the goal of selecting securities to pay out income. [End Sidebar] THE HIGH YIELD PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The High Yield Portfolio seeks as a primary objective to provide a high level of current income by investing in a diversified portfolio consisting principally of fixed- income securities, which may include both non-convertible and convertible debt securities and preferred stocks. As a secondary objective the Portfolio will seek capital appreciation, but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in fixed-income securities (including zero coupon securities) rated Baa or lower by Moody's or BBB or lower by S&P or in nonrated securities considered by the Investment Manager to be appropriate investments for the Portfolio. These securities are commonly known as "junk bonds." They may also include "Rule 144A" securities, which are subject to resale restrictions. There are no minimum quality ratings for investments. In making investment decisions the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers an issuer's creditworthiness, economic developments, interest rate trends and other factors it deems relevant. In evaluating an issuer's creditworthiness the Investment Manager relies principally on its own analysis. A security's credit rating is simply one factor that may be considered by the Investment Manager in this regard. In addition to junk bonds, the Portfolio may invest in the following: - Higher rated fixed-income securities -- The Portfolio may invest in securities rated higher than Baa or BBB (or if not rated, determined to be of comparable quality) when the Investment Manager believes that such securities may produce attractive yields. - Foreign securities -- The Portfolio may invest up to 20% of its assets in securities issued by foreign governments and other foreign issuers (including American depository receipts or other similar securities convertible into securities of foreign issuers) but not more than 10% of its assets in these securities may be denominated in foreign currencies. - Unit Offerings -- The Portfolio may purchase units which combine debt securities with equity securities and/or warrants. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price and yield will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investments in junk bonds. Junk bonds are subject to greater risk of loss of income and principal than higher rated securities. The prices of junk bonds have been found generally to be less sensitive to changes in prevailing interest rates than higher rated securities 10 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. [End Sidebar] but are more likely to be sensitive to adverse economic changes or individual corporate developments. In addition, all fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the High Yield Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 -25.54% '91 58.14% '92 18.35% '93 24.13% '94 -2.47% '95 14.93% '96 11.98% '97 11.87% '98 -6.20% '99 -1.33%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 27.00% (quarter ended March 31, 1991) and the lowest return for a calendar quarter was -15.93% (quarter ended December 31, 1990). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses. 11 [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]
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------------------------------ PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS ------------------------------------------------------------------------------------------ High Yield Portfolio -1.33% 5.91% 8.44% ------------------------------------------------------------------------------------------ Lehman Brothers High Yield Index(1) 2.39% 9.31% 10.72% ------------------------------------------------------------------------------------------
(1) The Lehman Brothers High Yield Index tracks the performance of all below investment grade securities which have at least $100 million in outstanding issuance, are greater than one year to maturity and are issued in fixed- rate U.S. dollar denominations. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
12 THE UTILITIES PORTFOLIO [SIDEBAR] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Utilities Portfolio seeks both capital appreciation and current income. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in the securities of companies engaged in the utilities industry. These companies are involved in various aspects of the industry, such as communications, and gas and electric energy, but they do not include public broadcasting companies. A company will be considered engaged in the utilities industry if it derives at least 50% of its revenues or earnings from that industry or it devotes at least 50% of its assets to activities in that industry. These may include companies involved in, among other things, telecommunications, computers and other new or emerging technologies, gas and electric energy, water distribution, the Internet and Internet related services. The companies may be traditionally regulated public utilities or fully or partially deregulated utility companies as well as unregulated utility companies. The Portfolio's "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., will shift the Portfolio's assets between different segments of the utilities industry and between common stock, other equity securities and investment grade fixed-income securities based on its view of prevailing market, economic and financial conditions. The Portfolio does not have any set policies to concentrate its assets in any particular segment of the utilities industry or any particular type of security. However, the Portfolio's policy to concentrate its assets in the utilities industry is fundamental, and may not be changed without shareholder approval. In selecting common stock and other equity securities, the Investment Manager considers earnings and dividend growth, book value, dividend discount and price/earnings relationships. In addition, the Investment Manager makes continuing assessments of management, the prevailing regulatory framework and industry trends. Computer-based equity selection models also may be used. If the Investment Manager believes favorable conditions for capital growth of equity securities are not prevalent at a particular time, it may allocate the Portfolio's assets predominantly or exclusively to debt securities with the aim of obtaining current income and thus benefitting long-term growth of capital. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities and in real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. 13 [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. The Portfolio invests primarily in securities of companies in the utilities industry. The Portfolio's investments in the utilities industry are impacted by a host of risks particular to that industry. Changing regulation constitutes one of the key industry-specific risks for the Portfolio. State and other regulators monitor and control utility revenues and costs, and therefore may limit utility profits and dividends paid to investors. Regulatory authorities also may restrict a company's access to new markets, thereby diminishing the company's long-term prospects. Individual sectors of the utility market are subject to additional risks. These risks apply to all utility companies -- regulated, fully or partially deregulated and unregulated. For example, telecommunications companies have been affected by technological development leading to increased competition, as well as changing regulation of local and long-distance telephone service and other telecommunications businesses. Certain telecommunications companies have not benefitted from the new competitive climate. Electric utilities may incur unexpected increases in fuel and other operating costs. They are adversely affected when long-term interest rates rise. Long-term borrowings are used to finance most utility investment and rising interest rates lead to higher financing costs and reduced earnings. There are also the considerable costs associated with environmental compliance, nuclear waste clean-up, and safety regulation. Increasingly, regulators are calling upon electric utilities to bear these added costs, and there is a risk that these costs will not be fully recovered through an increase in revenues. Among gas companies, there has been a move to diversify into oil and gas exploration and development, making investment return more sensitive to energy prices. In the case of the water utility sector, the industry is highly fragmented, and most water supply companies find themselves in mature markets, although upgrading of fresh water and waste water systems is an expanding business. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. The Portfolio's investment in fixed-income securities are subject to credit risk and interest rate risk. Credit risk refers to a possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debts. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. 14 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 9 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Utilities Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1991 20.56% '92 12.64% '93 15.69% '94 -9.02% '95 28.65% '96 8.68% '97 27.15% '98 23.76% '99 12.71%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 12.58% (quarter ended December 31, 1997) and the lowest return for a calendar quarter was -8.19% (quarter ended March 31, 1994). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90) ---------------------------------------------------------------------------------------- Utilities Portfolio 12.71% 19.92% 14.25% ---------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 19.19% ----------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
15 [Sidebar] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE INCOME BUILDER PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Income Builder Portfolio seeks as a primary objective reasonable income. Growth of capital is the secondary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in income-producing equity securities, including common stock, preferred stock and convertible securities. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., uses a value-oriented style in the selection of securities. Investments are normally made primarily in (i) common stocks of large capitalization companies with a record of paying dividends and which in the opinion of the Investment Manager have the potential for maintaining dividends, (ii) preferred stock and (iii) securities convertible into common stocks of small and midcap companies -- including synthetic and enhanced convertibles. The Portfolio's investments may also include "Rule 144A" securities, which are subject to resale restrictions. The Investment Manager follows a "bottom-up" approach in the selection of convertible securities for the Portfolio. Beginning with a universe of about 500 companies, the Investment Manager narrows the focus to small and midcap companies and reviews the issues to determine if the convertible is trading with the underlying equity security. The yield of the underlying equity security is evaluated and company fundamentals are studied to evaluate cash flow, risk/reward balance, valuation and the prospects for growth. The Portfolio may invest up to 25% of its assets in "enhanced" convertible securities. Enhanced convertible securities offer holders the opportunity to obtain higher current income than would be available from a traditional equity security issued by the same company, in return for reduced participation or a cap on appreciation in the underlying common stock of the issuer which the holder can realize. In addition, in many cases, enhanced convertible securities are convertible into the underlying common stock of the issuer automatically at maturity, unlike traditional convertible securities which are convertible only at the option of the security holder. The Portfolio may invest up to 10% of its assets in "synthetic" convertible securities. Unlike traditional convertible securities whose conversion values are based on the common stock of the issuer of the convertible security, "synthetic" convertible securities are preferred stocks or debt obligations of an issuer which are combined with an equity component whose conversion value is based on the value of the common stock of a different issuer or a particular benchmark (which may include a foreign issuer or basket of foreign stocks, or a company whose stock is not yet publicly traded). In many cases, "synthetic" convertible securities are not convertible prior to maturity, at which time the value of the security is paid in cash by the issuer. 16 The Portfolio may invest up to 20% of its assets in fixed-income securities rated lower than investment grade by S&P or Moody's (but not below B) or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). The 20% limitation is not applicable to convertible securities. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities and investment grade fixed-income securities (including zero coupon securities), common stocks that do not pay a regular dividend and real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investment in common stocks. In particular the prices of common stocks can fluctuate widely in response to activities specific to the issuer as well as general market, economic and political conditions. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. In addition, because the convertible securities in which the Portfolio invests are convertible into the common stocks of small and midcap companies, the Portfolio is subject to the specific risks associated with investing in small and midcap companies. Investments in small and medium capitalization companies involve greater risk of volatility than is customarily associated with investments in more established companies as well as certain other additional risks. There are also special risks associated with the Portfolio's investments in "enhanced" and "synthetic" convertible securities. These securities may be more volatile and less liquid than traditional convertible securities. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 17 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 2 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Income Builder Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1998 3.21% '99 7.06%
Year-to-date total return as of September 30, 2000 was %. During the period shown in the bar chart, the highest return for a calendar quarter was 10.65% (quarter ended June 30, 1999) and the lowest return for a calendar quarter was -10.46% (quarter ended September 30, 1998). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 1/21/97) -------------------------------------------------------------------------------------- Income Builder Portfolio 7.06% 10.81% -------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 25.80% --------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
18 THE DIVIDEND GROWTH PORTFOLIO [SIDEBAR] GROWTH & INCOME An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Dividend Growth Portfolio seeks to provide reasonable current income and long term growth of income and capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will invest at least 70% of its total assets in common stock of companies with a record of paying dividends and the potential for increasing dividends. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., initially employs a quantitative screening process in an attempt to develop a number of common stocks which are undervalued and which have a record of paying dividends. The Investment Manager then applies qualitative analysis to determine which stocks it believes have the potential to increase dividends and, finally, to determine whether any of the stocks should be added to the Portfolio. The Investment Manager attempts to avoid investment in speculative securities or those with speculative characteristics. The Portfolio may invest up to 30% of its assets in convertible securities, U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and investment grade fixed-income securities (including zero coupon securities). The Portfolio may also invest any amount of its assets in foreign securities (including depository receipts) that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investing in the Portfolio is associated with its investments in common stock. In particular the prices of common stock may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 19 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 9 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Dividend Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1991 27.76% '92 8.16% '93 14.34% '94 -3.27% '95 36.38% '96 23.96% '97 25.61% '98 14.28% '99 -2.39%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 16.92% (quarter ended June 30, 1997) and the lowest return for a calendar quarter was -11.00% (quarter ended September 30, 1999). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90) ---------------------------------------------------------------------------------------- Dividend Growth Portfolio -2.39% 18.82% 13.04% ---------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 19.19% ----------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
20 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE CAPITAL GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Capital Growth Portfolio seeks long term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., utilizes a two-stage computerized screening process designed to find companies that demonstrate a history of consistent growth in earnings and revenues over the past several years, and have solid future earnings growth characteristics and attractive valuations. Dividend income is not a consideration in this stock selection process. Companies meeting these requirements are potential candidates for investment by the Portfolio. The Investment Manager may modify the screening process and/or may utilize additional or different screening processes in connection with the Portfolio's investments. The Portfolio may invest up to 35% of its assets in U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities, investment grade fixed-income securities (including zero coupon securities), convertible securities, unit offerings involving a combination of a debt security and a convertible security and/or warrant and real estate investment trusts (commonly known as "REITs"). The Portfolio may invest up to 25% of its assets in foreign securities (including depository receipts). This percentage limitation, however, does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stock. In particular the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 21 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 8 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Capital Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1992 1.64% '93 -6.99% '94 -1.28% '95 32.92% '96 11.55% '97 24.54% '98 19.63% '99 33.29%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 27.65% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -13.95% (quarter ended September 30, 1998). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91) ---------------------------------------------------------------------------------------- Capital Growth Portfolio 33.29% 24.11% 15.34% ---------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 19.62% ----------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
22 [Sidebar] GROWTH & INCOME An investment objective having the goal of selecting securities with the potental to rise in price and pay out income. [End Sidebar] THE GLOBAL DIVIDEND GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Global Dividend Growth Portfolio seeks to provide reasonable current income and long term growth of income and capital. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in dividend paying equity securities issued by issuers located in various countries around the world. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., seeks investments primarily in common stock of companies with a record of paying dividends and potential for increasing dividends. The Portfolio invests in at least three separate countries. The percentage of assets invested in particular geographic sectors will shift from time to time in accordance with the judgement of the Investment Manager. Up to 35% of the Portfolio's assets may be invested as follows: - Convertible securities, U.S. Government securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, fixed-income securities issued by foreign governments and international organizations and investment grade debt securities (including zero coupon securities). - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of Investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the price of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. Another principal risk relates to the Portfolio's investments in foreign securities. In particular, foreign security investments may be adversely affected by changes in currency exchange rates. In addition, investments in foreign securities may be adversely affected by among other things political, social and economic developments abroad. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 23 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 5 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Global Dividend Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1995 22.04% '96 17.59% '97 12.04% '98 12.53% '99 14.65%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 17.14% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -12.43% (quarter ended September 30, 1998). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94) ---------------------------------------------------------------------------------------- Global Dividend Growth Portfolio 14.65% 15.71% 13.33% ---------------------------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 19.76% 16.79% ----------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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.
24 [Sidebar] CAPITAL APPRECIATION An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE EUROPEAN GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The European Growth Portfolio seeks to maximize the capital appreciation of its investments. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in securities issued by issuers located in European countries. A company is considered located in Europe if (i) it is organized under the laws of a European country and has a principal office in a European country; (ii) it derives at least 50% of its total revenue from business in Europe; or (iii) the company's equity securities are traded principally on a stock exchange in Europe. The principal countries in which the Portfolio invests are France, the United Kingdom, Germany, the Netherlands, Spain, Sweden, Switzerland and Italy. The Portfolio invests in at least three separate countries. The Portfolio generally invests principally in equity securities (which may include depository receipts or convertible securities) but may also invest without limitation in fixed-income securities issued or guaranteed by European governments when the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., or the "Sub- Advisor," Morgan Stanley Dean Witter Investment Management Inc., determine such investments to be appropriate. The Investment Manager and the Sub-Advisor generally invest Portfolio assets in companies they believe have a high rate of earnings growth potential. They also select securities, which in their view, possess, both on an absolute basis and as compared with other securities around the world, attractive price/earnings, price/ cash flow and price/revenue ratios. The Portfolio may invest up to 35% of its assets as follows: - Equity securities issued by non-European issuers, and government and convertible securities issued by non-European governmental or private issuers. - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at the current price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and securities it intends to purchase and the currencies in which they are denominated. The Portfolio may invest up to 5% of its assets in put and call options with respect to foreign currencies. The Portfolio may also purchase and sell stock index futures contracts and options thereon. Stock index futures and options thereon may be used to facilitate trading, to increase the Portfolio's market exposure or to seek to protect against an increase in the prices of securities that may be purchased. The Portfolio may invest in warrants and acquire warrants attached to other securities. 25 [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk factor associated with investment in the Portfolio relates to the Portfolio's investments in Europe. In particular, adverse political, social or economic developments in Europe, or in a particular European country, could cause a substantial decline in the value of the Portfolio. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. The conversion to a single European currency by many European countries could potentially adversely affect the value and/or increase the volatility of the Portfolio's investments. In addition, the Portfolio is subject to the risks associated with foreign securities generally. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. In addition, the Portfolio's investments in fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common and fixed-income securities. The performance of the Portfolio also will depend on whether the Sub-Advisor is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 26 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 8 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the European Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1992 3.99% '93 40.88% '94 8.36% '95 25.89% '96 29.99% '97 16.07% '98 23.96% '99 29.11%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 25.18% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -15.72% (quarter ended September 30, 1998). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ---------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91) ---------------------------------------------------------------------------------------- European Growth Portfolio 29.11% 24.90% 19.68% ---------------------------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 19.76% 13.95% ----------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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.
27 [Sidebar] CAPITAL APPRECIATION An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE PACIFIC GROWTH PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Pacific Growth Portfolio seeks to maximize the capital appreciation of its investments. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks (including depository receipts) and other securities of companies which are (i) organized under the laws of and have a principal place of business in Asia, Australia or New Zealand or (ii) derives at least 50% of their total revenues from business in such areas. The principal Asian countries include: Japan, Malaysia, Singapore, Hong Kong, Thailand, the Philippines, India, Indonesia, Taiwan and South Korea. The Portfolio's assets are invested in at least three countries. The Portfolio may invest more than 25% of its assets in Japan, Hong Kong, South Korea and Taiwan. Thus, the investment performance of the Portfolio may be subject to the social, political and economic events occurring in these countries to a greater extent than other countries. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., and the "Sub-Advisor," Morgan Stanley Dean Witter Investment Management Inc., generally invest Portfolio assets in companies they believe have a high rate of earnings growth potential. They also select securities, which in their view, possess, both on an absolute basis and as compared with other securities around the world, attractive price/earnings, price/cash flow and price/revenue ratios. The Portfolio generally invests principally in equity securities but may also invest without limitation in fixed-income obligations issued or guaranteed by an Asian country or Australia or New Zealand when the Investment Manager or the Sub-Advisor determine such investments to be appropriate. The Portfolio may invest up to 35% of its assets as follows: - Equity, fixed-income or convertible securities (including zero coupon securities) of companies located anywhere in the world, including the United States. - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at the current price with a delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and securities it intends to purchase and the currencies in which they are denominated. The Portfolio may invest up to 5% of its assets in put and call options with respect to foreign currencies. The Portfolio may invest up to 10% of its assets in securities issued by other investment companies. The Investment Manager and/or Sub-Advisor may view these investments as necessary or advisable to participate in certain foreign markets where foreigners are prohibited from investing directly in the securities of individual companies without regulatory approval. 28 The Portfolio may invest in warrants and acquire warrants attached to other securities. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio relates to the Portfolio's investments in the Pacific region. In particular, adverse political, social or economic developments in the Pacific region or in a particular Pacific country could cause a substantial decline in the value of the Portfolio. The Portfolio's investments in common stock are also subject to the risks that affect all common stocks. In particular, stock prices can fluctuate widely in response to activities specific to the issuer as well as general market economic and political conditions. In addition, the Portfolio is subject to the risks associated with foreign securities generally. These risks include among other things the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio may invest a substantial portion of its assets in developing countries. These investments carry greater risks than those associated with investment in more developed countries. In addition, the Portfolio's investments in fixed-income securities are subject to two types of risk: credit risk and interest rate risk. The performance of the Portfolio also will depend on whether the Sub-Advisor is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 29 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 5 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Pacific Growth Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1995 5.74% '96 3.89% '97 -37.70% '98 -10.40% '99 66.09%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 25.61% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -27.57% (quarter ended December 31, 1997). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) ------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94) ---------------------------------------------------------------------------------------- Pacific Growth Portfolio 66.09% 0.37% -0.87% ---------------------------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 19.76% 16.79% ----------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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.
30 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price. [End Sidebar] THE EQUITY PORTFOLIO [ICON] INVESTMENT OBJECTIVES -------------------------------------------------------------------------------- The Equity Portfolio seeks as a primary objective growth of capital through investments in common stocks of companies believed by the Investment Manager to have potential for superior growth. As a secondary objective the Equity Portfolio seeks income but only when consistent with its primary objective. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in equity securities and securities convertible into equity securities. In selecting investments, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., may employ valuation models based on various economic and market indicators. The Investment Manager currently utilizes a process, known as sector rotation, that emphasizes industry selection over individual company selection. The Investment Manager invests in those industries that it believes will have the strongest relative earnings growth potential given the projected economic outlook. After selecting the Portfolio's target industries, the Investment Manager then selects specific companies within those industries whose prospects are deemed attractive after assessing company fundamentals and valuation screens. The Investment Manager utilizes a sector rotation process designed to respond to changing economic cycles by proactively investing in industries that the Investment Manager believes to be positioned to benefit from the current phase of the economic cycle. First, the Investment Manager attempts to identify at what stage of the business cycle the economy is in and which industries have historically outperformed the overall market during that stage of the cycle. To accomplish that task, the Investment Manager establishes an economic forecast based on its short term and long term views of the domestic and global economic cycles. As part of this process, the Investment Manager will attempt to identify secular trends, such as shifting demographics or technological developments, that could add clarity to its analysis. Also considered are competitive industry variables, such as supply and demand, pricing trends and new product cycles. The Portfolio may invest up to 35% of its assets in corporate debt securities (including zero coupon securities) rated Aa or better by Moody's or AA or better by S&P, U.S. Government securities, issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and preferred stocks. The Portfolio may invest in securities of Canadian issuers registered under the Securities Exchange Act of 1934 or American Depository Receipts. 31 [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objectives. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stock. In particular the price of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. Stocks of small and medium capitalization companies in which the Portfolio may invest pose greater risk of volatility than is customarily associated with larger established companies as well as certain other additional risks. Another principal risk relates to the Portfolio's investments in fixed-income securities. Fixed-income securities involve credit risk and interest rate risk. Credit risk relates to the possibility that an issuer could default on its obligation to pay principal and/or interest. Interest rate risk relates to the possibility that the value of securities may be adversely affected by fluctuations in interest rates. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 32 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Equity Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 -3.62% '91 59.05% '92 0.05% '93 19.72% '94 -4.91% '95 42.53% '96 12.36% '97 37.43% '98 30.45% '99 58.59%
Year-to-date total return as of September 30, 2000 was %. During the periods shown in the bar chart, the highest return for a calendar quarter was 38.61% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -15.83% (quarter ended September 30, 1990). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) --------------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS --------------------------------------------------------------------------------------- Equity Portfolio 58.59% 35.42% 23.04% --------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 18.20% ---------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
33 [Sidebar] TOTAL RETURN An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE S&P 500 INDEX PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The S&P 500 Index Portfolio seeks to provide investment results that before expenses, correspond to the total return (I.E., the combination of capital changes and income) of the Standard & Poor's-Registered Trademark- 500 Composite Stock Price Index. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 80% of its total assets in common stocks included in the S&P 500 Index. The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., "passively" manages the Portfolio's assets by investing in stocks in approximately the same proportion as they are represented in the S&P 500 Index. For example, where the common stock of a specific company represents five percent of the Index, the Investment Manager typically will invest five percent of the Portfolio's assets in that stock. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies representing a significant portion of the market value of all common stocks publicly traded in the United States. The Portfolio may purchase and sell stock index futures to simulate investment in the S&P 500. Generally stock index futures may be employed to provide liquidity necessary to meet anticipated redemptions or for day-to-day operating purposes. The Portfolios may invest in securities referred to as SPDRs (known as "spiders") that are designed to track the S&P 500 Index. SPDRs represent an ownership interest in the SPDR Trust, which holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the S&P 500 Index. SPDRs trade on the American Stock Exchange like shares of common stock. The Portfolio may invest up to 10% of its total assets in the aggregate in SPDRs. ----------------------------------------- "Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the S&P 500 Index Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in the Portfolio. (Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations of liabilities on behalf of S&P.) [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. 34 A principal risk of investing in the Portfolio is associated with its common stock investments. In general, stock values fluctuate in response to activities specific to the issuer, as well as general market, economic and political conditions. Stock prices can fluctuate widely in response to these factors. Another risk of investing in the Portfolio arises from its operation as a "passively" managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Portfolio. The Portfolio will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the Investment Manager will not sell the Portfolio's securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Portfolio shareholders who sell (redeem) Portfolio shares. The performance of the S&P 500 is a hypothetical number which does not take into account brokerage commissions and other transaction costs, custody and other costs of investing which will be borne by the Portfolio and any incremental operating costs borne by the Portfolio (E.G., management fee, transfer agency and accounting costs). Accordingly, the performance of the Portfolio may not correlate directly with the performance of the S&P 500 Index. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 35 [Sidebar] ANNUAL TOTAL RETURNS This chart shows the performance of the Portfolio's Class X shares over the past calendar year. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the S&P 500 Index Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1999 20.23%
Year-to-date total return as of September 30, 2000 was %. During the period shown in the bar chart, the highest return for a calendar quarter was 14.69% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was -6.32% (quarter ended September 30, 1999). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 5/18/98) -------------------------------------------------------------------------------------- S&P 500 Index Portfolio 20.23% 20.29% -------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 20.77% --------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
36 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Competitive Edge "Best Ideas" Portfolio seeks long-term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 80% of its total assets in common stock of companies included in the "Best Ideas" subgroup of "Global Investing: The Competitive Edge," a research compilation assembled by Morgan Stanley Dean Witter ("MSDW") Equity Research -- and other securities selected by the Portfolio's "Investment Manager," Morgan Stanley Dean Witter Advisors Inc. THE COMPETITIVE EDGE "BEST IDEAS" LIST. MSDW Equity Research is recognized as a world leader in global financial research and provides comprehensive research and in-depth knowledge about general markets and specific companies from around the world. It believes that companies with a sustainable competitive edge in the operations of their businesses are worth more than their weaker competitors. Through its ongoing research and analysis, MSDW Equity Research has developed and undertaken a comprehensive study which it calls "Global Investing: The Competitive Edge" which represents the list of those companies. MSDW Equity Research group's research analysts and strategists presently evaluate approximately 2,100 companies in 21 industry sectors worldwide. An initial comprehensive review was conducted in October 1996 and identified 238 of these companies as having a long-term sustainable competitive advantage in the global arena (the "Competitive Edge List"). The criteria used to select companies that have a global competitive advantage vary according to industry sector. The Competitive Edge List is currently updated quarterly. From the Competitive Edge List, MSDW Equity Research then assembles a subgroup of approximately 40 companies which it considers at that time to be the most attractive investment opportunities of the companies identified as having a long-term sustainable competitive advantage in the global arena (the "Competitive Edge 'Best Ideas' List"). The Competitive Edge "Best Ideas" List is updated continuously. It is the intention of the Investment Manager that generally at least 1% and not more than 5% of the Portfolio's assets will be invested in each company on the Competitive Edge "Best Ideas" List. The Portfolio will purchase any security which is added to the Competitive Edge "Best Ideas" List, and generally will sell a security which is eliminated from the Competitive Edge "Best Ideas" List as soon as practicable after the Competitive Edge "Best Ideas" List has been updated by MSDW Equity Research. Accordingly, securities may be purchased and sold by the Portfolio when such purchases and sales would not be made under traditional investment criteria. 37 The Portfolio may at times purchase securities that are not included on the Competitive Edge "Best Ideas" List but are on the Competitive Edge List or, in the event that the Investment Manager believes that there are no suitable securities on the Competitive Edge List, the Portfolio may purchase securities outside the list. Securities that are not on the Competitive Edge "Best Ideas" List generally will not exceed 35% of the Portfolio's assets. The Portfolio's investments may include forward currency contracts which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio invests principally in securities included on the Competitive Edge "Best Ideas" List which currently consists of 40 companies. As a result of the small universe of stocks in which the Portfolio invests it may be subject to greater risks than would a more diversified company. At times the Portfolio may be restricted in its ability to purchase or sell securities on the Competitive Edge "Best Ideas" List as a result of activities of affiliates of the Investment Manager. In addition, performance of the securities included in the List cannot be used to predict the performance of the Portfolio, an actively managed mutual fund. The Competitive Edge "Best Ideas" List is not compiled with any particular client or product in mind and is not, and will not be, compiled with the Portfolio in mind. When selecting the companies for the list, MSDW Equity Research does not take into account country or currency risks, and country or industry sector diversification concerns. MSDW publishes other lists of recommended securities that could be appropriate for Portfolio investors but which will not be used by the Investment Manager for choosing securities for the Portfolio. MSDW Equity Research could at any time cease publishing the Competitive Edge "Best Ideas" List. In that event the Board of Trustees will make a determination of how to proceed in the best interest of shareholders of the Portfolio consistent with the Portfolio's investment objective. The activities of affiliates of the Investment Manager, including but not limited to Dean Witter Reynolds Inc. or Morgan Stanley & Co. Incorporated, may from time to time limit the Portfolio's ability to purchase or sell securities on the Competitive Edge "Best Ideas" List. In addition, the List is available to other clients of MSDW 38 and its affiliates, including the Investment Manager, as well as the Portfolio. The list is also subject to restrictions related to MSDW's other businesses, and particular securities may or may not be on the list due to other business concerns of, or legal restrictions applicable to, MSDW. As a diversified financial services firm, with three primary businesses -- securities, asset management and credit services -- MSDW provides a wide range of financial services to issuers of securities and investors in securities. MSDW and others associated with it may create markets or specialize in, have positions in and affect transactions in securities of companies included on its research lists and may also perform or seek to perform investment banking services for those companies. Within the last three years MSDW may have managed or co-managed public security offerings for companies included on their research lists, and they or their employees may have a long or short position on holdings in the securities, or options on securities, or other related investments of companies included on their research lists. The Portfolio may invest a substantial portion of its assets in foreign securities. Foreign securities investments may be adversely affected by changes in currency exchange rates. In addition, investment in foreign securities may be adversely affected by among other things political, social and economic developments abroad. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. 39 [Sidebar] ANNUAL TOTAL RETURNS This chart shows the performance of the Portfolio's Class X shares over the past calendar year. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual returns of the Portfolio's Class X shares with those of a broad measure of market performance over time. [End Sidebar] [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Competitive Edge "Best Ideas" Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1999 26.88%
Year-to-date total return as of September 30, 2000 was 2.67%. During the period shown in the bar chart, the highest return for a calendar quarter was 18.60% (quarter ended December 31, 1999) and the lowest return for a calendar quarter was 0.10% (quarter ended September 30, 1999). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses.
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) -------------------------------------------------------------------------------------- LIFE OF THE PORTFOLIO PAST 1 YEAR (SINCE 5/18/98) -------------------------------------------------------------------------------------- Competitive Edge "Best Ideas" Portfolio 26.88% 14.46% -------------------------------------------------------------------------------------- Morgan Stanley Capital International World Index(1) 24.93% 20.93% --------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., 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.
40 [Sidebar] CAPITAL GROWTH An investment objective having the goal of selecting securities with the potential to rise in price rather than pay out income. [End Sidebar] THE AGGRESSIVE EQUITY PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Aggressive Equity Portfolio seeks long-term capital growth. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks and other equity securities of companies that the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., believes offer the potential for superior earnings growth. The Portfolio's other equity securities may include preferred stocks, securities convertible into common stock, rights and warrants. No more than 25% of the Portfolio's assets may be invested in foreign equity or fixed-income securities denominated in a foreign currency and traded primarily in non-U.S. markets. The Investment Manager utilizes a process, known as sector rotation, that emphasizes industry selection over individual company selection. The Investment Manager invests in those industries that it believes will have the strongest relative earnings growth potential given the projected economic outlook. After selecting the Portfolio's target industries, the Investment Manager selects specific companies within those industries whose prospects are deemed attractive after assessing company fundamentals and valuation screens. Company selection is based on the Investment Manager's own analysis and research reports as well as analysis from the equity research departments of recognized securities firms. The Investment Manager has no general criteria as to the market capitalization or asset size of the companies selected for investment and, accordingly, the Portfolio may invest in small and medium-sized companies in addition to larger, more established companies. The Investment Manager utilizes a sector rotation process designed to respond to changing economic cycles by proactively investing in industries that the Investment Manager believes to be positioned to benefit from the current phase of the economic cycle. First, the Investment Manager attempts to identify at what stage of the business cycle the economy is in and which industries have historically outperformed the overall market during that stage of the cycle. To accomplish that task, the Investment Manager establishes an economic forecast based on its short term and long term views of the domestic and global economic cycles. As part of this process, the Investment Manager will attempt to identify secular trends, such as shifting demographics or technological developments, that could add clarity to its analysis. Also considered are competitive industry variables, such as supply and demand, pricing trends and new product cycles. The Portfolio may invest up to 35% of its assets as follows: - (a) fixed-income securities of U.S. companies, (b) fixed-income securities of foreign companies and governments and international organizations, (c) U.S. Government securities, issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and (d) real estate investment trusts (commonly known as "REITs"). However, no more than 5% of the Portfolio's assets may be invested in debt securities rated lower than investment grade, or if unrated of comparable quality as determined by the Investment Manager (commonly known as "junk bonds"). 41 - Forward currency contracts, which involve the purchase or sale of a specific amount of foreign currency at a specified price with delivery at a specified future date. The Portfolio may use these contracts to hedge against adverse price movements in its portfolio securities and the currencies in which they are denominated. - Put and call options and futures with respect to financial instruments, stock and interest rate indexes and foreign currencies (limit of 5% of its assets for the purchase of put and call options). Options and futures may be used to seek higher returns to seek to protect against a decline in security or currency prices or an increase in prices of securities or currencies that may be purchased. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio may invest a substantial portion of its assets in securities issued by small and medium sized companies. Investment in small and medium size companies involves greater risk of volatility than is customarily associated with investment in larger established companies as well as certain other additional risks. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio commenced operations on May 3, 1999 and prior to the date of this PROSPECTUS did not have a full calendar year of performance to report. 42 THE INFORMATION PORTFOLIO [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] [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Information Portfolio seeks long-term capital appreciation. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Portfolio will normally invest at least 65% of its total assets in common stocks and investment grade convertible securities of companies located throughout the world that are engaged in the communications and information industry. The Portfolio normally holds common stocks and other equity securities of companies located in at least three countries, one of which is the United States. It may invest up to 50% of its assets in the securities (including depository receipts) of foreign companies; however, it will not invest more than 25% of its assets in any one foreign country. In addition, the Portfolio will not invest more than 10% of its assets in convertible securities. In deciding which securities to buy, hold or sell, the "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., considers business, economic and political conditions. A company is considered to be in the communications and information industry if it derives at least 35% of its revenues or earnings from, or devotes at least 35% of its assets to: - designing, developing, manufacturing, providing or enabling the following products and services: regular telephone service; communications equipment and services; electronic components and equipment; broadcasting; computer equipment, enabling software, mobile communications and cellular radio/paging; electronic mail and other electronic data transmission services; networking and linkage of word and data processing systems; publishing and information systems; video text and teletext; and emerging technologies combining telephone, television and/or computer systems; or - the creation, packaging, distribution, and ownership of entertainment and information programming. The Portfolio may invest up to 35% of its total assets in investment grade corporate fixed-income securities and U.S. government securities. The Portfolio's fixed-income investments may include zero coupon securities. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. 43 A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. The Portfolio concentrates its investments in the communications and information industry. Because of this concentration, the value of the Portfolio's shares may be more volatile than that of mutual funds that do not similarly concentrate their investments. The communications and information industry may be subject to greater changes in governmental policies and governmental regulation than in many other industries in the United States and worldwide. Regulatory approval requirements, ownership restrictions and restrictions on rates of return and types of services that may be offered may materially affect the products and services of this industry. Additionally, the products and services of companies in this industry may be subject to faster obsolescence as a result of greater competition, advancing technological developments, and changing market and consumer preferences. As a result, the securities of companies in this industry may exhibit greater price volatility than those of companies in other industries. The Portfolio is subject to the risks associated with foreign securities. These risks include, among other things, the possibility that the Portfolio could be adversely affected by changes in currency exchange rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. The Portfolio was recently organized and as of the date of this PROSPECTUS had no historical performance to report. 44 [Sidebar] TOTAL RETURN An investment objective having the goal of selecting securities with the potential to rise in price and pay out income. [End Sidebar] THE STRATEGIST PORTFOLIO [ICON] INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- The Strategist Portfolio seeks high total investment return through a fully managed investment policy utilizing equity, fixed-income and money market securities and the writing of covered call and put options. [ICON] PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., will actively allocate the Portfolio's assets among the major asset categories of equity securities, fixed-income securities and money market instruments. Assets are allocated by the Investment Manager based on among other things, its assessment of economic and market trends on different sectors of the market. There is no limit as to the percentage of assets that may be allocated to any one asset class. The Investment Manager does not, however, currently intend to write covered call or put options. Within the equity sector, the Investment Manager actively allocates funds to those economic sectors it expects to benefit from major trends and to individual stocks which it considers to have superior investment potential. Within the fixed-income sector of the market, the Investment Manager seeks to maximize the return on its investments by adjusting maturities and coupon rates as well as by exploiting yield differentials among different types of investment grade bonds, including short-term and intermediate-term bonds. Within the money market sector of the market, the Investment Manager seeks to maximize returns by exploiting spreads among short-term instruments. Securities in which the Portfolio may invest include common stocks, preferred stocks, convertible securities, investment grade debt securities (including zero coupon securities), U.S. Government securities, real estate investment trusts (commonly known as "REITs") and money market instruments. The Portfolio is not limited as to the maturities of the U.S. government securities and other debt securities in which it may invest. The Portfolio may invest up to 20% of its assets in securities issued by foreign governments and foreign private issuers but not more than 10% of its assets in securities denominated in a foreign currency. [ICON] SUMMARY OF PRINCIPAL RISKS -------------------------------------------------------------------------------- There is no assurance that the Portfolio will achieve its investment objective. The Portfolio's share price will fluctuate with changes in the market value of its portfolio securities. When you sell Portfolio shares, they may be worth less than what you paid for them and, accordingly, you can lose money investing in this Portfolio. A principal risk of investment in the Portfolio is associated with the Portfolio's investments in common stocks. In particular, the prices of common stocks may fluctuate widely in response to activities specific to the company as well as general market, economic and political conditions. 45 [Sidebar] ANNUAL TOTAL RETURNS This chart shows how the performance of the Portfolio's Class X shares has varied from year to year over the past 10 calendar years. [End Sidebar] The Portfolio's investment in fixed-income securities are subject to credit risk and interest rate risk. Credit risk refers to a possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debts. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. The Portfolio is also subject to the risks of investing in convertible securities. These securities may carry risks associated with both common stock and fixed-income securities. The performance of the Portfolio also will depend on whether the Investment Manager is successful in pursuing the Portfolio's investment strategy. In addition, the Portfolio is subject to other risks from its permissible investments. For information about these risks, as well as more detailed information about the risks summarized in this section, see the "Additional Risk Information" section. [ICON] PAST PERFORMANCE -------------------------------------------------------------------------------- The bar chart and table below provide some indication of the risks of investing in the Strategist Portfolio. The Portfolio's past performance does not indicate how it will perform in the future. The returns shown do not reflect fees charged under the life insurance or annuity contracts, which would lower the performance for all periods shown. ANNUAL TOTAL RETURNS - CALENDAR YEARS* EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1990 1.56% '91 28.26% '92 7.24% '93 10.38% '94 3.94% '95 9.40% '96 15.02% '97 13.71% '98 26.55% '99 17.35%
Year-to-date total return as of September 30, 2000 was 5.79%. During the periods shown in the bar chart, the highest return for a calendar quarter was 17.60% (quarter ended December 31, 1998) and the lowest return for a calendar quarter was -8.25% (quarter ended September 30, 1990). * The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. The returns shown in the Chart (and the Table below) are for Class X shares of the Portfolio (which are offered in a separate prospectus). Class X and Class Y shares are invested in the same portfolio of securities. However, the returns for Class Y shares would differ from those of Class X to the extent the Classes have different expenses. 46 [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]
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999) --------------------------------------------------------------------------------------- PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS --------------------------------------------------------------------------------------- Strategist Portfolio 17.35% 16.27% 13.04% --------------------------------------------------------------------------------------- S&P 500 Index(1) 21.04% 28.54% 18.20% --------------------------------------------------------------------------------------- Lehman Brothers Government/ Corporate Bond Index(2) -2.15% 7.61% 7.65% ---------------------------------------------------------------------------------------
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price Index is a broad-based index, the performance of which is based on the average performance of 500 widely held common stocks. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. (2) The Lehman Brothers Government/Corporate Bond Index tracks the performance of government and corporate obligations, including U.S. government agency and U.S. treasury securities and corporate and yankee bonds, with maturities of one to ten years. The performance of the Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment.
47 ADDITIONAL INVESTMENT STRATEGY INFORMATION This section provides additional information relating to each Portfolio's principal strategies. INVESTMENT DISCRETION. In pursuing each Portfolio's investment objective, the Investment Manager has considerable leeway in deciding which investments it buys, holds or sells on a day-to-day basis - and which trading strategies it uses. For example, the Investment Manager in its discretion may determine to use some permitted trading strategies while not using others. The Sub-Advisor has a similar degree of discretion. DEFENSIVE INVESTING. Each Portfolio (other than the Money Market Portfolio and the S&P 500 Index Portfolio) may take temporary "defensive" positions in attempting to respond to adverse market conditions. Each Portfolio may invest any amount of its assets in cash or money market instruments in a defensive posture when the Investment Manager or Sub-Advisor, as the case may be, believes it advisable to do so. Although taking a defensive posture is designed to protect the Portfolio from an anticipated market downturn, it could have the effect of reducing the benefit of an upswing in the market. When a Portfolio takes a defensive position, it may not achieve its investment objective(s). INVESTMENT POLICIES. The percentage limitations relating to the composition of a Portfolio apply at the time a Portfolio acquires an investment and refer to the Portfolio's net assets, unless otherwise noted. Subsequent percentage changes that result from market fluctuations will not require a Portfolio to sell any Portfolio security. A Portfolio may change its principal investment strategies without shareholder approval; however you would be notified of any change. PORTFOLIO TURNOVER. Each Portfolio, other than the S&P 500 Index Portfolio and the Competitive Edge "Best Ideas" Portfolio, may engage in active and frequent trading of its portfolio securities. The Financial Highlights Table at the end of this PROSPECTUS shows recent portfolio turnover rates for each Portfolio (other than the Information Portfolio, which prior to the date of this PROSPECTUS had not commenced operations). 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. 48 ADDITIONAL RISK INFORMATION This section provides additional information relating to the principal risks of investing in the Portfolios. Shares of the Portfolios are not bank deposits and are not guaranteed or insured by the FDIC or any other government agency. * * * The risks set forth below are applicable to a Portfolio only to the extent the Portfolio invests in the investment described. See "The Portfolios" for a description of the investments which each Portfolio may make. FIXED-INCOME SECURITIES. All fixed-income securities are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. (Zero coupon securities are typically subject to greater price fluctuations than comparable securities that pay interest.) Accordingly, a rise in the general level of interest rates may cause the price of a Portfolio's fixed-income securities to fall substantially. As merely illustrative of the relationship between fixed-income securities and interest rates, the following table shows how interest rates affect bond prices. HOW INTEREST RATES AFFECT BOND PRICES
PRICE PER $1,000 OF A BOND IF INTEREST RATES: ----------------------------------------- INCREASE DECREASE ---------------- ---------------- BOND MATURITY COUPON 1% 2% 1% 2% ------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------
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 49 and other factors. Prepayment risk includes the possibility that, as interest rates fall, securities with stated interest rates may have the principal prepaid earlier than expected, requiring the Fund to invest the proceeds at generally lower interest rates. Investments in mortgage-backed securities are made based upon, among other things, expectations regarding the rate of prepayments on underlying mortgage pools. Rates of prepayment, faster or slower than expected by the Investment Manager, could reduce a Portfolio's yield, increase the volatility of the Portfolio and/ or cause a decline in net asset value. Certain mortgage-backed securities in which a Portfolio may invest may be more volatile and less liquid than other traditional types of debt securities. JUNK BONDS. A Portfolio's investments in securities rated lower than investment grade or if unrated of comparable quality as determined by the Investment Manager or Sub-Advisor (commonly known as "junk bonds") pose significant risks. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities. During an economic downturn or substantial period of rising interest rates, junk bond issuers and, in particular, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet their projected business goals or to obtain additional financing. In the event of a default, the Portfolio may incur additional expenses to seek recovery. The secondary market for junk bonds may be less liquid than the markets for higher quality securities and, as such, may have an adverse effect on the market prices of certain securities. The Rule 144A securities could have the effect of increasing the level of Portfolio illiquidity to the extent a Portfolio may be unable to find qualified institutional buyers interested in purchasing the securities. The illiquidity of the market may also adversely affect the ability of the Fund's Trustees to arrive at a fair value for certain junk bonds at certain times and could make it difficult for the Portfolios to sell certain securities. In addition, periods of economic uncertainty and change probably would result in an increased volatility of market prices of high yield securities and a corresponding volatility in a Portfolio's net asset value. SECURITIES RATED IN THE LOWEST INVESTMENT GRADE CATEGORY. Investments in the fixed-income securities rated in the lowest investment grade category by Moody's or S&P may have speculative characteristics and therefore changes in economic or other circumstances are more likely to weaken their capacity to make principal and interest payments than would be the case with investments in securities with higher credit ratings. FOREIGN SECURITIES. Foreign securities involve risks in addition to the risks associated with domestic securities. One additional risk is currency risk. While the price of Portfolio shares is quoted in U.S. dollars, a Portfolio generally converts U.S. dollars to a foreign market's local currency to purchase a security in that market. If the value of that local currency falls relative to the U.S. dollar, the U.S. dollar value of the foreign security will decrease. This is true even if the foreign security's local price remains unchanged. 50 Foreign securities (including depository receipts) also have risks related to economic and political developments abroad, including effects of foreign social, economic or political instability. Foreign companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, foreign accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. Finally, in the event of a default of any foreign debt obligations, it may be more difficult for the Fund to obtain or enforce a judgment against the issuers of the securities. Securities of foreign issuers may be less liquid than comparable securities of U.S. issuers and, as such, their price changes may be more volatile. Furthermore, foreign exchanges and broker-dealers are generally subject to less government and exchange scrutiny and regulation than their U.S. counterparts. The foreign securities in which certain of the Portfolios may invest (in particular the Pacific Growth Portfolio) may be issued by companies located in developing countries. Compared to the United States and other developed countries, developing countries may have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities. Prices of these securities tend to be especially volatile and, in the past, securities in these countries have offered greater potential loss (as well as gain) than securities of companies located in developed countries. SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's investments in smaller and medium sized companies carry more risk than investments in larger companies. While some of a Portfolio's holdings in these companies may be listed on a national securities exchange, such securities are more likely to be traded in the over-the-counter market. The low market liquidity of these securities may have an adverse impact on a Portfolio's ability to sell certain securities at favorable prices and may also make it difficult for a Portfolio to obtain market quotations based on actual trades, for purposes of valuing a Portfolio's securities. Investing in lesser-known, smaller and medium capitalization companies involves greater risk of volatility of a Portfolio's net asset value than is customarily associated with larger, more established companies. Often smaller and medium capitalization companies and the industries in which they are focused are still evolving and, while this may offer better growth potential than larger, more established companies, it also may make them more sensitive to changing market conditions. OPTIONS AND FUTURES. If a Portfolio invests in options and/or futures, its participation in these markets would subject the Portfolio to certain risks. The Investment Manager's or the Sub-Advisor's predictions of movements in the direction of the stock, bond, currency or interest rate markets may be inaccurate, and the adverse consequences to the Portfolio (e.g., a reduction in the Portfolio's net asset value or a reduction in the amount of income available for distribution) may leave the Portfolio in a worse position than if these strategies were not used. Other risks inherent in the use of options and futures include, for example, the possible imperfect correlation between the price of options and futures contracts and movements in the prices of the securities being hedged, and the possible absence of 51 a liquid secondary market for any particular instrument. Certain options may be over-the-counter options, which are options negotiated with dealers; there is no secondary market for these investments. FORWARD CURRENCY CONTRACTS. A Portfolio's participation in forward currency contracts also involves risks. If the Investment Manager or Sub-Advisor employs a strategy that does not correlate well with the Portfolio's investments or the currencies in which the investments are denominated, currency contracts could result in a loss. The contracts also may increase the Portfolio's volatility and may involve a significant risk. REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs pool investors funds for investments primarily in commercial real estate properties. Like mutual funds, REITs have expenses, including advisory and administration fees that are paid by its shareholders. As a result, you will absorb duplicate levels of fees when a Portfolio invests in REITs. The performance of any Portfolio REIT holdings ultimately depends on the types of real property in which the REITs invest and how well the property is managed. A general downturn in real estate values also can hurt REIT performance. 52 [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 September 30, 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 Pacific Growth and European Growth Portfolios) invest its assets, including the placing of orders for the purchase and sale of portfolio securities. The Investment Manager is a wholly- owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services. Its main business office is located at Two World Trade Center, New York, NY 10048. Each of the Pacific Growth and European Growth Portfolios has retained the Investment Manager to supervise the investment of its assets. The Investment Manager has, in turn, contracted with the Sub-Advisor - Morgan Stanley Dean Witter Investment Management Inc. - to invest each Portfolio's assets, including the placing of orders for the purchase and sale of portfolio securities. The Sub-Advisor also is a subsidiary of Morgan Stanley Dean Witter & Co. Its main business office is located at 1221 Avenue of the Americas, New York, NY 10020. 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.
MANAGEMENT FEES AS A PERCENTAGE OF AVERAGE NAME OF PORTFOLIO DAILY NET ASSETS ----------------------------------------------------------------------------------- The Money Market Portfolio 0.50% ----------------------------------------------------------------------------------- The Short-Term Bond Portfolio 0.45%(1) ----------------------------------------------------------------------------------- The Quality Income Plus Portfolio 0.50% ----------------------------------------------------------------------------------- The High Yield Portfolio 0.50% ----------------------------------------------------------------------------------- The Utilities Portfolio 0.64% ----------------------------------------------------------------------------------- The Income Builder Portfolio 0.75% ----------------------------------------------------------------------------------- The Dividend Growth Portfolio 0.51% ----------------------------------------------------------------------------------- The Capital Growth Portfolio 0.65% ----------------------------------------------------------------------------------- The Global Dividend Growth Portfolio 0.75% ----------------------------------------------------------------------------------- The European Growth Portfolio 0.95%(2) ----------------------------------------------------------------------------------- The Pacific Growth Portfolio 0.95%(2) ----------------------------------------------------------------------------------- The Equity Portfolio 0.49% ----------------------------------------------------------------------------------- The S&P 500 Index Portfolio 0.40%(3) ----------------------------------------------------------------------------------- The Competitive Edge "Best Ideas" Portfolio 0.65%(4) ----------------------------------------------------------------------------------- The Aggressive Equity Portfolio 0.75%(5) ----------------------------------------------------------------------------------- The Information Portfolio 0.75%(6) ----------------------------------------------------------------------------------- The Strategist Portfolio 0.50% -----------------------------------------------------------------------------------
(1) The Investment Manager assumed all operating expenses of the Short-Term Bond Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund from the Portfolio's commencement of operations on May 4, 1999 until November 4, 1999. As a result, the management fee for the Short-Term Bond Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.17% of average daily net assets.
53 (2) 40% of the Investment Manager's compensation is paid to the Sub-Advisor. (3) The Investment Manager has permanently undertaken to cap total expenses of the S&P 500 Index Portfolio (other than brokerage fees) at 0.50% of average daily net assets. (4) The Investment Manager assumed all operating expenses of the Competitive Edge "Best Ideas" Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund until April 30, 1999. As a result, the management fee for the Competitive Edge "Best Ideas" Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.47% of average daily net assets. (5) The Investment Manager assumed all operating expenses of the Aggressive Equity Portfolio (other than brokerage fees) and waived the compensation provided for that Portfolio in its Management Agreement with the Fund from the Portfolio's commencement of operations on May 4, 1999 until November 4, 1999. As a result, the management fee for the Aggressive Equity Portfolio for the fiscal year ended December 31, 1999 was paid at the annual rate of 0.42% of average daily net assets. (6) Prior to the date of this PROSPECTUS, the Information Portfolio had not commenced operations. The management fee shown in the table is the contractual fee that the Fund has agreed to pay respecting the Portfolio pursuant to the Fund's Management Agreement with the Investment Manager. In addition, the Investment Manager has agreed to assume all operating expenses (except for brokerage and 12b-1 fees) and waive the compensation provided in its Management Agreement until such time as the Portfolio has $50 million of net assets or until six months from the date of the commencement of the Portfolio's operations, whichever occurs first.
The following individuals are primarily responsible for the day-to-day management of certain of the Portfolios of the Fund. Except as otherwise noted, each of these individuals has been a primary portfolio manager of the designated Portfolio for over five years or since the inception of the Portfolio (if less than five years) and has been a portfolio manager with the Investment Manager or the Sub-Advisor for over five years. SHORT-TERM BOND PORTFOLIO - Rochelle G. Siegel, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. QUALITY INCOME PLUS PORTFOLIO - Paula LaCosta, Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. HIGH YIELD PORTFOLIO - Peter M. Avelar, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. UTILITIES PORTFOLIO - Edward F. Gaylor, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio, and has been assisted by Ronald B. Silvestri, Vice President of the Investment Manager, since May 2000. INCOME BUILDER PORTFOLIO - Paul D. Vance, Senior Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since its inception. Mr. Avelar has been a primary portfolio manager of the Portfolio since January 1998. Catherine Manuscalco, Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since August 1999. DIVIDEND GROWTH PORTFOLIO - Mr. Vance is the primary portfolio manager of the Portfolio. CAPITAL GROWTH PORTFOLIO - Peter Hermann, Vice President of the Investment Manager, has been the primary portfolio manager of the Portfolio since May 1996. GLOBAL DIVIDEND GROWTH PORTFOLIO - Mr. Vance has been a primary portfolio manager of the Portfolio since its inception. Matthew T. Haynes, Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since May 1997. 54 EUROPEAN GROWTH PORTFOLIO - Jeremy Lodwick, a principal of the Sub-Advisor, has been the primary portfolio manager of the Portfolio since December 1998. Prior to joining the Sub-Advisor, Mr. Lodwick was a portfolio manager with Morgan Grenfell Investment Services Limited for over five years, where he was the Portfolio's primary portfolio manager from April 1994 to April 1998. PACIFIC GROWTH PORTFOLIO - Ashutosh Sinha, Principal of the Sub-Advisor, has been a primary portfolio manager of the Portfolio since November 1998. John R. Alkire, a Managing Director of the Sub-Advisor and President of Morgan Stanley Investment Advisory, Japan, has been a primary portfolio manager of the Portfolio since May 1999. Prior to joining the Sub-Advisor in June 1995, Mr. Sinha was an analyst at SBI Funds Management Ltd. (1993-1995). EQUITY PORTFOLIO - Michelle Kaufman, Senior Vice President of the Investment Manager, has been a primary portfolio manager of the Portfolio since May 1996, and has been the sole primary portfolio manager of the Portfolio since December 1996. S&P 500 INDEX PORTFOLIO - Guy G. Rutherfurd, Jr., Senior Vice President of the Investment Manager, and Kevin Jung, Vice President of the Investment Manager, have been the primary portfolio managers of the Portfolio since May 1999. Prior to that date, Mr. Jung had assisted the former primary portfolio manager of the Portfolio since October 1998. Mr. Rutherfurd has been a portfolio manager with the Investment Manager since February 1997, prior to which time he was Executive Vice President and Chief Investment Officer of Nomura Asset Management (U.S.A.) Inc. (May 1992-February 1997). Mr. Jung has been a portfolio manager with the Investment Manager since September 1997, prior to which time he was a Vice President and portfolio manager with UBS Asset Management (NY) Inc. (April 1993-August 1997). COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO - Mark Bavoso, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio. AGGRESSIVE EQUITY PORTFOLIO - Anita H. Kolleeny, Senior Vice President of the Investment Manager, is the primary portfolio manager of the Portfolio and co-management is provided by Ms. Kaufman. INFORMATION PORTFOLIO - Mr. Rutherfurd and Armon Bar-Tur, Vice President of the Investment Manager, are the primary portfolio managers of the Portfolio. 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. STRATEGIST PORTFOLIO - Mr. Bavoso has been the primary portfolio manager of the Portfolio since September 1995. 55 SHAREHOLDER INFORMATION [ICON] PRICING FUND SHARES -------------------------------------------------------------------------------- The price of shares of each Portfolio called "net asset value," is based on the value of its portfolio securities. The net asset value for each Portfolio is calculated once daily at 4:00 p.m. Eastern time on each day the New York Stock Exchange is open (or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time). Shares will not be priced on days that the New York Stock Exchange is closed. The value of each Portfolio's securities (other than the Money Market Portfolio) is based on the securities' market price when available. When a market price is not readily available, including circumstances under which the Investment Manager (or, if applicable, the Sub-Advisor) determines that a security's market price is not accurate, a portfolio security is valued at its fair value, as determined under procedures established by the Fund's Board of Trustees. In these cases, the applicable Portfolio's net asset value will reflect certain portfolio securities' fair value rather than their market price. In addition, with respect to securities that are primarily listed on foreign exchanges, the value of the Portfolio's investment securities may change on days when shareholders will not be able to purchase or sell their shares. An exception to the general policy of using market prices concerns each Portfolio's short-term debt portfolio securities. Debt securities with remaining maturities of sixty days or less at the time of purchase are valued at amortized cost. However, if the cost does not reflect the securities' market value, these securities will be valued at their fair value. The Money Market Portfolio utilizes amortized cost in determining the value of its portfolio securities. The amortized cost valuation method involves valuing a debt obligation in reference to its acquisition cost rather than market forces. [ICON] PLAN OF DISTRIBUTION -------------------------------------------------------------------------------- Each Portfolio has adopted a Plan of Distribution in accordance with Rule 12b-1 under the Investment Company Act of 1940. Class Y shares of each Portfolio are subject to a distribution (12b-1) fee of 0.25% of the average daily net assets of the Class. The Plan allows Class Y shares of each Portfolio to bear distribution fees in connection with the sale and distribution of Class Y shares. It also allows each Portfolio to pay for services to Class Y shareholders. Because these fees are paid out of the assets of each Portfolio's Class Y shares on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. 56 [ICON] DISTRIBUTIONS -------------------------------------------------------------------------------- Each Portfolio passes substantially all of its earnings from income and capital gains along to its investors as "distributions." Each Portfolio earns income from stocks and/or interest from fixed-income investments. These amounts are passed along to the appropriate Portfolio investors as "income dividend distributions." Each Portfolio realizes capital gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as "capital gain distributions." Dividends from net investment income and capital gains distributions, if any, are declared and paid as follows:
NET REALIZED CAPITAL GAINS DIVIDENDS DISTRIBUTIONS -------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO Declared and paid on each Declared and paid at least day the New York Stock once per calendar year, Exchange is open to net short-term gains may shareholders as of the be paid more frequently close of business the preceding business day -------------------------------------------------------------------------------------- SHORT-TERM BOND, QUALITY Declared and paid monthly Declared and paid at least INCOME PLUS AND HIGH once per year YIELD PORTFOLIOS -------------------------------------------------------------------------------------- UTILITIES, INCOME Declared and paid Declared and paid at least BUILDER, DIVIDEND GROWTH, quarterly once per calendar year EQUITY AND STRATEGIST PORTFOLIOS -------------------------------------------------------------------------------------- CAPITAL GROWTH, EUROPEAN Declared and paid at least Declared and paid at least GROWTH, GLOBAL DIVIDEND once per calendar year once per calendar year GROWTH, PACIFIC GROWTH, S&P 500 INDEX, COMPETITIVE EDGE "BEST IDEAS," AGGRESSIVE EQUITY AND INFORMATION PORTFOLIOS --------------------------------------------------------------------------------------
[ICON] TAX CONSEQUENCES -------------------------------------------------------------------------------- For information concerning the federal income tax consequences to holders of the underlying variable annuity or variable life insurance contracts, see the accompanying prospectus for the applicable contract. 57 FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the financial performance of each Portfolio's Class X shares for the past 5 fiscal years of the Fund. The Fund commenced offering Class Y shares of each Portfolio on May 1, 2000. Prior to that date, the Fund issued one Class of shares of each Portfolio, which, as of May 1, 2000, have been designated Class X shares. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate an investor would have earned or lost on an investment in each Portfolio (assuming reinvestment of all dividends and distributions). The information for each of the periods through December 31, 1999 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. The information for the six-month period ended June 30, 2000 is unaudited.
NET ASSET VALUE NET NET REALIZED TOTAL FROM BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS --------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET --------------------------------------------------------------------------------------------------------------------------------- 1995 $ 1.00 $0.055 -- $ 0.055 $(0.055) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 1.00 0.050 -- 0.050 (0.050) -- --------------------------------------------------------------------------------------------------------------------------------- 1997 1.00 0.051 -- 0.051 (0.051) -- --------------------------------------------------------------------------------------------------------------------------------- 1998 1.00 0.051 -- 0.051 (0.051) -- --------------------------------------------------------------------------------------------------------------------------------- 1999 1.00 0.047 -- 0.047 (0.047) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM BOND --------------------------------------------------------------------------------------------------------------------------------- 1999(c) 10.00 0.27 $(0.12) 0.15 (0.27) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS --------------------------------------------------------------------------------------------------------------------------------- 1995 9.45 0.72 1.50 2.22 (0.71) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 10.96 0.71 (0.58) 0.13 (0.72) -- --------------------------------------------------------------------------------------------------------------------------------- 1997 10.37 0.70 0.40 1.10 (0.70) -- --------------------------------------------------------------------------------------------------------------------------------- 1998 10.77 0.68 0.23 0.91 (0.68) -- --------------------------------------------------------------------------------------------------------------------------------- 1999 11.00 0.67 (1.14) (0.47) (0.67) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD --------------------------------------------------------------------------------------------------------------------------------- 1995 6.16 0.80 0.08 0.88 (0.78) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 6.26 0.77 (0.06) 0.71 (0.79) -- --------------------------------------------------------------------------------------------------------------------------------- 1997 6.18 0.75 (0.06) 0.69 (0.75) -- --------------------------------------------------------------------------------------------------------------------------------- 1998 6.12 0.71 (1.05) (0.34) (0.71) -- --------------------------------------------------------------------------------------------------------------------------------- 1999 5.07 0.68 (0.74) (0.06) (0.68) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- UTILITIES --------------------------------------------------------------------------------------------------------------------------------- 1995 11.92 0.53 2.81 3.34 (0.58) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 14.68 0.55 0.70 1.25 (0.55) $(0.04) --------------------------------------------------------------------------------------------------------------------------------- 1997 15.34 0.57 3.46 4.03 (0.57) (0.21) --------------------------------------------------------------------------------------------------------------------------------- 1998 18.59 0.57 3.68 4.25 (0.57) (1.02) --------------------------------------------------------------------------------------------------------------------------------- 1999 21.25 0.55 2.08 2.63 (0.55) (0.43) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER --------------------------------------------------------------------------------------------------------------------------------- 1997(a) 10.00 0.44 1.76 2.20 (0.44) -- --------------------------------------------------------------------------------------------------------------------------------- 1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11) --------------------------------------------------------------------------------------------------------------------------------- 1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++ --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH --------------------------------------------------------------------------------------------------------------------------------- 1995 11.99 0.38 3.89 4.27 (0.41) (0.26) --------------------------------------------------------------------------------------------------------------------------------- 1996 15.59 0.41 3.22 3.63 (0.41) (0.41) --------------------------------------------------------------------------------------------------------------------------------- 1997 18.40 0.41 4.20 4.61 (0.41) (1.00) --------------------------------------------------------------------------------------------------------------------------------- 1998 21.60 0.41 2.58 2.99 (0.41) (2.05) --------------------------------------------------------------------------------------------------------------------------------- 1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------
58 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. The financial highlights table does not cover the Information Portfolio, which had not commenced operations prior to the date of this PROSPECTUS.
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF ----------------------------- PORTFOLIO DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER YEAR ENDED DECEMBER 31, DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE ----------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET ----------------------------------------------------------------------------------------------------------------------------------- 1995 $(0.055) $ 1.00 5.66% $ 249,787 0.53% 5.52% N/A ----------------------------------------------------------------------------------------------------------------------------------- 1996 (0.050) 1.00 5.11 340,238 0.52 4.97 N/A ----------------------------------------------------------------------------------------------------------------------------------- 1997 (0.051) 1.00 5.23 335,578 0.52 5.10 N/A ----------------------------------------------------------------------------------------------------------------------------------- 1998 (0.051) 1.00 5.18 442,034 0.52 5.04 N/A ----------------------------------------------------------------------------------------------------------------------------------- 1999 (0.047) 1.00 4.80 435,643 0.52 4.68 N/A ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM BOND ----------------------------------------------------------------------------------------------------------------------------------- 1999(c) (0.27) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) 56%(1) ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS ----------------------------------------------------------------------------------------------------------------------------------- 1995 (0.71) 10.96 24.30 520,579 0.54 7.07 162 ----------------------------------------------------------------------------------------------------------------------------------- 1996 (0.72) 10.37 1.56 474,660 0.53 6.84 182 ----------------------------------------------------------------------------------------------------------------------------------- 1997 (0.70) 10.77 11.09 474,990 0.53 6.71 171 ----------------------------------------------------------------------------------------------------------------------------------- 1998 (0.68) 11.00 8.67 547,583 0.52 6.23 152 ----------------------------------------------------------------------------------------------------------------------------------- 1999 (0.67) 9.86 (4.32) 456,132 0.52 6.45 119 ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD ----------------------------------------------------------------------------------------------------------------------------------- 1995 (0.78) 6.26 14.93 154,310 0.54 12.67 58 ----------------------------------------------------------------------------------------------------------------------------------- 1996 (0.79) 6.18 11.98 259,549 0.51 12.59 57 ----------------------------------------------------------------------------------------------------------------------------------- 1997 (0.75) 6.12 11.87 368,061 0.53 12.44 95 ----------------------------------------------------------------------------------------------------------------------------------- 1998 (0.71) 5.07 (6.20) 364,079 0.53 12.27 93 ----------------------------------------------------------------------------------------------------------------------------------- 1999 (0.68) 4.33 (1.33) 279,683 0.53 14.05 48 ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- UTILITIES ----------------------------------------------------------------------------------------------------------------------------------- 1995 (0.58) 14.68 28.65 479,070 0.68 4.00 13 ----------------------------------------------------------------------------------------------------------------------------------- 1996 (0.59) 15.34 8.68 440,662 0.67 3.61 9 ----------------------------------------------------------------------------------------------------------------------------------- 1997 (0.78) 18.59 27.15 458,134 0.67 3.48 13 ----------------------------------------------------------------------------------------------------------------------------------- 1998 (1.59) 21.25 23.76 560,803 0.67 2.89 7 ----------------------------------------------------------------------------------------------------------------------------------- 1999 (0.98) 22.90 12.71 580,487 0.67 2.51 10 ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER ----------------------------------------------------------------------------------------------------------------------------------- 1997(a) (0.44) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) 41(1) ----------------------------------------------------------------------------------------------------------------------------------- 1998 (0.67) 11.46 3.21 87,769 0.81 5.09 54 ----------------------------------------------------------------------------------------------------------------------------------- 1999 (0.81) 11.44 7.06 81,616 0.81 4.98 43 ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH ----------------------------------------------------------------------------------------------------------------------------------- 1995 (0.67) 15.59 36.38 865,417 0.61 2.75 24 ----------------------------------------------------------------------------------------------------------------------------------- 1996 (0.82) 18.40 23.96 1,288,404 0.57 2.46 23 ----------------------------------------------------------------------------------------------------------------------------------- 1997 (1.41) 21.60 25.61 1,905,906 0.54 2.06 28 ----------------------------------------------------------------------------------------------------------------------------------- 1998 (2.46) 22.13 14.28 2,249,927 0.53 1.85 45 ----------------------------------------------------------------------------------------------------------------------------------- 1999 (3.65) 18.32 (2.39) 2,033,814 0.52 1.82 81 ----------------------------------------------------------------------------------------------------------------------------------- 2000(d) -----------------------------------------------------------------------------------------------------------------------------------
59
NET ASSET NET VALUE INVESTMENT NET REALIZED TOTAL FROM BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS --------------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH --------------------------------------------------------------------------------------------------------------------------------- 1995 $11.52 $ 0.10 $ 3.68 $ 3.78 $(0.08) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 15.22 0.08 1.65 1.73 (0.03) $(0.27) --------------------------------------------------------------------------------------------------------------------------------- 1997 16.65 0.01 3.90 3.91 (0.08) (2.19) --------------------------------------------------------------------------------------------------------------------------------- 1998 18.29 (0.05) 3.59 3.54 -- (1.47) --------------------------------------------------------------------------------------------------------------------------------- 1999 20.36 -- 6.12 6.12 -- (2.75) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH --------------------------------------------------------------------------------------------------------------------------------- 1995 9.82 0.24 1.90 2.14 (0.26) (0.01) --------------------------------------------------------------------------------------------------------------------------------- 1996 11.69 0.24 1.75 1.99 (0.24) (0.31) --------------------------------------------------------------------------------------------------------------------------------- 1997 13.13 0.22 1.37 1.59 (0.23) (0.60) --------------------------------------------------------------------------------------------------------------------------------- 1998 13.89 0.24 1.45 1.69 (0.24) (1.52) --------------------------------------------------------------------------------------------------------------------------------- 1999 13.82 0.27 1.71 1.98 (0.29) (1.07) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH --------------------------------------------------------------------------------------------------------------------------------- 1995 14.56 0.20 3.50 3.70 (0.19)* (0.54) --------------------------------------------------------------------------------------------------------------------------------- 1996 17.53 0.17 4.91 5.08 (0.04) (1.01) --------------------------------------------------------------------------------------------------------------------------------- 1997 21.56 0.21 3.19 3.40 (0.24) (1.18) --------------------------------------------------------------------------------------------------------------------------------- 1998 23.54 0.15 5.53 5.68 (0.31) (1.73) --------------------------------------------------------------------------------------------------------------------------------- 1999 27.18 0.25 6.91 7.16 (0.19) (2.68) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH --------------------------------------------------------------------------------------------------------------------------------- 1995 9.26 0.12 0.41 0.53 (0.09) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 9.70 0.05 0.32 0.37 (0.11) -- --------------------------------------------------------------------------------------------------------------------------------- 1997 9.96 0.12 (3.82) (3.70) (0.14) -- --------------------------------------------------------------------------------------------------------------------------------- 1998 6.12 0.06 (0.75) (0.69) (0.28) -- --------------------------------------------------------------------------------------------------------------------------------- 1999 5.15 0.04 3.33 3.37 (0.06) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- EQUITY --------------------------------------------------------------------------------------------------------------------------------- 1995 19.25 0.22 7.92 8.14 (0.25) -- --------------------------------------------------------------------------------------------------------------------------------- 1996 27.14 0.16 2.70 2.86 (0.16) (3.45) --------------------------------------------------------------------------------------------------------------------------------- 1997 26.39 0.18 9.27 9.45 (0.18) (2.08) --------------------------------------------------------------------------------------------------------------------------------- 1998 33.58 0.25 9.47 9.72 (0.25) (4.47) --------------------------------------------------------------------------------------------------------------------------------- 1999 38.58 0.22 20.48 20.70 (0.22) (5.18) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------
60
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF ----------------------------- PORTFOLIO DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) RATE ---------------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH ---------------------------------------------------------------------------------------------------------------------------------- 1995 $(0.08) $15.22 32.92% $ 66,995 0.74% 0.70% 34% ---------------------------------------------------------------------------------------------------------------------------------- 1996 (0.30) 16.65 11.55 86,862 0.73 0.52 98 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (2.27) 18.29 24.54 127,100 0.71 0.01 139 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (1.47) 20.36 19.63 138,603 0.70 (0.26) 248 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (2.75) 23.73 33.29 171,251 0.72 0.02 575 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH ---------------------------------------------------------------------------------------------------------------------------------- 1995 (0.27) 11.69 22.14 205,739 0.88 2.23 55 ---------------------------------------------------------------------------------------------------------------------------------- 1996 (0.55) 13.13 17.49 334,821 0.85 1.94 39 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (0.83) 13.89 12.04 481,613 0.84 1.61 48 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (1.76) 13.82 12.53 484,228 0.84 1.68 52 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (1.36) 14.44 14.65 506,929 0.83 1.90 43 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH ---------------------------------------------------------------------------------------------------------------------------------- 1995 (0.73) 17.53 25.89 188,119 1.17 1.25 69 ---------------------------------------------------------------------------------------------------------------------------------- 1996 (1.05) 21.56 29.99 302,422 1.11 0.97 43 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (1.42) 23.54 16.07 391,441 1.12 1.04 45 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (2.04) 27.18 23.96 510,638 1.11 0.65 56 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (2.87) 31.47 29.11 579,705 1.04 0.87 55 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH ---------------------------------------------------------------------------------------------------------------------------------- 1995 (0.09) 9.70 5.74 98,330 1.44 1.23 53 ---------------------------------------------------------------------------------------------------------------------------------- 1996 (0.11) 9.96 3.89 144,536 1.37 1.01 50 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (0.14) 6.12 (37.70) 68,904 1.44 1.09 58 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (0.28) 5.15 (10.40) 52,842 1.51 0.91 112 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (0.06) 8.46 66.09 115,927 1.42 0.85 105 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- EQUITY ---------------------------------------------------------------------------------------------------------------------------------- 1995 (0.25) 27.14 42.53 359,779 0.54 0.97 269 ---------------------------------------------------------------------------------------------------------------------------------- 1996 (3.61) 26.39 12.36 521,908 0.54 0.58 279 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (2.26) 33.58 37.43 823,090 0.52 0.61 145 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (4.72) 38.58 30.45 1,138,413 0.52 0.73 257 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (5.40) 53.88 58.59 2,083,071 0.51 0.54 323 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------
61
NET ASSET VALUE NET NET REALIZED TOTAL FROM BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS --------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX --------------------------------------------------------------------------------------------------------------------------------- 1998(b) $10.00 $0.06 $ 1.16 $ 1.22 -- -- --------------------------------------------------------------------------------------------------------------------------------- 1999 11.22 0.06 2.21 2.27 $(0.03) $(0.03) --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" --------------------------------------------------------------------------------------------------------------------------------- 1998(b) 10.00 0.07 (0.25) (0.18) -- -- --------------------------------------------------------------------------------------------------------------------------------- 1999 9.82 0.06 2.56 2.62 (0.07) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY --------------------------------------------------------------------------------------------------------------------------------- 1999(c) 10.00 0.05 4.55 4.60 (0.03) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- STRATEGIST --------------------------------------------------------------------------------------------------------------------------------- 1995 12.45 0.62 0.49 1.11 (0.67) (0.44) --------------------------------------------------------------------------------------------------------------------------------- 1996 12.45 0.43 1.39 1.82 (0.43) (0.12) --------------------------------------------------------------------------------------------------------------------------------- 1997 13.72 0.45 1.40 1.85 (0.45) (0.32) --------------------------------------------------------------------------------------------------------------------------------- 1998 14.80 0.36 3.40 3.76 (0.36) (1.56) --------------------------------------------------------------------------------------------------------------------------------- 1999 16.64 0.40 2.46 2.86 (0.40) -- --------------------------------------------------------------------------------------------------------------------------------- 2000(d) --------------------------------------------------------------------------------------------------------------------------------- Commencement of operations:
(a) January 21, 1997. (b) May 18, 1998. (c) May 4, 1999. (d) For the six months ended June 30, 2000 (UNAUDITED). + Calculated based on the net asset value as of the last business day of the period. ++ Includes distributions from paid-in-capital of $0.02. * Includes dividends in excess of net investment income of $0.02. (1) Not annualized. (2) Annualized. (3) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 21, 1997 through December 3, 1997 for Income Builder, the ratios of expenses and net investment income to average net assets would have been 0.99% and 4.89%, respectively. (4) If the Investment Manager had not assumed all expenses and waived its management fee for the period May 18, 1998 through December 31, 1998 for Competitive Edge "Best Ideas" and S&P 500 Index, the ratios of expenses and net investment income to average net assets would have been 0.92% and 0.83%, respectively, for Competitive Edge "Best Ideas" and 0.59% and 1.26%, respectively, for S&P 500 Index. (5) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 1, 1999 through April 30, 1999 for Competitive Edge "Best Ideas" and for the period May 4, 1999 through November 4, 1999 for Short-Term Bond and Aggressive Equity and for the period January 1, 1999 through January 5, 1999 for S&P 500 Index and "capped" the expenses of S&P 500 Index at 0.50% of its daily net assets for the period January 6, 1999 through December 31, 1999, the ratio of expenses and net investment income (loss) to average net assets would have been 0.77% and 0.51%, respectively, for Competitive Edge "Best Ideas", 2.38% and 3.07%, respectively, for Short-Term Bond, 1.41% and (0.02%), respectively, for Aggressive Equity and 0.48% and 1.02%, respectively, for S&P 500 Index.
62
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS TOTAL END OF ----------------------------- PORTFOLIO DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE ---------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX ---------------------------------------------------------------------------------------------------------------------------------- 1998(b) -- $11.22 12.20%(1) $ 48,732 --(4) 1.85%(2)(4) 2%(1) ---------------------------------------------------------------------------------------------------------------------------------- 1999 (0.06) 13.43 20.23 185,963 0.48%(5) 1.03(5) 1 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" ---------------------------------------------------------------------------------------------------------------------------------- 1998(b) -- 9.82 (1.90)(1) 36,539 --(4) 1.74(2)(4) 31(1) ---------------------------------------------------------------------------------------------------------------------------------- 1999 (0.07) 12.37 26.88 62,295 0.56(5) 0.72(5) 54 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY ---------------------------------------------------------------------------------------------------------------------------------- 1999(c) (0.03) 14.57 46.08(1) 38,197 0.52(2)(5) 0.86(2)(5) 108(1) ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ---------------------------------------------------------------------------------------------------------------------------------- STRATEGIST ---------------------------------------------------------------------------------------------------------------------------------- 1995 (1.11) 12.45 9.48 388,579 0.52 5.03 329 ---------------------------------------------------------------------------------------------------------------------------------- 1996 (0.55) 13.72 15.02 423,768 0.52 3.30 153 ---------------------------------------------------------------------------------------------------------------------------------- 1997 (0.77) 14.80 13.71 497,028 0.52 3.09 159 ---------------------------------------------------------------------------------------------------------------------------------- 1998 (1.92) 16.64 26.55 633,934 0.52 2.32 84 ---------------------------------------------------------------------------------------------------------------------------------- 1999 (0.40) 19.10 17.35 729,701 0.52 2.24 120 ---------------------------------------------------------------------------------------------------------------------------------- 2000(d) ----------------------------------------------------------------------------------------------------------------------------------
63 NOTES ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- 64 NOTES ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- 65 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Additional information about each Portfolio's investments is available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a discussion of the market conditions and investment strategies that significantly affected each Portfolio's performance during its last fiscal year. These reports do not cover the Information Portfolio, which prior to the date of this PROSPECTUS had not commenced operations. The Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is incorporated herein by reference (legally is part of this PROSPECTUS). For a free copy of any of these documents, to request other information about the Portfolios, or to make shareholder inquiries, please call: (800) 869-NEWS You also may obtain information about the Fund by calling your Morgan Stanley Dean Witter Financial Advisor. Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION) can be viewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Information about the Reference Room's operations may be obtained by calling the SEC at (202) 942-8090. Reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, DC 20549-0102. (THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-3692) MORGAN STANLEY DEAN WITTER VARIABLE STATEMENT OF ADDITIONAL INFORMATION INVESTMENT NOVEMBER 3, 2000 SERIES ---------------------------------------------------------------------------- -THE MONEY MARKET PORTFOLIO -THE SHORT-TERM BOND PORTFOLIO -THE QUALITY INCOME PLUS PORTFOLIO -THE HIGH YIELD PORTFOLIO -THE UTILITIES PORTFOLIO -THE INCOME BUILDER PORTFOLIO -THE DIVIDEND GROWTH PORTFOLIO -THE CAPITAL GROWTH PORTFOLIO -THE GLOBAL DIVIDEND GROWTH PORTFOLIO -THE EUROPEAN GROWTH PORTFOLIO -THE PACIFIC GROWTH PORTFOLIO -THE EQUITY PORTFOLIO -THE S&P 500 INDEX PORTFOLIO -THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO -THE AGGRESSIVE EQUITY PORTFOLIO -THE INFORMATION PORTFOLIO -THE STRATEGIST PORTFOLIO This STATEMENT OF ADDITIONAL INFORMATION for the Morgan Stanley Dean Witter Variable Investment Series (the "Fund") is not a PROSPECTUS. The Fund's Class X PROSPECTUS and the Fund's Class Y PROSPECTUS (each dated November 3, 2000) provide the basic information you should know before allocating your investment under your variable annuity contract or your variable life contract. Either PROSPECTUS may be obtained without charge from the Fund at its address or telephone number listed below or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or from Dean Witter Reynolds at any of its branch offices. Morgan Stanley Dean Witter Variable Investment Series Two World Trade Center New York, New York 10048 (800) 869-NEWS TABLE OF CONTENTS -------------------------------------------------------------------------------- I. Fund History........................................................ 4 II. Description of the Fund and Its Investments and Risks............... 4 A. Classification................................................. 4 B. Eligible Purchasers............................................ 4 C. Investment Strategies and Risks................................ 4 D. Fund Policies/Investment Restrictions.......................... 17 E. Portfolio Turnover............................................. 21 III. Management of the Fund.............................................. 21 A. Board of Trustees.............................................. 21 B. Management Information......................................... 21 C. Compensation................................................... 26 IV. Control Persons and Principal Holders of Securities................. 28 V. Investment Management and Other Services............................ 28 A. Investment Manager and Sub-Advisor............................. 28 B. Principal Underwriter.......................................... 30 C. Services Provided by the Investment Manager and Sub-Advisor.... 30 D. Rule 12b-1 Plan................................................ 32 E. Other Service Providers........................................ 33 F. Codes of Ethics................................................ 33 VI. Brokerage Allocation and Other Practices............................ 33 A. Brokerage Transactions......................................... 33 B. Commissions.................................................... 34 C. Brokerage Selection............................................ 37 D. Directed Brokerage............................................. 38 E. Regular Broker-Dealers......................................... 38 VII. Capital Stock and Other Securities.................................. 40 VIII. Purchase, Redemption and Pricing of Shares.......................... 41 A. Purchase/Redemption of Shares.................................. 41 B. Offering Price................................................. 42 IX. Taxation of the Portfolios and Shareholders......................... 44 X. Underwriters........................................................ 45 XI. Calculation of Performance Data..................................... 45 XII. Financial Statements................................................ 49 Appendix--Ratings of Corporate Debt Instruments Investments......... 159
2 GLOSSARY OF SELECTED DEFINED TERMS -------------------------------------------------------------------------------- The terms defined in this glossary are frequently used in this STATEMENT OF ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of the document). "CONTRACT"--Variable annuity contract and/or variable life insurance contract issued by Northbrook Life Insurance Company, Allstate Life Insurance Company of New York, Glenbrook Life and Annuity Company and Paragon Life Insurance Company. "CONTRACT OWNERS"--Owners of a Contract. "CUSTODIAN"--The Bank of New York for each Portfolio other than the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the INFORMATION PORTFOLIO. The Chase Manhattan Bank for the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO. "DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer subsidiary of MSDW. "DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned broker-dealer subsidiary of MSDW. "FINANCIAL ADVISOR"--Morgan Stanley Dean Witter authorized financial services representatives. "FUND"--Morgan Stanley Dean Witter Variable Investment Series, a registered open-end series investment company currently consisting of seventeen Portfolios. "INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by the Investment Company Act) of the Fund. "INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned investment advisor subsidiary of MSDW. "MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned broker-dealer subsidiary of MSDW. "MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for which the Investment Manager serves as the investment advisor; and (ii) that hold themselves out to investors as related companies for investment and investor services. "MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services firm. "MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a wholly-owned fund services subsidiary of the Investment Manager. "PORTFOLIO(S)"--The separate investment portfolio(s) of the Fund. "SUB-ADVISOR"--Morgan Stanley Dean Witter Investment Management Inc., a subsidiary of MSDW (only applicable to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO). "TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer agent subsidiary of MSDW. "TRUSTEES"--The Board of Trustees of the Fund. 3 I. FUND HISTORY -------------------------------------------------------------------------------- The Fund was organized under the laws of the Commonwealth of Massachusetts on February 25, 1983 under the name Dean Witter Variable Annuity Investment Series and is a trust of the type commonly referred to as a Massachusetts Business Trust. Effective February 23, 1988, the Fund's name was changed to Dean Witter Variable Investment Series. On September 1, 1995, the name of the MANAGED ASSETS PORTFOLIO was changed to the STRATEGIST PORTFOLIO. Effective June 22, 1998, the Fund's name was changed to Morgan Stanley Dean Witter Variable Investment Series. II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS -------------------------------------------------------------------------------- A. CLASSIFICATION The Fund is an open-end, diversified management investment company. B. ELIGIBLE PURCHASERS As discussed in each of the Class X and Class Y PROSPECTUSES, shares of the Fund are sold only to particular insurance companies in connection with variable annuity and/or variable life insurance contracts they issue. It is conceivable that in the future it may become disadvantageous for both variable life insurance and variable annuity contract separate accounts to invest in the same underlying funds. Although neither the various insurance companies nor the Fund currently foresee any such disadvantage, the Trustees intend to monitor events in order to identify any material irreconcilable conflict between the interest of variable annuity contract owners and variable life insurance contract owners and to determine what action, if any, should be taken in response thereto. C. INVESTMENT STRATEGIES AND RISKS The following discussion of each Portfolio's investment strategies and risks should be read with the sections of the Fund's PROSPECTUS titled "Principal Investment Strategies," "Principal Risks," "Additional Investment Strategy Information" and "Additional Risk Information." CONVERTIBLE SECURITIES. Each Portfolio, other than the MONEY MARKET PORTFOLIO, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, may acquire through purchase fixed-income securities which are convertible into common stock ("CONVERTIBLE SECURITIES"). In addition, each Portfolio, other than the MONEY MARKET PORTFOLIO, may acquire convertible securities through a distribution by a security held in its portfolio. Convertible securities rank senior to common stocks in a corporation's capital structure and, therefore, entail less risk than the corporation's common stock. The value of a convertible security is a function of its "investment value" (its value as if it did not have a conversion privilege) and its "conversion value" (the security's worth if it were to be exchanged for the underlying security, at market value, pursuant to its conversion privilege). To the extent that a convertible security's investment value is greater than its conversion value, its price will be primarily a reflection of such investment value and its price will be likely to increase when interest rates fall and to decrease when interest rates rise, as with a fixed-income security (the credit standing of the issuer and other factors may also have an effect on the convertible security's value). If the conversion value exceeds the investment value, the price of the convertible security will rise above its investment value and, in addition, will sell at some premium over its conversion value. (This premium represents the price investors are willing to pay for the privilege of purchasing a fixed-income security with a possibility of capital appreciation due to the conversion privilege.) At such times the price of the convertible security will tend to fluctuate directly with the price of the underlying equity security. Convertible securities may be purchased by a Portfolio at varying price levels above their investment values and/ or their conversion values in keeping with the Portfolio's objective. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The SHORT-TERM BOND PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST 4 PORTFOLIO may enter into forward foreign currency exchange contracts ("FORWARD CONTRACTS"): to facilitate settlement in an attempt to limit the effect of changes in the relationship between the U.S. dollar and the foreign currency during the period between the date on which the security is purchased or sold and the date on which payment is made or received. In addition, the SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO may enter into forward contracts as a hedge against fluctuations in future foreign exchange rates. Each Portfolio may conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. A forward contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial and investment banks) and their customers. Forward contracts only will be entered into with United States banks and their foreign branches or foreign banks whose assets total $1 billion or more. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. When the Fund's Investment Manager believes that a particular foreign currency may experience a substantial movement against the U.S. dollar, it may enter into a forward contract to purchase or sell, for a fixed amount of dollars or other currency, the amount of foreign currency approximating the value of some or all of a Portfolio's portfolio securities denominated in such foreign currency. The Portfolios will also not enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's portfolio securities or other assets denominated in that currency. The SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO also may from time to time utilize forward contracts for other purposes. For example, they may be used to hedge a foreign security held in the portfolio or a security which pays out principal tied to an exchange rate between the U.S. dollar and a foreign currency, against a decline in value of the applicable foreign currency. They also may be used to lock in the current exchange rate of the currency in which those securities anticipated to be purchased are denominated. At times, the Portfolios may enter into "cross-currency" hedging transactions involving currencies other than those in which securities are held or proposed to be purchased are denominated. A Portfolio will not enter into forward currency contracts or maintain a net exposure to these contracts where the consummation of the contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's portfolio securities. Although a Portfolio values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will, however, do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the spread between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer. A Portfolio may be limited in its ability to enter into hedging transactions involving forward contracts by the Internal Revenue Code requirements relating to qualification as a regulated investment company. Forward contracts may limit gains on portfolio securities that could otherwise be realized had they not been utilized and could result in losses. The contracts also may increase the Portfolio's volatility and may involve a significant amount of risk relative to the investment of cash. OPTION AND FUTURES TRANSACTIONS. Each of the following Portfolios may engage in transactions in listed and OTC options: the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH 5 PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO. Listed options are issued or guaranteed by the exchange on which they are traded or by a clearing corporation such as the Options Clearing Corporation ("OCC"). Ownership of a listed call option gives the Portfolio the right to buy from the OCC (in the U.S.) or other clearing corporation or exchange, the underlying security or currency covered by the option at the stated exercise price (the price per unit of the underlying security) by filing an exercise notice prior to the expiration date of the option. The writer (seller) of the option would then have the obligation to sell to the OCC (in the U.S.) or other clearing corporation or exchange, the underlying security or currency at that exercise price prior to the expiration date of the option, regardless of its then current market price. Ownership of a listed put option would give the Portfolio the right to sell the underlying security or currency to the OCC (in the U.S.) or other clearing corporation or exchange, at the stated exercise price. Upon notice of exercise of the put option, the writer of the put would have the obligation to purchase the underlying security or currency from the OCC (in the U.S.) or other clearing corporation or exchange, at the exercise price. COVERED CALL WRITING. Each of the above-named Portfolios is permitted to write covered call options on portfolio securities without limit. Each of the SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO may also write covered call options on the U.S. dollar and foreign currencies in which its portfolio securities are denominated, without limit. The Portfolio will receive from the purchaser, in return for a call it has written, a "premium," I.E., the price of the option. Receipt of these premiums may better enable the Portfolio to earn a higher level of current income than it would earn from holding the underlying securities (or currencies) alone. Moreover, the premium received will offset a portion of the potential loss incurred by the Portfolio if the securities (or currencies) underlying the option decline in value. The Portfolio may be required, at any time during the option period, to deliver the underlying security (or currency) against payment of the exercise price on any calls it has written. This obligation is terminated upon the expiration of the option period or at such earlier time when the writer effects a closing purchase transaction. A closing purchase transaction is accomplished by purchasing an option of the same series as the option previously written. However, once the Portfolio has been assigned an exercise notice, the Portfolio will be unable to effect a closing purchase transaction. A call option is "covered" if the Portfolio owns the underlying security subject to the option or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional consideration (in cash, Treasury bills or other liquid portfolio securities) held in a segregated account on the Portfolio's books) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Portfolio holds a call on the same security as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written if the difference is maintained by the Portfolio in cash, Treasury bills or other liquid portfolio securities in a segregated account on the Portfolio's books. Options written by the Portfolio normally have expiration dates of from up to eighteen months from the date written. The exercise price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. COVERED PUT WRITING. Each of the Portfolios that may engage in covered call writing may engage in covered put writing. A writer of a covered put option incurs an obligation to buy the security underlying the option from the purchaser of the put, at the option's exercise price at any time during the option period, at the purchaser's election. Through the writing of a put option, the Portfolio would receive income from the premium paid by purchasers. The potential gain on a covered put option is limited to the premium received on the option (less the commissions paid on the transaction). At any time during the option period, the Portfolio may be required to make payment of the exercise price against delivery of the underlying security (or currency). A put option is "covered" if the Portfolio maintains cash, Treasury bills or other liquid portfolio securities with a value equal to the exercise price in a segregated account on the Portfolio's books, or holds a put on the same security as the put written where the exercise price of 6 the put held is equal to or greater than the exercise price of the put written. The aggregate value of the obligations underlying puts may not exceed 50% of the Portfolio's assets. The operation of and limitations on covered put options in other respects are substantially identical to those of call options. PURCHASING CALL AND PUT OPTIONS. Each of the SHORT-TERM BOND PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO may purchase listed and OTC call and put options in amounts equaling up to 5% of its total assets and, in the case of each of the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the STRATEGIST PORTFOLIO, up to 10% of its total assets. Each of the last three listed Portfolios and the INFORMATION PORTFOLIO may purchase stock index options in amounts not exceeding 5% of its total assets. The purchase of a call option would enable a Portfolio, in return for the premium paid, to lock in a purchase price for a security or currency during the term of the option. The purchase of a put option would enable a Portfolio, in return for a premium paid, to lock in a price at which it may sell a security or currency during the term of the option. OPTIONS ON FOREIGN CURRENCIES. The SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, and the AGGRESSIVE EQUITY PORTFOLIO may purchase and write options on foreign currencies for purposes similar to those involved with investing in forward foreign currency exchange contracts. OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or financial institutions which have entered into direct agreements with a Portfolio. With OTC options, such variables as expiration date, exercise price and premium will be agreed upon between a Portfolio and the transacting dealer, without the intermediation of a third party such as the OCC. The Portfolios may engage in OTC option transactions only with member banks of the Federal Reserve Bank System or primary dealers in U.S. Government securities or with affiliates of such banks or dealers. RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the ability of the Investment Manager or, if applicable, the Sub-Advisor, to forecast correctly interest rates, currency exchange rates and/or market movements. If the market value of the portfolio securities (or the currencies in which they are denominated) upon which call options have been written increases, a Portfolio may receive a lower total return from the portion of its portfolio upon which calls have been written than it would have had such calls not been written. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security (or the value of its denominated currency) increase, but has retained the risk of loss should the price of the underlying security (or the value of its denominated currency) decline. The covered put writer also retains the risk of loss should the market value of the underlying security decline below the exercise price of the option less the premium received on the sale of the option. In both cases, the writer has no control over the time when it may be required to fulfill its obligation as a writer of the option. Prior to exercise or expiration, an option position can only be terminated by entering into a closing purchase or sale transaction. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver or receive the underlying securities at the exercise price. A Portfolio's ability to close out its position as a writer of an option is dependent upon the existence of a liquid secondary market on option exchanges. There is no assurance that such a market will exist, particularly in the case of OTC options. In the event of the bankruptcy of a broker through which a Portfolio engages in transactions in options, the Portfolio could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. In the case of OTC options, if the transacting dealer fails to make or take delivery of the securities underlying an option it has written, in accordance with the terms of that option, due to insolvency or otherwise, the Portfolio would lose the premium paid for the option as well as any anticipated benefit of the transaction. 7 Each of the exchanges has established limitations governing the maximum number of call or put options on the same underlying security which may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). An exchange may order the liquidation of positions found to be in violation of these limits and it may impose other sanctions or restrictions. These position limits may restrict the number of listed options which the Portfolios may write. The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets. The markets in foreign currency options are relatively new and a Portfolio's ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. The value of a foreign currency option depends upon the value of the underlying currency relative to the U.S. dollar. As a result, the price of the option position may vary with changes in the value of either or both currencies and have no relationship to the investment merits of a foreign security. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information available is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e., less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that the U.S. options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that are not reflected in the options market. STOCK INDEX OPTIONS. Each of the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO may invest in options on stock indexes. Options on stock indexes are similar to options on stock except that, rather than the right to take or make delivery of stock at a specified price, an option on a stock index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to such difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount. RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are settled in cash, a Portfolio could not, if it wrote a call option, provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A call writer can offset some of the risk of its writing position by holding a diversified portfolio of stocks similar to those on which the underlying index is based. However, most investors cannot, as a practical matter, acquire and hold a portfolio containing exactly the same stocks as the underlying index, and, as a result, bear a risk that the value of the securities held will vary from the value of the index. Even if an index call writer could assemble a stock portfolio that exactly reproduced the composition of the underlying index, the writer still would not be fully covered from a risk standpoint because of the "timing risk" inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when 8 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 portfolio. This "timing risk" is an inherent limitation on the ability of index call writers to cover their risk exposure by holding stock positions. A holder of an index option who exercises it before the closing index value for that day is available runs the risk that the level of the underlying index may subsequently change. If a change causes the exercised option to fall out-of-the-money, the exercising holder will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer. If dissemination of the current level of an underlying index is interrupted, or if trading is interrupted in stocks accounting for a substantial portion of the value of an index, the trading of options on that index will ordinarily be halted. If the trading of options on an underlying index is halted, an exchange may impose restrictions prohibiting the exercise of such options. FUTURES CONTRACTS. Each of the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO may purchase and sell interest rate and index futures contracts that are traded on U.S. commodity exchanges on such underlying securities as U.S. Treasury bonds, notes, bills and GNMA Certificates and, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO, on any foreign government fixed-income security and on various currencies, and with respect to each of the ten listed Portfolios that may engage in futures transactions, on such indexes of U.S. (and, if applicable, foreign securities) as may exist or come into existence. A futures contract purchaser incurs an obligation to take delivery of a specified amount of the obligation underlying the contract at a specified time in the future for a specified price. A seller of a futures contract incurs an obligation to deliver the specified amount of the underlying obligation at a specified time in return for an agreed upon price. The purchase of a futures contract enables a Portfolio, during the term of the contract, to lock in a price at which it may purchase a security or currency and protect against a rise in prices pending purchase of portfolio securities. The sale of a futures contract enables a Portfolio to lock in a price at which it may sell a security or currency and protect against declines in the value of portfolio securities. Although most futures contracts call for actual delivery or acceptance of securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Index futures contracts provide for the delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the open or close of the last trading day of the contract and the futures contract price. A futures contract sale is closed out by effecting a futures contract purchase for the same aggregate amount of the specific type of security (currency) and the same delivery date. If the sale price exceeds the offsetting purchase price, the seller would be paid the difference and would realize a gain. If the offsetting purchase price exceeds the sale price, the seller would pay the difference and would realize a loss. Similarly, a futures contract purchase is closed out by effecting a futures contract sale for the same aggregate amount of the specific type of security (currency) and the same 9 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 contract. The margin deposits made are marked-to-market daily and the Portfolio may be required to make subsequent deposits of cash or U.S. Government securities, called "variation margin," which are reflective of price fluctuations in the futures contract. OPTIONS ON FUTURES CONTRACTS. Each of the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO may purchase and write call and put options on futures contracts and enter into closing transactions with respect to such options to terminate an existing position. An option on a futures contract gives the purchaser the right (in return for the premium paid), and the writer the obligation, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the term of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option is accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract at the time of exercise exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option on a futures contract are included in initial margin deposits. LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. A Portfolio may not enter into futures contracts or purchase related options thereon if, immediately thereafter, the amount committed to margin plus the amount paid for premiums for unexpired options on futures contracts exceeds 5% of the value of the Portfolio's total assets, after taking into account unrealized gains and unrealized losses on such contracts into which it has entered; provided, however, that in the case of an option that is in-the-money (the exercise price of the call (put) option is less (more) than the market price of the underlying security) at the time of purchase, the in-the-money amount may be excluded in calculating the 5%. However, there is no overall limitation on the percentage of a Portfolio's net assets which may be subject to a hedge position. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The prices of securities and indexes subject to futures contracts (and thereby the futures contract prices) may correlate imperfectly with the behavior of the cash prices of the Portfolio's securities (and the currencies in which they are denominated). Also, prices of futures contracts may not move in tandem with the changes in prevailing interest rates, market movements and/or currency exchange rates against which a Portfolio seeks a hedge. A correlation may also be distorted (a) temporarily, by short-term traders' seeking to profit from the difference between a contract or security price objective and their cost of borrowed funds; (b) by investors in futures contracts electing to close out their contracts through offsetting transactions rather than meet margin deposit requirements; (c) by investors in futures contracts opting to make or take delivery of underlying securities rather than engage in closing transactions, thereby reducing liquidity of the futures market; and (d) temporarily, by speculators who view the deposit requirements in the futures markets as less onerous than margin requirements in the cash market. Due to the possibility of price 10 distortion in the futures market and because of the possible imperfect correlation between movements in the prices of securities and movements in the prices of futures contracts, a correct forecast of interest rate, currency exchange rate and/or market movement trends by the Investment Manager (and/or if applicable, the Sub-Advisor) may still not result in a successful hedging transaction. There is no assurance that a liquid secondary market will exist for futures contracts and related options in which a Portfolio may invest. In the event a liquid market does not exist, it may not be possible to close out a futures position and, in the event of adverse price movements, the Portfolio would continue to be required to make daily cash payments of variation margin. The absence of a liquid market in futures contracts might cause the Portfolio to make or take delivery of the underlying securities (currencies) at a time when it may be disadvantageous to do so. Exchanges also limit the amount by which the price of a futures contract may move on any day. If the price moves equal the daily limit on successive days, then it may prove impossible to liquidate a futures position until the daily limit moves have ceased. In the event of adverse price movements, a Portfolio would continue to be required to make daily cash payments of variation margin on open futures positions. In these situations, if the Portfolio has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, the Portfolio may be required to take or make delivery of the instruments underlying interest rate futures contracts it holds at a time when it is disadvantageous to do so. The inability to close out options and futures positions could also have an adverse impact on a Portfolio's ability to effectively hedge its portfolio. Futures contracts and options thereon which are purchased or sold on foreign commodities exchanges may have greater price volatility than their U.S. counterparts. Furthermore, foreign commodities exchanges may be less regulated and under less governmental scrutiny than U.S. exchanges. Brokerage commissions, clearing costs and other transaction costs may be higher on foreign exchanges. Greater margin requirements may limit a Portfolio's ability to enter into certain commodity transactions on foreign exchanges. Moreover, differences in clearance and delivery requirements on foreign exchanges may occasion delays in the settlement of a Portfolio's transactions effected on foreign exchanges. In the event of the bankruptcy of a broker through which a Portfolio engages in transactions in futures or options thereon, the Portfolio could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. If a Portfolio maintains a short position in a futures contract or has sold a call option in a futures contract, it will cover this position by holding, in a segregated account maintained on the books of the Portfolio, cash, U.S. government securities or other liquid portfolio securities equal in value (when added to any initial or variation margin on deposit) to the market value of the securities underlying the futures contract or the exercise price of the option. Such a position may also be covered by owning the securities underlying the futures contract (in the case of a stock index futures contract a portfolio of securities substantially replicating the relevant index), or by holding a call option permitting the Portfolio to purchase the same contract at a price no higher than the price at which the short position was established. In addition, if a Portfolio holds a long position in a futures contract or has sold a put option on a futures contract, it will hold cash, U.S. government securities or other liquid portfolio securities equal to the purchase price of the contract or the exercise price of the put option (less the amount of initial or variation margin on deposit) in a segregated account maintained on the books of the Portfolio. Alternatively, the Portfolio could cover its long position by purchasing a put option on the same futures contract with an exercise price as high or higher than the price of the contract held by the Portfolio. ADDITIONAL INFORMATION CONCERNING THE QUALITY INCOME PLUS AND SHORT-TERM BOND PORTFOLIOS COLLATERALIZED MORTGAGE OBLIGATIONS. The Portfolio(s) may invest in CMOs - collateralized mortgage obligations. CMOs are debt obligations collateralized by mortgage loans or mortgage pass- 11 through securities (collectively "Mortgage Assets"). Payments of principal and interest on the Mortgage Assets and any reinvestment income are used to make payments on the CMOs. CMOs are issued in multiple classes. Each class has a specific fixed or floating coupon rate and a stated maturity or final distribution date. The principal and interest on the Mortgage Assets may be allocated among the classes in a number of different ways. Certain classes will, as a result of the collection, have more predictable cash flows than others. As a general matter, the more predictable the cash flow, the lower the yield relative to other Mortgage Assets. The less predictable the cash flow, the higher the yield and the greater the risk. The Portfolio(s) may invest in any class of CMO. Certain mortgage-backed securities in which the Portfolio(s) may invest (E.G.,certain classes of CMOs) may increase or decrease in value substantially with changes in interest rates and/or the rates of prepayment. In addition, if the collateral securing CMOs or any third party guarantees are insufficient to make payments, the Portfolio could sustain a loss. In addition, the SHORT-TERM BOND PORTFOLIO may invest up to 15% of its net assets in stripped mortgage-backed securities, which are usually structured in two classes. One class entitles the holder to receive all or most of the interest but little or none of the principal of a pool of Mortgage Assets (the interest-only or "IO Class"), while the other class entitles the holder to receive all or most of the principal but little or none of the interest (the principal-only or "PO" Class). IOs tend to decrease in value substantially if interest rates decline and prepayment rates become more rapid. POs tend to decrease in value substantially if interest rates increase and the rate of repayment decreases. The SHORT-TERM BOND PORTFOLIO may invest up to 10% of its assets in inverse floaters. An inverse floater has a coupon rate that moves in the direction opposite to that of a designated interest rate index. Like most other fixed income securities, the value of inverse floaters will decrease as interest rates increase. They are more volatile, however, than most other fixed income securities because the coupon rate on an inverse floater typically changes at a multiple of the change in the relevant index rate. Thus, any rise in the index rate (as a consequence of an increase in interest rates) causes a correspondingly greater drop in the coupon rate of an inverse floater while a drop in the index rate causes a correspondingly greater increase in the coupon of an inverse floater. Some inverse floaters may also increase or decrease substantially because of changes in the rate of prepayments. ASSET-BACKED SECURITIES. The securitization techniques used to develop mortgage-backed securities are also applied to a broad range of other assets. Various types of assets, primarily automobile and credit card receivables and home equity loans, are being securitized in pass-through structures similar to the mortgage pass-through structures. These types of securities are known as asset-backed securities. The Portfolio(s) may invest in any type of asset-backed security. Asset-backed securities have risk characteristics similar to mortgage-backed securities. Like mortgage-backed securities, they generally decrease in value as a result of interest rate increases, but may benefit less than other fixed-income securities from declining interest rates, principally because of prepayments. Also, as in the case of mortgage-backed securities, prepayments generally increase during a period of declining interest rates although other factors, such as changes in credit use and payment patterns, may also influence prepayment rates. Asset-backed securities also involve the risk that various federal and state consumer laws and other legal and economic factors may result in the collateral backing the securities being insufficient to support payment on the securities. ADDITIONAL INFORMATION CONCERNING THE SHORT-TERM BOND PORTFOLIO. The SHORT-TERM BOND PORTFOLIO'S investments in preferred stocks are limited to those rated in one of the four highest categories by a nationally recognized statistical rating organization ("NRSRO") including Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch IBCA, Inc. Investments in securities rated within the four highest rating categories by a NRSRO are considered "investment grade." However, such securities rated within the fourth highest rating category by a NRSRO may have speculative characteristics and, therefore, changes in economic conditions or other circumstances are more likely to weaken their capacity to make principal and interest payments than would be the case with investments in securities with higher credit ratings. 12 ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX PORTFOLIO. The S&P 500 INDEX PORTFOLIO is not sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to the owners of shares of the Portfolio or any member of the public regarding the advisability of investing in securities generally or in the Portfolio particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the S&P 500 INDEX PORTFOLIO is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Portfolio. S&P has no obligation to take the needs of the Portfolio or the owners of shares of the Portfolio into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Portfolio or the timing of the issuance or sale of shares of the Portfolio or in the determination or calculation of the equation by which shares of the Portfolio are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Portfolio. S&P does not guarantee the accuracy or the completeness of the S&P 500 Index or any data included therein, and S&P shall have no liability for any errors, omissions or interruptions therein. S&P makes no warranty, express or implied, as to results to be obtained by the S&P 500 INDEX PORTFOLIO, owners of shares of the Portfolio, or any other person or entity from the use of the S&P 500 Index or any data included therein. S&P makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P 500 Index or any data included therein. Without limiting any of the foregoing, in no event shall S&P have any liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages. MONEY MARKET SECURITIES. In addition to the short-term fixed-income securities in which the Portfolios may otherwise invest, the Portfolios may invest in various money market securities for cash management purposes or when assuming a temporary defensive position, which among others may include commercial paper, bank acceptances, bank obligations, corporate debt securities, certificates of deposit, U.S. Government securities, obligations of savings institutions and repurchase agreements. (This section does not apply to the MONEY MARKET PORTFOLIO whose money market instruments are described in the Prospectus.) Such securities are limited to: U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to principal and interest by the United States or its agencies (such as the Export-Import Bank of the United States, Federal Housing Administration and Government National Mortgage Association) or its instrumentalities (such as the Federal Home Loan Bank, including Treasury bills, notes and bonds; BANK OBLIGATIONS. Obligations (including certificates of deposit, time deposits and bankers' acceptances) of banks subject to regulation by the U.S. Government and having total assets of $1 billion or more, and instruments secured by such obligations, not including obligations of foreign branches of domestic banks except to the extent below; EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit issued by foreign branches of domestic banks having total assets of $1 billion or more; OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings banks and savings and loan association, having total assets of $1 billion or more; FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and savings institutions, having total assets of less than $1 billion, if the principal amount of the obligation is federally insured by the Bank Insurance Fund or the Savings Association Insurance Fund (each of which is administered by the FDIC), limited to $100,000 principal amount per certificate and to 10% or less of a Portfolio's total assets in all such obligations and in all illiquid assets, in the aggregate; COMMERCIAL PAPER. Commercial paper rated within the two highest grades by Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's Investors Service, Inc. ("Moody's") or, if not 13 rated, issued by a company having an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements. When cash may be available for only a few days, it may be invested by a Portfolio in repurchase agreements until such time as it may otherwise be invested or used for payments of obligations of the Portfolio. These agreements, which may be viewed as a type of secured lending by the Portfolio, typically involve the acquisition by the Portfolio of debt securities from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that the Portfolio will sell back to the institution, and that the institution will repurchase, the underlying security serving as collateral at a specified price and at a fixed time in the future, usually not more than seven days from the date of purchase. The collateral will be marked-to-market daily to determine that the value of the collateral, as specified in the agreement, does not decrease below the purchase price plus accrued interest. If such decrease occurs, additional collateral will be requested and, when received, added to the account to maintain full collateralization. The Portfolio will accrue interest from the institution until the time when the repurchase is to occur. Although this date is deemed by the Portfolio to be the maturity date of a repurchase agreement, the maturities of securities subject to repurchase agreements are not subject to any limits. While repurchase agreements involve certain risks not associated with direct investments in debt securities, the Portfolio follows procedures designed to minimize such risks. These procedures include effecting repurchase transactions only with large, well-capitalized and well-established financial institutions whose financial condition will be continually monitored by the Investment Manager subject to procedures established by the Trustees. In addition, as described above, the value of the collateral underlying the repurchase agreement will be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the case of the MONEY MARKET PORTFOLIO, such collateral will consist entirely of securities that are direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or any agency thereof, and/or certificates of deposit, bankers' acceptances which are eligible for acceptance by a Federal Reserve Bank, and, if the seller is a bank, mortgage related securities (as such term is defined in section 3(a)(41) of the Securities Exchange Act of 1934) that at the time the repurchase agreement is entered into are rated in the highest rating category by the "Requisite NRSROs" (as defined in Rule 2a-7 under the Investment Company Act of 1940). Additionally, in the case of the MONEY MARKET PORTFOLIO, the collateral must qualify the repurchase agreement for preferential treatment under the Federal Deposit Insurance Act of the Federal Bankruptcy Code. In the event of a default or bankruptcy by a selling financial institution, the Portfolio will seek to liquidate such collateral. However, the exercising of the Portfolio's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Portfolio could suffer a loss. It is the current policy of each Portfolio not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by the Portfolio, amounts to more than 10% of its net assets in the case of each of the MONEY MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO and 15% of its net assets in the case of each of the other Portfolios. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each of the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO and may use reverse repurchase agreements for purposes of meeting redemptions or as part of its investment strategy. The SHORT-TERM BOND PORTFOLIO may also use dollar rolls as part of its investment strategy. 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 14 proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Portfolio's obligation to repurchase the securities. Dollar rolls involve the Portfolio selling securities for delivery in the current month and simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio will forgo principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. Reverse repurchase agreements and dollar rolls are speculative techniques involving leverage and are considered borrowings by the Portfolio. With respect to each of the QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, reverse repurchase agreements may not exceed 10% of the Portfolio's total assets. INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. Each of the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may invest in real estate investment trusts, which pool investors' funds for investments primarily in commercial real estate properties. Investment in real estate investment trusts may be the most practical available means for a Portfolio to invest in the real estate industry (the Fund is prohibited from investing in real estate directly). As a shareholder in a real estate investment trust, a Portfolio would bear its ratable share of the real estate investment trust's expenses, including its advisory and administration fees. At the same time the Portfolio would continue to pay its own investment management fees and other expenses, as a result of which the Portfolio and its shareholders in effect will be absorbing duplicate levels of fees with respect to investments in real estate investment trusts. LENDING PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions, provided that the loans are callable at any time by the Portfolio, and are at all times secured by cash or cash equivalents, which are maintained in a segregated account pursuant to applicable regulations and that are equal to at least 100% of the market value, determined daily, of the loaned securities. The advantage of these loans is that the Portfolio continues to receive the income on the loaned securities while at the same time earning interest on the cash amounts deposited as collateral, which will be invested in short-term obligations. A Portfolio will not lend securities with a value exceeding 10% of the Portfolio's total assets. As with any extensions of credit, there are risks of delay in recovery and, in some cases, even loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Portfolio's management to be creditworthy and when the income which can be earned from such loans justifies the attendant risks. Upon termination of the loan, the borrower is required to return the securities to the Portfolio. Any gain or loss in the market price during the loan period would inure to the Portfolio. When voting or consent rights which accompany loaned securities pass to the borrower, a Portfolio will follow the policy of calling the loaned securities, to be delivered within one day after notice, to permit the exercise of the rights if the matters involved would have a material effect on the Portfolio's investment in the loaned securities. The Portfolio will pay reasonable finder's, administrative and custodial fees in connection with a loan of its securities. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time to time, each Portfolio other than the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities 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 15 before the settlement date, if it is deemed advisable. The securities so purchased or sold are subject to market fluctuation and no interest or dividends accrue to the purchaser prior to the settlement date. At the time a Portfolio makes the commitment to purchase or sell securities on a when-issued, delayed delivery or forward commitment basis, it will record the transaction and thereafter reflect the value, each day, of such security purchased, or if a sale, the proceeds to be received, in determining its net asset value. At the time of delivery of the securities, their value may be more or less than the purchase or sale price. An increase in the percentage of a Portfolio's assets committed to the purchase of securities on a when-issued, delayed delivery or forward commitment basis may increase the volatility of its net asset value. The Portfolio will also establish a segregated account on its books in which it will continually maintain cash or cash equivalents or other liquid portfolio securities equal in value to commitments to purchase securities on a when-issued, delayed delivery or forward commitment basis. WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio other than the MONEY MARKET PORTFOLIO, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may purchase securities on a "when, as and if issued" basis under which the issuance of the security depends upon the occurrence of a subsequent event, such as approval of a merger, corporate reorganization or debt restructuring. The commitment for the purchase of any such security will not be recognized in a Portfolio until the Portfolio determines that issuance of the security is probable. At that time, the Portfolio will record the transaction and, in determining its net asset value, will reflect the value of the security daily. At that time, the Portfolio will also establish a segregated account on the Portfolio's books in which it will maintain cash or cash equivalents or other liquid portfolio securities equal in value to recognized commitments for such securities. The value of a Portfolio's commitments to purchase the securities of any one issuer, together with the value of all securities of such issuer owned by the Portfolio, may not exceed 5% of the value of the Portfolio's total assets at the time the initial commitment to purchase such securities is made. An increase in the percentage of the Portfolio assets committed to the purchase of securities on a "when, as and if issued" basis may increase the volatility of its net asset value. A Portfolio may also sell securities on a "when, as and if issued" basis provided that the issuance of the security will result automatically from the exchange or conversion of a security owned by the Portfolio at the time of sale. PRIVATE PLACEMENTS. As a fundamental policy, which may only be changed by the shareholders of the affected Portfolios, each of the QUALITY INCOME PLUS PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may invest up to 5% of its total assets in securities which are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "SECURITIES ACT"), or which are otherwise not readily marketable. As a non-fundamental policy, which may be changed by the Trustees, each of the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the INCOME BUILDER PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO may invest up to 10% of its total assets in such restricted securities; each of the HIGH YIELD PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest up to 15% of its total assets in such restricted securities; and each of the SHORT-TERM BOND PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO may invest up to 15% of its net assets in such restricted securities. (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, 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 of the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the EQUITY 16 PORTFOLIO and the STRATEGIST PORTFOLIO, 10% of the Portfolio's total assets and as to each of the other Portfolios listed above, 15% of the Portfolio's net assets, as more fully described under "Fund Policies/ Investment Restrictions" below. However, investing in Rule 144A securities could have the effect of increasing the level of Portfolio illiquidity to the extent the Portfolio, at a particular point in time, may be unable to find qualified institutional buyers interested in purchasing such securities. WARRANTS AND SUBSCRIPTION RIGHTS. The Portfolios, other than the MONEY MARKET PORTFOLIO and the QUALITY INCOME PLUS PORTFOLIO, may acquire warrants and subscription rights attached to other securities. In addition, each of the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO may invest up to 5% of its assets in warrants not attached to other securities with a limit of up to 2 % of its total assets in warrants that are not listed on the New York or American Stock Exchange. The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest in warrants which are issued as a distribution by the issuer or a security held in its portfolio. A warrant is, in effect, an option to purchase equity securities at a specific price, generally valid for a specific period of time, and has no voting rights, pays no dividends and has no rights with respect to the corporation issuing it. A subscription right is a privilege granted to existing shareholders of a corporation to subscribe to shares of a new issue of common stock before it is offered to the public. A subscription right normally has a life of two to four weeks and a subscription price lower than the current market value of the common stock. OTHER INVESTMENT VEHICLES. Each of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the INFORMATION PORTFOLIO may acquire shares in other investment companies, including foreign investment companies. Investment in foreign investment companies may be the sole or most practical means by which these four Portfolios may participate in certain foreign securities markets. As a shareholder in an investment company, a Portfolio would bear its ratable share of that entity'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 other investment companies. D. FUND POLICIES/INVESTMENT RESTRICTIONS The investment restrictions listed below have been adopted by the Fund as fundamental policies of the Portfolios. Under the Investment Company Act of 1940 (the "INVESTMENT COMPANY ACT"), a fundamental policy of a Portfolio may not be changed without the vote of a majority of the outstanding voting securities of the Portfolio. The Investment Company Act defines a majority as the lesser of (a) 67% or more of the shares of a Portfolio present at a meeting of Fund shareholders, if the holders of 50% of the outstanding shares of the Portfolio are present or represented by proxy; or (b) more than 50% of the outstanding shares of the Portfolio. For purposes of the following restrictions: (i) all percentage limitations apply immediately after a purchase or initial investment; and (ii) any subsequent change in any applicable percentage resulting from market fluctuations or other changes in total or net assets does not require elimination of any security from the portfolio. INVESTMENT OBJECTIVES The investment objective of each Portfolio is a fundamental policy which may not be changed without the approval of the shareholders of that Portfolio. RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS Each Portfolio may not: 1. Invest more that 5% of the value of its total assets in the securities of any one issuer (other than obligations issued or guaranteed by the United States Government, its agencies or instrumentalities), or purchase more than 10% of the voting securities, or more than 10% of any class of security, of any issuer (for this purpose all outstanding debt securities of an issuer are considered as one class and all preferred stock of an issuer are considered as one class). With regard to the SHORT-TERM BOND PORTFOLIO, 17 the INCOME BUILDER PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO, these limitations apply only as to 75% of the Portfolio's total assets. 2. Concentrate its investments in any particular industry, but if deemed appropriate for attainment of its investment objective, a Portfolio may invest up to 25% of its total assets (valued at the time of investment) in any one industry classification used by that Portfolio for investment purposes. This restriction does not apply to obligations issued or guaranteed by the United States Government or its agencies or instrumentalities, or, in the case of the MONEY MARKET PORTFOLIO, to domestic bank obligations (not including obligations issued by foreign branches of such banks). This restriction does not apply, in the case of the UTILITIES PORTFOLIO, to the utilities industry and, in the case of the INFORMATION PORTFOLIO, to the communications and information industry, in which industries these Portfolios will concentrate, respectively. 3. Except for the SHORT-TERM BOND PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO, invest more than 5% of the value of its total assets in securities of issuers having a record, together with predecessors, of less than three years of continuous operation. This restriction shall not apply to any obligations issued or guaranteed by the United States Government, its agencies or instrumentalities. 4. Purchase or sell commodities or commodity futures contracts, or oil, gas or mineral exploration or developmental programs, except that a Portfolio may invest in the securities of companies which operate, invest in, or sponsor such programs, and (i) the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, the INFORMATION PORTFOLIO and the STRATEGIST PORTFOLIO may purchase or sell futures contracts and related options thereon, (ii) the SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO may purchase or sell currency futures contracts and related options thereon and the S&P 500 INDEX PORTFOLIO may purchase or sell index futures contracts. 5. Borrow money (except insofar as each of the SHORT-TERM BOND PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO may be deemed to have borrowed by entrance into a reverse repurchase agreement (in an amount not exceeding 10% of the Portfolio's total assets, except in the case of the SHORT-TERM BOND PORTFOLIO)), except from banks for temporary or emergency purposes or to meet redemption requests which might otherwise require the untimely disposition of securities, and, in the case of the Portfolios other than the QUALITY INCOME PLUS PORTFOLIO, not for investment or leveraging, provided that borrowing in the aggregate (other than, in the case of the QUALITY INCOME PLUS PORTFOLIO, for investment or leveraging) may not exceed 5% of the value of the Portfolio's total assets (including the amount borrowed) at the time of such borrowing. 6. Pledge its assets or assign or otherwise encumber them except to secure permitted borrowings. (For the purpose of this restriction, collateral arrangements with respect to the writing of options and collateral arrangements with respect to initial margin for futures are not deemed to be pledges of assets.) 7. Purchase securities on margin (but the Portfolios may obtain short-term loans as are necessary for the clearance of transactions). The deposit or payment by the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO, THE INFORMATION PORTFOLIO and the Strategist Portfolio of initial or variation margin in connection with futures contracts or related options thereon is not considered the purchase of a security on margin. 18 8. In the case of each Portfolio, other than the SHORT-TERM BOND PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO, purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets or, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, in accordance with the provisions of Section 12(d) of the Investment Company Act and any Rules promulgated thereunder. 9. Make loans of money or securities, except (a) by the purchase of debt obligations in which the Portfolio may invest consistent with its investment objectives and policies; (b) by investing in repurchase agreements; or (c) by lending its portfolio securities, not in excess of 10% of the value of a Portfolio's total assets, including maintaining collateral from the borrower equal at all times to the current market value of the securities loaned, provided that lending of portfolio securities is not deemed to be loans in the case of the SHORT-TERM BOND PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO. 10. In the case of each Portfolio, other than the SHORT-TERM BOND PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the INFORMATION PORTFOLIO, invest in securities of any issuer if, to the knowledge of the Fund, any officer or Trustee of the Fund or any officer or director of the Investment Manager owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers, Trustees and directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer. 11. Purchase or sell real estate; however, the Portfolios may purchase marketable securities of issuers which engage in real estate operations or which invest in real estate or interests therein, including real estate investment trusts and securities which are secured by real estate or interests therein. 12. Engage in the underwriting of securities except insofar as the Portfolio may be deemed an underwriter under the Securities Act in disposing of a portfolio security. 13. Invest for the purposes of exercising control or management of another company. 14. Participate on a joint or a joint and several basis in any securities trading account. The "bunching" of orders of two or more Portfolios (or of one or more Portfolios and of other accounts under the investment management of the Investment Manager) for the sale or purchase of portfolio securities shall not be considered participating in a joint securities trading account. 15. Issue senior securities as defined in the Investment Company Act except insofar as the Portfolio may be deemed to have issued a senior security by reason of: (a) entering into any repurchase agreement (or, in the case of the QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, a reverse repurchase agreement, or, in the case of the SHORT-TERM BOND PORTFOLIO, a reverse repurchase agreement or a dollar roll); (b) borrowing money in accordance with restrictions described above; (c) purchasing any security on a when-issued, delayed delivery or forward commitment basis; (d) lending portfolio securities; or (e) purchasing or selling futures contracts, forward foreign exchange contracts or options, if such investments are otherwise permitted for the Portfolio. RESTRICTIONS APPLICABLE TO RESTRICTED AND ILLIQUID SECURITIES 16. Each of the QUALITY INCOME PLUS PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may not invest more than 5% of the value of its total assets in securities which are restricted as to disposition under the Federal securities laws or otherwise, provided that this restriction shall not apply to securities received as a result of a corporate reorganization or similar transaction affecting readily marketable securities already held by the Portfolio; however, these Portfolios will attempt to dispose in an orderly fashion of any of these securities to the extent that these, together with other illiquid securities, exceed 10% of the Portfolio's total assets. 17. Each of the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO may not invest more than 10% of its total assets in "illiquid securities" (securities for which market 19 quotations are not readily available) and repurchase agreements which have a maturity of longer than seven days. In addition, no more than 15% of the EUROPEAN GROWTH PORTFOLIO'S net assets will be invested in such illiquid securities and foreign securities not traded on a recognized domestic or foreign exchange. RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY The MONEY MARKET PORTFOLIO may not: 1. Invest in securities other than those listed in the description of its investment objectives and policies above and in the Prospectus. 2. Invest in securities maturing more than one year from the date of purchase, except that where securities are held subject to repurchase agreements having a term of one year or less from the date of delivery, the securities subject to the agreement may have maturity dates in excess of one year from the date of delivery. 3. Purchase securities for which there are legal or contractual restrictions on resale (I.E., restricted securities). 4. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof. RESTRICTIONS APPLICABLE TO THE QUALITY INCOME PLUS PORTFOLIO ONLY The QUALITY INCOME PLUS PORTFOLIO may not acquire any common stocks except when acquired upon conversion of fixed-income securities. The QUALITY INCOME PLUS PORTFOLIO will attempt to dispose in an orderly fashion of any common stocks acquired under these circumstances. RESTRICTIONS APPLICABLE TO THE HIGH YIELD PORTFOLIO ONLY The HIGH YIELD PORTFOLIO may not: 1. Acquire any common stocks, except (a) when attached to or included in a unit with fixed-income securities; (b) when acquired upon conversion of fixed-income securities; or (c) when acquired upon exercise of warrants attached to fixed-income securities. The HIGH YIELD PORTFOLIO may retain common stocks so acquired, but not in excess of 10% of its total assets. 2. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof. RESTRICTIONS APPLICABLE TO THE DIVIDEND GROWTH PORTFOLIO ONLY The DIVIDEND GROWTH PORTFOLIO may not invest more than 5% of the value of its total assets in warrants, including not more than 2% of such assets in warrants not listed on either the New York or American Stock Exchange. However, the acquisition of warrants attached to other securities is not subject to this restriction. RESTRICTIONS APPLICABLE TO THE EQUITY PORTFOLIO ONLY The EQUITY PORTFOLIO may not: 1. Invest more than 5% of the value of its total assets in warrants, including not more than 2% of such assets in warrants not listed on either the New York or American Stock Exchange. However, the acquisition of warrants attached to other securities is not subject to this restriction. 2. Purchase non-convertible corporate bonds unless rated at the time of purchase Aa or better by Moody's Investors Service ("Moody's") or AA or better by S&P, or purchase commercial paper unless issued by a U.S. corporation and rated at the time of purchase Prime-1 by Moody's or A-1 by S&P, although it may continue to hold a security if its quality rating is reduced by a rating service below those specified. 3. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof. 4. Invest in securities of foreign issuers, except for (i) securities of Canadian issuers registered under the Securities Exchange Act of 1934 and (ii) American Depositary Receipts. 20 E. PORTFOLIO TURNOVER For the fiscal years ended December 31, 1998 and 1999, the portfolio turnover rates of the Capital Growth Portfolio were 248% and 575.04%, respectively. These variations resulted form the portfolio manager's responses to varying market conditions during these periods. III. MANAGEMENT OF THE FUND -------------------------------------------------------------------------------- A. BOARD OF TRUSTEES The Trustees oversee the management of the Portfolios but do not manage each Portfolio. The Trustees review various services provided by or under the direction of the Investment Manager to ensure that each Portfolio's general investment policies and programs are properly carried out. The Trustees also conduct their review to ensure that administrative services are provided to each Portfolio in a satisfactory manner. Under state law, the duties of the Trustees are generally characterized as a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to exercise his or her powers in the interest of the Fund and each Portfolio and not the Trustee's own interest or the interest of another person or organization. A Trustee satisfies his or her duty of care by acting in good faith with the care of an ordinarily prudent person and in a manner the Trustee reasonably believes to be in the best interest of the Fund and each Portfolio and its shareholders. B. MANAGEMENT INFORMATION TRUSTEES AND OFFICERS. The Board of the Fund consists of nine (9) Trustees. These same individuals also serve as directors or trustees for all of the Morgan Stanley Dean Witter Funds. Six Trustees (67% 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 three Trustees (the "MANAGEMENT TRUSTEES") are affiliated with the Investment Manager. The Trustees and executive officers of the Fund, their principal business occupations during the last five years and their affiliations, if any, with the Investment Manager, and with the Morgan Stanley Dean Witter Funds (there were 93 such Funds as of the calendar year ended December 31, 1999), are shown below.
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS ----------------------------------- ---------------------------------------------------------------------- Michael Bozic (59) ................ Vice Chairman of Kmart Corporation (since December 1998); Director or Trustee Trustee of the Morgan Stanley Dean Witter Funds; formerly Chairman and c/o Kmart Corporation Chief Executive Officer of Levitz Furniture Corporation (November 3100 West Big Beaver Road 1995-November 1998) and President and Chief Executive Officer of Hills Troy, Michigan Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck and Co.; Director of Weirton Steel Corporation. Charles A. Fiumefreddo* (67) ...... Chairman, Director or Trustee and Chief Executive Officer of the Chairman of the Board, Morgan Stanley Dean Witter Funds; formerly Chairman, Chief Executive Chief Executive Officer Officer and Director of the Investment Manager, the Distributor and and Trustee MSDW Services Company; Executive Vice President and Director of Dean Two World Trade Center Witter Reynolds; Chairman and Director of the Transfer Agent; formerly New York, New York Director and/or officer of various MSDW subsidiaries (until June 1998).
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS ----------------------------------- ---------------------------------------------------------------------- Edwin J. Garn (67) ................ Director or Trustee of the Morgan Stanley Dean Witter Funds; formerly Trustee United States Senator (R-Utah)(1974-1992) and Chairman, Senate Banking c/o Summit Ventures LLC Committee (1980-1986); formerly Mayor of Salt Lake City, Utah 1 Utah Center (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19, 201 S. Main Street 1985); Vice Chairman, Huntsman Corporation (chemical company); Salt Lake City, Utah Director of Franklin Covey (time management systems), BMW Bank of North America, Inc. (industrial loan corporation), United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the Utah Regional Advisory Board of Pacific Corp.; member of the board of various civic and charitable organizations. Wayne E. Hedien (66) .............. Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds; Trustee Director of The PMI Group, Inc. (private mortgage insurance); Trustee c/o Mayer, Brown & Platt and Vice Chairman of The Field Museum of Natural History; formerly Counsel to the associated with the Allstate Companies (1966-1994), most recently as Independent Trustees Chairman of The Allstate Corporation (March 1993-December 1994) and 1675 Broadway Chairman and Chief Executive Officer of its wholly-owned subsidiary, New York, New York Allstate Insurance Company (July 1989-December 1994); director of various other business and charitable organizations. James F. Higgins* (52) ............ Chairman of the Private Client Group of MSDW (since August 2000); Trustee Director of the Transfer Agent and Dean Witter Realty Inc.; Director Two World Trade Center or Trustee of the Morgan Stanley Dean Witter Funds (since June 2000); New York, New York previously President and Chief Operating Officer of the Private Client Group of MSDW (May 1999-August 2000), President and Chief Operating Officer of Individual Securities of MSDW (February 1997-May 1999), President and Chief Operating Officer of Dean Witter Securities of MSDW (1995-February 1997), and President and Chief Operating Officer of Dean Witter Financial (1989-1995) and Director (1985-1997) of Dean Witter Reynolds. Dr. Manuel H. Johnson (51) ........ Senior Partner, Johnson Smick International, Inc., a consulting firm; Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an c/o Johnson Smick international economic commission; Chairman of the Audit Committee and International, Inc. Director or Trustee of the Morgan Stanley Dean Witter Funds; Director 1133 Connecticut Avenue, N.W. of Greenwich Capital Markets, Inc. (broker-dealer), Independence Washington, D.C. Standards Board (private sector organization governing independence of auditors) 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 and Assistant Secretary of the U.S. Treasury. Michael E. Nugent (64) ............ General Partner, Triumph Capital, L.P., a private investment part- Trustee nership; Chairman of the Insurance Committee and Director or Trustee c/o Triumph Capital, L.P. of the Morgan Stanley Dean Witter Funds; formerly Vice President, 237 Park Avenue Bankers Trust Company and BT Capital Corporation (1984-1988); director New York, New York of various business organizations.
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NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS ----------------------------------- ---------------------------------------------------------------------- Philip J. Purcell* (56) ........... Chairman of the Board of Directors and Chief Executive Officer of Trustee MSDW, Dean Witter Reynolds and Novus Credit Services Inc.; Director of 1585 Broadway the Distributor; Director or Trustee of the Morgan Stanley Dean Witter New York, New York Funds; Director of American Airlines, Inc. and its parent company, AMR Corporation; Director and/or officer of various MSDW subsidiaries. John L. Schroeder (70) ............ Retired; Chairman of the Derivatives Committee and Director or Trustee Trustee of the Morgan Stanley Dean Witter Funds; Director of Citizens c/o Mayer, Brown & Platt Utilities Company (telecommunications, gas, electric and water Counsel to the Independent utilities company); formerly Executive Vice President and Chief Trustees Investment Officer of the Home Insurance Company (August 1675 Broadway 1991-September 1995). New York, New York Mitchell M. Merin (47) ............ President and Chief Operating Officer of Asset Management of MSDW President (since December 1998); President and Director (since April 1997) and Two World Trade Center Chief Executive Officer (since June 1998) of the Investment Manager New York, New York and MSDW Services Company; Chairman, Chief Executive Officer and Director of the Distributor (since June 1998); Chairman and Chief Executive Officer (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various MSDW subsidiaries; President of the Morgan Stanley Dean Witter Funds (since May 1999); Trustee of various Van Kampen investment companies (since December 1999); previously Chief Strategic Officer of the Investment Manager and MSDW Services Company and Executive Vice President of the Distributor (April 1997-June 1998), Vice President of the Morgan Stanley Dean Witter Funds (May 1997-April 1999), and Executive Vice President of Dean Witter, Discover & Co. Barry Fink (45) ................... General Counsel of Asset Management of MSDW (since May 2000); Vice President, Executive Vice President (since December 1999) and Secretary and Secretary and General Counsel General Counsel (since February 1997) and Director (since July 1998) Two World Trade Center of the Investment Manager and MSDW Services Company; Vice President, New York, New York Secretary and General Counsel of the Morgan Stanley Dean Witter Funds (since February 1997); Vice President and Secretary of the Distributor; previously, Senior Vice President (March 1997-December 1999), First Vice President, Assistant Secretary and Assistant General Counsel of the Investment Manager and MSDW Services Company. Peter M. Avelar (42) .............. Senior Vice President and Director of the High Yield Group of the Vice President Investment Manager; Vice President of various Morgan Stanley Dean Two World Trade Center Witter Funds. New York, New York Armon Bar-Tur (30) ................ Vice President of the Investment Manager and portfolio manager with Vice President the Investment Manager (since October 1996); Vice President of various Two World Trade Center Morgan Stanley Dean Witter Funds; formerly a research analyst with New York, New York Merrill Lynch Asset Management.
23
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS ----------------------------------- ---------------------------------------------------------------------- Mark Bavoso (39) .................. Senior Vice President and Director of the Research Group of the Vice President Investment Manager; Vice President of various Morgan Stanley Dean Two World Trade Center Witter Funds. New York, New York Edward F. Gaylor (59) ............. Senior Vice President of the Investment Manager; Vice President of Vice President various Morgan Stanley Dean Witter Funds. Two World Trade Center New York, New York Rajesh K. Gupta (40) .............. Senior Vice President and Director of the Taxable Fixed-Income Group Vice President of the Investment Manager; Vice President of various Morgan Stanley Two World Trade Center Dean Witter Funds; Chief Administrative Officer - Investments. New York, New York Matthew T. Haynes (34) ............ Vice President of the Investment Manager (since June 1997) and Vice President portfolio manager with the Investment Manager (since April 1993); Vice Two World Trade Center President or Assistant Vice President of various Morgan Stanley Dean New York, New York Witter Funds; previously Assistant Vice President of the Investment Manager (May 1995-June 1997). Peter Hermann (40) ................ Vice President of the Investment Manager (since May 1995) and Vice President portfolio manager with the Investment Manager (since March 1994); Vice Two World Trade Center President of various Morgan Stanley Dean Witter Funds. New York, New York Kevin Jung (34) ................... Vice President of the Investment Manager (since September 1997); Vice President formerly Vice President of UBS Asset Management (NY) Inc. (April Two World Trade Center 1993-August 1997). New York, New York Michelle Kaufman (35) ............. Senior Vice President of the Investment Manager (since February 1999) Vice President and portfolio manager with the Investment Manager (since September Two World Trade Center 1993); Vice President of various Morgan Stanley Dean Witter Funds; New York, New York previously Vice President (June 1997-February 1999) and Assistant Vice President (May 1995-June 1997) of the Investment Manager. Anita H. Kolleeny (45) ............ Senior Vice President and Director of the Sector Rotation Group of the Vice President Investment Manager; Vice President of various Morgan Stanley Dean Two World Trade Center Witter Funds. New York, New York Paula LaCosta (49) ................ Vice President of the Investment Manager; Vice President of various Vice President Morgan Stanley Dean Witter Funds. Two World Trade Center New York, New York Catherine Maniscalco (37) ......... Vice President (since June 1997) and a portfolio manager (since March Vice President 1995) of the Investment Manager; formerly a portfolio management Two World Trade Center software product specialist at National Investor Data Services (April New York, New York 1994-March 1995). Jonathan R. Page (53) ............. Senior Vice President and Director of the Money Market Group of the Vice President Investment Manager; Vice President of various Morgan Stanley Dean Two World Trade Center Witter Funds. New York, New York
24
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS ----------------------------------- ---------------------------------------------------------------------- Guy G. Rutherfurd, Jr. (60) ....... Senior Vice President (since February 1997) and Director of the Growth Vice President Group of the Investment Manager; Vice President of various Morgan Two World Trade Center Stanley Dean Witter Funds; formerly Executive Vice President and Chief New York, New York Investment Officer of Nomura Asset Management (U.S.A.) Inc. (May 1992-February 1997). Rochelle G. Siegel (51) ........... Senior Vice President of the Investment Manager; Vice President of Vice President various Morgan Stanley Dean Witter Funds. Two World Trade Center New York, New York Ronald B. Silvestri (35) .......... Vice President of the Investment Manager (since December 1999);Vice Vice President President of various Morgan Stanley Dean Witter Funds; formerly Senior Two World Trade Center Research Analyst with the Investment Manager. New York, New York Paul D. Vance (64) ................ Senior Vice President and Director of the Growth and Income Group of Vice President the Investment Manager; Vice President of various Morgan Stanley Dean Two World Trade Center Witter Funds. New York, New York Thomas F. Caloia (54) ............. First Vice President and Assistant Treasurer of the Investment Treasurer Manager, the Distributor and MSDW Services Company; Treasurer of the Two World Trade Center Morgan Stanley Dean Witter Funds. New York, New York
------------------- * Denotes Trustees who are "interested persons" of the Fund as defined in the Investment Company Act. In addition, RONALD E. ROBISON, Executive Vice President, Chief Administrative Officer and Director of the Investment Manager and MSDW Services Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager, MSDW Services Company, the Distributor and the Transfer Agent and Director of the Transfer Agent, JOSEPH J. MCALINDEN, Executive Vice President and Chief Investment Officer of the Investment Manager and Director of the Transfer Agent, and KENTON J. HINCHLIFFE and KEVIN HURLEY, Senior Vice Presidents of the Investment Manager, are Vice Presidents of the Fund, and AARON CLARK, Vice President of the Investment Manager, is an Assistant Vice President of the Fund. In addition, MARILYN K. CRANNEY, TODD LEBO, LOU ANNE D. MCINNIS, CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General Counsels of the Investment Manager and MSDW Services Company, and NATASHA KASSIAN, Assistant Vice President and Assistant General Counsel of the Investment Manager and MSDW Services Company, are Assistant Secretaries of the Fund. INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation establish both general guidelines and specific duties for the independent directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent directors/trustees individuals of distinction and experience in business and finance, government service or academia; these are people whose advice and counsel are in demand by others and for whom there is often competition. To accept a position on the Funds' boards, such individuals may reject other attractive assignments because the Funds make substantial demands on their time. All of the independent directors/trustees serve as members of the Audit Committee. In addition, three of the directors/trustees, including two independent directors/trustees, serve as members of the Derivatives Committee and the Insurance Committee. The independent directors/trustees are charged with recommending to the full board approval of management, advisory and administration contracts, Rule 12b-1 plans and distribution and underwriting agreements; continually reviewing Portfolio performance; checking on the pricing of portfolio securities, brokerage commissions, transfer agent costs and performance, and trading among Funds in the same 25 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 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. 26 The following table illustrates the compensation that the Fund paid to its Independent Trustees for the fiscal year ended December 31, 1999. FUND COMPENSATION
AGGREGATE COMPENSATION NAME OF INDEPENDENT TRUSTEE FROM THE FUND --------------------------- ------------- 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
The following table illustrates the compensation paid to the Fund's Independent Trustees for the calendar year ended December 31, 1999 for services to the 93 Morgan Stanley Dean Witter Funds that were in operation at December 31, 1999. CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
TOTAL CASH COMPENSATION FOR SERVICES TO 93 MORGAN STANLEY NAME OF INDEPENDENT TRUSTEE DEAN WITTER FUNDS --------------------------- ----------------- 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
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan Stanley Dean Witter Funds, including the Fund, have adopted a retirement program under which an independent director/ trustee who retires after serving for at least five years (or such lesser period as may be determined by the Board) as an independent director/trustee of any Morgan Stanley Dean Witter Fund that has adopted the retirement program (each such Fund referred to as an "ADOPTING FUND" and each such independent director/trustee referred to as an "ELIGIBLE TRUSTEE") is entitled to retirement payments upon reaching the eligible retirement age (normally, after attaining age 72). Annual payments are based upon length of service. Currently, upon retirement, each Eligible Trustee is entitled to receive from the Adopting Fund, commencing as of his or her retirement date and continuing for the remainder of his or her life, an annual retirement benefit (the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus 0.5036667% of such Eligible Compensation for each full month of service as an independent director/ trustee of any Adopting Fund in excess of five years up to a maximum of 60.44% after ten years of service. The foregoing percentages may be changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total compensation earned by such Eligible Trustee for service to the Adopting Fund in the five year period prior to the date of the Eligible Trustee's retirement. Benefits under the retirement program are accrued as expenses on the books of the Adopting Funds. Such benefits are not secured or funded by the Adopting Funds. The following table illustrates the retirement benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal year ended December 31, 1999 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the year ended December 31, 1999, and the estimated retirement benefits for the Independent Trustees, to commence upon their retirement, from the Fund as of December 31, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of December 31, 1999. 27 RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
FOR ALL ADOPTING FUNDS RETIREMENT ---------------------------- BENEFITS ESTIMATED ANNUAL ESTIMATED ACCRUED AS BENEFITS CREDITED EXPENSES UPON RETIREMENT(2) YEARS ESTIMATED --------------------------- ------------------- OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS --------------------------- ------------- ------------- ---------- ------------ -------- --------- Michael Bozic................. 10 60.44% $404 $20,933 $ 967 $50,588 Edwin J. Garn................. 10 60.44 601 31,737 967 50,675 Wayne E. Hedien............... 9 51.37 757 39,566 822 43,000 Dr. Manuel H. Johnson......... 10 60.44 246 13,129 1,420 75,520 Michael E. Nugent............. 10 60.44 429 23,175 1,269 67,209 John L. Schroeder............. 8 50.37 805 41,558 987 52,994
------------------------------ (1) An Eligible Trustee may elect alternative payments of his or her retirement benefits based upon the combined life expectancy of the Eligible Trustee and his or her spouse on the date of such Eligible Trustee's retirement. In addition, the Eligible Trustee may elect that the surviving spouse's periodic payment of benefits will be equal to a lower percentage of the periodic amount, when both spouses were alive. The amount estimated to be payable under this method, through the remainder of the later of the lives of the Eligible Trustee and spouse, will be the actuarial equivalent of the Regular Benefit. (2) Based on current levels of compensation. Amount of annual benefits also varies depending on the Eligible Trustee's elections described in Footnote (1) above. IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES -------------------------------------------------------------------------------- As of the date of this STATEMENT OF ADDITIONAL INFORMATION, Northbrook Life Insurance Company, Allstate Life Insurance Company of New York and Paragon Life Insurance Company owned all of the outstanding Class X shares of the Fund for allocation to their respective separate accounts ("ACCOUNTS"), none of the Fund's Trustees was a Contract Owner under the Accounts, and the aggregate number of shares of each Portfolio of the Fund allocated to Contracts owned by the Fund's officers as a group was less than one percent of each Portfolio's outstanding Class X shares. V. INVESTMENT MANAGEMENT AND OTHER SERVICES -------------------------------------------------------------------------------- A. INVESTMENT MANAGER AND SUB-ADVISOR The Investment Manager to each Portfolio is Morgan Stanley Dean Witter Advisors Inc., a Delaware corporation, whose address is Two World Trade Center, New York, NY 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a Delaware corporation. MSDW is a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities, asset management and credit services. The Sub-Advisor to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO is Morgan Stanley Dean Witter Investment Management Inc., a subsidiary of MSDW and an affiliate of the Investment Manager, whose address is 1221 Avenue of the Americas, New York, NY 10020. The Sub-Advisor was retained to provide sub-advisory services to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO effective December 1, 1998 and November 1, 1998, respectively. Pursuant to an Investment Management Agreement (the "Management Agreement") with the Investment Manager, the Fund has retained the Investment Manager to provide each Portfolio administrative services, manage its business affairs and, other than with respect to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, manage its investments, including the placing of orders for the purchase and sale of portfolio securities. With respect to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, the Investment Manager supervises these Portfolios' investments. The Fund pays the 28 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:
NAME OF PORTFOLIO INVESTMENT MANAGEMENT FEE RATES ----------------- -------------------------------------------------------- The Money Market Portfolio 0.50% of net assets up to $500 million; 0.425% of net assets exceeding $500 million but not exceeding $750 million; and 0.375% of net assets exceeding $750 million The Short-Term Bond Portfolio 0.45% of net assets The Quality Income Plus Portfolio 0.50% of net assets up to $500 million and 0.45% of net assets exceeding $500 million The High Yield Portfolio 0.50% of net assets up to $500 million and 0.425% of net assets exceeding $500 million The Utilities Portfolio 0.65% of net assets up to $500 million; 0.55% of net assets exceeding $500 million but not exceeding $1 billion; and 0.525% of net assets exceeding $1 billion The Income Builder Portfolio 0.75% of net assets The Dividend Growth Portfolio 0.625% of net assets up to $500 million; 0.50% of net assets exceeding $500 million but not exceeding $1 billion; 0.475% of net assets exceeding $1 billion but not exceeding $2 billion; 0.45% of net assets exceeding $2 billion but not exceeding $3 billion; and 0.425% of net assets exceeding $3 billion The Capital Growth Portfolio 0.65% of net assets The Global Dividend Growth Portfolio 0.75% of net assets up to $1 billion and 0.725% of net assets exceeding $1 billion The European Growth Portfolio 0.95% of net assets up to $500 million and 0.90% of net assets exceeding $500 million The Pacific Growth Portfolio 0.95% of net assets The Equity Portfolio 0.50% of net assets up to $1 billion; 0.475% of net assets exceeding $1 billion but not exceeding $2 billion; and 0.450% of net assets exceeding $2 billion The S&P 500 Index Portfolio 0.40% of net assets The Competitive Edge "Best Ideas" 0.65% of net assets Portfolio The Aggressive Equity Portfolio 0.75% of net assets The Information Portfolio 0.75% of net assets The Strategist Portfolio 0.50% of net assets up to $1.5 billion and 0.475% of net assets exceeding $1.5 billion
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. 29 For the fiscal years ended December 31, 1997, 1998 and 1999, the Investment Manager accrued compensation under the Management Agreement as follows:
COMPENSATION ACCRUED FOR THE FISCAL YEAR ENDED DECEMBER 31, ------------------------------------------ NAME OF PORTFOLIO 1997 1998 1999 ----------------- ------------ ------------ ------------ The Money Market Portfolio.......................... $ 1,764,304 $ 1,927,552 $ 2,177,536 The Short-Term Bond Portfolio....................... N/A N/A 2,134 The Quality Income Plus Portfolio................... 2,301,725 2,514,720 2,519,733 The High Yield Portfolio............................ 1,539,080 1,946,259 1,657,944 The Utilities Portfolio............................. 2,710,383 3,160,139 3,606,185 The Income Builder Portfolio........................ 30,071 595,359 632,479 The Dividend Growth Portfolio....................... 8,563,208 10,828,424 11,638,694 The Capital Growth Portfolio........................ 698,171 862,257 922,721 The Global Dividend Growth Portfolio................ 3,183,049 3,698,722 3,669,864 The European Growth Portfolio....................... 3,589,371 4,705,416 4,749,793 The Pacific Growth Portfolio........................ 1,195,454 551,718 754,955 The Equity Portfolio................................ 3,306,222 4,753,680 7,156,661 The S&P 500 Index Portfolio......................... N/A -0- 457,843 The Competitive Edge "Best Ideas" Portfolio......... N/A -0- 206,828 The Aggressive Equity Portfolio..................... N/A N/A 28,471 The Strategist Portfolio............................ 2,361,054 2,762,516 3,399,095 ----------- ----------- ----------- Total........................................... $31,242,092 $38,306,762 $43,580,936 =========== =========== ===========
The INFORMATION PORTFOLIO had not commenced operations prior to the date of this STATEMENT OF ADDITIONAL INFORMATION. The Investment Manager has retained its wholly-owned subsidiary, MSDW Services Company, to perform administrative services for the Fund. Under a Sub-Advisory Agreement (the "SUB-ADVISORY AGREEMENT") between the Sub-Advisor and the Investment Manager respecting the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, the Sub-Advisor provides these Portfolios with investment advice and portfolio management, subject to the overall supervision of the Investment Manager. The Investment Manager pays the Sub-Advisor monthly compensation equal to 40% of the Investment Manager's fee, payable in respect of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO. B. PRINCIPAL UNDERWRITER The Fund's principal underwriter is the Distributor (which has the same address as the Investment Manager). In this capacity, each Portfolio's shares are distributed by the Distributor. The Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW. The Fund and the Distributor have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Under the Distribution Agreement, the Distributor uses its best efforts in rendering services to the Fund, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations, the Distributor is not liable to the Fund or any of its shareholders for any error of judgment or mistake of law or for any act or omission or for any losses sustained by the Portfolios or their shareholders. C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND SUB-ADVISOR Each Portfolio has retained the Investment Manager to provide administrative services, manage its business affairs and (except for the PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO) invest its assets, including the placing of orders for the purchase and sale of portfolio securities. Each of the PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO has retained the Investment Manager to supervise the investment of its assets. 30 Under the terms of the Management Agreement, the Investment Manager also maintains certain of the Fund's books and records and furnishes, at its own expense, the office space, facilities, equipment, clerical help, bookkeeping and certain legal services as the Fund may reasonably require in the conduct of its business, including the preparation of prospectuses, proxy statements and reports required to be filed with federal and state securities commissions (except insofar as the participation or assistance of independent accountants and attorneys is, in the opinion of the Investment Manager, necessary or desirable). In addition, the Investment Manager pays the salaries of all personnel, including officers of the Fund, who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone service, heat, light, power and other utilities provided to the Fund. The services provided by the Sub-Advisor are discussed above under "Investment Manager and Sub-Advisor." Expenses not expressly assumed by the Investment Manager under the Management Agreement, by the Sub-Advisor for the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO under the Sub-Advisory Agreement, or by the Distributor, will be paid by the Portfolios. Each Portfolio pays all expenses incurred in its operation and a portion of the Fund's general administration expenses allocated based on the asset sizes of the Portfolios. The Portfolios' direct expenses include, but are not limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1; charges and expenses of any registrar, custodian, transfer and dividend disbursing agent; brokerage commissions; certain taxes; registration costs of the Fund under federal and state securities laws; shareholder servicing costs, charges and expenses of any outside service used for pricing of the Portfolios' shares; fees and expenses of legal counsel, including counsel to the Trustees who are not interested persons of the Fund or of the Investment Manager (or the Sub-Advisor) (not including compensation or expenses of attorneys who are employees of the Investment Manager (or the Sub-Advisor)); fees and expenses of the Fund's independent accountants; interest on Portfolio borrowings; and all other expenses attributable to a particular Portfolio. The 12b-1 fees relating to Class Y will be allocated directly to Class Y. In addition, other expenses associated with a particular Class (except advisory or custodial fees) may be allocated directly to that Class, provided that such expenses are reasonably identified as specifically attributable to that Class and the direct allocation to that Class is approved by the Trustees. Expenses which are allocated on the basis of size of the respective Portfolios include the costs and expenses of printing, including typesetting, and distributing prospectuses and statements of additional information of the Fund and supplements thereto to the Fund's shareholders; all expenses of shareholders' and Trustees' meetings and of preparing, printing and mailing proxy statements and reports to shareholders; fees and travel expenses of Trustees or members of any advisory board or committee who are not employees of the Investment Manager (or the Sub-Advisor) or any corporate affiliate of the Investment Manager (or the Sub-Advisor); state franchise taxes; Securities and Exchange Commission fees; membership dues of industry associations; postage; insurance premiums on property or personnel (including officers and Trustees) of the Fund which inure to its benefit; and all other costs of the Fund's operations properly payable by the Fund and allocable on the basis of size to the respective Portfolios. Depending on the nature of a legal claim, liability or lawsuit, litigation costs, payment of legal claims or liabilities and any indemnification relating thereto may be directly applicable to the Portfolio or allocated on the basis of the size of the respective Portfolios. The Trustees have determined that this is an appropriate method of allocation of expenses. Each of the Management Agreement and the Sub-Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, the Investment Manager and the Sub-Advisor, respectively, are not liable to the Fund or any of its investors (and, in the case of the Sub-Advisory Agreement, to the Investment Manager) for any act or omission or for any losses sustained by the Fund or its investors. Each of the Management Agreement and the Sub-Advisory Agreement will remain in effect from year to year provided continuance of the applicable Agreement is approved at least annually by the vote of the holders of a majority, as defined in the Investment Company Act, of the outstanding shares of each 31 affected Portfolio, or by the Trustees; provided that in either event such continuance is approved annually by the vote of a majority of the Trustees, including a majority of the Independent Trustees. D. RULE 12b-1 PLAN The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act (the "Plan"). Under the Plan, Class Y shares of each Portfolio bear a distribution fee paid to the Distributor which is accrued daily and payable monthly at the annual rate of 0.25% of the average daily net assets of the Class. The Plan provides that each Portfolio's distribution fee shall compensate the Distributor, Dean Witter Reynolds and its affiliates, and other selected broker-dealers for expenses they incur in connection with the distribution of the Portfolio's Class Y shares. These expenses may include: (i) cost incurred in providing personal services to shareholders; (ii) overhead and other branch office distribution-related expenses including, but not limited to, expenses of operating the Distributor's or other broker-dealers' offices used for selling Portfolio shares (E.G., lease and utility costs, salaries and employee benefits of operations and sales support personnel, costs related to client sales seminars and telephone expenses); (iii) printing and mailing costs relating to prospectuses and reports (for new shareholders); and (iv) costs incurred in connection with advertising materials and sales literature. Under the Plan, the Distributor provides the Fund, for review by the Trustees, and the Trustees review, promptly after the end of each calendar quarter, a written report regarding the distribution expenses incurred on behalf of each Portfolio during such calendar quarter, which report includes (1) an itemization of the types of expenses and the purposes therefor; (2) the amounts of such expenses; and (3) a description of the benefits derived by the Fund. On an annual basis, the Trustees, including a majority of the Independent Trustees, consider whether the Plan should be continued. Prior to approving the Plan, the Trustees requested and received from the Distributor and reviewed all the information which they deemed necessary to arrive at an informed determination. In making their determination, the Trustees considered: (1) the benefits each Portfolio would be likely to obtain under the Plan, including that without the compensation to individual brokers and the reimbursement of distribution and account maintenance expenses of Dean Witter Reynolds's branch offices made possible by the 12b-1 fees, Dean Witter Reynolds could not establish and maintain a competitive and effective system for distribution and servicing of Contract Owners and maintenance of their accounts; and (2) what services would be provided under the Plan to Contract Owners. Based upon their review, the Trustees, including each of the Independent Trustees, determined that approval of the Plan would be in the best interests of each Portfolio and would have a reasonable likelihood of continuing to benefit the Portfolio and Contract Owners. In the Trustees' quarterly review of the Plan, they will consider its continued appropriateness and the level of compensation provided therein. The Plan may not be amended to increase materially the amount to be spent for the services described therein without approval by the Class Y shareholders of each affected Portfolio, and all material amendments to the Plan must also be approved by the Trustees. The Plan may be terminated as to a Portfolio at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by a vote of a majority of the outstanding voting securities of the Portfolio (as defined in the Investment Company Act) on not more than thirty days' written notice to any other party to the Plan. So long as the Plan is in effect, the election and nomination of Independent Trustees shall be committed to the discretion of the Independent Trustees. No interested person of the Fund nor any Independent Trustee has any direct financial interest in the operation of the Plan except to the extent that the Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company or certain of their employees may be deemed to have such an interest as a result of benefits derived from the successful operation of the Plan or as a result of receiving a portion of the amounts expended thereunder by the Portfolios. 32 E. OTHER SERVICE PROVIDERS (1) TRANSFER AGENT/DIVIDEND-DISBURSING AGENT The Transfer Agent is the transfer agent for each Portfolio's shares and the Dividend Disbursing Agent for payment of dividends and distributions on Portfolio shares. The principal business address of the Transfer Agent is Harborside Financial Center, Plaza Two, Jersey City, NJ 07311. (2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS The Bank of New York, 100 Church Street, New York, NY 10007, is the Custodian of each Portfolio's assets other than those of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the INFORMATION PORTFOLIO. The Chase Manhattan Bank, One Chase Plaza, New York, NY 10005, is the Custodian of the assets of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the INFORMATION PORTFOLIO. Any Portfolio's cash balances with the Custodian in excess of $100,000 are unprotected by federal deposit insurance. These balances may, at times, be substantial. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036, served as independent accountants of the Fund for the fiscal year ended December 31, 1999. Effective July 1, 2000, PricewaterhouseCoopers LLP resigned and Deloitte & Touche LLP, Two World Financial Center, New York, NY 10281, was appointed the independent accountants of the Fund. The independent accountants are responsible for auditing the annual financial statements of the Fund. (3) AFFILIATED PERSONS The Transfer Agent is an affiliate of the Investment Manager, of the Sub-Advisor and of the Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer Agent's responsibilities include maintaining shareholder accounts, reinvesting dividends, processing account registration changes, handling purchase and redemption transactions, tabulating proxies and maintaining shareholder records and lists. For these services, the Transfer Agent receives an annual fee of $500 per account from each Portfolio and is reimbursed for its out-of-pocket expenses in connection with such services. F. CODES OF ETHICS The Fund, the Investment Manager, the Sub-Advisor and the Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Codes of Ethics are designed to detect and prevent improper personal trading. The Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased, sold or held by the Fund, subject to a number of restrictions and controls including prohibitions against purchases of securities in an Initial Public Offering and a preclearance requirement with respect to personal securities transactions. VI. BROKERAGE ALLOCATION AND OTHER PRACTICES -------------------------------------------------------------------------------- A. BROKERAGE TRANSACTIONS Subject to the general supervision of the Trustees, the Investment Manager and, for the PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO, the Sub-Advisor are responsible for decisions to buy and sell securities for each Portfolio, the selection of brokers and dealers to effect the transactions, and the negotiation of brokerage commissions, if any. Purchases and sales of securities on a stock exchange are effected through brokers who charge a commission for their services. In the over-the-counter market, securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. The Fund also expects that securities will be purchased at times in underwritten offerings where the price includes a fixed amount of compensation, generally referred to as the underwriter's concession or discount. Options and futures transactions will usually be effected through a broker and a commission will be charged. Certain securities (e.g., certain money market instruments) are purchased directly from an issuer, in which case no commissions or discounts are paid. 33 For the fiscal years ended December 31, 1997, 1998 and 1999, the Portfolios paid brokerage commissions as follows:
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 ----------------- ---------------- ---------------- ---------------- Money Market Portfolio.................... -0- -0- -0- Short-Term Bond Portfolio................. N/A N/A -0- Quality Income Plus Portfolio............. -0- -0- -0- High Yield Portfolio...................... -0- -0- $ 10,500 Utilities Portfolio....................... $ 110,773 $ 58,322 87,152 Income Builder Portfolio.................. 39,789 63,997 90,868 Dividend Growth Portfolio................. 1,267,591 2,028,310 4,248,651 Capital Growth Portfolio.................. 265,450 557,556 1,199,740 Global Dividend Growth Portfolio.......... 1,244,001 1,288,309 996,294 European Growth Portfolio................. 783,716 1,087,616 1,316,726 Pacific Growth Portfolio.................. 670,101 422,494 555,870 Equity Portfolio.......................... 1,573,295 3,639,562 5,790,009 S&P 500 Index Portfolio................... N/A 30,177 60,008 Competitive Edge "Best Ideas" Portfolio... N/A 36,526 47,170 Aggressive Equity Portfolio............... N/A N/A 29,426 Information Portfolio..................... N/A N/A N/A Strategist Portfolio...................... 455,450 281,844 697,388 ---------- ---------- ----------- Total................................. $6,410,166 $9,494,713 $15,129,802 ========== ========== ===========
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 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. 34 During the fiscal years ended December 31, 1997 and 1998 the Portfolios paid brokerage commissions to Dean Witter Reynolds as follows:
BROKERAGE COMMISSIONS PAID TO DEAN WITTER REYNOLDS FOR FISCAL YEAR ENDED -------------------------- NAME OF PORTFOLIO 12/31/97 12/31/98 ----------------- -------- -------- Money Market Portfolio...................................... -0- -0- Short-Term Bond Portfolio................................... N/A N/A Quality Income Plus Portfolio............................... -0- -0- High Yield Portfolio........................................ -0- -0- Utilities Portfolio......................................... $ 35,250 $ 6,675 Income Builder Portfolio.................................... 24,982 29,334 Dividend Growth Portfolio................................... 229,890 111,865 Capital Growth Portfolio.................................... 45,335 44,940 Global Dividend Growth Portfolio............................ 54,004 38,325 European Growth Portfolio................................... -0- -0- Pacific Growth Portfolio.................................... -0- -0- Equity Portfolio............................................ 158,587 248,435 S&P 500 Index Portfolio..................................... N/A -0- Competitive Edge "Best Ideas" Portfolio..................... N/A -0- Aggressive Equity Portfolio................................. N/A N/A Information Portfolio....................................... N/A N/A Strategist Portfolio........................................ 73,880 18,566 -------- -------- Total................................................... $621,928 $498,140 ======== ========
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage commissions to Dean Witter Reynolds as follows:
PERCENTAGE OF AGGREGATE DOLLAR AMOUNT OF EXECUTED TRADES BROKERAGE PERCENTAGE OF ON WHICH COMMISSIONS PAID AGGREGATE BROKERAGE BROKERAGE TO DEAN WITTER COMMISSIONS FOR COMMISSIONS WERE REYNOLDS FOR FISCAL FISCAL YEAR ENDED PAID FOR FISCAL YEAR NAME OF PORTFOLIO YEAR ENDED 12/31/99 12/31/99 ENDED 12/31/99 ----------------- ------------------- ------------------- -------------------- Money Market Portfolio................... -0- -0- -0- Short-Term Bond Portfolio................ -0- -0- -0- Quality Income Plus Portfolio............ -0- -0- -0- High Yield Portfolio..................... $ 10,498 99.98% 99.98% Utilities Portfolio...................... 8,450 9.70 8.17 Income Builder Portfolio................. 30,496 33.56 44.89 Dividend Growth Portfolio................ 167,890 3.95 1.91 Capital Growth Portfolio................. 120,251 10.02 14.56 Global Dividend Growth Portfolio......... 30,930 3.10 7.75 European Growth Portfolio................ -0- -0- -0- Pacific Growth Portfolio................. -0- -0- -0- Equity Portfolio......................... 218,335 3.77 4.44 S&P 500 Index Portfolio.................. -0- -0- -0- Competitive Edge "Best Ideas" Portfolio............................... 25 0.05 0.08 Aggressive Equity Portfolio.............. 21,397 72.71 79.13 Information Portfolio.................... N/A N/A N/A Strategist Portfolio..................... 27,241 3.91 8.23 -------- Total................................ $635,513 ========
35 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:
BROKERAGE COMMISSIONS PAID TO MORGAN STANLEY & CO. FOR FISCAL YEAR ENDED ------------------------- NAME OF PORTFOLIO 12/31/97 12/31/98 ----------------- -------- -------- Money Market Portfolio...................................... -0- -0- Short-Term Bond Portfolio................................... N/A N/A Quality Income Plus Portfolio............................... -0- -0- High Yield Portfolio........................................ -0- -0- Utilities Portfolio......................................... $ 1,000 -0- Income Builder Portfolio.................................... 710 $ 970 Dividend Growth Portfolio................................... 73,920 294,795 Capital Growth Portfolio.................................... 10,305 57,785 Global Dividend Growth Portfolio............................ 123,860 242,135 European Growth Portfolio................................... 4,655 29,622 Pacific Growth Portfolio.................................... 13,927 11,373 Equity Portfolio............................................ 69,900 432,631 S&P 500 Index Portfolio..................................... N/A -0- Competitive Edge "Best Ideas" Portfolio..................... N/A 26,356 Aggressive Equity Portfolio................................. N/A N/A Information Portfolio....................................... N/A N/A Strategist Portfolio........................................ 34,140 29,875 -------- ---------- Total................................................... $332,417 $1,125,542 ======== ==========
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage commissions to Morgan Stanley & Co. as follows:
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 ----------------- ------------------------- ------------------- -------------------- Money Market Portfolio............ -0- -0- -0- Short-Term Bond Portfolio......... -0- -0- -0- Quality Income Plus Portfolio..... -0- -0- -0- High Yield Portfolio.............. -0- -0- -0- Utilities Portfolio............... -0- -0- -0- Income Builder Portfolio.......... $ 2,555 2.81% 2.73% Dividend Growth Portfolio......... 255,110 6.00 6.57 Capital Growth Portfolio.......... 83,995 7.00 7.93 Global Dividend Growth Portfolio........................ 145,785 14.63 13.40 European Growth Portfolio......... -0- -0- -0- Pacific Growth Portfolio.......... 55,994 10.07 12.54 Equity Portfolio.................. 637,848 11.02 12.13 S&P 500 Index Portfolio........... -0- -0- -0- Competitive Edge "Best Ideas" Portfolio........................ 39,371 83.47 93.95 Aggressive Equity Portfolio....... 671 2.28 1.62 Information Portfolio............. N/A N/A N/A Strategist Portfolio.............. 26,580 3.81 5.59 ---------- Total......................... $1,247,909 ==========
36 During the fiscal year ended December 31, 1999, the PACIFIC GROWTH PORTFOLIO paid a total of $605 in brokerage commissions to China International Capital, which broker-dealer became an affiliate of the Investment Manager during 1999. During the fiscal year ended December 31, 1999, the brokerage commissions paid to China International Capital represented approximately 0.11% of the total brokerage commissions paid by the PACIFIC GROWTH PORTFOLIO during the year and were paid on account of transactions having an aggregate dollar value equal to approximately 0.16% of the aggregate dollar value of all portfolio transactions of the Portfolio during the year for which commissions were paid. C. BROKERAGE SELECTION The policy of the Fund regarding purchases and sales of securities for the Portfolios is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Fund's policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Fund believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude the Fund and the Investment Manager (or, if applicable, the Sub-Advisor) from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the Investment Manager (or, if applicable, the Sub-Advisor) relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction. These determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. The Fund anticipates that certain Portfolio transactions involving foreign securities will be effected on foreign securities exchanges. Fixed commissions on such transactions are generally higher than negotiated commissions on domestic transactions. There is also generally less government supervision and regulation of foreign securities exchanges and brokers than in the United States. In seeking to implement each Portfolio's policies, the Investment Manager (or, if applicable, the Sub-Advisor) effects transactions with those brokers and dealers who the Investment Manager (or, if applicable, the Sub-Advisor) believes provide the most favorable prices and are capable of providing efficient executions. If the Investment Manager (or, if applicable, the Sub-Advisor) believes the prices and executions are obtainable from more than one broker or dealer, it may give consideration to placing portfolio transactions with those brokers and dealers who also furnish research and other services to the Fund or the Investment Manager (or, if applicable, the Sub-Advisor). The services may include, but are not limited to, any one or more of the following: information as to the availability of securities for purchase or sale; statistical or factual information or opinions pertaining to investment; wire services; and appraisals or evaluations of portfolio securities. The information and services received by the Investment Manager (or, if applicable, the Sub-Advisor) from brokers and dealers may be of benefit to the Investment Manager (or, if applicable, the Sub-Advisor) in the management of accounts of some of its other clients and may not in all cases benefit a Portfolio directly. The Investment Manager and the Sub-Advisor currently serve as investment advisors to a number of clients, including other investment companies, and may in the future act as investment advisors to others. It is the practice of the Investment Manager (or, if applicable, the Sub-Advisor) to cause purchase and sale transactions to be allocated among the Portfolios and others whose assets it manages in such manner as it deems equitable. In making such allocations among the Portfolios and other client accounts, various factors may be considered, including the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the opinions of the persons responsible for managing the Portfolios and other client accounts. 37 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:
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 ----------------- ------------------------------ -------------------------- Money Market Portfolio.................... -0- -0- Short-Term Bond Portfolio................. -0- -0- Quality Income Plus Portfolio............. -0- -0- High Yield Portfolio...................... -0- -0- Utilities Portfolio....................... $ 76,852 $ 44,579,972 Income Builder Portfolio.................. 57,134 24,011,003 Dividend Growth Portfolio................. 3,726,534 2,616,155,331 Capital Growth Portfolio.................. 978,050 842,426,113 Global Dividend Growth Portfolio.......... 778,954 325,024,122 European Growth Portfolio................. -0- -0- Pacific Growth Portfolio.................. 75,012 34,082,928 Equity Portfolio.......................... 4,892,734 4,497,652,637 S&P 500 Index Portfolio................... -0- -0- Competitive Edge "Best Ideas" Portfolio... 4,161 1,632,807 Aggressive Equity Portfolio............... 6,967 4,898,929 Information Portfolio..................... N/A N/A Strategist Portfolio...................... 633,267 357,189,666 ----------- -------------- Total................................. $11,229,665 $8,747,653,508 =========== ==============
E. REGULAR BROKER-DEALERS During the fiscal year ended December 31, 1999, the Portfolios purchased the following securities issued by issuers which were among the ten brokers or the ten dealers that executed transactions for or with the Fund or the Portfolio in the largest dollar amounts during the year:
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY ----------------- ------------------------------ --------------------------- Money Market Portfolio Goldman, Sachs & Co. discount note, commercial paper Lehman Brothers Inc. discount note, commercial paper Merrill Lynch & Co., Inc. commercial paper Morgan (J.P.) Securities Inc. discount note, commercial paper CS First Boston Corporation discount note, commercial paper Chase Securities Inc. commercial paper, certificate of deposit Banc of America Securities LLC discount note, commercial paper, bank note General Motors Acceptance commercial paper Corp. Deutsche Bank Securities Corp. commercial paper Sears Roebuck Acceptance Corp. commercial paper Short-Term Bond Portfolio none N/A Quality Income Plus Portfolio Merrill Lynch & Co., Inc. corporate note/bond Morgan (J.P.) Securities Inc. corporate note/bond Lehman Brothers Holdings Inc. corporate note/bond Goldman, Sachs Group, Inc. corporate note/bond
38
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY ----------------- ------------------------------ --------------------------- Donaldson, Lufkin & Jenrette, corporate note/bond Inc. Bear, Stearns & Co. Inc. corporate note/bond NationsBank, N.A. corporate note/bond The Chase Manhattan Bank corporate note/bond High Yield Portfolio none N/A Utilities Portfolio none N/A Income Builder Portfolio Merrill Lynch & Co., Inc. convertible preferred stock Dividend Growth Portfolio Bank of America common stock Morgan (J.P.) & Co. Inc. common stock Capital Growth Portfolio BankAmerica Corp. common stock Bank of New York Inc. common stock Donaldson Lufkin & Jenrette, common stock Inc. Goldman Sachs Group Inc. common stock Lehman Brothers Holdings Inc. common stock Global Dividend Growth Portfolio none N/A European Growth Portfolio none N/A Pacific Growth Portfolio none N/A Equity Portfolio Bank of New York Co., Inc. common stock Morgan (J.P.) Securities Inc. common stock Goldman Sachs Group, Inc. common stock Lehman Brothers Holdings Inc. common stock Merrill Lynch & Co., Inc. common stock S&P 500 Index Portfolio Merrill Lynch & Co., Inc. common stock Bank of New York Co., Inc. common stock BankAmerica Corp. common stock Morgan (J.P.) & Co., Inc. common stock Competitive Edge "Best Ideas" Portfolio Bank of New York Co., Inc. common stock Aggressive Equity Portfolio Donaldson, Lufkin & Jenrette, common stock Inc. Goldman Sachs Group, Inc. common stock Lehman Brothers Holdings, Inc. common stock Bank of New York Co., Inc. common stock Merrill Lynch & Co., Inc. common stock Information Portfolio N/A N/A Strategist Portfolio BankAmerica bonds Bank One bonds CS First Boston Corporation bond Merrill Lynch & Co., Inc. bonds/common stock PaineWebber Group bonds The Chase Manhattan Bank common stock
At December 31, 1999, the Portfolios held the following securities issued by such brokers with the following market values:
MARKET VALUE NAME OF PORTFOLIO ISSUER TYPE OF SECURITY AT 12/31/99 ----------------- ------------------------------ --------------------------- ------------ Money Market Portfolio Goldman, Sachs & Co commercial paper $18,895,520 Morgan (J.P.) Securities Inc. commercial paper 18,891,038 Chase Securities Inc. certificate of deposit 14,000,000 Bank of American Securities commercial paper 10,412,461 LLC General Motors Acceptance commercial paper 5,986,900 Corp. Deutsche Bank Securities Corp. commercial paper 5,947,800
39
MARKET VALUE NAME OF PORTFOLIO ISSUER TYPE OF SECURITY AT 12/31/99 ----------------- ------------------------------ --------------------------- ------------ Short-Term Bond Portfolio none N/A N/A Quality Income Plus Lehman Brothers Inc. corporate notes/bonds 9,018,463 Portfolio Bear Stearns & Co. corporate notes/bonds 5,031,830 NationsBank, N.A. corporate note/bond 5,001,800 High Yield Portfolio none N/A N/A Utilities Portfolio none N/A N/A Income Builder Portfolio Merrill Lynch & Co., Inc. convertible preferred stock 284,928 Dividend Growth Portfolio Bank of America common stock 19,573,125 Morgan (J.P.) & Co. Inc. common stock 20,260,000 Capital Growth Portfolio Lehman Brothers Holdings Inc. common stock $ 1,016,250 Global Dividend Growth none N/A N/A Portfolio European Growth Portfolio none N/A N/A Pacific Growth Portfolio none N/A N/A Equity Portfolio Bank of New York Co., Inc. common stock 800,000 Goldman Sachs Group, Inc. common stock 26,278,312 Lehman Brothers Holdings Inc. common stock 18,140,063 Merrill Lynch & Co. Inc. common stock 12,191,000 S&P 500 Index Portfolio Merrill Lynch & Co. Inc. common stock 448,228 Bank of New York, Inc. common stock 426,560 BankAmerica common stock 1,240,736 Morgan (J.P.) & Co. Inc. common stock 317,449 Competitive Edge "Best Bank of New York Co., Inc. common stock 1,312,000 Ideas" Portfolio Aggressive Equity Portfolio Donaldson, Lufkin & Jenrette, common stock 111,746 Inc. Goldman Sachs Group, Inc. common stock 268,434 Lehman Brothers Holdings, Inc. common stock 194,781 Bank of New York Co., Inc. common stock 100,000 Merrill Lynch & Co., Inc. common stock 66,800 Information Portfolio N/A N/A N/A Strategist Portfolio PaineWebber Group bonds 2,012,360 The Chase Manhattan Bank common stock 6,176,156 Merrill Lynch & Co., Inc. common stock 6,997,300
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 seventeen 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. 40 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. The voting rights of shareholders are not cumulative, so that holders of more than 50 percent of the shares voting can, if they choose, elect all Trustees being selected, while the holders of the remaining shares would be unable to elect any Trustees. Under Massachusetts law, shareholders of a business trust may, under certain limited circumstances, be held personally liable as partners for the obligations of the Fund. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Fund, requires that notice of such Fund obligations include such disclaimer, and provides for indemnification out of the Fund's property for any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of the Fund's assets and operations, the possibility of the Fund being unable to meet its obligations is remote and thus, in the opinion of Massachusetts counsel to the Fund, the risk to Fund shareholders of personal liability is remote. Shareholders have the right to vote on the election of Trustees of the Fund and on any and all matters on which by law or the provisions of the Fund's By-Laws they may be entitled to vote. To the extent required by law, Northbrook Life Insurance Company, Allstate Life Insurance Company of New York, Glenbrook Life and Annuity Company and Paragon Life Insurance Company, which are the only shareholders of the Fund, will vote the shares of the Fund held in each Account established to fund the benefits under either a flexible premium deferred variable annuity Contract or a flexible premium variable life insurance Contract in accordance with instructions from the owners of such Contracts. Shareholders of all Portfolios vote for a single set of Trustees. All of the Trustees, except for James F. Higgins, have been elected by the shareholders of the Fund, most recently at a Special Meeting of Shareholders held on May 21, 1997. The Trustees themselves have the power to alter the number and the terms of office of the Trustees (as provided for in the Declaration of Trust), and they may at any time lengthen or shorten their own terms or make their terms of unlimited duration and appoint their own successors, provided that always at least a majority of the Trustees has been elected by the shareholders of the Fund. On any matters affecting only one Portfolio, only the shareholders of that Portfolio are entitled to vote. On matters relating to all the Portfolios, but affecting the Portfolios differently, separate votes by Portfolio are required. Approval of an Investment Management Agreement and a change in fundamental policies would be regarded as matters requiring separate voting by each Portfolio. With respect to the submission to shareholder vote of a matter requiring separate voting by Portfolio, the matter shall have been effectively acted upon with respect to any Portfolio if a majority of the 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. 41 B. OFFERING PRICE The price of each Portfolio share, called "net asset value," is based on the value of the Portfolio's securities. Net asset value per share of each of Class X and Class Y shares is calculated by dividing the value of the portion of each Portfolio's securities and other assets attributable to each Class, respectively, less the liabilities attributable to each Class, respectively, by the number of shares of the Class outstanding. The assets of each Class of shares are invested in a single portfolio. The net asset value of each Class, however, will differ because the Classes have different ongoing fees. The MONEY MARKET PORTFOLIO, however, utilizes the amortized cost method in valuing its portfolio securities for purposes of determining the net asset value of its shares. The MONEY MARKET PORTFOLIO utilizes the amortized cost method in valuing its portfolio securities even though the portfolio securities may increase or decrease in market value, generally in connection with changes in interest rates. The amortized cost method of valuation involves valuing a security at its cost at the time of purchase adjusted by a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the MONEY MARKET PORTFOLIO would receive if it sold the investment. During such periods, the yield to investors in the MONEY MARKET PORTFOLIO may differ somewhat from that obtained in a similar company which uses mark-to-market values for all of its portfolio securities. For example, if the use of amortized cost resulted in a lower (higher) aggregate portfolio value on a particular day, a prospective investor in the MONEY MARKET PORTFOLIO would be able to obtain a somewhat higher (lower) yield than would result from investment in such a similar company and existing investors would receive less (more) investment income. The purpose of this method of calculation is to facilitate the maintenance of a constant net asset value per share of $1.00. The use of the amortized cost method to value the portfolio securities of the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "RULE") and is conditioned on its compliance with various conditions contained in the 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 42 in the case of a security called for redemption, the date on which the redemption payment must be made. A variable rate security that is subject to a demand feature is deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. A floating rate security that is subject to a demand feature is deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. An "NRSRO" is a nationally recognized statistical rating organization. The term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with respect to a security or class of debt obligations of an issuer, or (ii) if only one NRSRO has issued a rating with respect to such security or issuer at the time a fund purchases or rolls over the security, that NRSRO. An Eligible Security is generally defined in the Rule to mean (i) a security with a remaining maturity of 397 calendar days or less that has received a short-term rating (or that has been issued by an issuer that has received a short-term rating with respect to a class of debt obligations, or any debt obligation within that class, that is comparable in priority and security with the security) by the Requisite NRSROs in one of the two highest short-term rating categories (within which there may be sub-categories or gradations indicating relative standing); or (ii) a security: (A) that at the time of issuance had a remaining maturity of more than 397 calendar days but that has a remaining maturity of 397 calendar days or less; and (B) whose issuer has received from the Requisite NRSROs a rating with respect to a class of debt obligations (or any debt obligations within that class) that is now comparable in priority and security with the security, in one of the two highest short-term rating categories (within which there may be subcategories or gradations indicating relative standing); or (iii) an unrated security that is of comparable quality to a security meeting the requirements of (i) or (ii) above, as determined by the Trustees. The MONEY MARKET PORTFOLIO will limit its investments to securities that meet the requirements for Eligible Securities including the required ratings by S&P or Moody's. As permitted by the Rule, the Board has delegated to the Fund's Investment Manager, subject to the Board's oversight pursuant to guidelines and procedures adopted by the Board, the authority to determine which securities present minimal credit risks and which unrated securities are comparable in quality to rated securities. Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its investments in securities, other than Government securities, so that, at the time of purchase: (a) except as further limited in (b) below with regard to certain securities, no more than 5% of its total assets will be invested in the securities of any one issuer; and (b) with respect to Eligible Securities that have received a rating in less than the highest category by any one of the NRSROs whose ratings are used to qualify the security as an Eligible Security, or that have been determined to be of comparable quality: (i) no more than 5% in the aggregate of the Portfolio's total assets in all such securities, and (ii) no more than the greater of 1% of total assets, or $1 million, in the securities on any one issuer. The presence of a line of credit or other credit facility offered by a bank or other financial institution which guarantees the payment obligation of the issuer, in the event of a default in the payment of principal or interest of an obligation, may be taken into account in determining whether an investment is an Eligible Security, provided that the guarantee itself is an Eligible Security. The Rule further requires that the Money Market Portfolio limit its investments to U.S. dollar-denominated instruments which the Trustees determine present minimal credit risks and which are Eligible Securities. The Rule also requires the Portfolio to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to its objective of maintaining a stable net asset value of $1.00 per share and precludes the purchase of any instrument with a remaining maturity of more than 397 days. (An Investment Restriction of the Fund further precludes the Portfolio from investing in securities maturing more than one year from the date of purchase.) Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Portfolio will invest its available cash in such a manner as to reduce such maturity to 90 days or less a soon as is reasonably practicable. 43 If the Trustees determine that it is no longer in the best interests of the MONEY MARKET PORTFOLIO and its shareholders to maintain a stable price of $1 per share or if the Trustees believe that maintaining such price no longer reflects a market-based net asset value per share, the board has the right to change from an amortized cost basis of valuation to valuation based on market quotations. The Fund will notify shareholders of the Portfolio of any such change. In the calculation of a Portfolio's net asset value: (1) an equity portfolio security listed or traded on the New York or American Stock Exchange, NASDAQ, or other exchange is valued at its latest sale price, 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 portfolio securities for which over-the-counter market quotations are readily available are valued at the latest bid price. When market quotations are not readily available, including circumstances under which it is determined by the Investment Manager (or if applicable, the Sub-Advisor) that sale or bid prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. For valuation purposes, quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the New York Stock Exchange. Short-term debt securities with remaining maturities of sixty days or less at the time of purchase are valued at amortized cost, unless the Trustees determine such does not reflect the securities' market value, in which case these securities will be valued at their fair value as determined by the Trustees. Certain of the Portfolios' securities (other than securities of the MONEY MARKET PORTFOLIO) may be valued by an outside pricing service approved by the Fund's Trustees. The pricing service may utilize a matrix system incorporating security quality, maturity and coupon as the evaluation model parameters, and/or research evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the portfolio securities valued by such pricing service. Listed options on securities are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they will be valued at the mean between their latest bid and asked prices. Unlisted options on debt securities and all options on equity securities are valued at the mean between their latest bid and asked prices. Futures are valued at the latest sale price on the commodities exchange on which they trade unless the Trustees determine such price does not reflect their market value, in which case they will be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Trustees. Generally, trading in foreign securities, as well as corporate bonds, U.S. Government securities and money market instruments, is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events which may affect the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange and will therefore not be reflected in the computation of a Portfolio's net asset value. If events that may affect the value of such securities occur during such period, then these securities may be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Trustees. IX. TAXATION OF THE PORTFOLIOS AND SHAREHOLDERS -------------------------------------------------------------------------------- Each of the Portfolios is treated as a separate entity for federal tax purposes. Each of the Portfolios intends to remain qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. As such, each of the Portfolios will not be subject to federal income tax on its net investment income and capital gains, if any, to the extent that it distributes such income and capital gains 44 to its shareholders. Each of the Portfolios generally intends to distribute sufficient income and gains so that each of the Portfolios will not pay corporate income tax on its earnings. Section 817(h) of the Internal Revenue Code provides that the investments of a separate account underlying a variable insurance contract (or the investments of a mutual fund, the shares of which are owned by the variable separate account) must be "adequately diversified" in order for the contract to be treated as an annuity or life insurance for tax purposes. The Treasury Department has issued regulations prescribing these diversification requirements. Each Portfolio intends to comply with these requirements. Information concerning the federal income tax consequences to holders of the underlying variable annuity or variable life insurance Contracts is contained in the accompanying prospectus for the applicable Contract. X. UNDERWRITERS -------------------------------------------------------------------------------- The Portfolios' shares are offered on a continuous basis. The Distributor, as the principal underwriter of the shares, has certain obligations under the Distribution Agreement concerning the distribution of the shares. These obligations and the compensation the Distributor receives are described above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plan." XI. CALCULATION OF PERFORMANCE DATA -------------------------------------------------------------------------------- The annualized current yield of the MONEY MARKET PORTFOLIO, as may be quoted from time to time in advertisements and other communications to shareholders and potential investors, is computed by determining, for a stated seven-day period, the net change, exclusive of capital changes and including the value of additional shares purchased with dividends and any dividends declared therefrom, in the value of a hypothetical pre-existing account have a balance of one share at the beginning of the period, subtracting a hypothetical charge which reflects deductions from shareholder accounts (such as management fees), and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then multiplying the base period return by (365/7). The MONEY MARKET PORTFOLIO'S annualized effective yield, as may be quoted from time to time in advertisements and other communications to shareholders and potential investors, is computed by determining (for the same stated seven-day period as for the current yield), the net change, exclusive of capital changes and including the value of additional shares purchased with dividends and any dividends declared therefrom, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the based period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result. The yields quoted in any advertisement or other communication should not be considered a representation of the yields of the MONEY MARKET PORTFOLIO in the future since the yield is not fixed. Actual yields will depend not only on the type, quality and maturities of the investments held by the MONEY MARKET PORTFOLIO and changes in interest rates on such investments, but also on changes in the Portfolio's expenses during the period. Yield information may be useful in reviewing the performance of the Money Market Portfolio and for providing a basis for comparison with other investment alternatives. However, unlike bank deposits or other investments which typically pay a fixed yield for a stated period of time, the Money Market Portfolio's yield fluctuates. Furthermore, the quoted yield does not reflect charges which may be imposed on the Contracts by the applicable Account and therefore is not equivalent to total return under a Contract. (For a description of such charges, see the prospectus for the Contracts which accompanies each of the Class X PROSPECTUS and the Class Y PROSPECTUS for the Fund.) 45 The current yield of the MONEY MARKET PORTFOLIO for the seven days ending December 31, 1999 was 5.44%. The effective annual yield on 5.44% is 5.59%, assuming daily compounding. From time to time the Fund may quote the "yield" of each of the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO and the UTILITIES PORTFOLIO in advertising and sales literature. Yield is calculated for any 30-day period as follows: the amount of interest and/or dividend income for each security in the Portfolio is determined in accordance with regulatory requirements; the total for the entire portfolio constitutes the Portfolio's gross income for the period. Expenses accrued during the period are subtracted to arrive at "net investment income." The resulting amount is divided by the product of the net asset value per share on the last day of the period multiplied by the average number of Portfolio shares outstanding during the period that were entitled to dividends. This amount is added to 1 and raised to the sixth power. 1 is then subtracted from the result and the difference is multiplied by 2 to arrive at the annualized yield. The "yield" of a Portfolio does not reflect the deduction of any charges which may be imposed on the Contracts by the applicable Account which, if quoted, would reduce the yield quoted. For the 30-day period ended December 31, 1999, the yield of the SHORT-TERM BOND PORTFOLIO, calculated pursuant to this formula, was 4.48%, the yield of the QUALITY INCOME PLUS PORTFOLIO, calculated pursuant to this formula, was 7.11%, the yield of the HIGH YIELD PORTFOLIO, calculated pursuant to this formula, was 18.86%, and the yield of the UTILITIES PORTFOLIO, calculated pursuant to this formula, was 2.33%. From time to time the Fund may quote the "total return" of each Portfolio in advertising and sales literature. A Portfolio's "average annual total return" represents an annualization of the Portfolio's total return over a particular period and is computed by finding the annual percentage rate which will result in the ending redeemable value of a hypothetical $1,000 investment made at the beginning of a one, five or ten year period, or for the period from the date of commencement of the Portfolio's operations, if shorter than any of the foregoing. For the purpose of this calculation, it is assumed that all dividends and distributions are reinvested. However, average annual total return does not reflect the deduction of any charges which may be imposed on the Contracts by the applicable Account which, if quoted, would reduce the performance quoted. The formula for computing the average annual total return involves a percentage obtained by dividing the ending redeemable value by the amount of the initial investment, taking a root of the quotient (where the root is equivalent to the number of years in the period) and subtracting 1 from the result. The average annual total returns of the MONEY MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the EQUITY PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST PORTFOLIO for the one, five and ten year periods (or for the period from the date of commencement of the Portfolio's operations, if shorter than any of the foregoing) ended December 31, 1999 were as follows:
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD FROM AVERAGE ANNUAL AVERAGE ANNUAL COMMENCEMENT TOTAL RETURN FOR TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED THROUGH NAME OF PORTFOLIO (IF APPLICABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 ----------------- ----------------- ------------------- ------------------- ------------------- ------------------- Money Market Portfolio........... N/A 4.80% 5.20% 4.95% N/A Quality Income Plus Portfolio........... N/A -4.32% 7.84% 7.77 N/A High Yield Portfolio........... N/A -1.33% 5.91% 8.44 N/A Utilities Portfolio........... 3/1/90 12.71% 19.92% N/A 14.25% Income Builder Portfolio........... 1/21/97 7.06% N/A N/A 10.81% Dividend Growth Portfolio........... 3/1/90 -2.39% 18.82% N/A 13.04
46
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD FROM AVERAGE ANNUAL AVERAGE ANNUAL COMMENCEMENT TOTAL RETURN FOR TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED THROUGH NAME OF PORTFOLIO (IF APPLICABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 ----------------- ----------------- ------------------- ------------------- ------------------- ------------------- Capital Growth Portfolio........... 3/1/91 33.29% 24.11% N/A 15.34% Global Dividend Growth Portfolio.... 2/23/94 14.65% 15.71% N/A 13.33% European Growth Portfolio........... 3/1/91 29.11% 24.90% N/A 19.68% Pacific Growth Portfolio........... 2/23/94 66.09% 0.37% N/A -0.87% Equity Portfolio..... N/A 58.59% 35.42% 23.04% N/A S&P 500 Index Portfolio........... 5/18/98 20.23% N/A N/A 20.29% Competitive Edge "Best Ideas" Portfolio........... 5/18/98 26.88% N/A N/A 14.46% Strategist Portfolio........... N/A 17.35% 16.27% 13.04% N/A
The INFORMATION PORTFOLIO had not commenced operations prior to the date of this STATEMENT OF ADDITIONAL INFORMATION. The Fund quotes the "total return" of a Portfolio that has been in operation for less than one year on an non-annualized basis. The Fund may compute the aggregate total return of each of the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO (which commenced operations on May 3, 1999) for specified periods by determining the aggregate percentage rate that will result in the ending value of a hypothetical $1,000 investment made at the beginning of the period. For the purpose of this calculation, it is assumed that all dividends and distributions are reinvested. The formula for computing aggregate total return involves a percentage obtained by dividing the ending value by the initial $1,000 investment and subtracting 1 from the result. Based on the foregoing calculation, the total returns of the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO for the period May 3, 1999 through December 31, 1999 were 1.56% and 46.08%, respectively. The Investment Manager assumed all operating expenses of each of the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO until November 5, 1999. Without the waiver of fees and assumption of expenses by the Investment Manager, the total returns of the SHORT-TERM BOND and the AGGRESSIVE EQUITY PORTFOLIO would have been 0.94% and 45.88%, respectively. In addition to the foregoing, the Fund may advertise the total return of the Portfolios over different periods of time by means of aggregate, average, year-by-year or other types of total return figures. Such calculations similarly do not reflect the deduction of any charges which may be imposed on the Contracts by an Account. The Fund may also compute the aggregate total returns of the Portfolios for specified periods by determining the aggregate percentage rate which will result in the ending value of a hypothetical $1,000 investment made at the beginning of the period. For the purpose of this calculation, it is assumed that all dividends and distributions are reinvested. The formula for computing aggregate total return involves a percentage obtained by dividing the ending value (without the reduction for any charges imposed on the Contracts by the applicable Account) by the initial $1,000 investment and subtracting 1 from the result. Based on the foregoing calculation, the total returns of the MONEY MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the EQUITY PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST PORTFOLIO for the one, five and ten year periods 47 (or for the period from the date of commencement of the Portfolio's operations, if shorter than any of the foregoing) ended December 31, 1999 were as follows:
TOTAL RETURN FOR PERIOD FROM COMMENCEMENT TOTAL RETURN FOR TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED THROUGH NAME OF PORTFOLIO (IF APPLCABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 ----------------- ----------------- ------------------- ------------------- ------------------- ------------------- Money Market......... N/A 4.80% 28.83% 62.16% N/A Quality Income Plus Portfolio.......... N/A -4.32% 45.82% 111.31% N/A High Yield Portfolio.......... N/A -1.33% 33.25% 124.80% N/A Utilities Portfolio.......... 3/1/90 12.71% 148.00% N/A 270.51% Income Builder Portfolio.......... 1/21/97 7.06% N/A N/A 35.24% Dividend Growth Portfolio.......... 3/1/90 -2.39% 136.87% N/A 233.75% Capital Growth Portfolio.......... 3/1/91 33.29% 194.45% N/A 252.87% Global Dividiend Growth Portfolio... 2/23/94 14.65% 107.44% N/A 107.99% European Growth Portfolio.......... 3/1/91 29.11% 204.02% N/A 389.13% Pacific Growth Portfolio.......... 2/23/94 66.09% 1.85% N/A -5.00% Equity Portfolio..... N/A 58.59% 355.36% 695.04% N/A S&P 500 Index Portfolio.......... 5/18/98 20.23% N/A N/A 34.90% Competitive Edge "Best Ideas" Portfolio.......... 5/18/98 26.88% N/A N/A 24.47% Strategist Portfolio.......... N/A 17.35% 112.49% 240.52% N/A
The Fund may also advertise the growth of hypothetical investments of $10,000, $50,000 and $100,000 in shares of a Portfolio by adding 1 to the Portfolio's aggregate total return to date (expressed as a decimal) and multiplying by $10,000, $50,000 or $100,000, as the case may be. Investments of $10,000, $50,000 and $100,000 in each Portfolio of the Fund at inception of the Portfolio would have grown (or declined) to the following amounts at December 31, 1999:
INVESTMENT AT COMMENCEMENT OF OPERATIONS OF ---------------------------------- NAME OF PORTFOLIO $10,000 $50,000 $100,000 ----------------- --------- --------- ---------- Money Market Portfolio.................................... $ 24,891 $124,455 $ 248,910 Short-Term Bond Portfolio................................. 10,156 50,780 101,560 Quality Income Plus Portfolio............................. 26,247 131,235 262,470 High Yield Portfolio...................................... 35,663 178,315 356,630 Utilities Portfolio....................................... 37,051 185,255 370,510 Income Builder Portfolio.................................. 13,524 67,620 135,240 Dividend Growth Portfolio................................. 33,375 166,875 333,750 Capital Growth Portfolio.................................. 35,287 176,435 352,870 Global Dividend Growth Portfolio.......................... 20,799 103,995 207,990 European Growth Portfolio................................. 48,913 244,565 489,130 Pacific Growth Portfolio.................................. 9,500 47,500 95,000 Equity Portfolio.......................................... 156,447 782,235 1,564,470 S&P 500 Index Portfolio................................... 13,490 67,450 134,900 Competitive Edge "Best Ideas" Portfolio................... 12,447 62,235 124,470 Aggressive Equity Portfolio............................... 14,608 73,040 146,080 Strategist Portfolio...................................... 43,031 215,155 430,310
48 All the foregoing yields and returns are for Class X only. As of December 31, 1999, the Fund had not yet offered Class Y shares for any Portfolio. The Fund from time to time may also advertise the performance of the Portfolios relative to certain performance rankings and indexes compiled by recognized organizations. XII. FINANCIAL STATEMENTS -------------------------------------------------------------------------------- EXPERTS. The financial statements of the Fund for the fiscal year ended December 31, 1999 included in this STATEMENT OF ADDITIONAL INFORMATION and incorporated by reference in each of the Class X and Class Y PROSPECTUSES have been so included and incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Also included are the unaudited Fund financial statements for the six month period ended June 30, 2000. * * * * * 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. 49 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
ANNUALIZED MATURITY PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS PURCHASE DATE VALUE ----------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (71.1%) BANKING (12.1%) $ 10,500 Bank of America Corp................................ 6.04-6.08 % 01/05/00-04/12/00 $ 10,412,461 11,500 Citicorp............................................ 5.85-5.88 02/04/00-02/10/00 11,432,169 19,000 Morgan (J.P.) & Co. Inc............................. 5.91-6.06 01/25/00-02/23/00 18,891,038 12,000 Northern Trust Corp................................. 5.89-6.38 02/07/00-02/16/00 11,917,814 ------------ 52,653,482 ------------ DIVERSIFIED FINANCIAL SERVICES (8.6%) 5,500 Associates Corp. of North America................... 5.87 01/31/00 5,473,692 10,820 Associates First Capital Corp....................... 6.04-6.06 01/07/00-03/10/00 10,753,848 21,500 General Electric Capital Corp....................... 5.04-5.80 01/18/00-02/01/00 21,422,684 ------------ 37,650,224 ------------ FINANCE - AUTOMOTIVE (5.7%) 19,000 DaimlerChrylser North America Holding Corp.......... 5.93-6.08 01/21/00-03/07/00 18,873,442 6,000 General Motors Acceptance Corp...................... 6.57 01/13/00 5,986,900 ------------ 24,860,342 ------------ FINANCE - CONSUMER (8.3%) 5,000 American Express Credit Corp........................ 6.07 02/09/00 4,967,771 19,500 New Center Asset Trust.............................. 5.90-6.04 03/03/00-03/21/00 19,328,633 12,000 Norwest Financial Inc............................... 5.93-6.10 02/08/00-02/18/00 11,915,110 ------------ 36,211,514 ------------ FINANCE - CORPORATE (1.2%) 5,030 Ciesco, L.P......................................... 5.93 02/14/00 4,994,036 ------------ INSURANCE (6.5%) 20,700 American General Corp............................... 5.99-6.01 02/15/00-03/08/00 20,509,717 7,950 Prudential Funding Corp............................. 5.57 02/16/00 7,893,824 ------------ 28,403,541 ------------ INTERNATIONAL BANKS (23.0%) 18,000 ANZ (DE) Inc........................................ 6.07-6.08 01/12/00-03/23/00 17,894,313 18,000 Abbey National North America Corp................... 5.98-6.03 01/04/00-03/13/00 17,920,945 6,500 Canadian Imperial Holdings Inc...................... 6.50 01/03/00 6,497,659 5,000 CBA (Delaware) Finance Inc.......................... 5.91 02/14/00 4,964,433 11,000 Cregem North America Inc............................ 5.91-5.98 01/10/00-01/19/00 10,976,515
SEE NOTES TO FINANCIAL STATEMENTS 50 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
ANNUALIZED MATURITY PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS PURCHASE DATE VALUE ----------------------------------------------------------------------------------------------------------------- $ 6,000 Deutsche Bank Financial Inc......................... 5.89 % 02/24/00 $ 5,947,800 6,000 Dresdner U.S. Finance Inc........................... 6.25 01/05/00 5,995,860 7,000 KFW International Finance Inc....................... 5.99 04/05/00 6,891,568 13,460 National Australia Funding (DE) Inc................. 5.86-6.68 01/14/00-01/26/00 13,416,633 5,000 UBS Finance (Delaware) LLC.......................... 6.07 05/19/00 4,885,711 5,000 WestPac Capital Corp................................ 6.14 01/27/00 4,978,189 ------------ 100,369,626 ------------ INVESTMENT BANKERS/BROKERS/SERVICES (4.3%) 19,000 Goldman Sachs Group Inc............................. 6.06-6.51 01/13/00-02/25/00 18,895,520 ------------ UTILITIES (1.4%) 6,000 Duke Energy Corp.................................... 5.87 02/14/00 5,957,613 ------------ TOTAL COMMERCIAL PAPER (AMORTIZED COST $309,995,898)......................................................... 309,995,898 ------------ U.S. GOVERNMENT AGENCIES (16.6%) 17,000 Federal Farm Credit Bank............................ 4.99-6.16 03/17/00-11/17/00 16,605,790 30,220 Federal Home Loan Banks............................. 4.97-6.14 02/25/00-12/21/00 29,597,102 4,500 Federal Home Loan Mortgage Corp..................... 6.02 09/01/00 4,323,710 22,519 Federal National Mortgage Assoc..................... 5.76-6.05 04/06/00-12/05/00 21,629,248 ------------ TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $72,155,850).......................................................... 72,155,850 ------------ CERTIFICATES OF DEPOSIT (10.6%) 14,000 Chase Manhattan Bank (USA) N.A...................... 5.83-5.85 01/19/00-01/20/00 14,000,000 6,000 First Union National Bank........................... 5.84 01/11/00 6,000,000 6,000 Fleet National Bank................................. 6.08 02/22/00 6,000,000 20,000 U.S. Bank, N.A...................................... 5.92-6.04 01/28/00-04/17/00 20,000,000 ------------ TOTAL CERTIFICATES OF DEPOSIT (AMORTIZED COST $46,000,000).......................................................... 46,000,000 ------------
SEE NOTES TO FINANCIAL STATEMENTS 51 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
ANNUALIZED MATURITY PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS PURCHASE DATE VALUE ----------------------------------------------------------------------------------------------------------------- SHORT-TERM BANK NOTE (1.6%) $ 7,000 First USA Bank, N.A. (AMORTIZED COST $7,000,000)....................... 5.88 % 02/11/00 $ 7,000,000 ------------
TOTAL INVESTMENTS (AMORTIZED COST $435,151,748) (a)......................................................... 99.9% 435,151,748 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 491,363 ----- ------------- NET ASSETS................................................................................ 100.0% $ 435,643,111 ----- ------------- ----- -------------
--------------------- (a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS 52 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - SHORT-TERM BOND PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS (83.8%) $ 575 Federal Home Loan Banks........................... 4.88-5.38% 03/02/01-01/22/02 $ 565,822 500 Federal Home Loan Mortgage Corp................... 5.75 06/15/01 495,210 200 Federal National Mortgage Assoc................... 6.31 07/17/02 196,880 1,400 U.S. Treasury Notes............................... 5.88-6.50 09/30/00-10/31/01 1,402,237 ---------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (IDENTIFIED COST $2,677,195)......................................................... 2,660,149 ---------- SHORT-TERM INVESTMENT (a) (15.1%) U.S. GOVERNMENT AGENCY 480 Federal Home Loan Mortgage Corp. (AMORTIZED COST $479,960)....................... 1.50 01/03/00 479,960 ----------
TOTAL INVESTMENTS (IDENTIFIED COST $3,157,155) (b)............................................................ 98.9% 3,140,109 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 1.1 34,480 ----- ----------- NET ASSETS.................................................................................. 100.0% $ 3,174,589 ----- ----------- ----- -----------
--------------------- (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross and net unrealized depreciation is $17,046. SEE NOTES TO FINANCIAL STATEMENTS 53 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (62.8%) ACCIDENT & HEALTH INSURANCE (0.6%) $ 3,000 Jackson National Life Insurance Co. - 144A*.................. 8.15% 03/15/27 $ 2,952,990 ------------ AEROSPACE (2.2%) 5,000 Boeing Co.................................................... 7.95 08/15/24 5,139,700 5,000 United Technologies Corp..................................... 7.50 09/15/29 4,886,450 ------------ 10,026,150 ------------ AIR FREIGHT/DELIVERY SERVICES (1.0%) 4,887 Federal Express Corp......................................... 7.50 01/15/18 4,662,234 ------------ AIRLINES (1.6%) 4,729 America West Airlines (Class A).............................. 6.85 07/02/09 4,416,871 3,000 Continental Airlines, Inc.................................... 7.056 09/15/09 2,850,780 ------------ 7,267,651 ------------ ALUMINUM (0.9%) 5,000 Aluminum Co. of America...................................... 6.75 01/15/28 4,332,900 ------------ AUTO PARTS: O.E.M. (0.6%) 3,000 Eaton Corp................................................... 7.65 11/15/29 2,860,020 ------------ BEVERAGES - NON-ALCOHOLIC (0.5%) 2,000 Coca-Cola Enterprises Inc.................................... 8.50 02/01/22 2,143,000 ------------ BUILDING MATERIALS/DIY CHAINS (1.0%) 5,000 Home Depot Real Estate Funding Corp. II - 144A*.............. 5.95 10/15/08 4,464,750 ------------ BUILDING PRODUCTS (0.6%) 3,000 Armstrong World Industries, Inc.............................. 7.45 05/15/29 2,677,470 ------------ CELLULAR TELEPHONE (1.1%) 5,000 360 DEG. Communications Co................................... 7.60 04/01/09 5,007,500 ------------ CONSTRUCTION/AGRICULTURAL EQUIPMENT/ TRUCKS (0.7%) 3,000 Caterpillar, Inc............................................. 9.375 08/15/11 3,369,810 ------------ CONSUMER ELECTRONICS/APPLIANCES (0.2%) 1,000 Maytag Corp.................................................. 9.75 05/15/02 1,052,530 ------------ CONSUMER SUNDRIES (1.0%) 5,000 CPC International, Inc....................................... 7.25 12/15/26 4,748,800 ------------ CONTRACT DRILLING (0.8%) 3,000 Transocean Offshore Inc...................................... 8.00 04/15/27 3,018,000 ------------
SEE NOTES TO FINANCIAL STATEMENTS 54 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- DEPARTMENT STORES (1.3%) $ 5,000 May Department Stores Co..................................... 7.625% 08/15/13 $ 4,970,500 1,000 Penney (J.C.) Co., Inc....................................... 9.75 06/15/21 1,043,280 ------------ 6,013,780 ------------ DISCOUNT CHAINS (1.2%) 2,745 Wal-Mart Stores, Inc......................................... 7.49 06/21/07 2,748,994 3,000 Wal-Mart Stores, Inc......................................... 6.875 08/10/09 2,922,030 ------------ 5,671,024 ------------ DIVERSIFIED FINANCIAL SERVICES (0.7%) 3,000 Abbey National PLC (United Kingdom).......................... 7.95 10/26/29 2,994,630 ------------ DIVERSIFIED MANUFACTURING (2.0%) 5,000 Dresser Industries, Inc...................................... 7.60 08/15/96 4,752,950 5,000 Tyco International Group S.A. (Luxembourg)................... 6.875 01/15/29 4,258,650 ------------ 9,011,600 ------------ E.D.P. SERVICES (0.5%) 2,500 Electronic Data Systems...................................... 7.125 10/15/09 2,438,075 ------------ ELECTRIC UTILITIES (6.6%) 1,000 Chugach Electric Co.......................................... 9.14 03/15/22 1,074,300 5,000 Duke Capital Corp............................................ 8.00 10/01/19 5,036,500 1,000 FPL Group Capital, Inc....................................... 7.375 06/01/09 985,340 2,500 FPL Group Capital, Inc....................................... 7.625 09/15/06 2,508,750 5,000 Israel Electric Co., Ltd. - 144A*............................ 7.75 03/01/09 4,826,950 2,732 Oglethorpe Power Co.......................................... 6.974 06/30/11 2,583,569 3,500 Oklahoma Gas & Electric Co................................... 6.50 07/15/17 3,399,060 5,000 Potomac Electric Power Co.................................... 7.25 07/01/23 4,511,150 4,000 Public Service Electric & Gas Co............................. 7.375 03/01/14 3,807,920 1,000 Tampa Electric Co............................................ 7.75 11/01/22 939,640 ------------ 29,673,179 ------------ ELECTRONIC PRODUCTION EQUIPMENT (1.0%) 5,000 Applied Materials, Inc....................................... 7.125 10/15/17 4,603,750 ------------ FARMING/SEEDS/MILLING (0.9%) 5,000 Archer Daniels Midland Co.................................... 6.625 05/01/29 4,278,450 ------------ FINANCE COMPANIES (3.8%) 5,000 Aristar Inc.................................................. 5.85 01/27/04 4,717,250 3,000 Ford Capital B.V............................................. 9.50 06/01/10 3,371,250
SEE NOTES TO FINANCIAL STATEMENTS 55 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- $ 5,000 Ford Motor Credit Corp....................................... 7.75% 03/15/05 $ 5,074,500 4,000 Norwest Financial Inc........................................ 7.875 02/15/02 4,068,560 ------------ 17,231,560 ------------ FINANCIAL SERVICES (1.0%) 5,000 Allamerica Financial Corp.................................... 7.625 10/15/25 4,670,350 ------------ INTEGRATED OIL COMPANIES (3.0%) 3,000 Atlantic Richfield Co........................................ 9.00 05/01/31 3,440,880 5,000 Kerr McGee Corp.............................................. 7.125 10/15/27 4,392,300 76 Mobil Corp................................................... 9.17 02/29/00 76,123 5,000 Murphy Oil Corp.............................................. 7.05 05/01/29 4,478,250 1,000 Texaco Capital, Inc.......................................... 9.75 03/15/20 1,202,950 ------------ 13,590,503 ------------ INTERNATIONAL BANKS (1.7%) 5,000 Dresdner Funding Trust - 144A*............................... 8.151 06/30/31 4,683,650 3,242 Swiss Bank Corp.............................................. 7.375 07/15/15 3,092,738 ------------ 7,776,388 ------------ INVESTMENT BANKERS/BROKERS/SERVICES (3.1%) 2,000 Bear Stearns Companies, Inc.................................. 8.75 03/15/04 2,088,980 3,000 Bear Stearns Companies, Inc.................................. 7.625 12/07/09 2,942,850 3,750 Lehman Brothers Holdings, Inc................................ 8.75 03/15/05 3,907,912 5,000 Lehman Brothers Holdings, Inc................................ 8.50 08/01/15 5,110,550 ------------ 14,050,292 ------------ LIFE INSURANCE (0.9%) 5,000 American General Corp........................................ 6.625 02/15/29 4,305,100 ------------ MAJOR BANKS (5.5%) 5,000 First Bank N.A............................................... 8.35 11/01/04 5,177,150 5,000 First Bank System Inc........................................ 7.625 05/01/05 5,009,900 3,000 Mellon Bank N.A.............................................. 7.625 09/15/07 3,013,440 5,000 NationsBank Corp............................................. 7.80 09/15/16 5,001,800 5,000 State Street Boston Corp..................................... 5.95 09/15/03 4,795,900 2,000 Wachovia Corp................................................ 6.375 04/15/03 1,957,420 ------------ 24,955,610 ------------ MAJOR PHARMACEUTICALS (1.3%) 5,000 Johnson & Johnson............................................ 8.72 11/01/24 5,210,750 519 Marion Merrell Corp.......................................... 9.11 08/01/05 540,647 ------------ 5,751,397 ------------
SEE NOTES TO FINANCIAL STATEMENTS 56 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- MAJOR U.S. TELECOMMUNICATIONS (2.2%) $ 5,000 AT&T Corp.................................................... 8.35% 01/15/25 $ 4,935,700 5,000 GTE Corp..................................................... 7.90 02/01/27 4,788,200 ------------ 9,723,900 ------------ MANAGED HEALTH CARE (0.2%) 1,000 Kaiser Foundation Health Plan, Inc........................... 9.55 07/15/05 1,074,730 ------------ MEDICAL SPECIALTIES (1.8%) 5,000 Baxter International, Inc.................................... 6.625 02/15/28 4,247,400 4,000 Becton Dickinson & Co........................................ 8.70 01/15/25 4,043,080 ------------ 8,290,480 ------------ MID-SIZED BANKS (0.7%) 3,000 Old Kent Financial Corp...................................... 6.625 11/15/05 2,858,640 ------------ MOTOR VEHICLES (1.1%) 5,000 DaimlerChrysler North American Holdings Corp................. 7.20 09/01/09 4,909,450 ------------ MULTI-LINE INSURANCE (1.0%) 5,000 Nationwide Financial Services, Inc........................... 8.00 03/01/27 4,639,450 ------------ OIL & GAS PRODUCTION (1.0%) 2,000 Anadarko Petroleum Corp...................................... 7.73 09/15/96 1,926,800 3,000 Burlington Resources, Inc.................................... 7.375 03/01/29 2,806,770 ------------ 4,733,570 ------------ OTHER TELECOMMUNICATIONS (0.6%) 2,500 Electric Lightwave, Inc. - 144A*............................. 6.05 05/15/04 2,357,475 ------------ PACKAGE GOODS/COSMETICS (0.7%) 3,500 Avon Products Inc. - 144A*................................... 7.15 11/15/09 3,364,760 ------------ PRECIOUS METALS (1.1%) 5,000 Barrick Gold Corp............................................ 7.50 05/01/07 4,940,100 ------------ RAILROADS (1.9%) 4,183 Burlington Northern Santa Fe Corp............................ 7.33 06/23/10 4,098,223 4,437 Burlington Northern Santa Fe Corp............................ 7.97 01/01/15 4,488,093 ------------ 8,586,316 ------------ RESTAURANTS (0.2%) 1,000 McDonald's Corp.............................................. 8.875 04/01/11 1,109,080 ------------ SPECIALTY CHEMICALS (1.0%) 5,000 Great Lakes Chemicals Corp................................... 7.00 07/15/09 4,784,650 ------------
SEE NOTES TO FINANCIAL STATEMENTS 57 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT (0.9%) $ 5,000 Motorola Inc................................................. 6.50% 11/15/28 $ 4,306,100 ------------ TOBACCO (1.1%) 5,000 Philip Morris Companies, Inc................................. 7.125 10/01/04 4,799,600 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $298,508,615).......................................................... 286,077,794 ------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS (29.3%) 5 Federal Home Loan Mortgage Corp.............................. 11.50 05/01/19 5,164 4,414 Federal Home Loan Mortgage Corp. PC Gold..................... 6.00 10/01/23-11/01/27 4,044,167 1,076 Federal Home Loan Mortgage Corp. PC Gold..................... 8.50 01/01/22-12/01/24 1,104,185 12,519 Federal National Mortgage Assoc.............................. 6.00 07/01/27-03/01/29 11,458,556 15,317 Federal National Mortgage Assoc.............................. 6.50 03/01/26-08/01/29 14,435,988 20,146 Federal National Mortgage Assoc.............................. 7.00 03/01/17-07/01/29 19,478,712 9,434 Federal National Mortgage Assoc.............................. 7.50 08/01/27-09/01/29 9,330,676 282 Federal National Mortgage Assoc.............................. 9.00 06/01/21-02/01/25 293,747 9,687 Government National Mortgage Assoc........................... 6.00 04/15/28-12/15/28 8,818,397 16,081 Government National Mortgage Assoc........................... 6.50 08/15/27-02/15/29 15,101,425 11,516 Government National Mortgage Assoc........................... 7.00 03/15/26-01/01/30 11,123,781 5,000 Government National Mortgage Assoc........................... 7.00 (a) 4,829,688 18 Government National Mortgage Assoc........................... 7.50 04/15/24-09/15/27 18,125 13,239 Government National Mortgage Assoc........................... 8.00 10/15/24-11/15/29 13,366,958 1,767 Government National Mortgage Assoc........................... 8.50 01/15/17-03/01/28 1,816,725 1,298 Government National Mortgage Assoc........................... 9.00 08/15/24-12/15/24 1,357,587 129 Government National Mortgage Assoc........................... 10.00 05/15/16-04/15/19 139,932 5,000 Tennessee Valley Authority................................... 7.85 06/15/44 5,033,550 5,000 U.S. Treasury Note........................................... 6.00 08/15/09 4,842,200
SEE NOTES TO FINANCIAL STATEMENTS 58 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITYINCOME PLUS PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- $ 5,000 U.S. Treasury Bond........................................... 6.125% 08/15/29 $ 4,766,400 10,000 U.S. Treasury Note Strips.................................... 0.00 08/15/19 2,638,200 ------------ TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (IDENTIFIED COST $139,600,543).......................................................... 134,004,163 ------------ FOREIGN GOVERNMENT OBLIGATIONS (4.6%) 5,000 Hydro-Quebec................................................. 9.50 11/15/30 5,922,950 5,000 Province of New Brunswick.................................... 7.625 06/29/04 5,065,250 5,000 Province of Manitoba......................................... 7.75 07/17/16 5,110,350 5,000 Province of Quebec........................................... 7.50 07/15/23 4,852,800 ------------ TOTAL FOREIGN GOVERNMENT OBLIGATIONS (IDENTIFIED COST $20,919,200)........................................................... 20,951,350 ------------ SHORT-TERM INVESTMENTS (b) (2.7%) U.S. GOVERNMENT AGENCY 12,550 Federal Home Loan Mortgage Corp. (AMORTIZED COST $12,548,954)............................................... 1.50 01/03/00 12,548,954 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $471,577,312) (c)........................................................ 99.4% 453,582,261 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.6 2,549,590 ----- ------------- NET ASSETS................................................................................ 100.0% $ 456,131,851 ----- ------------- ----- -------------
--------------------- * Resale is restricted to qualified institutional investors. PC Participation Certificate. (a) Securities purchased on a forward commitment basis with an approximate principal amount and no definite maturity date; the actual principal amount and maturity date will be determined upon settlement. (b) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $2,150,347 and the aggregate gross unrealized depreciation is $20,145,398, resulting in net unrealized depreciation of $17,995,051. SEE NOTES TO FINANCIAL STATEMENTS 59 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (93.4%) BEVERAGES - NON-ALCOHOLIC (1.4%) $ 5,000 Sparkling Spring Water (Canada)................... 11.50% 11/15/07 $ 3,950,000 ------------ BROADCAST/MEDIA (3.5%) 8,000 Brill Media Co., LLC (Series B)................... 7.50++ 12/15/07 4,400,000 5,329 Mentus Media Corp. (Series B)..................... 12.00+ 02/01/03 532,900 4,890 Tri-State Outdoor Media Group..................... 11.00 05/15/08 4,816,650 ------------ 9,749,550 ------------ CABLE TELEVISION (6.7%) 7,000 21st Century Telecom Group, Inc................... 12.25++ 02/15/08 4,690,000 3,750 Australis Holdings Ltd. (Australia) (a)................................. 15.00++ 11/01/02 56,250 2,000 James Cable Partners L.P. (Series B).............. 10.75 08/15/04 2,040,000 3,000 Knology Holdings Inc.............................. 11.875++ 10/15/07 2,010,000 1,500 Optel Inc. (Series B) (a)......................... 13.00 02/15/05 1,110,000 12,250 Optel Inc. (a)(b)................................. 11.50 07/01/08 8,820,000 ------------ 18,726,250 ------------ CASINO/GAMBLING (3.7%) 12,250 Aladdin Gaming Holdings/Capital Corp. LLC (Series B)...................................... 13.50++ 03/01/10 4,961,250 9,915 Fitzgeralds Gaming Corp. (Series B) (b)........... 12.25 12/15/04 5,453,250 ------------ 10,414,500 ------------ CELLULAR TELEPHONE (5.0%) 1,800 American Cellular Corp............................ 10.50 05/15/08 1,984,500 800 Clearnet Communications Inc. (Canada)............. 14.75++ 12/15/05 788,000 1,800 Dobson/Sygnet Communications...................... 12.25 12/15/08 1,980,000 3,500 Dolphin Telecom PLC (United Kingdom).............. 14.00++ 05/15/09 1,610,000 7,920 McCaw International Ltd........................... 13.00++ 04/15/07 5,535,763 1,500 Tritel PCS Inc. - 144A*........................... 12.75++ 05/15/09 945,000 1,500 Triton PCS Inc.................................... 11.00++ 05/01/08 1,065,000 ------------ 13,908,263 ------------ CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (1.0%) 3,000 J.B. Poindexter & Co., Inc........................ 12.50 05/15/04 2,865,000 ------------
SEE NOTES TO FINANCIAL STATEMENTS 60 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------- CONSUMER ELECTRONICS/APPLIANCES (1.1%) $ 12,000 International Semi-Tech Microelectronics, Inc. (Canada)(a)..................................... 11.50++% 08/15/03 $ 600,000 2,500 Windmere-Durable Holdings, Inc.................... 10.00 07/31/08 2,437,500 ------------ 3,037,500 ------------ CONSUMER SPECIALTIES (0.8%) 2,500 Samsonite Corp.................................... 10.75 06/15/08 2,187,500 ------------ CONSUMER/BUSINESS SERVICES (4.9%) 1,800 Anacomp, Inc. (Series B).......................... 10.875 04/01/04 1,795,500 8,288 Comforce Corp. (Series B)......................... 15.00+ 12/01/09 5,387,119 3,250 Comforce Operating, Inc........................... 12.00 12/01/07 2,112,500 7,700 Entex Information Services, Inc................... 12.50 08/01/06 3,465,000 1,000 MDC Communication Corp. (Canada).................. 10.50 12/01/06 987,500 ------------ 13,747,619 ------------ CONTAINERS/PACKAGING (2.5%) 300 Berry Plastics Corp............................... 12.25 04/15/04 307,500 1,500 Berry Plastics Corp. - 144A*...................... 11.00 07/15/07 1,522,500 6,330 Envirodyne Industries, Inc........................ 10.25 12/01/01 3,544,800 1,800 Impac Group Inc. (Series B)....................... 10.125 03/15/08 1,638,000 ------------ 7,012,800 ------------ CONTRACT DRILLING (1.0%) 4,600 Northern Offshore ASA (Series B) (Norway)......... 10.00 05/15/05 2,806,000 ------------ DIVERSIFIED ELECTRONIC PRODUCTS (0.9%) 3,000 High Voltage Engineering, Inc..................... 10.75++ 08/15/04 2,565,000 ------------ DIVERSIFIED MANUFACTURING (2.9%) 1,800 Eagle-Picher Industries, Inc...................... 9.375 03/01/08 1,575,000 1,800 Jordan Industries, Inc. (Series D)................ 10.375 08/01/07 1,800,000 7,200 Jordan Industries, Inc. (Series B)................ 11.75++ 04/01/09 4,824,000 ------------ 8,199,000 ------------ ELECTRONIC DISTRIBUTORS (0.3%) 6,000 CHS Electronics, Inc.............................. 9.875 04/15/05 720,000 ------------ FOOD CHAINS (0.5%) 2,515 Pueblo Xtra International, Inc. (Series C)........ 9.50 08/01/03 1,509,000 ------------ FOOD DISTRIBUTORS (0.8%) 2,500 Fleming Companies, Inc. (Series B)................ 10.625 07/31/07 2,256,250 ------------
SEE NOTES TO FINANCIAL STATEMENTS 61 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------- HOTELS/RESORTS (4.4%) $ 9,000 Epic Resorts LLC (Series B)....................... 13.00% 06/15/05 $ 7,200,000 7,210 Resort At Summerlin (Series B).................... 13.00+ 12/15/07 5,047,035 ------------ 12,247,035 ------------ INDUSTRIAL SPECIALTIES (1.7%) 1,325 Indesco International Inc......................... 9.75 04/15/08 596,250 1,500 International Wire Group, Inc..................... 11.75 06/01/05 1,548,750 3,000 Outsourcing Services Group, Inc. (Series B)....... 10.875 03/01/06 2,670,000 ------------ 4,815,000 ------------ MEDICAL SPECIALTIES (2.0%) 5,100 Mediq Inc./PRN Life Support Services Inc.......... 11.00 06/01/08 2,040,000 3,000 Universal Hospital Services, Inc. (issued 02/25/98)....................................... 10.25 03/01/08 2,085,000 2,000 Universal Hospital Services, Inc. (issued 02/26/99)....................................... 10.25 03/01/08 1,340,000 ------------ 5,465,000 ------------ MEDICAL/NURSING SERVICES (0.4%) 2,500 Pediatric Services of America, Inc. (Series A).... 10.00 04/15/08 1,150,000 ------------ MILITARY/GOV'T/TECHNICAL (0.6%) 1,800 Loral Space & Communications Ltd.................. 9.50 01/15/06 1,638,000 ------------ OFFICE EQUIPMENT/SUPPLIES (1.4%) 6,500 Mosler, Inc....................................... 11.00 04/15/03 3,835,000 ------------ OIL REFINING/MARKETING (0.0%) 3,000 Transamerican Refining Corp. (Series B) (b)....... 16.00 06/30/03 45,000 ------------ OTHER TELECOMMUNICATIONS (11.9%) 6,500 Birch Telecom Inc................................. 14.00 06/15/08 6,565,000 3,000 DTI Holdings Inc. - (Series B).................... 12.50++ 03/01/08 1,110,000 1,800 Esprit Telecom Group PLC (United Kingdom)......... 11.50 12/15/07 1,827,000 16,520 Firstworld Communications, Inc.................... 13.00++ 04/15/08 9,912,000 1,800 Globenet Comm Group Ltd. - 144A* (Bermuda)........ 13.00 07/15/07 1,827,000 1,500 Pac-West Telecom Inc. (Series B).................. 13.50 02/01/09 1,552,500 2,500 Primus Telecommunication Group, Inc. (Series B)...................................... 9.875 05/15/08 2,300,000 1,800 Versatel Telecom International NV (Netherlands)... 13.25 05/15/08 1,917,000 5,000 World Access, Inc. (c)............................ 13.25 01/15/08 4,500,000
SEE NOTES TO FINANCIAL STATEMENTS 62 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------- $ 1,800 Worldwide Fiber Inc. (Canada) - 144A*............. 12.00% 08/01/09 $ 1,858,500 ------------ 33,369,000 ------------ PACKAGE GOODS/COSMETICS (1.1%) 3,000 J.B. Williams Holdings, Inc....................... 12.00 03/01/04 3,003,750 ------------ PRINTING/FORMS (0.6%) 2,500 Premier Graphics Inc.............................. 11.50 12/01/05 1,750,000 ------------ RESTAURANTS (3.9%) 20,351 American Restaurant Group Holdings, Inc. - 144A* (c)............................................. 0.00 12/15/05 6,715,929 5,000 FRD Acquisition Corp. (Series B).................. 12.50 07/15/04 2,550,000 1,800 Friendly Ice Cream Corp........................... 10.50 12/01/07 1,548,000 ------------ 10,813,929 ------------ RETAIL - SPECIALTY (1.0%) 2,875 Pantry, Inc....................................... 10.25 10/15/07 2,803,125 ------------ SPECIALTY FOODS/CANDY (2.3%) 43,678 SFAC New Holdings Inc. (c)........................ 13.00++ 06/15/09 6,551,723 ------------ TELECOMMUNICATIONS (12.4%) 1,800 Caprock Communications Corp. (Series B)........... 12.00 07/15/08 1,863,000 1,500 Covad Communications Group, Inc................... 12.50 02/15/09 1,560,000 5,000 e. Spire Communications, Inc...................... 13.75 07/15/07 3,550,000 2,500 Focal Communications, Corp. (Series B)............ 12.125++ 02/15/08 1,650,000 1,800 GST Equipment Funding, Inc........................ 13.25 05/01/07 1,782,000 1,800 Hyperion Telecommunication, Inc. (Series B)....... 12.25 09/01/04 1,948,500 28,500 In-Flight Phone Corp. (Series B) (b).............. 14.00 05/15/02 3,135,000 1,800 Level 3 Communications, Inc....................... 9.125 05/01/08 1,703,250 1,800 NEXTLINK Communications, Inc...................... 9.00 03/15/08 1,714,500 4,000 Onepoint Communications Corp...................... 14.50 06/01/08 2,600,000 5,400 Rythms Netconnections, Inc........................ 12.75 04/15/09 5,211,000 4,000 Startec Global Communications Corp................ 12.00 05/15/08 3,240,000 3,000 Talton Holdings, Inc. - (Series B)................ 11.00 06/30/07 2,850,000 1,800 Viatel Inc........................................ 11.25 04/15/08 1,809,000 ------------ 34,616,250 ------------ TELECOMMUNICATIONS EQUIPMENT (1.8%) 10,500 FWT, Inc. (b)..................................... 9.875 11/15/07 840,000 3,500 SBA Communications Corp........................... 12.00++ 03/01/08 2,135,000
SEE NOTES TO FINANCIAL STATEMENTS 63 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------- $ 3,500 Spectrasite Holdings, Inc......................... 12.00++% 07/15/08 $ 2,082,500 ------------ 5,057,500 ------------ WIRELESS COMMUNICATIONS (10.9%) 11,375 Advanced Radio Telecom Corp....................... 14.00 02/15/07 10,351,250 1,800 AMSC Acquisition Co., Inc. (Series B)............. 12.25 04/01/08 1,417,500 900 Arch Escrow Corp.................................. 13.75 04/15/08 729,000 19,000 Cellnet Data Systems Inc.......................... 14.00++ 10/01/07 2,280,000 1,100 Cellnet Data Systems Inc.......................... 15.00 01/07/00 1,100,000 3,000 Globalstar LP/Capital Corp........................ 10.75 11/01/04 1,995,000 3,300 Orbcomm Global LP/Capital Corp. (Series B)........ 14.00 08/15/04 2,277,000 5,040 Paging Network, Inc............................... 10.125 08/01/07 1,562,400 6,400 Paging Network, Inc............................... 10.00 10/15/08 1,984,000 1,000 Star Choice Communications, Inc. (Canada)......... 13.00 12/15/05 1,010,000 4,500 USA Mobile Communications Holdings, Inc........... 14.00 11/01/04 4,095,000 1,500 Winstar Equipment Corp............................ 12.50 03/15/04 1,620,000 ------------ 30,421,150 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $362,178,459).......................................................... 261,235,694 ------------
NUMBER OF SHARES ----------- COMMON STOCKS (d) (0.8%) CASINO/GAMBLING (0.0%) 2,000 Fitzgerald Gaming Corp.............................................................. 2 ------------ CLOTHING/SHOE/ACCESSORY STORES (0.0%) 1,310,596 County Seat Store Corp. (c)......................................................... 11,795 ------------ HOTELS/RESORTS (0.6%) 2,000 Motels of America, Inc. - 144A*..................................................... 500 444,351 Premier Holdings Inc. (c)........................................................... 1,499,685 71,890 Vagabond Inns, Inc. (Class D) (a)................................................... 72 ------------ 1,500,257 ------------ MEDICAL/NURSING SERVICES (0.1%) 418,663 Raintree Healthcare Corp. (c)....................................................... 376,797 ------------ MOTOR VEHICLES (0.0%) 87 Northern Holdings Industrial Corp. * (c)............................................ -- ------------
SEE NOTES TO FINANCIAL STATEMENTS 64 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- RESTAURANTS (0.0%) 7,750 American Restaurant Group Holdings, Inc. - 144A*.................................... $ 1,937 ------------ SPECIALTY FOODS/CANDY (0.0%) 2,375 SFAC New Holdings Inc. (c).......................................................... 594 120,000 Specialty Foods Acquisition Corp. - 144A*........................................... 30,000 ------------ 30,594 ------------ TELECOMMUNICATIONS EQUIPMENT (0.1%) 15,711 World Access, Inc. (c).............................................................. 304,401 ------------ TEXTILES (0.0%) 298,461 U.S. Leather, Inc. (c).............................................................. 2,686 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $29,856,249)....................................................... 2,228,469 ------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE ----------- ---------- -------- CONVERTIBLE BONDS (0.1%) HOTELS/RESORTS (0.1%) $ 370 Premier Cruises Ltd. (IDENTIFIED COST $370,000)............. 7.00 % 8/15/05 362,600 ------------
NUMBER OF SHARES ----------- PREFERRED STOCKS (0.5%) OIL REFINING/MARKETING (0.0%) 5,266 Transamerica Refining Corp. (Conv.) (Class B)*...................................... 53 2,896 Transamerica Refining Corp. (Conv.) (Class C)*...................................... 29 7,635 Transamerica Refining Corp. (Conv.) (Class D)*...................................... 76 15,797 Transamerica Refining Corp. (Conv.) (Class E)*...................................... 158 ------------ 316 ------------ RESTAURANTS (0.5%) 1,780 American Restaurant Group Holdings, Inc. (Series B)................................. 1,424,000 ------------ TOTAL PREFERRED STOCKS (IDENTIFIED COST $1,781,863)........................................................ 1,424,316 ------------
SEE NOTES TO FINANCIAL STATEMENTS 65 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF EXPIRATION WARRANTS DATE VALUE ------------------------------------------------------------------------------------------------------ WARRANTS (d) (1.4%) AEROSPACE (0.0%) 1,500 Sabreliner Corp. - 144A*.................................... 04/15/03 $ 15,000 ------------ BROADCAST/MEDIA (0.0%) 12,524 Mentus Media Corp. - 144A*.................................. 02/01/08 125 ------------ CASINO/GAMBLING (0.0%) 100,000 Aladdin Gaming Enterprises, Inc. - 144A*................... 03/01/10 1,000 ------------ CONSUMER/BUSINESS SERVICES (0.0%) 42,250 Comforce Corp. - 144A*...................................... 12/01/09 10,563 ------------ HOTELS/RESORTS (0.0%) 9,000 Epic Resorts LLC - 144A*.................................... 06/15/05 90 6,000 Resort At Summerlin - 144A*................................. 12/15/07 60 ------------ 150 ------------ OIL & GAS PRODUCTION (0.0%) 39,665 Gothic Energy Corp. - 144A*................................. 05/01/05 40 ------------ OIL REFINING/MARKETING (0.0%) 3,000 Transamerican Refining Corp. - 144A*........................ 06/30/03 3 ------------ OTHER TELECOMMUNICATIONS (1.2%) 6,500 Birch Telecom Inc. - 144A*.................................. 06/15/08 357,500 15,000 DTI Holdings Inc. - 144A*................................... 03/01/08 150 16,520 Firstworld Communications, Inc. - 144A*..................... 04/15/08 1,982,400 2,500 Versatel Telecom - 144A* (Netherlands)...................... 05/15/08 1,000,000 ------------ 3,340,050 ------------ RESTAURANTS (0.0%) 1,500 American Restaurant Group Holdings, Inc. - 144A*........... 08/15/08 15 ------------ TELECOMMUNICATIONS (0.0%) 4,000 Onepoint Communications Corp. - 144A*....................... 06/01/08 40,000 4,000 Startec Global Communications Corp. - 144A*................. 05/15/08 40,000 ------------ 80,000 ------------ WIRELESS COMMUNICATIONS (0.2%) 1,800 American Mobile Satellite Corp. - 144A*..................... 04/01/08 72,000 92,640 Star Choice Communications, Inc. - 144A* (Canada)........... 12/15/05 324,240 ------------ 396,240 ------------ TOTAL WARRANTS (IDENTIFIED COST $489,771)............................................... 3,843,186 ------------
SEE NOTES TO FINANCIAL STATEMENTS 66 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (1.6%) U.S. GOVERNMENT AGENCY (e) (1.4%) $ 3,900 Federal Home Loan Mortgage Corp. (AMORTIZED COST $3,899,675).......................... 1.50% 01/03/00 $ 3,899,675 ------------ REPURCHASE AGREEMENT (0.2%) 574 The Bank of New York (dated 12/31/99; proceeds $573,787) (f) (IDENTIFIED COST $573,715)................................. 1.50 01/03/00 573,715 ------------ TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $4,473,390)........................................................ 4,473,390 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $399,149,732) (g)........................................................ 97.8% 273,567,655 OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 2.2 6,115,817 ----- ------------- NET ASSETS................................................................................ 100.0% $ 279,683,472 ----- ------------- ----- -------------
--------------------- * Resale is restricted to qualified institutional investors. + Payment-in-kind security. ++ Currently a zero coupon bond and will pay interest at the rate shown at a future specified date. (a) Issuer in bankruptcy. (b) Non-income producing security; bond in default. (c) Acquired through exchange offer. (d) Non-income producing securities (e) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (f) Collateralized by $402,420 U.S. Treasury Bond 11.25% due 02/15/15 valued at $585,646. (g) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $8,763,793 and the aggregate gross unrealized depreciation is $134,345,870, resulting in net unrealized depreciation of $125,582,077. SEE NOTES TO FINANCIAL STATEMENTS 67 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (90.0%) ELECTRIC UTILITIES (31.2%) 115,000 AES Corp.*............................................................................. $ 8,596,250 135,000 Carolina Power & Light Co.............................................................. 4,109,062 110,000 Central & South West Corp.............................................................. 2,200,000 215,865 Cinergy Corp........................................................................... 5,207,743 205,000 CMS Energy Corp........................................................................ 6,393,437 130,000 Consolidated Edison, Inc............................................................... 4,485,000 200,000 Constellation Energy Group............................................................. 5,800,000 337,500 DPL, Inc............................................................................... 5,842,969 232,500 DQE, Inc............................................................................... 8,050,312 130,000 DTE Energy Co.......................................................................... 4,078,750 141,216 Duke Energy Corp....................................................................... 7,078,452 140,000 Edison International................................................................... 3,666,250 220,000 Energy East Corp....................................................................... 4,578,750 200,000 Entergy Corp........................................................................... 5,150,000 150,000 FPL Group, Inc......................................................................... 6,421,875 140,000 GPU, Inc............................................................................... 4,191,250 120,000 Hawaiian Electric Industries, Inc...................................................... 3,465,000 215,000 Illinova Corp.......................................................................... 7,471,250 420,000 IPALCO Enterprises, Inc................................................................ 7,166,250 115,000 Kansas City Power & Light Co........................................................... 2,537,187 315,000 Montana Power Co....................................................................... 11,359,687 195,000 New Century Energies, Inc.............................................................. 5,923,125 115,000 New England Electric System............................................................ 5,951,250 280,000 NiSource Inc........................................................................... 5,005,000 100,000 OGE Energy Corp........................................................................ 1,900,000 195,000 Pinnacle West Capital Corp............................................................. 5,959,687 55,000 Potomac Electric Power Co.............................................................. 1,261,562 200,000 Public Service Company of New Mexico................................................... 3,250,000 115,000 Public Service Enterprise Group, Inc................................................... 4,003,437 200,000 Reliant Energy, Inc.................................................................... 4,575,000 215,000 SCANA Corp............................................................................. 5,778,125 130,500 Scottish Power PLC (ADR) (United Kingdom).............................................. 3,654,000 275,000 Southern Co............................................................................ 6,462,500 161,500 Texas Utilities Co..................................................................... 5,743,344 200,000 Wisconsin Energy Corp.................................................................. 3,850,000 ------------ 181,166,504 ------------ ENERGY (7.8%) 153,625 Burlington Resources, Inc.............................................................. 5,079,227 50,000 Columbia Energy Group.................................................................. 3,162,500 230,460 El Paso Energy Corp.................................................................... 8,944,729 311,500 Enron Corp............................................................................. 13,822,812 NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 245,000 Questar Corp........................................................................... $ 3,675,000 100,000 Sempra Energy*......................................................................... 1,737,500 290,000 Williams Companies, Inc................................................................ 8,863,125 ------------ 45,284,893 ------------ TELECOMMUNICATIONS (51.0%) 161,932 ALLTEL Corp............................................................................ 13,389,752 278,177 AT&T Corp.............................................................................. 14,117,483 185,000 BCE, Inc. (Canada)..................................................................... 16,684,688 154,320 Bell Atlantic Corp..................................................................... 9,500,325 110,000 Broadwing Inc.......................................................................... 4,056,250 190,000 Cable & Wireless PLC (ADR) (United Kingdom)............................................ 10,058,125 288,750 CenturyTel, Inc........................................................................ 13,679,531 240,000 Ericsson (L.M.) Telefonaktiebolaqet (ADR) (Sweden)..................................... 15,750,000 91,100 Esat Telecom Group PLC (ADR) (Ireland)*................................................ 8,335,650 333,250 Global Crossing Ltd. (Bermuda)*........................................................ 16,641,672 110,000 Global Telesystems Group, Inc.*........................................................ 3,808,750 140,000 GTE Corp............................................................................... 9,878,750 67,968 Lucent Technologies Inc................................................................ 5,084,856 246,163 MCI WorldCom, Inc.*.................................................................... 13,046,666 125,000 MediaOne Group, Inc.*.................................................................. 9,601,563 30,000 Nextel Communications, Inc. (Class A)*................................................. 3,091,875 331,508 Qwest Communications International, Inc.*.............................................. 14,234,125 205,000 RCN Corp.*............................................................................. 9,929,688 298,946 SBC Communications, Inc................................................................ 14,573,618 215,000 Sprint Corp. (FON Group)............................................................... 14,472,188 50,000 Sprint Corp. (PCS Group)*.............................................................. 5,125,000 130,000 Tele Danmark AS (ADR) (Denmark)........................................................ 4,907,500 120,000 Telecom Corp. of New Zealand Ltd. (ADR) (New Zealand).................................. 4,620,000 80,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)..................................... 9,000,000 100,000 Telephone & Data Systems, Inc.......................................................... 12,600,000 206,000 Telstra Corp. Ltd. (ADR) (Australia)................................................... 5,613,500 112,867 U.S. West, Inc......................................................................... 8,126,424 245,000 Vodafone AirTouch PLC (ADR) (United Kingdom)........................................... 12,127,500 55,000 Voicestream Wireless Corp.*............................................................ 7,803,125
SEE NOTES TO FINANCIAL STATEMENTS 68 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 82,700 WinStar Communications, Inc.*.......................................................... $ 6,212,838 ------------ 296,071,442 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $277,628,153)......................................................... 522,522,839 ------------
PRINCIPAL AMOUNT IN THOUSANDS --------- CORPORATE BONDS (6.9%) ELECTRIC UTILITIES (4.0%) $ 2,250 Consumers Energy Co. 6.875% due 03/01/18.............................................. 1,952,707 2,000 Empresa Nacional de Electricidad Chile, (Chile) 8.125% due 02/01/97................................................................. 1,617,640 3,000 Indianapolis Power Co. 7.05% due 02/01/24.................................................................. 2,627,340 2,500 Niagara Mohawk Power Corp. 8.00% due 06/01/04......................................... 2,549,825 1,500 Northern States Power Co. 6.50% due 03/01/28.......................................... 1,284,165 2,125 Public Service Electric & Gas Co. 6.75% due 01/01/16.................................. 1,915,178 3,000 Public Service Electric & Gas Co. 7.00% due 09/01/24.................................. 2,710,140 2,000 South Carolina Electric & Gas Co. 7.625% due 06/01/23................................. 1,862,500 2,000 Southwestern Public Service 8.50% due 02/15/25.................................................................. 1,970,320 5,000 Wisconsin Electric Power Co. 7.125% due 03/15/16................................................................. 4,629,600 ------------ 23,119,415 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- ENERGY (1.3%) $ 500 CMS Panhandle Holding Co. 7.00% due 07/15/29.......................................... $ 438,860 3,000 Coastal Corp. 7.75% due 10/15/35.................................................................. 2,846,010 2,000 Northern Border Pipeline 7.75% due 09/01/09**......................................... 1,993,660 2,000 Panhandle Eastern Corp. 8.625% due 04/15/25........................................... 1,985,500 ------------ 7,264,030 ------------ TELECOMMUNICATIONS (1.6%) 2,000 360 DEG. Communications Co. 6.65% due 01/15/08........................................ 1,890,240 2,000 GTE Corp. 7.90% due 02/01/27.................................................................. 1,915,280 2,000 GTE North Inc. 5.65% due 11/15/08.................................................................. 1,769,960 500 LCI International, Inc. 7.25% due 06/15/07.................................................................. 481,545 1,000 Sprint Capital Corp. 6.875% due 11/15/28................................................................. 889,730 2,000 Sprint Corp. 9.25% due 04/15/22.................................................................. 2,281,860 ------------ 9,228,615 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $42,396,993)......................................................... 39,612,060 U.S. GOVERNMENT AGENCY (0.2%) 50 Tennessee Valley Authority 8.00% due 03/31/45 (IDENTIFIED COST $1,250,000)............ 1,228,125 ------------
SEE NOTES TO FINANCIAL STATEMENTS 69 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (2.8%) U.S. GOVERNMENT AGENCY $ 16,300 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $16,298,642)..................................... $ 16,298,642 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $337,573,788) (b)........................................................ 99.9% 579,661,666 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 825,286 ----- ------------- NET ASSETS................................................................................ 100.0% $ 580,486,952 ----- ------------- ----- -------------
--------------------- ADR American Depository Receipt. * Non-income producing security. ** Resale is restricted to qualified institutional investors. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $254,648,918 and the aggregate gross unrealized depreciation is $12,561,040, resulting in net unrealized appreciation of $242,087,878. SEE NOTES TO FINANCIAL STATEMENTS 70 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (42.3%) AUTO PARTS: O.E.M. (1.8%) 45,500 Delphi Automotive Systems Corp.......................................................... $ 716,625 13,300 Johnson Controls, Inc................................................................... 756,437 ----------- 1,473,062 ----------- BUILDING MATERIALS (0.8%) 17,000 Vulcan Materials Co..................................................................... 678,937 ----------- CLOTHING/SHOE/ACCESSORY STORES (0.9%) 16,800 Limited (The), Inc...................................................................... 727,650 ----------- CONSUMER ELECTRONICS/APPLIANCES (0.9%) 11,300 Whirlpool Corp.......................................................................... 735,206 ----------- CONTAINERS/PACKAGING (0.9%) 32,000 Crown Cork & Seal Co., Inc.............................................................. 716,000 ----------- ELECTRIC UTILITIES (2.4%) 20,200 Public Service Enterprise Group, Inc.................................................... 703,212 28,000 Reliant Energy, Inc..................................................................... 640,500 34,000 TECO Energy, Inc........................................................................ 631,125 ----------- 1,974,837 ----------- ELECTRICAL PRODUCTS (0.9%) 12,500 Emerson Electric Co..................................................................... 717,187 ----------- ENGINEERING & CONSTRUCTION (0.9%) 16,600 Fluor Corp.............................................................................. 761,525 ----------- FINANCE COMPANIES (2.4%) 22,200 Associates First Capital Corp. (Class A)................................................ 609,112 10,900 Fannie Mae.............................................................................. 680,569 15,200 SLM Holding Corp........................................................................ 642,200 ----------- 1,931,881 ----------- FOOD CHAINS (0.9%) 22,000 Albertson's, Inc........................................................................ 709,500 ----------- FOOD DISTRIBUTORS (0.9%) 38,500 Supervalu, Inc.......................................................................... 770,000 ----------- INVESTMENT MANAGERS (0.2%) 967 Waddell & Reed Financial, Inc. (Class A)................................................ 26,230 4,163 Waddell & Reed Financial, Inc. (Class B)................................................ 104,595 ----------- 130,825 ----------- NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- LIFE INSURANCE (1.7%) 10,500 Jefferson-Pilot Corp.................................................................... $ 716,625 17,700 Lincoln National Corp................................................................... 708,000 ----------- 1,424,625 ----------- MAJOR BANKS (0.9%) 14,300 Bank of America Corp.................................................................... 717,681 ----------- MAJOR CHEMICALS (2.8%) 5,500 Dow Chemical Co......................................................................... 734,937 28,500 Hercules Inc............................................................................ 794,437 19,000 Rohm & Haas Co.......................................................................... 773,062 ----------- 2,302,436 ----------- MAJOR PHARMACEUTICALS (0.8%) 16,200 Schering-Plough Corp.................................................................... 683,437 ----------- MAJOR U.S. TELECOMMUNICATIONS (2.4%) 13,200 AT&T Corp............................................................................... 669,900 10,400 Bell Atlantic Corp...................................................................... 640,250 9,000 GTE Corp................................................................................ 635,063 ----------- 1,945,213 ----------- MARINE TRANSPORTATION (0.9%) 20,300 Tidewater, Inc.......................................................................... 730,800 ----------- MEAT/POULTRY/FISH (1.7%) 30,000 ConAgra, Inc............................................................................ 676,875 16,500 Hormel Foods Corp....................................................................... 670,313 ----------- 1,347,188 ----------- MOTOR VEHICLES (1.7%) 13,500 Ford Motor Co........................................................................... 721,406 9,000 General Motors Corp..................................................................... 654,188 ----------- 1,375,594 ----------- NATURAL GAS (0.8%) 10,500 Consolidated Natural Gas Co............................................................. 681,844 ----------- NEWSPAPERS (0.4%) 24,002 Hollinger International, Inc. (Class A)................................................. 310,526 ----------- OFFICE EQUIPMENT/SUPPLIES (0.8%) 30,500 Xerox Corp.............................................................................. 691,969 ----------- OIL REFINING/MARKETING (1.7%) 21,500 Ashland, Inc............................................................................ 708,156 29,000 Ultramar Diamond Shamrock Corp.......................................................... 657,938 ----------- 1,366,094 ----------- PAINTS/COATINGS (0.9%) 11,500 PPG Industries, Inc..................................................................... 719,469 -----------
SEE NOTES TO FINANCIAL STATEMENTS 71 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (5.9%) 12,200 Avalonbay Communities, Inc.............................................................. $ 418,613 17,500 Boston Properties, Inc.................................................................. 544,688 10,000 Camden Property Trust................................................................... 273,750 21,200 Duke-Weeks Realty Corp.................................................................. 413,400 18,500 Equity Office Properties Trust.......................................................... 455,563 30,000 Equity One, Inc......................................................................... 313,125 14,000 First Industrial Realty Trust, Inc...................................................... 384,125 22,000 Healthcare Realty Trust, Inc............................................................ 343,750 22,300 JDN Realty Corp......................................................................... 359,588 16,600 Meditrust Corp. (Paired Stock).......................................................... 91,300 26,780 MeriStar Hospitality Corp............................................................... 428,480 21,000 Reckson Associates Realty Corp.......................................................... 430,500 18,000 Tanger Factory Outlet Centers, Inc...................................................... 373,500 ----------- 4,830,382 ----------- RENTAL/LEASING COMPANIES (0.9%) 29,100 Ryder System, Inc....................................................................... 711,131 ----------- SAVINGS & LOAN ASSOCIATIONS (0.8%) 26,500 Washington Mutual, Inc.................................................................. 689,000 ----------- SPECIALTY CHEMICALS (0.9%) 22,600 Air Products & Chemicals, Inc........................................................... 758,513 ----------- STEEL/IRON ORE (1.0%) 25,000 USX-U.S. Steel Group.................................................................... 825,000 ----------- TOBACCO (1.4%) 29,000 Philip Morris Companies, Inc............................................................ 672,438 17,200 UST, Inc................................................................................ 433,225 ----------- 1,105,663 ----------- TOTAL COMMON STOCKS (IDENTIFIED COST $35,230,670)........................................................... 34,543,175 ----------- CONVERTIBLE PREFERRED STOCKS (22.3%) APPAREL (0.3%) 10,000 Designer Financial Trust $3.00.......................................................... 245,000 ----------- AUTO PARTS: O.E.M. (0.0%) 12,000 BTI Capital Trust $3.25 - 144A*......................................................... 1,500 ----------- BOOKS/MAGAZINES (0.8%) 25,000 Reader's Digest Association, Inc. $1.93................................................. 678,125 ----------- NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- CONTAINERS/PACKAGING (1.2%) 20,000 Sealed Air Corp. (Series A) $2.00....................................................... $ 1,010,000 ----------- HOME FURNISHINGS (0.6%) 12,000 Newell Financial Trust I $2.63.......................................................... 461,244 ----------- INDUSTRIAL MACHINERY/COMPONENTS (0.9%) 28,000 Ingersoll-Rand Co. $1.69................................................................ 714,000 ----------- INTERNATIONAL BANKS (1.8%) 30,200 National Australia Bank, Ltd. $1.97 (Australia) (Units)++............................... 834,275 19,500 WBK Strypes Trust $3.14................................................................. 625,219 ----------- 1,459,494 ----------- INVESTMENT BANKERS/BROKERS/ SERVICES (0.3%) 15,940 Merrill Lynch & Co., Inc. $2.39 (exchangeable into IMC Global, Inc. common stock)....... 284,927 ----------- LIFE INSURANCE (0.7%) 2,500 American Heritage Life Investment Corp. $4.25........................................... 216,719 15,000 AmerUs Life Holdings, Inc. $2.21........................................................ 341,250 ----------- 557,969 ----------- MILITARY/GOV'T/TECHNICAL (0.6%) 7,530 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda)............................ 468,742 ----------- MOVIES/ENTERTAINMENT (0.9%) 14,000 Premier Parks, Inc. $4.05............................................................... 756,000 ----------- OIL REFINING/MARKETING (1.0%) 50,000 Tesoro Petroleum Corp. $1.16............................................................ 600,000 35,000 USX Corp. $1.44 (exchangeable into RTI International Metals, Inc. common stock)......... 262,500 ----------- 862,500 ----------- OTHER CONSUMER SERVICES (0.7%) 15,500 Cendant Corp. $3.75..................................................................... 579,312 ----------- PACKAGE GOODS/COSMETICS (1.4%) 13,000 Estee Lauder Co. $3.80.................................................................. 1,125,313 ----------- RAILROADS (0.6%) 11,400 Union Pacific Capital Trust $3.13....................................................... 468,848 -----------
SEE NOTES TO FINANCIAL STATEMENTS 72 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (2.1%) 20,000 Apartment Investment & Management Co. (Series K) $2.00.................................. $ 490,000 9,000 Equity Residential Properties Trust (Series E) $1.75.................................... 212,625 1,085 Equity Residential Properties Trust (Series J) $2.15.................................... 28,278 40,000 SL Green Realty Corp. $2.00............................................................. 950,000 ----------- 1,680,903 ----------- SMALLER BANKS (1.3%) 30,000 CNB Capital Trust I $1.50............................................................... 1,042,500 ----------- TELECOMMUNICATION EQUIPMENT (5.0%) 4,000 Qualcomm Financial Trust $2.875......................................................... 4,080,000 ----------- TOOLS/HARDWARE (0.7%) 19,400 Metromedia International Group, Inc. $3.63.............................................. 582,000 ----------- UNREGULATED POWER GENERATION (0.9%) 19,000 CalEnergy Capital Trust III $3.25....................................................... 731,500 ----------- WIRELESS COMMUNICATIONS (0.5%) 4,000 Globalstar Telecommunications Ltd. $4.00................................................ 405,500 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $16,274,882)........................................................... 18,195,377 -----------
PRINCIPAL AMOUNT IN THOUSANDS --------- CORPORATE BONDS (26.9%) CONVERTIBLE BONDS (11.0%) ASSISTED LIVING SERVICES (0.1%) $ 220 Emeritus Corp. - 144A* 6.25% due 01/01/06............................................... 88,000 ----------- AUTO PARTS: O.E.M. (1.4%) 1,000 Magna International, Inc. 4.875% due 02/15/05........................................... 854,240 350 MascoTech, Inc. 4.50% due 12/15/03...................................................... 256,812 ----------- 1,111,052 ----------- PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- CABLE TELEVISION (2.1%) $ 1,400 EchoStar Communications - 144A* 4.875% due 01/01/07..................................... $ 1,706,082 ----------- CELLULAR TELEPHONE (0.5%) 400 U.S. Cellular Corp. 0.00% due 06/15/15.................................................. 384,756 ----------- CLOTHING/SHOE/ACCESSORY STORES (0.9%) 890 Genesco Inc. 5.50% due 04/15/05......................................................... 753,100 ----------- ELECTRONIC COMPONENTS (0.9%) 610 Photronics Inc. 6.00% due 06/01/04...................................................... 712,938 ----------- INDUSTRIAL MACHINERY/COMPONENTS (0.3%) 200 Thermo Fibertek, Inc. - 144A* 4.50% due 07/15/04........................................ 160,156 100 Thermo Optek Inc. - 144A* 5.00% due 10/15/00............................................ 97,186 ----------- 257,342 ----------- MAJOR U.S. TELECOMMUNICATIONS (2.8%) 800 Bell Atlantic Financial Service - 144A* (exchangeable into Cable & Wireless Communications common stock) 4.25% due 09/15/05....................................... 994,384 1,300 Bell Atlantic Financial Service - 144A* (exchangeable into Telecom Corporation of New Zealand common stock) 5.75% due 04/01/03.............................................. 1,313,650 ----------- 2,308,034 ----------- REAL ESTATE INVESTMENT TRUSTS (0.9%) 305 Capstar Hotel Corp. 4.75% due 10/15/04.................................................. 223,413 575 Healthcare Realty Trust 6.55% due 03/14/02.............................................. 492,660 ----------- 716,073 ----------- RENTAL/LEASING COMPANIES (1.1%) 1,000 Financial Federal Corp. 4.50% due 05/01/05.............................................. 946,460 ----------- TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $8,817,394)............................................................ 8,983,837 -----------
SEE NOTES TO FINANCIAL STATEMENTS 73 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE BONDS (15.9%) BROADCASTING (2.1%) $ 600 EZ Communications, Inc. 9.75% due 12/01/05.............................................. $ 641,262 1,000 Young Broadcasting Corp. 11.75% due 11/15/04............................................ 1,043,750 ----------- 1,685,012 ----------- BUILDING MATERIALS (0.6%) 500 USG Corp. (Series B) 9.25% due 09/15/01................................................. 513,055 ----------- ELECTRONIC DATA PROCESSING (2.3%) 1,750 Unisys Corp. (Series B) 12.00% due 04/15/03............................................. 1,868,125 ----------- MANAGED HEALTH CARE (0.9%) 700 Healthsouth Corp. 9.50% due 04/01/01.................................................... 693,000 ----------- METALS FABRICATIONS (0.8%) 600 Ivaco, Inc. (Canada) 11.50% due 09/15/05................................................ 649,500 ----------- OTHER METALS/MINERALS (3.2%) 2,500 Cyprus Amax Minerals Inc. 10.125% due 04/01/02.......................................... 2,610,325 ----------- OTHER TELECOMMUNICATIONS (1.6%) 1,150 Sprint Spectrum L.P. 11.00% due 08/15/06................................................ 1,269,807 ----------- PAPER (1.0%) 800 SD Warren Co. (Series B) 12.00% due 12/15/04............................................ 837,000 ----------- SPECIALTY CHEMICALS (2.4%) 1,875 Huntsman Polymers Corp. 11.75% due 12/01/04............................................. 1,959,375 ----------- TEXTILES (1.0%) 862 Dan River, Inc. 10.125% due 12/15/03.................................................... 844,760 ----------- TOTAL NON-CONVERTIBLE BONDS (IDENTIFIED COST $13,494,020)........................................................... 12,929,959 ----------- TOTAL CORPORATE BONDS (IDENTIFIED COST $22,311,414)........................................................... 21,913,796 ----------- PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (11.8%) U.S. GOVERNMENT AGENCY $ 9,650 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $9,649,196)......... $ 9,649,196 -----------
TOTAL INVESTMENTS (IDENTIFIED COST $83,466,162) (b).......................................................... 103.3% 84,301,544 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (3.3) (2,685,208) ----- ------------ NET ASSETS................................................................................. 100.0% $ 81,616,336 ----- ------------ ----- ------------
--------------------- * Resale is restricted to qualified institutional investors. ++ Consist of one or more class of securities traded together as a unit; stocks with attached warrants. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $8,794,892 and the aggregate gross unrealized depreciation is $7,959,510, resulting in net unrealized appreciation of $835,382. SEE NOTES TO FINANCIAL STATEMENTS 74 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (97.3%) AEROSPACE (3.4%) 830,000 Goodrich (B.F.) Co. (The)........................................................... $ 22,825,000 1,050,000 Lockheed Martin Corp................................................................ 22,968,750 350,000 United Technologies Corp............................................................ 22,750,000 -------------- 68,543,750 -------------- ALUMINUM (2.2%) 555,000 Alcan Aluminium Ltd. (Canada)....................................................... 22,859,062 272,500 Alcoa, Inc.......................................................................... 22,617,500 -------------- 45,476,562 -------------- APPAREL (1.0%) 695,500 VF Corp............................................................................. 20,865,000 -------------- AUTO PARTS: O.E.M. (4.2%) 750,000 Dana Corp........................................................................... 22,453,125 1,380,000 Delphi Automotive Systems Corp...................................................... 21,735,000 375,000 Johnson Controls, Inc............................................................... 21,328,125 405,000 TRW Inc............................................................................. 21,034,687 -------------- 86,550,937 -------------- AUTOMOTIVE AFTERMARKET (1.0%) 715,000 Goodyear Tire & Rubber Co........................................................... 20,154,062 -------------- BEVERAGES - NON-ALCOHOLIC (2.0%) 343,000 Coca Cola Co........................................................................ 19,979,750 580,000 PepsiCo, Inc........................................................................ 20,445,000 -------------- 40,424,750 -------------- BUILDING PRODUCTS (1.1%) 673,500 Armstrong World Industries, Inc..................................................... 22,478,062 -------------- CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.1%) 435,000 Caterpillar, Inc.................................................................... 20,472,187 523,000 Deere & Co.......................................................................... 22,685,125 -------------- 43,157,312 -------------- CONSUMER ELECTRONICS/APPLIANCES (1.1%) 335,000 Whirlpool Corp...................................................................... 21,795,937 -------------- CONTAINERS/PACKAGING (1.1%) 1,020,000 Crown Cork & Seal Co., Inc.......................................................... 22,822,500 -------------- DEPARTMENT STORES (2.1%) 665,000 May Department Stores Co............................................................ 21,446,250 682,000 Sears, Roebuck & Co................................................................. 20,758,375 -------------- 42,204,625 -------------- NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- DISCOUNT CHAINS (1.0%) 275,000 Dayton Hudson Corp.................................................................. $ 20,195,312 -------------- DIVERSIFIED FINANCIAL SERVICES (1.1%) 240,000 Providian Financial Corp............................................................ 21,855,000 -------------- DIVERSIFIED MANUFACTURING (3.3%) 369,375 Honeywell International Inc......................................................... 21,308,320 220,000 Minnesota Mining & Manufacturing Co................................................. 21,532,500 650,000 Tyco International Ltd. (Bermuda)................................................... 25,268,750 -------------- 68,109,570 -------------- ELECTRIC UTILITIES (5.0%) 490,000 Dominion Resources, Inc............................................................. 19,232,500 475,000 FPL Group, Inc...................................................................... 20,335,937 685,000 GPU, Inc............................................................................ 20,507,187 860,000 Reliant Energy, Inc................................................................. 19,672,500 620,000 Unicom Corp......................................................................... 20,770,000 -------------- 100,518,124 -------------- ELECTRONIC DATA PROCESSING (2.1%) 185,000 Hewlett-Packard Co.................................................................. 21,078,437 190,000 International Business Machines Corp................................................ 20,520,000 -------------- 41,598,437 -------------- ENGINEERING & CONSTRUCTION (1.1%) 495,000 Fluor Corp.......................................................................... 22,708,125 -------------- FINANCE COMPANIES (2.9%) 690,000 Associates First Capital Corp. (Class A)............................................ 18,931,875 335,500 Fannie Mae.......................................................................... 20,947,781 525,000 Household International, Inc........................................................ 19,556,250 -------------- 59,435,906 -------------- FOOD CHAINS (2.0%) 645,000 Albertson's, Inc.................................................................... 20,801,250 845,000 Winn-Dixie Stores, Inc.............................................................. 20,227,188 -------------- 41,028,438 -------------- FOOD DISTRIBUTORS (2.2%) 1,145,000 Supervalu, Inc...................................................................... 22,900,000 575,000 SYSCO Corp.......................................................................... 22,748,438 -------------- 45,648,438 -------------- FOREST PRODUCTS (1.1%) 300,000 Weyerhaeuser Co..................................................................... 21,543,750 --------------
SEE NOTES TO FINANCIAL STATEMENTS 75 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- HOME FURNISHINGS (1.0%) 680,000 Newell Rubbermaid, Inc.............................................................. $ 19,720,000 -------------- INTEGRATED OIL COMPANIES (4.1%) 345,000 BP Amoco PLC (ADR) (United Kingdom)................................................. 20,462,813 251,073 Exxon Mobil Corp.................................................................... 20,227,069 345,000 Kerr-McGee Corp..................................................................... 21,390,000 349,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)....................................... 21,092,688 -------------- 83,172,570 -------------- LIFE INSURANCE (3.1%) 217,500 Aegon N.V. (ARS) (Netherlands)...................................................... 20,771,250 315,000 Jefferson-Pilot Corp................................................................ 21,498,750 505,000 Lincoln National Corp............................................................... 20,200,000 -------------- 62,470,000 -------------- MAJOR BANKS (2.9%) 390,000 Bank of America Corp................................................................ 19,573,125 900,000 KeyCorp............................................................................. 19,912,500 160,000 Morgan (J.P.) & Co., Inc............................................................ 20,260,000 -------------- 59,745,625 -------------- MAJOR CHEMICALS (4.2%) 160,000 Dow Chemical Co..................................................................... 21,380,000 320,000 Du Pont (E.I.) de Nemours & Co., Inc................................................ 21,080,000 830,000 Hercules, Inc....................................................................... 23,136,250 535,000 Monsanto Co......................................................................... 19,059,375 -------------- 84,655,625 -------------- MAJOR PHARMACEUTICALS (3.8%) 560,000 Abbott Laboratories................................................................. 20,335,000 460,000 American Home Products Corp......................................................... 18,141,250 310,000 Bristol-Myers Squibb Co............................................................. 19,898,125 460,000 Schering-Plough Corp................................................................ 19,406,250 -------------- 77,780,625 -------------- MAJOR U.S. TELECOMMUNICATIONS (1.9%) 312,000 Bell Atlantic Corp.................................................................. 19,207,500 277,000 GTE Corp............................................................................ 19,545,813 -------------- 38,753,313 -------------- NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MANAGED HEALTH CARE (1.1%) 381,500 Aetna Inc........................................................................... $ 21,292,469 -------------- MEAT/POULTRY/FISH (1.0%) 920,000 ConAgra, Inc........................................................................ 20,757,500 -------------- MILITARY/GOV'T/TECHNICAL (1.0%) 730,000 Raytheon Co. (Class B).............................................................. 19,390,625 -------------- MOTOR VEHICLES (3.1%) 285,000 DaimlerChrysler AG (Germany)........................................................ 22,301,250 395,000 Ford Motor Co....................................................................... 21,107,813 280,000 General Motors Corp................................................................. 20,352,500 -------------- 63,761,563 -------------- MULTI-SECTOR COMPANIES (1.0%) 130,000 General Electric Co................................................................. 20,117,500 -------------- NATURAL GAS (1.1%) 355,000 Consolidated Natural Gas Co......................................................... 23,052,813 -------------- OFFICE EQUIPMENT/SUPPLIES (2.1%) 460,000 Pitney Bowes, Inc................................................................... 22,223,750 900,000 Xerox Corp.......................................................................... 20,418,750 -------------- 42,642,500 -------------- OIL & GAS PRODUCTION (1.1%) 665,000 Burlington Resources, Inc........................................................... 21,986,563 -------------- OIL REFINING/MARKETING (2.0%) 865,000 Sunoco, Inc......................................................................... 20,327,500 810,000 USX-Marathon Group.................................................................. 19,996,875 -------------- 40,324,375 -------------- OIL/GAS TRANSMISSION (2.1%) 545,000 El Paso Energy Corp................................................................. 21,152,813 515,000 Enron Corp.......................................................................... 22,853,125 -------------- 44,005,938 -------------- OTHER METALS/MINERALS (1.2%) 350,000 Phelps Dodge Corp................................................................... 23,493,750 -------------- PACKAGE GOODS/COSMETICS (5.1%) 630,000 Avon Products, Inc.................................................................. 20,790,000 490,000 Gillette Co......................................................................... 20,181,875 560,000 International Flavors & Fragrances, Inc............................................. 21,140,000
SEE NOTES TO FINANCIAL STATEMENTS 76 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 330,000 Kimberly-Clark Corp................................................................. $ 21,532,500 190,000 Procter & Gamble Co................................................................. 20,816,875 -------------- 104,461,250 -------------- PACKAGED FOODS (1.0%) 320,000 Quaker Oats Company (The)........................................................... 21,000,000 -------------- PAINTS/COATINGS (1.1%) 355,000 PPG Industries, Inc................................................................. 22,209,688 -------------- PAPER (2.2%) 385,000 International Paper Co.............................................................. 21,728,438 524,000 Mead Corp........................................................................... 22,761,250 -------------- 44,489,688 -------------- PHOTOGRAPHIC PRODUCTS (1.1%) 323,000 Eastman Kodak Co.................................................................... 21,398,750 -------------- RAILROADS (1.9%) 770,000 Burlington Northern Santa Fe Corp................................................... 18,672,500 645,000 CSX Corp............................................................................ 20,236,875 -------------- 38,909,375 -------------- RECREATIONAL PRODUCTS/TOYS (1.0%) 950,000 Brunswick Corp...................................................................... 21,137,500 -------------- RENTAL/LEASING COMPANIES (1.0%) 860,000 Ryder System, Inc................................................................... 21,016,250 -------------- SEMICONDUCTORS (1.0%) 250,000 Intel Corp.......................................................................... 20,562,500 -------------- TOBACCO (1.0%) 810,000 UST, Inc............................................................................ 20,401,875 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST $2,079,697,541).................................................... 1,979,824,827 --------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (2.6%) U.S. GOVERNMENT AGENCY $ 52,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $52,395,633).... $ 52,395,633 --------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,132,093,174) (b).................................................... 99.9% 2,032,220,460 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.1 1,593,467 ----- --------------- NET ASSETS.............................................................................. 100.0% $ 2,033,813,927 ----- --------------- ----- ---------------
--------------------- ADR American Depository Receipt. ARS American Registered Shares. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $161,022,014 and the aggregate gross unrealized depreciation is $260,894,728, resulting in net unrealized depreciation of $99,872,714. SEE NOTES TO FINANCIAL STATEMENTS 77 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (95.0%) ADVERTISING (1.3%) 10,000 Omnicom Group, Inc..................................................................... $ 1,000,000 28,000 True North Communications, Inc......................................................... 1,251,250 ------------ 2,251,250 ------------ ALUMINUM (1.9%) 40,000 Alcoa, Inc............................................................................. 3,320,000 ------------ BEVERAGES - NON-ALCOHOLIC (0.6%) 30,000 PepsiCo, Inc........................................................................... 1,057,500 ------------ BIOTECHNOLOGY (0.9%) 25,000 Amgen Inc.*............................................................................ 1,500,000 ------------ BROADCASTING (5.7%) 40,500 CBS Corp.*............................................................................. 2,589,469 30,000 Clear Channel Communications, Inc.*.................................................... 2,677,500 55,000 Infinity Broadcasting Corp. (Series A)*................................................ 1,990,312 10,000 Radio One, Inc.*....................................................................... 920,000 15,000 Univision Communications, Inc. (Class A)*.............................................. 1,532,812 ------------ 9,710,093 ------------ BUILDING MATERIALS/D I Y CHAINS (1.5%) 37,500 Home Depot, Inc. (The)................................................................. 2,571,094 ------------ CABLE TELEVISION (2.8%) 50,000 Comcast Corp. (Class A Special)*....................................................... 2,525,000 45,000 Cox Communications, Inc. (Class A)*.................................................... 2,317,500 ------------ 4,842,500 ------------ COMPUTER COMMUNICATIONS (3.0%) 30,000 Cisco Systems, Inc.*................................................................... 3,211,875 25,000 Xircom, Inc.*.......................................................................... 1,875,000 ------------ 5,086,875 ------------ COMPUTER SOFTWARE (9.5%) 3,000 Check Point Software Technologies Ltd. (Israel)*....................................... 595,875 5,000 Citrix Systems, Inc.*.................................................................. 614,687 15,000 Computer Associates International, Inc................................................. 1,049,062 50,000 Compuware Corp.*....................................................................... 1,859,375 35,000 Documentum, Inc.*...................................................................... 2,095,625 7,000 Legato Systems, Inc.*.................................................................. 481,250 6,000 Mercury Interactive Corp.*............................................................. 647,625 32,000 Microsoft Corp.*....................................................................... 3,734,000 NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 7,500 Oracle Corp.*.......................................................................... $ 840,000 90,000 Saga Systems, Inc.*.................................................................... 1,794,375 15,000 Symantec Corp.*........................................................................ 879,375 5,000 Veritas Software Corp.*................................................................ 715,312 25,000 Wind River Systems, Inc.*.............................................................. 915,625 ------------ 16,222,186 ------------ CONTRACT DRILLING (0.9%) 50,000 Noble Drilling Corp.*.................................................................. 1,637,500 ------------ DISCOUNT CHAINS (4.0%) 32,000 BJ's Wholesale Club, Inc.*............................................................. 1,168,000 15,000 Costco Wholesale Corp.*................................................................ 1,367,812 22,000 Dayton Hudson Corp.*................................................................... 1,615,625 40,000 Wal-Mart Stores, Inc................................................................... 2,765,000 ------------ 6,916,437 ------------ DIVERSIFIED ELECTRONIC PRODUCTS (0.6%) 6,000 JDS Uniphase Corp.*.................................................................... 967,500 ------------ DIVERSIFIED FINANCIAL SERVICES (2.9%) 10,000 American Express Co.................................................................... 1,662,500 60,000 Citigroup, Inc......................................................................... 3,333,750 ------------ 4,996,250 ------------ DIVERSIFIED MANUFACTURING (2.2%) 50,000 Dover Corp............................................................................. 2,268,750 25,000 Honeywell International Inc............................................................ 1,442,187 ------------ 3,710,937 ------------ E.D.P. PERIPHERALS (3.1%) 25,000 Advanced Digital Information Corp.*.................................................... 1,215,625 15,000 EMC Corp.*............................................................................. 1,638,750 10,000 Network Appliance, Inc.*............................................................... 830,000 10,000 QLogic Corp.*.......................................................................... 1,598,750 ------------ 5,283,125 ------------ E.D.P. SERVICES (0.3%) 15,000 CSG Systems International, Inc.*....................................................... 589,687 ------------ ELECTRIC UTILITIES (1.5%) 40,000 Calpine Corp.*......................................................................... 2,560,000 ------------ ELECTRONIC COMPONENTS (2.2%) 5,000 CTS Corp............................................................................... 376,875 55,000 Kemet Corp.*........................................................................... 2,478,437 30,000 Vishay Intertechnology, Inc.*.......................................................... 948,750 ------------ 3,804,062 ------------ ELECTRONIC DATA PROCESSING (2.5%) 40,000 Compaq Computer Corp................................................................... 1,082,500 25,000 Dell Computer Corp.*................................................................... 1,273,438
SEE NOTES TO FINANCIAL STATEMENTS 78 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 25,000 Sun Microsystems, Inc.*................................................................ $ 1,934,375 ------------ 4,290,313 ------------ ELECTRONIC PRODUCTION EQUIPMENT (5.5%) 12,000 Applied Materials, Inc.*............................................................... 1,519,500 30,000 Celestica, Inc.*....................................................................... 1,665,000 25,000 Cognex Corp.*.......................................................................... 973,438 15,000 Lam Research Corp.*.................................................................... 1,673,438 20,000 Orbotech, Ltd.*........................................................................ 1,550,000 30,000 PRI Automation, Inc.*.................................................................. 1,998,750 ------------ 9,380,126 ------------ FOOD DISTRIBUTORS (0.7%) 30,000 SYSCO Corp............................................................................. 1,186,875 ------------ GENERIC DRUGS (0.7%) 50,000 Ivax Corp.*............................................................................ 1,287,500 ------------ HOSPITAL/NURSING MANAGEMENT (0.7%) 40,000 Columbia/HCA Healthcare Corp........................................................... 1,172,500 ------------ INSURANCE BROKERS/SERVICES (1.1%) 20,000 Marsh & McLennan Companies, Inc........................................................ 1,913,750 ------------ INTEGRATED OIL COMPANIES (2.4%) 30,000 Exxon Mobil Corp....................................................................... 2,416,875 30,000 Murphy Oil Corp........................................................................ 1,721,250 ------------ 4,138,125 ------------ INTERNET SERVICES (2.0%) 30,000 America Online, Inc.*.................................................................. 2,263,125 2,500 Yahoo! Inc.*........................................................................... 1,081,719 ------------ 3,344,844 ------------ INVESTMENT BANKERS/BROKERS/SERVICES (1.3%) 12,000 Edwards (A.G.), Inc.................................................................... 384,750 12,000 Lehman Brothers Holdings, Inc.......................................................... 1,016,250 10,000 Merrill Lynch & Co., Inc............................................................... 835,000 ------------ 2,236,000 ------------ MAJOR BANKS (1.0%) 500 Chase Manhattan Corp. (The)............................................................ 38,844 40,000 Wells Fargo & Co....................................................................... 1,617,500 ------------ 1,656,344 ------------ MAJOR PHARMACEUTICALS (2.2%) 14,000 Johnson & Johnson...................................................................... 1,303,750 30,000 Warner-Lambert Co...................................................................... 2,458,125 ------------ 3,761,875 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MAJOR U.S. TELECOMMUNICATIONS (0.8%) 7,500 ALLTEL Corp............................................................................ $ 620,156 15,000 MCI WorldCom, Inc.*.................................................................... 795,000 ------------ 1,415,156 ------------ MARINE TRANSPORTATION (0.8%) 40,000 Tidewater, Inc......................................................................... 1,440,000 ------------ MEDIA CONGLOMERATES (1.1%) 25,000 Time Warner Inc........................................................................ 1,810,938 ------------ MEDICAL SPECIALTIES (0.7%) 7,000 Bard (C.R.), Inc....................................................................... 371,000 30,000 Cooper Companies, Inc.................................................................. 903,750 ------------ 1,274,750 ------------ MULTI-LINE INSURANCE (1.3%) 20,000 American International Group, Inc...................................................... 2,162,500 ------------ MULTI-SECTOR COMPANIES (1.8%) 20,000 General Electric Co.................................................................... 3,095,000 ------------ OIL & GAS PRODUCTION (1.0%) 75,000 Marine Drilling Company, Inc.*......................................................... 1,682,813 ------------ OILFIELD SERVICES/EQUIPMENT (1.5%) 27,000 Cooper Cameron Corp.*.................................................................. 1,321,313 30,000 Weatherford International, Inc.*....................................................... 1,198,125 ------------ 2,519,438 ------------ OTHER PHARMACEUTICALS (0.5%) 31,280 Shire Pharmaceuticals Group PLC (ADR) (United Kingdom)*................................ 903,210 ------------ OTHER SPECIALTY STORES (1.3%) 15,000 Tiffany & Co........................................................................... 1,338,750 19,000 Zale Corp.*............................................................................ 919,125 ------------ 2,257,875 ------------ OTHER TELECOMMUNICATIONS (2.6%) 85,000 Broadwing Inc.......................................................................... 3,134,375 10,000 Telephone & Data Systems, Inc.......................................................... 1,260,000 ------------ 4,394,375 ------------ PACKAGE GOODS/COSMETICS (1.6%) 25,000 Procter & Gamble Co.................................................................... 2,739,063 ------------ RESTAURANTS (0.2%) 15,000 Starbucks Corp.*....................................................................... 363,750 ------------
SEE NOTES TO FINANCIAL STATEMENTS 79 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- SEMICONDUCTORS (6.9%) 13,000 Analog Devices, Inc.*.................................................................. $ 1,209,000 54,000 Atmel Corp.*........................................................................... 1,596,375 60,000 Cypress Semiconductor Corp.*........................................................... 1,942,500 50,000 Integrated Device Technology, Inc.*.................................................... 1,446,875 50,000 International Rectifier Corp.*......................................................... 1,300,000 30,000 Lattice Semiconductor Corp.*........................................................... 1,415,625 20,000 LSI Logic Corp.*....................................................................... 1,350,000 10,000 STMicroelectronics NV (Netherlands).................................................... 1,514,375 ------------ 11,774,750 ------------ SPECIALTY INSURERS (0.7%) 20,000 MGIC Investment Corp................................................................... 1,203,750 ------------ TELECOMMUNICATIONS EQUIPMENT (7.2%) 33,000 Advanced Fibre Communications, Inc.*................................................... 1,476,750 15,000 Antec Corp.*........................................................................... 547,500 6,000 Comverse Technology, Inc.*............................................................. 868,125 10,000 Corning Inc............................................................................ 1,289,375 30,000 General Instrument Corp.*.............................................................. 2,550,000 15,000 Lucent Technologies Inc................................................................ 1,122,188 10,000 Nokia Corp. (ADR) (Finland)............................................................ 1,900,000 25,000 Nortel Networks Corp. (Canada)......................................................... 2,525,000 ------------ 12,278,938 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $125,555,703)......................................................... 162,711,554 ------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (5.0%) U.S. GOVERNMENT AGENCY $ 8,500 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $8,499,292)........ $ 8,499,292 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $134,054,995) (b)........................................................ 100.0% 171,210,846 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.0 40,570 ----- ------------- NET ASSETS................................................................................ 100.0% $ 171,251,416 ----- ------------- ----- -------------
--------------------- ADR American Depository Receipt. * Non-income producing security. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $37,757,636 and the aggregate gross unrealized depreciation is $601,785, resulting in net unrealized appreciation of $37,155,851. SEE NOTES TO FINANCIAL STATEMENTS 80 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON AND PREFERRED STOCKS (97.2%) AUSTRALIA (1.4%) BUILDING MATERIALS 500,000 Pioneer International Ltd............................................................. $ 1,505,520 ------------ CONTAINERS/PACKAGING 235,000 Amcor Ltd............................................................................. 1,099,778 ------------ INTERNATIONAL BANKS 250,000 Australia & New Zealand Banking Group Ltd............................................. 1,817,284 ------------ OIL & GAS PRODUCTION 550,000 Santos Ltd............................................................................ 1,497,320 ------------ PRECIOUS METALS 2,000,000 Normandy Mining Ltd................................................................... 1,416,960 ------------ TOTAL AUSTRALIA....................................................................... 7,336,862 ------------ BELGIUM (0.7%) DIVERSIFIED FINANCIAL SERVICES 105,000 Fortis (B)............................................................................ 3,782,914 ------------ CANADA (2.2%) ALUMINUM 63,000 Alcan Aluminium Ltd................................................................... 2,586,536 ------------ CANADIAN OIL & GAS 93,000 Imperial Oil Ltd...................................................................... 1,992,673 ------------ INTERNATIONAL BANKS 92,000 Toronto-Dominion Bank................................................................. 2,464,059 ------------ MULTI-SECTOR COMPANIES 145,000 EdperBrascan Corp. (Class A).......................................................... 1,914,224 ------------ OIL/GAS TRANSMISSION 108,400 Enbridge Inc.......................................................................... 2,146,572 ------------ TOTAL CANADA.......................................................................... 11,104,064 ------------ FRANCE (7.7%) AUTOMOTIVE AFTERMARKET 75,000 Compagnie Generale des Etablissements Michelin (B Shares)............................. 2,941,965 ------------ BUILDING MATERIALS 34,500 Lafarge S.A........................................................................... 4,011,332 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- CONTAINERS/PACKAGING 66,000 Compagnie Generale d'Industrie et de Participations................................... $ 4,314,882 ------------ DIVERSIFIED MANUFACTURING 20,000 Compagnie de Saint Gobain............................................................. 3,755,657 ------------ FARMING/SEEDS/MILLING 27,500 Eridania Beghin-Say S.A............................................................... 2,954,035 ------------ INTERNATIONAL BANKS 40,000 Banque Nationale de Paris............................................................. 3,685,251 15,000 Societe Generale (Series A)........................................................... 3,485,097 ------------ 7,170,348 ------------ MULTI-LINE INSURANCE 62,000 Assurances Generales de France........................................................ 3,354,946 ------------ MULTI-SECTOR COMPANIES 5,250 Societe Eurafrance S.A................................................................ 3,157,709 ------------ OIL REFINING/MARKETING 26,000 Total S.A. (B Shares)................................................................. 3,464,981 ------------ TELECOMMUNICATION EQUIPMENT 17,000 Alcatel............................................................................... 3,898,481 ------------ TOTAL FRANCE.......................................................................... 39,024,336 ------------ GERMANY (7.6%) APPAREL 22,000 Hugo Boss AG (Pref.).................................................................. 2,810,205 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 31,000 Siemens AG (Registered Shares)........................................................ 3,938,009 ------------ DIVERSIFIED MANUFACTURING 105,000 MAN AG................................................................................ 3,939,216 ------------ INTERNATIONAL BANKS 100,000 Commerzbank AG........................................................................ 3,666,141 ------------ MAJOR CHEMICALS 70,000 BASF AG............................................................................... 3,590,706 80,000 Bayer AG.............................................................................. 3,781,808 ------------ 7,372,514 ------------ MOTOR VEHICLES 45,000 DaimlerChrysler AG.................................................................... 3,494,149 ------------
SEE NOTES TO FINANCIAL STATEMENTS 81 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MULTI-SECTOR COMPANIES 80,000 RWE AG................................................................................ $ 3,130,050 110,000 Thyssen Krupp AG...................................................................... 3,346,799 75,000 VEBA AG............................................................................... 3,639,739 ------------ 10,116,588 ------------ SHOE MANUFACTURING 45,000 Adidas-Salomon AG..................................................................... 3,371,944 ------------ TOTAL GERMANY......................................................................... 38,708,766 ------------ HONG KONG (2.5%) DIVERSIFIED FINANCIAL SERVICES 199,800 HSBC Holdings PLC..................................................................... 2,801,415 ------------ REAL ESTATE 220,000 Cheung Kong (Holdings) Ltd............................................................ 2,780,422 400,000 Henderson Land Development Co., Ltd................................................... 2,572,678 ------------ 5,353,100 ------------ TELECOMMUNICATIONS 900,000 Cable & Wireless HKT Ltd.............................................................. 2,599,048 ------------ UTILITIES 475,000 CLP Holdings Ltd...................................................................... 2,187,420 ------------ TOTAL HONG KONG....................................................................... 12,940,983 ------------ ITALY (2.7%) INTEGRATED OIL COMPANIES 550,000 Ente Nazionale Idrocarburi SpA........................................................ 3,020,417 ------------ INTERNATIONAL BANKS 257,000 Istituto Bancario San Paolo di Torino SpA............................................. 3,487,038 ------------ SPECIALTY FOODS/CANDY 2,000,000 Montedison SpA........................................................................ 3,268,850 ------------ TELECOMMUNICATIONS 620,000 Telecom Italia SpA.................................................................... 3,772,756 ------------ TOTAL ITALY........................................................................... 13,549,061 ------------ JAPAN (16.6%) AIR FREIGHT/DELIVERY SERVICES 145,000 Yamato Transport Co., Ltd............................................................. 5,617,296 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- ALCOHOLIC BEVERAGES 425,000 Kirin Brewery Co., Ltd................................................................ $ 4,469,526 ------------ CONSUMER ELECTRONICS/APPLIANCES 215,000 Sharp Corp............................................................................ 5,500,147 25,000 Sony Corp............................................................................. 7,410,487 ------------ 12,910,634 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 31,000 Kyocera Corp.......................................................................... 8,036,588 180,000 Matsushita Electric Industrial Co., Ltd............................................... 4,983,369 195,000 NEC Corp.............................................................................. 4,645,128 ------------ 17,665,085 ------------ ELECTRICAL PRODUCTS 460,000 Matsushita Electric Works, Ltd........................................................ 4,545,099 ------------ ELECTRONIC COMPONENTS 34,000 TDK Corp.............................................................................. 4,693,211 ------------ FINANCE COMPANIES 42,000 Acom Co., Ltd......................................................................... 4,112,894 ------------ HOME BUILDING 450,000 Sekisui House Ltd..................................................................... 3,984,054 ------------ MAJOR PHARMACEUTICALS 80,000 Takeda Chemical Industries, Ltd....................................................... 3,952,260 ------------ MOTOR VEHICLES 120,000 Honda Motor Co........................................................................ 4,460,966 115,000 Toyota Motor Corp..................................................................... 5,568,871 ------------ 10,029,837 ------------ OTHER PHARMACEUTICALS 135,000 Taisho Pharmaceutical Co., Ltd........................................................ 3,962,043 ------------ RECREATIONAL PRODUCTS/TOYS 26,500 Nintendo Co., Ltd..................................................................... 4,401,976 ------------ TOBACCO 506 Japan Tobacco, Inc.................................................................... 3,870,984 ------------ TOTAL JAPAN........................................................................... 84,214,899 ------------ NETHERLANDS (4.2%) AIRLINES 110,000 Koninklijke Luchtvaart Maatschappi NV................................................. 2,821,269 ------------
SEE NOTES TO FINANCIAL STATEMENTS 82 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- DIVERSIFIED ELECTRONIC PRODUCTS 26,500 Koninklijke (Royal) Philips Electronics NV............................................ $ 3,598,249 ------------ DIVERSIFIED FINANCIAL SERVICES 55,000 ING Groep NV.......................................................................... 3,315,821 ------------ INTERNATIONAL BANKS 150,000 ABN-AMRO Holding NV................................................................... 3,741,576 ------------ SPECIALTY CHEMICALS 93,000 DSM NV................................................................................ 3,722,868 ------------ TELECOMMUNICATIONS 40,000 KPN NV................................................................................ 3,898,481 ------------ TOTAL NETHERLANDS..................................................................... 21,098,264 ------------ PORTUGAL (0.7%) TELECOMMUNICATIONS 325,000 Portugal Telecom S.A. (Registered Shares)............................................. 3,559,778 ------------ SPAIN (1.3%) ELECTRIC UTILITIES 250,000 Iberdrola S.A......................................................................... 3,459,952 ------------ INTERNATIONAL BANKS 50,000 Banco Popular Espanol S.A............................................................. 3,256,278 ------------ TOTAL SPAIN........................................................................... 6,716,230 ------------ SWEDEN (1.6%) CONSUMER ELECTRONICS/APPLIANCES 95,000 Electrolux AB (Series B).............................................................. 2,385,982 ------------ ENGINEERING & CONSTRUCTION 52,000 Skanska AB (B Shares)................................................................. 1,934,606 ------------ INDUSTRIAL MACHINERY/COMPONENTS 60,000 Sandvik AB (B Shares)................................................................. 1,908,316 ------------ INTERNATIONAL BANKS 300,000 Nordbanken Holding AB................................................................. 1,760,440 ------------ TOTAL SWEDEN.......................................................................... 7,989,344 ------------ SWITZERLAND (5.9%) INTERNATIONAL BANKS 17,500 UBS AG (Registered Shares)............................................................ 4,723,792 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MAJOR PHARMACEUTICALS 3,300 Novartis AG (Registered Shares)....................................................... $ 4,843,314 ------------ OTHER TELECOMMUNICATIONS 13,000 Swisscom AG (Registered Shares)....................................................... 5,255,493 ------------ PACKAGED FOODS 2,700 Nestle S.A. (Registered Shares)....................................................... 4,944,068 ------------ PROPERTY - CASUALTY INSURERS 2,400 Schweizerische Rueckversicherungs-Gesellschaft (Registered Shares).................... 4,928,060 ------------ TOBACCO 2,100 Compagnie Financiere Richemont AG (Series A).......................................... 5,009,416 ------------ TOTAL SWITZERLAND..................................................................... 29,704,143 ------------ UNITED KINGDOM (12.7%) AEROSPACE 1,000,000 Rolls-Royce PLC....................................................................... 3,454,388 ------------ AIRLINES 560,000 British Airways PLC................................................................... 3,651,966 ------------ ALCOHOLIC BEVERAGES 330,000 Bass PLC.............................................................................. 4,104,346 ------------ BUILDING MATERIALS 450,000 Hanson PLC............................................................................ 3,769,964 ------------ CLOTHING/SHOE/ACCESSORY STORES 400,000 Next PLC.............................................................................. 3,835,339 ------------ DIVERSIFIED FINANCIAL SERVICES 220,000 Abbey National PLC.................................................................... 3,515,728 ------------ ELECTRONIC COMPONENTS 975,000 Cookson Group PLC..................................................................... 3,934,612 ------------ INTERNATIONAL BANKS 160,000 National Westminster Bank PLC......................................................... 3,435,018 185,000 Royal Bank of Scotland Group PLC...................................................... 3,278,924 ------------ 6,713,942 ------------ MOVIES/ENTERTAINMENT 1,050,000 Rank Group PLC........................................................................ 3,322,024 ------------
SEE NOTES TO FINANCIAL STATEMENTS 83 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- NON - U.S. UTILITIES 550,000 National Power PLC.................................................................... $ 3,182,799 455,000 PowerGen PLC.......................................................................... 3,268,351 370,000 United Utilities PLC.................................................................. 3,843,329 ------------ 10,294,479 ------------ PAPER 1,150,000 Arjo Wiggins Appleton PLC............................................................. 4,176,743 ------------ SPECIALTY STEELS 1,500,000 Corus Group PLC....................................................................... 3,898,293 ------------ TOBACCO 575,000 British American Tobacco PLC.......................................................... 3,264,820 ------------ WATER SUPPLY 619,500 Hyder PLC............................................................................. 2,899,991 121,500 Hyder PLC (Pref.)..................................................................... 172,100 327,000 Severn Trent PLC...................................................................... 3,246,237 ------------ 6,318,328 ------------ TOTAL UNITED KINGDOM.................................................................. 64,254,972 ------------ UNITED STATES (29.4%) AEROSPACE 90,000 Northrop Grumman Corp................................................................. 4,865,625 ------------ ALUMINUM 66,000 Alcoa, Inc............................................................................ 5,478,000 ------------ AUTOMOTIVE AFTERMARKET 165,000 Goodyear Tire & Rubber Co............................................................. 4,650,937 ------------ CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS 120,000 Deere & Co............................................................................ 5,205,000 ------------ CONTAINERS/PACKAGING 220,000 Crown Cork & Seal Co., Inc............................................................ 4,922,500 ------------ DEPARTMENT STORES 150,000 Sears, Roebuck & Co................................................................... 4,565,625 ------------ DISCOUNT CHAINS 72,000 Dayton-Hudson Corp.................................................................... 5,287,500 ------------ DIVERSIFIED MANUFACTURING 50,000 Minnesota Mining & Manufacturing Co................................................... 4,893,750 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES 110,000 FPL Group, Inc........................................................................ $ 4,709,375 156,800 GPU, Inc.............................................................................. 4,694,200 ------------ 9,403,575 ------------ ELECTRONIC DATA PROCESSING 50,000 Hewlett-Packard Co.................................................................... 5,696,875 43,500 International Business Machines Corp.................................................. 4,698,000 ------------ 10,394,875 ------------ ENGINEERING & CONSTRUCTION 120,000 Fluor Corp............................................................................ 5,505,000 ------------ FINANCE COMPANIES 160,000 Associates First Capital Corp. (Class A).............................................. 4,390,000 ------------ FOOD CHAINS 150,000 Albertson's, Inc...................................................................... 4,837,500 ------------ INTEGRATED OIL COMPANIES 55,000 Chevron Corp.......................................................................... 4,764,375 ------------ LIFE INSURANCE 250,000 Conseco, Inc.......................................................................... 4,468,750 ------------ MAJOR BANKS 90,000 Bank of America Corp.................................................................. 4,516,875 215,000 KeyCorp............................................................................... 4,756,875 ------------ 9,273,750 ------------ MAJOR CHEMICALS 40,000 Dow Chemical Co....................................................................... 5,345,000 ------------ MAJOR PHARMACEUTICALS 68,000 Bristol-Myers Squibb Co............................................................... 4,364,750 ------------ MOTOR VEHICLES 93,500 Ford Motor Co......................................................................... 4,996,406 ------------ NATURAL GAS 80,000 Consolidated Natural Gas Co........................................................... 5,195,000 ------------ OIL REFINING/MARKETING 150,000 Ashland, Inc.......................................................................... 4,940,625 ------------ OTHER METALS/MINERALS 90,000 Phelps Dodge Corp..................................................................... 6,041,250 ------------ PAPER 95,000 International Paper Co................................................................ 5,361,563 ------------ PHOTOGRAPHIC PRODUCTS 77,000 Eastman Kodak Co...................................................................... 5,101,250 ------------ SAVINGS & LOAN COMPANIES 185,000 Washington Mutual, Inc................................................................ 4,810,000 ------------
SEE NOTES TO FINANCIAL STATEMENTS 84 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- SEMICONDUCTORS 65,000 Intel Corp............................................................................ $ 5,346,250 ------------ TOBACCO 190,000 Philip Morris Companies, Inc.......................................................... 4,405,625 ------------ TOTAL UNITED STATES................................................................... 148,814,481 ------------ TOTAL COMMON AND PREFERRED STOCKS (IDENTIFIED COST $433,137,625)........................................................ 492,799,097 ------------
PRINCIPAL AMOUNT IN THOUSANDS ---------- SHORT-TERM INVESTMENT (a) (2.6%) U.S. GOVERNMENT AGENCY $ 12,900 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $12,898,925)...... 12,898,925 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $446,036,550) (b)......................................................................... 99.8% 505,698,022 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 1,231,468 ----- ------------- NET ASSETS................................................................................ 100.0% $ 506,929,490 ----- ------------- ----- -------------
--------------------- (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $103,718,643 and the aggregate gross unrealized depreciation is $44,057,171, resulting in net unrealized appreciation of $59,661,472. SEE NOTES TO FINANCIAL STATEMENTS 85 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH SUMMARY OF INVESTMENTS DECEMBER 31, 1999
PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Aerospace......................................................................... $ 8,320,013 1.6% Air Freight/Delivery Services..................................................... 5,617,296 1.1 Airlines.......................................................................... 6,473,235 1.3 Alcoholic Beverages............................................................... 8,573,872 1.7 Aluminum.......................................................................... 8,064,536 1.6 Apparel........................................................................... 2,810,205 0.6 Automotive Aftermarket............................................................ 7,592,902 1.5 Building Materials................................................................ 9,286,816 1.8 Canadian Oil & Gas................................................................ 1,992,673 0.4 Clothing/Shoe/Accessory Stores.................................................... 3,835,339 0.8 Construction/Agricultural Equipment/Trucks........................................ 5,205,000 1.0 Consumer Electronics/Appliances................................................... 15,296,616 3.0 Containers/Packaging.............................................................. 10,337,159 2.0 Department Stores................................................................. 4,565,625 0.9 Discount Chains................................................................... 5,287,500 1.0 Diversified Electronic Products................................................... 25,201,343 5.0 Diversified Financial Services.................................................... 13,415,878 2.6 Diversified Manufacturing......................................................... 12,588,623 2.5 Electric Utilities................................................................ 12,863,527 2.5 Electrical Products............................................................... 4,545,099 0.9 Electronic Components............................................................. 8,627,823 1.7 Electronic Data Processing........................................................ 10,394,875 2.1 Engineering & Construction........................................................ 7,439,606 1.5 Farming/Seeds/Milling............................................................. 2,954,035 0.6 Finance Companies................................................................. 8,502,894 1.7 Food Chains....................................................................... 4,837,500 1.0 Home Building..................................................................... 3,984,054 0.8 Industrial Machinery/Components................................................... 1,908,316 0.4 Integrated Oil Companies.......................................................... 7,784,792 1.5 International Banks............................................................... 38,800,897 7.6 Life Insurance.................................................................... 4,468,750 0.9 Major Banks....................................................................... 9,273,750 1.8 Major Chemicals................................................................... 12,717,514 2.5 Major Pharmaceuticals............................................................. 13,160,324 2.6 Motor Vehicles.................................................................... 18,520,393 3.7 PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Movies/Entertainment.............................................................. $ 3,322,024 0.7% Multi-Line Insurance.............................................................. 3,354,946 0.7 Multi-Sector Companies............................................................ 15,188,521 3.0 Natural Gas....................................................................... 5,195,000 1.0 Non-U.S. Utilities................................................................ 10,294,480 2.0 Oil & Gas Production.............................................................. 1,497,320 0.3 Oil Refining/Marketing............................................................ 8,405,606 1.7 Oil/Gas Transmission.............................................................. 2,146,572 0.4 Other Metals/Minerals............................................................. 6,041,250 1.2 Other Pharmaceuticals............................................................. 3,962,043 0.8 Other Telecommunications.......................................................... 5,255,493 1.0 Packaged Foods.................................................................... 4,944,068 1.0 Paper............................................................................. 9,538,305 1.9 Photographic Products............................................................. 5,101,250 1.0 Precious Metals................................................................... 1,416,960 0.3 Property - Casualty Insurers...................................................... 4,928,060 1.0 Real Estate....................................................................... 5,353,100 1.1 Recreational Products/Toys........................................................ 4,401,976 0.9 Savings & Loan Companies.......................................................... 4,810,000 0.9 Semiconductors.................................................................... 5,346,250 1.1 Shoe Manufacturing................................................................ 3,371,945 0.7 Specialty Chemicals............................................................... 3,722,868 0.7 Specialty Foods/Candy............................................................. 3,268,850 0.6 Specialty Steels.................................................................. 3,898,293 0.8 Telecommunication Equipment....................................................... 3,898,481 0.8 Telecommunications................................................................ 13,830,062 2.7 Tobacco........................................................................... 16,550,846 3.2 U.S. Government Agency............................................................ 12,898,925 2.5 Utilities......................................................................... 2,187,420 0.4 Water Supply...................................................................... 6,318,328 1.2 ------------ ----- $505,698,022 99.8% ------------ ----- ------------ -----
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Common Stocks..................................................................... $489,816,792 96.6% Preferred Stocks.................................................................. 2,982,305 0.6 Short-Term Investment............................................................. 12,898,925 2.6 ------------ ----- $505,698,022 99.8% ------------ ----- ------------ -----
SEE NOTES TO FINANCIAL STATEMENTS 86 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON AND PREFERRED STOCKS AND BONDS (93.2%) FINLAND (3.9%) TELECOMMUNICATION EQUIPMENT 123,900 Nokia Oyj (A Shares)............................................................... $ 22,431,352 ------------ FRANCE (19.5%) BROADCASTING 9,485 Societe Television Francaise 1..................................................... 4,960,807 ------------ BUILDING MATERIALS/DIY CHAINS 15,000 Castorama Dubois Investissement.................................................... 4,556,274 ------------ CONSUMER ELECTRONICS/APPLIANCES 70,340 Thomson Multimedia*................................................................ 3,785,016 ------------ E.D.P. SERVICES 29,640 Cap Gemini S.A..................................................................... 7,512,602 ------------ FOOD CHAINS 58,000 Carrefour S.A...................................................................... 10,681,395 ------------ INTERNATIONAL BANKS 120,420 Banque Nationale de Paris.......................................................... 11,094,449 ------------ MAJOR PHARMACEUTICALS 165,026 Aventis S.A........................................................................ 9,544,031 67,400 Sanofi-Synthelabo S.A.*............................................................ 2,802,477 ------------ 12,346,508 ------------ MOTOR VEHICLES 85,840 Renault S.A........................................................................ 4,132,130 ------------ MULTI-LINE INSURANCE 53,200 AXA................................................................................ 7,405,585 ------------ MULTI-SECTOR COMPANIES 73,350 Vivendi............................................................................ 6,613,967 ------------ OIL REFINING/MARKETING 115,862 Total S.A. (B Shares).............................................................. 15,440,755 ------------ OTHER TELECOMMUNICATIONS 83,800 France Telecom S.A................................................................. 11,066,757 ------------ TELECOMMUNICATION EQUIPMENT 58,205 Alcatel............................................................................ 13,347,710 ------------ TOTAL FRANCE....................................................................... 112,943,955 ------------ GERMANY (9.5%) APPAREL 37,506 Hugo Boss AG (Pref.)............................................................... 4,790,889 ------------ COMPUTER SOFTWARE 19,620 SAP AG............................................................................. 9,649,826 42,153 Software AG*....................................................................... 2,565,048 ------------ 12,214,874 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- INTERNATIONAL BANKS 80,460 Deutsche Bank AG (Registered Shares)............................................... $ 6,785,701 ------------ OTHER TELECOMMUNICATIONS 61,735 Mannesmann AG (Germany)............................................................ 14,871,289 ------------ SHOE MANUFACTURING 30,400 Adidas-Salomon AG.................................................................. 2,277,936 ------------ SPECIALTY FOODS/CANDY 9,647 Kamps AG........................................................................... 664,652 15,102 Kamps AG (New)*.................................................................... 1,005,551 ------------ 1,670,203 ------------ TELECOMMUNICATIONS 177,530 Deutsche Telekom AG................................................................ 12,624,169 ------------ TOTAL GERMANY...................................................................... 55,235,061 ------------ ITALY (3.2%) BROADCASTING 343,650 Mediaset SpA....................................................................... 5,336,731 ------------ INTERNATIONAL BANKS 434,900 Unicredito Italiano SpA............................................................ 2,134,621 ------------ PRINTING/FORMS 795,860 Seat-Pagine Gialle SpA............................................................. 2,609,552 ------------ TELECOMMUNICATIONS 609,460 Telecom Italia SpA................................................................. 8,581,928 ------------ TOTAL ITALY........................................................................ 18,662,832 ------------ NETHERLANDS (6.3%) ALCOHOLIC BEVERAGES 52,800 Heineken NV........................................................................ 2,571,404 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 95,365 Koninklijke (Royal) Philips Electronics NV......................................... 12,948,946 ------------ DIVERSIFIED FINANCIAL SERVICES 145,800 Fortis (NL) NV..................................................................... 5,242,582 ------------ E.D.P. SERVICES 90,200 Getronics NV....................................................................... 7,185,274 ------------ FINANCIAL PUBLISHING/SERVICES 172,600 Wolters Kluwer NV.................................................................. 5,832,996 ------------ FOOD CHAINS 163,100 Laurus NV.......................................................................... 2,936,423 ------------ TOTAL NETHERLANDS.................................................................. 36,717,625 ------------
SEE NOTES TO FINANCIAL STATEMENTS 87 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- SPAIN (6.4%) ADVERTISING 53,700 Telefonica Publicidad e Informacion, S.A.*......................................... $ 2,606,053 ------------ INTERNATIONAL BANKS 205,200 Argentaria, Caja Postal y Banco Hipotecario de Espana, S.A......................... 4,815,083 53,342 Banco Popular Espanol S.A.......................................................... 3,473,927 ------------ 8,289,010 ------------ INTERNET SERVICES 17,900 Terra Networks, S.A.*.............................................................. 976,707 ------------ OIL REFINING/MARKETING 163,000 Repsol-YPF, S.A.................................................................... 3,774,023 ------------ OTHER CONSUMER SERVICES 298,600 Amadeus Global Travel Distribution S.A. (A Shares)*................................ 4,730,227 ------------ TELECOMMUNICATIONS 662,903 Telefonica S.A.*................................................................... 16,535,346 ------------ TOTAL SPAIN........................................................................ 36,911,366 ------------ SWEDEN (6.8%) CLOTHING/SHOE/ACCESSORY STORES 94,920 Hennes & Mauritz AB (B Shares)..................................................... 3,174,917 ------------ DIVERSIFIED COMMERCIAL SERVICES 498,990 Securitas AB (Series "B" Free)..................................................... 9,018,668 ------------ INDUSTRIAL MACHINERY/COMPONENTS 490,900 Assa Abloy AB (Series B)........................................................... 6,884,791 ------------ INTERNATIONAL BANKS 807,200 Nordbanken Holding AB.............................................................. 4,736,755 ------------ LIFE INSURANCE 102,400 Skandia Forsakrings AB............................................................. 3,088,609 ------------ TELECOMMUNICATIONS EQUIPMENT 194,110 Ericsson (L.M.) Telephone Co. AB (Series "B" Free)................................. 12,461,349 ------------ TOTAL SWEDEN....................................................................... 39,365,089 ------------ SWITZERLAND (8.9%) DIVERSIFIED COMMERCIAL SERVICES 6,790 Adecco S.A. (Registered Shares).................................................... 5,285,373 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- INTERNATIONAL BANKS 25,060 UBS AG (Registered Shares)......................................................... $ 6,764,470 ------------ MAJOR PHARMACEUTICALS 3,400 Novartis AG (Registered Shares).................................................... 4,990,082 1,208 Roche Holdings AG.................................................................. 14,332,203 ------------ 19,322,285 ------------ PACKAGED FOODS 5,757 Nestle S.A......................................................................... 10,541,851 ------------ TOBACCO 3,990 Compagnie Financiere Richemont AG (Series A)....................................... 9,517,891 ------------ TOTAL SWITZERLAND.................................................................. 51,431,870 ------------ UNITED KINGDOM (28.1%) ADVERTISING 550,300 Aegis Group PLC.................................................................... 1,998,662 ------------ AEROSPACE 996,800 British Aerospace PLC.............................................................. 6,597,042 107,801 British Aerospace PLC (Loan Stock)................................................. 169,662 572,400 Marconi PLC........................................................................ 10,122,070 352,407 Smiths Industries PLC.............................................................. 5,261,912 ------------ 22,150,686 ------------ ALCOHOLIC BEVERAGES 885,400 Allied Domecq PLC.................................................................. 4,373,391 58,500 Bass PLC........................................................................... 727,588 ------------ 5,100,979 ------------ AUTO PARTS: O.E.M. 620,138 BBA Group PLC...................................................................... 5,005,134 ------------ BOOKS/MAGAZINES 344,120 EMAP PLC........................................................................... 7,110,125 895,900 Reed International PLC............................................................. 6,702,960 ------------ 13,813,085 ------------ CABLE TELEVISION 187,526 TeleWest Communications PLC*....................................................... 999,681 ------------ CATALOG/SPECIALTY DISTRIBUTION 501,400 Great Universal Stores PLC......................................................... 2,929,883 ------------ CELLULAR TELEPHONE 1,597,900 Vodafone AirTouch PLC.............................................................. 7,912,095 ------------ DIVERSIFIED FINANCIAL SERVICES 394,100 HSBC Holdings PLC.................................................................. 5,490,028 286,300 Lloyds TSB Group PLC............................................................... 3,579,317 ------------ 9,069,345 ------------
SEE NOTES TO FINANCIAL STATEMENTS 88 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- INTEGRATED OIL COMPANIES 1,772,290 BP Amoco PLC....................................................................... $ 17,808,670 ------------ INTERNATIONAL BANKS 307,100 Barclays PLC....................................................................... 8,833,745 ------------ INTERNET SERVICES 143,100 Freeserve PLC*..................................................................... 1,362,853 189,300 Thus PLC*.......................................................................... 1,194,771 ------------ 2,557,624 ------------ LIFE INSURANCE 675,400 Prudential Corp.................................................................... 13,300,814 ------------ MAJOR PHARMACEUTICALS 193,774 AstraZeneca PLC.................................................................... 8,187,057 144,300 Glaxo Wellcome PLC................................................................. 4,076,259 416,949 SmithKline Beecham PLC............................................................. 5,317,009 ------------ 17,580,325 ------------ MOVIES/ENTERTAINMENT 171,600 Flextech PLC*...................................................................... 3,185,462 ------------ OIL/GAS TRANSMISSION 1,037,866 BG Group PLC....................................................................... 6,701,293 GBP 148,000 BG Transco Holdings PLC 7.06% due 12/14/09......................................... 240,192 GBP 148,000 BG Transco Holdings PLC 4.19% due 12/14/22......................................... 239,738 GBP 148,000 BG Transco Holdings PLC 7.00% due 12/16/24......................................... 232,380 ------------ 7,413,603 ------------ OTHER SPECIALTY STORES 296,800 Kingfisher PLC..................................................................... 3,291,380 ------------ RESTAURANTS 889,556 Granada Group PLC.................................................................. 9,010,406 ------------ TELECOMMUNICATIONS 447,200 British Telecommunications PLC..................................................... 10,921,897 ------------ TOTAL UNITED KINGDOM............................................................... 162,883,476 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- UNITED STATES (0.6%) OTHER TELECOMMUNICATIONS 28,200 NTL Inc.*.......................................................................... $ 3,510,900 ------------ TOTAL COMMON AND PREFERRED STOCKS AND BONDS (IDENTIFIED COST $367,376,100)..................................................... 540,093,526 ------------
PRINCIPAL AMOUNT IN THOUSANDS ----------- SHORT-TERM INVESTMENT (a) (6.5%) U.S. GOVERNMENT AGENCY $ 37,900 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $37,896,842)...... 37,896,842 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $405,272,942) (b)........................................................ 99.7% 577,990,368 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.3 1,714,399 ----- ------------- NET ASSETS................................................................................ 100.0% $ 579,704,767 ----- ------------- ----- -------------
--------------------- * Non-income producing security. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $180,597,802 and the aggregate gross unrealized depreciation is $7,880,376, resulting in net unrealized appreciation of $172,717,426. CURRENCY ABBREVIATION: GBP British Pound.
SEE NOTES TO FINANCIAL STATEMENTS 89 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH SUMMARY OF INVESTMENTS DECEMBER 31, 1999
PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Advertising....................................................................... $ 4,604,715 0.8% Aerospace......................................................................... 22,150,686 3.8 Alcoholic Beverages............................................................... 7,672,384 1.3 Apparel........................................................................... 4,790,889 0.8 Auto Parts: O.E.M................................................................. 5,005,134 0.9 Books/Magazines................................................................... 13,813,085 2.4 Broadcasting...................................................................... 10,297,537 1.8 Building Materials/DIY Chains..................................................... 4,556,274 0.8 Cable Television.................................................................. 999,682 0.2 Catalog/Specialty Distribution.................................................... 2,929,883 0.5 Cellular Telephone................................................................ 7,912,095 1.4 Clothing/Shoe/Accessory Stores.................................................... 3,174,917 0.5 Computer Software................................................................. 12,214,874 2.1 Consumer Electronics/Appliances................................................... 3,785,017 0.7 Diversified Commercial Services................................................... 14,304,041 2.5 Diversified Electronic Products................................................... 12,948,946 2.2 Diversified Financial Services.................................................... 14,311,926 2.5 E.D.P. Services................................................................... 14,697,876 2.5 Financial Publishing/Services..................................................... 5,832,996 1.0 Food Chains....................................................................... 13,617,818 2.3 Industrial Machinery/Components................................................... 6,884,791 1.2 Integrated Oil Companies.......................................................... 17,808,670 3.1 International Banks............................................................... 48,638,751 8.4 Internet Services................................................................. 3,534,331 0.6 PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Life Insurance.................................................................... $ 16,389,423 2.8% Major Pharmaceuticals............................................................. 49,249,117 8.5 Motor Vehicles.................................................................... 4,132,131 0.7 Movies/Entertainment.............................................................. 3,185,462 0.5 Multi-Line Insurance.............................................................. 7,405,585 1.3 Multi-Sector Companies............................................................ 6,613,967 1.1 Oil Refining/Marketing............................................................ 19,214,778 3.3 Oil/Gas Transmission.............................................................. 7,413,602 1.3 Other Consumer Services........................................................... 4,730,227 0.8 Other Specialty Stores............................................................ 3,291,380 0.6 Other Telecommunications.......................................................... 29,448,946 5.1 Packaged Foods.................................................................... 10,541,851 1.8 Printing/Forms.................................................................... 2,609,552 0.5 Restaurants....................................................................... 9,010,406 1.6 Shoe Manufacturing................................................................ 2,277,936 0.4 Specialty Foods/Candy............................................................. 1,670,203 0.3 Telecommunication Equipment....................................................... 48,240,411 8.3 Telecommunications................................................................ 48,663,340 8.4 Tobacco........................................................................... 9,517,891 1.6 U.S. Government Agency............................................................ 37,896,842 6.5 ------------ ----- $577,990,368 99.7% ------------ ----- ------------ -----
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Common Stocks..................................................................... $534,590,327 92.2% Corporate Bonds................................................................... 712,310 0.2 Preferred Stocks.................................................................. 4,790,889 0.8 Short-Term Investment............................................................. 37,896,842 6.5 ------------ ----- $577,990,368 99.7% ------------ ----- ------------ -----
SEE NOTES TO FINANCIAL STATEMENTS 90 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS (96.2%) AUSTRALIA (8.6%) AIRLINES 116,000 Quantas Airways Ltd..................................................................... $ 289,165 ------------ ALCOHOLIC BEVERAGES 166,400 Fosters Brewing Group Ltd............................................................... 477,022 ------------ BEVERAGES - NON-ALCOHOLIC 57,400 Coca-Cola Amatil Ltd.................................................................... 156,642 ------------ DIVERSIFIED COMMERCIAL SERVICES 13,600 Brambles Industries Ltd................................................................. 375,805 ------------ INTERNATIONAL BANKS 58,100 Commonwealth Bank of Australia.......................................................... 999,720 46,500 National Australia Bank Ltd............................................................. 710,743 109,800 Westpac Banking Corp., Ltd.............................................................. 756,807 ------------ 2,467,270 ------------ MEDIA CONGLOMERATES 109,900 News Corp., Ltd. (The).................................................................. 1,066,276 ------------ MULTI-SECTOR COMPANIES 82,762 Broken Hill Proprietary Co., Ltd........................................................ 1,085,892 ------------ OTHER METALS/MINERALS 75,850 Rio Tinto Ltd........................................................................... 1,628,118 ------------ OTHER TELECOMMUNICATIONS 88,400 Aapt Ltd.*.............................................................................. 302,130 180,300 Telstra Corp. Ltd....................................................................... 979,332 81,400 Telstra Corp. Ltd. (New)*............................................................... 286,749 ------------ 1,568,211 ------------ PRECIOUS METALS 311,200 Normandy Mining Ltd..................................................................... 220,479 ------------ REAL ESTATE 30,650 Lend Lease Corp., Ltd................................................................... 429,071 ------------ TELECOMMUNICATIONS 127,500 Macquarie Corporate Telecommunications Holdings Ltd.*................................... 207,427 ------------ TOTAL AUSTRALIA......................................................................... 9,971,378 ------------ CHINA (0.4%) COAL MINING 634,000 Yanzhou Coal Mining Co. Ltd. (Class H).................................................. 175,341 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES 234,000 Huaneng Power International, Inc. (Class H)............................................. $ 55,685 ------------ ELECTRONIC COMPONENTS 135,000 Great Wall Technology Co. (Class H)*.................................................... 131,110 ------------ OTHER TRANSPORTATION 412,000 Zhejiang Expressway Co. Ltd............................................................. 62,537 ------------ TOTAL CHINA............................................................................. 424,673 ------------ HONG KONG (10.3%) AIRLINES 115,000 Cathay Pacific Airways.................................................................. 204,882 ------------ BROADCASTING 61,000 Television Broadcasts Ltd............................................................... 415,873 ------------ CELLULAR TELEPHONE 150,200 China Telecom Ltd.*..................................................................... 937,060 23,500 SmarTone Telecommunications Holdings Ltd................................................ 113,359 ------------ 1,050,419 ------------ DIVERSIFIED MANUFACTURING 33,600 Johnson Electric Holdings, Ltd.......................................................... 215,673 ------------ E.D.P. SERVICES 174,000 Timeless Software Ltd.*................................................................. 99,601 ------------ INTERNATIONAL BANKS 28,000 Hang Seng Bank Ltd...................................................................... 319,655 61,000 Wing Hang Bank Ltd...................................................................... 208,721 ------------ 528,376 ------------ MULTI-SECTOR COMPANIES 189,000 Hutchison Whampoa, Ltd.................................................................. 2,747,234 94,700 New World Development Co., Ltd.......................................................... 213,179 85,700 Swire Pacific Ltd. (Class A)............................................................ 505,998 ------------ 3,466,411 ------------ NATURAL GAS 227,000 Hong Kong & China Gas Co., Ltd.......................................................... 310,979 ------------ OTHER SPECIALTY STORES 89,000 Jardine International Motor Holdings Ltd................................................ 44,649 ------------
SEE NOTES TO FINANCIAL STATEMENTS 91 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- OTHER TELECOMMUNICATIONS 75,000 Asia Satellite Telecommunications Holdings Ltd.......................................... $ 236,847 ------------ PACKAGE GOODS/COSMETICS 281,800 Hengan International Group Co. Ltd...................................................... 77,935 ------------ REAL ESTATE 157,000 Cheung Kong (Holdings) Ltd.............................................................. 1,984,210 71,000 Hong Kong Land Holdings Ltd............................................................. 105,080 73,000 Kerry Properties Ltd.................................................................... 102,354 454,000 New World China Land Ltd.*.............................................................. 167,899 360,000 Sino Land Co., Ltd...................................................................... 207,229 114,100 Sun Hung Kai Properties Ltd............................................................. 1,188,848 ------------ 3,755,620 ------------ SHOE MANUFACTURING 38,000 Yue Yuen Industrial Holdings............................................................ 90,919 ------------ TELECOMMUNICATIONS 374,400 Cable & Wireless HKT Ltd................................................................ 1,081,204 ------------ WHOLESALE DISTRIBUTORS 139,800 Li & Fung Ltd........................................................................... 350,669 ------------ TOTAL HONG KONG......................................................................... 11,930,057 ------------ INDIA (6.5%) ALUMINUM 12,500 Hindalco Industries Ltd................................................................. 231,269 ------------ BUILDING MATERIALS 28,498 Gujarat Ambuja Cements Ltd.............................................................. 213,522 ------------ COMPUTER SOFTWARE 12,700 Aptech Ltd.............................................................................. 515,764 4,250 HCL Technologies Ltd.*.................................................................. 56,654 600 Leading Edge Systems Ltd................................................................ 25,506 3,650 NIIT Ltd................................................................................ 278,137 18,200 Software Solution Integrated Ltd........................................................ 923,344 ------------ 1,799,405 ------------ CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS 36,200 Larsen & Toubro Ltd..................................................................... 462,505 20,000 Mahindra & Mahindra Ltd................................................................. 193,059 6,650 Punjab Tractors Ltd..................................................................... 158,814 ------------ 814,378 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- DIVERSIFIED ELECTRONIC PRODUCTS 200 Satyam Computer Service Ltd............................................................. $ 10,108 ------------ DIVERSIFIED MANUFACTURING 26,000 Grasim Industries Ltd................................................................... 243,806 4,050 Grasim Industries Ltd. (Bonus Shares)*.................................................. 37,349 ------------ 281,155 ------------ E.D.P. PERIPHERALS 21,500 Moser-Baer India Ltd.................................................................... 172,455 ------------ E.D.P. SERVICES 1,500 Infosys Technologies Ltd................................................................ 500,445 ------------ ELECTRICAL PRODUCTS 54,274 Bharat Heavy Electricals Ltd............................................................ 261,952 ------------ GENERIC DRUGS 7,000 Dr. Reddy's Laboratories Ltd............................................................ 231,993 ------------ HOTELS/RESORTS 13,500 Indian Hotels Co., Ltd.................................................................. 98,357 ------------ INTERNATIONAL BANKS 68,272 Bank of Baroda.......................................................................... 100,188 41,600 Corporation Bank........................................................................ 106,127 29,500 State Bank of India..................................................................... 152,382 ------------ 358,697 ------------ MAJOR PHARMACEUTICALS 6,450 Hoechst Marion Roussel Ltd.............................................................. 153,616 ------------ MOTOR VEHICLES 7,500 Hero Honda Motors Ltd................................................................... 194,610 ------------ MULTI-SECTOR COMPANIES 3,650 Wipro Ltd............................................................................... 218,178 ------------ NATURAL GAS 20,000 Gas Authority of India Ltd. (GDR)*...................................................... 185,000 ------------ OIL REFINING/MARKETING 17,000 Hindustan Petroleum Corp., Ltd.......................................................... 71,501 ------------ OTHER PHARMACEUTICALS 9,500 Glaxo India Ltd......................................................................... 159,552 2,400 Wockhardt Life Sciences Ltd............................................................. 52,959 ------------ 212,511 ------------
SEE NOTES TO FINANCIAL STATEMENTS 92 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- OTHER TELECOMMUNICATIONS 43,100 Mahanagar Telephone Nigam Ltd........................................................... $ 191,181 7,390 Videsh Sanchar Nigam Ltd................................................................ 307,251 ------------ 498,432 ------------ PACKAGE GOODS/COSMETICS 4,950 Hindustan Lever Ltd..................................................................... 255,976 10,000 Reckitt & Coleman of India Ltd.......................................................... 73,546 ------------ 329,522 ------------ SPECIALTY CHEMICALS 129,600 Indo Gulf Corp. Ltd..................................................................... 187,653 36,500 Reliance Industries Ltd................................................................. 196,048 ------------ 383,701 ------------ TOBACCO 17,500 ITC Ltd................................................................................. 267,467 ------------ TOTAL INDIA............................................................................. 7,488,274 ------------ INDONESIA (0.5%) BUILDING MATERIALS 36,300 PT Semen Gresik (Persero) Tbk........................................................... 57,432 ------------ MUTUAL FUNDS 500,000 Batavia Investment Fund Ltd.*........................................................... -- ------------ SPECIALTY FOODS/CANDY 88,000 PT Indofood Sukses Makmur Tbk........................................................... 110,000 ------------ TELECOMMUNICATIONS 28,684 PT Telekomunikasi Indonesia (ADR)....................................................... 315,524 ------------ TOBACCO 40,500 PT Gudang Garam Tbk..................................................................... 108,771 ------------ TOTAL INDONESIA......................................................................... 591,727 ------------ JAPAN (44.4%) BUILDING PRODUCTS 81,000 Sanwa Shutter Corp...................................................................... 301,115 ------------ CONSUMER ELECTRONICS/APPLIANCES 15,200 Aiwa Co., Ltd........................................................................... 315,242 20,700 Rinnai Corp............................................................................. 384,758 11,700 Sony Corp............................................................................... 3,468,108 ------------ 4,168,108 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- CONSUMER SPECIALTIES 66,000 Casio Computer Co., Ltd................................................................. $ 548,816 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 106,000 Hitachi Ltd............................................................................. 1,700,646 10,700 Kyocera Corp............................................................................ 2,773,919 59,000 Matsushita Electric Industrial Co., Ltd................................................. 1,633,438 84,000 NEC Corp................................................................................ 2,000,978 178,000 Toshiba Corp............................................................................ 1,358,247 ------------ 9,467,228 ------------ E.D.P. PERIPHERALS 38,000 Mitsumi Electric Co., Ltd............................................................... 1,189,591 ------------ ELECTRICAL PRODUCTS 66,000 Furukawa Electric Co.................................................................... 1,000,783 ------------ ELECTRONIC COMPONENTS 11,000 TDK Corp................................................................................ 1,518,392 ------------ ELECTRONIC DATA PROCESSING 60,000 Fujitsu Ltd............................................................................. 2,735,277 ------------ ELECTRONIC DISTRIBUTORS 20,000 Ryosan Co., Ltd......................................................................... 496,967 ------------ FINANCE COMPANIES 39,600 Hitachi Credit Corp..................................................................... 803,854 ------------ FOOD CHAINS 12,900 FamilyMart Co., Ltd..................................................................... 858,149 ------------ HOME BUILDING 75,000 Sekisui Chemical Co., Ltd............................................................... 332,371 67,000 Sekisui House Ltd....................................................................... 593,181 ------------ 925,552 ------------ HOME FURNISHINGS 6,000 Sangetsu Co., Ltd....................................................................... 126,198 ------------ INDUSTRIAL MACHINERY/COMPONENTS 73,000 Amada Co., Ltd.......................................................................... 399,208 62,000 Daifuku Co., Ltd........................................................................ 357,856 71,000 Daikin Industries, Ltd.................................................................. 965,467 24,000 Fuji Machine Manufacturing Co., Ltd..................................................... 1,934,651 61,000 Minebea Co., Ltd........................................................................ 1,046,106 188,000 Mitsubishi Heavy Industries, Ltd........................................................ 627,157 82,000 Tsubakimoto Chain Co.................................................................... 300,822 ------------ 5,631,267 ------------
SEE NOTES TO FINANCIAL STATEMENTS 93 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL SPECIALTIES 46,000 Fujitec Co., Ltd........................................................................ $ 461,260 42,000 Lintec Corp............................................................................. 456,075 ------------ 917,335 ------------ INTERNATIONAL BANKS 16,000 Bank of Tokyo-Mitsubishi, Ltd........................................................... 222,892 ------------ MAJOR PHARMACEUTICALS 44,000 Sankyo Co., Ltd......................................................................... 903,933 ------------ MARINE TRANSPORTATION 15,000 Mitsubishi Logistic Corp................................................................ 95,676 ------------ MEAT/POULTRY/FISH 17,000 Nippon Meat Packers, Inc................................................................ 220,358 ------------ MOTOR VEHICLES 150,000 Nissan Motor Co., Ltd................................................................... 589,904 45,000 Suzuki Motor Corp....................................................................... 656,378 26,000 Toyota Motor Corp....................................................................... 1,259,049 ------------ 2,505,331 ------------ OFFICE EQUIPMENT/SUPPLIES 43,000 Canon, Inc.............................................................................. 1,707,885 77,000 Ricoh Co., Ltd.......................................................................... 1,450,812 ------------ 3,158,697 ------------ OTHER PHARMACEUTICALS 22,000 Ono Pharmaceutical Co., Ltd............................................................. 589,708 26,000 Yamanouchi Pharmaceutical Co., Ltd...................................................... 908,042 ------------ 1,497,750 ------------ PHOTOGRAPHIC PRODUCTS 31,000 Fuji Photo Film Co...................................................................... 1,131,188 ------------ POLLUTION CONTROL EQUIPMENT 28,000 Kurita Water Industries Ltd............................................................. 444,844 ------------ PRINTING/FORMS 42,000 Dai Nippon Printing Co., Ltd............................................................ 669,732 24,000 Nissha Printing Co., Ltd................................................................ 143,221 ------------ 812,953 ------------ REAL ESTATE 48,000 Mitsubishi Estate Co., Ltd.............................................................. 468,167 ------------ RECREATIONAL PRODUCTS/TOYS 10,900 Nintendo Co., Ltd....................................................................... 1,810,624 57,000 Yamaha Corp............................................................................. 370,260 ------------ 2,180,884 ------------ SEMICONDUCTORS 4,000 Rohm Co. Ltd............................................................................ 1,643,514 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- SPECIALTY CHEMICALS 110,000 Daicel Chemical Industries, Ltd......................................................... $ 306,691 93,000 Kaneka Corp............................................................................. 1,189,112 101,000 Mitsubishi Chemical Corp................................................................ 355,703 41,000 NIFCO Inc............................................................................... 489,337 69,000 Shin-Etsu Polymer Co., Ltd.............................................................. 405,009 ------------ 2,745,852 ------------ SPECIALTY FOODS/CANDY 15,000 House Foods Corp........................................................................ 227,451 ------------ TELECOMMUNICATIONS 107 Nippon Telegraph & Telephone Corp....................................................... 1,831,833 ------------ UTILITIES 15,900 Tokyo Electric Power Co................................................................. 426,198 ------------ WHOLESALE DISTRIBUTORS 18,000 Nissei Sangyo Co., Ltd.................................................................. 248,288 ------------ TOTAL JAPAN............................................................................. 51,454,441 ------------ MALAYSIA (2.4%) ALCOHOLIC BEVERAGES 75,000 Carlsberg Brewery (Malaysia) Berhad..................................................... 230,909 ------------ CASINO/GAMBLING 97,000 Tanjong PLC............................................................................. 214,410 ------------ INTERNATIONAL BANKS 144,000 Malayan Banking Berhad.................................................................. 511,552 533,000 Public Bank Berhad...................................................................... 465,649 ------------ 977,201 ------------ TELECOMMUNICATIONS 102,000 Telekom Malaysia Berhad................................................................. 394,558 ------------ TOBACCO 76,400 British American Tobacco................................................................ 583,022 ------------ WHOLESALE DISTRIBUTORS 320,000 Sime Darby Berhad....................................................................... 405,873 ------------ TOTAL MALAYSIA.......................................................................... 2,805,973 ------------ NEW ZEALAND (0.4%) AIRLINES 91,500 Air New Zealand Ltd. (Class B).......................................................... 134,044 ------------
SEE NOTES TO FINANCIAL STATEMENTS 94 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS 73,600 Telecom Corporation of New Zealand Ltd.................................................. $ 346,568 ------------ TOTAL NEW ZEALAND....................................................................... 480,612 ------------ PHILIPPINES (0.4%) ALCOHOLIC BEVERAGES 92,770 San Miguel Corp. (Class B).............................................................. 130,888 ------------ BROADCASTING 98,400 ABS-CBN Broadcasting Corp.*............................................................. 121,782 ------------ TELECOMMUNICATIONS 8,520 Philippine Long Distance Telephone Co................................................... 216,164 ------------ TOTAL PHILIPPINES....................................................................... 468,834 ------------ SINGAPORE (4.9%) AEROSPACE 149,000 Singapore Technologies Engineering Ltd.................................................. 230,606 ------------ AIRLINES 56,000 Singapore Airlines Ltd.................................................................. 634,913 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 66,100 Natsteel Electronics Ltd................................................................ 348,938 ------------ ELECTRONIC COMPONENTS 137,000 Gul Technologies........................................................................ 151,218 74,000 Omni Industries Ltd..................................................................... 134,061 36,600 Venture Manufacturing Ltd............................................................... 419,352 ------------ 704,631 ------------ INTERNATIONAL BANKS 49,182 DBS Group Holdings Ltd.................................................................. 805,440 75,086 Overseas - Chinese Banking Corp., Ltd................................................... 689,152 44,544 Overseas Union Bank Ltd................................................................. 260,530 36,632 United Overseas Bank Ltd................................................................ 323,030 ------------ 2,078,152 ------------ MARINE TRANSPORTATION 85,000 Neptune Orient Lines Ltd................................................................ 113,707 54,500 Sembcorp Logistics Ltd.................................................................. 220,681 ------------ 334,388 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- NEWSPAPERS 22,019 Singapore Press Holdings Ltd............................................................ $ 476,836 ------------ REAL ESTATE 36,400 City Developments Ltd................................................................... 212,898 55,000 DBS Land Ltd............................................................................ 108,218 ------------ 321,116 ------------ SEMICONDUCTORS 44,000 Chartered Semiconductor Manufacturing Ltd.*............................................. 240,192 ------------ TELECOMMUNICATIONS 174,000 Singapore Telecommunications Ltd........................................................ 359,064 ------------ TOTAL SINGAPORE......................................................................... 5,728,836 ------------ SOUTH KOREA (8.4%) CELLULAR TELEPHONE 4,880 Pantech Co., Ltd........................................................................ 109,542 26,600 SK Telecom Co., Ltd. (ADR).............................................................. 1,020,775 ------------ 1,130,317 ------------ COMPUTER COMMUNICATIONS 2,620 Insung Information*..................................................................... 89,486 ------------ COMPUTER SOFTWARE 7,190 Dae Duck Electronics Co................................................................. 85,445 ------------ DIVERSIFIED ELECTRONIC PRODUCTS 14,267 Samsung Electronics Co.................................................................. 3,340,688 ------------ DIVERSIFIED FINANCIAL SERVICES 5,760 Korea Technology Banking Co............................................................. 55,775 ------------ ELECTRIC UTILITIES 42,690 Korea Electric Power Corp. (ADR)........................................................ 715,057 ------------ ELECTRONIC COMPONENTS 14,590 Mirae Co................................................................................ 113,406 3,986 Samsung Electro-Mechanics Co............................................................ 264,915 ------------ 378,321 ------------
SEE NOTES TO FINANCIAL STATEMENTS 95 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL SPECIALTIES 3,300 Hankuk Glass Industry Co. Ltd........................................................... $ 62,456 ------------ INTERNATIONAL BANKS 12,310 Hana Bank............................................................................... 95,901 11,800 H & cb.................................................................................. 373,944 27,558 Kookmin Bank............................................................................ 431,807 ------------ 901,652 ------------ INVESTMENT BANKERS/BROKERS/SERVICES 5,170 Dongwon Securities Co................................................................... 111,501 21,990 Good Morning Securities Co. Ltd......................................................... 105,111 ------------ 216,612 ------------ MOTOR VEHICLES 53,760 Hyundai Motor Co., Ltd. (GDR) - 144A*+.................................................. 581,952 ------------ PAINTS/COATINGS 1,720 Korea Chemical Co., Ltd................................................................. 112,042 ------------ SEMICONDUCTORS 9,439 Hyundai Electronics Industries Co....................................................... 200,246 ------------ SPECIALTY CHEMICALS 7,610 L.G. Chemical Ltd....................................................................... 240,492 ------------ SPECIALTY FOODS/CANDY 2,040 Cheil Jedang Corp....................................................................... 235,246 ------------ STEEL/IRON ORE 18,000 Pohang Iron & Steel Co., Ltd. (ADR)..................................................... 630,000 ------------ TELECOMMUNICATIONS 9,280 Korea Telecom Corp. (ADR)*.............................................................. 693,680 ------------ TELECOMMUNICATIONS EQUIPMENT 6,180 Humax Co., Ltd.*........................................................................ 104,451 ------------ TOTAL SOUTH KOREA....................................................................... 9,773,918 ------------ TAIWAN (7.6%) DIVERSIFIED COMMERCIAL SERVICES 38,960 ASE Test Ltd.*.......................................................................... 920,430 ------------ NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- E.D.P. PERIPHERALS 8,832 Acer Peripherals - 144A*+............................................................... $ 365,733 ------------ ELECTRONIC COMPONENTS 13,700 Ritek Corp. (GDR)*...................................................................... 158,578 ------------ ELECTRONIC DATA PROCESSING 47,437 Acer Inc. (GDR)*........................................................................ 675,977 56,540 Asustek Computer Inc. (GDR)............................................................. 787,319 67 Asustek Computer Inc. (GDR) - 144A*+.................................................... 933 11,800 Hon Hai Precision Industry Co., Ltd. (GDR)*............................................. 228,035 ------------ 1,692,264 ------------ ELECTRONIC PRODUCTION EQUIPMENT 38,314 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)*...................................... 1,724,130 ------------ MUTUAL FUNDS 299 Taipei Fund*............................................................................ 2,992,093 ------------ STEEL/IRON ORE 6,300 China Steel Corp. (GDR)................................................................. 94,343 ------------ TEXTILES 32,600 Far East Textile Ltd. (GDR) - 144A*+.................................................... 787,290 ------------ TOTAL TAIWAN............................................................................ 8,734,861 ------------ THAILAND (1.4%) BUILDING MATERIALS 28,566 Siam City Cement Co. PCL................................................................ 153,466 ------------ CELLULAR TELEPHONE 30,000 Advanced Info Service PCL............................................................... 504,255 ------------ ELECTRONIC COMPONENTS 19,530 Delta Electronics, Inc.................................................................. 232,698 ------------ INTERNATIONAL BANKS 192,100 Siam Commercial Bank (Warrants due 05/10/02)*........................................... 89,408 188,200 Thai Farmers Bank PCL................................................................... 315,335 ------------ 404,743 ------------ MOVIES/ENTERTAINMENT 24,000 BEC World PCL........................................................................... 159,575 ------------
SEE NOTES TO FINANCIAL STATEMENTS 96 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- REAL ESTATE 301,800 Golden Land Property Development Company Ltd............................................ $ 156,519 ------------ TOTAL THAILAND.......................................................................... 1,611,256 ------------ TOTAL COMMON STOCKS AND WARRANTS (IDENTIFIED COST $81,085,475)........................................................... 111,464,840 ------------
PRINCIPAL AMOUNT IN THOUSANDS ----------- SHORT-TERM INVESTMENT (a) (3.7%) U.S. GOVERNMENT AGENCY $ 4,300 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,299,642)....... 4,299,642 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $85,385,117) (b)......................................................... 99.9% 115,764,482 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 162,902 ----- ------------- NET ASSETS................................................................................ 100.0% $ 115,927,384 ----- ------------- ----- -------------
--------------------- ADR American Depository Receipt. GDR Global Depository Receipt. * Non-income producing security. + Resale is restricted to qualified institutional investors. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $33,093,961 and the aggregate gross unrealized depreciation is $2,714,596, resulting in net unrealized appreciation of $30,379,365. SEE NOTES TO FINANCIAL STATEMENTS 97 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH SUMMARY OF INVESTMENTS DECEMBER 31, 1999
PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Aerospace......................................................................... $ 230,606 0.2% Airlines.......................................................................... 1,263,003 1.1 Alcoholic Beverages............................................................... 838,820 0.7 Aluminum.......................................................................... 231,269 0.2 Beverages - Non-Alcoholic......................................................... 156,642 0.1 Broadcasting...................................................................... 537,656 0.5 Building Materials................................................................ 424,420 0.4 Building Products................................................................. 301,115 0.3 Casino/Gambling................................................................... 214,410 0.2 Cellular Telephone................................................................ 2,684,991 2.3 Coal Mining....................................................................... 175,341 0.2 Computer Communications........................................................... 89,486 0.1 Computer Software................................................................. 1,884,849 1.6 Construction/Agricultural Equipment/Trucks........................................ 814,378 0.7 Consumer Electronics/Appliances................................................... 4,168,108 3.6 Consumer Specialties.............................................................. 548,816 0.5 Diversified Commercial Services................................................... 1,296,235 1.1 Diversified Electronic Products................................................... 13,166,962 11.4 Diversified Financial Services.................................................... 55,775 0.0 Diversified Manufacturing......................................................... 496,828 0.4 E.D.P. Peripherals................................................................ 1,727,779 1.5 E.D.P. Services................................................................... 600,047 0.5 Electric Utilities................................................................ 770,743 0.7 Electrical Products............................................................... 1,262,735 1.1 Electronic Components............................................................. 3,123,729 2.7 Electronic Data Processing........................................................ 4,427,542 3.8 Electronic Distributors........................................................... 496,967 0.4 Electronic Production Equipment................................................... 1,724,130 1.5 Finance Companies................................................................. 803,854 0.7 Food Chains....................................................................... 858,149 0.7 Generic Drugs..................................................................... 231,993 0.2 Home Building..................................................................... 925,553 0.8 Home Furnishings.................................................................. 126,198 0.1 Hotels/Resorts.................................................................... 98,357 0.1 Industrial Machinery/Components................................................... 5,631,266 4.9 Industrial Specialties............................................................ 979,791 0.8 International Banks............................................................... 7,938,982 6.8 Investment Bankers/Brokers/Services............................................... 216,612 0.2 Major Pharmaceuticals............................................................. 1,057,548 0.9 PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Marine Transportation............................................................. $ 430,064 0.4% Meat/Poultry/Fish................................................................. 220,358 0.2 Media Conglomerates............................................................... 1,066,276 0.9 Motor Vehicles.................................................................... 3,281,894 2.8 Movies/Entertainment.............................................................. 159,574 0.1 Multi-Sector Companies............................................................ 4,770,481 4.1 Mutual Funds...................................................................... 2,992,093 2.6 Natural Gas....................................................................... 495,979 0.4 Newspapers........................................................................ 476,836 0.4 Office Equipment/Supplies......................................................... 3,158,697 2.7 Oil Refining/Marketing............................................................ 71,501 0.1 Other Metals/Minerals............................................................. 1,628,118 1.4 Other Pharmaceuticals............................................................. 1,710,261 1.5 Other Specialty Stores............................................................ 44,649 0.0 Other Telecommunications.......................................................... 2,303,491 2.0 Other Transportation.............................................................. 62,537 0.1 Package Goods/Cosmetics........................................................... 407,458 0.3 Paints/Coatings................................................................... 112,042 0.1 Photographic Products............................................................. 1,131,188 1.0 Pollution Control Equipment....................................................... 444,844 0.4 Precious Metals................................................................... 220,479 0.2 Printing/Forms.................................................................... 812,952 0.7 Real Estate....................................................................... 5,130,492 4.4 Recreational Products/Toys........................................................ 2,180,884 1.9 Semiconductors.................................................................... 2,083,952 1.8 Shoe Manufacturing................................................................ 90,918 0.1 Specialty Chemicals............................................................... 3,370,046 2.9 Specialty Foods/Candy............................................................. 572,697 0.5 Steel/Iron Ore.................................................................... 724,343 0.6 Telecommunications................................................................ 5,446,022 4.7 Telecommunications Equipment...................................................... 104,451 0.1 Textiles.......................................................................... 787,290 0.7 Tobacco........................................................................... 959,260 0.8 U.S. Government Agency............................................................ 4,299,642 3.7 Utilities......................................................................... 426,198 0.4 Wholesale Distributors............................................................ 1,004,830 0.9 ------------ ----- $115,764,482 99.9% ------------ ----- ------------ -----
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Common Stocks..................................................................... $111,375,432 96.2% Short-Term Investment............................................................. 4,299,642 3.7 Warrants.......................................................................... 89,408 0.0 ------------ ----- $115,764,482 99.9% ------------ ----- ------------ -----
SEE NOTES TO FINANCIAL STATEMENTS 98 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ COMMON STOCKS (94.2%) ADVERTISING (2.9%) 70,000 DoubleClick Inc.*................................. $ 17,714,375 230,400 Interpublic Group of Companies, Inc............... 13,291,200 51,700 True North Communications, Inc.................... 2,310,344 11,850 Valassis Communications, Inc.*.................... 500,662 246,000 WPP Group PLC (ADR) (United Kingdom).............. 20,325,750 100,000 Young & Rubicam, Inc.............................. 7,075,000 -------------- 61,217,331 -------------- ALCOHOLIC BEVERAGES (0.5%) 99,000 LVMH (Louis Vuitton Moet Hennessy) (ADR) (France)........................................ 8,835,750 -------------- ALUMINUM (1.7%) 244,900 Alcan Aluminium, Ltd. (Canada).................... 10,086,819 280,000 Alcoa, Inc........................................ 23,240,000 -------------- 33,326,819 -------------- BIOTECHNOLOGY (2.2%) 350,000 Amgen Inc.*....................................... 21,000,000 125,000 Chiron Corp.*..................................... 5,289,062 23,000 COR Therapeutics, Inc.*........................... 618,125 84,000 Genentech, Inc.*.................................. 11,298,000 10,000 Genset (ADR) (France)*............................ 191,250 30,000 Human Genome Sciences, Inc.*...................... 4,575,000 20,000 MedImmune, Inc.*.................................. 3,315,000 -------------- 46,286,437 -------------- BROADCASTING (4.1%) 26,800 AMFM, Inc.*....................................... 2,097,100 325,000 CBS Corp.*........................................ 20,779,687 140,000 Citadel Communications Corp.*..................... 9,065,000 290,000 Clear Channel Communications, Inc.*............... 25,882,500 75,000 Grupo Televisa S.A. (GDR) (Mexico)*............... 5,118,750 64,200 Hispanic Broadcasting Corp.*...................... 5,906,400 68,600 Univision Communications, Inc. (Class A)*......... 7,010,062 185,000 USA Networks, Inc.*............................... 10,209,687 -------------- 86,069,186 -------------- NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ BUILDING MATERIALS/D I Y CHAINS (1.0%) 307,500 Home Depot, Inc. (The)............................ $ 21,082,969 -------------- CABLE TELEVISION (3.8%) 255,800 AT&T Corp. - Liberty Media Group (Class A)*....... 14,516,650 375,000 Comcast Corp. (Class A Special)*.................. 18,937,500 350,000 Cox Communications, Inc. (Class A)*............... 18,025,000 217,000 EchoStar Communications Corp. (Class A)*.......... 21,103,250 40,400 United Pan-Europe Communications NV (ADR) (Netherlands)*.................................. 5,130,800 -------------- 77,713,200 -------------- CASINO/GAMBLING (0.1%) 100,000 Mirage Resorts, Inc.*............................. 1,531,250 -------------- CATALOG/SPECIALTY DISTRIBUTION (0.2%) 53,500 eToys, Inc.*...................................... 1,404,375 18,500 ShopNow.com Inc.*................................. 349,187 123,500 Webvan Group Inc.*................................ 1,999,156 -------------- 3,752,718 -------------- CELLULAR TELEPHONE (2.6%) 180,000 Nextel Communications, Inc. (Class A)*............ 18,551,250 115,000 Sprint Corp. (PCS Group)*......................... 11,787,500 200,000 Vodafone AirTouch PLC (ADR) (United Kingdom)...... 9,900,000 85,000 Voicestream Wireless Corp.*....................... 12,059,375 34,000 Western Wireless Corp. (Class A)*................. 2,265,250 -------------- 54,563,375 -------------- CLOTHING/SHOE/ACCESSORY STORES (0.7%) 100,000 Ann Taylor Stores Corp.*.......................... 3,443,750 240,000 Gap, Inc. (The)................................... 11,040,000 -------------- 14,483,750 -------------- COMPUTER COMMUNICATIONS (2.7%) 120,000 Applied Micro Circuits Corp.*..................... 15,240,000 6,600 CacheFlow Inc.*................................... 862,537 196,000 Cisco Systems, Inc.*.............................. 20,984,250 40,000 Emulex Corp.*..................................... 4,517,500 34,000 Extreme Networks, Inc.*........................... 2,839,000 14,300 Finisar Corp.*.................................... 1,274,487
SEE NOTES TO FINANCIAL STATEMENTS 99 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 34,000 Juniper Networks, Inc.*........................... $ 11,534,500 -------------- 57,252,274 -------------- COMPUTER SOFTWARE (7.3%) 51,700 Check Point Software Technologies Ltd. (Israel)*....................................... 10,268,912 50,000 Citrix Systems, Inc.*............................. 6,146,875 82,000 Computer Associates International, Inc............ 5,734,875 31,600 E.piphany, Inc.*.................................. 7,031,000 95,900 Great Plains Software, Inc.*...................... 7,168,525 145,000 Intuit Inc.*...................................... 8,681,875 107,000 Macromedia, Inc.*................................. 7,824,375 58,000 Mercury Interactive Corp.*........................ 6,260,375 5,000 Micromuse Inc.*................................... 850,000 80,000 Microsoft Corp.*.................................. 9,335,000 570,000 Oracle Corp.*..................................... 63,840,000 200,000 Parametric Technology Corp.*...................... 5,400,000 10,000 Red Hat, Inc.*.................................... 2,110,625 85,000 Sapient Corp.*.................................... 11,974,375 -------------- 152,626,812 -------------- CONSUMER ELECTRONICS/APPLIANCES (0.5%) 33,200 Sony Corp. (ADR) (Japan).......................... 9,453,700 -------------- CONTRACT DRILLING (0.7%) 364,340 Rowan Companies, Inc.*............................ 7,901,624 195,000 Transocean Sedco Forex Inc........................ 6,569,062 -------------- 14,470,686 -------------- DISCOUNT CHAINS (3.4%) 135,000 Costco Wholesale Corp.*........................... 12,310,312 250,000 Dayton Hudson Corp................................ 18,359,375 580,000 Wal-Mart Stores, Inc.............................. 40,092,500 -------------- 70,762,187 -------------- DIVERSIFIED COMMERCIAL SERVICES (0.8%) 131,500 CheckFree Holdings Corp.*......................... 13,741,750 6,000 Freemarkets, Inc.*................................ 2,047,875 13,000 Wireless Facilities, Inc.*........................ 565,500 -------------- 16,355,125 -------------- DIVERSIFIED ELECTRONIC PRODUCTS (1.2%) 40,000 Gemstar International Group Ltd.*................. 2,845,000 100,000 JDS Uniphase Corp.*............................... 16,125,000 45,000 Koninklijke (Royal) Philips Electronics NV (Netherlands)................................... 6,075,000 -------------- 25,045,000 -------------- NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (2.9%) 110,000 American Express Co............................... $ 18,287,500 748,000 Citigroup, Inc.................................... 41,560,750 -------------- 59,848,250 -------------- DIVERSIFIED MANUFACTURING (0.4%) 79,000 Minnesota Mining & Manufacturing Co............... 7,732,125 -------------- E.D.P. PERIPHERALS (0.1%) 10,600 QLogic Corp.*..................................... 1,694,675 -------------- E.D.P. SERVICES (1.1%) 77,000 Automatic Data Processing, Inc.................... 4,148,375 119,000 BEA Systems, Inc.*................................ 8,330,000 20,000 Razorfish, Inc.*.................................. 1,900,000 160,000 Whittman-Hart, Inc.*.............................. 8,580,000 -------------- 22,958,375 -------------- ELECTRONIC COMPONENTS (0.3%) 45,300 E-Tek Dynamics, Inc.*............................. 6,081,525 -------------- ELECTRONIC DATA PROCESSING (2.0%) 79,500 Apple Computer, Inc.*............................. 8,168,625 445,000 Sun Microsystems, Inc.*........................... 34,431,875 -------------- 42,600,500 -------------- ELECTRONIC PRODUCTION EQUIPMENT (2.2%) 132,400 Applied Materials, Inc.*.......................... 16,765,150 159,100 ASM Lithography Holding NV (Netherlands)*......... 17,958,413 35,000 KLA-Tencor Corp.*................................. 3,895,937 15,950 Rudolph Technologies, Inc.*....................... 526,350 153,370 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)........................................ 6,901,650 -------------- 46,047,500 -------------- FLUID CONTROLS (0.2%) 94,300 Parker-Hannifin Corp.............................. 4,838,769 -------------- FOREST PRODUCTS (0.3%) 90,100 Weyerhaeuser Co................................... 6,470,306 -------------- GENERIC DRUGS (0.0%) 5,000 Watson Pharmaceuticals, Inc.*..................... 179,062 -------------- INTEGRATED OIL COMPANIES (0.1%) 21,300 Kerr-McGee Corp................................... 1,320,600 --------------
SEE NOTES TO FINANCIAL STATEMENTS 100 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ INTERNATIONAL BANKS (0.8%) 150,000 Asahi Bank, Ltd. (ADR) (Japan).................... $ 9,243,750 111,990 Sakura Bank, Ltd. (ADR) (Japan)................... 6,488,421 -------------- 15,732,171 -------------- INTERNET SERVICES (11.1%) 24,300 Agency.com, Inc.*................................. 1,248,412 17,000 Akamai Technologies, Inc.*........................ 5,569,625 31,000 Allaire Corp.*.................................... 4,535,687 172,000 America Online, Inc.*............................. 12,975,250 62,000 AppNet, Inc.*..................................... 2,708,625 30,000 Art Technology Group, Inc.*....................... 3,901,875 125,938 BroadVision, Inc.*................................ 21,417,331 11,600 C-Bridge Internet Solutions, Inc.*................ 574,200 84,100 Calico Commerce, Inc.*............................ 4,446,787 40,000 Inktomi Corp.*.................................... 3,545,000 42,000 Kana Communications, Inc.*........................ 8,581,125 152,300 Lycos, Inc.*...................................... 12,117,369 99,000 NBC Internet, Inc. (Class A)*..................... 7,647,750 20,000 OnDisplay, Inc.*.................................. 1,810,000 47,000 Portal Software, Inc.*............................ 4,817,500 50,000 RealNetworks, Inc.*............................... 6,015,625 50,000 Scient Corp.*..................................... 4,287,500 210,000 USWeb Corp.*...................................... 9,331,875 230,000 VeriSign, Inc.*................................... 43,958,750 147,200 Vignette Corp.*................................... 23,984,400 108,000 Yahoo! Inc.*...................................... 46,730,250 -------------- 230,204,936 -------------- INVESTMENT BANKERS/BROKERS/SERVICES (3.8%) 440,000 Donaldson, Lufkin & Jenrette, Inc................. 21,285,000 279,000 Goldman Sachs Group, Inc. (The)................... 26,278,312 35,000 Legg Mason, Inc................................... 1,268,750 214,200 Lehman Brothers Holdings, Inc..................... 18,140,063 146,000 Merrill Lynch & Co., Inc.......................... 12,191,000 -------------- 79,163,125 -------------- LIFE INSURANCE (0.1%) 70,000 ReliaStar Financial Corp.......................... 2,743,125 -------------- MAJOR BANKS (1.4%) 20,000 Bank of New York Co., Inc......................... 800,000 190,000 Chase Manhattan Corp. (The)....................... 14,760,625 NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 10,000 First Union Corp.................................. $ 328,125 321,900 Wells Fargo & Co.................................. 13,016,831 -------------- 28,905,581 -------------- MAJOR PHARMACEUTICALS (1.3%) 85,000 Johnson & Johnson................................. 7,915,625 25,000 Merck & Co., Inc.................................. 1,676,563 5,000 Pharmacia & Upjohn, Inc........................... 225,000 6,000 Schering-Plough Corp.............................. 253,125 215,000 Warner-Lambert Co................................. 17,616,563 -------------- 27,686,876 -------------- MAJOR U.S. TELECOMMUNICATIONS (0.7%) 270,000 MCI WorldCom, Inc.*............................... 14,310,000 -------------- MARINE TRANSPORTATION (0.1%) 80,400 Tidewater, Inc.................................... 2,894,400 -------------- MEAT/POULTRY/FISH (0.0%) 15,000 ConAgra, Inc...................................... 338,438 -------------- MEDIA CONGLOMERATES (0.7%) 115,300 Fox Entertainment Group, Inc. (Series A)*......... 2,875,294 145,465 News Corporation Ltd. (The) (ADR) (Australia)..... 5,564,036 10,000 Viacom, Inc. (Class A)*........................... 604,375 108,600 Viacom, Inc. (Class B)*........................... 6,563,513 -------------- 15,607,218 -------------- MEDICAL EQUIPMENT & SUPPLIES (0.0%) 16,514 Medtronic, Inc.................................... 601,729 -------------- MEDICAL SPECIALTIES (0.2%) 75,000 Cytyc Corp.*...................................... 4,584,375 -------------- MEDICAL/DENTAL DISTRIBUTORS (0.0%) 11,250 Cardinal Health, Inc.............................. 538,594 -------------- METALS FABRICATIONS (0.0%) 8,000 Coflexip, S.A. (ADR) (France)..................... 300,000 -------------- MID-SIZED BANKS (0.8%) 304,600 Northern Trust Corp............................... 16,258,025 -------------- MILITARY/GOV'T/TECHNICAL (1.1%) 230,000 General Motors Corp. (Class H)*................... 22,080,000 -------------- MOVIES/ENTERTAINMENT (0.3%) 70,000 Westwood One, Inc.*............................... 5,320,000 -------------- MULTI-LINE INSURANCE (1.0%) 197,000 American International Group, Inc................. 21,300,625 --------------
SEE NOTES TO FINANCIAL STATEMENTS 101 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ MULTI-SECTOR COMPANIES (1.7%) 233,000 General Electric Co............................... $ 36,056,750 -------------- NEWSPAPERS (1.0%) 54,505 Knight-Ridder, Inc................................ 3,243,048 130,000 New York Times Co. (The) (Class A)................ 6,386,250 200,000 Tribune Co........................................ 11,012,500 -------------- 20,641,798 -------------- OFFICE EQUIPMENT/SUPPLIES (0.2%) 43,100 Avery Dennison Corp............................... 3,140,913 -------------- OIL & GAS PRODUCTION (0.4%) 70,000 Devon Energy Corp................................. 2,301,250 225,000 EOG Resources, Inc................................ 3,951,563 145,000 Union Pacific Resources Group, Inc................ 1,848,750 -------------- 8,101,563 -------------- OIL/GAS TRANSMISSION (0.6%) 300,000 Enron Corp........................................ 13,312,500 -------------- OILFIELD SERVICES/EQUIPMENT (0.7%) 130,000 BJ Services Co.*.................................. 5,435,625 100,000 Cooper Cameron Corp.*............................. 4,893,750 79,320 Smith International, Inc.*........................ 3,941,213 -------------- 14,270,588 -------------- OTHER CONSUMER SERVICES (1.1%) 275,000 Preview Travel, lnc.*............................. 14,334,375 245,000 Ticketmaster Online-CitySearch, Inc. (Series B)*..................................... 9,417,188 -------------- 23,751,563 -------------- OTHER METALS/MINERALS (0.2%) 194,220 Inco Ltd. (Canada)*............................... 4,564,170 -------------- OTHER PHARMACEUTICALS (1.0%) 100,000 Biovail Corporation International (Canada)*....... 9,375,000 12,000 Elan Corp. PLC (ADR) (Ireland)*................... 354,000 65,000 Forest Laboratories, Inc.*........................ 3,993,438 100,000 Teva Pharmaceutical Industries Ltd. (ADR) (Israel)........................................ 7,150,000 -------------- 20,872,438 -------------- NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ OTHER SPECIALTY STORES (0.6%) 113,000 Tiffany & Co...................................... $ 10,085,250 58,200 Zale Corp.*....................................... 2,815,425 -------------- 12,900,675 -------------- OTHER TELECOMMUNICATIONS (4.6%) 26,700 COLT Telecom Group PLC (ADR) (United Kingdom)*.... 5,443,463 70,000 Japan Telecom Co., Ltd. (ADR) (Japan)*............ 5,617,500 70,000 Mannesmann AG (ADR) (Germany)..................... 16,940,000 150,000 McLeodUSA, Inc. (Class A)*........................ 8,812,500 260,000 Nippon Telegraph & Telephone Corp. (ADR) (Japan)......................................... 22,392,500 50,000 NTL Inc.*......................................... 6,225,000 70,000 PanAmSat Corp.*................................... 4,134,375 100,000 RCN Corp.*........................................ 4,843,750 170,000 Sonera Corp. (ADR) (Finland)*..................... 11,772,500 90,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)........................................ 10,125,000 -------------- 96,306,588 -------------- PACKAGE GOODS/COSMETICS (1.3%) 238,600 Colgate-Palmolive Co.............................. 15,509,000 110,000 Procter & Gamble Co............................... 12,051,875 -------------- 27,560,875 -------------- PACKAGED FOODS (0.0%) 15,000 Aurora Foods, Inc.*............................... 139,688 -------------- PAPER (0.6%) 47,030 Champion International Corp....................... 2,912,921 160,000 International Paper Co............................ 9,030,000 -------------- 11,942,921 -------------- PRECISION INSTRUMENTS (0.2%) 40,000 PE Corporation-PE Biosystems Group................ 4,812,500 -------------- SEMICONDUCTORS (2.3%) 80,000 Broadcom Corp. (Class A)*......................... 21,785,000 250,000 Conexant Systems, Inc.*........................... 16,515,625 10,000 Intel Corp........................................ 822,500
SEE NOTES TO FINANCIAL STATEMENTS 102 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 30,000 SDL, Inc.*........................................ $ 6,540,000 16,000 TriQuint Semiconductor, Inc....................... 1,777,000 -------------- 47,440,125 -------------- SERVICES TO THE HEALTH INDUSTRY (0.0%) 10,000 MedQuist Inc.*.................................... 256,250 -------------- TELECOMMUNICATIONS EQUIPMENT (8.3%) 81,752 Alcatel (ADR) (France)............................ 3,678,840 40,000 CIENA Corp.*...................................... 2,300,000 201,500 Comverse Technology, Inc.*........................ 29,154,531 150,000 Corning Inc....................................... 19,340,625 381,024 Ericsson (L.M.) Telefonaktiebolaqet (ADR) (Sweden)........................................ 25,004,700 115,000 General Instrument Corp.*......................... 9,775,000 152,100 Motorola, Inc..................................... 22,396,725 12,300 Next Level Communications, Inc.*.................. 921,731 120,000 Nokia Corp. (ADR) (Finland)....................... 22,800,000 106,800 Nortel Networks Corp. (Canada).................... 10,786,800 198,800 RF Micro Devices, Inc.*........................... 13,568,100 160,900 Scientific-Atlanta, Inc........................... 8,950,063 14,000 Sycamore Networks, Inc.*.......................... 4,250,750 -------------- 172,927,865 -------------- TOBACCO (0.0%) 5,000 Philip Morris Companies, Inc...................... 115,938 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST $1,305,761,518).................. 1,962,285,182 --------------
PRINCIPAL AMOUNT IN THOUSANDS ---------- SHORT-TERM INVESTMENTS (5.8%) U.S. GOVERNMENT AGENCY (a) (5.8%) $121,200 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $121,189,900).......... 121,189,900 -------------- PRINCIPAL AMOUNT IN THOUSANDS VALUE ------------------------------------------------------------------------------ REPURCHASE AGREEMENT (0.0%) $ 160 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $160,119) (b) (IDENTIFIED COST $160,099).................................. $ 160,099 -------------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $121,349,999).................... 121,349,999 --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,427,111,517) (c)................. 100.0% 2,083,635,181 LIABILITIES IN EXCESS OF OTHER ASSETS................ 0.0 (563,796) ----- --------------- NET ASSETS........................................... 100.0% $ 2,083,071,385 ----- --------------- ----- ---------------
--------------------- ADR American Depository Receipt. * Non-income producing security. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) Collateralized by $112,298 U.S. Treasury Bond 11.25% due 02/15/15 valued at $163,429. (c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $673,009,775 and the aggregate gross unrealized depreciation is $16,486,111, resulting in net unrealized appreciation of $656,523,664. SEE NOTES TO FINANCIAL STATEMENTS 103 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (95.9%) ACCIDENT & HEALTH INSURANCE (0.2%) 3,854 AFLAC, Inc........................................................................... $ 181,861 1,905 Torchmark Corp....................................................................... 55,364 3,476 UNUMProvident Corp................................................................... 111,449 ------------ 348,674 ------------ ADVERTISING (0.3%) 4,064 Interpublic Group of Companies, Inc.................................................. 234,442 2,570 Omnicom Group, Inc................................................................... 257,000 ------------ 491,442 ------------ AEROSPACE (0.7%) 13,533 Boeing Co............................................................................ 562,465 1,595 Goodrich (B.F.) Co. (The)............................................................ 43,862 5,734 Lockheed Martin Corp................................................................. 125,432 1,006 Northrop Grumman Corp................................................................ 54,387 6,933 United Technologies Corp............................................................. 450,645 ------------ 1,236,791 ------------ AIR FREIGHT/DELIVERY SERVICES (0.1%) 4,324 FDX Corp.*........................................................................... 177,014 ------------ AIRLINES (0.2%) 2,144 AMR Corp.*........................................................................... 143,648 1,923 Delta Air Lines, Inc................................................................. 95,789 7,305 Southwest Airlines Co................................................................ 118,250 1,035 US Airways Group Inc.*............................................................... 33,185 ------------ 390,872 ------------ ALCOHOLIC BEVERAGES (0.3%) 6,738 Anheuser-Busch Companies, Inc........................................................ 477,556 992 Brown-Forman Corp. (Class B)......................................................... 56,792 534 Coors (Adolph) Co. (Class B)......................................................... 28,035 ------------ 562,383 ------------ ALUMINUM (0.4%) 3,174 Alcan Aluminium, Ltd. (Canada)....................................................... 130,729 5,306 Alcoa, Inc........................................................................... 440,398 916 Reynolds Metals Co................................................................... 70,188 ------------ 641,315 ------------ APPAREL (0.1%) 856 Liz Claiborne, Inc................................................................... 32,207 479 Russell Corp......................................................................... 8,023 1,711 VF Corp.............................................................................. 51,330 ------------ 91,560 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- AUTO PARTS: O.E.M. (0.2%) 2,382 Dana Corp............................................................................ $ 71,311 8,182 Delphi Automotive Systems Corp....................................................... 128,866 1,066 Eaton Corp........................................................................... 77,418 1,236 Johnson Controls, Inc................................................................ 70,297 1,761 TRW Inc.............................................................................. 91,462 ------------ 439,354 ------------ AUTOMOTIVE AFTERMARKET (0.1%) 1,098 Cooper Tire & Rubber Co.............................................................. 17,088 2,575 Genuine Parts Co..................................................................... 63,892 2,264 Goodyear Tire & Rubber Co............................................................ 63,816 ------------ 144,796 ------------ BEVERAGES - NON-ALCOHOLIC (1.6%) 35,769 Coca-Cola Co......................................................................... 2,083,544 6,161 Coca-Cola Enterprises Inc............................................................ 123,990 21,080 PepsiCo, Inc......................................................................... 743,070 ------------ 2,950,604 ------------ BIOTECHNOLOGY (0.5%) 14,793 Amgen Inc.*.......................................................................... 887,580 ------------ BOOKS/MAGAZINES (0.0%) 1,030 Harcourt General, Inc................................................................ 41,457 748 Meredith Corp........................................................................ 31,182 ------------ 72,639 ------------ BROADCASTING (0.6%) 11,040 CBS Corp.*........................................................................... 705,870 4,902 Clear Channel Communications, Inc.*.................................................. 437,503 ------------ 1,143,373 ------------ BUILDING MATERIALS (0.0%) 794 Owens Corning........................................................................ 15,334 1,449 Vulcan Materials Co.................................................................. 57,869 ------------ 73,203 ------------ BUILDING MATERIALS/D I Y CHAINS (1.4%) 33,341 Home Depot, Inc. (The)............................................................... 2,285,908 5,534 Lowe's Companies, Inc................................................................ 330,656 ------------ 2,616,564 ------------ BUILDING PRODUCTS (0.1%) 580 Armstrong World Industries, Inc...................................................... 19,357 6,473 Masco Corp........................................................................... 164,252 ------------ 183,609 ------------
SEE NOTES TO FINANCIAL STATEMENTS 104 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- CABLE TELEVISION (0.7%) 10,885 Comcast Corp. (Class A Special)*..................................................... $ 549,692 8,862 MediaOne Group, Inc.*................................................................ 680,712 ------------ 1,230,404 ------------ CASINO/GAMBLING (0.1%) 1,862 Harrah's Entertainment, Inc.*........................................................ 49,227 2,798 Mirage Resorts, Inc.*................................................................ 42,844 ------------ 92,071 ------------ CELLULAR TELEPHONE (0.6%) 5,263 Nextel Communications, Inc. (Class A)*............................................... 542,418 6,241 Sprint Corp. (PCS Group)*............................................................ 639,702 ------------ 1,182,120 ------------ CLOTHING/SHOE/ACCESSORY STORES (0.5%) 12,399 Gap, Inc. (The)...................................................................... 570,354 3,109 Limited (The), Inc................................................................... 134,659 2,006 Nordstrom, Inc....................................................................... 52,532 4,490 TJX Companies, Inc................................................................... 91,764 ------------ 849,309 ------------ COMPUTER COMMUNICATIONS (2.9%) 4,996 3Com Corp.*.......................................................................... 234,500 1,479 Adaptec, Inc.*....................................................................... 73,673 2,615 Cabletron Systems, Inc.*............................................................. 67,990 47,368 Cisco Systems, Inc.*................................................................. 5,071,336 ------------ 5,447,499 ------------ COMPUTER SOFTWARE (6.8%) 1,741 Adobe Systems, Inc................................................................... 117,082 883 Autodesk, Inc........................................................................ 29,746 3,510 BMC Software, Inc.*.................................................................. 280,361 1,298 Citrix Systems, Inc.*................................................................ 159,573 7,806 Computer Associates International, Inc............................................... 545,932 5,182 Compuware Corp.*..................................................................... 192,706 74,724 Microsoft Corp.*..................................................................... 8,719,357 4,823 Novell, Inc.*........................................................................ 192,317 20,617 Oracle Corp.*........................................................................ 2,309,104 3,899 Parametric Technology Corp.*......................................................... 105,273 3,557 PeopleSoft, Inc.*.................................................................... 75,586 ------------ 12,727,037 ------------ COMPUTER/VIDEO CHAINS (0.2%) 2,973 Best Buy Co., Inc.*.................................................................. 149,207 2,945 Circuit City Stores, Inc.-Circuit City Group......................................... 132,709 2,799 Tandy Corp........................................................................... 137,676 ------------ 419,592 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.3%) 5,149 Caterpillar, Inc..................................................................... $ 242,325 600 Cummins Engine Co., Inc.............................................................. 28,987 3,384 Deere & Co........................................................................... 146,781 118 NACCO Industries, Inc. (Class A)..................................................... 6,556 921 Navistar International Corp.*........................................................ 43,632 1,134 PACCAR, Inc.......................................................................... 50,179 ------------ 518,460 ------------ CONSUMER ELECTRONICS/APPLIANCES (0.1%) 1,223 Maytag Corp.......................................................................... 58,704 1,078 Whirlpool Corp....................................................................... 70,137 ------------ 128,841 ------------ CONSUMER SPECIALTIES (0.0%) 483 Jostens, Inc......................................................................... 11,743 ------------ CONSUMER SUNDRIES (0.0%) 934 American Greetings Corp. (Class A)................................................... 22,066 ------------ CONTAINERS/PACKAGING (0.2%) 438 Ball Corp............................................................................ 17,246 758 Bemis Company, Inc................................................................... 26,435 1,765 Crown Cork & Seal Co., Inc........................................................... 39,492 2,174 Owens-Illinois, Inc.*................................................................ 54,486 2,481 Pactiv Corp.......................................................................... 26,361 1,209 Sealed Air Corp.*.................................................................... 62,641 809 Temple-Inland, Inc................................................................... 53,343 ------------ 280,004 ------------ CONTRACT DRILLING (0.0%) 717 Helmerich & Payne, Inc............................................................... 15,640 1,206 Rowan Companies, Inc.*............................................................... 26,155 ------------ 41,795 ------------ DEPARTMENT STORES (0.4%) 1,555 Dillard's, Inc. (Class A)............................................................ 31,392 3,040 Federated Department Stores, Inc.*................................................... 153,710 2,360 Kohl's Corp.*........................................................................ 170,362 4,839 May Department Stores Co............................................................. 156,058 3,768 Penney (J.C.) Co., Inc............................................................... 75,124 5,473 Sears, Roebuck & Co.................................................................. 166,584 ------------ 753,230 ------------ DISCOUNT CHAINS (2.9%) 1,603 Consolidated Stores Corp.*........................................................... 26,049 3,212 Costco Wholesale Corp.*.............................................................. 292,894 6,381 Dayton Hudson Corp................................................................... 468,605
SEE NOTES TO FINANCIAL STATEMENTS 105 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 3,852 Dollar General Corp.................................................................. $ 87,633 7,149 Kmart Corp.*......................................................................... 71,937 64,444 Wal-Mart Stores, Inc................................................................. 4,454,691 ------------ 5,401,809 ------------ DIVERSIFIED COMMERCIAL SERVICES (0.1%) 3,571 Paychex, Inc......................................................................... 142,617 ------------ DIVERSIFIED ELECTRONIC PRODUCTS (0.1%) 2,755 Rockwell International Corp.......................................................... 131,896 ------------ DIVERSIFIED FINANCIAL SERVICES (2.0%) 6,483 American Express Co.................................................................. 1,077,799 48,826 Citigroup, Inc....................................................................... 2,712,895 ------------ 3,790,694 ------------ DIVERSIFIED MANUFACTURING (1.4%) 1,364 Cooper Industries, Inc............................................................... 55,157 2,061 Danaher Corp......................................................................... 99,443 2,949 Dover Corp........................................................................... 133,811 11,464 Honeywell International Inc.......................................................... 661,329 1,273 ITT Industries, Inc.................................................................. 42,566 5,812 Minnesota Mining & Manufacturing Co.................................................. 568,849 2,291 Thermo Electron Corp.*............................................................... 34,365 24,455 Tyco International Ltd. (Bermuda).................................................... 950,688 ------------ 2,546,208 ------------ DRUGSTORE CHAINS (0.4%) 5,675 CVS Corp............................................................................. 226,645 569 Longs Drug Stores Corp............................................................... 14,687 3,750 Rite Aid Corp........................................................................ 41,953 14,532 Walgreen Co.......................................................................... 425,061 ------------ 708,346 ------------ E.D.P. PERIPHERALS (1.1%) 14,735 EMC Corp.*........................................................................... 1,609,799 1,850 Lexmark International Group, Inc. (Class A)*......................................... 167,425 2,162 Network Appliance, Inc.*............................................................. 179,446 3,051 Seagate Technology, Inc.*............................................................ 142,062 ------------ 2,098,732 ------------ E.D.P. SERVICES (0.8%) 9,052 Automatic Data Processing, Inc....................................................... 487,676 2,095 Ceridian Corp.*...................................................................... 45,173 2,411 Computer Sciences Corp.*............................................................. 228,141 6,818 Electronic Data Systems Corp......................................................... 456,380 NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 6,069 First Data Corp...................................................................... $ 299,278 ------------ 1,516,648 ------------ ELECTRIC UTILITIES (1.5%) 2,989 AES Corp. (The)*..................................................................... 223,428 1,987 Ameren Corp.......................................................................... 65,074 2,811 American Electric Power Co........................................................... 90,303 2,311 Carolina Power & Light Co............................................................ 70,341 3,079 Central & South West Corp............................................................ 61,580 2,301 Cinergy Corp......................................................................... 55,512 1,677 CMS Energy Corp...................................................................... 52,301 3,201 Consolidated Edison, Inc............................................................. 110,434 2,166 Constellation Energy Group, Inc...................................................... 62,814 2,763 Dominion Resources, Inc.............................................................. 108,448 2,100 DTE Energy Co........................................................................ 65,887 5,296 Duke Energy Corp..................................................................... 265,462 5,028 Edison International................................................................. 131,671 3,574 Entergy Corp......................................................................... 92,030 3,374 FirstEnergy Corp..................................................................... 76,548 1,422 Florida Progress Corp................................................................ 60,168 2,596 FPL Group, Inc....................................................................... 111,141 1,719 GPU, Inc............................................................................. 51,463 1,673 New Century Energies, Inc............................................................ 50,817 2,712 Niagara Mohawk Holdings Inc.......................................................... 37,798 2,242 Northern States Power Co............................................................. 43,719 2,690 PECO Energy Co....................................................................... 93,477 5,561 PG & E Corp.......................................................................... 114,000 1,227 Pinnacle West Capital Corp........................................................... 37,500 2,161 PP&L Resources, Inc.................................................................. 49,433 3,165 Public Service Enterprise Group, Inc................................................. 110,182 4,282 Reliant Energy, Inc.................................................................. 97,951 9,747 Southern Co.......................................................................... 229,054 4,003 Texas Utilities Co................................................................... 142,357 3,150 Unicom Corp.......................................................................... 105,525 ------------ 2,866,418 ------------ ELECTRICAL PRODUCTS (0.3%) 6,292 Emerson Electric Co.................................................................. 361,003 2,270 Molex Inc............................................................................ 128,539 837 Thomas & Betts Corp.................................................................. 26,679 ------------ 516,221 ------------ ELECTRONIC COMPONENTS (0.2%) 1,188 Andrew Corp.*........................................................................ 22,423 4,242 Solectron Corp.*..................................................................... 403,520 ------------ 425,943 ------------
SEE NOTES TO FINANCIAL STATEMENTS 106 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- ELECTRONIC DATA PROCESSING (5.1%) 2,330 Apple Computer, Inc.*................................................................ $ 239,407 24,618 Compaq Computer Corp................................................................. 666,225 36,795 Dell Computer Corp.*................................................................. 1,874,245 4,584 Gateway, Inc......................................................................... 330,334 14,756 Hewlett-Packard Co................................................................... 1,681,262 26,104 International Business Machines Corp................................................. 2,819,232 2,662 Silicon Graphics, Inc.*.............................................................. 26,121 22,621 Sun Microsystems, Inc.*.............................................................. 1,750,300 4,488 Unisys Corp.*........................................................................ 143,335 ------------ 9,530,461 ------------ ELECTRONIC PRODUCTION EQUIPMENT (0.5%) 5,480 Applied Materials, Inc.*............................................................. 693,905 1,303 KLA-Tencor Corp.*.................................................................... 145,040 2,476 Teradyne, Inc.*...................................................................... 163,416 ------------ 1,002,361 ------------ ENGINEERING & CONSTRUCTION (0.0%) 1,100 Fluor Corp........................................................................... 50,462 590 Foster Wheeler Corp.................................................................. 5,236 ------------ 55,698 ------------ ENVIRONMENTAL SERVICES (0.1%) 8,973 Waste Management, Inc................................................................ 154,223 ------------ FARMING/SEEDS/MILLING (0.1%) 8,810 Archer-Daniels-Midland Co............................................................ 107,372 ------------ FINANCE COMPANIES (1.4%) 10,546 Associates First Capital Corp. (Class A)............................................. 289,356 2,855 Capital One Financial Corp........................................................... 137,575 1,639 Countrywide Credit Industries, Inc................................................... 41,385 14,843 Fannie Mae........................................................................... 926,760 10,067 Freddie Mac.......................................................................... 473,778 6,808 Household International, Inc......................................................... 253,598 11,611 MBNA Corp............................................................................ 316,400 2,304 SLM Holding Corp..................................................................... 97,344 ------------ 2,536,196 ------------ FINANCIAL PUBLISHING/SERVICES (0.2%) 2,330 Dun & Bradstreet Corp................................................................ 68,735 2,048 Equifax, Inc......................................................................... 48,256 2,840 McGraw-Hill Companies, Inc........................................................... 175,015 ------------ 292,006 ------------ FLUID CONTROLS (0.1%) 1,622 Parker-Hannifin Corp................................................................. 83,229 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- FOOD CHAINS (0.4%) 6,134 Albertson's, Inc..................................................................... $ 197,821 556 Great Atlantic & Pacific Tea Co., Inc................................................ 15,498 12,048 Kroger Co.*.......................................................................... 227,406 7,368 Safeway Inc.*........................................................................ 262,024 2,152 Winn-Dixie Stores, Inc............................................................... 51,514 ------------ 754,263 ------------ FOOD DISTRIBUTORS (0.1%) 2,022 Supervalu, Inc....................................................................... 40,440 4,770 SYSCO Corp........................................................................... 188,713 ------------ 229,153 ------------ FOREST PRODUCTS (0.2%) 2,476 Georgia-Pacific Corp................................................................. 125,657 1,541 Louisiana-Pacific Corp............................................................... 21,959 3,401 Weyerhaeuser Co...................................................................... 244,234 ------------ 391,850 ------------ GENERIC DRUGS (0.0%) 1,390 Watson Pharmaceuticals, Inc.*........................................................ 49,779 ------------ HOME BUILDING (0.0%) 858 Centex Corp.......................................................................... 21,182 473 Fleetwood Enterprises, Inc........................................................... 9,756 691 Kaufman & Broad Home Corp............................................................ 16,714 626 Pulte Corp........................................................................... 14,085 ------------ 61,737 ------------ HOME FURNISHINGS (0.1%) 2,842 Leggett & Platt, Inc................................................................. 60,925 4,084 Newell Rubbermaid, Inc............................................................... 118,436 835 Tupperware Corp...................................................................... 14,143 ------------ 193,504 ------------ HOSPITAL/NURSING MANAGEMENT (0.2%) 8,157 Columbia/HCA Healthcare Corp......................................................... 239,102 1,492 Manor Care, Inc...................................................................... 23,872 4,509 Tenet Healthcare Corp.*.............................................................. 105,962 ------------ 368,936 ------------ HOTELS/RESORTS (0.3%) 8,934 Carnival Corp. (Class A)............................................................. 427,157 5,341 Hilton Hotels Corp................................................................... 51,407 3,603 Marriott International, Inc. (Class A)............................................... 113,720 ------------ 592,284 ------------
SEE NOTES TO FINANCIAL STATEMENTS 107 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- INDUSTRIAL MACHINERY/COMPONENTS (0.2%) 4,351 Illinois Tool Works Inc.............................................................. $ 293,964 2,369 Ingersoll-Rand Co.................................................................... 130,443 536 Milacron, Inc........................................................................ 8,241 ------------ 432,648 ------------ INDUSTRIAL SPECIALTIES (0.1%) 1,876 Ecolab, Inc.......................................................................... 73,399 655 Millipore Corp....................................................................... 25,299 1,798 Pall Corp............................................................................ 38,769 ------------ 137,467 ------------ INSURANCE BROKERS/SERVICES (0.3%) 3,716 AON Corp............................................................................. 148,640 3,864 Marsh & McLennan Companies, Inc...................................................... 369,737 ------------ 518,377 ------------ INTEGRATED OIL COMPANIES (4.4%) 1,313 Amerada Hess Corp.................................................................... 74,513 4,674 Atlantic Richfield Co................................................................ 404,301 9,504 Chevron Corp......................................................................... 823,284 9,069 Conoco, Inc. (Class B)............................................................... 225,591 50,012 Exxon Mobil Corp..................................................................... 4,029,092 1,252 Kerr-McGee Corp...................................................................... 77,624 3,668 Phillips Petroleum Co................................................................ 172,396 31,052 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................ 1,876,705 8,009 Texaco, Inc.......................................................................... 434,989 3,511 Unocal Corp.......................................................................... 117,838 ------------ 8,236,333 ------------ INTERNET SERVICES (2.2%) 32,373 America Online, Inc.*................................................................ 2,442,138 3,812 Yahoo! Inc.*......................................................................... 1,649,405 ------------ 4,091,543 ------------ INVESTMENT BANKERS/BROKERS/SERVICES (1.3%) 1,726 Bear Stearns Companies, Inc.......................................................... 73,787 1,738 Lehman Brothers Holdings, Inc........................................................ 147,187 5,368 Merrill Lynch & Co., Inc............................................................. 448,228 8,066 Morgan Stanley Dean Witter & Co. (Note 3)............................................ 1,151,422 2,067 Paine Webber Group, Inc.............................................................. 80,225 11,874 Schwab (Charles) Corp................................................................ 455,665 ------------ 2,356,514 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- INVESTMENT MANAGERS (0.1%) 3,651 Franklin Resources, Inc.............................................................. $ 117,060 1,733 Price (T.) Rowe Associates, Inc...................................................... 63,796 ------------ 180,856 ------------ LIFE INSURANCE (0.3%) 3,579 American General Corp................................................................ 271,557 4,737 Conseco, Inc......................................................................... 84,674 1,517 Jefferson-Pilot Corp................................................................. 103,535 2,831 Lincoln National Corp................................................................ 113,240 ------------ 573,006 ------------ MAJOR BANKS (4.1%) 24,722 Bank of America Corp................................................................. 1,240,735 10,664 Bank of New York Co., Inc............................................................ 426,560 16,608 Bank One Corp........................................................................ 532,494 4,793 BB&T Corp............................................................................ 131,208 11,944 Chase Manhattan Corp. (The).......................................................... 927,900 2,265 Comerica, Inc........................................................................ 105,747 14,304 First Union Corp..................................................................... 469,350 13,259 FleetBoston Financial Corp........................................................... 461,579 3,327 Huntington Bancshares, Inc........................................................... 79,224 6,478 KeyCorp.............................................................................. 143,326 7,366 Mellon Financial Corp................................................................ 250,904 2,507 Morgan (J.P.) & Co., Inc............................................................. 317,449 8,929 National City Corp................................................................... 211,506 4,257 PNC Bank Corp........................................................................ 189,437 1,517 Republic New York Corp............................................................... 109,224 2,430 SouthTrust Corp...................................................................... 91,733 2,317 State Street Corp.................................................................... 169,286 2,531 Summit Bancorp....................................................................... 77,512 4,634 SunTrust Banks, Inc.................................................................. 318,877 10,537 U.S. Bancorp......................................................................... 250,912 2,936 Wachovia Corp........................................................................ 199,648 23,783 Wells Fargo & Co..................................................................... 961,725 ------------ 7,666,336 ------------ MAJOR CHEMICALS (1.1%) 3,176 Dow Chemical Co...................................................................... 424,393 15,126 Du Pont (E.I.) de Nemours & Co., Inc................................................. 996,425 1,133 Eastman Chemical Co.................................................................. 54,030 1,540 Hercules Inc......................................................................... 42,928 9,190 Monsanto Co.......................................................................... 327,394 3,170 Rohm & Haas Co....................................................................... 128,979 1,938 Union Carbide Corp................................................................... 129,362 ------------ 2,103,511 ------------
SEE NOTES TO FINANCIAL STATEMENTS 108 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MAJOR PHARMACEUTICALS (6.8%) 22,262 Abbott Laboratories.................................................................. $ 808,389 18,909 American Home Products Corp.......................................................... 745,724 28,726 Bristol-Myers Squibb Co.............................................................. 1,843,850 20,137 Johnson & Johnson.................................................................... 1,875,258 15,792 Lilly (Eli) & Co..................................................................... 1,050,168 33,849 Merck & Co., Inc.*................................................................... 2,269,999 56,061 Pfizer, Inc.......................................................................... 1,818,479 7,509 Pharmacia & Upjohn, Inc.............................................................. 337,905 21,274 Schering-Plough Corp................................................................. 897,497 12,435 Warner-Lambert Co.................................................................... 1,018,893 ------------ 12,666,162 ------------ MAJOR U.S. TELECOMMUNICATIONS (6.6%) 4,546 ALLTEL Corp.......................................................................... 375,897 46,273 AT&T Corp............................................................................ 2,348,355 22,486 Bell Atlantic Corp................................................................... 1,384,294 27,258 BellSouth Corp....................................................................... 1,276,015 14,073 GTE Corp............................................................................. 993,026 41,103 MCI WorldCom, Inc.*.................................................................. 2,178,459 49,401 SBC Communications, Inc.............................................................. 2,408,299 12,620 Sprint Corp. (FON Group)............................................................. 849,484 7,317 U.S. West, Inc....................................................................... 526,824 ------------ 12,340,653 ------------ MANAGED HEALTH CARE (0.2%) 2,167 Aetna Inc............................................................................ 120,946 2,426 Humana, Inc.*........................................................................ 19,863 2,458 United HealthCare Corp............................................................... 130,581 922 Wellpoint Health Networks, Inc.*..................................................... 60,794 ------------ 332,184 ------------ MEAT/POULTRY/FISH (0.1%) 7,129 ConAgra, Inc......................................................................... 160,848 ------------ MEDIA CONGLOMERATES (1.5%) 29,865 Disney (Walt) Co..................................................................... 873,551 18,630 Time Warner, Inc..................................................................... 1,349,511 10,093 Viacom, Inc. (Class B)*.............................................................. 609,996 ------------ 2,833,058 ------------ MEDICAL EQUIPMENT & SUPPLIES (0.3%) 17,309 Medtronic, Inc....................................................................... 630,697 ------------ MEDICAL SPECIALTIES (0.5%) 1,479 ALZA Corp. (Class A)*................................................................ 51,210 741 Bard (C.R.), Inc..................................................................... 39,273 836 Bausch & Lomb, Inc................................................................... 57,214 4,213 Baxter International, Inc............................................................ 264,629 3,625 Becton, Dickinson & Co............................................................... 96,969 1,634 Biomet, Inc.......................................................................... 65,258 6,005 Boston Scientific Corp.*............................................................. 131,359 NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 4,451 Guidant Corp......................................................................... $ 209,197 1,008 Mallinckrodt, Inc.................................................................... 32,067 1,219 St. Jude Medical, Inc.*.............................................................. 37,408 ------------ 984,584 ------------ MEDICAL/DENTAL DISTRIBUTORS (0.2%) 4,058 Cardinal Health, Inc................................................................. 194,277 4,078 McKesson HBOC, Inc................................................................... 92,010 ------------ 286,287 ------------ MEDICAL/NURSING SERVICES (0.0%) 5,685 Healthsouth Corp.*................................................................... 30,557 ------------ METALS FABRICATIONS (0.0%) 897 Timken Co. (The)..................................................................... 18,332 ------------ MID-SIZED BANKS (0.7%) 5,663 AmSouth Bancorporation............................................................... 109,367 4,470 Fifth Third Bancorp.................................................................. 327,707 14,194 Firstar Corp......................................................................... 299,848 3,223 Northern Trust Corp.................................................................. 172,028 1,705 Old Kent Financial Corp.............................................................. 60,314 3,166 Regions Financial Corp............................................................... 79,348 4,052 Synovus Financial Corp............................................................... 80,534 2,042 Union Planters Corp.................................................................. 80,531 ------------ 1,209,677 ------------ MILITARY/GOV'T/TECHNICAL (0.2%) 2,910 General Dynamics Corp................................................................ 153,503 669 PerkinElmer, Inc..................................................................... 27,889 4,901 Raytheon Co. (Class B)............................................................... 130,183 ------------ 311,575 ------------ MOTOR VEHICLES (0.9%) 17,492 Ford Motor Co........................................................................ 934,729 9,271 General Motors Corp.................................................................. 673,886 ------------ 1,608,615 ------------ MOVIES/ENTERTAINMENT (0.2%) 6,278 Seagram Co. Ltd. (Canada)............................................................ 282,118 ------------ MULTI-LINE INSURANCE (1.7%) 11,663 Allstate Corp. (Note 3).............................................................. 279,912 22,421 American International Group, Inc.................................................... 2,424,271 2,728 CIGNA Corp........................................................................... 219,775 3,209 Hartford Financial Services Group, Inc............................................... 152,026 1,883 SAFECO Corp.......................................................................... 46,722 ------------ 3,122,706 ------------ MULTI-SECTOR COMPANIES (4.1%) 954 Crane Co............................................................................. 18,961 2,376 Fortune Brands, Inc.................................................................. 78,557 47,513 General Electric Co.**............................................................... 7,352,637 862 McDermott International, Inc......................................................... 7,812
SEE NOTES TO FINANCIAL STATEMENTS 109 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 589 National Service Industries, Inc..................................................... $ 17,376 2,154 Textron, Inc......................................................................... 165,185 ------------ 7,640,528 ------------ NATURAL GAS (0.1%) 1,389 Consolidated Natural Gas Co.......................................................... 90,198 391 Eastern Enterprises.................................................................. 22,458 681 Nicor Inc............................................................................ 22,133 458 ONEOK, Inc........................................................................... 11,507 514 Peoples Energy Corp.................................................................. 17,219 3,481 Sempra Energy*....................................................................... 60,482 ------------ 223,997 ------------ NEWSPAPERS (0.5%) 1,296 Dow Jones & Co., Inc................................................................. 88,128 4,037 Gannett Co., Inc..................................................................... 329,268 1,216 Knight-Ridder, Inc................................................................... 72,352 2,480 New York Times Co. (The) (Class A)................................................... 121,830 869 Times Mirror Co. (Class A)........................................................... 58,223 3,441 Tribune Co........................................................................... 189,470 ------------ 859,271 ------------ OFFICE EQUIPMENT/SUPPLIES (0.3%) 1,632 Avery Dennison Corp.................................................................. 118,932 3,841 Pitney Bowes, Inc.................................................................... 185,568 9,619 Xerox Corp........................................................................... 218,231 ------------ 522,731 ------------ OIL & GAS PRODUCTION (0.2%) 1,847 Anardarko Petroleum Corp............................................................. 63,029 1,652 Apache Corp.......................................................................... 61,021 3,150 Burlington Resources, Inc............................................................ 104,147 5,323 Occidental Petroleum Corp............................................................ 115,110 3,650 Union Pacific Resources Group, Inc................................................... 46,538 ------------ 389,845 ------------ OIL REFINING/MARKETING (0.1%) 1,045 Ashland, Inc......................................................................... 34,420 1,307 Sunoco Inc........................................................................... 30,715 2,088 Tosco Corp........................................................................... 56,768 4,500 USX-Marathon Group................................................................... 111,094 ------------ 232,997 ------------ OIL/GAS TRANSMISSION (0.5%) 3,093 Coastal Corp......................................................................... 109,608 1,177 Columbia Energy Group, Inc........................................................... 74,445 3,306 El Paso Energy Corp.................................................................. 128,314 10,363 Enron Corp........................................................................... 459,858 6,296 Williams Companies, Inc.............................................................. 192,422 ------------ 964,647 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- OILFIELD SERVICES/EQUIPMENT (0.5%) 4,767 Baker Hughes Inc..................................................................... $ 100,405 6,397 Halliburton Co....................................................................... 257,479 7,962 Schlumberger Ltd..................................................................... 447,863 1,541 Transocean Sedco Forex Inc........................................................... 51,927 ------------ 857,674 ------------ OTHER CONSUMER SERVICES (0.2%) 1,417 Block (H.&R.), Inc................................................................... 61,994 10,297 Cendant Corp.*....................................................................... 273,514 3,940 Service Corp. International.......................................................... 27,334 ------------ 362,842 ------------ OTHER METALS/MINERALS (0.2%) 1,355 Allegheny Technologies Inc........................................................... 30,403 2,780 Inco Ltd. (Canada)................................................................... 65,330 1,208 Phelps Dodge Corp.................................................................... 81,087 2,056 Providian Financial Corp............................................................. 187,225 ------------ 364,045 ------------ OTHER PHARMACEUTICALS (0.1%) 1,904 Allergan, Inc........................................................................ 94,724 ------------ OTHER SPECIALTY STORES (0.2%) 2,090 AutoZone, Inc.*...................................................................... 67,533 2,025 Bed Bath & Beyond Inc.*.............................................................. 70,116 5,135 Office Depot, Inc.*.................................................................. 56,164 762 Pep Boys-Manny, Moe & Jack........................................................... 6,953 6,726 Staples, Inc.*....................................................................... 138,724 3,545 Toys 'R' Us, Inc.*................................................................... 50,738 ------------ 390,228 ------------ OTHER TELECOMMUNICATIONS (0.3%) 2,023 CenturyTel, Inc...................................................................... 95,840 10,990 Global Crossing Ltd. (Bermuda)*...................................................... 548,813 ------------ 644,653 ------------ PACKAGE GOODS/COSMETICS (2.2%) 808 Alberto-Culver Co. (Class B)......................................................... 20,857 3,573 Avon Products, Inc................................................................... 117,909 3,423 Clorox Co............................................................................ 172,434 8,437 Colgate-Palmolive Co................................................................. 548,405 15,533 Gillette Co.......................................................................... 639,765 1,522 International Flavors & Fragrances, Inc.............................................. 57,456 7,883 Kimberly-Clark Corp.................................................................. 514,366 19,031 Procter & Gamble Co.................................................................. 2,085,084 ------------ 4,156,276 ------------
SEE NOTES TO FINANCIAL STATEMENTS 110 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- PACKAGED FOODS (1.1%) 4,039 BestFoods............................................................................ $ 212,300 6,196 Campbell Soup Co..................................................................... 239,708 4,400 General Mills, Inc................................................................... 157,300 5,190 Heinz (H.J.) Co...................................................................... 206,627 5,871 Kellogg Co........................................................................... 180,900 1,937 Quaker Oats Company (The)...................................................................... 127,116 4,684 Ralston-Ralston Purina Group......................................................... 130,567 13,159 Sara Lee Corp........................................................................ 290,320 8,277 Unilever N.V. (Netherlands)...................................................................... 450,579 ------------ 1,995,417 ------------ PAINTS/COATINGS (0.1%) 2,517 PPG Industries, Inc.................................................................. 157,470 2,402 Sherwin-Williams Co.................................................................. 50,442 ------------ 207,912 ------------ PAPER (0.4%) 827 Boise Cascade Corp................................................................... 33,494 1,393 Champion International Corp.......................................................... 86,279 3,133 Fort James Corp...................................................................... 85,766 5,996 International Paper Co............................................................... 338,399 1,486 Mead Corp............................................................................ 64,548 419 Potlatch Corp........................................................................ 18,698 1,453 Westavaco Corp....................................................................... 47,404 1,616 Willamette Industries, Inc........................................................... 75,043 ------------ 749,631 ------------ PHOTOGRAPHIC PRODUCTS (0.2%) 4,570 Eastman Kodak Co..................................................................... 302,763 645 Polaroid Corp........................................................................ 12,134 ------------ 314,897 ------------ POLLUTION CONTROL EQUIPMENT (0.0%) 2,735 Allied Waste Industries, Inc.*....................................................... 24,102 ------------ PRECIOUS METALS (0.2%) 5,710 Barrick Gold Corp. (Canada).......................................................... 100,996 2,367 Freeport-McMoran Copper & Gold, Inc. (Class B)....................................... 50,003 3,769 Homestake Mining Co.................................................................. 29,445 2,427 Newmont Mining Corp.................................................................. 59,462 4,715 Placer Dome Inc. (Canada)............................................................ 50,686 ------------ 290,592 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- PRECISION INSTRUMENTS (0.1%) 1,493 PE Corporation-PE Biosystems Group................................................... $ 179,627 684 Tektronix, Inc....................................................................... 26,591 ------------ 206,218 ------------ PRINTING/FORMS (0.0%) 1,063 Deluxe Corp.......................................................................... 29,166 1,831 Donnelley (R.R.) & Sons Co........................................................... 45,432 ------------ 74,598 ------------ PROPERTY - CASUALTY INSURERS (0.3%) 2,548 Chubb Corp........................................................................... 143,484 2,377 Cincinnati Financial Corp............................................................ 73,687 1,536 Loews Corp........................................................................... 93,216 1,059 Progressive Corp..................................................................... 77,439 3,291 St. Paul Companies, Inc.............................................................. 110,866 ------------ 498,692 ------------ RAILROADS (0.3%) 6,617 Burlington Northern Santa Fe Corp.................................................... 160,462 3,162 CSX Corp............................................................................. 99,208 1,601 Kansas City Southern Industries, Inc................................................. 119,475 5,512 Norfolk Southern Corp................................................................ 112,996 3,600 Union Pacific Corp................................................................... 157,050 ------------ 649,191 ------------ RECREATIONAL PRODUCTS/TOYS (0.1%) 1,330 Brunswick Corp....................................................................... 29,593 2,806 Hasbro, Inc.......................................................................... 53,489 6,093 Mattel, Inc.......................................................................... 79,971 ------------ 163,053 ------------ RENTAL/LEASING COMPANIES (0.0%) 930 Ryder System, Inc.................................................................... 22,727 ------------ RESTAURANTS (0.5%) 1,903 Darden Restaurants, Inc.............................................................. 34,492 19,608 McDonald's Corp...................................................................... 790,448 2,223 Tricon Global Restaurants, Inc.*..................................................... 85,863 1,732 Wendy's International, Inc........................................................... 35,723 ------------ 946,526 ------------ SAVINGS & LOAN ASSOCIATIONS (0.2%) 2,340 Golden West Financial Corp........................................................... 78,390 8,360 Washington Mutual, Inc............................................................... 217,360 ------------ 295,750 ------------
SEE NOTES TO FINANCIAL STATEMENTS 111 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- SEMICONDUCTORS (3.3%) 2,132 Advanced Micro Devices, Inc.*........................................................ $ 61,695 2,526 Analog Devices, Inc.*................................................................ 234,918 48,382 Intel Corp........................................................................... 3,979,420 2,154 LSI Logic Corp.*..................................................................... 145,395 3,908 Micron Technology, Inc.*............................................................. 303,847 2,484 National Semiconductor Corp.*........................................................ 106,346 11,614 Texas Instruments, Inc............................................................... 1,125,106 4,618 Xilinx, Inc.*........................................................................ 209,830 ------------ 6,166,557 ------------ SERVICES TO THE HEALTH INDUSTRY (0.1%) 4,459 IMS Health Inc....................................................................... 121,229 1,665 Quintiles Transnational Corp.*....................................................... 31,011 390 Shared Medical Systems Corp.......................................................... 19,866 ------------ 172,106 ------------ SHOE MANUFACTURING (0.1%) 4,055 Nike, Inc. (Class B)................................................................. 200,976 815 Reebok International Inc. (United Kingdom)*.......................................... 6,673 ------------ 207,649 ------------ SPECIALTY CHEMICALS (0.2%) 3,321 Air Products & Chemicals, Inc........................................................ 111,461 1,822 Engelhard Corp....................................................................... 34,390 443 FMC Corp.*........................................................................... 25,389 1,040 Grace (W. R.) & Co................................................................... 14,430 833 Great Lakes Chemical Corp............................................................ 31,810 2,302 Praxair, Inc......................................................................... 115,819 1,461 Sigma-Aldrich Corp................................................................... 43,830 ------------ 377,129 ------------ SPECIALTY FOODS/CANDY (0.1%) 2,004 Hershey Foods Corp................................................................... 95,190 1,676 Wrigley (Wm.) Jr. Co. (Class A)...................................................... 139,003 ------------ 234,193 ------------ SPECIALTY INSURERS (0.1%) 1,442 MBIA, Inc............................................................................ 76,156 1,531 MGIC Investment Corp................................................................. 92,147 ------------ 168,303 ------------ SPECIALTY STEELS (0.0%) 1,263 Nucor Corp........................................................................... 69,228 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- STEEL/IRON ORE (0.0%) 1,899 Bethlehem Steel Corp.*............................................................... $ 15,904 1,280 USX-U.S. Steel Group................................................................. 42,240 1,290 Worthington Industries, Inc.......................................................... 21,285 ------------ 79,429 ------------ TELECOMMUNICATIONS EQUIPMENT (5.2%) 2,166 ADC Telecommunications, Inc.*........................................................ 157,035 1,032 Comverse Technology, Inc.*........................................................... 149,318 3,545 Corning Inc.......................................................................... 457,083 2,520 General Instrument Corp.*............................................................ 214,200 45,371 Lucent Technologies Inc.............................................................. 3,394,318 8,820 Motorola, Inc........................................................................ 1,298,745 19,341 Nortel Networks Corp. (Canada)....................................................... 1,953,441 9,556 QUALCOMM Inc.*....................................................................... 1,682,453 1,138 Scientific-Atlanta, Inc.............................................................. 63,301 5,825 Tellabs, Inc.*....................................................................... 373,528 ------------ 9,743,422 ------------ TEXTILES (0.0%) 259 Springs Industries, Inc. (Class A)................................................... 10,344 ------------ TOBACCO (0.5%) 4,723 Nabisco Group Holdings Corp.......................................................... 50,182 34,265 Philip Morris Companies, Inc......................................................... 794,520 2,478 UST, Inc............................................................................. 62,415 ------------ 907,117 ------------ TOOLS/HARDWARE (0.1%) 1,258 Black & Decker Corp.................................................................. 65,731 335 Briggs & Stratton Corp............................................................... 17,964 899 Snap-On, Inc......................................................................... 23,880 1,295 Stanley Works........................................................................ 39,012 ------------ 146,587 ------------ WHOLESALE DISTRIBUTORS (0.0%) 1,352 Grainger (W.W.), Inc................................................................. 64,643 2,160 IKON Office Solutions, Inc........................................................... 14,715 ------------ 79,358 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $153,630,667)....................................................... 178,324,358 ------------
SEE NOTES TO FINANCIAL STATEMENTS 112 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (3.9%) U.S. GOVERNMENT AGENCY $ 7,200 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $7,199,400)...... $ 7,199,400 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $160,830,067) (b)........................................................ 99.8% 185,523,758 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 439,062 ----- ------------- NET ASSETS................................................................................ 100.0% $ 185,962,820 ----- ------------- ----- -------------
--------------------- ADR American Depository Receipt. * Non-income producing security. ** Some or all of these securities are segregated in connection with open futures contracts. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $34,695,817 and the aggregate gross unrealized depreciation is $10,002,126, resulting in net unrealized appreciation of $24,693,691. FUTURES CONTRACTS OPEN AT DECEMBER 31, 1999:
DESCRIPTION, UNDERLYING NUMBER OF DELIVERY MONTH, FACE AMOUNT UNREALIZED CONTRACTS AND YEAR AT VALUE GAIN ---------------------------------------------------------------- 18 S&P 500 Index March/2000 $6,678,900 $ 170,263 ==============
SEE NOTES TO FINANCIAL STATEMENTS 113 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON AND PREFERRED STOCKS (92.8%) AUSTRALIA (2.1%) MEDIA CONGLOMERATES 157,600 News Corporation Ltd. (Pref.)........................................................... $ 1,349,182 ----------- FINLAND (2.6%) PAPER 40,300 UPM-Kymmene Oyj......................................................................... 1,621,350 ----------- FRANCE (6.2%) MULTI-LINE INSURANCE 9,205 Axa*.................................................................................... 1,281,361 ----------- OIL REFINING/MARKETING 10,500 Total S.A. (B Shares)................................................................... 1,399,319 ----------- PACKAGED FOODS 5,000 Groupe Danone........................................................................... 1,176,786 ----------- TOTAL FRANCE............................................................................ 3,857,466 ----------- GERMANY (2.3%) MOTOR VEHICLES 46,660 Bayerische Motoren Werke (BMW) AG....................................................... 1,421,998 ----------- HONG KONG (2.2%) DIVERSIFIED FINANCIAL SERVICES 99,670 HSBC Holdings PLC....................................................................... 1,397,483 ----------- JAPAN (13.7%) CONSUMER ELECTRONICS/APPLIANCES 7,410 Sony Corp............................................................................... 2,196,469 ----------- DIVERSIFIED ELECTRONIC PRODUCTS 60,000 Matsushita Electric Industrial Co., Ltd................................................. 1,661,123 ----------- ELECTRONIC DATA PROCESSING 35,900 Fujitsu Ltd............................................................................. 1,636,607 14,000 Tokyo Electron Ltd...................................................................... 1,917,433 ----------- 3,554,040 ----------- SPECIALTY CHEMICALS 26,050 Shin-Etsu Chemical Co., Ltd............................................................. 1,121,307 ----------- TOTAL JAPAN............................................................................. 8,532,939 ----------- NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- MEXICO (2.6%) TELECOMMUNICATIONS 14,700 Telefonos de Mexico S.A. (Series L) (ADR)............................................... $ 1,653,750 ----------- NETHERLANDS (2.0%) ALCOHOLIC BEVERAGES 25,100 Heineken N.V............................................................................ 1,222,391 ----------- SWEDEN (3.0%) LIFE INSURANCE 61,700 Skandia Forsakrings AB.................................................................. 1,861,007 ----------- SWITZERLAND (2.4%) BUILDING MATERIALS 1,080 Holderbank Financiere Glarus AG (B Shares).............................................. 1,477,966 ----------- UNITED KINGDOM (6.7%) ALCOHOLIC BEVERAGES 120,600 Diageo PLC.............................................................................. 969,469 ----------- INDUSTRIAL MACHINERY/COMPONENTS 264,400 Invensys PLC............................................................................ 1,438,297 ----------- TELECOMMUNICATIONS 71,500 British Telecommunications PLC.......................................................... 1,746,234 ----------- TOTAL UNITED KINGDOM.................................................................... 4,154,000 ----------- UNITED STATES (47.0%) AIR FREIGHT/DELIVERY SERVICES 26,100 FDX Corp.*.............................................................................. 1,068,469 ----------- BEVERAGES - NON-ALCOHOLIC 46,700 Coca-Cola Enterprises Inc............................................................... 939,837 ----------- BROADCASTING 17,600 Clear Channel Communications, Inc.*..................................................... 1,570,800 ----------- COMPUTER COMMUNICATIONS 19,390 Cisco Systems, Inc.*.................................................................... 2,075,942 ----------- COMPUTER SOFTWARE 13,500 Microsoft Corp.*........................................................................ 1,575,281 ----------- CONTRACT DRILLING 3,678 Transocean Sedco Forex Inc.............................................................. 123,916 -----------
SEE NOTES TO FINANCIAL STATEMENTS 114 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- DISCOUNT CHAINS 24,500 Wal-Mart Stores, Inc.................................................................... $ 1,693,562 ----------- DIVERSIFIED FINANCIAL SERVICES 9,080 American Express Co..................................................................... 1,509,550 ----------- E.D.P. PERIPHERALS 19,500 EMC Corp.*.............................................................................. 2,130,375 ----------- ELECTRICAL PRODUCTS 19,500 Emerson Electric Co..................................................................... 1,118,813 ----------- INTERNET SERVICES 23,800 America Online, Inc.*................................................................... 1,795,413 ----------- MAJOR BANKS 32,800 Bank of New York Co., Inc............................................................... 1,312,000 ----------- MAJOR CHEMICALS 16,700 Du Pont (E.I.) de Nemours & Co., Inc.................................................... 1,100,113 ----------- MAJOR PHARMACEUTICALS 25,200 American Home Products Corp............................................................. 993,825 ----------- MAJOR U.S. TELECOMMUNICATIONS 22,545 MCI WorldCom, Inc.*..................................................................... 1,194,885 ----------- MEDIA CONGLOMERATES 18,300 Time Warner Inc......................................................................... 1,325,606 ----------- MEDICAL EQUIPMENT & SUPPLIES 34,000 Medtronic, Inc.......................................................................... 1,238,875 ----------- MULTI-SECTOR COMPANIES 11,000 General Electric Co..................................................................... 1,702,250 ----------- OILFIELD SERVICES/EQUIPMENT 27,500 Halliburton Co.......................................................................... 1,106,875 19,000 Schlumberger Ltd........................................................................ 1,068,750 ----------- 2,175,625 ----------- SEMICONDUCTORS 15,040 Intel Corp.............................................................................. 1,237,040 ----------- TELECOMMUNICATIONS EQUIPMENT 18,700 Lucent Technologies Inc................................................................. 1,398,994 ----------- TOTAL UNITED STATES..................................................................... 29,281,171 ----------- TOTAL COMMON AND PREFERRED STOCKS (IDENTIFIED COST $43,993,480)........................................................... 57,830,703 -----------
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (a) (7.1%) U.S. GOVERNMENT AGENCY $ 4,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,399,633)......... $ 4,399,633 -----------
TOTAL INVESTMENTS (IDENTIFIED COST $48,393,113) (b).......................................................... 99.9% 62,230,336 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.1 64,466 ----- ------------ NET ASSETS................................................................................. 100.0% $ 62,294,802 ----- ------------ ----- ------------
--------------------- ADR American Depository Receipt. * Non-income producing security. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $15,281,970 and the aggregate gross unrealized depreciation is $1,444,747, resulting in net unrealized appreciation of $13,837,223. SEE NOTES TO FINANCIAL STATEMENTS 115 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST IDEAS" SUMMARY OF INVESTMENTS DECEMBER 31, 1999
PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Air Freight/Delivery Services...................................................... $ 1,068,469 1.7% Alcoholic Beverages................................................................ 2,191,860 3.5 Beverages - Non-Alcoholic.......................................................... 939,837 1.5 Broadcasting....................................................................... 1,570,800 2.5 Building Materials................................................................. 1,477,966 2.4 Computer Communications............................................................ 2,075,942 3.3 Computer Software.................................................................. 1,575,281 2.5 Consumer Electronics/Appliances.................................................... 2,196,469 3.5 Contract Drilling.................................................................. 123,916 0.2 Discount Chains.................................................................... 1,693,562 2.7 Diversified Electronic Products.................................................... 1,661,123 2.7 Diversified Financial Services..................................................... 2,907,033 4.7 E.D.P. Peripherals................................................................. 2,130,375 3.4 Electrical Products................................................................ 1,118,813 1.8 Electronic Data Processing......................................................... 3,554,040 5.7 Industrial Machinery/Components.................................................... 1,438,297 2.3 Internet Services.................................................................. 1,795,413 2.9 Life Insurance..................................................................... 1,861,007 3.0 Major Banks........................................................................ 1,312,000 2.1 Major Chemicals.................................................................... 1,100,113 1.8 Major Pharmaceuticals.............................................................. 993,825 1.6 Major U.S. Telecommunications...................................................... 1,194,885 1.9 PERCENT OF INDUSTRY VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Media Conglomerates................................................................ $ 2,674,788 4.3% Medical Equipment & Supplies....................................................... 1,238,875 2.0 Motor Vehicles..................................................................... 1,421,998 2.3 Multi-Line Insurance............................................................... 1,281,361 2.1 Multi-Sector Companies............................................................. 1,702,250 2.7 Oil Refining/Marketing............................................................. 1,399,319 2.2 Oilfield Services/Equipment........................................................ 2,175,625 3.5 Packaged Foods..................................................................... 1,176,786 1.9 Paper.............................................................................. 1,621,350 2.6 Semiconductors..................................................................... 1,237,040 2.0 Specialty Chemicals................................................................ 1,121,307 1.8 Telecommunications................................................................. 3,399,984 5.5 Telecommunications Equipment....................................................... 1,398,994 2.2 U.S. Government Agency............................................................. 4,399,633 7.1 ----------- ----- $62,230,336 99.9% ----------- ----- ----------- -----
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS ------------------------------------------------------------------------------------------------------------ Common Stocks...................................................................... $56,481,521 90.7% Preferred Stocks................................................................... 1,349,182 2.2 Short-Term Investment.............................................................. 4,399,633 7.1 ----------- ----- $62,230,336 99.9% ----------- ----- ----------- -----
SEE NOTES TO FINANCIAL STATEMENTS 116 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ COMMON STOCKS (86.0%) ADVERTISING (3.0%) 700 DoubleClick Inc.*................................. $ 177,144 3,400 Interpublic Group of Companies, Inc............... 196,137 900 Lamar Advertising Co.*............................ 54,337 3,800 Omnicom Group, Inc................................ 380,000 600 True North Communications, Inc.................... 26,812 1,940 WPP Group PLC (ADR) (United Kingdom).............. 160,292 2,300 Young & Rubicam, Inc.............................. 162,725 ----------- 1,157,447 ----------- ALCOHOLIC BEVERAGES (1.0%) 350 Anheuser-Busch Companies, Inc..................... 24,806 3,000 Coors (Adolph) Co. (Class B)...................... 157,500 2,300 LVMH (Louis Vuitton Moet Hennessy) (ADR) (France)........................................ 205,275 ----------- 387,581 ----------- ALUMINUM (1.8%) 7,800 Alcan Aluminium, Ltd. (Canada).................... 321,262 4,300 Alcoa, Inc........................................ 356,900 ----------- 678,162 ----------- BIOTECHNOLOGY (2.3%) 2,000 Alkermes, Inc.*................................... 98,000 4,000 Amgen Inc.*....................................... 240,000 600 COR Therapeutics, Inc.*........................... 16,125 2,400 Genentech, Inc.*.................................. 322,800 500 Human Genome Sciences, Inc.*...................... 76,250 700 MedImmune, Inc.*.................................. 116,025 ----------- 869,200 ----------- BROADCASTING (4.2%) 6,500 CBS Corp.*........................................ 415,594 2,700 Citadel Communications Corp.*..................... 174,825 3,500 Clear Channel Communications, Inc.*............... 312,375 600 Cox Radio, Inc. (Class A)*........................ 59,850 1,500 Entercom Communications Corp.*.................... 99,000 1,375 Hispanic Broadcasting Corp.*...................... 126,500 1,850 Infinity Broadcasting Corp. (Series A)*........... 66,947 NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 400 Radio One, Inc.*.................................. $ 36,800 2,000 Univision Communications, Inc. (Class A)*......... 204,375 1,750 USA Networks, Inc.*............................... 96,578 ----------- 1,592,844 ----------- BUILDING MATERIALS/D I Y CHAINS (1.2%) 6,450 Home Depot, Inc. (The)............................ 442,228 ----------- CABLE TELEVISION (2.9%) 3,000 AT&T Corp. - Liberty Media Group (Class A)*....... 170,250 3,025 Comcast Corp. (Class A Special)*.................. 152,762 6,500 Cox Communications, Inc. (Class A)*............... 334,750 4,000 EchoStar Communications Corp. (Class A)*.......... 389,000 400 United Pan-Europe Communications NV (ADR) (Netherlands)*.................................. 50,800 ----------- 1,097,562 ----------- CASINO/GAMBLING (0.6%) 1,200 MGM Grand, Inc.................................... 60,375 6,000 Mirage Resorts, Inc.*............................. 91,875 5,000 Park Place Entertainment Corp.*................... 62,500 ----------- 214,750 ----------- CELLULAR TELEPHONE (1.9%) 1,000 Crown Castle International Corp.*................. 32,000 2,300 Nextel Communications, Inc. (Class A)*............ 237,044 800 Sprint Corp. (PCS Group)*......................... 82,000 600 United States Cellular Corp.*..................... 60,562 1,900 Vodafone AirTouch PLC (ADR) (United Kingdom)...... 94,050 1,000 Voicestream Wireless Corp.*....................... 141,875 1,000 Western Wireless Corp. (Class A)*................. 66,625 ----------- 714,156 ----------- CLOTHING/SHOE/ACCESSORY STORES (0.8%) 3,310 Gap, Inc. (The)................................... 152,260 3,600 Talbot's, Inc. (The).............................. 160,650 ----------- 312,910 -----------
SEE NOTES TO FINANCIAL STATEMENTS 117 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ COMPUTER COMMUNICATIONS (2.0%) 300 Brocade Communications Systems, Inc.*............. $ 52,725 100 CacheFlow Inc.*................................... 13,069 3,100 Cisco Systems, Inc.*.............................. 331,894 140 Cobalt Networks, Inc.*............................ 14,980 800 Emulex Corp.*..................................... 90,350 300 Finisar Corp.*.................................... 26,737 200 Foundry Networks, Inc.*........................... 60,300 200 Juniper Networks, Inc.*........................... 67,850 500 Redback Networks, Inc.*........................... 88,344 ----------- 746,249 ----------- COMPUTER SOFTWARE (9.1%) 950 Check Point Software Technologies Ltd. (Israel)*....................................... 188,694 600 Citrix Systems, Inc.*............................. 73,762 100 Digimarc Corp.*................................... 5,000 550 E.piphany, Inc.*.................................. 122,375 1,100 i2 Technologies, Inc.*............................ 214,087 4,200 Intuit Inc.*...................................... 251,475 900 Legato Systems, Inc.*............................. 61,875 1,800 Macromedia, Inc.*................................. 131,625 1,100 Mercury Interactive Corp.*........................ 118,731 100 Metasolv Software, Inc.*.......................... 8,225 4,000 Microsoft Corp.*.................................. 466,750 400 MicroStrategy Inc.*............................... 84,000 600 OpenTV Corp.*..................................... 48,150 6,000 Oracle Corp.*..................................... 672,000 5,300 Parametric Technology Corp.*...................... 143,100 1,000 Rational Software Corp.*.......................... 49,125 100 Red Hat, Inc.*.................................... 21,106 600 Remedy Corp.*..................................... 28,500 1,600 Sapient Corp.*.................................... 225,400 2,000 Siebel Systems, Inc.*............................. 168,500 900 TSI International Software Ltd.*.................. 50,850 2,400 Veritas Software Corp.*........................... 343,350 ----------- 3,476,680 ----------- CONSUMER ELECTRONICS/APPLIANCES (0.3%) 400 Sony Corp. (ADR) (Japan).......................... 113,900 ----------- CONTRACT DRILLING (2.3%) 14,500 ENSCO International Inc........................... 331,687 1,900 Nabors Industries, Inc.*.......................... 58,781 10,500 R&B Falcon Corp.*................................. 139,125 5,460 Rowan Companies, Inc.*............................ 118,414 NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 850 Santa Fe International Corp....................... $ 21,994 5,761 Transocean Sedco Forex Inc........................ 194,089 ----------- 864,090 ----------- DISCOUNT CHAINS (3.4%) 3,200 Costco Wholesale Corp.*........................... 291,800 4,100 Dayton Hudson Corp................................ 301,094 10,000 Wal-Mart Stores, Inc.............................. 691,250 ----------- 1,284,144 ----------- DIVERSIFIED COMMERCIAL SERVICES (0.7%) 1,600 CheckFree Holdings Corp.*......................... 167,200 2,000 Concord EFS, Inc.*................................ 51,375 100 Freemarkets, Inc.*................................ 34,131 300 Jupiter Communications, Inc.*..................... 9,037 300 Wireless Facilities, Inc.*........................ 13,050 ----------- 274,793 ----------- DIVERSIFIED ELECTRONIC PRODUCTS (1.1%) 2,000 JDS Uniphase Corp.*............................... 322,500 750 Koninklijke (Royal) Philips Electronics NV (Netherlands)................................... 101,250 ----------- 423,750 ----------- DIVERSIFIED FINANCIAL SERVICES (2.0%) 2,075 American Express Co............................... 344,969 1,600 AXA Financial, Inc................................ 54,200 6,905 Citigroup, Inc.................................... 383,659 ----------- 782,828 ----------- E.D.P. PERIPHERALS (0.6%) 1,600 Network Appliance, Inc.*.......................... 132,800 210 QLogic Corp.*..................................... 33,574 1,400 Seagate Technology, Inc.*......................... 65,187 ----------- 231,561 ----------- E.D.P. SERVICES (0.9%) 770 Amdocs Ltd.*...................................... 26,565 3,270 BEA Systems, Inc.*................................ 228,900 420 Razorfish, Inc.*.................................. 39,900 1,200 Whittman-Hart, Inc.*.............................. 64,350 ----------- 359,715 ----------- ELECTRIC UTILITIES (0.3%) 1,500 Calpine Corp.*.................................... 96,000 ----------- ELECTRONIC COMPONENTS (0.2%) 500 E-Tek Dynamics, Inc.*............................. 67,125 -----------
SEE NOTES TO FINANCIAL STATEMENTS 118 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ ELECTRONIC DATA PROCESSING (1.5%) 850 Apple Computer, Inc.*............................. $ 87,337 6,200 Sun Microsystems, Inc.*........................... 479,725 ----------- 567,062 ----------- ELECTRONIC PRODUCTION EQUIPMENT (1.4%) 1,820 Applied Materials, Inc.*.......................... 230,457 2,400 ASM Lithography Holding NV (Netherlands)*......... 270,900 310 Lam Research Corp.*............................... 34,584 250 Rudolph Technologies, Inc.*....................... 8,250 ----------- 544,191 ----------- FLUID CONTROLS (0.2%) 1,800 Parker-Hannifin Corp.............................. 92,362 ----------- FOOD DISTRIBUTORS (0.1%) 1,100 SYSCO Corp........................................ 43,519 ----------- FOREST PRODUCTS (0.9%) 5,000 Weyerhaeuser Co................................... 359,062 ----------- GENERIC DRUGS (0.2%) 2,500 Mylan Laboratories, Inc........................... 62,969 ----------- HOTELS/RESORTS (0.2%) 1,500 Royal Caribbean Cruises Ltd....................... 73,969 ----------- INTEGRATED OIL COMPANIES (1.9%) 4,850 BP Amoco PLC (ADR) (United Kingdom)............... 287,666 3,510 Exxon Mobil Corp.................................. 282,774 210 Kerr-McGee Corp................................... 13,020 2,500 Royal Dutch Petroleum Co. (ADR) (Netherlands)..... 151,094 ----------- 734,554 ----------- INTERNATIONAL BANKS (0.3%) 650 Asahi Bank, Ltd. (ADR) (Japan)*................... 40,056 300 Fuji Bank, Ltd. (ADR) (Japan)..................... 29,147 900 Sakura Bank, Ltd. (ADR) (Japan)*.................. 52,144 ----------- 121,347 ----------- INTERNET SERVICES (9.1%) 300 Agency.com, Inc.*................................. 15,412 300 Akamai Technologies, Inc.*........................ 98,287 500 Allaire Corp.*.................................... 73,156 3,300 America Online, Inc.*............................. 248,944 800 Ariba, Inc.*...................................... 141,600 700 Art Technology Group, Inc.*....................... 91,044 550 Broadbase Software, Inc.*......................... 61,050 1,400 BroadVision, Inc.*................................ 238,087 NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 100 C-Bridge Internet Solutions, Inc.*................ $ 4,950 800 Calico Commerce, Inc.*............................ 42,300 400 iManage, Inc.*.................................... 13,050 600 Inktomi Corp.*.................................... 53,175 80 Internet Capital Group, Inc.*..................... 13,565 700 Kana Communications, Inc.*........................ 143,019 100 Liberate Technologies, Inc.*...................... 25,625 1,641 Lycos, Inc.*...................................... 130,562 300 OnDisplay, Inc.*.................................. 27,150 1,000 Portal Software, Inc.*............................ 102,500 380 Preview Systems, Inc.*............................ 24,320 600 Quest Software, Inc.*............................. 59,775 650 RealNetworks, Inc.*............................... 78,203 800 Scient Corp.*..................................... 68,600 2,050 USWeb Corp.*...................................... 91,097 3,400 VeriSign, Inc.*................................... 649,825 2,000 Vignette Corp.*................................... 325,875 1,500 Yahoo! Inc.*...................................... 649,031 ----------- 3,470,202 ----------- INVESTMENT BANKERS/BROKERS/SERVICES (1.8%) 2,310 Donaldson, Lufkin & Jenrette, Inc................. 111,746 2,850 Goldman Sachs Group, Inc. (The)................... 268,434 2,300 Lehman Brothers Holdings, Inc..................... 194,781 800 Merrill Lynch & Co., Inc.......................... 66,800 875 Paine Webber Group, Inc........................... 33,961 ----------- 675,722 ----------- LIFE INSURANCE (0.1%) 700 Lincoln National Corp............................. 28,000 ----------- MAJOR BANKS (0.8%) 2,500 Bank of New York Co., Inc......................... 100,000 2,800 Chase Manhattan Corp. (The)....................... 217,525 ----------- 317,525 ----------- MAJOR PHARMACEUTICALS (1.3%) 3,150 American Home Products Corp....................... 124,228 1,300 Merck & Co., Inc.*................................ 87,181 3,575 Warner-Lambert Co................................. 292,927 ----------- 504,336 ----------- MAJOR U.S. TELECOMMUNICATIONS (0.1%) 1,050 MCI WorldCom, Inc.*............................... 55,650 -----------
SEE NOTES TO FINANCIAL STATEMENTS 119 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ MARINE TRANSPORTATION (0.3%) 2,800 Tidewater, Inc.................................... $ 100,800 ----------- MEDIA CONGLOMERATES (0.6%) 2,000 News Corporation Ltd. (The) (ADR) (Australia)..... 76,500 125 Viacom, Inc. (Class A)*........................... 7,555 2,375 Viacom, Inc. (Class B)*........................... 143,539 ----------- 227,594 ----------- MEDICAL SPECIALTIES (0.7%) 1,400 Cytyc Corp.*...................................... 85,575 4,500 Inhale Therapeutic Systems, Inc.*................. 191,531 ----------- 277,106 ----------- MEDICAL/DENTAL DISTRIBUTORS (0.1%) 300 SciQuest.com, Inc.*............................... 23,850 ----------- MID - SIZED BANKS (0.1%) 1,060 Northern Trust Corp............................... 56,577 ----------- MILITARY/GOV'T/TECHNICAL (0.6%) 2,200 General Motors Corp. (Class H)*................... 211,200 ----------- MOVIES/ENTERTAINMENT (0.3%) 1,500 Westwood One, Inc.*............................... 114,000 ----------- MULTI-LINE INSURANCE (0.7%) 2,550 American International Group, Inc................. 275,719 ----------- NEWSPAPERS (0.6%) 1,270 Dow Jones & Co., Inc.............................. 86,360 2,000 New York Times Co. (The) (Class A)................ 98,250 1,050 Tribune Co........................................ 57,816 ----------- 242,426 ----------- OFFICE EQUIPMENT/SUPPLIES (0.5%) 2,400 Avery Dennison Corp............................... 174,900 ----------- OIL & GAS PRODUCTION (0.4%) 1,900 Devon Energy Corp................................. 62,463 3,100 EOG Resources, Inc................................ 54,444 2,930 Union Pacific Resources Group, Inc................ 37,358 ----------- 154,265 ----------- OIL/GAS TRANSMISSION (0.5%) 4,000 Enron Corp........................................ 177,500 ----------- OILFIELD SERVICES/EQUIPMENT (2.3%) 3,500 BJ Services Co.*.................................. 146,344 2,800 Cooper Cameron Corp.*............................. 137,025 NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ 4,200 Halliburton Co.................................... $ 169,050 2,900 Schlumberger Ltd.................................. 163,125 2,380 Smith International, Inc.*........................ 118,256 3,800 Weatherford International, Inc.*.................. 151,763 ----------- 885,563 ----------- OTHER CONSUMER SERVICES (0.4%) 1,600 Preview Travel, lnc.*............................. 83,400 1,400 Ticketmaster Online-CitySearch, Inc. (Series B)*..................................... 53,813 ----------- 137,213 ----------- OTHER METALS/MINERALS (0.4%) 6,470 Inco Ltd. (Canada)*............................... 152,045 ----------- OTHER PHARMACEUTICALS (1.1%) 700 Biovail Corporation International (Canada)*....... 65,625 4,240 Forest Laboratories, Inc.*........................ 260,495 1,500 Teva Pharmaceutical Industries Ltd. (ADR) (Israel)........................................ 107,250 ----------- 433,370 ----------- OTHER SPECIALTY STORES (0.8%) 2,600 Tiffany & Co...................................... 232,050 1,820 Zale Corp.*....................................... 88,043 ----------- 320,093 ----------- OTHER TELECOMMUNICATIONS (2.9%) 1,100 Aerial Communications, Inc.*...................... 66,894 1,000 COLT Telecom Group PLC (ADR) (United Kingdom)*.... 203,875 1,550 Covad Communications Group, Inc.*................. 86,219 600 Mannesmann AG (ADR) (Germany)..................... 145,200 3,000 McLeodUSA, Inc. (Class A)*........................ 176,250 125 NTL Inc.*......................................... 15,563 2,900 PanAmSat Corp.*................................... 171,281 600 Qwest Communications International, Inc.*......... 25,763 1,400 RCN Corp.*........................................ 67,813 1,975 Sonera Corp. (ADR) (Finland)*..................... 136,769 ----------- 1,095,627 ----------- PACKAGE GOODS/COSMETICS (0.3%) 2,000 Colgate-Palmolive Co.............................. 130,000 ----------- PAPER (0.3%) 1,900 Champion International Corp....................... 117,681 -----------
SEE NOTES TO FINANCIAL STATEMENTS 120 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------ PRECISION INSTRUMENTS (0.2%) 600 PE Corporation-PE Biosystems Group................ $ 72,188 ----------- RECREATIONAL PRODUCTS/TOYS (0.4%) 2,000 Electronic Arts Inc.*............................. 168,000 ----------- SEMICONDUCTORS (1.4%) 700 Broadcom Corp. (Class A)*......................... 190,619 2,380 Conexant Systems, Inc.*........................... 157,229 418 SDL, Inc.*........................................ 91,124 520 STMicroelectronics NV (Netherlands)............... 78,748 ----------- 517,720 ----------- TELECOMMUNICATIONS (0.8%) 500 Japan Telecom Co., Ltd. (ADR) (Japan)............. 40,125 2,050 Nippon Telegraph & Telephone Corp. (ADR) (Japan)......................................... 176,556 850 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)........................................ 95,625 ----------- 312,306 ----------- TELECOMMUNICATIONS EQUIPMENT (6.8%) 1,700 Alcatel (ADR) (France)............................ 76,500 2,000 American Tower Corp. (Class A)*................... 61,125 710 CIENA Corp.*...................................... 40,825 1,400 Comverse Technology, Inc.*........................ 202,563 2,800 Corning Inc....................................... 361,025 5,300 Ericsson (L.M.) Telefonaktiebolaqet (ADR) (Sweden)........................................ 347,813 1,050 General Instrument Corp.*......................... 89,250 1,400 Harmonic, Inc.*................................... 132,650 2,600 Motorola, Inc..................................... 382,850 100 Next Level Communications, Inc.*.................. 7,494 2,300 Nokia Corp. (ADR) (Finland)....................... 437,000 1,600 Nortel Networks Corp. (Canada).................... 161,600 2,400 RF Micro Devices, Inc.*........................... 163,800 2,100 Scientific-Atlanta, Inc........................... 116,813 200 Sycamore Networks, Inc.*.......................... 60,726 ----------- 2,642,034 ----------- TOTAL COMMON STOCKS (IDENTIFIED COST $25,476,009)..................... $32,857,922 -----------
PRINCIPAL AMOUNT IN THOUSANDS VALUE ------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS (12.8%) U.S. GOVERNMENT AGENCY (a) (12.3%) $ 4,700 Federal Home Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,699,608)..................... $ 4,699,608 ----------- REPURCHASE AGREEMENT (0.5%) 185 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $185,292) (b) (IDENTIFIED COST $185,269)...................... 185,269 ----------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $4,884,877)...................... 4,884,877 -----------
TOTAL INVESTMENTS (IDENTIFIED COST $30,360,886) (c).......................................................... 98.8% 37,742,799 OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 1.2 454,577 ----- ------------ NET ASSETS................................................................................. 100.0% $ 38,197,376 ----- ------------ ----- ------------
--------------------- ADR American Depository Receipt. * Non-income producing security. (a) Security was purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. (b) Collateralized by $129,953 U.S. Treasury Bond 11.25% due 02/15/15 valued at $189,122. (c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $7,598,493 and the aggregate gross unrealized depreciation is $216,580, resulting in net unrealized appreciation of $7,381,913. SEE NOTES TO FINANCIAL STATEMENTS 121 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (67.0%) ADVERTISING (1.4%) 140,000 Young & Rubicam, Inc................................................................... $ 9,905,000 ------------ BIOTECHNOLOGY (0.1%) 7,500 PE Corp-Celera Genomics Group*......................................................... 1,117,500 ------------ BUILDING MATERIALS/D I Y CHAINS (1.5%) 162,150 Home Depot, Inc. (The)................................................................. 11,117,409 ------------ CABLE TELEVISION (1.0%) 94,300 MediaOne Group, Inc.*.................................................................. 7,243,419 ------------ CASINO/GAMBLING (0.5%) 322,000 Park Place Entertainment Corp.*........................................................ 4,025,000 ------------ CATALOG/SPECIALTY DISTRIBUTION (0.1%) 56,400 Webvan Group Inc.*..................................................................... 912,975 ------------ CLOTHING/SHOE/ACCESSORY STORES (1.2%) 192,825 Gap, Inc. (The)........................................................................ 8,869,950 ------------ COMPUTER COMMUNICATIONS (1.5%) 105,500 Cisco Systems, Inc.*................................................................... 11,295,094 ------------ COMPUTER SOFTWARE (4.0%) 140,000 Adobe Systems, Inc..................................................................... 9,415,000 78,500 Microsoft Corp.*....................................................................... 9,159,969 260,100 Novell, Inc.*.......................................................................... 10,371,487 ------------ 28,946,456 ------------ CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.7%) 120,000 PACCAR, Inc............................................................................ 5,310,000 ------------ CONSUMER ELECTRONICS/ APPLIANCES (1.5%) 100,100 Maytag Corp............................................................................ 4,804,800 94,200 Whirlpool Corp......................................................................... 6,128,887 ------------ 10,933,687 ------------ CONTRACT DRILLING (0.7%) 169,000 Diamond Offshore Drilling, Inc......................................................... 5,165,062 ------------ DISCOUNT CHAINS (1.1%) 84,500 Costco Wholesale Corp.*................................................................ 7,705,344 ------------ DIVERSIFIED ELECTRONIC PRODUCTS (0.7%) 109,000 Rockwell International Corp............................................................ 5,218,375 ------------ DIVERSIFIED FINANCIAL SERVICES (3.1%) 48,400 American Express Co.................................................................... 8,046,500 210,600 AXA Financial, Inc..................................................................... 7,134,075 141,200 Citigroup, Inc......................................................................... 7,845,425 ------------ 23,026,000 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING (1.5%) 107,250 Honeywell International Inc............................................................ $ 6,186,984 129,400 Tyco International Ltd. (Bermuda)...................................................... 5,030,425 ------------ 11,217,409 ------------ E.D.P. PERIPHERALS (1.7%) 110,800 EMC Corp.*............................................................................. 12,104,900 ------------ ELECTRONIC DATA PROCESSING (2.9%) 148,000 Dell Computer Corp.*................................................................... 7,538,750 178,200 Sun Microsystems, Inc.*................................................................ 13,788,225 ------------ 21,326,975 ------------ ELECTRONIC PRODUCTION EQUIPMENT (1.6%) 160,700 Jabil Circuit, Inc.*................................................................... 11,731,100 ------------ ENVIRONMENTAL SERVICES (0.2%) 126,500 Allied Waste Industries, Inc.*......................................................... 1,114,781 ------------ INTEGRATED OIL COMPANIES (3.5%) 71,800 Atlantic Richfield Co.................................................................. 6,210,700 82,245 Exxon Mobil Corp....................................................................... 6,625,863 114,000 Kerr-McGee Corp........................................................................ 7,068,000 160,700 Unocal Corp............................................................................ 5,393,494 ------------ 25,298,057 ------------ INTERNET SERVICES (2.8%) 135,800 America Online, Inc.*.................................................................. 10,244,412 115,200 Inktomi Corp.*......................................................................... 10,209,600 ------------ 20,454,012 ------------ INVESTMENT BANKERS/BROKERS/ SERVICES (1.0%) 83,800 Merrill Lynch & Co., Inc............................................................... 6,997,300 ------------ MAJOR BANKS (2.7%) 79,500 Chase Manhattan Corp. (The)............................................................ 6,176,156 197,500 Mellon Financial Corp.................................................................. 6,727,344 159,700 Wells Fargo & Co....................................................................... 6,457,869 ------------ 19,361,369 ------------ MAJOR CHEMICALS (1.8%) 51,900 Dow Chemical Co........................................................................ 6,935,138 92,700 Du Pont (E.I.) de Nemours & Co., Inc................................................... 6,106,613 ------------ 13,041,751 ------------ MAJOR PHARMACEUTICALS (4.4%) 156,800 Abbott Laboratories.................................................................... 5,693,800 121,437 Johnson & Johnson...................................................................... 11,308,821 101,200 Merck & Co., Inc....................................................................... 6,786,725
SEE NOTES TO FINANCIAL STATEMENTS 122 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- 102,800 Warner-Lambert Co...................................................................... $ 8,423,175 ------------ 32,212,521 ------------ MAJOR U.S. TELECOMMUNICATIONS (1.9%) 136,100 AT&T Corp.............................................................................. 6,907,075 128,850 MCI WorldCom, Inc.*.................................................................... 6,829,050 ------------ 13,736,125 ------------ MANAGED HEALTH CARE (1.3%) 300,000 Oxford Health Plans, Inc.*............................................................. 3,806,250 85,600 Wellpoint Health Networks, Inc.*....................................................... 5,644,250 ------------ 9,450,500 ------------ MEDIA CONGLOMERATES (1.4%) 341,500 Disney (Walt) Co....................................................................... 9,988,875 ------------ MULTI-LINE INSURANCE (1.0%) 70,000 American International Group, Inc...................................................... 7,568,750 ------------ MULTI-SECTOR COMPANIES (1.3%) 59,200 General Electric Co.................................................................... 9,161,200 ------------ OFFICE EQUIPMENT/SUPPLIES (0.4%) 132,000 Xerox Corp............................................................................. 2,994,750 ------------ OILFIELD SERVICES/EQUIPMENT (0.9%) 136,000 Smith International, Inc.*............................................................. 6,757,500 ------------ OTHER SPECIALTY STORES (1.8%) 219,800 Bed Bath & Beyond Inc.*................................................................ 7,610,575 120,000 Williams-Sonoma, Inc.*................................................................. 5,520,000 ------------ 13,130,575 ------------ PACKAGE GOODS/COSMETICS (1.2%) 134,700 Colgate-Palmolive Co................................................................... 8,755,500 ------------ PACKAGED FOODS (0.8%) 158,800 General Mills, Inc..................................................................... 5,677,100 ------------ PAPER (2.5%) 161,200 Boise Cascade Corp..................................................................... 6,528,600 111,100 Champion International Corp............................................................ 6,881,256 110,000 Willamette Industries, Inc............................................................. 5,108,125 ------------ 18,517,981 ------------ PRECIOUS METALS (1.8%) 251,000 Barrick Gold Corp. (Canada)............................................................ 4,439,563 216,000 Homestake Mining Co.................................................................... 1,687,500 150,000 Newmont Mining Corp.................................................................... 3,675,000 293,000 Placer Dome Inc. (Canada).............................................................. 3,149,750 ------------ 12,951,813 ------------ NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- PRECISION INSTRUMENTS (2.8%) 170,000 PE Corp. PE Biosystems Group........................................................... $ 20,453,125 ------------ SAVINGS & LOAN ASSOCIATIONS (0.9%) 203,700 Golden West Financial Corp............................................................. 6,823,950 ------------ SEMICONDUCTORS (2.0%) 84,600 Intel Corp............................................................................. 6,958,350 46,700 PMC - Sierra, Inc. (Canada)*........................................................... 7,483,675 ------------ 14,442,025 ------------ TELECOMMUNICATIONS EQUIPMENT (1.8%) 60,000 General Instrument Corp.*.............................................................. 5,100,000 104,300 Lucent Technologies Inc................................................................ 7,802,944 ------------ 12,902,944 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $315,890,283)......................................................... 488,964,159 ------------
PRINCIPAL AMOUNT IN THOUSANDS --------- CORPORATE BONDS (6.9%) AEROSPACE (0.3%) $ 2,000 Lockheed Martin Corp. 8.20% due 12/01/09................................................................... 1,992,380 ------------ DISCOUNT CHAINS (0.3%) 2,500 Wal-Mart Stores, Inc. 6.875% due 08/10/09.................................................................. 2,435,025 ------------ DIVERSIFIED FINANCIAL SERVICES (0.5%) 1,000 General Electric Capital Corp. 6.52% due 10/08/02................................................................... 988,670 1,000 General Motors Acceptance Corp. 6.75% due 12/10/02................................................................... 988,670 1,000 IBM Credit Corp. 6.64% due 10/29/01................................................................... 996,640 1,000 Textron Financial Corp. 7.125% due 12/09/04.................................................................. 987,640 ------------ 3,961,620 ------------ ELECTRIC UTILITIES (0.4%) 1,000 FPL Group Capital, Inc. 7.375% due 06/01/09.................................................................. 985,340 1,000 Public Service Electric & Gas Co. 6.00% due 05/01/00................................................................... 998,260
SEE NOTES TO FINANCIAL STATEMENTS 123 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- $ 1,000 Utilicorp United Inc. 7.00% due 07/15/04................................................................... $ 963,750 ------------ 2,947,350 ------------ FINANCE COMPANIES (0.8%) 1,000 Finova Capital Corp. 7.625% due 09/21/09.................................................................. 981,790 1,000 Ford Motor Credit Co. 6.375% due 11/05/08.................................................................. 924,240 1,000 Heller Financial Inc. 5.75% due 09/25/01................................................................... 978,410 2,000 Household Finance Corp. 6.50% due 11/15/08................................................................... 1,850,760 1,500 Norwest Financial, Inc. 6.375% due 07/16/02.................................................................. 1,478,610 ------------ 6,213,810 ------------ FOOD DISTRIBUTORS (0.2%) 1,460 Shoppers Food Warehouse Corp. 9.75% due 06/15/04................................................................... 1,563,835 ------------ INTEGRATED OIL COMPANIES (0.4%) 1,000 Amerada Hess Corp. 7.875% due 10/01/29.................................................................. 977,480 2,000 Conoco Inc. 6.95% due 04/15/29................................................................... 1,801,940 ------------ 2,779,420 ------------ INVESTMENT BANKERS/BROKERS/ SERVICES (0.3%) 1,000 Paine Webber Group, Inc. 8.875% due 03/15/05.................................................................. 1,038,740 1,000 Paine Webber Group, Inc. 7.625% due 12/01/09.................................................................. 973,620 ------------ 2,012,360 ------------ MAJOR BANKS (0.9%) 1,000 Banc One Corp. 8.74% due 09/15/03................................................................... 1,041,640 1,000 BankAmerica Institutional-144A** 8.07% due 12/31/26................................................................... 940,320 1,000 Fleet Boston Corp. 7.375% due 12/01/09.................................................................. 978,750 1,000 Keycorp Capital III 7.75% due 07/15/29................................................................... 928,970 1,000 Society Corp. 8.125% due 06/15/02.................................................................. 1,019,850 PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- $ 1,500 U.S. Bancorp 6.75% due 10/15/05................................................................... $ 1,448,850 ------------ 6,358,380 ------------ MAJOR CHEMICALS (0.1%) 1,000 Du Pont (E.I.) De Nemours & Co., Inc. 6.875% due 10/15/09.................................................................. 967,540 ------------ MAJOR PHARMACEUTICALS (0.3%) 1,000 Abbott Laboratories 6.40% due 12/01/06................................................................... 960,950 1,000 Johnson & Johnson 6.95% due 09/01/29................................................................... 943,350 ------------ 1,904,300 ------------ MAJOR U.S. TELECOMMUNICATIONS (0.4%) 1,000 MCI WorldCom, Inc. 6.125% due 08/15/01.................................................................. 987,910 1,000 MCI WorldCom, Inc. 7.55% due 04/01/04................................................................... 1,013,250 1,000 Sprint Capital Corp. 6.875% due 11/15/28.................................................................. 889,730 ------------ 2,890,890 ------------ MID-SIZED BANKS (0.1%) 1,000 Compass Bank 8.10% due 08/15/09................................................................... 1,010,200 ------------ OIL/GAS TRANSMISSION (0.4%) 1,000 Enron Corp. 7.125% due 05/15/07.................................................................. 964,520 1,000 Williams Companies, Inc. (The) 7.625% due 07/15/19.................................................................. 959,980 1,000 Yosemite Securities Trust I - 144A** 8.25% due 11/15/04................................................................... 985,890 ------------ 2,910,390 ------------ OTHER TELECOMMUNICATIONS (0.3%) 1,000 U.S. West Capital Funding, Inc. 6.875% due 07/15/28.................................................................. 875,930 1,000 U.S. West Capital Funding, Inc.- 144A** 6.875% due 08/15/01.................................................................. 995,840 ------------ 1,871,770 ------------
SEE NOTES TO FINANCIAL STATEMENTS 124 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- PACKAGE GOODS/COSMETICS (0.3%) $ 1,000 Proctor & Gamble Co. 6.60% due 12/15/04................................................................... $ 985,000 1,000 Proctor & Gamble Co. 6.45% due 01/15/26................................................................... 881,170 ------------ 1,866,170 ------------ RAILROADS (0.6%) 1,000 Norfolk Southern Corp. 6.70% due 05/01/00................................................................... 1,000,570 1,909 Southern Pacific Transportation Co. (Series B) 7.28% due 04/30/15................................................................... 1,821,789 1,000 Union Pacific Corp. 6.34% due 11/25/03................................................................... 958,700 1,000 Union Pacific Corp. 6.79% due 11/09/07................................................................... 946,220 ------------ 4,727,279 ------------ UTILITIES (0.3%) 2,000 Arizona Public Service Co. 5.875% due 02/15/04.................................................................. 1,894,120 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $51,354,835).......................................................... 50,306,839 ------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS (13.1%) 2,500 Federal Farm Credit Bank 6.00% due 10/01/01................................................................... 2,479,225 3,000 Federal Home Loan Banks 4.875% due 01/22/02.................................................................. 2,903,730 4,000 Federal Home Loan Mortgage Corp. 5.125% due 10/15/08.................................................................. 3,494,680 4,000 Federal Home Loan Mortgage Corp. 6.625% due 09/15/09.................................................................. 3,878,880 4,000 Federal Home Loan Mortgage Corp. 6.75% due 09/15/29................................................................... 3,784,880 3,000 Federal National Mortgage Assoc. 5.625% due 05/14/04.................................................................. 2,860,680 4,500 Federal National Mortgage Assoc. 6.16% due 08/07/28................................................................... 3,906,000 PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- $20,100 U.S. Treasury Bond 6.25% due 08/15/23................................................................... $ 18,950,481 2,500 U.S. Treasury Bond 7.25% due 05/15/16................................................................... 2,610,500 18,500 U.S. Treasury Note 4.00% due 10/31/00................................................................... 18,200,300 7,000 U.S. Treasury Note 5.375% due 02/15/01.................................................................. 6,942,810 1,000 U.S. Treasury Note 5.625% due 11/30/00.................................................................. 996,010 1,000 U.S. Treasury Note 6.00% due 08/15/09................................................................... 968,440 2,000 U.S. Treasury Note 6.25% due 01/31/02................................................................... 1,999,820 1,000 U.S. Treasury Note 6.25% due 08/31/02................................................................... 998,830 1,000 U.S. Treasury Note 6.25% due 02/15/03................................................................... 997,070 1,000 U.S. Treasury Note 6.375% due 08/15/02.................................................................. 1,001,220 5,000 U.S. Treasury Note 6.50% due 08/15/05................................................................... 4,998,100 3,000 U.S. Treasury Note 6.50% due 10/15/06................................................................... 2,988,300 1,000 U.S. Treasury Note 6.625% due 05/15/07.................................................................. 1,003,570 3,300 U.S. Treasury Note 7.00% due 07/15/06................................................................... 3,377,121 1,000 U.S. Treasury Note 7.25% due 05/15/04................................................................... 1,030,070 2,000 U.S. Treasury Note 7.25% due 08/15/04................................................................... 2,062,160 3,000 U.S. Treasury Note 7.875% due 11/15/04.................................................................. 3,170,880 ------------ TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (IDENTIFIED COST $97,183,055).......................................................... 95,603,757 ------------ SHORT-TERM INVESTMENTS (a) (12.6%) U.S. GOVERNMENT AGENCIES 17,300 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00.................................... 17,298,558 25,000 Federal Home Loan Mortgage Corp. 4.75% due 01/21/00.................................... 24,934,028
SEE NOTES TO FINANCIAL STATEMENTS 125 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
PRINCIPAL AMOUNT IN THOUSANDS VALUE ---------------------------------------------------------------------------------------------------------------- $50,000 Federal Home Loan Mortgage Corp. 5.75% due 01/14/00.................................... $ 49,896,181 ------------ TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $92,128,767).......................................................... 92,128,767 ------------
TOTAL INVESTMENTS (IDENTIFIED COST $556,556,940) (b)........................................................ 99.6% 727,003,522 OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.4 2,697,154 ----- ------------- NET ASSETS................................................................................ 100.0% $ 729,700,676 ----- ------------- ----- -------------
--------------------- * Non-income producing security. ** Resale is restricted to qualified institutional investors. (a) Securities were purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield. (b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $186,481,408 and the aggregate gross unrealized depreciation is $16,034,826, resulting in net unrealized appreciation of $170,446,582. SEE NOTES TO FINANCIAL STATEMENTS 126 (This page has been left blank intentionally.) 127 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
MONEY SHORT-TERM QUALITY HIGH MARKET BOND INCOME PLUS YIELD -------------------------------------------------------------------------------------- ASSETS: Investments in securities, at value*...................... $435,151,748 $3,140,109 $453,582,261 $ 273,567,655 Cash.......................... 26,264 14,682 61,775 -- Receivable for: Shares of beneficial interest sold........... 616,881 -- 72,932 95,427 Dividends................. -- -- -- -- Interest.................. 922,000 26,482 7,681,690 6,603,942 Foreign withholding taxes reclaimed............... -- -- -- -- Prepaid expenses and other assets...................... 3,770 13 5,356 10,946 Receivable from affiliate..... -- 14,713 -- -- ------------ ---------- ------------ ------------- TOTAL ASSETS............. 436,720,663 3,195,999 461,404,014 280,277,970 ------------ ---------- ------------ ------------- LIABILITIES: Payable for: Investments purchased..... -- -- 4,899,896 -- Shares of beneficial interest repurchased.... 846,256 126 116,747 192,582 Investment management fee..................... 184,663 1,230 196,851 119,307 Foreign taxes............. -- -- -- -- Payable to bank............... -- -- -- 240,010 Accrued expenses and other payables.................... 46,633 20,054 58,669 42,599 ------------ ---------- ------------ ------------- TOTAL LIABILITIES........ 1,077,552 21,410 5,272,163 594,498 ------------ ---------- ------------ ------------- NET ASSETS: Paid-in-capital............... 435,642,922 3,194,562 502,150,505 444,739,170 Accumulated undistributed net investment income (loss).... 189 -- 47,349 21,347 Accumulated undistributed net realized gain (loss)........ -- (2,927) (28,070,952) (39,494,968) Net unrealized appreciation (depreciation).............. -- (17,046) (17,995,051) (125,582,077) ------------ ---------- ------------ ------------- NET ASSETS............... $435,643,111 $3,174,589 $456,131,851 $ 279,683,472 ============ ========== ============ ============= *IDENTIFIED COST......... $435,151,748 $3,157,155 $471,577,312 $ 399,149,732 ============ ========== ============ ============= SHARES OF BENEFICIAL INTEREST OUTSTANDING..... 435,642,922 321,327 46,275,518 64,650,109 ============ ========== ============ ============= NET ASSET VALUE PER SHARE (UNLIMITED AUTHORIZED SHARES OF $.01 PAR VALUE)............ $1.00 $9.88 $9.86 $4.33 ============ ========== ============ ============= ------------------
** Includes foreign cash of $231,474.
SEE NOTES TO FINANCIAL STATEMENTS 128 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments in securities, at value*...................... $579,661,666 $84,301,544 $2,032,220,460 $171,210,846 $505,698,022 $577,990,368 $115,764,482 Cash.......................... 78,696 63,133 34,463 94,005 115,446 147,307 402,221** Receivable for: Shares of beneficial interest sold........... 326,622 3,415 322,849 92,832 294,277 1,257,928 187,713 Dividends................. 925,047 178,599 3,236,760 37,100 910,755 165,349 69,576 Interest.................. 934,167 354,409 -- -- 8,370 7,625 8,593 Foreign withholding taxes reclaimed............... -- -- -- -- 418,952 742,120 -- Prepaid expenses and other assets...................... 4,972 2,976 10,454 866 3,635 3,202 1,621 Receivable from affiliate..... -- -- -- -- -- -- -- ------------ ----------- -------------- ------------ ------------ ------------ ------------ TOTAL ASSETS............. 581,931,170 84,904,076 2,035,824,986 171,435,649 507,449,457 580,313,899 116,434,206 ------------ ----------- -------------- ------------ ------------ ------------ ------------ LIABILITIES: Payable for: Investments purchased..... -- -- -- -- -- -- -- Shares of beneficial interest repurchased.... 1,086,854 3,218,681 1,025,158 60,327 157,168 111,920 138,588 Investment management fee..................... 309,984 50,249 888,267 88,628 312,366 444,550 90,029 Foreign taxes............. -- -- -- -- -- -- 227,152 Payable to bank............... -- -- -- -- -- -- -- Accrued expenses and other payables.................... 47,380 18,810 97,634 35,278 50,433 52,662 51,053 ------------ ----------- -------------- ------------ ------------ ------------ ------------ TOTAL LIABILITIES........ 1,444,218 3,287,740 2,011,059 184,233 519,967 609,132 506,822 ------------ ----------- -------------- ------------ ------------ ------------ ------------ NET ASSETS: Paid-in-capital............... 304,719,624 81,516,823 1,797,142,512 103,542,597 415,510,169 318,747,452 129,299,287 Accumulated undistributed net investment income (loss).... (19) 107,871 112 31,127 900,043 3,279,390 503,902 Accumulated undistributed net realized gain (loss)........ 33,679,469 (843,740) 336,544,017 30,521,841 30,870,449 84,991,832 (44,030,449) Net unrealized appreciation (depreciation).............. 242,087,878 835,382 (99,872,714) 37,155,851 59,648,829 172,686,093 30,154,644 ------------ ----------- -------------- ------------ ------------ ------------ ------------ NET ASSETS............... $580,486,952 $81,616,336 $2,033,813,927 $171,251,416 $506,929,490 $579,704,767 $115,927,384 ============ =========== ============== ============ ============ ============ ============ *IDENTIFIED COST......... $337,573,788 $83,466,162 $2,132,093,174 $134,054,995 $446,036,550 $405,272,942 $ 85,385,117 ============ =========== ============== ============ ============ ============ ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING..... 25,350,647 7,134,358 111,002,887 7,216,296 35,107,218 18,423,170 13,698,224 ============ =========== ============== ============ ============ ============ ============ NET ASSET VALUE PER SHARE (UNLIMITED AUTHORIZED SHARES OF $.01 PAR VALUE)............ $22.90 $11.44 $18.32 $23.73 $14.44 $31.47 $8.46 ============ =========== ============== ============ ============ ============ ============ EQUITY -------------- ------------------------------ ASSETS: Investments in securities, at value*...................... $2,083,635,181 Cash.......................... -- Receivable for: Shares of beneficial interest sold........... 1,187,700 Dividends................. 331,468 Interest.................. -- Foreign withholding taxes reclaimed............... 61,903 Prepaid expenses and other assets...................... 2,921 Receivable from affiliate..... -- -------------- TOTAL ASSETS............. 2,085,219,173 -------------- LIABILITIES: Payable for: Investments purchased..... -- Shares of beneficial interest repurchased.... 1,287,923 Investment management fee..................... 793,561 Foreign taxes............. -- Payable to bank............... -- Accrued expenses and other payables.................... 66,304 -------------- TOTAL LIABILITIES........ 2,147,788 -------------- NET ASSETS: Paid-in-capital............... 1,138,756,520 Accumulated undistributed net investment income (loss).... 2 Accumulated undistributed net realized gain (loss)........ 287,791,199 Net unrealized appreciation (depreciation).............. 656,523,664 -------------- NET ASSETS............... $2,083,071,385 ============== *IDENTIFIED COST......... $1,427,111,517 ============== SHARES OF BENEFICIAL INTEREST OUTSTANDING..... 38,662,789 ============== NET ASSET VALUE PER SHARE (UNLIMITED AUTHORIZED SHARES OF $.01 PAR VALUE)............ $53.88 ==============
129 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENT OF ASSETS AND LIABILITIES, CONTINUED DECEMBER 31, 1999
COMPETITIVE S&P 500 EDGE AGGRESSIVE INDEX "BEST IDEAS" EQUITY STRATEGIST -------------------------------------------------------------------------------------------- ASSETS: Investments in securities, at value*...................... $185,523,758 $ 62,230,336 $ 37,742,799 $727,003,522 Cash.......................... 71,453 35,873 -- 48,473 Receivable for: Investments sold.......... -- -- 39,938 -- Shares of beneficial interest sold........... 300,216 47,209 1,503,178 221,642 Dividends................. 154,605 28,354 2,957 613,893 Interest.................. -- -- -- 2,496,816 Foreign withholding taxes reclaimed............... -- 19,874 130 -- Variation margin.......... 15,300 -- -- -- Prepaid expenses and other assets...................... 936 722 80 7,731 Receivable from affiliate..... -- 325 20,144 -- ------------ ------------- ------------- ------------ TOTAL ASSETS............. 186,066,268 62,362,693 39,309,226 730,392,077 ------------ ------------- ------------- ------------ LIABILITIES: Payable for: Investments purchased..... -- -- 1,050,031 -- Shares of beneficial interest repurchased.... 8,946 10,224 16,634 338,659 Investment management fee..................... 59,690 31,938 18,555 302,423 Accrued expenses and other payables.................... 34,812 25,729 26,630 50,319 ------------ ------------- ------------- ------------ TOTAL LIABILITIES........ 103,448 67,891 1,111,850 691,401 ------------ ------------- ------------- ------------ NET ASSETS: Paid-in-capital............... 159,038,798 49,642,862 30,947,469 482,451,455 Accumulated undistributed net investment income........... 1,179,906 316,203 49,886 36 Accumulated undistributed net realized gain (loss)........ 880,162 (1,500,684) (181,892) 76,802,603 Net unrealized appreciation... 24,863,954 13,836,421 7,381,913 170,446,582 ------------ ------------- ------------- ------------ NET ASSETS............... $185,962,820 $ 62,294,802 $ 38,197,376 $729,700,676 ============ ============= ============= ============ *IDENTIFIED COST......... $160,830,067 $ 48,393,113 $ 30,360,886 $556,556,940 ============ ============= ============= ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING..... 13,846,751 5,036,100 2,621,778 38,207,752 ============ ============= ============= ============ NET ASSET VALUE PER SHARE (UNLIMITED AUTHORIZED SHARES OF $.01 PAR VALUE)............ $13.43 $12.37 $14.57 $19.10 ============ ============= ============= ============
SEE NOTES TO FINANCIAL STATEMENTS 130 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
QUALITY MONEY SHORT-TERM INCOME HIGH MARKET BOND* PLUS YIELD ---------------------------------------------------------------------------------------- NET INVESTMENT INCOME: INTEREST INCOME............... $22,650,441 $ 65,414 $ 35,251,264 $48,360,043 ----------- ------------- ------------ ----------- EXPENSES Investment management fee..... 2,177,536 5,402 2,519,733 1,657,944 Professional fees............. 30,313 20,698 33,243 43,946 Custodian fees................ 22,449 1,462 50,636 15,838 Shareholder reports and notices..................... 12,057 91 30,115 27,656 Trustees' fees and expenses... 580 -- 1,477 895 Transfer agent fees and expenses.................... 500 500 500 500 Other......................... 4,960 390 12,288 11,664 ----------- ------------- ------------ ----------- TOTAL EXPENSES........... 2,248,395 28,543 2,647,992 1,758,443 Less: amounts waived/reimbursed........... -- (21,062) -- -- ----------- ------------- ------------ ----------- NET EXPENSES............. 2,248,395 7,481 2,647,992 1,758,443 ----------- ------------- ------------ ----------- NET INVESTMENT INCOME.... 20,402,046 57,933 32,603,272 46,601,600 ----------- ------------- ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss)...... 1,751 (2,927) (11,840,632) (7,019,312) Net change in unrealized appreciation/depreciation... -- (17,046) (43,753,636) (43,905,004) ----------- ------------- ------------ ----------- NET GAIN (LOSS).......... 1,751 (19,973) (55,594,268) (50,924,316) ----------- ------------- ------------ ----------- NET INCREASE (DECREASE)....... $20,403,797 $ 37,960 $(22,990,996) $(4,322,716) =========== ============= ============ =========== ------------------
* For the period May 4, 1999 (commencement of operations) through December 31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS 131 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED FOR THE YEAR ENDED DECEMBER 31, 1999
INCOME DIVIDEND CAPITAL UTILITIES BUILDER GROWTH GROWTH ----------------------------------------------------------------------------------------- NET INVESTMENT INCOME: INCOME Interest...................... $ 4,197,616 $2,216,605 $ 1,620,114 $ 316,122 Dividends..................... 13,715,767** 2,662,275** 51,906,938** 737,148** ----------- ---------- ------------ ------------ TOTAL INCOME............. 17,913,383 4,878,880 53,527,052 1,053,270 ----------- ---------- ------------ ------------ EXPENSES Investment management fee..... 3,606,185 632,479 11,638,694 922,721 Professional fees............. 37,192 21,699 32,059 31,298 Custodian fees................ 29,490 11,604 125,753 48,770 Shareholder reports and notices..................... 74,712 10,619 112,969 17,205 Trustees' fees and expenses... 1,608 93 4,979 224 Transfer agent fees and expenses.................... 500 500 500 500 Other......................... 6,430 2,631 18,157 1,001 ----------- ---------- ------------ ------------ TOTAL EXPENSES........... 3,756,117 679,625 11,933,111 1,021,719 Less: amounts waived/reimbursed........... -- -- -- -- ----------- ---------- ------------ ------------ NET EXPENSES............. 3,756,117 679,625 11,933,111 1,021,719 ----------- ---------- ------------ ------------ NET INVESTMENT INCOME.... 14,157,266 4,199,255 41,593,941 31,551 ----------- ---------- ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments............... 33,719,313 (99,594) 346,534,889 34,213,226 Futures contracts......... -- -- -- -- Foreign exchange transactions............ -- -- -- -- ----------- ---------- ------------ ------------ NET GAIN (LOSS).......... 33,719,313 (99,594) 346,534,889 34,213,226 ----------- ---------- ------------ ------------ Net change in unrealized appreciation/depreciation on: Investments............... 19,868,085 1,427,366 (441,379,064) 8,664,948 Futures contracts......... -- -- -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies.............. -- -- -- -- ----------- ---------- ------------ ------------ NET APPRECIATION (DEPRECIATION)........... 19,868,085 1,427,366 (441,379,064) 8,664,948 ----------- ---------- ------------ ------------ NET GAIN (LOSS).......... 53,587,398 1,327,772 (94,844,175) 42,878,174 ----------- ---------- ------------ ------------ NET INCREASE (DECREASE)....... $67,744,664 $5,527,027 $(53,250,234) $ 42,909,725 =========== ========== ============ ============ ------------------
* For the period May 4, 1999 (commencement of operations) through December 31, 1999. ** Net of $145,166, $1,961, $233,289, $2,398, $1,105,036, $1,072,606, $74,707, $132,091, $13,202, $31,377, $323 and $29,389 foreign withholding tax, respectively. + Net of foreign taxes of $358,642. ++ Net of deferred foreign taxes of $227,152.
SEE NOTES TO FINANCIAL STATEMENTS 132 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED FOR THE YEAR ENDED DECEMBER 31, 1999
GLOBAL COMPETITIVE DIVIDEND EUROPEAN PACIFIC S&P 500 EDGE GROWTH GROWTH GROWTH EQUITY INDEX "BEST IDEAS" ------------------------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME: INCOME Interest...................... $ 393,946 $ 783,163 $ 297,147 $ 6,885,294 $ 335,970 $ 162,274 Dividends..................... 12,957,288** 8,803,062** 1,507,032** 8,369,145** 1,387,842** 405,489** ----------- ------------ ----------- ------------ ----------- ----------- TOTAL INCOME............. 13,351,234 9,586,225 1,804,179 15,254,439 1,723,812 567,763 ----------- ------------ ----------- ------------ ----------- ----------- EXPENSES Investment management fee..... 3,669,864 4,749,793 754,955 7,156,661 457,843 287,991 Professional fees............. 36,132 39,384 39,988 30,846 31,673 31,701 Custodian fees................ 273,291 365,495 287,368 88,088 34,275 17,597 Shareholder reports and notices..................... 53,451 60,724 23,033 81,064 1,511 1,254 Trustees' fees and expenses... 1,075 1,187 130 3,214 111 30 Transfer agent fees and expenses.................... 500 500 500 500 688 687 Other......................... 14,949 12,487 24,278 9,136 24,701 2,447 ----------- ------------ ----------- ------------ ----------- ----------- TOTAL EXPENSES........... 4,049,262 5,229,570 1,130,252 7,369,509 550,802 341,707 Less: amounts waived/reimbursed........... -- -- -- -- (6,902) (92,742) ----------- ------------ ----------- ------------ ----------- ----------- NET EXPENSES............. 4,049,262 5,229,570 1,130,252 7,369,509 543,900 248,965 ----------- ------------ ----------- ------------ ----------- ----------- NET INVESTMENT INCOME.... 9,301,972 4,356,655 673,927 7,884,930 1,179,912 318,798 ----------- ------------ ----------- ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments............... 42,478,449 89,548,742 15,660,462+ 301,936,561 213,568 (229,308) Futures contracts......... -- -- -- -- 763,726 -- Foreign exchange transactions............ (43,846) (534,144) 115,262 (335) -- (2,474) ----------- ------------ ----------- ------------ ----------- ----------- NET GAIN (LOSS).......... 42,434,603 89,014,598 15,775,724 301,936,226 977,294 (231,782) ----------- ------------ ----------- ------------ ----------- ----------- Net change in unrealized appreciation/depreciation on: Investments............... 15,042,460 39,435,175 28,220,772++ 429,853,712 20,616,906 11,841,821 Futures contracts......... -- -- -- -- 73,136 -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies.............. (42,860) (66,572) 159,327 -- -- (924) ----------- ------------ ----------- ------------ ----------- ----------- NET APPRECIATION (DEPRECIATION)........... 14,999,600 39,368,603 28,380,099 429,853,712 20,690,042 11,840,897 ----------- ------------ ----------- ------------ ----------- ----------- NET GAIN (LOSS).......... 57,434,203 128,383,201 44,155,823 731,789,938 21,667,336 11,609,115 ----------- ------------ ----------- ------------ ----------- ----------- NET INCREASE (DECREASE)....... $66,736,175 $132,739,856 $44,829,750 $739,674,868 $22,847,248 $11,927,913 =========== ============ =========== ============ =========== =========== AGGRESSIVE EQUITY* STRATEGIST --------------------------- ------------------------------ NET INVESTMENT INCOME: INCOME Interest...................... $ 76,001 $ 14,632,265 Dividends..................... 16,939** 4,109,970** ---------- ------------ TOTAL INCOME............. 92,940 18,742,235 ---------- ------------ EXPENSES Investment management fee..... 50,317 3,399,095 Professional fees............. 22,186 31,063 Custodian fees................ 19,370 41,206 Shareholder reports and notices..................... 1,438 32,466 Trustees' fees and expenses... -- 1,210 Transfer agent fees and expenses.................... 500 500 Other......................... 459 9,499 ---------- ------------ TOTAL EXPENSES........... 94,270 3,515,039 Less: amounts waived/reimbursed........... (59,313) -- ---------- ------------ NET EXPENSES............. 34,957 3,515,039 ---------- ------------ NET INVESTMENT INCOME.... 57,983 15,227,196 ---------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments............... (181,892) 83,843,891 Futures contracts......... -- -- Foreign exchange transactions............ -- -- ---------- ------------ NET GAIN (LOSS).......... (181,892) 83,843,891 ---------- ------------ Net change in unrealized appreciation/depreciation on: Investments............... 7,381,913 10,097,511 Futures contracts......... -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies.............. -- -- ---------- ------------ NET APPRECIATION (DEPRECIATION)........... 7,381,913 10,097,511 ---------- ------------ NET GAIN (LOSS).......... 7,200,021 93,941,402 ---------- ------------ NET INCREASE (DECREASE)....... $7,258,004 $109,168,598 ========== ============
133 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS
SHORT-TERM MONEY MARKET BOND ------------------------------------ ------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999* ---------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 20,402,046 $ 19,436,475 $ 57,933 Net realized gain (loss)...... 1,751 1,854 (2,927) Net change in unrealized appreciation/depreciation... -- -- (17,046) ------------- ------------- ----------- NET INCREASE (DECREASE)............... 20,403,797 19,438,329 37,960 ------------- ------------- ----------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (20,401,879) (19,436,518) (57,933) Net realized gain............. (1,751) (1,854) -- Paid-in-capital............... -- -- -- ------------- ------------- ----------- TOTAL DIVIDENDS AND DISTRIBUTIONS............ (20,403,630) (19,438,372) (57,933) ------------- ------------- ----------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 560,245,244 465,453,549 5,606,552 Reinvestment of dividends and distributions............... 20,403,630 19,438,372 57,933 Cost of shares repurchased.... (587,040,414) (378,435,543) (2,469,923) ------------- ------------- ----------- NET INCREASE (DECREASE)............... (6,391,540) 106,456,378 3,194,562 ------------- ------------- ----------- TOTAL INCREASE (DECREASE)............... (6,391,373) 106,456,335 3,174,589 NET ASSETS: Beginning of period........... 442,034,484 335,578,149 -- ------------- ------------- ----------- END OF PERIOD............ $ 435,643,111 $ 442,034,484 $ 3,174,589 ============= ============= =========== UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 189 $ 22 $ -- ============= ============= =========== SHARES ISSUED AND REPURCHASED: Sold.......................... 560,245,244 465,453,549 564,039 Issued in reinvestment of dividends and distributions............... 20,403,630 19,438,372 5,845 Repurchased................... (587,040,414) (378,435,543) (248,557) ------------- ------------- ----------- NET INCREASE (DECREASE)....... (6,391,540) 106,456,378 321,327 ============= ============= ===========
------------------ * For the period May 4, 1999 (commencement of operations) through December 31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS 134 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS
QUALITY INCOME PLUS HIGH YIELD UTILITIES ------------------------------------ ------------------------------------ ----------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 32,603,272 $ 31,385,103 $ 46,601,600 $ 47,746,756 $ 14,157,266 Net realized gain (loss)...... (11,840,632) 7,060,684 (7,019,312) (10,756,455) 33,719,313 Net change in unrealized appreciation/depreciation... (43,753,636) 3,370,100 (43,905,004) (62,350,933) 19,868,085 ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)............... (22,990,996) 41,815,887 (4,322,716) (25,360,632) 67,744,664 ------------- ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (32,603,082) (31,385,551) (46,732,009) (47,889,896) (14,157,310) Net realized gain............. -- -- -- -- (11,183,423) Paid-in-capital............... -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS............ (32,603,082) (31,385,551) (46,732,009) (47,889,896) (25,340,733) ------------- ------------- ------------- ------------- ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 62,145,724 145,861,267 69,363,729 150,152,649 75,775,422 Reinvestment of dividends and distributions............... 32,603,082 31,385,551 46,732,009 47,889,896 25,340,733 Cost of shares repurchased.... (130,605,658) (115,083,881) (149,436,445) (128,774,384) (123,835,967) ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)............... (35,856,852) 62,162,937 (33,340,707) 69,268,161 (22,719,812) ------------- ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)............... (91,450,930) 72,593,273 (84,395,432) (3,982,367) 19,684,119 NET ASSETS: Beginning of period........... 547,582,781 474,989,508 364,078,904 368,061,271 560,802,833 ------------- ------------- ------------- ------------- ------------- END OF PERIOD............ $ 456,131,851 $ 547,582,781 $ 279,683,472 $ 364,078,904 $ 580,486,952 ============= ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 47,349 $ (300) $ 21,347 $ 151,756 $ (19) ============= ============= ============= ============= ============= SHARES ISSUED AND REPURCHASED: Sold.......................... 5,941,824 13,356,857 14,733,336 26,123,968 3,501,422 Issued in reinvestment of dividends and distributions............... 3,166,433 2,881,413 9,920,699 8,453,299 1,169,927 Repurchased................... (12,626,740) (10,567,612) (31,789,573) (22,927,167) (5,711,878) ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)....... (3,518,483) 5,670,658 (7,135,538) 11,650,100 (1,040,529) ============= ============= ============= ============= ============= UTILITIES INCOME BUILDER ----------------- ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------------------------------- ------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 14,064,617 $ 4,199,255 $ 4,037,661 Net realized gain (loss)...... 11,183,431 (99,594) 936,441 Net change in unrealized appreciation/depreciation... 81,869,637 1,427,366 (3,662,539) ------------- ------------ ------------ NET INCREASE (DECREASE)............... 107,117,685 5,527,027 1,311,563 ------------- ------------ ------------ DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (14,064,645) (4,106,298) (4,033,908) Net realized gain............. (24,274,238) (1,674,655) (768,186) Paid-in-capital............... -- (120,208) -- ------------- ------------ ------------ TOTAL DIVIDENDS AND DISTRIBUTIONS............ (38,338,883) (5,901,161) (4,802,094) ------------- ------------ ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 107,347,532 17,298,775 50,649,400 Reinvestment of dividends and distributions............... 38,338,883 5,901,161 4,802,094 Cost of shares repurchased.... (111,796,640) (28,978,600) (19,614,662) ------------- ------------ ------------ NET INCREASE (DECREASE)............... 33,889,775 (5,778,664) 35,836,832 ------------- ------------ ------------ TOTAL INCREASE (DECREASE)............... 102,668,577 (6,152,798) 32,346,301 NET ASSETS: Beginning of period........... 458,134,256 87,769,134 55,422,833 ------------- ------------ ------------ END OF PERIOD............ $ 560,802,833 $ 81,616,336 $ 87,769,134 ============= ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 25 $ 107,871 $ 14,879 ============= ============ ============ SHARES ISSUED AND REPURCHASED: Sold.......................... 5,490,004 1,493,695 4,241,399 Issued in reinvestment of dividends and distributions............... 1,967,479 512,121 415,816 Repurchased................... (5,716,328) (2,529,168) (1,710,560) ------------- ------------ ------------ NET INCREASE (DECREASE)....... 1,741,155 (523,352) 2,946,655 ============= ============ ============
------------------ 135 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DIVIDEND GROWTH CAPITAL GROWTH ------------------------------------ ------------------------------------ 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 ---------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 41,593,941 $ 38,849,535 $ 31,551 $ (341,222) Net realized gain (loss)...... 346,534,889 322,115,886 34,213,226 15,646,625 Net change in unrealized appreciation/depreciation... (441,379,064) (89,389,463) 8,664,948 6,997,899 -------------- -------------- ------------ ------------ NET INCREASE (DECREASE)............... (53,250,234) 271,575,958 42,909,725 22,303,302 -------------- -------------- ------------ ------------ DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (41,593,983) (38,849,522) -- (10,014) Net realized gain............. (329,147,530) (187,973,609) (17,791,828) (10,080,542) -------------- -------------- ------------ ------------ TOTAL DIVIDENDS AND DISTRIBUTIONS............ (370,741,513) (226,823,131) (17,791,828) (10,090,556) -------------- -------------- ------------ ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 280,502,535 479,551,623 25,586,183 28,039,255 Reinvestment of dividends and distributions............... 370,741,513 226,823,131 17,791,828 10,090,556 Cost of shares repurchased.... (443,365,153) (407,106,560) (35,847,602) (38,839,523) -------------- -------------- ------------ ------------ NET INCREASE (DECREASE)............... 207,878,895 299,268,194 7,530,409 (709,712) -------------- -------------- ------------ ------------ TOTAL INCREASE (DECREASE)............... (216,112,852) 344,021,021 32,648,306 11,503,034 NET ASSETS: Beginning of period........... 2,249,926,779 1,905,905,758 138,603,110 127,100,076 -------------- -------------- ------------ ------------ END OF PERIOD............ $2,033,813,927 $2,249,926,779 $171,251,416 $138,603,110 ============== ============== ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 112 $ 154 $ 31,127 $ (424) ============== ============== ============ ============ SHARES ISSUED AND REPURCHASED: Sold.......................... 13,098,987 21,516,674 1,226,447 1,431,494 Issued in reinvestment of dividends and distributions............... 17,950,387 10,521,804 929,562 513,776 Repurchased................... (21,694,034) (18,647,038) (1,746,710) (2,085,691) -------------- -------------- ------------ ------------ NET INCREASE (DECREASE)....... 9,355,340 13,391,440 409,299 (140,421) ============== ============== ============ ============
------------------ SEE NOTES TO FINANCIAL STATEMENTS 136 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS
GLOBAL DIVIDEND GROWTH EUROPEAN GROWTH PACIFIC GROWTH ------------------------------------ ------------------------------------ ----------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 9,301,972 $ 8,273,212 $ 4,356,655 $ 3,094,783 $ 673,927 Net realized gain (loss)...... 42,434,603 29,801,364 89,014,598 43,252,405 15,775,724 Net change in unrealized appreciation/depreciation... 14,999,600 16,207,523 39,368,603 44,049,168 28,380,099 ------------ ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)............... 66,736,175 54,282,099 132,739,856 90,396,356 44,829,750 ------------ ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (9,852,158) (8,206,088) (3,407,759) (5,476,236) (770,896) Net realized gain............. (35,181,150) (52,205,069) (47,147,183) (30,256,754) -- ------------ ------------- ------------- ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS............ (45,033,308) (60,411,157) (50,554,942) (35,732,990) (770,896) ------------ ------------- ------------- ------------- ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 52,898,642 75,090,455 151,803,640 190,691,042 233,462,939 Reinvestment of dividends and distributions............... 45,033,308 60,411,157 50,554,942 35,732,990 770,896 Cost of shares repurchased.... (96,932,891) (126,758,450) (215,476,326) (161,891,054) (215,206,842) ------------ ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)............... 999,059 8,743,162 (13,117,744) 64,532,978 19,026,993 ------------ ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE)............... 22,701,926 2,614,104 69,067,170 119,196,344 63,085,847 NET ASSETS: Beginning of period........... 484,227,564 481,613,460 510,637,597 391,441,253 52,841,537 ------------ ------------- ------------- ------------- ------------- END OF PERIOD............ $506,929,490 $ 484,227,564 $ 579,704,767 $ 510,637,597 $ 115,927,384 ============ ============= ============= ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 900,043 $ 520,531 $ 3,279,390 $ 3,134,104 $ 503,902 ============ ============= ============= ============= ============= SHARES ISSUED AND REPURCHASED: Sold.......................... 3,735,961 5,251,149 5,542,879 7,118,106 37,338,181 Issued in reinvestment of dividends and distributions............... 3,214,043 4,451,226 2,023,007 1,290,932 115,750 Repurchased................... (6,868,373) (9,357,396) (7,927,773) (6,252,813) (34,025,265) ------------ ------------- ------------- ------------- ------------- NET INCREASE (DECREASE)....... 81,631 344,979 (361,887) 2,156,225 3,428,666 ============ ============= ============= ============= ============= PACIFIC GROWTH ----------------- FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------- ------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 504,743 Net realized gain (loss)...... (31,801,028) Net change in unrealized appreciation/depreciation... 24,432,009 ------------ NET INCREASE (DECREASE)............... (6,864,276) ------------ DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (2,947,935) Net realized gain............. -- ------------ TOTAL DIVIDENDS AND DISTRIBUTIONS............ (2,947,935) ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 65,895,854 Reinvestment of dividends and distributions............... 2,947,935 Cost of shares repurchased.... (75,093,578) ------------ NET INCREASE (DECREASE)............... (6,249,789) ------------ TOTAL INCREASE (DECREASE)............... (16,062,000) NET ASSETS: Beginning of period........... 68,903,537 ------------ END OF PERIOD............ $ 52,841,537 ============ UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 411,637 ============ SHARES ISSUED AND REPURCHASED: Sold.......................... 13,473,730 Issued in reinvestment of dividends and distributions............... 677,325 Repurchased................... (15,145,796) ------------ NET INCREASE (DECREASE)....... (994,741) ============
------------------ 137 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
EQUITY S&P 500 INDEX ------------------------------------ ------------------------------------- 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* ----------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income......... $ 7,884,930 $ 6,924,725 $ 1,179,912 $ 244,990 Net realized gain (loss)...... 301,936,226 161,754,931 977,294 186,052 Net change in unrealized appreciation/depreciation... 429,853,712 89,582,262 20,690,042 4,173,912 -------------- -------------- ------------ ------------ NET INCREASE............. 739,674,868 258,261,918 22,847,248 4,604,954 -------------- -------------- ------------ ------------ DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (7,879,428) (6,924,673) (244,996) -- Net realized gain............. (168,434,937) (114,146,703) (283,184) -- -------------- -------------- ------------ ------------ TOTAL DIVIDENDS AND DISTRIBUTIONS............ (176,314,365) (121,071,376) (528,180) -- -------------- -------------- ------------ ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 428,695,184*** 262,726,068 140,040,634 50,279,637 Reinvestment of dividends and distributions............... 176,314,365 121,071,376 528,180 -- Cost of shares repurchased.... (223,711,390) (205,665,545) (25,657,030) (6,152,623) -------------- -------------- ------------ ------------ NET INCREASE............. 381,298,159 178,131,899 114,911,784 44,127,014 -------------- -------------- ------------ ------------ TOTAL INCREASE........... 944,658,662 315,322,441 137,230,852 48,731,968 NET ASSETS: Beginning of period........... 1,138,412,723 823,090,282 48,731,968 -- -------------- -------------- ------------ ------------ END OF PERIOD............ $2,083,071,385 $1,138,412,723 $185,962,820 $ 48,731,968 ============== ============== ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 2 $ (5,165) $ 1,179,906 $ 244,990 ============== ============== ============ ============ SHARES ISSUED AND REPURCHASED: Sold.......................... 10,020,241*** 7,421,841 11,576,170 4,974,649 Issued in reinvestment of dividends and distributions............... 4,406,556 3,456,577 42,255 -- Repurchased................... (5,269,790) (5,884,436) (2,115,310) (631,013) -------------- -------------- ------------ ------------ NET INCREASE.................. 9,157,007 4,993,982 9,503,115 4,343,636 ============== ============== ============ ============
------------------ * For the period May 18, 1998 (commencement of operations) through December 31, 1998. ** For the period May 4, 1999 (commencement of operations) through December 31, 1999. *** Includes acquisition of Capital Appreciation of 824,458 shares and $35,291,368.
SEE NOTES TO FINANCIAL STATEMENTS 138 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL STATEMENTS, CONTINUED STATEMENTS OF CHANGES IN NET ASSETS
COMPETITIVE EDGE AGGRESSIVE "BEST IDEAS" EQUITY STRATEGIST ------------------------------------- ------------------- ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998* DECEMBER 31, 1999** DECEMBER 31, 1999 DECEMBER 31, 1998 -------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss)...................... $ 318,798 $ 266,358 $ 57,983 $ 15,227,196 $ 12,820,064 Net realized gain (loss)...... (231,782) (1,270,706) (181,892) 83,843,891 (7,041,288) Net change in unrealized appreciation/depreciation... 11,840,897 1,995,524 7,381,913 10,097,511 125,871,829 ------------ ------------ ------------ ------------- ------------- NET INCREASE (DECREASE)............... 11,927,913 991,176 7,258,004 109,168,598 131,650,605 ------------ ------------ ------------ ------------- ------------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income......... (267,149) -- (8,097) (15,227,618) (12,819,604) Net realized gain............. -- -- -- -- (52,303,444) ------------ ------------ ------------ ------------- ------------- TOTAL DIVIDENDS AND DISTRIBUTIONS............ (267,149) -- (8,097) (15,227,618) (65,123,048) ------------ ------------ ------------ ------------- ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: Net proceeds from sales....... 25,976,215 48,814,147 41,217,608 110,695,004 120,982,104 Reinvestment of dividends and distributions............... 267,149 -- 8,097 15,227,618 65,123,048 Cost of shares repurchased.... (12,148,106) (13,266,543) (10,278,236) (124,097,206) (115,726,574) ------------ ------------ ------------ ------------- ------------- NET INCREASE (DECREASE)............... 14,095,258 35,547,604 30,947,469 1,825,416 70,378,578 ------------ ------------ ------------ ------------- ------------- TOTAL INCREASE (DECREASE)............... 25,756,022 36,538,780 38,197,376 95,766,396 136,906,135 NET ASSETS: Beginning of period........... 36,538,780 -- -- 633,934,280 497,028,145 ------------ ------------ ------------ ------------- ------------- END OF PERIOD............ $ 62,294,802 $ 36,538,780 $ 38,197,376 $ 729,700,676 $ 633,934,280 ============ ============ ============ ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................. $ 316,203 $ 267,028 $ 49,886 $ 36 $ 458 ============ ============ ============ ============= ============= SHARES ISSUED AND REPURCHASED: Sold.......................... 2,453,400 5,131,070 3,507,417 6,274,928 7,783,951 Issued in reinvestment of dividends and distributions............... 25,638 -- 794 851,314 4,189,589 Repurchased................... (1,165,678) (1,408,330) (886,433) (7,016,894) (7,464,531) ------------ ------------ ------------ ------------- ------------- NET INCREASE (DECREASE)....... 1,313,360 3,722,740 2,621,778 109,348 4,509,009 ============ ============ ============ ============= =============
------------------ 139 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Dean Witter Variable Investment Series ("the Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Investments in the Fund may be made only by (1) Northbrook Life Insurance Company to fund the benefits under variable annuity contracts and variable life insurance contracts it issues; (2) Allstate Life Insurance Company of New York to fund the benefits under variable annuity contracts it issues; (3) Glenbrook Life and Annuity Company to fund the benefits under variable annuity contracts and variable life insurance contracts it issues; and (4) Paragon Life Insurance Company to fund the benefits under variable life insurance contracts it issues to certain employees of Morgan Stanley Dean Witter & Co., the parent company of Morgan Stanley Dean Witter Advisors Inc. ("the Investment Manager"). The Fund, organized on February 25, 1983 as a Massachusetts business trust, consists of sixteen Portfolios ("Portfolios") which commenced operations as follows:
COMMENCEMENT OF COMMENCEMENT OF PORTFOLIO OPERATIONS PORTFOLIO OPERATIONS --------- ----------------- --------- ----------------- Money Market.................. March 9, 1984 Global Dividend Growth.............. February 23, 1994 Short-Term Bond............... May 4, 1999 European Growth..................... March 1, 1991 Quality Income Plus........... March 1, 1987 Pacific Growth...................... February 23, 1994 High Yield.................... March 9, 1984 Equity.............................. March 9, 1984 Utilities..................... March 1, 1990 S&P 500 Index....................... May 18, 1998 Income Builder................ January 21, 1997 Competitive Edge "Best Ideas"....... May 18, 1998 Dividend Growth............... March 1, 1990 Aggressive Equity................... May 4, 1999 Capital Growth................ March 1, 1991 Strategist.......................... March 1, 1987
The investment objectives of each Portfolio are as follows: PORTFOLIO INVESTMENT OBJECTIVE Money Market Seeks high current income, preservation of capital and liquidity by investing in short-term money market instruments. Short-Term Bond Seeks to provide a high level of current income consistent with the preservation of capital, by investing primarily in bonds issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities and investment grade corporate and other types of bonds. Quality Income Plus Seeks, as its primary objective, to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective, by investing primarily in U.S. Government securities and higher-rated fixed income securities. High Yield Seeks, as its primary objective, to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective, by investing primarily in lower-rated fixed income securities.
140 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED PORTFOLIO INVESTMENT OBJECTIVE Utilities* Seek both capital appreciation and current income by investing in equity and fixed income securities of companies engaged in the utilities industry. Prior to August 5, 1999 the investment objective was to provide current income and long-term growth of income and capital by investing primarily in equity and fixed income securities of companies engaged in the public utilities industry. Income Builder Seeks, as its primary objective, to earn reasonable income and, as a secondary objective, growth of capital by investing primarily in income-producing equity securities. Dividend Growth Seeks to provide reasonable current income and long-term growth of income and capital by investing primarily in common stocks of companies with a record of paying dividends and the potential for increasing dividends. Capital Growth Seeks long-term capital growth by investing primarily in common stocks. Global Dividend Seeks to provide reasonable current income and long-term growth Growth of income and capital by investing primarily in common stocks of companies, issued by issuers worldwide, with a record of paying dividends and the potential for increasing dividends. European Growth Seeks to maximize the capital appreciation of its investments by investing primarily in securities issued by issuers located in Europe. Pacific Growth Seeks to maximize the capital appreciation of its investments by investing primarily in securities issued by issuers located in Asia, Australia and New Zealand. Equity Seeks, as its primary objective, capital growth and, as a secondary objective, income, but only when consistent with its primary objective, by investing primarily in common stocks. S&P 500 Index Seeks to provide investment results that, before expenses, correspond to the total return of the Standards & Poor's 500 Composite Stock Price Index (the "S&P 500 Index") by investing primarily in common stocks included in the S&P 500 Index. Competitive Edge Seeks long-term capital growth by investing primarily in the "Best Ideas" common stock of U.S. and non - U.S. companies included in the "Best Ideas" list, a research compilation assembled and maintained by Morgan Stanley Dean Witter Equity Research. Aggressive Equity Seeks long-term capital growth by investing primarily in the equity securities of companies covered by Morgan Stanley Dean Witter Equity Research that offer the potential for superior earnings growth. Strategist Seeks a high total investment return through a fully managed investment policy utilizing equity, investment grade fixed income and money market securities and writing covered options.
* 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 141 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED that exchange prior to the time when assets are valued; if there were no sales that day, the security is valued at the latest bid price (in cases where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market pursuant to procedures adopted by the Trustees); (2) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid price prior to the time of valuation; (3) listed options are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they are valued at the mean between their latest bid and asked price; (4) when market quotations are not readily available, including circumstances under which it is determined by the Investment Manager (or, in the case of European Growth and Pacific Growth, by Morgan Stanley Dean Witter Investment Management Inc. (the Sub-Advisor)) that sale or bid prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Trustees (valuation of debt securities for which market quotations are not readily available may also be based upon current market prices of securities which are comparable in coupon, rating and maturity or an appropriate matrix utilizing similar factors); (5) certain of the Fund's portfolio securities may be valued by an outside pricing service approved by the Trustees. The pricing service may utilize a matrix system incorporating security quality, maturity and coupon as the evaluation model parameters, and/or research and evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the securities valued by such pricing service; and (6) short-term debt securities having a maturity date of more than sixty days at the time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income is accrued daily except where collection is not expected. Money Market amortizes premiums and accretes discounts on securities owned; gains and losses realized upon the sale of securities are based on amortized cost. Discounts for all other Portfolios are accreted over the life of the respective securities. C. ACCOUNTING FOR OPTIONS AND FUTURES CONTRACTS -- (1) Written options on debt obligations, equities and foreign currency: when the Fund writes a call or put option, an amount equal to the premium received is included in the Fund's Statement of Assets and Liabilities as a liability which is 142 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED subsequently marked-to-market to reflect the current market value of the option written. If a written option either expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying security or currency and the liability related to such option is extinguished. If a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security or currency and the proceeds from such sale are increased by the premium originally received. If a put option which the Fund has written is exercised, the amount of the premium originally received reduces the cost of the security which the Fund purchases upon exercise of the option; (2) Purchased options on debt obligations, equities and foreign currency: When the Fund purchases a call or put option, the premium paid is recorded as an investment and is subsequently marked-to-market to reflect the current market value. If a purchased option expires, the Fund will realize a loss to the extent of the premium paid. If the Fund enters into a closing sale transaction, a gain or loss is realized for the difference between the proceeds from the sale and the cost of the option. If a put option is exercised, the cost of the security sold upon exercise will be increased by the premium originally paid. If a call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid; (3) Options on futures contracts: the Fund is required to deposit cash, U.S. Government securities or other liquid portfolio securities as "initial margin" and "variation margin" with respect to written call and put options on futures contracts. If written option expires, the Fund realizes a gain. If a written call or put option is exercised, the premium received will decrease or increase the unrealized loss or gain on the futures contract. If the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying futures contract and the liability related to such option is extinguished; and (4) Futures contracts: a futures contract is an agreement between two parties to buy and sell financial instruments at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains or losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Portfolios investing in foreign currency denominated transactions are translated into U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts are translated at the exchange rates prevailing at the end of the period; and (2) purchases, 143 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are included in the Statement of Operations as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Portfolios do not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. E. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into forward foreign currency contracts which are valued daily at the appropriate forward exchange rates. The resultant unrealized exchange gains and losses are included in the Statement of Operations as unrealized gain/ loss on foreign exchange transactions. The Portfolios record realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually for each Portfolio with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and distributions to its shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. H. EXPENSES -- Direct expenses are charged to the respective Portfolio and general Fund expenses are allocated on the basis of relative net assets or equally among the Portfolios. 144 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED 2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS Pursuant to an Investment Management Agreement (the "Agreement"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to each Portfolios' net assets determined at the close of each business day: Money Market -- 0.50% to the portion of daily net assets not exceeding $500 million and effective May 1, 1999 the Agreement was amended to reduce the annual rate to 0.425% of the portion of daily net assets exceeding $500 million but not exceeding $750 million and 0.375% of the portion of daily net assets exceeding $750 million. Short-Term Bond -- 0.45%. Quality Income Plus -- 0.50% to the portion of daily net assets not exceeding $500 million and 0.45% to the portion of daily net assets exceeding $500 million. High Yield -- 0.50% to the portion of daily net assets not exceeding $500 million and 0.425% of the portion of daily net assets exceeding $500 million. Utilities -- 0.65% to the portion of daily net assets not exceeding $500 million; 0.55% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion and effective May 1, 1999 the Agreement was amended to reduce the annual rate to 0.525% of the portion of daily net assets exceeding $1 billion. Income Builder -- 0.75%. Dividend Growth -- 0.625% to the portion of daily net assets not exceeding $500 million; 0.50% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion; 0.475% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.45% of the portion of daily net assets exceeding $2 billion but not exceeding $3 billion and effective May 1, 1999 the Agreement was amended to reduce the annual rate to 0.425% of the portion of daily net assets exceeding $3 billion. Capital Growth -- 0.65%. Global Dividend Growth -- 0.75% to the portion of daily net assets not exceeding $1 billion and effective May 1, 1999 the Agreement was amended to reduce the annual rate to 0.725% of the portion of daily net assets exceeding $1 billion. European Growth -- 0.95% to the portion of daily net assets not exceeding $500 million and 0.90% of the portion of daily net assets exceeding $500 million. Pacific Growth -- 0.95%. 145 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED Equity -- 0.50% to the portion of daily net assets not exceeding $1 billion and 0.475% to the portion of daily net assets exceeding $1 billion. S&P 500 Index -- 0.40%. Competitive Edge "Best Ideas" -- 0.65%. Aggressive Equity -- 0.75%. Strategist -- 0.50% to the portion of daily net assets not exceeding $1.5 billion and effective May 1, 1999 the Agreement was amended to reduce the annual rate to 0.475% of the portion of daily net assets exceeding $1.5 billion. Under the terms of the Agreement, in addition to managing the Fund's investments, the Investment Manager maintains certain of the Fund's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Fund who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Fund. Under a Sub-Advisory Agreement between the Investment Manager and the Sub-Advisor, the Sub-Advisor provides European Growth and Pacific Growth with investment advice and portfolio management relating to the Portfolios' investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the Sub-Advisor monthly compensation equal to 40% of its monthly compensation. For the period May 4, 1999 through November 4, 1999, the Investment Manager reimbursed all operating expenses and waived the compensation provided for in its Investment Management Agreement with Short-Term Bond and Aggressive Equity. For the period May 18, 1998 through April 30, 1999, the Investment Manager waived its compensation and reimbursed all operating expenses for Competitive Edge "Best Ideas". For the period May 18, 1998 through January 5, 1999, the Investment Manager waived its compensation and reimbursed all operating expenses for S&P 500 Index. Commencing January 6, 1999, the Investment Manager has agreed to assume all operating expenses and to waive its compensation to the extent such expenses and compensation on an annualized basis exceed 0.50% of the daily net assets of S&P 500 Index. At December 31, 1999, included in the Statements of Assets and Liabilities are receivables from an affiliate which represent expense reimbursements due to the Portfolios. 146 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED 3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Purchases and sales/maturities of portfolio securities, excluding short-term investments (except Money Market), for the year ended December 31, 1999 were as follows:
U.S. GOVERNMENT SECURITIES OTHER ------------------------------ -------------------------------- PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES ------------ ---------------- -------------- ---------------- Money Market............................ $180,807,008 $205,802,906 $3,304,320,547 $3,305,653,918 Short-Term Bond......................... 3,552,804 872,682 -- -- Quality Income Plus..................... 364,503,475 385,304,831 228,268,039 248,623,785 High Yield.............................. -- -- 152,296,394 199,457,484 Utilities............................... -- -- 52,513,585 75,015,937 Income Builder.......................... 132,453 314,579 35,568,239 45,350,590 Dividend Growth......................... -- -- 1,775,253,646 1,935,479,726 Capital Growth.......................... -- -- 780,344,500 795,863,613 Global Dividend Growth.................. -- -- 203,585,769 239,363,299 European Growth......................... -- -- 266,663,796 323,799,920 Pacific Growth.......................... -- -- 94,005,220 77,396,625 Equity.................................. 56,476,250 56,242,188 4,320,348,355 4,204,777,181 S&P 500 Index........................... -- -- 114,611,734 1,414,471 Competitive Edge "Best Ideas"........... -- -- 34,434,155 22,624,654 Aggressive Equity....................... -- -- 36,673,196 11,015,296 Strategist.............................. 206,541,469 173,358,861 440,335,201 485,401,288
Included in the aforementioned purchases of portfolio securities of S&P 500 Index are purchases of Morgan Stanley Dean Witter & Co., an affiliate of the Investment Manager, of $538,154 and purchases of Allstate Corp., an affiliate of the Fund, of $277,160. Included in the payable for investments purchased at December 31, 1999 for Aggressive Equity is $864,031 for unsettled trades with Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager. For the year ended December 31, 1999, the following Portfolios incurred brokerage commissions with DWR for portfolio transactions executed on behalf of the Portfolio:
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND COMPETIVE EDGE AGGRESIVE HIGH UTILITIES BUILDER GROWTH GROWTH GROWTH "BEST IDEAS" EQUITY EQUITY STRATEGIST YIELD ---------- ----------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- $ 8,450 $ 30,496 $ 167,890 $ 120,251 $ 30,930 $ 25 $ 218,335 $ 21,397 $ 27,241 $ 10,498 ========= ========== ============ ========== ========== ============ ========== ========== ========== ==========
For the year ended December 31, 1999, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., Inc, an affiliate of the Investment Manager, for portfolio transactions executed on behalf of the Portfolio:
GLOBAL INCOME DIVIDEND CAPITAL DIVIDEND PACIFIC COMPETITIVE EDGE AGGRESSIVE BUILDER GROWTH GROWTH GROWTH GROWTH EQUITY "BEST IDEAS" EQUITY STRATEGIST ------- -------- ------- -------- ------- -------- ---------------- ---------- ---------- $2,555 $255,110 $83,995 $145,785 $55,994 $637,848 $39,371 $671 $26,580 ====== ======== ======= ======== ======= ======== ======= ==== =======
147 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Fund's transfer agent. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended December 31, 1999 included in Trustees' fees and expenses in the Statement of Operations and the accrued pension liability included in accrued expenses in the Statement of Assets and Liabilities are as follows:
AGGREGATE PENSION COSTS QUALTY GLOBAL MONEY INCOME HIGH INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC MARKET PLUS YIELD UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY S&P 500 INDEX STRATEGIST ------- ------- ------ --------- ------- -------- ------- -------- -------- ------- ------ ------------- ---------- $ 329 $ 654 $ 224 $ 687 $28 $ 935 $106 $280 $ 342 $106 $ 999 $49 $ 88 ======= ====== ====== ====== === ====== ==== ==== ====== ==== ====== === ====== ACCRUED PENSION LIABILITY $10,966 $7,716 $3,786 $5,253 $88 $9,215 $449 $955 $1,246 $264 $6,260 $35 $7,917 ======= ====== ====== ====== === ====== ==== ==== ====== ==== ====== === ======
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:
AMOUNTS IN THOUSANDS ----------------------------------------------------------------------------- Available through December 31, 2000 2001 2002 2003 2004 2005 2006 2007 TOTAL ---------------------------------------- ------- ------ ------- ------- ------- ------ ------- ------- ------- Short-Term Bond......................... -- -- -- -- -- -- -- $ 3 $ 3 Quality Income Plus..................... -- -- $12,983 -- $2,491 -- -- 10,571 26,045 High Yield.............................. $3,057 $4,736 3,256 $ 2,984 5,521 -- $ 2,735 10,786 33,075 Income Builder.......................... -- -- -- -- -- -- -- 229 229 Pacific Growth.......................... -- -- -- -- -- $9,352 33,536 -- 42,888 Equity.................................. -- -- -- -- -- 5,006 14 -- 5,020 Competitive Edge "Best Ideas"........... -- -- -- -- -- -- 853 544 1,397 Aggressive Equity....................... -- -- -- -- -- -- -- 68 68
As part of the Equity's acquisition of the assets of the Capital Appreciation Portfolio ("Capital Appreciation"), Equity obtained a net capital loss carryover of approximately $6,329,000 from Capital Appreciation. Utilization of this carryover is subject to limitations imposed by the Internal Revenue Code and Treasury Regulations. During the year ended December 31, 1999, Equity utilized approximately $1,309,000 of this carryover. The following Portfolios also utilized approximate net capital loss carryovers: Pacific Growth - $8,180,000; Strategist - $6,900,000. Net capital and net foreign currency losses incurred after October 31 ("post-October losses") within the taxable year are deemed to arise on the first business day of the Portfolios' next taxable year. 148 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED The following Portfolios incurred and will elect to defer post-October losses during fiscal 1999: Quality Income Plus - $1,864,000; High Yield - $4,391,000; Income Builder - $197,000; Competitive Edge "Best Ideas" - $1,000; Strategist - $8,855,000. At December 31, 1999, the primary reason(s) for significant temporary/permanent book/tax differences were as follows:
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES --------------------------- ---------------------------- POST- LOSS FOREIGN EXPIRED OCTOBER DEFERRALS FROM CURRENCY CAPITAL LOSS LOSSES WASH SALES GAINS/LOSSES CARRYFORWARD ----------- -------------- ------------ -------------- Quality Income Plus..................... - - High Yield.............................. - - - Utilities............................... - Income Builder.......................... - - Dividend Growth......................... - Capital Growth.......................... - Global Dividend Growth.................. - - European Growth......................... - - Pacific Growth.......................... - - Equity.................................. - S&P 500 Index........................... - Competitive Edge "Best Ideas"........... - - - Aggressive Equity....................... - Strategist.............................. - -
Additionally, Global Dividend Growth and Pacific Growth had temporary differences attributable to income from the mark-to-market of passive foreign investment companies ("PFICs"), S&P 500 Index had temporary differences attributable to the mark-to-market of futures contracts and High Yield had temporary differences attributable to interest on bonds in default. Global Dividend Growth and Pacific Growth had permanent differences attributable to tax adjustments on PFICs sold by the Portfolios. To reflect reclassifications arising from the permanent differences, the following accounts were (charged) credited:
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL ---------------------------- ------------------------- --------------- Quality Income Plus..................... $ 47,459 $ (47,459) -- High Yield.............................. -- 7,335,877 $(7,335,877) Global Dividend Growth.................. 929,698 (822,262) (107,436) European Growth......................... (803,610) 12,395 791,215 Pacific Growth.......................... 189,234 (195,858) 6,624 Equity.................................. (18) 335 (317) Competitive Edge "Best Ideas"........... (2,474) 2,474 --
149 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED 5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS Global Dividend Growth, European Growth, Pacific Growth and Competitive Edge "Best Ideas" may enter into forward foreign currency contracts ("forward contracts") to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Such Portfolios may also purchase and write put options on foreign currencies ("options") in which the Portfolios' securities are denominated to protect against a decline in value of such securities due to currency devaluations. Forward contracts and options involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Portfolios bear the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these forward contracts and options from the potential inability of the counterparties to meet the terms of their contracts. S&P 500 Index may purchase and sell stock index futures ("futures contacts") for the following reasons: to simulate full investment in the S&P 500 INDEX while retaining a cash balance for fund management purposes, to facilitate trading, to reduce transaction costs or to seek higher investment returns when a futures contract is priced more attractively than stocks comprising the S&P 500 INDEX. These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. S&P 500 Index bears the risk of an unfavorable change in the value of the underlying securities. At December 31, 1999, European Growth's investments in securities of issuers in the United Kingdom represented 28.1% of the Portfolio's net assets. Pacific Growth's investments in securities of issuers in Japan represented 44.4% of the Portfolio's net assets. These investments, which involve risks and considerations not present with respect to U.S. securities, may be affected by economic or political developments in these regions. At December 31, 1999, Global Dividend Growth's, European Growth's and Pacific Growth's cash balance consisted principally of interest bearing deposits with Chase Manhattan Bank N.A., the custodian of each Portfolio. 150 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED 6. PORTFOLIO MERGER As of the close of business on March 19, 1999, Equity acquired all the net assets of Morgan Stanley Dean Witter Variable Investment Series - Capital Appreciation ("Capital Appreciation") pursuant to a plan of reorganization approved by the shareholders of Capital Appreciation on February 24, 1999. The acquisition was accomplished by a tax-free exchange of 824,458 shares of Equity at a net asset value of $42.80 per share for 3,210,810 shares of Capital Appreciation. The net assets of Equity and Capital Appreciation immediately before the acquisition were $1,300,120,916 and $35,291,368, respectively, including unrealized appreciation of $6,437,316 for Capital Appreciation. Immediately after the acquisition the combined net assets of Equity amounted to $1,335,412,284. 151 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period: NET ASSET NET REALIZED TOTAL VALUE NET AND FROM DISTRIBUTIONS TOTAL BEGINNING INVESTMENT UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS -------------------------------------------------------------------------------------------------------------- MONEY MARKET 1995 $ 1.00 $0.055 -- $ 0.055 $ (0.055) -- $ (0.055) 1996 1.00 0.050 -- 0.050 (0.050) -- (0.050) 1997 1.00 0.051 -- 0.051 (0.051) -- (0.051) 1998 1.00 0.051 -- 0.051 (0.051) -- (0.051) 1999 1.00 0.047 -- 0.047 (0.047) -- (0.047) SHORT-TERM BOND 1999(c) 10.00 0.27 $ (0.12) 0.15 (0.27) -- (0.27) QUALITY INCOME PLUS 1995 9.45 0.72 1.50 2.22 (0.71) -- (0.71) 1996 10.96 0.71 (0.58) 0.13 (0.72) -- (0.72) 1997 10.37 0.70 0.40 1.10 (0.70) -- (0.70) 1998 10.77 0.68 0.23 0.91 (0.68) -- (0.68) 1999 11.00 0.67 (1.14) (0.47) (0.67) -- (0.67) HIGH YIELD 1995 6.16 0.80 0.08 0.88 (0.78) -- (0.78) 1996 6.26 0.77 (0.06) 0.71 (0.79) -- (0.79) 1997 6.18 0.75 (0.06) 0.69 (0.75) -- (0.75) 1998 6.12 0.71 (1.05) (0.34) (0.71) -- (0.71) 1999 5.07 0.68 (0.74) (0.06) (0.68) -- (0.68) UTILITIES 1995 11.92 0.53 2.81 3.34 (0.58) -- (0.58) 1996 14.68 0.55 0.70 1.25 (0.55) $ (0.04) (0.59) 1997 15.34 0.57 3.46 4.03 (0.57) (0.21) (0.78) 1998 18.59 0.57 3.68 4.25 (0.57) (1.02) (1.59) 1999 21.25 0.55 2.08 2.63 (0.55) (0.43) (0.98) INCOME BUILDER 1997(a) 10.00 0.44 1.76 2.20 (0.44) -- (0.44) 1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11) (0.67) 1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++ (0.81) DIVIDEND GROWTH 1995 11.99 0.38 3.89 4.27 (0.41) (0.26) (0.67) 1996 15.59 0.41 3.22 3.63 (0.41) (0.41) (0.82) 1997 18.40 0.41 4.20 4.61 (0.41) (1.00) (1.41) 1998 21.60 0.41 2.58 2.99 (0.41) (2.05) (2.46) 1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26) (3.65)
SEE NOTES TO FINANCIAL STATEMENTS 152 RATIOS TO AVERAGE NET ASSETS ---------------------- NET ASSET NET ASSETS NET PORTFOLIO VALUE END END OF PERIOD INVESTMENT TURNOVER OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE ---------------------------------------------------------------------------- MONEY MARKET 1995 $ 1.00 5.66% $ 249,787 0.53% 5.52% N/A 1996 1.00 5.11 340,238 0.52 4.97 N/A 1997 1.00 5.23 335,578 0.52 5.10 N/A 1998 1.00 5.18 442,034 0.52 5.04 N/A 1999 1.00 4.80 435,643 0.52 4.68 N/A SHORT-TERM BOND 1999(c) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) 56%(1) QUALITY INCOME PLUS 1995 10.96 24.30 520,579 0.54 7.07 162 1996 10.37 1.56 474,660 0.53 6.84 182 1997 10.77 11.09 474,990 0.53 6.71 171 1998 11.00 8.67 547,583 0.52 6.23 152 1999 9.86 (4.32) 456,132 0.52 6.45 119 HIGH YIELD 1995 6.26 14.93 154,310 0.54 12.67 58 1996 6.18 11.98 259,549 0.51 12.59 57 1997 6.12 11.87 368,061 0.53 12.44 95 1998 5.07 (6.20) 364,079 0.53 12.27 93 1999 4.33 (1.33) 279,683 0.53 14.05 48 UTILITIES 1995 14.68 28.65 479,070 0.68 4.00 13 1996 15.34 8.68 440,662 0.67 3.61 9 1997 18.59 27.15 458,134 0.67 3.48 13 1998 21.25 23.76 560,803 0.67 2.89 7 1999 22.90 12.71 580,487 0.67 2.51 10 INCOME BUILDER 1997(a) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) 41(1) 1998 11.46 3.21 87,769 0.81 5.09 54 1999 11.44 7.06 81,616 0.81 4.98 43 DIVIDEND GROWTH 1995 15.59 36.38 865,417 0.61 2.75 24 1996 18.40 23.96 1,288,404 0.57 2.46 23 1997 21.60 25.61 1,905,906 0.54 2.06 28 1998 22.13 14.28 2,249,927 0.53 1.85 45 1999 18.32 (2.39) 2,033,814 0.52 1.82 81
153 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL HIGHLIGHTS, CONTINUED NET ASSET NET NET REALIZED TOTAL VALUE INVESTMENT AND FROM DISTRIBUTIONS TOTAL BEGINNING INCOME UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS -------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH 1995 $11.52 $ 0.10 $ 3.68 $ 3.78 $ (0.08) -- $ (0.08) 1996 15.22 0.08 1.65 1.73 (0.03) $ (0.27) (0.30) 1997 16.65 0.01 3.90 3.91 (0.08) (2.19) (2.27) 1998 18.29 (0.05) 3.59 3.54 -- (1.47) (1.47) 1999 20.36 -- 6.12 6.12 -- (2.75) (2.75) GLOBAL DIVIDEND GROWTH 1995 9.82 0.24 1.90 2.14 (0.26) (0.01) (0.27) 1996 11.69 0.24 1.75 1.99 (0.24) (0.31) (0.55) 1997 13.13 0.22 1.37 1.59 (0.23) (0.60) (0.83) 1998 13.89 0.24 1.45 1.69 (0.24) (1.52) (1.76) 1999 13.82 0.27 1.71 1.98 (0.29) (1.07) (1.36) EUROPEAN GROWTH 1995 14.56 0.20 3.50 3.70 (0.19)* (0.54) (0.73) 1996 17.53 0.17 4.91 5.08 (0.04) (1.01) (1.05) 1997 21.56 0.21 3.19 3.40 (0.24) (1.18) (1.42) 1998 23.54 0.15 5.53 5.68 (0.31) (1.73) (2.04) 1999 27.18 0.25 6.91 7.16 (0.19) (2.68) (2.87) PACIFIC GROWTH 1995 9.26 0.12 0.41 0.53 (0.09) -- (0.09) 1996 9.70 0.05 0.32 0.37 (0.11) -- (0.11) 1997 9.96 0.12 (3.82) (3.70) (0.14) -- (0.14) 1998 6.12 0.06 (0.75) (0.69) (0.28) -- (0.28) 1999 5.15 0.04 3.33 3.37 (0.06) -- (0.06) EQUITY 1995 19.25 0.22 7.92 8.14 (0.25) -- (0.25) 1996 27.14 0.16 2.70 2.86 (0.16) (3.45) (3.61) 1997 26.39 0.18 9.27 9.45 (0.18) (2.08) (2.26) 1998 33.58 0.25 9.47 9.72 (0.25) (4.47) (4.72) 1999 38.58 0.22 20.48 20.70 (0.22) (5.18) (5.40) S&P 500 INDEX 1998(b) 10.00 0.06 1.16 1.22 -- -- -- 1999 11.22 0.06 2.21 2.27 (0.03) (0.03) (0.06) COMPETITIVE EDGE "BEST IDEAS" 1998(b) 10.00 0.07 (0.25) (0.18) -- -- -- 1999 9.82 0.06 2.56 2.62 (0.07) -- (0.07)
SEE NOTES TO FINANCIAL STATEMENTS 154 RATIOS TO AVERAGE NET ASSETS ---------------------- NET NET ASSET NET ASSETS INVESTMENT PORTFOLIO VALUE END END OF PERIOD INCOME TURNOVER OF PERIOD TOTAL RETURN+ (000'S) EXPENSES (LOSS) RATE ---------------------------------------------------------------------------- CAPITAL GROWTH 1995 $15.22 32.92% $ 66,995 0.74% 0.70% 34% 1996 16.65 11.55 86,862 0.73 0.52 98 1997 18.29 24.54 127,100 0.71 0.01 139 1998 20.36 19.63 138,603 0.70 (0.26) 248 1999 23.73 33.29 171,251 0.72 0.02 575 GLOBAL DIVIDEND GROWTH 1995 11.69 22.14 205,739 0.88 2.23 55 1996 13.13 17.49 334,821 0.85 1.94 39 1997 13.89 12.04 481,613 0.84 1.61 48 1998 13.82 12.53 484,228 0.84 1.68 52 1999 14.44 14.65 506,929 0.83 1.90 43 EUROPEAN GROWTH 1995 17.53 25.89 188,119 1.17 1.25 69 1996 21.56 29.99 302,422 1.11 0.97 43 1997 23.54 16.07 391,441 1.12 1.04 45 1998 27.18 23.96 510,638 1.11 0.65 56 1999 31.47 29.11 579,705 1.04 0.87 55 PACIFIC GROWTH 1995 9.70 5.74 98,330 1.44 1.23 53 1996 9.96 3.89 144,536 1.37 1.01 50 1997 6.12 (37.70) 68,904 1.44 1.09 58 1998 5.15 (10.40) 52,842 1.51 0.91 112 1999 8.46 66.09 115,927 1.42 0.85 105 EQUITY 1995 27.14 42.53 359,779 0.54 0.97 269 1996 26.39 12.36 521,908 0.54 0.58 279 1997 33.58 37.43 823,090 0.52 0.61 145 1998 38.58 30.45 1,138,413 0.52 0.73 257 1999 53.88 58.59 2,083,071 0.51 0.54 323 S&P 500 INDEX 1998(b) 11.22 12.20(1) 48,732 --(4) 1.85(2)(4) 2(1) 1999 13.43 20.23 185,963 0.48(5) 1.03(5) 1 COMPETITIVE EDGE "BEST IDEAS" 1998(b) 9.82 (1.90)(1) 36,539 --(4) 1.74(2)(4) 31(1) 1999 12.37 26.88 62,295 0.56(5) 0.72(5) 54
155 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES FINANCIAL HIGHLIGHTS, CONTINUED NET ASSET NET REALIZED TOTAL VALUE NET AND FROM DISTRIBUTIONS TOTAL BEGINNING INVESTMENT UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS -------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY 1999(c) $10.00 $ 0.05 $ 4.55 $ 4.60 $ (0.03) -- $ (0.03) STRATEGIST 1995 12.45 0.62 0.49 1.11 (0.67) $ (0.44) (1.11) 1996 12.45 0.43 1.39 1.82 (0.43) (0.12) (0.55) 1997 13.72 0.45 1.40 1.85 (0.45) (0.32) (0.77) 1998 14.80 0.36 3.40 3.76 (0.36) (1.56) (1.92) 1999 16.64 0.40 2.46 2.86 (0.40) -- (0.40)
-------------------------------------------------------------------------------- Commencement of operations: (a) January 21, 1997. (b) May 18, 1998. (c) May 4, 1999. + Calculated based on the net asset value as of the last business day of the period. ++ Includes distributions from paid-in-capital of $0.02. * Includes dividends in excess of net investment income of $0.02. (1) Not annualized. (2) Annualized. (3) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 21, 1997 through December 3, 1997 for Income Builder, the ratios of expenses and net investment income to average net assets would have been 0.99% and 4.89%, respectively. (4) If the Investment Manager had not assumed all expenses and waived its management fee for the period May 18, 1998 through December 31, 1998 for Competitive Edge "Best Ideas" and S&P 500 Index, the ratios of expenses and net investment income to average net assets would have been 0.92% and 0.83%, respectively, for Competitive Edge "Best Ideas" and 0.59% and 1.26%, respectively, for S&P 500 Index. (5) If the Investment Manager had not assumed all expenses and waived its management fee for the period January 1, 1999 through April 30, 1999 for Competitive Edge "Best Ideas" and for the period May 4, 1999 through November 4, 1999 for Short-Term Bond and Aggressive Equity and for the period January 1, 1999 through January 5, 1999 for S&P 500 Index and "capped" the expenses of S&P 500 Index at 0.50% of its daily net assets for the period January 6, 1999 through December 31, 1999, the ratio of expenses and net investment income (loss) to average net assets would have been 0.77% and 0.51%, respectively, for Competitive Edge "Best Ideas", 2.38% and 3.07%, respectively, for Short-Term Bond, 1.41% and (0.02%), respectively, for Aggressive Equity and 0.48% and 1.02%, respectively, for S&P 500 Index.
SEE NOTES TO FINANCIAL STATEMENTS 156 RATIOS TO AVERAGE NET ASSETS ---------------------- NET ASSET NET ASSETS NET PORTFOLIO VALUE END END OF PERIOD INVESTMENT TURNOVER OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE ---------------------------------------------------------------------------- AGGRESSIVE EQUITY 1999(c) $14.57 46.08%(1) $ 38,197 0.52%(2)(5) 0.86%(2)(5) 108%(1) STRATEGIST 1995 12.45 9.48 388,579 0.52 5.03 329 1996 13.72 15.02 423,768 0.52 3.30 153 1997 14.80 13.71 497,028 0.52 3.09 159 1998 16.64 26.55 633,934 0.52 2.32 84 1999 19.10 17.35 729,701 0.52 2.24 120
157 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the Equity Portfolio, the S&P 500 Index Portfolio, the Competitive Edge "Best Ideas" Portfolio, the Strategist Portfolio, the Aggressive Equity Portfolio and the Short-Term Bond Portfolio (constituting Morgan Stanley Dean Witter Variable Investment Series, hereafter referred to as the "Fund") at December 31, 1999, the results of each of their operations for the year or period then ended, the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1999 by correspondence with the custodians and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 FEBRUARY 18, 2000 158 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES June 30, 2000 Unaudited Financial Statements to be included in Subsequent Amendment 159 APPENDIX -------------------------------------------------------------------------------- RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS MOODY'S INVESTORS SERVICE INC. ("MOODY'S") FIXED-INCOME SECURITY RATINGS Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Fixed-income securities which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade fixed-income securities. They are rated lower than the best fixed-income securities because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Fixed-income securities which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa Fixed-income securities which are rated Baa are considered as medium grade obligations; I.E., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such fixed-income securities lack outstanding investment characteristics and in fact have speculative characteristics as well. Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade. Ba Fixed-income securities which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and therefore not well safeguarded during both good and bad times in the future. Uncertainty of position characterizes bonds in this class. B Fixed-income securities which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Fixed-income securities which are rated Ca present obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Fixed-income securities which are rated C are the lowest rated class of fixed-income securities, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B in its municipal fixed-income security rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower end of its generic rating category. 160 COMMERCIAL PAPER RATINGS Moody's Commercial Paper ratings are opinions of the ability to repay punctually promissory obligations not having an original maturity in excess of nine months. The ratings apply to Municipal Commercial Paper as well as taxable Commercial Paper. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Prime-1, Prime-2, Prime-3. Issuers rated Prime-1 have a superior capacity for repayment of short-term promissory obligations. Issuers rated Prime-2 have a strong capacity for repayment of short-term promissory obligations; and Issuers rated Prime-3 have an acceptable capacity for repayment of short-term promissory obligations. Issuers rated Not Prime do not fall within any of the Prime rating categories. STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S") FIXED-INCOME SECURITY RATINGS A Standard & Poor's fixed-income security rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The ratings are based on current information furnished by the issuer or obtained by Standard & Poor's from other sources it considers reliable. The ratings are based, in varying degrees, on the following considerations: (1) likelihood of default-capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; (2) nature of and provisions of the obligation; and (3) protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or for other reasons. AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and repay principal and differs from the highest-rate issues only in small degree. A Fixed-income securities rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than fixed-income securities in higher-rated categories. BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for fixed-income securities in this category than for fixed-income securities in higher-rated categories. Fixed-income securities rated AAA, AA, A and BBB are considered investment grade. BB Fixed-income securities rated "BB" have less near-term vulnerability to default than other speculative grade fixed-income securities. However, it faces major ongoing uncertainties or exposures to adverse business, financial or economic conditions which could lead to inadequate capacity or willingness to pay interest and repay principal. B Fixed-income securities rated "B" have a greater vulnerability to default but presently have the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest and repay principal.
161 CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to default, and are dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayments of principal. In the event of adverse business, financial or economic conditions, they are not likely to have the capacity to pay interest and repay principal. CC The rating "CC" is typically applied to fixed-income securities subordinated to senior debt which is assigned an actual or implied "CCC" rating. C The rating "C" is typically applied to fixed-income securities subordinated to senior debt which is assigned an actual or implied "CCC-" rating. CI The rating "CI" is reserved for fixed-income securities on which no interest is being paid. NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. "BB" indicates the least degree of speculation and "C" the highest degree of speculation. While such fixed-income securities will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major ratings categories.
COMMERCIAL PAPER RATINGS Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. The commercial paper rating is not a recommendation to purchase or sell a security. The ratings are based upon current information furnished by the issuer or obtained by Standard & Poor's from other sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information. Ratings are graded into group categories, ranging from "A" for the highest quality obligations to "D" for the lowest. Ratings are applicable to both taxable and tax-exempt commercial paper. The categories are as follows: Issues assigned A ratings are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designation 1, 2, and 3 to indicate the relative degree of safety. A-1 indicates that the degree of safety regarding timely payment is very strong. A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as overwhelming as for issues designated "A-1." A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
FITCH IBCA, INC. ("FITCH") BOND RATINGS Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The rating represents Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer 162 and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guarantees unless otherwise indicated. Bonds carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory-credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Plus (+) or Plus and minus signs are used with a rating symbol to Minus (-) indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the"AAA" category. NR Indicates that Fitch does not rate the specific issue. Conditional A conditional rating is premised on the successful completion of a project or the occurrence of a specific event. Suspended A rating is suspended when Fitch deems the amount of information available from the issuer to be inadequate for rating purposes. Withdrawn A rating will be withdrawn when an issue matures or is called or refinanced and, at Fitch's discretion, when an issuer fails to furnish proper and timely information. FitchAlert Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months.
163 Ratings Outlook An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook.
SPECULATIVE GRADE BOND RATINGS: Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization or liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. BB Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and finan- cial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C Bonds are in imminent default in payment of interest or principal. DDD Bonds are in default on interest and/or principal payments. DD and D Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. Plus(+) or Plus and minus signs are used with a rating symbol to Minus(-) indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
164 F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings. F-3 Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes could cause these securities to be rated below in investment grade. F-S Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D Default. Issues assigned this rating are in actual or imminent payment default. LOC The symbol "LOC" indicates that the rating is based on a letter of credit issued by a commercial bank.
DUFF & PHELPS, INC. LONG-TERM RATINGS These ratings represent a summary opinion of the issuer's long-term fundamental quality. Rating determination is based on qualitative and quantitative factors which may vary according to the basic economic and financial characteristics of each industry and each issuer. Important considerations are vulnerability to economic cycles as well as risks related to such factors as competition, government action, regulation, technological obsolescence, demand shifts, cost structure, and management depth and expertise. The projected viability of the obligor at the trough of the cycle is a critical determination. Each rating also takes into account the legal form of the security, (E.G., first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating dispersion among the various classes of securities is determined by several factors including relative weightings of the different security classes in the capital structure, the overall credit strength of the issuer, and the nature of covenant protection. Review of indenture restrictions is important to the analysis of a company's operating and financial constraints. The Credit Rating Committee formally reviews all ratings once per quarter (more frequently, if necessary).
RATING SCALE DEFINITION ------------ ---------- AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free U.S. Treasury debt. AA+ High credit quality. Protection factors are strong. Risk is AA modest, but may vary slightly from time to time because of AA- economic conditions. A+ Protection factors are average but adequate. However, risk A factors are more variable and greater in periods of economic A- stress. BBB+ Below average protection factors but still considered BBB sufficient for prudent investment. Considerable variability BBB- in risk during economic cycles.
165 BB+ Below investment grade but deemed likely to meet obligations BB when due. Present or prospective financial protection BB- factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+ Below investment grade and possessing risk that obligations B will not be met when due. Financial protection factors will B- fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the quality rating within this category or into a higher or lower quality rating grade. CCC Well below investment grade securities. May be in default or considerable uncertainty exists as to timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. DP Preferred stock with dividend arrearages.
SHORT-TERM RATINGS Duff & Phelps' short-term ratings are consistent with the rating criteria utilized by money market participants. The ratings apply to all obligations with maturities of under one year, including commercial paper, the uninsured portion of certificates of deposit, unsecured bank loans, master notes, bankers acceptances, irrevocable letters of credit, and current maturities of long-term debt. Asset-backed commercial paper is also rated according to this scale. Emphasis is placed on liquidity which is defined as not only cash from operations, but also access to alternative sources of funds, including trade credit, bank lines, and the capital markets. An important consideration is the level of an obligor's reliance on short-term funds on an ongoing basis. A. Category 1: High Grade Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Duff- High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. B. Category 2: Good Grade Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. C. Category 3: Satisfactory Grade Duff 3 Satisfactory liquidity and other protection factors qualify issue as to investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. D. Category 4: Non-investment Grade Duff 4 Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt service. Operating factors and market access may be subject to a high degree of variation. E. Category 5: Default Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
166 MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES PART C OTHER INFORMATION ITEM 23. EXHIBITS 1(a). Declaration of Trust, dated February 24, 1983, and all amendments thereto dated June 8, 1983, May 18, 1984, December 18, 1984 and February 23, 1988, and all Instruments Establishing and Designating Additional Series of Shares dated December 15, 1986, October 26, 1989, November 15, 1990 and October 22, 1993, are incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A, filed on December 1, 1993. 1(b). Amendment to the Declaration of Trust of the Registrant dated August 24, 1995, is incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A, filed on April 19, 1996. 1(c). Instrument Establishing and Designating Additional Series of Shares dated October 15, 1996, is incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A, filed on October 17, 1996. 1(d). Instrument Establishing and Designating Additional Series of Shares dated January 29, 1998, is incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A, filed on February 10, 1998. 1(e). Amendment to the Declaration of Trust of the Registrant dated June 22, 1998, is incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A, filed on August 31, 1998. 1(f). Instrument Establishing and Designating Additional Series of Shares, dated February 8, 1999, is incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 25 to the Registration Statement on Form N-1A, filed on February 10, 1999. 1(g). Form of Instrument Establishing and Designating Additional Classes of Shares, dated February 24, 2000, is incorporated by reference to Exhibit 1(g) of Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A, filed on February 29, 2000. 1(h). Instrument Establishing and Designating Additional Series of Shares, dated July 26, 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. 26 to the Registration Statement on Form N-1A, filed on April 27, 1999. 3. Not Applicable. 1 4(a). Amended Investment Management Agreement, dated May 1, 1999, is incorporated by reference to Exhibit 4 of Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A, filed on April 27, 1999. 4(b). Form of Instrument Adding New Portfolio to Investment Management Agreement, filed herein. 4(c). Sub-Advisory Agreement between Morgan Stanley Dean Witter Advisors Inc. and Morgan Stanley Dean Witter Investment Management Inc., dated November 1, 1998, is incorporated by reference to Exhibit 5(b) of Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A, filed on August 31, 1998. 5(a). Amended Distribution Agreement, dated February 24, 2000, between the Registrant and Morgan Stanley Dean Witter Distributors Inc., is incorporated by reference to Exhibit 5(a) of Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A, filed on February 29, 2000. 5(b). Participation Agreement, dated May 31, 1997, between Northbrook Life Insurance Company, Allstate Life Insurance Company of New York, Glenbrook Life and Annuity Company and Morgan Stanley Dean Witter Distributors Inc., and the Registrant is incorporated by reference to Exhibit 6(b) of Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A, filed on February 10, 1998. 5(c). Participation Agreement, dated May 31, 1997, between Paragon Life Insurance Company and Morgan Stanley Dean Witter Distributors Inc., and the Registrant is incorporated by reference to Exhibit 6(c) of Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A, filed on February 10, 1998. 6. Retirement Plan for Non-Interested Trustees or Directors is incorporated by reference to Exhibit 6 of Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A, filed on April 27, 1999. 7(a). Custody Agreement, dated September 20, 1991, between The Bank of New York and the Registrant is incorporated by reference to Exhibit 9(a) of the Registration Statement on Form N-14, filed on November 5, 1998. 7(b). Amendment to the Custody Agreement, dated April 17, 1996, between The Bank of New York and the Registrant is incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A, filed on April 19, 1996. 7(c). Custody Agreement between The Chase Manhattan Bank and the Registrant is incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A, filed on April 21, 1997. 8(a). Amended and Restated Transfer Agency and Service Agreement is incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A, filed on August 31, 1998. 2 8(b). Amended Services Agreement is incorporated by reference to Exhibit 8(b) of Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A, filed on April 27, 1999. 9. Opinion of Sheldon Curtis, Esq., Registrant's Counsel, dated June 29, 1993, is incorporated by reference to Exhibit 9 of Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A, filed on June 4, 1999. 10. Consent of Independent Accountants, filed herein. 11. Not Applicable. 12. Not Applicable. 13. Form of Plan of Distribution pursuant to Rule 12b-1, is incorporated by reference to Exhibit 13 of Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A, filed on February 29, 2000. 15. Amended Multi-Class Plan pursuant to Rule 18f-3, filed herein. 16(a). Codes of Ethics of Morgan Stanley Dean Witter Advisors Inc., Morgan Stanley Dean Witter Services Company Inc. and Morgan Stanley Dean Witter Distributors Inc., filed herein. 16(b). Code of Ethics of Morgan Stanley Dean Witter Funds, filed herein. 16(c). Code of Ethics of Morgan Stanley Dean Witter Investment Management Inc., filed herein. Other Powers of Attorney of Trustees are incorporated by reference to Exhibit (Other) of Post-Effective Amendment No. 18 and Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A (filed on April 18, 1995 and February 10, 1998, respectively). Power of Attorney for James F. Higgins, filed herein. 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 3 their undertakings to repay the Registrant unless their conduct is later determined to permit indemnification. Pursuant to Section 5.2 of the Registrant's Declaration of Trust and paragraph 8 of the Registrant's Investment Management Agreement, neither the Investment Manager nor any trustee, officer, employee or agent of the Registrant shall be liable for any action or failure to act, except in the case of bad faith, willful misfeasance, gross negligence or reckless disregard of duties to the Registrant. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer, or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that it will apply the indemnification provision of its by-laws in a manner consistent with Release 11330 of the Securities and Exchange Commission under the Investment Company Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act remains in effect. Registrant, in conjunction with the Investment Manager, Registrant's Trustees, and other registered investment management companies managed by the Investment Manager, maintains insurance on behalf of any person who is or was a Trustee, officer, employee, or agent of Registrant, or who is or was serving at the request of Registrant as a trustee, director, officer, employee or agent of another trust or corporation, against any liability asserted against him and incurred by him or arising out of his position. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to 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 4 (2) Morgan Stanley Dean Witter California Quality Municipal Securities (3) Morgan Stanley Dean Witter Government Income Trust (4) Morgan Stanley Dean Witter High Income Advantage Trust (5) Morgan Stanley Dean Witter High Income Advantage Trust II (6) Morgan Stanley Dean Witter High Income Advantage Trust III (7) Morgan Stanley Dean Witter Income Securities Inc. (8) Morgan Stanley Dean Witter Insured California Municipal Securities (9) Morgan Stanley Dean Witter Insured Municipal Bond Trust (10) Morgan Stanley Dean Witter Insured Municipal Income Trust (11) Morgan Stanley Dean Witter Insured Municipal Securities (12) Morgan Stanley Dean Witter Insured Municipal Trust (13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust (14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II (15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III (16) Morgan Stanley Dean Witter Municipal Income Trust (17) Morgan Stanley Dean Witter Municipal Income Trust II (18) Morgan Stanley Dean Witter Municipal Income Trust III (19) Morgan Stanley Dean Witter Municipal Premium Income Trust (20) Morgan Stanley Dean Witter New York Quality Municipal Securities (21) Morgan Stanley Dean Witter Prime Income Trust (22) Morgan Stanley Dean Witter Quality Municipal Income Trust (23) Morgan Stanley Dean Witter Quality Municipal Investment Trust (24) Morgan Stanley Dean Witter Quality Municipal Securities 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 5 (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 Equity Trust (42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust (43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc. (44) Morgan Stanley Dean Witter New Discoveries Fund (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 Tax-Managed Growth Fund (63) Morgan Stanley Dean Witter Total Market Index Fund (64) Morgan Stanley Dean Witter Total Return Trust (65) Morgan Stanley Dean Witter U.S. Government Money Market Trust (66) Morgan Stanley Dean Witter U.S. Government Securities Trust (67) Morgan Stanley Dean Witter Utilities Fund (68) Morgan Stanley Dean Witter Value-Added Market Series (69) Morgan Stanley Dean Witter Value Fund (70) Morgan Stanley Dean Witter Variable Investment Series (71) Morgan Stanley Dean Witter World Wide Income Trust 6
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS WITTER ADVISORS INC. AND NATURE OF CONNECTION ---------------------- ------------------------------------------------------- Mitchell M. Merin President and Chief Operating Officer of Asset President, Chief Management of Morgan Stanley Dean Witter & Co. Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors") and Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"); President, Chief Executive Officer and Director of Morgan Stanley Dean Witter Services Company Inc. ("MSDW Services"); President of the Morgan Stanley Dean Witter Funds; Executive Vice President and Director of Dean Witter Reynolds Inc. ("DWR"); Director of various MSDW subsidiaries; Trustee of various Van Kampen investment companies. Barry Fink General Counsel of Asset Management of MSDW; Executive Vice President, Executive Vice President, Secretary, General Counsel Secretary, General Counsel and Director of MSDW Services; Vice President and and Director Secretary 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 Executive Vice President, Chief Administrative Officer Executive Vice President, and Director of MSDW Services; Vice President of the Chief Administrative 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 7 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 ---------------------- ------------------------------------------------------- Rosalie Clough Senior Vice President and Director of Marketing Richard G. DeSalvo Senior Vice President and Director of Investment Management Services 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. Director of the Research Group 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 8 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 ---------------------- ------------------------------------------------------- Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter Senior Vice President Funds. and Director of Sector Rotation Jonathan R. Page Vice President of various Morgan Stanley Dean Witter Senior Vice President Funds. and Director of the Money Market Group Ira N. Ross Vice President of various Morgan Stanley Dean Witter Senior Vice President Funds. Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter Senior Vice President Funds. and Director of the Growth Group Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter Senior Vice President Funds. James Solloway Jr. 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 9 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 ---------------------- ------------------------------------------------------- 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 Secretary and Assistant Secretary of MSDW Distributors and the Morgan Stanley Dean Witter Funds. Salvatore DeSteno First Vice President of MSDW Services. First Vice President Peter W. Gurman First Vice President Michael Interrante First Vice President and Controller of MSDW Services; First Vice President Assistant Treasurer of MSDW Distributors; First Vice and Controller President and Treasurer of MSDW Trust. 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 10 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 ---------------------- ------------------------------------------------------- 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. Sean Aurigemma Vice President Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter Vice President Funds. 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 11 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 ---------------------- ------------------------------------------------------- Liam Carroll Vice President Philip Casparius Vice President Annette Celenza Vice President Aaron Clark Vice President of Morgan Stanley Dean Witter Market Vice President Leader Trust William Connerly Vice President Virginia Connors Vice President Michael J. Davey Vice President David Dineen Vice President of various Morgan Stanley Dean Witter Vice President Funds. June Ewers Vice President Jeffrey D. Geffen Vice President of Morgan Stanley Dean Witter U.S. Vice President Government Securities Trust Sandra Gelpieryn Vice President Charmaine George Vice President Michael Geringer Vice President Gail Gerrity Burke Vice President Peter Gewirtz Vice President Mina Gitsevich Vice President 12 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 ---------------------- ------------------------------------------------------- Ellen Gold Vice President Amy Golub Vice President Stephen Greenhut Vice President Joan Hamilton 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 Jr. Vice President of various Morgan Stanley Dean Witter Vice President Funds. David T. Hoffman Vice President Thomas G. Hudson II Vice President Linda Jones Vice President Norman Jones Vice President Kevin Jung Vice President of various Morgan Stanley Dean Witter Vice President Funds. Carol Espejo-Kane Vice President Nancy Karole Kennedy Vice President Paula LaCosta Vice President of various Morgan Stanley Dean Witter Vice President Funds. 13 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 ---------------------- ------------------------------------------------------- Kimberly LaHart Vice President Thomas Lawlor Vice President Lester Lay Vice President Phuong Le Vice President Gerard J. Lian Vice President of various Morgan Stanley Dean Witter Vice President Funds. Cameron J. Livingstone Vice President Nancy Login Cole Vice President Sharon Loguercio Vice President Stephanie Lovinger 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 Thomas Moore Vice President 14 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 ---------------------- ------------------------------------------------------- Julie Morrone Vice President of various Morgan Stanley Dean Witter Vice President Funds. Mary Beth Mueller Vice President David Myers Vice President of Morgan Stanley Dean Witter Natural Vice President Resource Development Securities Inc. James Nash Vice President Daniel Niland Vice President Richard Norris Vice President Hilary A. O'Neill Vice President Steven Orlov Vice President Mori Paulsen Vice President Anne Pickrell Vice President Reginald Rigaud Vice President Frances Roman Vice President Dawn Rorke Vice President John Roscoe Vice President of various Morgan Stanley Dean Witter Vice President Funds. Hugh Rose Vice President Robert Rossetti Vice President of Morgan Stanley Dean Witter Competitive Vice President Edge Fund. 15 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 ---------------------- ------------------------------------------------------- Sally Sancimino Vice President of various Morgan Stanley Dean Witter Vice President Funds. Deborah Santaniello Vice President Patrice Saunders Vice President Donna Savoca Vice President Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal Vice President Securities Trust. Alison M. Sharkey Vice President Peter J. Seeley Vice President of various Morgan Stanley Dean Witter Vice President Funds. Ronald B. Silvestri Vice President of various Morgan Stanley Dean Witter Vice President Funds. Herbert Simon Vice President Martha Slezak Vice President Otha Smith Vice President Stuart Smith Vice President Robert Stearns Vice President Naomi Stein Vice President William Stevens Vice President Michael Strayhorn Vice President 16 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 ---------------------- ------------------------------------------------------- Marybeth Swisher Vice President Michael Thayer Vice President Bradford Thomas Vice President Barbara Toich Vice President Robert Vanden Assem Vice President Frank Vindigni Vice President David Walsh Vice President Alice Weiss Vice President of various Morgan Stanley Dean Witter Vice President Funds. John Wong Vice President
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: (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 17 (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 Equity Trust (42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust (43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc. (44) Morgan Stanley Dean Witter New Discoveries Fund (45) Morgan Stanley Dean Witter New York Municipal Money Market Trust (46) Morgan Stanley Dean Witter New York Tax-Free Income Fund (47) Morgan Stanley Dean Witter Next Generation Trust (48) Morgan Stanley Dean Witter North American Government Income Trust (49) Morgan Stanley Dean Witter Pacific Growth Fund Inc. (50) Morgan Stanley Dean Witter Prime Income Trust (51) Morgan Stanley Dean Witter Real Estate Fund (52) Morgan Stanley Dean Witter S&P 500 Index Fund (53) Morgan Stanley Dean Witter S&P 500 Select Fund (54) Morgan Stanley Dean Witter Short-Term Bond Fund (55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust (56) Morgan Stanley Dean Witter Small Cap Growth Fund (57) Morgan Stanley Dean Witter Special Value Fund (58) Morgan Stanley Dean Witter Strategist Fund (59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust 18 (60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust (61) Morgan Stanley Dean Witter Tax-Managed Growth Fund (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 (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 Messrs. Higgins and Purcell, who are Trustees of the Registrant, none of the following persons has any position or office with the Registrant. NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS 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. 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. 19 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 16th day of August, 2000. MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES By: /s/Barry Fink ------------------------------------ Barry Fink Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post -Effective Amendment No. 29 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE (1) Principal Executive Officer Chief Executive Officer, Trustee and Chairman By: /s/Charles A. Fiumefreddo 08/16/00 --------------------------- Charles A. Fiumefreddo (2) Principal Financial Officer Treasurer and Principal Accounting Officer By: /s/Thomas F. Caloia 08/16/00 --------------------------- Thomas F. Caloia (3) Majority of the Trustees Charles A. Fiumefreddo (Chairman) Philip J. Purcell James F. Higgins By: /s/Barry Fink 08/16/00 -------------------------- Barry Fink Attorney-in-Fact Michael Bozic Manuel H. Johnson Edwin J. Garn Michael E. Nugent Wayne E. Hedien John L. Schroeder By: /d/David M. Butowsky 08/16/00 -------------------------- David M. Butowsky Attorney-in-Fact
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES EXHIBIT INDEX 1(h). Instrument Establishing and Designating Additional Series of Shares. 4(b). Instrument Adding Additional Portfolio to Investment Management Agreement. 10. Consent of Independent Accountants 15. Amended Multiple Class Plan Pursuant to Rule 18f-3. 16(a). Code of Ethics of Morgan Stanley Dean Witter Advisors Inc., Morgan Stanley Dean Witter Distributors Inc., and Morgan Stanley Dean Witter Services Company Inc. 16(b). Code of Ethics of the Morgan Stanley Dean Witter Funds. 16(c). Code of Ethics of Morgan Stanley Dean Witter Investment Management Inc. Other Power of Attorney of James F. Higgins.