MORGAN STANLEY UNIVERSAL FUNDS INC, 485APOS, 2000-05-04

MORGAN STANLEY UNIVERSAL FUNDS INC
485APOS, 2000-05-04

Previous: FRANKLIN STREET ADVISORS INC /NC, 13F-HR, 2000-05-04

Next: TITANIUM METALS CORP, 8-K, 2000-05-04

<PAGE>

As Filed With the Securities and Exchange Commission on May 4, 2000

File No. 333-03013
811-7607
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

POST-EFFECTIVE AMENDMENT NO. 13 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 14 [X]

THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

1221 Avenue of the Americas
New York, New York 10020
-----------------------------------
(Address of Principal Executive Offices)(Zip Code)

Registrant's Telephone Number, including Area Code: (800) 548-7786
--------------

Harold J. Schaaff, Jr., Esq.
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas, New York, New York 10020
-----------------------------------------------------
(Name and Address of Agent for Service)

Copy to:

Harold J. Schaaff, Jr. Esq. Richard W. Grant, Esq.
Morgan Stanley Dean Witter Morgan, Lewis & Bockius LLP
Investment Management Inc. 1701 Market Street
1221 Avenue of the Americas Philadelphia, PA 19103
New York, NY 10020

- --------------------------------------------------------------------------------

It is proposed that this filing will become effective (check appropriate box)

___ immediately upon filing pursuant to paragraph (b) of Rule 485.

___ on May 1, 2000 pursuant to paragraph (b) of Rule 485.
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485.

X
--- 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
___ on [date] pursuant to paragraph (a) of Rule 485.

- --------------------------------------------------------------------------------
<PAGE>

PROSPECTUS [ ], 2000

A Portfolio of
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
[MSDW UNIVERSAL INSTITUTIONAL FUNDS, INC. LOGO]

INVESTMENT GRADE FIXED INCOME PORTFOLIO

Above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of investment grade fixed
income securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

The Universal Institutional Funds, Inc. (the "Fund") is a mutual fund that
provides investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. The Investment
Grade Fixed Income Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an
affiliate of Morgan Stanley & Co. Incorporated ("Morgan Stanley").

The Securities and Exchange Commission (the "Commission") has not approved or
disapproved these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Investment Grade Fixed Income Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6
</TABLE>
<PAGE>

INVESTMENT SUMMARY
INVESTMENT GRADE FIXED INCOME PORTFOLIO

The Portfolio seeks above-average total return over a market cycle of three to
five years by investing primarily in a diversified portfolio of investment
grade fixed income securities.

Approach

The Portfolio invests primarily in a diversified mix of dollar denominated
investment grade fixed income securities, particularly U.S. Government,
corporate and mortgage securities. The Portfolio ordinarily will maintain an
average weighted maturity in excess of five years. Although there is no minimum
or maximum maturity for any individual security, the Adviser actively manages
the interest rate risk of the Portfolio within a range relative to its
benchmark, the Salomon Broad Investment Grade Index. The Adviser may use
derivatives in managing the Portfolio.

Process

The Adviser employs a value approach toward fixed income investing. The
Adviser's research teams identify relative attractiveness among corporate,
mortgage and U.S. Government securities, and also may consider the relative
attractiveness of non-dollar denominated issues. The Adviser relies upon value
measures to guide its decisions regarding sector, security and country
selection, such as the relative attractiveness of the extra yield offered by
securities other than those issued by the U.S. Treasury. The Adviser also
measures various types of risk, focusing on the level of real interest rates,
the shape of the yield curve, credit risk, prepayment risk, country risk and
currency valuations. The Adviser's management team builds an investment
portfolio designed to take advantage of its judgment on these factors, while
balancing the overall risk of the Portfolio. The Adviser may sell securities
when it believes that expected risk-adjusted return is low compared to other
investment opportunities.

Risk

Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks associated with fixed income securities in the hope of earning
above average total return. Market prices of the Portfolio's fixed income
securities respond to economic developments, especially changes in interest
rates, as well as to perceptions of the creditworthiness of individual issuers.
Generally, fixed income securities decrease in value as interest rates rise and
vice versa. Prices of fixed income securities also generally will fall if an
issuer's credit rating declines, and rise if it improves. Prices of longer term
fixed income securities also are generally more volatile, so the average
maturity of the securities in the Portfolio affects risk. As a result of price
volatility, there is a risk that you may lose money by investing in the
Portfolio. The prices of mortgage securities may be particularly sensitive to
changes in interest rates because of the risk that borrowers will become more
or less likely to refinance their mortgages. For example, an increase in
interest rates generally will reduce prepayments, effectively lengthening the
maturity of some mortgage securities, and making them subject to more drastic
price movements. Because of prepayment issues, it is not possible to predict
the ultimate maturity of mortgage securities.

There is no performance information for the Portfolio since it has not
commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY
ADDITIONAL RISK FACTORS AND INFORMATION

This section discusses additional risk factors and information relating to the
Portfolio. The Portfolio's investment practices and limitations are described
in more detail in the Statement of Additional Information ("SAI") which is
legally part of this Prospectus. For details on how to obtain a copy of the
SAI and other reports and information, see the back cover of this Prospectus.

Price volatility

The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Fixed income securities, regardless of credit
quality, experience price volatility, especially in response to interest rate
changes.

Fixed income securities

Generally, fixed income securities decrease in value as interest rates rise
and vice versa. Certain types of fixed income securities, such as inverse
floaters, are designed to respond differently to changes in interest rates.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers.
The value of a fixed income security typically moves in the opposite direction
of prevailing interest rates: if rates rise, the value of a fixed income
security falls; if rates fall, the value increases. The maturity and duration
of a fixed income instrument also affect the extent to which the price of the
security will change in response to these and other factors. Longer term
securities tend to experience larger changes than shorter term securities
because they are more sensitive to changes in interest rates or in the credit
ratings of the issuers. The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest rates. A Portfolio with
a lower average duration generally will experience less price volatility in
response to changes in interest rates as compared with a portfolio with a
higher duration.

Derivatives

The Portfolio may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.

The primary risks of derivatives are: (i) changes in the market value of
securities held by the Portfolio, and of derivatives relating to those
securities, may not be proportionate, (ii) there may not be a liquid market
for the Portfolio to sell a derivative, which could result in difficulty
closing a position and (iii) certain derivatives can magnify the extent of
losses incurred due to changes in the market value of the securities to which
they relate. In addition, some derivatives are subject to counterparty risk.
To minimize this risk, the Portfolio may enter into derivatives transactions
only with counterparties that meet certain requirements for credit quality and
collateral. Also, the Portfolio may invest in certain derivatives that require
the Portfolio to segregate some or all of its cash or liquid securities to
cover its obligations under those instruments. At certain levels, this can
cause the Portfolio to lose flexibility in managing its investments properly,
responding to shareholder redemption requests, or meeting other obligations.
If the Portfolio is in that position, it could be forced to sell other
securities that it wanted to retain.

The Portfolio will not enter into futures to the extent that the Portfolio's
outstanding obligations to purchase securities under these contracts, in
combination with its outstanding obligations with respect to options, would
exceed 50% of its total assets. While the use of derivatives may be
advantageous to the Portfolio, if the Adviser is not successful in employing
them, the Portfolio's performance may be worse than if it did not make such
investments. See the SAI for more about the risks of different types of
derivatives.
2
<PAGE>

Foreign investing

Investing in foreign countries entails the risk that news and events unique to
a country or region will affect those markets and their issuers. These same
events will not necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the Portfolio's investments
in foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments. These changes may
occur separately from and in response to events that do not otherwise affect
the value of the security in the issuer's home country. The Adviser may invest
in certain instruments, such as derivatives and may use certain techniques
such as hedging, to manage these risks. However, the Adviser cannot guarantee
that it will be practical to hedge these risks in certain markets or under
particular conditions or that it will succeed in doing so. The Adviser may use
derivatives for other purposes such as gaining exposure to foreign markets.

Mortgage securities

Mortgage securities are fixed income securities representing an interest in a
pool of underlying mortgage loans. They are sensitive to changes in interest
rates, but may respond to these changes differently from other fixed income
securities due to the possibility of prepayment of the underlying mortgage
loans. As a result, it may not be possible to determine in advance the actual
maturity date or average life of a mortgage security. Rising interest rates
tend to discourage refinancings, with the result that the average life and
volatility of the security will increase and its market price will decrease.
When interest rates fall, however, mortgage securities may not gain as much in
market value because additional mortgage prepayments must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage securities and, therefore, to
assess the volatility risk of that portfolio.

Collateralized Mortgage Obligations ("CMOs") and Stripped Mortgage Backed
Securities ("SMBSs") are derivatives based on mortgage securities. Both CMOs
and SMBSs are subject to the risks of price movements in response to changing
interest rates and the level of prepayments made by borrowers. Depending on
the class of CMOs or SMBSs that a Portfolio holds, these price movements may
be significantly greater than that experienced by mortgage-backed securities
generally.

Investment discretion

In pursuing the Portfolio's investment objective, the Adviser 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 Adviser may
determine to use some permitted trading strategies while not using others. The
success or failure of such decisions will affect the Portfolio's performance.

Temporary defensive investments

When the Adviser believes that changes in economic, financial or political
conditions warrant, the Portfolio may invest without limit in certain short-
and medium-term fixed income securities for temporary defensive purposes. If
the Adviser incorrectly predicts the effects of these changes, such defensive
investments may adversely affect the Portfolio's performance and the Portfolio
may not achieve its investment objective.

Portfolio turnover

Consistent with its investment policies, the Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher
portfolio turnover will cause the Portfolio to incur additional transaction
costs. The Portfolio may engage in frequent trading of securities to achieve
its investment objective.
3
<PAGE>

INVESTMENT ADVISER

MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428, provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several open-end investment companies since
1984. MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). 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. As of December 31, 1999, MAS and its
institutional advisory affiliates had approximately $184.4 billion in assets
under management or fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.80%
- ----------------------------------------
From $500 million to $1 billion 0.75%
- ----------------------------------------
More than $1 billion 0.70%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed [ ]% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than [ ]%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

4
<PAGE>

PORTFOLIO MANAGERS
The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

Thomas L. Bennett, Kenneth B. Dunn, Angelo G. Manioudakis and Scott F. Richard

Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MAS in 1984.
He is Chairman of the Board of Trustees of MAS Funds, a member of the
Executive Committee of MAS and a Director of MAS Fund Distributors, Inc. Mr.
Bennett holds a B.S. in Chemistry and an M.B.A. from the University of
Cincinnati. Kenneth B. Dunn, a Managing Director of Morgan Stanley, joined MAS
in 1987. Mr. Dunn received a B.S. and M.B.A. from The Ohio State University
and a Ph.D. from Purdue University. Angelo G. Manioudakis, a Principal of
Morgan Stanley, joined MAS in 1993. He served as a Fixed Income Analyst from
1993 to 1995. Since 1995, he served as a Fixed Income Portfolio manager. Prior
to joining MAS, Mr. Manioudakis worked in the Financial Management Program of
GE Capital Corporation from 1988 to 1991. Mr. Manioudakis graduated from
Bentley College with a B.S. in Finance (cum laude) and received an M.B.A. from
Harvard University. Scott F. Richard, a Managing Director of Morgan Stanley,
joined MAS in 1992 as a Portfolio Manager. Mr. Richard received a B.S. from
the Massachusetts Institute of Technology in 1968, and a D.B.A. from Harvard
Graduate School of Business Administration in 1972. Messrs. Bennett, Dunn,
Manioudakis and Richard have shared primary responsibility for managing the
Portfolio's assets since its inception.

5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares

Shares are offered on each day that the New York Stock Exchange is open for
business.

The Portfolio offers its shares only to insurance companies for separate
accounts they establish to fund variable life insurance and variable annuity
contracts, and by other entities under qualified pension and retirement plans.
An insurance company purchases or redeems shares of the Portfolio based on,
among other things, the amount of net contract premiums or purchase payments
allocated to a separate account investment division, transfers to or from a
separate account investment division, contract loans and repayments, contract
withdrawals and surrenders, and benefit payments. The contract prospectus
describes how contract owners may allocate, transfer and withdraw amounts to,
and from, separate accounts.

Pricing of Portfolio shares

The price per share will be the net asset value (NAV) per share next
determined after the Fund or its designee receives your purchase or redemption
order. The NAV for one share is the value of that share's portion of all of
the assets in the Portfolio. The Fund determines the NAV for the Portfolio as
of one hour after the close of the bond markets (normally 4:00 p.m. Eastern
Time) on each day that the Portfolio is open for business.

About net asset value

The NAV per share of the Portfolio is determined by dividing the total market
value of the Portfolio's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Portfolio. In making this
calculation, the Portfolio generally values securities at market price. If
market prices are unavailable or may be unreliable because of events occurring
after the close of trading, fair value prices may be determined in good faith
using methods approved by the Board of Directors. The Portfolio may hold
portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolio does not calculate its
NAV. As a result, the value of these investments may change on days when you
cannot purchase or sell shares.

Dividends and distributions

The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

Taxes

The Portfolio expects that it will not have to pay federal income taxes if it
distributes annually all of its net investment income and net capital gains.
The Portfolio will not be subject to federal excise taxes with respect to
undistributed income.

Special tax rules apply to life insurance companies, variable annuity
contracts and variable life insurance contracts. Net income and realized
capital gains that the Portfolio distributes are not currently taxable when
left to accumulate within a variable annuity or variable life insurance
contract or under a qualified pension or retirement plan. For information on
federal income taxation of a life insurance company with respect to its
receipt of distributions from the Portfolio and federal income taxation of
owners of variable annuity or variable life insurance contracts, refer to the
contract prospectus.

Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about the federal, state and local
tax consequences applicable to your investment.
6
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information
In addition to this Prospectus, the Fund has an SAI, dated May 1, 2000, which
contains additional, more detailed information about the Fund and the
Portfolio. The SAI is incorporated by reference into this Prospectus and,
therefore, legally forms a part of this Prospectus.

Shareholder Reports
The Fund publishes annual and semi-annual reports containing financial
statements. These reports contain additional information about the Portfolio's
investments. In the Fund's shareholder reports, you will find a discussion of
the market conditions and the investment strategies that significantly
affected the Portfolio's performance during that period.

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Commission in any of the following ways: (1)
In person: you may review and copy documents in the Commission's Public
Reference Room in Washington, D.C. (for information on the operation of the
Public Reference Room, call 1-202-942-8090); (2) On-line: you may retrieve
information from the EDGAR Database on the Commission's web site at
"http://www.sec.gov"; or (3) By mail: you may request documents, upon payment
of a duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102. You may also obtain this
information, upon payment of a duplicating fee, by e-mailing the Commission at
the following address: [email protected]. To aid you in obtaining this
information, the Fund's Investment Company Act registration number is 811-
7607.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
[THE UNIVERSAL INSTITUTIONAL FUNDS, INC. LOGO]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

The Universal Institutional Funds, Inc.

P.O. Box 2798, Boston, MA 02208-2798

STATEMENT OF ADDITIONAL INFORMATION

The Universal Institutional Funds, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and non-diversified series
("Portfolios"). The Fund currently consists of 22 Portfolios offering a broad
range of investment choices. Shares of each Portfolio are offered with no sales
charge or exchange or redemption fee.

Shares of each Portfolio may be purchased only by insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies and by certain tax-qualified investors. The variable annuity contract
and variable life insurance policy holders incur fees and expenses separate
from the fees and expenses charged by the Portfolios. This Statement of
Additional Information ("SAI") addresses information of the Fund applicable to
each of the 22 Portfolios.

The Fund was incorporated under the laws of the State of Maryland on March 26,
1996. The Fund filed a registration statement with the Securities and Exchange
Commission (the "SEC") registering itself as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares under the Securities Act of 1933, as amended (the "1933 Act").

The Portfolios are managed by either Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management" or an "Adviser") or Miller
Anderson & Sherrerd, LLP ("MAS" or an "Adviser") (together, the "Advisers")
thereby making available in a single product the combined strength of these
leading investment management firms.

This SAI is not a prospectus but should be read in conjunction with the
prospectus for the Fund's Portfolio(s) (the "Prospectus"). This SAI is
incorporated by reference into the Prospectus in its entirety. To obtain the
Prospectus, please contact the Fund or your insurance company.

<TABLE>
<S> <C>
Table of Contents Page
Investment Policies and Strategies 2
Taxes 23
Purchase of Shares 25
Redemption of Shares 26
Investment Limitations 26
Determining Maturities of Certain Instruments 27
Management of the Fund 29
Net Asset Value for the Money Market Portfolio 40
Portfolio Transactions 40
Performance Information 44
General Performance Information 45
General Information 46
Description of Ratings 47
Financial Statements 48
</TABLE>

Statement of Additional Information dated May 1, 2000 relating to the Fund's
Prospectuses: Money Market, Fixed Income, High Yield, Core Equity, Equity
Growth, Mid Cap Growth, Mid Cap Value, U.S. Real Estate, Targeted Duration,
Technology, Value, Active International Allocation, Asian Equity, Emerging
Markets Debt, Emerging Markets Equity, Global Equity, International Fixed
Income, International Magnum, Latin American, Balanced and Multi-Asset-Class
Portfolios, each dated May 1, 2000.

Prospectus of the Investment Grade Fixed Income Portfolio dated [ ], 2000.

<PAGE>

Investments Policies and Strategies

This SAI provides additional information about the investment policies and
operations of the Fund and its investment portfolios (each a "Portfolio"). MSDW
Investment Management or MAS act as investment adviser to each Portfolio. Under
the supervision of MSDW Investment Management, Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") acts as investment sub-adviser to the Money
Market Portfolio. References to MSDW Investment Management, when used in
connection with its activities as investment adviser, include MSDW Advisors
acting under its supervision.

The following table provides additional information about the Portfolios'
investment policies. Capitalized terms used below are described in more detail
later in this section.

Fixed Income Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Fixed
Income Securities, not more than 20% of which will
be below investment grade (commonly referred to as
high yield securities or "junk bonds").

High Yield Portfolio
Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in High
Yield Securities (commonly referred to as "junk
bonds"). The Portfolio may also invest in other
Fixed Income Securities including Foreign Fixed
Income Securities and Emerging Market Country
Securities.

Investment Grade Fixed Under normal circumstances, the Portfolio will
Income Portfolio invest at least 65% of its total assets in
Investment Grade Fixed Income Securities.

Core Equity Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities. The Portfolio may invest up to 5% of its
total assets in Foreign Equities (other than ADRs).
The Portfolio will purchase Equity Securities of
issuers with a market capitalization of generally
greater than $1 billion.

Equity Growth Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in growth
oriented Equity Securities.

Value Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities. The Portfolio may invest up to 5% of its
total assets in Foreign Equities (other than ADRs).

Mid Cap Growth Under normal circumstances, the Portfolio will
Portfolio invest at least 65% of its total assets in Equity
Securities of smaller and medium-size companies. The
Portfolio may invest up to 5% of its total assets in
Foreign Equities (other than ADRs).

Mid Cap Value Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities of mid-cap companies deemed to be
undervalued. The Portfolio may invest up to 5% of
its total assets in Foreign Equities (other than
ADRs).

U.S. Real Estate Under normal circumstances, at least 65% of the
Portfolio Portfolio's total assets will be invested in income
producing Equity Securities of U.S. and non-U.S.
companies principally engaged in the U.S. real
estate industry.

International Fixed Under normal circumstances, at least 95% of the
Income Portfolio fixed income securities in which the Portfolio will
invest will be Investment Grade Securities. The
Portfolio's average weighted maturity ordinarily
will exceed five years and will usually be between
three and fifteen years. Under normal circumstances,
the Portfolio will invest at least 80% of its total
assets in Fixed Income Securities of issuers in at
least three countries other than the United States,
including Emerging Market Country Securities.
Derivatives may be used to represent country
investments.

Emerging Markets Debt
Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in
government Fixed Income Securities, including Loan
Participations and Assignments between governments
and financial institutions, securities issued by
government owned, controlled or sponsored entities
and securities of entities organized to restructure
outstanding debt of such issuers. The Portfolio may
also invest in Fixed Income Securities of corporate
issuers located in or organized under the laws of
emerging market countries.

2
<PAGE>

Global Equity Portfolio
Under normal circumstances, at least 65% of the
total assets of the Portfolio will be invested in
Equity Securities. In addition, under normal
circumstances, at least 20% of the Portfolio's total
assets will be invested in the Common Stocks of U.S.
issuers and the remaining equity position will be
invested in at least three countries other than the
United States.

International Magnum Under normal circumstances, at least 65% of the
Portfolio total assets of the Portfolio will be invested in
Equity Securities of non-U.S. issuers domiciled in
Europe, Australasia and Far East ("EAFE") countries.
The Portfolio may invest up to 5% of its total
assets in the securities of issuers domiciled in
non-EAFE countries.

Emerging Markets Equity Under normal circumstances, at least 65% of the
Portfolio Portfolio's total assets will be invested in
Emerging Market Country Equity Securities.

Asian Equity Portfolio
Under normal circumstances, the Portfolio will
invest at least 65% of the total assets of the
Portfolio in Equity Securities of Asian issuers
(excluding Japanese issuers).

Latin American The Portfolio expects, under normal circumstances,
Portfolio to have at least 55% of its total assets invested in
listed Equity Securities of issuers in these four
countries: Argentina, Brazil, Chile and Mexico.

Active International
Allocation Portfolio
Under normal circumstances, at least 65% of the
total assets of the Portfolio will be invested in
Equity Securities of non-U.S. issuers which, in the
aggregate, generally replicate broad market indices.
The Portfolio may invest in Emerging Market Country
Securities.

Balanced Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in issuers
located in at least three countries, including the
United States. The Portfolio will purchase Equity
Securities of issuers with a market capitalization
of generally greater than $1 billion.

Multi-Asset-Class
Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in issuers
located in at least three countries, including the
United States. The Portfolio will purchase Equity
Securities of issuers with a market capitalization
of generally greater than $1 billion.

Technology Portfolio Under normal circumstances, at least 65% of the
total assets of the Portfolio will be invested in
Equity Securities of companies that MSDW Investment
Management expects to benefit from their involvement
in technology and technology-related industries.

Targeted Duration
Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Fixed
Income Securities. The Portfolio may invest up to
50% of its assets in Mortgage-Backed Securities.

3
<PAGE>

The following tables summarize the permissible investments for each Portfolio.
These tables should be used in conjunction with the investment summaries for
each Portfolio contained in the Prospectus in order to provide a complete
description of such Portfolio's investment policies.

U.S. FIXED INCOME PORTFOLIOS
<TABLE>
<CAPTION>
Investment
Grade
Fixed High Targeted Fixed
Income Yield Money Market Duration Income
------ ----- ------------------- -------- ----------
<S> <C> <C> <C> <C> <C>
EQUITY SECURITIES:
Common Stocks.......... x
Depositary Receipts....
Investment Company
Securities............ x x x x x
Limited Partnerships...
Real Estate Investing..
--REITs............... +
--Specialized
Ownership Vehicles....
Rights.................
Warrants...............
FIXED INCOME SECURITIES:
Agencies............... x x x x x
Asset-Backed
Securities............ x x x x x
Cash Equivalents....... x x x x x
Commercial Paper....... x x x x x
Corporates............. x x x x x
Floaters............... x x x x x
High Yield Securities.. x x x
Inverse Floaters....... x x x x
Investment Grade
Securities............ x x x x x
Loan Participations and
Assignments........... x x x
Money Market
Instruments........... x x x x x
Mortgage Related
Securities............ x x x x x
--CMOs................. x x x x
--MBSs................. x x x x
--SMBSs................ x x x x
Municipals............. x x x x x
Repurchase Agreements.. x x x x x
Temporary Investments.. x x x x x
U.S. Government
Securities............ x x x x x
Yankee Dollar
Obligations........... x x x x
Zero Coupons, Pay-In-
Kind Securities
or Deferred Payment
Securities............ x x x x x
FOREIGN INVESTMENT:
Brady Bonds............ x x x x
Emerging Market Country
Securities............ x
Foreign Bonds.......... x x x x
Foreign Currency
Transactions.......... x x x x
Foreign Equity
Securities............ x x
Investment Funds....... x x x
Russian Equity
Securities............
OTHER SECURITIES AND
INVESTMENT TECHNIQUES:
Borrowing for
Investment Purposes...
Convertible
Securities............ x x x x
Loans of Portfolio
Securities............ x x x x x
Non-Publicly Traded
Securities, x x
Private Placements and
Restricted x x x
Securities............ (Private Placements)
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Investment
Grade
Fixed High Money Targeted Fixed
Income Yield Market Duration Income
------ ----- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Preferred Stocks..................... x x x x
Reverse Repurchase Agreements........ x x x x x
Short Sales.......................... x x x x
Structured Investments............... x x x x x
Temporary Borrowing.................. x x x x x
When-Issued and Delayed Delivery
Securities.......................... x x x x
DERIVATIVES:
Foreign Currency Forward Contracts... x x x x
Futures and Forward Contracts........ x x x x
Options.............................. x x x x
Swaps, Caps, Collars and Floors...... x x x x
</TABLE>
- -------
+The High Yield Portfolio may invest in certain fixed income securities issued
by REITs.

U.S. EQUITY PORTFOLIOS

<TABLE>
<CAPTION>
Core Equity Mid Cap Mid Cap U.S.
Equity Growth Growth Value Technology Real Estate Value
------ ------ ------- ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY SECURITIES:
Common Stocks......... x x x x x x x
Depositary Receipts... x x x x x x x
(ADRs (ADRs (ADRs (ADRs
ONLY) ONLY) ONLY) ONLY)
Investment Company
Securities........... x x x x x x x
Limited Partnerships.. x
Rights................ x x x x x x x
Real Estate
Investing............ x x
--REITs.............. x x
--Specialized
Ownership Vehicles... x x
Warrants.............. x x x x x x x
FIXED INCOME SECURITIES:
Agencies.............. x x x x x x
Asset-Backed
Securities...........
Cash Equivalents...... x x x x x x x
Commercial Paper...... x x x x x x x
Corporates............ x x x x x x
Floaters..............
High Yield
Securities........... x
Inverse Floaters......
Investment Grade
Securities........... x x x x x x x
Loan Participations
and Assignments......
Money Market
Instruments.......... x x x x x x x
Mortgage Related
Securities...........
--CMOs................
--MBSs................
--SMBSs...............
Municipals............
Repurchase
Agreements........... x x x x x x x
Temporary
Investments.......... x x x x x x x
U.S. Government
Securities........... x x x x x x x
Yankee Dollar
Obligations.......... x x
Zero Coupons, Pay-In-
Kind Securities or
Deferred Payment
Securities........... x x x x x x x
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
Core Equity Mid Cap Mid Cap U.S.
Equity Growth Growth Value Technology Real Estate Value
------ ------ ------- ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FOREIGN INVESTMENT:
Brady Bonds...........
Emerging Market
Country Securities... x x
Eurodollar
Obligations.......... x
Foreign Bonds......... x x x x x x
Foreign Currency
Transactions......... x x x x x x x
Foreign Equity
Securities........... x x x x x x x
Investment Funds...... x x x
Russian Equity
Securities...........
OTHER SECURITIES AND
INVESTMENT
TECHNIQUES:
Borrowing for
Investment Purposes..
Convertible
Securities........... x x x x x x x
Loans of Portfolio
Securities........... x x x x x x x
Non-Publicly Traded
Securities, Private
Placements and
Restricted
Securities........... x x x x x x x
Preferred Stocks...... x x x x x x x
Reverse Repurchase
Agreements........... x x x x x
Short Sales........... x x x x x
Structured
Investments.......... x x x
Temporary Borrowing... x x x x x x x
When-Issued and
Delayed Delivery
Securities........... x x x x x x x
DERIVATIVES:
Foreign Currency
Forward Contracts.... x x x x x x x
Futures and Forward
Contracts............ x x x x x x x
Options............... x x x x x x x
Swaps, Caps, Collars
and Floors........... x x x x x x x
</TABLE>

GLOBAL PORTFOLIOS

6
<PAGE>

<TABLE>
<CAPTION>
Active Emerging Emerging
International Asian Markets Markets Global International International Latin
Allocation Equity Debt Equity Equity Fixed Income Magnum American
------------- ------ -------- -------- ------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Participations
and Assignments...... x x x
Money Market
Instruments.......... x x x x x x x x
Mortgage Related
Securities........... x x
--CMOs................ x x
--MBSs................ x x
--SMBSs............... x x
Municipals............ x x
Repurchase
Agreements........... x x x x x x x x
Temporary
Investments.......... x x x x x x x x
U.S. Government
Securities........... x x x x * x x x
Yankee Dollar
Obligations.......... x x x x
Zero Coupons, Pay-In-
Kind Securities or
Deferred Payment
Securities........... x x x x x x x
FOREIGN INVESTMENT:
Brady Bonds........... x x x x x x x
Emerging Market
Country Securities... x x x x x x x x
Eurodollar
Obligations.......... x x x x x x x x
Foreign Bonds......... x x x x x x x x
Foreign Currency
Transactions......... x x x x x x x x
Foreign Equity
Securities........... x x x x x x x
Investment Funds...... x x x x x x x x
Russian Equity
Securities........... x x
OTHER SECURITIES AND
INVESTMENT TECHNIQUES:
Borrowing for
Investment Purposes.. x x
Convertible
Securities........... x x x x x x x x
Loans of Portfolio
Securities........... x x x x x x x x
Non-Publicly Traded
Securities, Private
Placements and
Restricted
Securities........... x x x x x x x x
Preferred Stocks...... x x x x x x x x
Reverse Repurchase
Agreements........... x x
Short Sales........... x x x
Structured
Investments.......... x x x x x x x x
Temporary Borrowing... x x x x x x x x
When-Issued and
Delayed
Delivery Securities.. x x x x x x x x
DERIVATIVES:
Foreign Currency
Forward Contracts.... x x x x x x x x
Futures and Forward
Contracts............ x x x x x x x x
Options............... x x x x x x x x
Swaps, Caps, Collars
and Floors........... x x x x x x x x
</TABLE>
- -------
* This Portfolio may invest in certain U.S. Government Securities, Agencies and
Corporate Debt as described under Money Market Instruments and Temporary
Investments.

7
<PAGE>

ASSET ALLOCATION PORTFOLIOS

<TABLE>
<CAPTION>
MULTI-ASSET-
BALANCED CLASS
---------- ------------
<S> <C> <C>
EQUITY SECURITIES:
Common Stocks....................................... x x
Depositary Receipts................................. x x
(ADRs ONLY) (ADRs ONLY)
Investment Company Securities....................... x x
Limited Partnerships................................
REITs...............................................
Rights.............................................. x x
Warrants............................................ x x
FIXED INCOME SECURITIES:
Agencies............................................ x x
Asset-Backed Securities............................. x x
Cash Equivalents.................................... x x
Commercial Paper.................................... x x
Corporate Bonds..................................... x x
Floaters............................................ x x
High Yield Securities............................... x x
Inverse Floaters.................................... x x
Investment Grade Securities......................... x x
Loan Participations and Assignments................. x x
Money Market Instruments............................ x x
Mortgage Related Securities......................... x x
--CMOs.............................................. x x
--MBSs.............................................. x x
--SMBSs............................................. x x
Municipals.......................................... x x
Repurchase Agreements............................... x x
Temporary Investments............................... x x
U.S. Government Securities.......................... x x
Yankee Dollars...................................... x x
Zero Coupons, Pay-In-Kind Securities
or Deferred Payment Securities..................... x x
FOREIGN INVESTMENT:
Brady Bonds......................................... x x
Emerging Market Country Securities.................. x x
Foreign Bonds....................................... x x
Foreign Currency Transactions....................... x x
Foreign Equity Securities........................... x x
Investment Funds.................................... x x
Russian Equity Securities...........................
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Borrowing for Investment Purposes...................
Convertible Securities.............................. x x
Loans of Portfolio Securities....................... x x
Non-Publicly Traded Securities,
Private Placements and Restricted Securities....... x x
Preferred Stocks.................................... x x
Reverse Repurchase Agreements....................... x x
Short Sales......................................... x x
Structured Investments.............................. x x
Temporary Borrowing................................. x x
DERIVATIVES:
Foreign Currency Forward Contracts.................. x x
Futures and Forward Contracts....................... x x
Options............................................. x x
Swaps............................................... x x
</TABLE>

8
<PAGE>

Equity Securities

Equity Securities generally represent an ownership interest in an issuer, or
may be convertible into or represent a right to acquire an ownership interest
in an issuer. While there are many types of Equity Securities, prices of all
Equity Securities will fluctuate. Economic, political and other events may
affect the prices of broad equity markets. For example, changes in inflation or
consumer demand may affect the prices of all Equity Securities in the United
States. Similar events also may affect the prices of particular Equity
Securities. For example, news about the success or failure of a new product may
affect the price of a particular issuer's Equity Securities.

ADRs. For information concerning American Depositary Receipts ("ADRs"), see
"Depositary Receipts," below.

Common Stocks. Common Stocks represent an ownership interest in a corporation,
entitling the stockholder to voting rights and receipt of dividends paid based
on proportionate ownership.

Depositary Receipts. Depositary Receipts represent an ownership interest in
securities of foreign companies (an "underlying issuer") that are deposited
with a depositary. Depositary Receipts are not necessarily denominated in the
same currency as the underlying securities. Depositary Receipts include ADRs,
Global Depositary Receipts ("GDRs") and other types of Depositary Receipts
(which, together with ADRs and GDRs, are hereinafter collectively referred to
as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts
typically issued by a U.S. financial institution which evidence an ownership
interest in a security or pool of securities issued by a foreign issuer. ADRs
are listed and traded in the United States. GDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. financial institutions, and evidence ownership
interests in a security or pool of securities issued by either a foreign or a
U.S. corporation. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in
bearer form are designed for use in securities markets outside the United
States.

Depositary Receipts may be "sponsored" or "unsponsored." Sponsored Depositary
Receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored Depositary Receipts may be established by a depositary
without participation by the underlying issuer. Holders of unsponsored
Depositary Receipts generally bear all the costs associated with establishing
unsponsored Depositary Receipts. In addition, the issuers of the securities
underlying unsponsored Depository Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts. For
purposes of a Portfolio's investment policies, the Portfolio's investments in
Depositary Receipts will be deemed to be an investment in the underlying
securities, except that ADRs may be deemed to be issued by a U.S. issuer.

Initial Public Offerings. Certain equity Portfolios of the Fund may purchase
shares issued as part of, or a short period after, companies' initial public
offerings ("IPOs"), and may at times dispose of those shares shortly after
their acquisition. A Portfolio's purchase of those shares issued in IPOs
exposes it to the risks associated with companies that have little operating
history as public companies, as well as to the risks inherent in those sectors
of the market where these new issuers operate. The market for IPO issuers has
been volatile, and share prices of newly-priced companies have fluctuated in
significant amounts over short periods of time.

Investment Company Securities. Investment Company Securities are securities of
other open-end or closed-end investment companies. The 1940 Act generally
prohibits an underlying fund from acquiring more than 3% of the outstanding
voting shares of an investment company and limits such investments to no more
than 5% of the Portfolio's total assets in any one investment company and no
more than 10% in any combination of investment companies. A Portfolio may
invest in Investment Company Securities of investment companies managed by MSDW
Investment Management or its affiliates to the extent permitted under the 1940
Act or as otherwise permitted by the SEC. To the extent a Portfolio invests a
portion of its assets in Investment Company Securities, those assets will be
subject to the risks of the purchased investment company's portfolio
securities. The Portfolio also will bear its proportionate share of the
expenses of the purchased investment company in addition to its own expenses.

Limited Partnerships. A limited partnership interest entitles a Portfolio to
participate in the investment return of the partnership's assets as defined by
the agreement among the partners. As a limited partner, a Portfolio generally
is not permitted to participate in the management of the partnership. However,
unlike a general partner whose liability is not limited, a limited partner's
liability generally is limited to the amount of its commitment to the
partnership.

Real Estate Investing. Investments in securities of issuers engaged in the real
estate industry entail special risks and considerations. In particular,
securities of such issuers may be subject to risks associated with the direct
ownership of real estate. These risks include: the cyclical nature of real
estate values, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, demographic trends and variations in rental income, changes
in zoning laws, casualty or condemnation losses, environmental risks,
regulatory limitations on rents, changes in neighborhood values, changes in the
appeal of properties to tenants, increases in interest rates and other real
estate capital market influences. Generally, increases in interest rates will
increase the costs of obtaining financing, which could directly and indirectly
decrease the value of the Portfolios' investments.

9
<PAGE>

REITs. Real Estate Investment Trusts ("REITs") pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements
relating to its organization, ownership, assets and income, and with a
regulatory requirement that it distributes to its shareholders or unitholders
at least 95% of its taxable income for each taxable year. Generally, REITs can
be classified as Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs
invest the majority of their assets directly in real property and derive their
income primarily from rents and capital gains from appreciation realized
through property sales. Equity REITs are further categorized according to the
types of real estate securities they own, e.g., apartment properties, retail
shopping centers, office and industrial properties, hotels, health-care
facilities, manufactured housing and mixed-property types. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive their
income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs.

A shareholder in any of the Portfolios, by investing in REITs indirectly
through the Portfolio, will bear not only his proportionate share of the
expenses of the Portfolio, but also, indirectly, the management expenses of
underlying REITs. REITs may be affected by changes in the value of their
underlying properties and by defaults by borrowers or tenants. Mortgage REITs
may be affected by the quality of the credit extended. Furthermore, REITs are
dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a
limited number of properties, in a narrow geographic area, or in a single
property type. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income, or its failure to maintain exemption from registration under the 1940
Act.

Rights. Rights represent the right, but not the obligation, for a fixed period
of time to purchase additional shares of an issuer's Common Stock at the time
of a new issuance, usually at a price below the initial offering price of the
Common Stock and before the Common Stock is offered to the general public.
Rights are usually freely transferrable. The risk of investing in a Right is
that the Right may expire prior to the market value of the Common Stock
exceeding the price fixed by the Right.

Specialized Ownership Vehicles. Specialized ownership vehicles pool investors'
funds for investment primarily in income-producing real estate or real estate
related loans or interests. Such specialized ownership vehicles in which the
Portfolios may invest include property unit trusts, REITs and other similar
specialized investment vehicles. Investments in such specialized ownership
vehicles may have favorable or unfavorable legal, regulatory or tax
implications for a Portfolio and, to the extent such vehicles are structured
similarly to investment funds, may cause the Portfolios' shareholders to
indirectly bear certain additional operating expenses.

Warrants. Warrants give holders the right, but not the obligation, to buy
Common Stock of an issuer at a given price, usually higher than the market
price at the time of issuance, during a specified period. Warrants are usually
freely transferrable. The risk of investing in a Warrant is that the Warrant
may expire prior to the market value of the Common Stock exceeding the price
fixed by the Warrant.

Fixed Income Securities

Fixed Income Securities generally represent an issuer's obligation to repay
money that it has borrowed together with interest on the amount borrowed. Fixed
Income Securities come in many varieties and may differ in the way that
interest is calculated, the amount and frequency of payments, the type of
collateral, if any, and some Fixed Income Securities may have other novel
features such as conversion rights. Prices of Fixed Income Securities fluctuate
and, in particular, are subject to credit risk and market risk. Credit risk is
the possibility that an issuer may be unable to meet scheduled interest and
principal payments. Market risk is the possibility that a change in interest
rates or the market's perception of the issuer's prospects may adversely affect
the value of a Fixed Income Security. Economic, political and other events also
may affect the prices of broad fixed income markets. Generally, the values of
Fixed Income Securities vary inversely with changes in interest rates. During
periods of falling interest rates, the values of outstanding Fixed Income
Securities generally rise and during periods of rising interest rates, the
values of such securities generally decline. Prepayments also will affect the
maturity and value of Fixed Income Securities. Prepayments generally rise in
response to a decline in interest rates as debtors take advantage of the
opportunity to refinance their obligations. When this happens, a Portfolio may
be forced to reinvest in lower yielding Fixed Income Securities.

The length of time to the final payment, or maturity, of a Fixed Income
Security also affects its price volatility. While securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are subject to greater market fluctuation, especially as a result of
changes in interest rates. Traditionally, term to maturity has been used as a
barometer of a Fixed Income Security's sensitivity to interest rate changes.
However, this measure considers only the time until final payment and takes no
account of the pattern of payments prior to maturity. Duration is a more
precise measure of the expected life of a Fixed Income Security. It combines
consideration of yield, coupon, interest payments, final maturity and call
features and measures the expected life of a Fixed Income Security on a present
value basis. The duration of a Fixed Income Security ordinarily is shorter than
its maturity.

10
<PAGE>

Agencies. Agencies are Fixed Income Securities which are not guaranteed by, or
backed by the full faith and credit of the U.S. Government, but which are
issued, sponsored or guaranteed by a federal agency or federally sponsored
agency such as the Student Loan Marketing Association, or any of several other
agencies.

Asset-Backed Securities. Asset-Backed Securities ("ABSs") are securities
collateralized by shorter-term loans such as automobile loans, home equity
loans, equipment or computer leases or credit card receivables. The payments
from the collateral are passed through to the security holder. The collateral
underlying ABSs tends to have prepayment rates that usually do not vary with
interest rates. In addition, the short-term nature of the loans reduces the
impact of any change in prepayment level. However, it is possible that
prepayments (on automobile loans and other collateral) will alter the cash flow
on ABSs and it is not possible to determine in advance the actual final
maturity date or average life. Faster prepayment will shorten the average life
and slower prepayment will lengthen it. However, it is possible to determine
what the range of that movement could be and to calculate the effect that it
will have on the price of the security. The maturity of ABSs will be based on
the expected average life of the instrument. In selecting these securities, the
Advisers will look for those securities that offer a higher yield to compensate
for any variation in average maturity.

Cash Equivalents: Cash equivalents are short-term Fixed Income Securities
comprising:

(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank
or savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).

A Portfolio may invest in obligations of U.S. banks, of foreign branches of
U.S. banks (Eurodollars) and of U.S. branches of foreign banks (Yankee
dollars). Euro and Yankee dollar investments will involve some of the same
risks of investing in international securities that are discussed in the
foreign investing section of the Prospectus.

A Portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation ("FDIC"), (ii) in
the case of U.S. banks, it is a member of the FDIC, and (iii) in the case of
foreign branches of U.S. banks, the security is deemed by the Adviser to be of
an investment quality comparable with other fixed income securities which the
Portfolio may purchase.

(2) Commercial Paper rated at time of purchase by one or more Nationally
Recognized Statistical Rating Organizations ("NRSRO") in one of their two
highest categories, (e.g., A-l or A-2 by S&P or Prime 1 or Prime 2 by Moody's),
or, if not rated, issued by a corporation having an outstanding unsecured debt
issue rated high-grade by a NRSRO (e.g., A or better by Moody's, S&P or Fitch
IBCA, Inc. ("Fitch")).

(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g., A or better by Moody's, S&P or Fitch);

(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;

(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie
Mae, Federal Financing Bank, the Tennessee Valley Authority, and others;

(6) Repurchase Agreements collateralized by securities listed above; and

(7) The Money Market Portfolio's investments are limited by the requirements
of Rule 2a-7 under the 1940 Act.

Commercial Paper refers to short-term fixed income securities with maturities
ranging from 2 to 270 days. They are primarily issued by corporations needing
to finance large amounts of receivables, but may be issued by banks and other
borrowers. Commercial Paper is issued either directly or through broker-
dealers, and may be discounted or interest-bearing. Commercial Paper is
unsecured, but is almost always backed by bank lines of credit. Virtually all
commercial paper is rated by Moody's or S&P.

Collateralized Mortgage Obligations. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. They are backed by mortgage-backed securities
(discussed below) or whole loans (all such assets, the "Mortgage Assets") and
are evidenced by a series of bonds or certificates issued in multiple classes.
Each class of a CMO, often referred to as a "tranche," may be issued with a
specific fixed or floating coupon rate and has a stated maturity or final
scheduled distribution date. The principal and interest on the underlying

11
<PAGE>

Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways. Interest is paid or accrues on CMOs on a monthly, quarterly or
semi-annual basis.

CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity
having the credit status of a governmental agency or instrumentality are
generally structured with one or more types of credit enhancement as described
below. An issuer of CMOs may elect to be treated for federal income tax
purposes as a Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of
CMOs issued after 1991 must elect to be treated as a REMIC or it will be
taxable as a corporation under rules regarding taxable mortgage pools.

The principal and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in many ways. The general goal in allocating cash
flows on Mortgage Assets to the various classes of a CMO is to create certain
tranches on which the expected cash flows have a higher degree of
predictability than do the underlying Mortgage Assets. As a general matter, the
more predictable the cash flow is on a particular CMO tranche, the lower the
anticipated yield on that tranche at the time of issue will be relative to
prevailing market yields on Mortgage Assets. As part of the process of creating
more predictable cash flows on certain tranches of a CMO, one or more tranches
generally must be created that absorb most of the changes in the cash flows on
the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on other mortgage related securities with
similar average lives. Principal prepayments on the underlying Mortgage Assets
may cause the CMOs to be retired substantially earlier than their stated
maturities or final scheduled distribution dates. Because of the uncertainty of
the cash flows on these tranches, the market prices and yields of these
tranches are more volatile. In addition, some inverse floating rate obligation
CMOs exhibit extreme sensitivity to changes in prepayments. As a result, the
yield to maturity of these CMOs is sensitive not only to changes in interest
rates, but also to changes in prepayment rates on the related underlying
Mortgage Assets.

Included within the category of CMOs are PAC Bonds. PAC Bonds are a type of CMO
tranche or series designed to provide relatively predictable payments, provided
that, among other things, the actual prepayment experience on the underlying
Mortgage Assets falls within a predefined range. If the actual prepayment
experience on the underlying Mortgage Assets is faster or slower than the
predefined range or if deviations from other assumptions occur, payments on the
PAC Bond may be earlier or later than predicted and the yield may rise or fall.
The magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risk of prepayment than are other types of
mortgage related securities.

Corporates. Corporates are Fixed Income Securities issued by private
businesses. Holders, as creditors, have a prior legal claim over holders of
Equity Securities of the issuer as to both income and assets for the principal
and interest due the holder.

Fannie Mae Certificates. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed
by the full faith and credit of the U.S. Government.

Each Fannie Mae certificate represents a pro rata interest in one or more pools
of mortgage loans insured by the Federal Housing Administration under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed
by the Department of Veteran Affairs under the Servicemen's Readjustment Act of
1944, as amended ("VA Loans") or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.

Floaters. Floaters are Fixed Income Securities with a rate of interest that
varies with changes in specified market rates or indices, such as the prime
rate, or at specified intervals. Certain Floaters may carry a demand feature
that permits the holder to tender them back to the issuer of the underlying
instrument, or to a third party, at par value prior to maturity. When the
demand feature of certain Floaters represents an obligation of a foreign
entity, the demand feature will be subject to certain risks discussed under
"Foreign Investment."

High Yield Securities. High Yield Securities are generally considered to
include Fixed Income Securities rated below the four highest rating categories
at the time of purchase (e.g., Ba through C by Moody's or BB through D by S&P)
and unrated securities considered to be of equivalent quality. High Yield
Securities are not considered investment grade and are commonly referred to as
"junk bonds" or high yield, high risk securities.

While High Yield Securities offer higher yields, they carry a high degree of
credit risk and are considered speculative by the major credit rating agencies.
High Yield Securities are often issued by smaller, less creditworthy issuers,
or by highly leveraged (indebted) issuers that are generally less able than
more established or less leveraged issuers to make scheduled payments of
interest and principal. In comparison to Investment Grade Securities, the price
movement of these securities is influenced less by changes in interest rates
and

12
<PAGE>

more by the financial and business position of the issuer. The values of High
Yield Securities are more volatile and may react with greater sensitivity to
market changes.

Inverse Floaters. Inverse floating rate obligations ("Inverse Floaters") are
Fixed Income Securities that have coupon rates that vary inversely at a
multiple of a designated floating rate, such as LIBOR (London Inter-Bank
Offered Rate). Any rise in the reference rate of an Inverse Floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an Inverse Floater causes an increase
in the coupon rate. Inverse Floaters may exhibit substantially greater price
volatility than fixed rate obligations having similar credit quality,
redemption provisions and maturity, and Inverse Floater CMOs exhibit greater
price volatility than the majority of other mortgage-related securities.

Investment Grade Securities. Investment Grade Securities are Fixed Income
Securities rated by one or more of the rating agencies in one of the four
highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by
S&P or Fitch, or Aaa, Aa, A or Baa by Moody's) or determined to be of
equivalent quality by the Adviser. Securities rated BBB or Baa represent the
lowest of four levels of Investment Grade Securities and are regarded as
borderline between definitely sound obligations and those in which the
speculative element begins to predominate. Ratings assigned to Fixed Income
Securities represent only the opinion of the rating agency assigning the rating
and are not dispositive of the credit risk associated with the purchase of a
particular Fixed Income Security. Moreover, market risk also will affect the
prices of even the highest rated Fixed Income Securities so that their prices
may rise or fall even if the issuer's capacity to repay its obligations remains
unchanged.

Loan Participations and Assignments. Loan Participations are interests in loans
or other direct debt instruments ("Loans") relating to amounts owed by a
corporate, governmental or other borrower to another party. Loans may represent
amounts owed to lenders or lending syndicates, to suppliers of goods or
services (trade claims or other receivables), or to other parties ("Lenders")
and may be fixed rate or floating rate. Loans also may be arranged through
private negotiations between an issuer of sovereign debt obligations and
Lenders.

A Portfolio's investments in Loans are expected in most instances to be in the
form of a participation in Loans ("Participations") and assignments of all or a
portion of Loans ("Assignments") from third parties. In the case of a
Participation, a Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In the event of an insolvency of the Lender selling a
Participation, a Portfolio may be treated as a general creditor of the Lender
and may not benefit from any set-off between the Lender and the borrower.
Certain Participations may be structured in a manner designed to avoid
purchasers of Participations being subject to the credit risk of the Lender
with respect to the Participation. Even under such a structure, in the event of
a Lender's insolvency, the Lender's servicing of the Participation may be
delayed and the assignability of the Participation may be impaired. A Portfolio
will acquire Participations only if the Lender interpositioned between a
Portfolio and the borrower is determined by the Adviser to be creditworthy.

When a Portfolio purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, it is
likely that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Portfolio's ability to
dispose of particular Assignments or Participations when necessary to meet a
Portfolio's liquidity needs or in response to a specific economic event, such
as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it
more difficult for a Portfolio to assign a value to these securities for
purposes of valuing a Portfolio's securities and calculating its net asset
value ("NAV").

Loan Participations and Assignments involve a risk of loss in case of default
or insolvency of the borrower. In addition, they may offer less legal
protection to a Portfolio in the event of fraud or misrepresentation and may
involve a risk of insolvency of the Lender. Certain Loan Participations and
Assignments may also include standby financing commitments that obligate the
investing Portfolio to supply additional cash to the borrower on demand.
Participations involving emerging market country issuers may relate to Loans as
to which there has been or currently exists an event of default or other
failure to make payment when due, and may represent amounts owed to Lenders
that are themselves subject to political and economic risks, including the risk
of currency devaluation, expropriation, or failure. Such Loan Participations
and Assignments present additional risk of default or loss.

Money Market Instruments. Money Market Instruments are high quality short-term
Fixed Income Securities. Money Market Instruments may include obligations of
governments, government agencies, banks, corporations and special purpose
entities and Repurchase Agreements relating to these obligations. Certain Money
Market Instruments may be denominated in a foreign currency.

Mortgage-Backed Securities. With mortgage-backed securities ("MBSs"), many
mortgagees' obligations to make monthly payments to their lending institution
are pooled together and passed through to investors. The pools are assembled by
various governmental, Government-related and

13
<PAGE>

private organizations. A Portfolio may invest in securities issued or
guaranteed by GNMA, FHLMC or Fannie Mae, private issuers and other government
agencies. MBSs issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk, since private issuers may not
be able to meet their obligations under the policies. If there is no guarantee
provided by the issuer, a Portfolio will purchase only MBSs which at the time
of purchase are rated investment grade by one or more NRSROs or, if unrated,
are deemed by the Adviser to be of comparable quality.

MBSs are issued or guaranteed by private sector originators of or investors in
mortgage loans and structured similarly to governmental pass-through
securities. Because private pass-throughs typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality,
however, they are generally structured with one or more of the types of credit
enhancement described below. Fannie Mae and FHLMC obligations are not backed by
the full faith and credit of the U.S. Government as GNMA certificates are.
FHLMC securities are supported by its right to borrow from the U.S. Treasury.
Each of GNMA, Fannie Mae and FHLMC guarantees timely distributions of interest
to certificate holders. Each of GNMA and Fannie Mae also guarantees timely
distributions of scheduled principal. Although FHLMC has in the past guaranteed
only the ultimate collection of principal of the underlying mortgage loan,
FHLMC now issues MBSs (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Resolution Funding Corporation ("REFCORP")
obligations are backed, as to principal payments, by zero coupon U.S. Treasury
bonds, and as to interest payment, ultimately by the U.S. Treasury.

There are two methods of trading MBSs. A specified pool transaction is a trade
in which the pool number of the security to be delivered on the settlement date
is known at the time the trade is made. This is in contrast with the typical
MBS transaction, called a TBA (To Be Announced) transaction, in which the type
of MBS to be delivered is specified at the time of trade but the actual pool
numbers of the securities that will be delivered are not known at the time of
the trade. The pool numbers of the pools to be delivered at settlement are
announced shortly before settlement takes place. The terms of the TBA trade may
be made more specific if desired. Generally, agency pass-through MBSs are
traded on a TBA basis.

Like fixed income securities in general, MBSs will generally decline in price
when interest rates rise. Rising interest rates also tend to discourage
refinancings of home mortgages, with the result that the average life of MBSs
held by a Portfolio may be lengthened. As average life extends, price
volatility generally increases. This extension of average life causes the
market price of the MBSs to decrease further when interest rates rise than if
their average lives were fixed. However, when interest rates fall, mortgages
may not enjoy as large a gain in market value due to prepayment risk because
additional mortgage prepayments must be reinvested at lower interest rates.
Faster prepayment will shorten the average life
and slower prepayments will lengthen it. However, it is possible to determine
what the range of the average life movement could be and to calculate the
effect that it will have on the price of the MBS. In selecting MBSs, the
Advisers look for those that offer a higher yield to compensate for any
variation in average maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities, even if the security
is in one of the highest rating categories. A Portfolio may invest, without
limit, in MBSs issued by private issuers when the Adviser deems that the
quality of the investment, the quality of the issuer, and market conditions
warrant such investments. The Portfolios will purchase securities issued by
private issuers which are rated investment grade at the time of purchase by
Moody's or S&P or are deemed by the Advisers to be of comparable investment
quality.

Mortgage Related Securities. Mortgage related securities are securities that,
directly or indirectly, represent a participation in, or are secured by and
payable from, mortgage loans on real property. Mortgage related securities may
include CMOs and ABSs issued or guaranteed by agencies or instrumentalities of
the U.S. Government or by private sector entities.

Municipals. Municipal securities ("Municipals") are debt obligations issued by
local, state and regional governments that provide interest income that is
exempt from federal income taxes and in certain instances, from state and local
taxes. Municipals include both municipal bonds (those securities with
maturities of five years or more) and municipal notes (those securities with
maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income taxes. Industrial development
bonds are issued by or on behalf of public authorities to obtain funds for
various privately-operated manufacturing facilities, housing, sports arenas,
convention centers, airports, mass transportation systems and water, gas or
sewer works. Industrial development bonds are ordinarily dependent on the
credit quality of a private user, not the public issuer.

Repurchase Agreements. Repurchase Agreements are transactions in which a
Portfolio purchases a security or basket of securities and simultaneously
commits to resell that security or basket to the seller (a bank, broker or
dealer) at a mutually agreed upon date and price. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or date of maturity of the purchased security. Repurchase
Agreements may be

14
<PAGE>

viewed as a fully collateralized loan of money by the Portfolio to the seller
at a mutually agreed upon rate and price. The term of these agreements is
usually from overnight to one week, and never exceeds one year. Repurchase
Agreements with a term of over seven days are considered illiquid.

In these transactions, the Portfolio receives as collateral securities that
have a market value at least equal to the purchase price (including accrued
interest) of the Repurchase Agreement, and this value is maintained during the
term of the agreement. These securities are held by the Portfolio's Custodian
or an approved third party for the benefit of the Portfolio until repurchased.
Repurchase Agreements permit a Portfolio to remain fully invested while
retaining overnight flexibility to pursue investments of a longer-term nature.
If the seller defaults and the collateral value declines, the Portfolio might
incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Portfolio's realization upon the collateral may be delayed or
limited.

Pursuant to an order issued by the SEC, the Portfolios managed by an Adviser
may pool their daily uninvested cash balances in order to invest in Repurchase
Agreements on a joint basis with other investment companies advised by that
Adviser. By entering into Repurchase Agreements on a joint basis, the
Portfolios expect to incur lower transaction costs and potentially obtain
higher rates of interest on such Repurchase Agreements. Each Portfolio's
participation in the income from jointly purchased Repurchase Agreements will
be based on that Portfolio's percentage share in the total Repurchase
Agreement.

Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities
("SMBSs") are multi-class mortgage securities issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans. SMBSs are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of Mortgage Assets. In some cases, one class will receive all of the
interest ("interest-only" or "IO class"), while the other class will receive
all of the principal ("principal-only" or "PO class"). The yield to maturity on
IO classes and PO classes is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
significant changes in the rate of principal repayments will have a
corresponding effect on the SMBSs' yield to maturity.

Temporary Investments. When the Adviser believes that changes in economic,
financial or political conditions make it advisable, each Portfolio may invest
up to 100% of its assets in cash and certain short- and medium-term Fixed
Income Securities for temporary defensive purposes. These Temporary Investments
may consist of obligations of the U.S. or foreign governments, their agencies
or instrumentalities; Money Market Instruments; and instruments issued by
international development agencies.

U.S. Government Securities. U.S. Government Securities are Fixed Income
Securities that are backed by the full faith and credit of the U.S. Government
as to the payment of both principal and interest. U.S. Government Securities
may include securities issued by the U.S. Treasury and securities issued by
federal agencies and U.S. Government sponsored instrumentalities.

Yankee Dollar Obligations. Yankee dollar bank obligations are dollar-
denominated obligations issued in the U.S. capital markets by foreign banks.
Yankee dollar obligations are subject to the same risks as domestic issues,
notably credit risk, market risk and liquidity risk. To a limited extent, they
are also subject to certain sovereign risks. One such risk is the possibility
that a sovereign country might prevent capital, in the form of dollars, from
flowing across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulations of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers. The Portfolios may
consider Yankee dollar obligations to be domestic securities for purposes of
their investment policies.

Zero Coupons. Zero Coupons are fixed income securities that do not make regular
interest payments. Instead, Zero Coupons are sold at a discount from their face
value. The difference between a Zero Coupon's issue or purchase price and its
face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero Coupons may offer investors the
opportunity to earn a higher yield than that available on ordinary interest-
paying obligations of similar credit quality and maturity.

Foreign Investment

Investing in foreign securities involves certain special considerations which
are not typically associated with investing in the Equity Securities or Fixed
Income Securities of U.S. issuers. Foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards and may have
policies that are not comparable to those of domestic issuers. As a result,
there may be less information available about foreign issuers than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges,
brokers and listed issuers than in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political and social instability, or diplomatic
developments which could affect U.S. investments in those countries. The costs
of investing in foreign countries frequently is higher than the costs of
investing in the United States. Although the Advisers endeavor to achieve the
most favorable execution costs in portfolio transactions, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges.

15
<PAGE>

Investments in securities of foreign issuers generally are denominated in
foreign currencies. Accordingly, the value of a Portfolio's assets, as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. A Portfolio may incur costs
in connection with conversions between various currencies.

Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. See "Taxes--Foreign
Income Taxes."

Brady Bonds. Brady Bonds are Fixed Income Securities that are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the U.S. Secretary of the Treasury. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the over-the-
counter secondary market. The Portfolios will invest in Brady Bonds only if
they are consistent with the Portfolio's quality specifications. However, Brady
Bonds should be viewed as speculative in light of the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds.

Emerging Market Country Securities. An emerging market country security is one
issued by a foreign government or private issuer that has one or more of the
following characteristics: (i) its principal securities trading market is in an
emerging market country, (ii) alone or on a consolidated basis it derives 50%
or more of its annual revenue from either goods produced, sales made or
services performed in emerging markets, or (iii) it is organized under the laws
of, or has a principal office in, an emerging market country.

Emerging market describes any country which is generally considered to be an
emerging or developing country by major organizations in the international
financial community, such as the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation. Emerging markets can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most
nations located in Western Europe.

The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures. These economies also
have been, and may continue to be, adversely affected by economic conditions in
the countries with which they trade.

Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in certain fixed income securities and domestic companies
may be subject to limitation in other emerging market countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging market countries to prevent, among other concerns,
violation of foreign investment limitations. Repatriation of investment income,
capital and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging countries. A Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental registration or approval for such repatriation. Any investment
subject to such repatriation controls will be considered illiquid if it appears
reasonably likely that this process will take more than seven days.

Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud. Emerging
market countries also pose the risk of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) that could affect
adversely the economies of such countries or the value of a Portfolio's
investments in those countries. In addition, it may be difficult to obtain and
enforce a judgment in a court outside the United States.

Portfolios that invest in emerging markets may also be exposed to an extra
degree of custodial and/or market risk, especially where the securities
purchased are not traded on an official exchange or where ownership records
regarding the securities are maintained by an unregulated entity (or even the
issuer itself).

Eurodollar Obligations. Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside the U.S. capital
markets by foreign branches of U.S. banks and by foreign banks. Eurodollar
obligations are subject to the same risks as domestic issues and are also
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulations of financial

16
<PAGE>

markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers.

Foreign Bonds. Foreign Bonds are Fixed Income Securities issued by a foreign
government or a private issuer in a foreign country.

Foreign Currency Transactions. The U.S. dollar value of the assets of the
Portfolios, to the extent they invest in securities denominated in foreign
currencies, may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolios
may incur costs in connection with conversions between various currencies. The
Portfolios may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market. The Portfolios also may manage their foreign currency transactions by
entering into foreign currency forward contracts to purchase or sell foreign
currencies or by using other instruments and techniques described under
"Derivatives," below.

European Currency Transition. On January 1, 1999, the European Monetary Union
(EMU) implemented a new currency unit, the Euro, which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. Implementation of this plan means that financial
transactions and market information, including share quotations and company
accounts, in participating countries are now denominated in Euros. Monetary
policy for participating countries is uniformly managed by a new central bank,
the European Central Bank (ECB).

The transition to the Euro may change the economic environment and behavior of
investors, particularly in European markets. For example, the process of
implementing the Euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or
other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.

Foreign Equity Securities. Foreign Equity Securities are Equity Securities of
an issuer in a foreign country.

Investment Funds. Some emerging market countries have laws and regulations that
currently preclude direct investment or make it undesirable to invest directly
in the securities of their companies. However, indirect investment in the
securities of companies listed and traded on the stock exchanges in these
countries is permitted by certain emerging market countries through Investment
Funds that have been specifically authorized. A Portfolio may invest in these
Investment Funds subject to the provisions of the 1940 Act, as applicable, and
other applicable laws.

Russian Equity Securities. The registration, clearing and settlement of
securities transactions involving Russian issuers are subject to significant
risks not normally associated with securities transactions in the United States
and other more developed markets. Ownership of Equity Securities in Russian
companies is evidenced by entries in a company's share register (except where
shares are held through depositories that meet the requirements of the 1940
Act) and the issuance of extracts from the register or, in certain limited
cases, by formal share certificates. However, Russian share registers are
frequently unreliable and a Portfolio could possibly lose its registration
through oversight, negligence or fraud. Moreover, Russia lacks a centralized
registry to record securities transactions and registrars located throughout
Russia or the companies themselves maintain share registers. Registrars are
under no obligation to provide extracts to potential purchasers in a timely
manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for a Portfolio to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by Russian law to employ an independent
registrar, in practice, such companies have not always followed this law.
Because of this lack of independence of registrars, management of a Russian
company may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions on the share register. Furthermore, these practices may
prevent a Portfolio from investing in the securities of certain Russian
companies deemed suitable by the Adviser and could cause a delay in the sale of
Russian Securities by the Portfolio if the company deems a purchaser
unsuitable, which may expose the Portfolio to potential loss on its investment.

In light of the risks described above, the Board of Directors of the Fund has
approved certain procedures concerning the Fund's investments in Russian
Securities. Among these procedures is a requirement that a Portfolio will not
invest in the Equity Securities of a Russian company unless that issuer's
registrar has entered into a contract with the Fund's sub-custodian containing
certain protective conditions, including, among other things, the sub-
custodian's right to conduct regular share confirmations on behalf of the
Portfolio. This requirement will likely have the effect of precluding
investments in certain Russian companies that a Portfolio would otherwise make.

Other Securities and Investment Techniques

Borrowing for Investment Purposes. Borrowing for investment purposes creates
leverage which is a speculative characteristic. Portfolios authorized to borrow
will do so only when the Advisers believe that borrowing will benefit the
Portfolio after taking into account considerations such as the costs of
borrowing and the likely investment returns on

17
<PAGE>

securities purchased with borrowed funds. Borrowing by a Portfolio will create
the opportunity for increased net income but, at the same time, will involve
special risk considerations. Leverage that results from borrowing will magnify
declines as well as increases in a Portfolio's NAV per share and net yield.
Each Portfolio that engages in borrowing expects that all of its borrowing will
be made on a secured bases. The Portfolio will either segregate the assets
securing the borrowing for the benefit of the lenders or arrangements will be
made with a suitable sub-custodian. If assets used to secure the borrowing
decrease in value, a Portfolio may be required to pledge additional collateral
to the lender in the form of cash or securities to avoid liquidation of those
assets.

Convertible Securities. Convertible Securities are securities that may be
exchanged under certain circumstances for a fixed number of shares of Common
Stock or other Equity Securities. Convertible Securities generally represent a
feature of some other type of security, such as a Fixed Income Security or
Preferred Stock, so that, for example, a Convertible Fixed Income Security
would be a Fixed Income Security that is convertible into Common Stock.
Convertible Securities may be viewed as an investment in the current security
or the security into which the Convertible Securities may be exchanged and,
therefore, are included in both the definition of Equity Security and Fixed
Income Security.

Loans of Portfolio Securities. Each Portfolio may lend its investment
securities to qualified institutional investors that need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its investment securities, a Portfolio attempts to increase its net
investment income through the receipt of interest of the loan. Any gain or loss
in the market price of the securities loaned that might occur during the term
of the loan would be for the account of the Portfolio. Each Portfolio may lend
its investment securities to qualified brokers, dealers, domestic and foreign
banks or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act or the
Rules and Regulations or interpretations of the SEC thereunder, which currently
require that (i) the borrower pledge and maintain with the Portfolio collateral
consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned; (ii) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to market" on a daily basis); (iii) the loan be made subject to
termination by the Portfolio at any time; and (iv) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. There may be
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of
Directors.

At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities,
so long as such fees are set forth in a written contract and approved by the
investment company's Board of Directors. In addition, voting rights may pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

Non-Publicly Traded Securities, Private Placements and Restricted
Securities. The Portfolios may invest in securities that are neither listed on
a stock exchange nor traded over-the-counter, including privately placed and
restricted securities. Such unlisted securities may involve a higher degree of
business and financial risk that can result in substantial losses. As a result
of the absence of a public trading market for these securities, they may be
less liquid than publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Portfolio or less than
what may be considered the fair value of such securities. Furthermore,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
sold, the Portfolio may be required to bear the expenses of registration.

As a general matter, a Portfolio may not invest more than 15% (10% for the
Money Market Portfolio) of its net assets in illiquid securities, such as
securities for which there is not a readily available secondary market or
securities that are restricted from sale to the public without registration.
However, certain Restricted Securities can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("Rule 144A
Securities") and may be deemed to be liquid under guidelines adopted by the
Fund's Board of Directors. The Portfolios may invest without limit in liquid
Rule 144A Securities. Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

Preferred Stocks. Preferred Stocks are securities that evidence ownership in a
corporation and pay a fixed or variable stream of dividends. Preferred Stocks
have a preference over Common Stocks in the event of the liquidation of an
issuer and usually do not carry voting rights. Because Preferred Stocks pay a
fixed or variable stream of dividends they have many of the characteristics of
a Fixed Income Security and are, therefore, included in both the definition of
Equity Security and Fixed Income Security.

18
<PAGE>

Reverse Repurchase Agreements. Under a Reverse Repurchase Agreement, a
Portfolio sells a security and promises to repurchase that security at an
agreed upon future date and price. The price paid to repurchase the security
reflects interest accrued during the term of the agreement. The Portfolio will
earmark cash or liquid assets or establish a segregated account holding cash
and other liquid assets in an amount not less than the purchase obligations of
the agreement. Reverse Repurchase Agreements may be viewed as a speculative
form of borrowing called leveraging. A Portfolio may invest in reverse
repurchase agreements if (i) interest earned from leveraging exceeds the
interest expense of the original reverse repurchase transaction and (ii)
proceeds from the transaction are not invested for longer than the term of the
Reverse Repurchase Agreement.

Short Sales. A short sale is a transaction in which the Portfolio sells
securities it owns or has the right to acquire at no added cost (i.e., "against
the box") or does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. To deliver the securities to the buyer, the
Portfolio arranges through a broker to borrow the securities and, in so doing,
the Portfolio becomes obligated to replace the securities borrowed at their
market price at the time of replacement. When selling short, the Portfolio
intends to replace the securities at a lower price and therefore, profit from
the difference between the cost to replace the securities and the proceeds
received from the sale of the securities. When the Portfolio makes a short
sale, the proceeds it receives from the sale will be held on behalf of a broker
until the Portfolio replaces the borrowed securities. The Portfolio may have to
pay a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.

The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash or other liquid assets. In addition, the Portfolio will
earmark cash or liquid assets or place in a segregated account an amount of
cash or other liquid assets equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short, and (ii)
any cash or other liquid securities deposited as collateral with the broker in
connection with the short sale. Short sales by the Portfolio involve certain
risk and special considerations. If the Advisers incorrectly predict that the
price of the borrowed security will decline, the Portfolio will have to replace
the securities with securities with a greater value than the amount received
from the sale. As a result, losses from short sales differ from losses that
could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases can equal only the total
amount invested.

Structured Investments. Structured Investments are securities that are
convertible into, or the value of which is based upon the value of, other fixed
income or equity securities or indices upon certain terms and conditions. The
amount a Portfolio receives when it sells a Structured Investment or at
maturity of a Structured Investment is not fixed, but is based on the price of
the underlying security or index. Particular Structured Investments may be
designed so that they move in conjunction with or differently from their
underlying security or index in terms of price and volatility. It is impossible
to predict whether the underlying index or price of the underlying security
will rise or fall, but prices of the underlying indices and securities (and,
therefore, the prices of Structured Investments) will be influenced by the same
types of political and economic events that affect particular issuers of fixed
income and equity securities and capital markets generally. Structured
Investments also may trade differently from their underlying securities.
Structured Investments generally trade on the secondary market, which is fairly
developed and liquid. However, the market for such securities may be shallow
compared to the market for the underlying securities or the underlying index.
Accordingly, periods of high market volatility may affect the liquidity of
Structured Investments, making high volume trades possible only with
discounting.

Structured Investments are a relatively new innovation and may be designed to
have various combinations of equity and fixed income characteristics. The
following sections describe four of the more common types of Structured
Investments. The Portfolios may invest in other Structured Investments,
including those that may be developed in the future, to the extent that the
Structured Investments are otherwise consistent with a Portfolio's investment
objective and policies.

Structured Notes. Structured Notes are derivative securities for which the
amount of principal repayment and/or interest payments is based upon the
movement of one or more "factors." These factors include, but are not limited
to, currency exchange rates, interest rates (such as the prime lending rate and
LIBOR) and stock indices, such as the S&P 500. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. Structured Notes may be designed to have particular
quality and maturity characteristics and may vary from money market quality to
below investment grade. Depending on the factor used and the use of multipliers
or deflators, however, changes in interest rates and movement of the factor may
cause significant price fluctuations or may cause particular Structured Notes
to become illiquid. The Portfolios will use Structured Notes to tailor their
investments to the specific risks and returns the Adviser wishes to accept
while avoiding or reducing certain other risks.

Temporary Borrowing. Each Portfolio is permitted to borrow from banks (and in
the case of the Technology, Targeted Duration and Investment Grade Fixed Income
Portfolios from banks and other entities) for extraordinary or emergency
purposes. For example, the Portfolios may borrow for temporary defensive
purposes or to meet shareholder redemptions when the Advisers believe that it
would not be in the best interests of a Portfolio to liquidate portfolio

19
<PAGE>

holdings. A Portfolio will not purchase additional securities while temporary
borrowings exceed 5% of its total assets.

The Board of Directors of the Fund has approved procedures whereby the
Portfolios together with other investment companies advised by the Advisers or
their affiliates may enter into a joint line of credit arrangement with a bank.
Each Portfolio would be liable only for its own temporary borrowings under the
joint line of credit arrangements.

When-Issued and Delayed Delivery Securities. When-Issued and Delayed Delivery
Securities are securities purchased with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take as long as a month or more after the date of the purchase
commitment, but will take place no more than 120 days after the trade date. The
payment obligation and the interest rates that will be received are each fixed
at the time a Portfolio enters into the commitment and no interest accrues to
the Portfolio until settlement. Thus, it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. When a Portfolio agrees to
purchase When-Issued or Delayed Delivery Securities, it will earmark or
segregate cash or liquid securities in an amount equal to the Portfolio's
commitment to purchase these securities.

Derivatives

The Portfolios are permitted to utilize various exchange-traded and over-the-
counter derivative instruments and derivative securities, both for hedging and
non-hedging purposes. Permitted derivative products include, but are not
limited to futures contracts ("futures"); forward contracts ("forwards");
options; swaps, caps, collars and floors; structured notes; and other
derivative products yet to be developed, so long as these new products are used
in a manner consistent with the objectives of the Portfolios. These derivative
products may be based on a wide variety of underlying rates, indices,
instruments, securities and other products, such as interest rates, foreign
currencies, foreign and domestic fixed income and equity securities, groups or
"baskets" of securities and securities indices (for each derivative product,
the "underlying"). Each of the Equity Growth, U.S. Real Estate, Emerging
Markets Debt, Global Equity, International Magnum, Emerging Markets Equity,
Asian Equity, Latin American, Active International Allocation and Technology
Portfolios will limit its use of derivatives for non-hedging purposes to 33
1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. The Fixed Income, Investment Grade Fixed Income, High
Yield, Targeted Duration, Core Equity, Value, Mid Cap Growth, Mid Cap Value,
International Fixed Income, Balanced and Multi-Asset-Class Portfolios will not
enter into futures to the extent that each Portfolio's outstanding obligations
to purchase securities under these contracts, in combination with its
outstanding obligations with respect to options, would exceed 50% of its total
assets. The Portfolios' investments in forwards or other derivatives used for
hedging purposes are not subject to the foregoing limits.

The term hedging, generally, means that a Portfolio is using a derivative
product as a way to reduce or limit risk. For example, a Portfolio may hedge in
order to limit the effects of a change in the value of a particular foreign
currency versus the U.S. dollar or a Portfolio could use a portion of its cash
to buy securities futures in order to hedge the risk of not being fully
invested. The Portfolios also may use certain complex hedging techniques. For
example, a Portfolio may use a type of hedge known as a cross hedge or a proxy
hedge, where the Portfolio hedges the risk associated with one underlying by
purchasing or selling a derivative product with an underlying that is
different. There is no limit on the use of forwards or other derivative
products for hedging purposes.

The Portfolios may use derivative products under a number of different
circumstances to further their investment objectives. For example, a Portfolio
may purchase derivatives to gain exposure to a market or currency quickly in
response to changes in the Portfolio's investment strategy, upon the inflow of
investable cash or when the derivative provides greater liquidity than the
underlying market. A Portfolio may use derivatives when it is restricted from
directly owning the "underlying" or when derivatives provide a pricing
advantage or lower transaction costs. The Portfolios also may purchase
combinations of derivatives in order to gain exposure to an investment in lieu
of actually purchasing such investment. Derivatives may also be used by a
Portfolio for hedging or risk management purposes and in other circumstances
when the Adviser believes it advantageous to do so consistent with the
Portfolio's investment objectives and policies. The Portfolios will not use
derivatives in a manner that creates leverage, except to the extent that the
use of leverage is expressly permitted by a particular Portfolio's investment
policies, and then only in a manner consistent with such policies. Except under
circumstances where a segregated account is not required under the 1940 Act or
the rules adopted thereunder, the Portfolio will earmark cash or liquid assets
or place them in a segregated account in an amount necessary to cover the
Portfolio's obligations under such derivative transactions.

The use of derivative products is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in forecasts of
market values, interest rates, and currency exchange rates, the investment
performance of the Portfolios will be less favorable than it would have been if
these investment techniques had not been used.

20
<PAGE>

Some of the derivative products in which the Portfolios may invest and some of
the risks related thereto are described in further detail below.

Foreign Currency Forward Contracts. A foreign currency forward contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for such trades. The Portfolios may enter into foreign
currency forward contracts in many circumstances. For example, when a Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, or when a Portfolio anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Portfolio may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may
be. By entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Portfolio will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
For example, when any of the Portfolios anticipates that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars to sell the amount
of foreign currency approximating the value of some or all of such Portfolio's
securities denominated in such foreign currency. Similarly, when any of the
Portfolios anticipates that the U.S. dollar may suffer a decline against a
foreign currency it may enter into a foreign currency forward contract to buy
that currency for a fixed amount. However, it may not be practicable to hedge
currency in all markets, particularly emerging markets.

The precise matching of the forward contract amounts and the value of the
securities involved generally will not be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

Under normal circumstances, consideration of the prospect for changes in the
values of currency will be incorporated into the long-term investment decisions
made with regard to overall diversification strategies. However, the Advisers
believe that it is important to have the flexibility to enter into such forward
contracts when each determines that it is in the best interests of a Portfolio.
Except under circumstances where a segregated account is not required under the
1940 Act or the rules adopted thereunder, the Portfolio will earmark cash or
liquid assets or place them into a segregated account in an amount necessary to
cover the Portfolio's obligations under such foreign currency forward
contracts.

The Portfolios generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Portfolio may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for a Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that such Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.

If a Portfolio retains the portfolio security and engages in an offsetting
transaction, such Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Portfolio entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, such Portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, such Portfolio would suffer a loss to the extent that
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The Portfolios are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline
in the value of a currency does not eliminate fluctuation in the underlying
prices of the securities. It simply establishes a rate of exchange which one
can achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.

Futures Contracts (Futures) and Forward Contracts (Forwards). The Portfolios
may purchase and sell futures contracts, including futures on securities
indices, baskets of

21
<PAGE>

securities, foreign currencies and interest rates of the type generally known
as financial futures. These are standardized contracts that are bought and sold
on organized exchanges. A futures contract obligates a party to buy or sell a
specific amount of the "underlying," such as a particular foreign currency, on
a specified future date at a specified price or to settle the value in cash.

The Portfolios may also purchase and sell forward contracts, such as forward
rate agreements and other financial forward contracts. The Portfolios may also
use foreign currency forward contracts which are separately discussed under
"Foreign Currency Forward Contracts." These forward contracts are privately
negotiated and are bought and sold in the over-the-counter market. Like a
future, a forward contract obligates a party to buy or sell a specific amount
of the underlying on a specified future date at a specified price. The terms of
the forward contract are customized. Forward contracts, like other over-the-
counter contracts that are negotiated directly with an individual counterparty,
subject the Portfolio to the risk of counterparty default.

In some cases, the Portfolios may be able to use either futures contracts,
forward contracts or exchange-traded or over-the-counter options to accomplish
similar purposes. In all cases, the Portfolios will use these products only as
permitted by applicable laws and regulations. Some of the ways in which the
Portfolios may use futures contracts, forward contracts and related options are
as follows:

The Portfolios may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or may purchase
securities index futures or options in order to gain market exposure. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets. The nature of the strategies
adopted by the Advisers, and the extent to which those strategies are used, may
depend on the development of such markets. The Portfolios may also purchase and
sell foreign currency futures to lock in rates or to adjust their exposure to a
particular currency.

The Portfolios may engage in transactions in interest rate futures and related
products. The value of these contracts rises and falls inversely with change in
interest rates. The Portfolios may engage in such transactions to hedge their
holdings of debt instruments against future changes in interest rates or for
other purposes.

Gains and losses on future contracts, forward contracts and related options
depend on the Adviser's ability to predict correctly the direction of movement
of securities prices, interest rates and other economic factors. Other risks
associated with the use of these instruments include (i) imperfect correlation
between the changes in market value of investments held by a Portfolio and the
prices of derivative products relating to investments purchased or sold by the
Portfolio, and (ii) possible lack of a liquid secondary market for a derivative
product and the resulting inability to close out a position. A Portfolio will
seek to minimize the risk by only entering into transactions for which there
appears to be a liquid exchange or secondary market. In some strategies, the
risk of loss in trading on futures and related transactions can be substantial,
due both to the low margin deposits required and the extremely high degree of
leverage involved in pricing.

Under rules adopted by the Commodity Futures Trading Commission (the "CFTC"),
each Portfolio may, without registering with the CFTC as a Commodity Pool
Operator, enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Portfolio's total
assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to non-bona
fide hedging activities.

Options. The Portfolios may seek to increase their returns or may hedge their
portfolio investments through options transactions with respect to individual
securities, indices or baskets in which such Portfolios may invest; other
financial instruments; and foreign currency. Various options may be purchased
and sold on exchanges or over-the-counter markets.

Each Portfolio may purchase put and call options. Purchasing a put option gives
a Portfolio the right, but not the obligation, to sell the underlying (such as
a securities index or a particular foreign currency) at the exercise price
either on a specific date or during a specified exercise period. The purchaser
pays a premium to the seller (also known as the writer) of the option.

Each Portfolio also may write put and call options on investments held in its
portfolio, as well as foreign currency options. A Portfolio that has written an
option receives a premium that increases the Portfolio's return on the
underlying in the event the option expires unexercised or is closed out at a
profit. However, by writing a call option, a Portfolio will limit its
opportunity to profit from an increase in the market value of the underlying
above the exercise price of the option. By writing a put option, a Portfolio
will be exposed to the amount by which the price of the underlying is less than
the strike price.

By writing an option, a Portfolio incurs an obligation either to buy (in the
case of a put option) or sell (in the case of a call option) the underlying
from the purchaser of the option at the option's exercise price, upon exercise
by the purchaser. Pursuant to guidelines established by the Board of Directors,
the Portfolios may only write options that are "covered." A covered call option
means that until the expiration of the option, the Portfolio will either
earmark or segregate sufficient liquid assets to cover its obligations under
the option or will continue to own (i) the underlying; (ii) securities or
instruments convertible or exchangeable without the payment of any
consideration into the underlying; or (iii) a call option on the same
underlying with a strike price no

22
<PAGE>

higher than the price at which the underlying was sold pursuant to a short
option position. In the case of a put option, the Portfolio will either earmark
or segregate sufficient liquid assets to cover its obligations under the option
or will own another put option on the same underlying with an equal or higher
strike price.

There currently are limited options markets in many countries, particularly
emerging market countries, and the nature of the strategies adopted by the
Advisers and the extent to which those strategies are used will depend on the
development of these options markets. The primary risks associated with the
Portfolios' use of options as described include (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Portfolio and the prices of options relating to such investments, and (ii)
possible lack of a liquid secondary market for an option.

Swaps, Caps, Collars and Floors. Swaps are privately negotiated over-the-
counter derivative products in which two parties agree to exchange payment
streams calculated in relation to a rate, index, instrument or certain
securities and a particular "notional amount." As with many of the other
derivative products available to the Portfolios, the underlying may include an
interest rate (fixed or floating), a currency exchange rate, a commodity price
index, and a security, securities index or a combination thereof. A great deal
of flexibility is possible in the way the products may be structured, with the
effect being that the parties may have exchanged amounts equal to the return on
one rate, index or group of securities for another. For example, in a simple
fixed-to-floating interest rate swap, one party makes payments equivalent to a
fixed interest rate, and the other make payments equivalent to a specified
interest rate index. A Portfolio may engage in simple or more complex swap
transactions involving a wide variety of underlyings. The currency swaps that
the Portfolios may enter will generally involve an agreement to pay interest
streams in one currency based on a specified index in exchange for receiving
interest streams denominated in another currency. Such swaps may involve
initial and final exchanges that correspond to the agreed upon notional amount.

Caps, collars and floors are privately-negotiated option-based derivative
products. A Portfolio may use one or more of these products in addition to or
in lieu of a swap involving a similar rate or index. As in the case of a put or
call option, the buyer of a cap or floor pays a premium to the writer. In
exchange for that premium, the buyer receives the right to a payment equal to
the differential if the specified index or rate rises above (in the case of a
cap) or falls below (in the case of a floor) a pre-determined strike level. As
in the case of swaps, obligations under caps and floors are calculated based
upon an agreed notional amount, and like most swaps (other than foreign
currency swaps), the entire notional amount is not exchanged and thus is not at
risk. A collar is a combination product in which the same party, such as the
Portfolio, buys a cap from and sells a floor to the other party. As with put
and call options, the amount at risk is limited for the buyer, but, if the cap
or floor in not hedged or covered, may be unlimited for the seller. Under
current market practice, caps, collars and floors between the same two parties
are generally documented under the same "master agreement." In some cases,
options and forward agreements may also be governed by the same master
agreement. In the event of a default, amounts owed under all transactions
entered into under, or covered by, the same master agreement would be netted
and only a single payment would be made.

Swaps, caps, collars and floors are credit-intensive products. A Portfolio that
enters into a swap transaction bears the risk of default, i.e. nonpayment, by
the other party. The guidelines under which each Portfolio enters derivative
transactions, along with some features of the transactions themselves, are
intended to reduce these risks to the extent reasonably practicable, although
they cannot eliminate the risks entirely. Under guidelines established by the
Board of Directors, a Portfolio may enter into swaps only with parties that
meet certain credit rating guidelines. Consistent with current market
practices, a Portfolio will generally enter into swap transactions on a net
basis, and all swap transactions with the same party will be documented under a
single master agreement to provide for net payment upon default. In addition, a
Portfolio's obligations under an agreement will be accrued daily (offset
against any amounts owing to the Portfolio) and any accrued, but unpaid, net
amounts owed to the other party to a master agreement will be covered by the
maintenance of a segregated account consisting of cash or liquid securities.

Interest rate and total rate of return (fixed income or equity) swaps generally
do not involve the delivery of securities, other underlying assets, or
principal. In such case, if the other party to an interest rate or total rate
of return swap defaults, a Portfolio's risk of loss will consist of the
payments that a Portfolio is contractually entitled to receive from the other
party. This may not be true for currency swaps that require the delivery of the
entire notional amount of one designated currency in exchange for the other. If
there is a default by the other party, a Portfolio may have contractual
remedies under the agreements related to the transaction.

Taxes

The following is only a summary of certain additional federal income and excise
tax considerations generally affecting the Portfolios and their shareholders
that are not described in the Portfolios' prospectuses. No attempt is made to
present a detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Portfolios' prospectuses is
not intended as a substitute for careful tax planning. Shareholders are urged
to consult their tax advisors with specific reference to their own tax
situations, including their state and local tax liabilities.

23
<PAGE>

The following general discussion of certain federal income and excise tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder as in effect on the date of this
SAI. New legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.

Each Portfolio within the Fund is generally treated as a separate corporation
for federal income tax purposes, and thus the provisions of the Code generally
will be applied to each Portfolio separately, rather than to the Fund as a
whole.

Federal Income Tax Treatment of Dividends and Distributions

Shares of the Portfolios will be purchased by life insurance companies for
their separate accounts under variable annuity contracts and variable life
insurance policies and by other entities under qualified pension and retirement
plans. Under the provisions of the Code currently in effect, net income and
realized capital gains of Portfolios of the Fund are not currently taxable when
left to accumulate within a variable annuity contract or variable life
insurance policy or under a qualified pension or retirement plan.

Section 817(h) of the 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 as life insurance for federal income tax purposes. The Treasury Department
has issued regulations explaining these diversification requirements. Each
Portfolio intends to comply with such requirements.

For information on federal income taxation of a life insurance company with
respect to its receipt of distributions from the Fund and federal income
taxation of owners of the company's variable annuity contracts or variable life
insurance policies, refer to the life insurance company's variable annuity
contract or variable life insurance policy prospectus.

Qualification as a Regulated Investment Company

The Fund intends that each of its Portfolios qualify and elect to be treated
for each taxable year as a regulated investment company ("RIC") under
Subchapter M of the Code. Accordingly, each Portfolio must, among other things,
(a) derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to security loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income derived with respect to its business of investing in such stock,
securities or currencies, including generally, certain gains from options,
futures and forward contracts; and (b) diversify its holdings so that, at the
end of each fiscal quarter of the Portfolio's taxable year, (i) at least 50% of
the market value of the Portfolio's total assets is represented by cash and
cash items, U. S. Government securities, securities or other RICs, and other
securities, with such other securities limited, in respect to any one issuer,
to an amount not greater than 5% of the value of the Portfolio's total assets
or 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities (other
than U. S. Government securities or securities of other RICs) of any one issuer
or two or more issuers which the Portfolio controls and which are engaged in
the same, similar, or related trades or business. For purposes of the 90% of
gross income requirement described above, foreign currency gains which are not
directly related to a Portfolio's principal business of investing in stock or
securities (or options or futures with respect to stock or securities) may be
excluded from income that qualifies under the 90% requirement. For purposes of
the diversification requirement described above, a Portfolio will not be
treated as in violation of such requirement as a result of a discrepancy
between the value of its various investments and the diversification
percentages described above, unless such discrepancy exists immediately
following the acquisition of any security or other property and is wholly or
partly the result of such acquisition. Moreover, even in the event of
noncompliance with the diversification requirement as of the end of any given
quarter, a Portfolio is permitted to cure the violation by eliminating the
discrepancy causing such noncompliance within a period of 30 days from the
close of the relevant quarter.

In addition to the requirements described above, in order to qualify as a RIC,
each Portfolio must distribute at least 90% of each Portfolio's net investment
income (that generally includes dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax-exempt interest income, if any, to
shareholders (the "Distribution Requirement"). If a Portfolio meets all of the
RIC requirements, it will not be subject to federal income tax on any of its
net investment income or capital gains that it distributes to shareholders.

Although each Portfolio intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, a
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.

Some of the Portfolios may make investments in securities (such as STRIPS) that
bear "original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient

24
<PAGE>

current cash receipts to match the amount of net investment income a Portfolio
must distribute to satisfy the Distribution Requirement. In some cases, a
Portfolio may have to borrow money or dispose of other investments in order to
make sufficient cash distributions to satisfy the Distribution Requirement.

If a Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent
of such Portfolio's current and accumulated earnings and profits. In this
event, distributions generally will be eligible for the dividends-received
deduction for corporate shareholders.

Positions held by a Portfolio in certain regulated futures contracts and
foreign currency contracts ("Section 1256 Contracts") will generally be marked-
to-market (i.e., treated as though sold for fair market value) on the last
business day of the Portfolio's taxable year and all gain or loss associated
with such transactions (except certain currency gains covered by Section 988 of
the Code ) will generally be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The effect of the Section 1256 mark-to-
market rules may be to accelerate income or to convert what otherwise would
have been long-term capital gain into short-term capital gain or short-term
capital losses into long-term capital losses within a Portfolio. The
acceleration of income on Section 1256 Contracts may require a Portfolio to
accrue taxable income without a corresponding receipt of cash. In order to
generate enough cash to satisfy the Distribution Requirement, a Portfolio may
be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources. Any or all of these
rules may, therefore, affect the amount, character or timing of income earned
and, in turn, affect the application of the Distribution Requirement to a
particular Portfolio.

Short sales engaged in by a Portfolio may reduce the holding period of property
held by a Portfolio which is substantially identical to the property sold
short. This rule may have the effect of converting capital gains recognized by
the Portfolio from long-term to short-term as well as converting capital losses
recognized by the Portfolio from short-term to long-term.

Federal Excise Tax

No Portfolio will be subject to the 4% excise tax normally imposed on RICs that
do not distribute substantially all of their income and gains each calendar
year, because that tax does not apply to a RIC whose only shareholders are
segregated asset accounts of life insurance companies held in connection with
variable annuity accounts and/or variable life insurance policies, and certain
trusts under qualified pension an retirement plans.

Foreign Income Taxes

Each Portfolio that invests in foreign securities may be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, thus reducing the net amount available for distribution to a
Portfolio's shareholders. The United States has entered into tax treaties with
many foreign countries that may entitle a Portfolio to a reduced rate of, or
exemption from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance because the amount of a Portfolio's
assets to be invested within various countries is not known.

State and Local Tax Considerations

Rules of U.S. state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other U.S. state
and local tax rules regarding an investment in a Portfolio.

Purchase of Shares

The purchase price of each Portfolio of the Fund is the NAV next determined
after the order is received by the Fund or its designee. For each Portfolio of
the Fund, other than the Money Market Portfolio, an order received prior to the
close of the New York Stock Exchange (the "NYSE") (normally 4:00 p.m. Eastern
Time) will be executed at the price computed on the date of receipt; and an
order received after the close of the NYSE will be executed at the price
computed on the next day the NYSE is open as long as the Fund's transfer agent
receives payment by check or in Federal Funds prior to the close of the NYSE on
such day. The Fund determines the NAV per share for shares of the Money Market
Portfolio as of 12:00 noon Eastern Time on each day that the NYSE is open for
business. Shares of each Portfolio may be purchased on any day the NYSE is
open. The NYSE will be closed on the following days: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day, and typically on the
preceding Friday or subsequent Monday when any of these holidays falls on a
Saturday or Sunday, respectively.

The Fund may accept late day orders from participating insurance companies. In
a late day order, all orders received by a participating insurance company on a
business day are aggregated and the insurance company places a net purchase or
redemption order for shares of one or more Portfolios the morning of the next
business day. These orders are normally executed at the NAV that was computed
at the close of the previous day.

Each Portfolio reserves the right in its sole discretion to suspend the
offering of its shares and to reject purchase

25
<PAGE>

orders when in the judgment of management such rejection is in the best
interest of the Portfolio.

Redemption of Shares

Redemptions. Each Portfolio may suspend redemption privileges or postpone the
date of payment (i) during any period that the NYSE is closed, or trading on
the NYSE is restricted as determined by the SEC, (ii) during any period when an
emergency exists as defined by the rules of the SEC as a result of which it is
not reasonably practicable for a Portfolio to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit.

Distributions In Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the shareholders of a Portfolio to make a
redemption payment wholly in cash, and subject to applicable agreements with
life insurance companies and other qualified investors, the Fund may pay all or
a portion of a redemption by a distribution in kind of portfolio securities in
lieu of cash. Securities issued in a distribution in kind will be readily
marketable, although shareholders receiving distributions in kind may incur
brokerage commissions when subsequently selling shares of those securities.

Investment Limitations

Fundamental Limitations

Each current Portfolio has adopted the following restrictions, which are
fundamental policies and may not be changed without the approval of the lesser
of: (1) at least 67% of the voting securities of the Portfolio present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Portfolio. Each Portfolio of the Fund will
not:

(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling futures contracts or options thereon or
from investing in securities or other instruments backed by physical
commodities);

(2) purchase or sell real estate, although it may purchase and sell securities
of companies that deal in real estate and may purchase and sell securities that
are secured by interests in real estate;

(3) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;

(4) except with respect to the International Fixed Income, Emerging Markets
Equity, Emerging Markets Debt, International Magnum, Latin American, U.S. Real
Estate and Technology Portfolios (i) purchase more than 10% of any class of the
outstanding voting securities of any issuer and (ii) purchase securities of an
issuer (except obligations of the U.S. Government and its agencies and
instrumentalities) if as a result, with respect to 75% of its total assets,
more than 5% of the Portfolio's total assets, at market value, would be
invested in the securities of such issuer;

(5) issue senior securities and will not borrow, except from banks (and in the
case of the Technology, Targeted Duration and Investment Grade Fixed Income
Portfolios from banks and other entities) in an amount not in excess of 33 1/3%
of its total assets (including the amount borrowed) less liabilities;

(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act
in the disposition of restricted securities; and

(7) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in securities of companies within such industry; provided,
that (i) there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or (in the
case of the Money Market Portfolio) instruments issued by U.S. banks; (ii)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (iii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (iv) ABSs will be classified according to the underlying assets
securing such securities; and provided further that the U.S. Real Estate
Portfolio may invest more than 25% of its total assets in the U.S. real estate
industry; the Latin American Portfolio may invest more than 25% of its assets
in securities of companies in the telecommunications industry or financial
services industry; and the Technology Portfolio may invest more than 25% of its
assets in securities of companies in the technology or technology related
industries.

In accordance with Fundamental Restriction No. (7), the Latin American
Portfolio will only invest more than 25% of its total assets in companies
involved in the telecommunications industry or financial services industry if
the Board of Directors determines that the Latin American markets are dominated
by securities of issuers in such industries and that, in light of the
anticipated return, investment quality, availability and liquidity of the
issuers in such industries, the Portfolio's ability to achieve its investment
objective would, in light of the investment policies and limitations, be
materially adversely affected if the Portfolio was not able to invest greater
than 25% of its

26
<PAGE>

total assets in such industries. The Board of Directors has made the foregoing
determination with respect to the telecommunications industry and, accordingly,
the Latin American Portfolio will invest between 25% and 50% of its assets in
securities of issuers engaged in the telecommunications industry.

Non-fundamental Limitations

In addition, each current Portfolio of the Fund has adopted non-fundamental
investment limitations as stated below. Such limitations may be changed without
shareholder approval. Each current Portfolio of the Fund will not:

(1) except in the case of the Technology Portfolio, sell short (other than
"against the box") unless the Portfolio's obligation is covered by unencumbered
liquid assets in a segregated account and by collateral held by the lending
broker; provided that transactions in futures contracts and options are not
deemed to constitute selling securities short;

(2) invest for the purpose of exercising control over management of any
company;

(3) invest its assets in securities of any investment company except as may be
permitted by the 1940 Act;

(4) invest more than an aggregate or 15% of the net assets of the Portfolio
(10% in the case of the Money Market Portfolio), determined at the time of
investment, in illiquid securities;

(5) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the prospectus) that are publicly distributed, and (ii) by lending
its portfolio securities to banks, brokers, dealers and other financial
institutions and, in the case of the High Yield Portfolio, institutional
investors, so long as such loans are not inconsistent with the 1940 Act or the
Rules and Regulations or interpretations of the SEC thereunder;

(6) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, but it may
make margin deposits in connection with transactions in options, futures, and
options on futures; and

(7) except in the case of the Emerging Markets Debt, Latin American and
Technology Portfolios, borrow money, other than temporarily or for
extraordinary or emergency purposes or purchase additional securities when
borrowings exceed 5% of total (gross) assets.

Each of the International Fixed Income, Emerging Markets Debt, Emerging Markets
Equity, International Magnum, Latin American, U.S. Real Estate and Technology
Portfolios will diversify its holdings so that, at the close of each quarter of
its taxable year or within 30 days thereafter, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash (including cash
items and receivables), U.S. Government securities, and other securities, with
such other securities limited, in respect of any one issuer, for purposes of
this calculation to an amount not greater than 5% of the value of the
Portfolio's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities).
Prior to the close of each quarter (or within 30 days thereafter), the
Portfolio's holdings may be less diversified and are not required to satisfy
any diversification test.

The percentage limitations contained in these restrictions apply at the time of
purchase of securities. Future Portfolios of the Fund may adopt different
limitations.

The investments of life insurance company separate accounts made under variable
annuity contracts and variable life insurance policies are subject to state
insurance laws and regulations. The Fund and its Portfolios will, when
required, comply with investment restrictions imposed under such laws and
regulations on life insurance company separate accounts investing in the
Portfolios.

In addition, Section 817(h) of the Code requires that the assets of each
Portfolio be adequately diversified so that insurance companies, and not
variable contract owners, are considered the owners for federal income tax
purposes of the assets held in the separate accounts. To meet the
diversification requirements of regulations issued under Section 817(h), each
Portfolio will meet the following test: no more than 55% of the assets will be
invested in any one investment; no more than 70% of the assets will be invested
in any two investments; no more than 80% of the assets will be invested in any
three investments; and no more than 90% will be invested in any four
investments. Each Portfolio must meet the above diversification requirements
within 30 days of the end of each calendar quarter.

Determining Maturities of Certain Instruments

Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a
government obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be

27
<PAGE>

deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through
demand; and (e) a repurchase agreement may be deemed to have a maturity equal
to the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur, or where no date is specified, but
the agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities. In addition, for securities that are
subject to prepayments, the weighted average life of the security will be used
in the weighted average maturity calculation instead of the stated maturity
date on the instrument. The weighted average life of a security takes into
consideration the impact of prepayments on the length of time the security will
be outstanding and typically indicates an actual maturity that is shorter than
the maturity date stated on the face of the instrument.

28
<PAGE>

Management of the Fund

Officers and Directors

The Fund's officers, under the supervision of the Board of Directors, manage
the day-to-day operations of the Fund. The Directors set broad policies for the
Fund and choose its officers. Directors and officers of the Fund are also
directors and officers of some or all of the funds in the Fund Complex (defined
below) or other investment companies managed, administered, advised or
distributed by the Advisers or their affiliates. One Director and all of the
officers of the Fund are directors, officers or employees of the Fund's
advisers, distributor or administrators. The other Directors have no
affiliation with the Fund's advisers, distributor or administrators. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth
below:

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
----------------- ---------------------------- -------------------------------------------
<S> <C> <C>
Barton M. Biggs* Chairman and Director Chairman, Director and Managing Director of Morgan
Morgan Stanley Dean Witter Stanley Dean Witter Investment Management Inc. and
Investment Management Inc. Morgan Stanley Dean Witter Investment Management
1221 Avenue of the Americas Limited; Managing Director of Morgan Stanley & Co.
New York, NY 10020 Incorporated; Member of the Yale Development
11/26/32 Board; and Chairman and Director of various funds
in the Fund Complex.**

John D. Barrett, II Director Chairman and Director of Barrett Associates, Inc.
Barrett Associates Inc. (investment counseling); and Director of the
521 Fifth Avenue Ashforth Company (real estate) and various funds
New York, NY 10135 in the Fund Complex.
8/21/35

Gerard E. Jones Director Partner, Richards & O'Neil LLP (law firm); and
Richards & O'Neil LLP Director of various funds in the Fund Complex.
43 Arch Street
Greenwich, CT 06830
1/23/37

Graham E. Jones Director Senior Vice President of BGK Properties; Trustee
330 Garfield Street of various investment companies managed by Weiss,
Suite 200 Peck & Greer, Deutsche Asset Management
Santa Fe, NM 87501 Incorporated and Sun Capital Advisors, Inc.; and
1/31/33 Director of various funds in the Fund Complex.

John A. Levin Director Chairman and Chief Executive Officer of John A.
One Rockefeller Plaza Levin & Co., Inc. (investment counseling);
New York, NY 10020 Director, Chairman, President and Chief Executive
8/20/38 Officer of BKF Capital Group, Inc.; and Director
of various funds in the Fund Complex.

Andrew McNally IV Director Managing Director of Hammond Kennedy Whitney
333 North Michigan Avenue (merchant banking); and Director of Rand McNally &
Suite 501 Company (publishing), Burns International Services
Chicago, IL 60601 Corp. (security), Reinhold Industries Inc.
11/11/39 (industrial products), Hubbell, Inc. (industrial
electronics) and various funds in the Fund
Complex. Formerly, Chairman and Chief Executive
Officer of Rand McNally & Company.

William G. Morton, Jr. Director Chairman and Chief Executive Officer of Boston
100 Franklin Street Stock Exchange; and Director of Tandy Corporation
Boston, MA 02110 and various funds in the Fund Complex.
3/13/37

Samuel T. Reeves Director President, Pinnacle Trading L.L.C (investments);
8211 North Fresno Street and Director of various funds in the Fund Complex.
Fresno, CA 93720 Formerly, Member of the Advisory Board, Tiger
7/28/34 Management Corp. and Director, Pacific Gas &
Electric Corp.

</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
----------------- ---------------------------- -------------------------------------------
<S> <C> <C>
Fergus Reid Director Chairman and Chief Executive Officer of LumeLite
85 Charles Colman Blvd Plastics Corporation (injection molding); Trustee
Pawling, NY 12564 and Director of Vista Mutual Fund Group; and
8/12/32 Director of various funds in the Fund Complex.

Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin, Boehm & Murphy,
2025 North Third Street P.C. (law firm); and Director of various funds in
Suite 300 the Fund Complex.
Phoenix, AZ 85004
1/24/34

Harold J. Schaaff, Jr. President Managing Director of Morgan Stanley & Co.
Morgan Stanley Dean Witter Incorporated and Morgan Stanley Dean Witter
Investment Management Inc. Investment Management Inc.; and Director and
1221 Avenue of the Americas President of various funds in the Fund Complex.
New York, NY 10020 Formerly, General Counsel and Secretary of Morgan
6/10/60 Stanley Dean Witter Investment Management Inc.

Joseph P. Stadler Vice President Principal of Morgan Stanley & Co. Incorporated and
Morgan Stanley Dean Witter Morgan Stanley Dean Witter Investment Management
Investment Management Inc. Inc.; and Vice President of various funds in the
1221 Avenue of the Americas Fund Complex. Formerly with Price Waterhouse LLP
New York, NY 10020 (now PricewaterhouseCoopers LLP).
6/7/54
Richard J. Shoch Vice President Vice President of Morgan Stanley Dean Witter &
Miller Anderson & Sherrerd, Co.; Fund Administration Manager, Miller Anderson
LLP & Sherrerd, LLP; and Secretary of MAS Funds.
One Tower Bridge Formerly, Fund Legal Administrator and then
West Conshohocken, PA 19428 Counsel, Vice President and Assistant Secretary,
10/28/66 SEI Corporation.

Stefanie V. Chang Vice President Vice President of Morgan Stanley & Co.
Morgan Stanley Dean Witter Incorporated, Morgan Stanley Dean Witter
Investment Management Inc. Investment Management Inc. and various funds in
1221 Avenue of the Americas the Fund Complex. Formerly practiced law with the
New York, NY 10020 New York law firm of Rogers & Wells.
11/30/66

James A. Gallo Vice President Vice President of Morgan Stanley Dean Witter &
Miller Anderson & Sherrerd, Co.; Head of Fund Administration, Miller Anderson
LLP & Sherrerd, LLP; and Vice President and Treasurer,
One Tower Bridge MAS Funds. Formerly, Manager, Investment
West Conshohocken, PA 19428 Accounting and then Vice President and Director of
6/18/64 Investment Accounting, PFPC, Inc.

Belinda A. Brady Treasurer Fund Administration Senior Manager, Chase Global
Chase Global Funds Services Funds Services Company; and Treasurer of various
Company funds in the Fund Complex. Formerly, Senior
73 Tremont Street Auditor at Price Waterhouse LLP (now
Boston, MA 02108-3913 PricewaterhouseCoopers LLP).
1/23/68

Robin L. Conkey Assistant Treasurer Fund Administration Manager, Chase Global Funds
Chase Global Funds Services Services Company; and Assistant Treasurer of
Company various funds in the Fund Complex. Formerly,
73 Tremont Street Senior Auditor at Price Waterhouse LLP (now
Boston, MA 02108-3913 PricewaterhouseCoopers LLP).
5/11/70

</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
----------------- -------------------------- -------------------------------------------
<S> <C> <C>
Mary E. Mullin Secretary Vice President of Morgan Stanley & Co.
Morgan Stanley Dean Incorporated and Morgan Stanley Dean Witter
Witter Investment Management Inc.; and Secretary of
Investment Management various funds in the Fund Complex. Formerly
Inc. practiced law with the New York law firms of
1221 Avenue of the McDermott, Will & Emery and Skadden, Arps, Slate,
Americas Meagher & Flom LLP.
New York, NY 10020
3/22/67

Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
Chase Global Funds Counsel of Chase Global Funds Services Company.
Services Company Formerly President, Secretary and General Counsel,
73 Tremont Street Leland, O'Brien, Rubinstein Associates, Inc.
Boston, MA 02108-3913 (investments).
3/7/55
</TABLE>
- -------
* Indicates each director that is an "interested person" within the meaning of
the 1940 Act.

** The Fund Complex currently includes Morgan Stanley Dean Witter Institutional
Fund, Inc.; The Universal Institutional Funds, Inc.; Morgan Stanley Dean
Witter Strategic Adviser Fund, Inc.; Morgan Stanley Dean Witter Africa
Investment Fund, Inc.; Morgan Stanley Dean Witter Asia-Pacific Fund, Inc.;
Morgan Stanley Dean Witter Eastern Europe Fund, Inc.; Morgan Stanley Dean
Witter Emerging Markets Fund, Inc.; Morgan Stanley Dean Witter Emerging
Markets Debt Fund, Inc.; Morgan Stanley Dean Witter Global Opportunity Bond
Fund, Inc.; Morgan Stanley Dean Witter High Yield Fund, Inc.; Morgan Stanley
Dean Witter India Investment Fund, Inc.; The Latin American Discovery Fund,
Inc.; The Malaysia Fund, Inc.; The Pakistan Investment Fund, Inc.; The Thai
Fund, Inc.; and The Turkish Investment Fund, Inc.

31
<PAGE>

Compensation of Directors and Officers

The Fund, together with the other funds in the Fund Complex for which a
Director serves as director, pays each of the Directors who is not an
"interested person" an annual aggregate fee of $75,000, plus reasonable out-of-
pocket expenses for service as a Director and for serving on the Board's Audit
and/or Nominating/Compensation Committees. Director's fees will be allocated
among the Fund and the other funds in the Fund Complex for which a Director
serves as a director in proportion to their respective average net assets. For
the fiscal year ended December 31, 1999, the Fund paid approximately $16,438 in
Directors' fees and expenses. Directors who are also officers or affiliated
persons receive no renumeration from the Fund for their services as Directors.
The Fund's officers and employees are paid by MSDW Investment Management or its
agents. The following table shows aggregate compensation paid to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, in the fiscal
year ended December 31, 1999. Prior to April 1, 2000 each Independent Director
received annual compensation of $65,000, plus reasonable out-of-pocket expenses
from the Fund Complex. Members of the Board's Audit Committee received an
additional $10,000 per year from the Fund Complex.

Compensation Table

<TABLE>
<CAPTION>
Total
Compensation
From Fund
and Fund
Aggregate Complex
Compensation Paid to
Name of Director From Fund Directors
---------------- ------------ ------------
<S> <C> <C>
Barton M. Biggs $ 0 $ 0
Michael F. Klein(a) 0 0
John D. Barrett, II(b) 2,680 65,000(c)
Gerard E. Jones(d) 2,680 72,100(c)
Graham E. Jones(d)(e) N/A 75,750(c)
John A. Levin(b)(e) N/A 72,100(c)
Andrew McNally, IV(d) 3,092 75,000(c)
William G. Morton, Jr.(d)(e) N/A 65,000(c)
Samuel T. Reeves(b) 3,092(f) 82,100(c)
Fergus Reid(b) 2,729(f) 72,100(c)
Frederick O. Robertshaw(d) 2,165(f) 75,000(c)
</TABLE>
- -------
(a) Mr. Klein resigned from the Board effective March 2, 2000.

(b) Member of Nominating/Compensation Committee for the Board of Directors of
the Fund.
(c) Number of other investment companies in Fund Complex from whom Director
received compensation: Mr. Barrett--2; Mr. Gerard E. Jones--3; Mr. Graham
E. Jones--12; Mr. Levin--12; Mr. McNally--2; Mr. Morton--12; Mr. Reeves--3;
Mr. Reid--3; Mr. Robertshaw--2.
(d) Member of Audit Committee of the Board of Directors of the Fund.

(e) Messrs. Jones, Levin and Morton were appointed on February 17, 2000 and
therefore, did not receive compensation from the Fund for the fiscal year
ended December 31, 1999. Messrs. Jones, Levin and Morton received
compensation for service as directors to other funds in the Fund Complex.

(f) Of the amounts payable to Messrs. Reeves, Reid and Robertshaw, $3,092,
$2,680 and $928 were deferred, respectively, pursuant to the Fund's
deferred compensation plan in the fiscal year ended December 31, 1999.

The Fund maintains an unfunded Deferred Compensation Plan which allows each
non-interested Director to defer payment of all, or a portion, of the fees he
or she receives for attending meetings of the Board of Directors throughout the
year. Each eligible Director generally may elect to have the deferred amounts
credited with a return equal to either of the following: (i) a rate equal to
the prevailing rate for 90-day U.S. Treasury Bills, or (ii) a rate equal to the
total return on one or more portfolios of the Fund or other funds in the Fund
Complex selected by the Director. Distributions generally are in the form of
equal annual installments over a period of five years beginning on the first
day of the year following the year in which the Director's service terminates,
except that the Board of Directors, in its sole discretion, may accelerate or
extend such distribution. The Fund intends that the Deferred Compensation Plan
shall be maintained at all times on an unfunded basis for federal income tax
purposes under the Code. The rights of an eligible Director and the
beneficiaries to the amounts held under the Deferred Compensation Plan are
unsecured and such amounts are subject to the claims of the creditors of the
Fund.

32
<PAGE>

Code of Ethics

Pursuant to Rule 17j-1 under the 1940 Act, the Board of Directors has adopted a
Code of Ethics for the Fund and approved Codes of Ethics adopted by the
Advisers and Morgan Stanley (collectively the "Codes"). The Codes are intended
to ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from the
person's employment activities and that actual and potential conflicts of
interest are avoided.

The Codes apply to the personal investing activities of Directors and officers
of the Fund, the Advisers and Morgan Stanley ("Access Persons"). Rule 17j-1 and
the Codes are designed to prevent unlawful practices in connection with the
purchase or sale of securities by Access Persons. Under the Codes, Access
Persons are permitted to engage in personal securities transactions, but are
required to report their personal securities transactions for monitoring
purposes. In addition, certain Access Persons are required to obtain approval
before investing in initial public offerings or private placements. The Codes
are on file with the SEC, and are available to the public.

Investment Advisory, Sub-Advisory And Administrative Agreements

MSDW Investment Management is a wholly owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"). The principal offices of MSDW are located at 1585
Broadway, New York, New York 10036 and the principal offices of MSDW Investment
Management are located at 1221 Avenue of the Americas, New York, New York
10020. MAS, with principal offices located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428, is also a subsidiary of MSDW.

Pursuant to an investment advisory agreement, MSDW Investment Management and
MAS receive compensation for providing investment advisory services in the
amounts described below. In managing the Portfolios, MSDW Investment Management
and MAS may use the services of associated investment personnel employed by its
affiliated institutional asset management companies.

Advisory Fees

The following table shows for each Portfolio the advisory fee paid for each of
the past three fiscal years.

MSDW Investment Management Advised Portfolios:*

<TABLE>
<CAPTION>
Advisory Fee Paid (000)
------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Portfolio 1999 1998 1997
- --------- ----------------------------------- -------------------------------- ---------------------------------
<S> <C> <C> <C>
Equity Growth $237 (net of fee waivers of $224) $26 (net of fee waivers of $136) $0/4/ (net of fee waivers of $30
Portfolio and reimbursements of $36)
U.S. Real Estate $0 (net of fee waivers of $121) $24 (net of fee waivers of $92) $0/5/ (net of fee waivers of $49
Portfolio and reimbursements of $26)
Emerging Markets Debt $125 (net of fee waivers of $101) $74 (net of fee waivers of $143) $8/6/ (net of fee waivers of $63)
Portfolio
Global Equity $216 (net of fee waivers of $154) $95 (net of fee waivers of $141) $0/4/ (net of fee waivers of $62
Portfolio and reimbursements of $37)
International Magnum $140 (net of fee waivers of $248) $51 (net of fee waivers of $220) $0/4/ (net of fee waivers of $116
Portfolio and reimbursements of $119)
Emerging Markets $334 (net of fee waivers of $685) $0 (net of fee waivers of $447 $0 (net of fee waivers of $279
Equity Portfolio and reimbursements of $87) and reimbursements of $240)
Asian Equity Portfolio $0 (net of fee waivers of $141) $0 (net of fee waivers of $93 $0/5/ (net of fee waivers of $68
and reimbursements of $91) and reimbursements of $81)
Money Market Portfolio $64/1/ (net of fee waivers of $189) N/A N/A
Active International $0/2/ (net of fee waivers of $24) N/A N/A
Allocation Portfolio
Technology Portfolio $0/3/ (net of fee waivers of $2) N/A N/A
</TABLE>
- -------
* The Money Market, Latin American, Active International Allocation and
Technology Portfolios were not operational in the fiscal years ended December
31, 1998 and 1997. In addition, the Latin American Portfolio was not
operational in the fiscal year ended December 31, 1999. Consequently, no
advisory fees were paid by these Portfolios for these fiscal years.
1 For the period from January 5, 1999 to December 31, 1999.
2 For the period from September 20, 1999 to December 31, 1999.
3 For the period from November 30, 1999 to December 31, 1999.
4 For the period from January 2, 1997 to December 31, 1997.
5 For the period from March 3, 1997 to December 31, 1997.
6 For the period from June 16, 1997 to December 31, 1997.

33
<PAGE>

MAS Advised Portfolios:**

<TABLE>
<CAPTION>
Advisory Fee Paid (000)
--------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Portfolio 1999 1998 1997
- --------- --------------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
Fixed Income Portfolio $78 (net of fee waivers of $140) $17 (net of fee waivers of $93) $0/2/ (net of fee waivers of $38
and reimbursements of $58)
High Yield Portfolio $93 (net of fee waivers of $149) $34 (net of fee waivers of $77) $0/2/ (net of fee waivers of $49
and reimbursements of $36)
Value Portfolio $57 (net of fee waivers of $114) $14 (net of fee waivers of $86) $0/2/ (net of fee waivers of $38
and reimbursements of $32)
Mid Cap Value Portfolio $173 (net of fee waivers of $127) $44 (net of fee waivers of $99) $0/2/ (net of fee waivers of $47
and reimbursements of $22)
Mid Cap Growth $0/1/(net of fee waivers of $3) N/A N/A
</TABLE>
- -------

** The Balanced, Core Equity, International Fixed Income, Multi-Asset-Class,
Targeted Duration and Investment Grade Fixed Income Portfolios were not
operational in the fiscal years ended December 31, 1999, 1998 and 1997. The
Mid Cap Growth Portfolio was not operational in the fiscal years ended
December 31, 1998 and 1997. Consequently, no advisory fees were paid by
these Portfolios for these fiscal years.
/1/For the period from October 18, 1999 to December 31, 1999.
/2/For the period from January 2, 1997 to December 31, 1997.

Sub-Advisory Fees

Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), with principal
offices at Two World Trade Center, New York, New York 10048, serves as the
investment sub-adviser to the Money Market Portfolio pursuant to an investment
sub-advisory agreement with MSDW Investment Management. As compensation for
managing the day-to-day investments of the Money Market Portfolio, MSDW
Investment Management pays MSDW Advisors 40% of the investment advisory fee
that MSDW Investment Management receives from this Portfolio (net of applicable
fee waivers).

Administration Fees

Pursuant to separate Administration Agreements with the Fund, MSDW Investment
Management and MAS provide administrative services to MSDW Investment
Management Advised Portfolios and MAS Advised Portfolios, respectively. For its
services under the Administration Agreement, the Fund pays each Adviser a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of each Portfolio managed by that Adviser.

Under a Sub-Administration Agreement between each Adviser and Chase Global
Funds Services Company ("Chase Global"), a corporate affiliate of The Chase
Manhattan Bank, Chase Global provides certain administrative services to the
Fund. Chase Global's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913.

Year 2000

The Fund and its service providers do not appear to have been adversely
affected by computer problems related to the transition to the year 2000.
However, there remains a risk that such problems could arise or be discovered
in the future. Year 2000 related problems also may adversely affect issuers
whose securities the Fund purchases, which could have an impact on the value of
your investment.

34
<PAGE>

Distribution of Fund Shares

Under a Distribution Agreement with the Fund, Morgan Stanley, a subsidiary of
MSDW, serves as exclusive distributor of the Portfolios and sells shares of
each Portfolio on the terms described in the Fund's Prospectus.

Principal Holders of Securities

As of April 14, 2000, the following persons were beneficial owners of 5% or
more of the outstanding shares of the following Portfolios:

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<C> <S> <C>
Fixed Income Portfolio Allmerica Financial Life Insurance & Annuity 39%
Company*/1/
Attn: Separate Account
Mail Station S-310
Worcester, MA 01653

General American Life Insurance Company* 16%
Separate Account Thirty-Four B
700 Market St.
St Louis, MO 63101

Transamerica Life Insurance and Annuity Company* 10%
Suite 700
401 North Tryon St.
Charlotte, NC 28210

ICMG Registered Variable Life* 7%
Separate Account
Attn: Carol Lewis
PO Box 2999
Hartford, CT 06104-2999

Ohio National Life Insurance Company* 6%
C/O Dawn Caine
1 Financial Way
Cincinnati, OH 45242

Annuity Investors Life Insurance Company* 5%
PO Box 5423
Cincinnati, OH 45201-5423

High Yield Portfolio Hartford Life & Annuity Insurance Company*/2/ 39%
Separate Account Three
Attn: Carol Lewis
PO Box 2999
Hartford, CT 06104-2999

American General Life Insurance Company* 16%
Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

Integrity Life Insurance Company* 12%
515 West Market St.
Louisville, KY 40202

Transamerica Life Insurance and Annuity Company* 12%
Suite 700
401 North Tryon St.
Charlotte, NC 28210

National Integrity Life Insurance Company* 8%
515 West Market St.
Louisville, KY 40202

</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
Equity Northbrook Life Insurance Company*/3/ 57%
Growth Attn: Financial Control
Portfolio 3100 Sanders Road Sta. N4A
Northbrook, IL 60062

American General Life Insurance Company* 17%
Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

AIG Life Insurance Co* 12%
Sep Acct IV
1 Alico Plaza
Wilmington, DE 19801

Value American General Life Insurance Company*/4/ 32%
Portfolio Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

AIG Life Insurance Co Sep Acct IV*/5/ 28%
1 Alico Plaza
Wilmington, DE 19801

The Travelers Insurance Company* 16%
Sep Acct ABD 2
One Tower Square
Hartford, CT 06183

General American Life Insurance Company* 9%
Separate Account Thirty-Four B
700 Market St.
St Louis, MO 63101

Mid Cap American General Life Insurance Company*/4/ 39%
Value Attn: Debbie Kerai
Portfolio PO Box 1591
Houston, TX 77251-1591

Hartford Life & Annuity Insurance Co*/2/ 34%
Separate Account Three
Attn: Carol Lewis
PO Box 2999
Hartford, CT 06104-2999

The Travelers Insurance Company* 15%
Sep Acct ABD 2
One Tower Square
Hartford, CT 06183

Annuity Investors Life Insurance Company* 5%
PO Box 5423
Cincinnati, OH 45201-5423

Mid Cap Morgan Stanley Dean Witter & Co./6/ 64%
Growth 1585 Broadway
Portfolio New York, NY 10036

Lincoln Benefit Life*/7/ 36%
206 South 13th St.
Lincoln, NE 68508

</TABLE>

36
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
U.S. Real Northbrook Life Insurance Company*/3/ 34%
Estate Attn: Financial Control
Portfolio 3100 Sanders Road Sta. N4A
Northbrook, IL 60062

Ameritas Variable Life Insurance Company* 18%
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

CIGNA Corporate Insurance Company* 11%
Attn: Pak Sit
Routing H14A
PO Box 2975
Hartford, CT 06104

Integrity Life Insurance Company* 11%
515 West Market St.
Louisville, KY 40202

Annuity Investors Life Insurance Company* 10%
PO Box 5423
Cincinnati, OH 45201-5423

Ohio National Life Insurance Company* 6%
C/O Dawn Caine
1 Financial Way
Cincinnati, OH 45242

Ameritas Variable Life Insurance Company* 5%
Separate Account V
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

Global Equity Fidelity Investments Life Insurance Company*/8/ 30%
Portfolio 82 Devonshire St. R27A
Boston, MA 02109

Ameritas Variable Life Insurance Company* 21%
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

American General Life Insurance Company* 19%
Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

The Travelers Insurance Company* 13%
Sep Acct ABD 2
One Tower Square
Hartford, CT 06183

Ameritas Variable Life Insurance Company* 6%
Separate Account V
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

International Northbrook Life Insurance Company* 24%
Magnum Attn: Financial Control
Portfolio 3100 Sanders Road Sta. N4A
Northbrook, IL 60062

</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
- --------- ------------------------ -----------
<S> <C> <C>
Fidelity Investments Life Insurance Company* 19%
82 Devonshire St. R27A
Boston, MA 02109

General American Life Insurance Company* 16%
Separate Account Thirty-Four B
700 Market St.
St Louis, MO 63101

American General Life Insurance Company* 15%
Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

Ameritas Variable Life Insurance Company* 12%
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

Emerging Fidelity Investments Life Insurance Company*/8/ 32%
Markets 82 Devonshire St. R27A
Equity Boston, MA 02109
Portfolio

New York Life Insurance Company*/9/ 25%
Attn: Chuck McCarthy
300 Interpace Pky
Parsippany, NJ 07054

Northbrook Life Insurance Company* 12%
Attn: Financial Control
3100 Sanders Road Sta. N4A
Northbrook, IL 60062

Penn Mutual Life Insurance Company* 5%
Attn: Dana Fletcher
Independence Square
Philadelphia, PA 19172

Asian Ameritas Variable Life Insurance Company*/10/ 42%
Equity Attn: Mary Anne Spearman
Portfolio PO Box 82550
Lincoln, NE 68501-2550

Integrity Life Insurance Company*/11/ 26%
515 West Market St.
Louisville, KY 40202

National Integrity Life Insurance Company* 17%
515 West Market St.
Louisville, KY 40202

American General Life Insurance Company* 9%
Attn: Debbie Kerai
PO Box 1591
Houston, TX 77251-1591

Ameritas Variable Life Insurance Company* 7%
Separate Account V
Attn: Mary Anne Spearman
PO Box 82550
Lincoln, NE 68501-2550

</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
Emerging Nationwide Life Insurance Company*/12/ 33%
Markets Debt NWVA-II
Portfolio C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029

Nationwide Life Insurance Company* 24%
C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029

Fidelity Investments Life Insurance Company* 12%
82 Devonshire St. R27A
Boston, MA 02109

Morgan Stanley Dean Witter & Co. 10%
1585 Broadway
New York, NY 10036

Integrity Life Insurance Company* 5%
515 West Market St.
Louisville, KY 40202

Money Market AIG Life Insurance Company*/5/ 100%
Portfolio Sep Acct IV
1 Alico Plaza
Wilmington, DE 19801

Active Morgan Stanley Dean Witter & Co./6/ 87%
International Attn Elisa Divito
Allocation 1585 Broadway
Portfolio New York, NY 10036

Hartford Life & Annuity Insurance Company* 12%
Separate Account Three
Attn: Carol Lewis
PO Box 2999
Hartford, CT 06104-2999

Technology Phoenix Home Life Insurance Company*/13/ 52%
Portfolio 101 Munson St.
Greenfield, MA 01301

Phoenix Home Life Variable Insurance Company*/14/ 26%
101 Munson St.
Greenfield, MA 01301

Kemper Investors Life Insurance Company*--Series I 16%
Tower 1 17th Floor
1400 American Way
Schaumburg, IL 60173

Morgan Stanley Dean Witter & Co. 6%
1585 Broadway
New York, NY 10036
</TABLE>
- -------

* Shares of the Portfolio are sold to insurance companies for their variable
annuity contracts and variable life insurance policies.
1 Allmerica Financial Life Insurance & Annuity Company's state of incorporation
is Massachusetts.
2 Hartford Life & Annuity Insurance Company's parent company is The Hartford
Financial Services Group and its state of incorporation is Connecticut.
3 Northbrook Life Insurance Company's parent company is Allstate Life Insurance
Company and its state of incorporation is Arizona.
4 American General Life Insurance Company's parent company is American General
Corporation and its state of incorporation is Texas.
5 AIG Life Insurance Company's parent company is American International Group
and its state of incorporation is Delaware.
6 Morgan Stanley Dean Witter & Co.'s state of incorporation is Delaware.

7 Lincoln Benefit Life Insurance Company's direct parent company is Allstate
Life Insurance Company whose direct parent company is Allstate Corporation.
The state of incorporation of Lincoln Benefit Life Insurance Company is
Nebraska.

8 Fidelity Investments Life Insurance Company's parent company is FMR
Corporation and its state of incorporation is Utah.

9 New York Life Insurance and Annuity Corporation's parent company is New York
Life Insurance Company and its state of incorporation is Delaware.

10 Ameritas Variable Life Insurance Company's direct parent company is AMAL
Corporation whose direct parent company is Amerus Life Insurance Company.
The direct parent company of Amerus Life Insurance Company is Amerus Life
Holdings, Inc. whose direct parent company is Amerus Group Co. The direct
parent company of Amerus Group Co. is American Mutual Holding Company. The
state of incorporation of Ameritas Variable Life Insurance Company is
Nebraska.

11 Integrity Life Insurance Company's direct parent company is Integrity
Holdings, Inc. whose direct parent company is ARM Financial Group, Inc. The
state of incorporation of Integrity Life Insurance Company is Ohio.

12 Nationwide Life Insurance Company's parent company is Nationwide Financial
Services, Inc. and its state of incorporation is Ohio.

13 Phoenix Home Life Insurance Company's parent company is Phoenix Home Life
Mutual Insurance Company and its state of incorporation is Connecticut.

14 Phoenix Home Life Variable Insurance Company's parent company is Phoenix
Home Life Mutual Insurance Company and its state of incorporation is
Connecticut.

39
<PAGE>

As currently required under law, the insurance companies vote their shares of
the Portfolios in accordance with instructions received from their variable
annuity contract and variable life insurance policy owners. MSDW will vote the
shares of each Portfolio that it owns in the same proportions as shares of the
Portfolio are voted by the insurance companies. Accordingly, neither MSDW nor
the insurance companies are deemed to be in control of the Portfolios.

Net Asset Value for the Money Market Portfolio

The Money Market Portfolio seeks to maintain a stable NAV per share of $1.00.
The Portfolio uses the amortized cost method of valuing its securities, which
does not take into account unrealized gains or losses. The use of amortized
cost and the maintenance of the Portfolio's per share NAV at $1.00 is based on
the Portfolio's election to operate under the provisions of Rule 2a-7 under the
1940 Act. As a condition of operating under that Rule, the Money Market
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days or
less, and invest only in securities which are of "eligible quality" as
determined in accordance with regulations of the SEC.

The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Portfolio's investment objectives, to stabilize the NAV per share as computed
for the purposes of sales and redemptions at $1.00. These procedures include
periodic review, as the Directors deem appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a NAV per share based upon available
indications of market value. In such review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield available for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Directors.

In the event of a deviation of over 1/2 of 1% between the Portfolio's NAV based
upon available market quotations or market equivalents and $1.00 per share
based on amortized cost, the Directors will promptly consider what action, if
any, should be taken. The Directors will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redemption in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
the average maturity, withholding dividends, paying distributions from capital
or capital gains or utilizing a NAV per share as determined by using available
market quotations.

The Money Market Portfolio values its assets at amortized cost while also
monitoring the available market bid price, or yield equivalents. Since
dividends from net investment income will be declared daily and paid monthly,
the NAV per share of the Portfolio will ordinarily remain at $1.00, but the
Portfolio's daily dividends will vary in amount. Net realized gains, if any,
will normally be declared and paid monthly.

Portfolio Transactions

The policy of the Fund regarding purchase and sales of securities for its
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 Advisers from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisers rely upon their experience
and knowledge regarding commissions generally charged by various brokers and on
their judgment in evaluating the brokerage and research services received from
the broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.

In seeking to implement the Fund's policies, the Advisers effect transactions
with those brokers and dealers who the Advisers believe provide the most
favorable prices and are capable of providing efficient executions. If the
Advisers believe such prices and executions are obtainable from more than one
broker or dealer, they may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or Advisers. The Advisers may pay broker-dealers (other than their
affiliates) higher commissions than another broker-dealer may have charged on
the Fund's brokerage transactions in recognition of research services. During
the fiscal year ended December 31, 1999, the Fund directed transactions of
$589,280,343 and paid related commissions of $1,394,941 to brokers because of
research services provided. Such services may include, but are not limited to,
any one or more of the following: reports on industries and companies, economic
analyses and review of business conditions, portfolio strategy, analytic
computer software, account performance services, computer terminal and various
trading and/or quotation equipment. They also include advice from

40
<PAGE>

broker-dealers as to the value of securities, availability of securities,
availability of buyers, and availability of sellers. In addition, they include
recommendations as to purchase and sale of individual securities and timing of
such transactions.

The information and services received by the Advisers from brokers and dealers
may be of benefit to them in the management of accounts of some of their other
clients and may not in all cases benefit the Fund directly. While the receipt
of such information and services is useful in varying degrees and would
generally reduce the amount of research or services otherwise performed by the
Advisers and thereby reduce their expenses, it is of indeterminable value and
the advisory fees paid to an Adviser is not reduced by any amount that may be
attributable to the value of such services.

In over-the-counter transactions, orders are placed directly with a principal
market-maker and such purchases normally include a mark-up over the bid to the
broker-dealer based on the spread between the bid and the asked price for the
security.

Portfolio securities will not be purchased from, or through, or sold to or
through, the Advisers or MSDW or any of its affiliates when such entities are
acting as principals, except to the extent permitted by law.

41
<PAGE>

Brokerage Fees

The following table shows the brokerage commissions paid by the Portfolios to
Morgan Stanley and its affiliates for the fiscal year ended December 31, 1999.

<TABLE>
<CAPTION>
Brokerage Commissions Paid During
Fiscal Year Ended December 31, 1999
------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Real Estate $ 33,927.00 $ 23.00 0.07% 0.09%
Equity Growth 133,361.00 21,661.00 16.24 17.61
Global Equity 73,587.00 7,718.00 10.49 4.23
International Magnum 128,375.00 5,965.00 4.65 4.33
Emerging Markets Equity 766,956.00 67,726.00 8.83 7.62
Technology 1,656.00 563.00 33.98 21.08
Asian Equity 239,385.00 67,749.00 28.30 27.83
</TABLE>
- -------

* The Emerging Markets Debt, Value, Mid Cap Value, High Yield and Fixed Income
Portfolios did not pay any commissions to affiliated brokers for the fiscal
year ended December 31, 1999. The Money Market Portfolio did not pay any
commissions to affiliated brokers for the period January 5, 1999 to December
31, 1999. The Active International Allocation Portfolio did not pay any
commissions to affiliated brokers for the period September 20, 1999 to
December 31, 1999. The Mid Cap Growth Portfolio did not pay any commissions
to affiliated brokers for the period October 18, 1999 to December 31, 1999.
The Latin American, Balanced, Core Equity, International Fixed Income, Multi-
Asset-Class, Targeted Duration and Investment Grade Fixed Income Portfolios
were not operational in the fiscal year ended December 31, 1999 and
consequently no brokerage fees were paid by these Portfolios.

The following table shows the brokerage commissions paid by the Portfolios to
Morgan Stanley and its affiliates for the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
Brokerage Commissions Paid During
Fiscal Year Ended December 31,1998
------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Global Equity $ 90,498.00 $11,900.00 13.15% 13.95%
International Magnum 92,226.00 8,842.00 9.58 9.01
Emerging Markets Equity 221,754.00 8,780.00 3.96 3.19
Asian Equity 106,953.00 3,438.00 3.21 4.05
</TABLE>
- -------

* The Fixed Income, High Yield, Equity Growth, Value, Mid Cap Value, U.S. Real
Estate and Emerging Markets Debt Portfolios did not pay any commissions to
affiliated brokers for the fiscal year ended December 31, 1998. The Money
Market, Latin American, Active International Allocation, Technology,
Balanced, Core Equity, International Fixed Income, Mid Cap Growth, Multi-
Asset-Class, Targeted Duration and Investment Grade Fixed Income Portfolios
were not operational in the fiscal year ended December 31, 1998, and
consequently, no brokerage fees were paid by these Portfolios.

The following table shows the brokerage commissions paid by the Portfolios to
Morgan Stanley and its affiliates for the fiscal years ended December 31, 1997.

<TABLE>
<CAPTION>
Brokerage Commissions Paid During
Fiscal Year Ended December 31, 1997
---------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed Income $ 143.75/1/ $ 0 0% 0%
Equity Growth 24,660.00/1/ 24.00 0.10 0.15
Global Equity 27,665.00/1/ 2,406.00 8.70 7.25
International Magnum 48,111.00/1/ 221.00 0.46 0.29
Emerging Markets Equity 170,785.00 7,454.00 4.37 3.86
Asian Equity 164,416.00 1,698.00 1.03 1.87
</TABLE>
- -------

* The High Yield, Value and Mid Cap Value Portfolios did not pay any
commissions to affiliated brokers for the period from January 2, 1997 to
December 31, 1997. The U.S. Real Estate Portfolio did not pay any
commissions to affiliated brokers for the period from March 3, 1997 to
December 31, 1997. The Emerging Markets Debt Portfolio did not pay any
commissions to affiliated brokers for the period from June 16, 1997 to
December 31, 1997. The Money Market, Latin American, Active International
Allocation, Technology, Balanced, Core Equity, International Fixed Income,
Mid Cap Growth, Multi-Asset-Class, Targeted Duration and Investment Grade
Fixed Income Portfolios were not operational in the fiscal year ended
December 31, 1997, and consequently, no brokerage fees were paid by these
Portfolios.
/1/For the period from January 2, 1997 to December 31, 1997.

42
<PAGE>

Directed Brokerage. During the fiscal year ended December 31, 1999, the
Portfolios paid brokerage commissions to brokers because of research services
provided as follows:

<TABLE>
<CAPTION>
Brokerage Commissions in Aggregate Dollar Amount of
Connection with Research Transactions for Which Such
Services Provided for Fiscal Commissions were Paid for
Year Ended December 31, Fiscal Year Ended December 31,
Portfolio 1999 1999
--------- ---------------------------- ------------------------------
<S> <C> <C>
Value Portfolio $ 60,975 $ 32,025,225
Emerging Markets Debt
Portfolio 1,212 79,283
Emerging Markets Equity
Portfolio 766,956 211,074,505
Equity Growth Portfolio 115,798 120,560,522
Global Equity Portfolio 73,587 34,372,680
International Magnum
Portfolio 128,375 54,882,401
Mid Cap Growth Portfolio 2,074 2,557,975
Mid Cap Value Portfolio 190,943 106,150,968
Technology Portfolio 669 601,838
Active International
Allocation Portfolio 20,654 12,767,619
U.S. Real Estate
Portfolio 33,698 14,207,327
Asian Equity Portfolio 239,385 63,578,335
</TABLE>

Regular Broker-Dealers. The Funds's regular broker-dealers are (i) the ten
broker-dealers that received the greatest dollar amount of brokerage commission
from the Fund; (ii) the ten broker-dealers that engaged as principal in the
largest dollar amount of portfolio transactions; and (iii) the ten broker-
dealers that sold the largest dollar amount of Portfolio shares. During the
fiscal year ended December 31, 1999, the following Portfolios purchased
securities issued by the Fund's regular broker-dealers:

<TABLE>
<CAPTION>
Value of Portfolio Holding
Portfolio Regular Broker-Dealer as of December 31, 1999
- --------- ------------------------ --------------------------
<S> <C> <C>
Fixed Income Merrill Lynch & Co. $ 126,296.45
Salomon Brothers 63,464.00
Goldman, Sachs, Co. 119,158.00

Mid Cap Value Bear Stearns, & Co. Inc. 111,534.75
Lehman Brothers, Inc. 965,437.50

Money Market Goldman, Sachs, Co. 1,981,727.72
Goldman, Sachs, Co. 1,485,053.28
Merrill Lynch & Co. 1,991,694.39
Merrill Lynch & Co. 1,488,174.15
</TABLE>

43
<PAGE>

Portfolio Turnover

The Portfolios (except for the Technology Portfolio) generally do not invest
for short-term trading purposes; however, when circumstances warrant, each
Portfolio may sell investment securities without regard to the length of time
they have been held. Market conditions in a given year could result in a
higher or lower portfolio turnover rate than expected and the Portfolios will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with their investment objectives and policies. Higher
portfolio turnover (e.g., over 100%) necessarily will cause the Portfolios to
pay correspondingly increased brokerage and trading costs.

Performance Information

Performance figures for the Portfolios may be quoted from time to time to
illustrate their past performance.

Performance quotations by investment companies are subject to rules adopted by
the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be quoted
but must be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods
used by the Fund to compute or express performance follows.

Total Return

Total return on an investment in the Portfolios may be advertised from time to
time. Total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return is
determined by finding the average annual compounded rates of return over 1-,
5-, and 10-year periods (or over the life of the Portfolio) that would equate
an initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1-, 5-, and 10-year period (or over the life of the Portfolio) and the
deduction of all applicable Fund expenses on an annual basis.

These total returns are calculated according to the following formula:

P(1 + T)n = ERV

where:
P=a hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV= ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year periods (or
fractional portion thereof).

Performance Chart

The following table shows the total return numbers for the one year ended
December 31, 1999 and the average annual total return since inception for each
of the Portfolios.*

<TABLE>
<CAPTION>
Average
Annual Average
Total Annual
Return One Total
Inception Year ended Return Since
Name of Portfolio* Date 12/31/99 Inception
- ------------------ --------- ---------- ------------
<S> <C> <C> <C>
Money Market 1/05/99 -- 4.63%**
Fixed Income 1/02/97 -1.63% 5.29%
High Yield 1/02/97 7.10% 8.43%
Equity Growth 1/02/97 39.45% 30.38%
Value 1/02/97 -1.82% 5.16%
Mid Cap Growth 10/18/99 -- 38.40%**
Mid Cap Value 1/02/97 20.19% 25.25%
U.S. Real Estate 3/03/97 -1.47% 1.27%
Technology 11/30/99 -- 24.16%**
Emerging Markets Debt 6/16/97 29.37% -2.67%
Global Equity 1/02/97 4.10% 12.37%
International Magnum 1/02/97 25.19% 13.57%
Emerging Markets Equity 10/01/96 95.68% 12.31%
Asian Equity 3/03/97 79.81% -1.79%
Active International Allocation 9/20/99 -- 17.74%**
</TABLE>
- -------

* Latin American, Balanced, Core Equity, International Fixed Income, Multi-
Asset-Class, Targeted Duration and Investment Grade Fixed Income
Portfolios were not operational in the fiscal year ended December 31,
1999. Consequently, total return numbers are not available.
** Since the Money Market, Mid Cap Growth, Technology and Active International
Allocation Portfolios have not been active for a full fiscal year these
numbers express Total Returns Since Inception.

Calculation of Yield For Non-Money Market Fixed Income Portfolios

Portfolio yield may be advertised from time to time.

Current yield reflects the income per share earned by a Portfolio's
investments.

Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base
period.

Yield is obtained using the following formula:
Yield = 2[(a - b + 1)/6/ - 1]
-----
cd
where:
a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the period that were
entitled to receive income distributions
d= the maximum offering price per share on the last day of the period.

44
<PAGE>

The respective current yields for certain of the Fund's Portfolios for the 30-
day period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Portfolio Name 30-Day Yield
- -------------- ------------
<S> <C>
Emerging Markets Debt 14.30%
Fixed Income 6.58%
High Yield 9.76%
</TABLE>

Calculation of Yield For The Money Market Portfolio

The current yield of the Money Market Portfolio is calculated daily on a base
period return for a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes in such
account) by its average net asset value for the period, and then multiplying it
by 365/7 to determine the annualized current yield. The calculation of net
change reflects the value of additional shares purchased with the dividends by
the Portfolio, including dividends on both the original share and on such
additional shares. An effective yield, which reflects the effects of
compounding and represents an annualization of the current yield with all
dividends reinvested, may also be calculated for the Portfolio by dividing the
base period return by 7, adding 1 to the quotient, raising the sum to the 365th
power, and subtracting 1 from the result.

The yield of a Portfolio will fluctuate. The annualization of a week's dividend
is not a representation by the Portfolio as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as investment quality, average maturity, the type of instruments the
Portfolio invests in, changes in interest rates on instruments, changes in the
expenses of the Fund and other factors. Yields are one basis investors may use
to analyze the Portfolios of the Fund, and other investment vehicles; however,
yields of other investment vehicles may not be comparable because of the
factors set forth in the preceding sentence, differences in the time periods
compared, and differences in the methods used in valuing portfolio instruments,
computing NAV and calculating yield.

The current yield and effective yield for the Money Market Portfolio was 5.29%
and 5.43%, respectively.

Comparisons

To help investors better evaluate how an investment in a Portfolio might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages.

In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Fund's Portfolios and
that the indices and averages are generally unmanaged and do not reflect the
deduction of any fees or expenses. In addition, there can be no assurance that
the relative performance of the Fund to such averages and indices will
continue.

General Performance Information

Each Portfolio's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates,
portfolio expenses and other factors. Performance is one basis investors may
use to analyze a Portfolio as compared to other funds and other investment
vehicles. However, performance of other funds and other investment vehicles may
not be comparable because of the foregoing variables, and differences in the
methods used in valuing their portfolio instruments, computing NAV and
determining performance.

From time to time, the investment performance of a Portfolio may be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, Morningstar, Inc. may be quoted in advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates mutual
funds on the basis of risk-adjusted performance. Rankings that compare the
performance of funds to one another in appropriate categories over specific
periods of time may also be quoted in advertising.

Portfolio advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. Performance of these capital markets may be used in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Portfolios.
The Portfolios may also compare their performance to that of other compilations
or indices that may be developed and made available in the future.

Advertisements may include charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, foreign securities, stocks, bonds, treasury bills
and shares of a Portfolio. In addition, advertisements may include a discussion
of certain attributes or benefits to be derived by an investment in a Portfolio
and/or other mutual funds,
45
<PAGE>

shareholder profiles and hypothetical investor scenarios, timely information on
financial management, tax and retirement planning and various investment
alternatives.

Advertisements may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification,
risk tolerance, goal setting questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Portfolio (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in tax-
deferred and taxable investments). In addition, advertisements and sales
materials relating to a Portfolio may include information regarding the
background and experience of its portfolio managers; the resources, expertise
and support made available to the portfolio managers by MSDW Investment
Management and MAS; and the portfolio managers' goals, strategies and
investment techniques.

Advertisements may discuss economic and political conditions of the United
States and foreign countries, the relationship between sectors of the U.S., a
foreign or the global economy and the U.S., a foreign, or the global economy as
a whole, and the effects of inflation. Discussions and illustrations of the
growth potential of various global markets including, but not limited to,
Africa, Asia, Europe, Latin America, North America, South America, Emerging
Markets and individual countries, may be included in advertisements. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market
performance; and the underlying data which supports such forecasts. From time
to time, advertisements, sales literature, communications to shareholders or
other materials may summarize the substance of information contained in the
Portfolios' shareholder reports (including the investment composition of a
Portfolio), as well as the views of MSDW Investment Management and MAS as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Portfolio.

The Portfolios' advertisements may quote various measures of volatility and
benchmark correlation and the measures may be compared to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. The Portfolios
may also advertise their current interest rate sensitivity, duration, weighted
average maturity or similar maturity characteristics.

The Portfolios may advertise examples of the effects of periodic investment
plans, including the principal of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Portfolio at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard against
loss in a declining market, the investor's average cost per share can be lower
than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.

General Information

Description of Shares and Voting Rights

The Fund's Articles of Incorporation permit the Directors to issue 11.5 billion
shares of common stock, par value $.001 per share, from an unlimited number of
classes ("Portfolios") of shares. Currently the Fund consists of shares of 22
Portfolios.

The shares of each Portfolio of the Fund are fully paid and nonassessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each Portfolio of the Fund have no pre-emptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. A shareholder is entitled
to one vote for each full share held (and a fractional vote for each fractional
share held), then standing in his name on the books of the Fund.

Dividends and Capital Gains Distributions

The Fund's policy is to distribute substantially all of each Portfolio's net
investment income, if any. The Fund may also distribute any net realized
capital gains in the amount and at the times that will avoid income (including
taxable gains) taxes imposed on the distributing Portfolio (see discussion
under "Taxes" in this Statement of Additional Information). However, the Fund
may also choose to retain net realized capital gains and pay taxes on such
gains. The amounts of any income dividends or capital gains distributions
cannot be predicted. Any dividend or distribution paid shortly after the
purchase of shares of a Portfolio by an investor may have the effect of
reducing the per share net asset value of that Portfolio by the per share
amount of the dividend or distribution.

Custody Arrangements

Chase serves as the Custodian of the assets of the Portfolios. Chase is not an
affiliate of either of the Advisers or the Distributor. In maintaining custody
of foreign assets held outside the United States, Chase employs sub-custodians
approved by the Board of Directors of the Fund in

46
<PAGE>

accordance with regulations of the SEC for the purpose of providing custodial
services for such assets.

In the selection of foreign sub-custodians, the Directors or their delegates
consider a number of factors, including, but not limited to, the reliability
and financial stability of the institution, the ability of the institution to
provide efficiently the custodial services required for the Fund, and the
reputation of the institution in the particular country or region.

Legal Matters

Morgan, Lewis & Bockius LLP serves as legal counsel to the Fund.

Description of Ratings

Description of Commercial Paper Ratings

Description of Moody's Ratings of State and Municipal Notes: Moody's ratings
for state and municipal notes and other short-term obligations are designated
Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-l--best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2--high quality with margins of protection ample
although not so large as in the preceding group; MIG-3--favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades.

Description of Moody's Highest Commercial Paper Rating: Prime-1 ("P1")--Judged
to be of the best quality. Their short-term debt obligations carry the smallest
degree of investment risk.

Excerpt From S&P's Rating of Municipal Note Issues: SP-1+ --very strong
capacity to pay principal and interest; SP-2--strong capacity to pay principal
and interest.

Description of S&P's Highest Commercial Paper Ratings: A-1+ --this designation
indicates the degree of safety regarding timely payment is overwhelming. A-1--
this designation indicates the degree of safety regarding timely payment is
very strong.

Description of Moody's Corporate Bond Ratings:

AAA--Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA--Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as for Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA--Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

BA--Bonds 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 thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B--Bonds 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--Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA--Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C--Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers 1, 2 and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of S&P's Corporate Bond Ratings:

AAA--Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

47
<PAGE>

AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments.

B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.

CC--Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.

C--The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI--The rating CI is reserved for income bonds on which no interest is being
paid.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Financial Statements

The Fund's financial statements for the fiscal year ended December 31, 1999,
including the notes thereto and the report of PricewaterhouseCoopers LLP, are
herein incorporated by reference from the Fund's Annual Report to Shareholders.
A copy of the Fund's Annual Report must accompany the delivery of this
Statement of Additional Information.

48
<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits

(a) (1) Articles of Incorporation are incorporated by reference to
Exhibit 1(a) to Registrant's Registration Statement on Form
N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-002517) on May 1, 1996.

(2) Articles of Amendment to Articles of Incorporation (changing
"Growth Portfolio" to "Equity Growth Portfolio") are
incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR
(Accession #0000950109-97-004685) on June 24, 1997.

(3) Articles Supplementary to Articles of Incorporation (adding
Latin American Portfolio and increasing number of authorized
shares) are incorporated by reference to Exhibit 1(c) to
Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-0313 and
811-7607), as filed with the Securities and Exchange
Commission via EDGAR (Accession #0001036050-98-00610) on
April 15, 1998.

(4) Articles of Amendment to Articles of Incorporation (changing
name of the Fund and one of the investment advisers) are
incorporated by reference to Exhibit a(4) to Post-Effective
Amendment No. 7 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-0313 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-99-000128) on January 29, 1999.

(5) Articles Supplementary to Articles of Incorporation (adding
Active International Allocation Portfolio) are incorporated
by reference to Exhibit (a)(5) to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 0001036050-99-001484) on July 16, 1999.

(6) Articles Supplementary to Articles of Incorporation (adding
Technology and Targeted Duration Portfolios) are
incorporated by reference to Exhibit (a)(6) to Post-
Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as
filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-00-000607) on April 12, 2000.

(7) Articles of Amendment to Articles of Incorporation (changing
name of the Fund) are filed herewith.

(8) Form of Articles Supplementary to Articles of Incorporation
(adding Investment Grade Fixed Income Portfolio) are filed
herewith.

(b) By-laws are incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-
7607), as filed with the Securities and Exchange Commission via
EDGAR (Accession #0000950109-96-002517) on May 1, 1996.

(d) (1) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. ("MSAM") with respect to the
Money Market, Emerging Markets Debt, Equity Growth, U.S.
Real Estate, Global Equity, International Magnum, Emerging
Markets Equity and Asian Equity Portfolios is incorporated
by reference to Exhibit 5(a) to Post-Effective Amendment No.
5 to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000074) on January 28, 1998.

(2) Investment Advisory Agreement between Registrant and Miller
Anderson & Sherrerd, LLP ("MAS") with respect to the Fixed
Income, High Yield, International Fixed Income, Balanced,
Multi-Asset-Class, Value, Core Equity, Mid Cap Growth and
Mid Cap Value Portfolios is incorporated by reference to
Exhibit d(2) to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-0313 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001036050-99-000128) on January 29, 1999.

(3) Supplement to Investment Advisory Agreement (adding Latin
American Portfolio) is incorporated by reference to Exhibit
5(c) to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and
811-7607), as filed with the

C-1
<PAGE>

Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000610) on April 15, 1998.

(4) Supplement to Investment Advisory Agreement (adding Active
International Allocation Portfolio) is incorporated by
reference to Exhibit (d)(4) to Post-Effective Amendment No.
10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0001036050-99-001484) on July 16, 1999.

(5) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Dean Witter Investment
Management Inc. (adding Technology Portfolio) is
incorporated by reference to Exhibit (d)(5) to Post-
Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as
filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-00-000607) on April 12, 2000.

(6) Supplement to Investment Advisory Agreement between
Registrant and Miller Anderson & Sherrerd, LLP (adding
Targeted Duration Portfolio) is incorporated by reference to
Exhibit (d)(6) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0001036050-00-
000607) on April 12, 2000.

(7) Sub-Advisory Agreement (relating to the Money Market
Portfolio) between the Registrant and Morgan Stanley Dean
Witter Advisors Inc. is incorporated by reference to
Exhibit (d)(7) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0001036050-00-
000607) on April 12, 2000.

(8) Form of Supplement to Investment Advisory Agreement between
Registrant and Miller Anderson & Sherrerd, LLP (adding
Investment Grade Fixed Income Portfolio) is filed herewith.

(e) Distribution Agreement between Registrant and Morgan Stanley &
Co. Incorporated is incorporated by reference to Exhibit 6 to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as
filed with the Securities and Exchange Commission via EDGAR
(Accession #0001036050-98-000610) on April 15, 1998.

(f) Not applicable.

(g) (1) Domestic Mutual Fund Custody Agreement between Registrant
and Chase Manhattan Bank, N.A. is incorporated by reference
to Exhibit (g)(1) to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #
0001036050-99-000715) on April 1, 1999.

(2) International Custody Agreement between the Registrant and
Morgan Stanley Trust Company (as assumed by The Chase
Manhattan Bank) is incorporated by reference to Exhibit
(g)(2) to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0001036050-00-
000607) on April 12, 2000.

(h) (1) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference
to Exhibit h(1) to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #
0001036050-99-000715) on April 1, 1999.

(2) Administration Agreement between Registrant and Miller
Anderson & Sherrerd, LLP is incorporated by reference to
Exhibit h(2) to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #
0001036050-99-000715) on April 1, 1999.

(3) Sub-Administration Agreement between Morgan Stanley Asset
Management Inc. and Chase Global Funds Services Company is
incorporated by reference to Exhibit h(3) to Post-Effective
Amendment No. 7 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-0313 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-99-000128) on January 29, 1999.

(4) Sub-Administration Agreement between Miller Anderson &
Sherrerd, LLP and Chase Global Funds Services Company is
incorporated by reference to Exhibit (h)(4) to
Post-Effective Amendment No. 8 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and
811-7607), as filed with the Securities and Exchange
Commission via EDGAR (Accession # 0001036050-99-000715) on
April 1, 1999.

(i) Opinion of Counsel is incorporated by reference to Exhibit (i) to
Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
No. 0001036050-00-000607) on April 12, 2000. .

C-2
<PAGE>

(j) Consent of PricewaterhouseCoopers LLP (formerly, Price Waterhouse,
LLP), Independent Accountants is incorporated by reference to
Exhibit(j) to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-
7607), as filed with the Securities and Exchange Commission via
EDGAR (Accession No. 0001036050-00-000607) on April 12, 2000.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

(n) Not applicable.

(o) Not applicable.

(p) Code of Ethics is incorporated by reference to Exhibit(p) to
Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
No. 0001036050-00-000607) on April 12, 2000.

(q) Powers of Attorney are incorporated by reference to Exhibit(q) to
Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
No. 0001036050-00-000607) on April 12, 2000. .

- ----------------------------

C-3
<PAGE>

Item 24. Persons Controlled by or Under Common Control with Registrant

Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any person
controlled by another person, disclose the percentage of voting securities owned
by the immediately controlling person or other basis of that person's control.
For each company, also provide the state or other sovereign power under the laws
of which the company is organized.

As of April 14, 2000 Morgan Stanley Dean Witter & Co. ("MSDW"), a
Delaware corporation located at 1585 Broadway, New York, New York 10036, owned
of record 64% of the outstanding voting securities of the Mid Cap Growth
Portfolio and 87% of the Active International Portfolio. MSDW will vote shares
of the Portfolios that it owns in the same proportion as shares of the
Portfolios are voted by insurance companies. Insurance companies vote shares of
the Portfolios held in their separate accounts in accordance with voting
instructions of their variable annuity contract and variable life insurance
policy owners. Accordingly, MSDW is not viewed as in control of the Portfolios
and therefore MSDW's affiliates are not viewed as under common control with the
Portfolios.

Item 25. Indemnification

State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified against any liability incurred in their official
capacity, other than insurance provided by any director, officer, affiliated
person, or underwriter for their own protection.

Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, 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 (the "Commission") such
indemnification is against public policy as expressed in the 1933 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 director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities 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 1933 Act and will be governed by the final
adjudication of such issue.

Item 26. Business and Other Connections of Investment Advisers

Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser and each director, officer or
partner of the investment adviser, is or has been, engaged within the last two
fiscal years for his or her own account or in the capacity of director, officer,
employee, partner or trustee. (Disclose the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)

Reference is made to the caption "Management of the Fund--Investment
Advisers" in the Prospectuses constituting Part A which is incorporated by
reference to this Registration Statement and "Management of the Fund" in the
Statement of Additional Information constituting Part B which is incorporated by
reference to this Registration Statement.

Morgan Stanley Dean Witter
Investment Management Inc.
("MSDW" Investment Management")

C-4
<PAGE>

Listed below are the officers and Directors of MSDW Investment
Management:

Name and Position with MSDW
Investment Management Inc. Name of other Company Position with Other Company
-------------------------- --------------------- ---------------------------
<S> <C> <C>
Barton M. Biggs Morgan Stanley & Co. Incorporated Managing Director
Chairman, Director and Managing
Director

Richard B. Worley, Miller Anderson & Sherrerd, LLP Portfolio Manager and
President, Director, Managing Director Executive Committee Member
and Member of Executive Committee

MAS Fund Distribution, Inc. Registered Representative

Morgan Stanley & Co. Incorporated Managing Director

Harold J. Schaaff, Jr. Morgan Stanley & Co. Incorporated Managing Director
Managing Director

Donald P. Ryan Morgan Stanley & Co. Incorporated Principal
Compliance Officer and Principal

Alexander C. Frank Morgan Stanley & Co. Incorporated Managing Director
Treasurer

Marna C. Whittington Miller Anderson & Sherrerd, LLP Executive Committee Member
Chief Operating Officer, Managing
Director and Member of Executive
Committee

Peter D. Caldecott Morgan Stanley Dean Witter Managing Director
Managing Director and Member of Investment Management Limited
Executive Committee

Thomas L. Bennett Morgan Stanley & Co. Incorporated Managing Director
Member of Executive Committee and
Portfolio Manager

MAS Fund Distribution, Inc. Director

Miller Anderson & Sherrerd, LLP Portfolio Manager and
Executive Committee Member

Alan E. Goldberg Morgan Stanley & Co. Incorporated Managing Director
Member of Executive Committee
</TABLE>

In addition, MSDW Investment Management acts as investment adviser or sub-
adviser to the following registered investment companies: CIGNA Charter Funds -
Large Company Stock Growth Fund; Fifth Third Funds - International Equity Fund;
The Latin American Discovery Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley
Dean Witter Africa Investment Fund, Inc.; Morgan Stanley Dean Witter Asia-
Pacific Fund, Inc.; Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc.;

C-5
<PAGE>

Morgan Stanley Dean Witter Emerging Markets Fund, Inc.; Morgan Stanley Dean
Witter Global Opportunity Bond Fund, Inc.; Morgan Stanley Dean Witter High Yield
Fund, Inc.; Morgan Stanley Dean Witter Eastern Europe Fund, Inc.(formerly,
Morgan Stanley Russia and New Europe Fund, Inc.); Morgan Stanley Dean Witter
India Investment Fund, Inc.; certain portfolios of Morgan Stanley Dean Witter
Universal Funds, Inc.; Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.;
The Pakistan Investment Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment
Fund, Inc.; Aggressive Growth and Asset Allocation Accounts of Principal
Variable Contracts Fund, Inc.; Principal Partners Aggressive Growth Fund, Inc.;
SunAmerica Series Trust - International Diversified Equities Portfolio;
SunAmerica Series Trust - Worldwide High Income Portfolio; Fortis Series Fund,
Inc. - Global Asset Allocation Series; Morgan Stanley Dean Witter International
Fund; Morgan Stanley Dean Witter International SmallCap Fund; Morgan Stanley
Dean Witter Pacific Growth Fund, Inc.; Morgan Stanley Dean Witter Real Estate
Fund; Morgan Stanley Dean Witter Variable Investment Series - Pacific Growth
Portfolio; Morgan Stanley Dean Witter Japan Fund, Inc.; Morgan Stanley Dean
Witter European Growth Fund Inc.; Morgan Stanley Dean Witter Variable Investment
Series - European Growth Portfolio; Morgan Stanley Dean Witter Growth Fund;
Morgan Stanley Dean Witter Select Dimensions Investment Series, - The Growth
Portfolio; Endeavor Series Trust - Endeavor Money Market Portfolio; Endeavor
Series Trust - Endeavor Asset Allocation Portfolio; EQ Advisors Trust - Morgan
Stanley Emerging Markets Equity Portfolio; John Hancock Variable Series Trust
I - Emerging Markets Equity Portfolio; LSA Variable Series Trust - Focused
Equity Fund; Manufacturers Investment Trust - Global Equity Trust; New England
Zenith Fund-Morgan Stanley International Magnum Equity Series; North American
Funds -Global Equity Fund; North American Funds -International Equity Fund;
Pacific Select Fund - The International Portfolio; Pacific Select Fund - Real
Estate Investment Trust ("REIT") Portfolio, Phoenix Edge Series Fund - Morgan
Stanley Focus Equity Series; SEI Institutional International Trust - Emerging
Markets Equity Portfolio; Van Kampen World Portfolio Series Trust - Global
Government Securities Fund; Van Kampen Life Investment Trust - Global Equity
Portfolio; Van Kampen Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio; Van Kampen Global Managed Assets Fund; Van Kampen Real
Estate Securities Fund; certain portfolios of the Van Kampen Series Fund,
Inc.

Miller Anderson & Sherrerd, LLP ("MAS")

MAS is a Pennsylvania limited liability partnership founded in 1969. MAS
provides investment services to employee benefit plans, endowment funds,
foundations and other institutional investors as well as serving as investment
adviser to MAS Funds, a registered investment company. Listed below are
Executive Committee Members of MAS.

<TABLE>
<CAPTION>
Name and Position with MAS Name of Other Company Position with Other Company
- -------------------------- --------------------- ---------------------------

<S> <C> <C>
Richard Brown Worley Morgan Stanley & Co. Incorporated Managing Director
Executive Committee Member Morgan Stanley Dean Witter Investment
Management Inc.
MAS Fund Distribution, Inc. Registered Representative

Thomas Leonard Bennett Morgan Stanley Dean Witter Universal Director
Portfolio Manager Funds, Inc. Managing Director
Executive Committee Member Morgan Stanley & Co. Incorporated Portfolio Manager
Morgan Stanley Dean Witter Investment
Management Inc. Chairman
MAS Funds Director
MAS Fund Distribution, Inc.

Gilbert Schlarbaum Morgan Stanley & Co. Incorporated Managing Director
Portfolio Manager Morgan Stanley Dean Witter Investment Portfolio Manager
Executive Committee Member Management Inc.
MAS Fund Distribution, Inc. Director

Robert J. Marcin Morgan Stanley Dean Witter Investment Portfolio Manager
Portfolio Manager Management Inc. Managing Director
Executive Committee Member Morgan Stanley & Co. Incorporated Registered Representative
MAS Fund Distribution, Inc.

Marna C. Whittington Morgan Stanley & Co. Incorporated Managing Director
Executive Committee Member MAS Fund Distribution, Inc. CEO
Rohm and Haas Director
</TABLE>

Morgan Stanley Dean Witter Advisors, Inc.

During the last two fiscal years, no director or officer of Morgan
Stanley Dean Witter Advisors, Inc., the Registrant's Investment Sub-Advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment management and,
through affiliates, investment banking.

C-6
<PAGE>

Item 27. Principal Underwriters

(a) State the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
adviser.

Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for Morgan
Stanley Dean Witter Universal Funds, Inc., Morgan Stanley Dean Witter
Institutional Fund, Inc. and Morgan Stanley Dean Witter Strategic Adviser Fund,
Inc.

(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 20.

Name and Principal Business Position and Offices with Principal Position and Offices with
Address* Underwriter Registrant
- --------------------------- ----------------------------------- -------------------------
<S> <C> <C>
Barton M. Biggs Director Chairman and Director

Bruce D. Fiedorek Director and Vice Chairman

Mario Francescatti Director

Peter F. Karches Director, President and Chief
Operating Officer

John J. Mack Director

Robert A. Metzler Director

Stephan F. Newhouse Director and Vice Chairman

Ralph L. Pellecchio General Counsel and Secretary

Joseph R. Perella Director

Philip J. Purcell Director

John H. Schaefer Director

Robert G. Scott Director and Chief Financial Officer

John S. Wadsworth, Jr. Director

Sir David Alan Walker Director

Alexander C. Frank Treasurer
</TABLE>

*Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

C-7
<PAGE>

Item 28. Location of Accounts and Records

State the name and address of each person maintaining principal
possession of each account, book or other document required to be maintained by
section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that
section.

The books, accounts and other documents required by Section 31(a) under
the Investment Company Act of 1940, as amended, and the rules promulgated
thereunder are maintained in the physical possession of the Registrant;
Registrant's Transfer Agent, Chase Global Funds Services Company, P.O. Box 2798,
Boston, Massachusetts 02208-2798; and the Registrant's custodian banks,
including sub-custodians.

Item 29. Management Services

Provide a summary of the substantive provisions of any management-
related service contract not discussed in Part A or Part B, disclosing the
parties to the contract and the total amount paid and by whom, for the Fund's
last three fiscal years.

Each of MSDW Investment Management Exhibit h(3) to Post-Effective
Amendment No. 7 and Exhibit (h)(4) to Post-Effective Amendment No. 8,
respectively and MAS have entered into Sub-Administration Agreements with Chase
Global Funds Services Companies ("Chase") (filed as Exhibit Nos. 9(c) and 9(d)
to Pre-Effective Amendment No.1 to the Registration Statement) pursuant to which
Chase will provide fund administration, fund accounting and transfer agency
services to specified Portfolios of the Registrant.

Item 30. Undertakings

In initial registration statements filed under the Securities Act,
provide an undertaking to file an amendment to the registration statement with
certified financial statements showing the initial capital received before
accepting subscriptions from more than 25 persons if the Fund intends to raise
its initial capital under section 14(a)(3)[15U.S.C. 80a-14(a)(3)].

(a) Not Applicable.

(b) Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act inform
the Board of Directors of his or their desire to communicate with other
Shareholders of the Fund, the Directors will inform such Shareholder(s) as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders, upon request and without charge.

C-8
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of New York and
State of New York, on May 4, 2000.

THE UNIVERSAL INSTITUTIONAL FUNDS, INC.

By: /s/ Harold J. Schaaff, Jr.
---------------------------
President

Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title(s) Date
- --------- -------- ----
<S> <C> <C>

/s/ Harold J. Schaaff, Jr. President May 4, 2000
- ------------------------------------
Harold J. Schaaff, Jr.

*/s/ Barton M. Biggs Director (Chairman) May 4, 2000
- ------------------------------------
Barton M. Biggs

*/s/ John D. Barrett, II Director May 4, 2000
- ------------------------------------
John D. Barrett, II

*/s/ Gerard E. Jones Director May 4, 2000
- ------------------------------------
Gerard E. Jones

*/s/ Graham Jones Director May 4, 2000
- ------------------------------------
Graham Jones

*/s/ John Levin Director May 4, 2000
- ------------------------------------
John Levin

*/s/ Andrew McNally, IV Director May 4, 2000
- -----------------------------------
Andrew McNally, IV

*/s/ William Morton Director May 4, 2000
- ------------------------------------
William Morton

*/s/ Samuel T. Reeves Director May 4, 2000
- ------------------------------------
Samuel T. Reeves

*/s/ Fergus Reid Director May 4, 2000
- ------------------------------------
Fergus Reid

*/s/ Frederick O. Robertshaw Director May 4, 2000
- ------------------------------------
Frederick O. Robertshaw

/s/ Belinda Anne Brady Treasurer May 4, 2000
- ------------------------------------
Belinda Anne Brady
</TABLE>

*By: /s/ Harold J. Schaaff, Jr.
----------------------------
Harold J. Schaaff, Jr.
Attorney-In-Fact

C-9
<PAGE>

EXHIBIT INDEX

EDGAR
Exhibit
Number
- -------
Description
-----------
(a)(1) Articles of Incorporation are incorporated by reference to
Exhibit 1(a) to Registrant's Registration Statement on Form
N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-002517) on May 1, 1996.

EX-99 (7) Articles of Amendment to Articles of Incorporation (changing
name of Fund) are filed herewith.

EX-99 (8) Form of Articles Supplementary to Articles of Incorporation
(adding Investment Grade Fixed Income Portfolio) are filed
herewith.

(b) By-laws are incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-7607),
as filed with the Securities and Exchange Commission via EDGAR
(Accession #0000950109-96-002517) on May 1, 1996.

(d)(1) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. ("MSAM") with respect to the
Money Market, Emerging Markets Debt, Equity Growth, U.S.
Real Estate, Global Equity, International Magnum, Emerging
Markets Equity and Asian Equity Portfolios is incorporated
by reference to Exhibit 5(a) to Post-Effective Amendment No.
5 to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000074) on January 28, 1998.

C-10
<PAGE>

Exhibit d(2) to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-0313 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001036050-99-000128) on January 29, 1999.

(7) Sub-Advisory Agreement between the Registrant and Morgan
Stanley Dean Witter Advisors Inc. is incorporated by
reference to Exhibit (d)(7) to Post-Effective Amendment No.
12 to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0001036050-00-000607) on April 12, 2000.

EX-99 (8) Form of Supplement to Investment Advisory Agreement between
Registrant and Miller Anderson & Sherrerd, LLP (adding
Investment Grade Fixed Income Portfolio) is filed
herewith.

(e) Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Exhibit 6 to Post-
Effective Amendment No. 6 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession #0001036050-
98-000610) on April 15, 1998.

(f) Not applicable.

(g)(1) Domestic Mutual Fund Custody Agreement between Registrant and
Chase Manhattan Bank, N.A. is incorporated by reference to
Exhibit (g)(1) to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession # 0001036050-99-
000715) on April 1, 1999.

(2) International Custody Agreement between the Registrant and
Morgan Stanley Trust Company (as assumed by The Chase
Manhattan Bank) is incorporated by reference to Exhibit
(g)(2) to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and
811-7607), as filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0001036050-00-000607)
on April 12, 2000.

(h)(1) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference to
Exhibit h(1) to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession # 0001036050-99-
000715) on April 1, 1999.

(3) Sub-Administration Agreement between Morgan Stanley Asset
Management Inc. and Chase Global Funds Services Company is
incorporated by reference to Exhibit h(4) to Post-Effective
Amendment No. 7 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-0313 and 811-7607), as

C-11
<PAGE>

filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-99-000128) on January 29, 1999.

(4) Sub-Administration Agreement between Miller Anderson &
Sherrerd, LLP and Chase Global Funds Services Company is
incorporated by reference to Exhibit (h)(4) to Post-Effective
Amendment No. 8 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-3013 and 811-7607), as filed with
the Securities and Exchange Commission via EDGAR (Accession #
0001036050-99-000715) on April 1, 1999.

(i) Opinion of Counsel is incorporated by reference to Exhibit(i) to Post-
Effective Amendment No. 12 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0001036050-00-000607) on April 12, 2000.

(j) Consent of PricewaterhouseCoopers LLP (formerly, Price Waterhouse,
LLP), Independent Accountants is incorporated by reference to Exhibit
(j) to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-7607),
as filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-00-000607) on April 12, 2000.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

(n) Not applicable.

(o) Not applicable.

(p) Code of Ethics is incorporated by reference to Exhibit (p) to Post-
Effective Amendment No. 12 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0001036050-00-000607) on April 12, 2000.

(q) Powers of Attorney are incorporated by reference to Exhibit (q) to
Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession No.
0001036050-00-000607) on April 12, 2000.

C-12

<PAGE>

EXHIBIT (a)(7)

ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. (the "Corporation"), a
corporation organized under the laws of the State of Maryland, having its
principal place of business at 1221 Avenue of the Americas, New York, New York
10020, does hereby certify to the State Department of Assessments and Taxation
of Maryland that:

FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.

SECOND: Pursuant to the authority contained in Section 2-605(a)(4) of the
Maryland General Corporation Law, a majority of the full Board of Directors by
resolution passed on February 17, 2000, have changed the name of the Corporation
to The Universal Institutional Funds, Inc.

THIRD: Pursuant to the requirements of Section 2-607 of the Maryland
General Corporation Law, the Board of Directors has determined to file of record
these Articles of Amendment, which Amendment is limited to changes expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders and which Amendment is solely for the purpose
of changing the name of the Corporation.

FOURTH: Article SECOND, of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:

The name of the Corporation is The Universal Institutional Funds, Inc.

FIFTH: These Articles of Amendment shall be effective upon the later of the
time the State Department of Assessments and Taxation of Maryland accepts these
Articles of Amendment of record or May 1, 2000.
<PAGE>

IN WITNESS WHEREOF, Morgan Stanley Dean Witter Universal Funds, Inc. has
caused these Articles of Amendment to be signed in its corporate name and on its
behalf by its President and its corporate seal to be hereunto affixed and
attested by its Secretary as of the 22nd day of February, 2000.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

By: /s/ Michael F. Klein
---------------------
Michael F. Klein
President

[SEAL]

Attest:

/s/ Mary E. Mullin
- ------------------
Mary E. Mullin
Secretary
<PAGE>

THE UNDERSIGNED, President of Morgan Stanley Dean Witter Universal
Funds, Inc., who executed on behalf of said corporation the foregoing Articles
of Amendment of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles of Amendment
to be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information and belief, the matters and facts set forth
herein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.

/s/ Michael F. Klein
--------------------
Michael F. Klein
President

<PAGE>

Exhibit (a)(8)

Form of
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.

THE UNIVERSAL INSTITUTIONAL FUNDS, INC. (the "Corporation"), a
corporation organized under the laws of the State of Maryland, having its
principal place of business at 1221 Avenue of the Americas, New York, NY 10020,
does hereby certify to the State Department of Assessments and Taxation of
Maryland that:

FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.

SECOND: The Board of Directors of the Corporation at a meeting duly
convened and held on June 15, 2000 adopted a resolution adding one portfolio and
increasing the total number of shares of stock which the Corporation shall have
the authority to issue from eleven billion (11,000,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of eleven
million dollars ($11,000,000) designated and classified in twenty one portfolios
as follows:

Number of Shares
of Common Stock
Name of Class Classified and Allocated
- ------------- ------------------------

Money Market Portfolio 1,000,000,000
Fixed Income Portfolio 500,000,000
High Yield Portfolio 500,000,000
International Fixed Income Portfolio 500,000,000
Emerging Markets Debt Portfolio 500,000,000
Balanced Portfolio 500,000,000
Multi-Asset-Class Portfolio 500,000,000
Equity Growth Portfolio 500,000,000
Value Portfolio 500,000,000
Core Equity Portfolio 500,000,000
Mid Cap Growth Portfolio 500,000,000
Mid Cap Value Portfolio 500,000,000
U.S. Real Estate Portfolio 500,000,000
Global Equity Portfolio 500,000,000
International Magnum Portfolio 500,000,000
Emerging Markets Equity Portfolio 500,000,000
<PAGE>

Asian Equity Portfolio 500,000,000
Latin American Portfolio 500,000,000
Active International Allocation Portfolio 500,000,000
Technology Portfolio 500,000,000
Targeted Duration Portfolio 500,000,000

to eleven billion five hundred million (11,500,000,000) shares of common stock,
par value $.001 per share, having an aggregate par value of eleven million five
hundred thousand ($11,500,000) and designated and classified in twenty two
portfolios as follows:

Number of Shares
of Common Stock
Name of Class Classified and Allocated
- ------------- ------------------------

THIRD: Such shares have been duly authorized and classified by the Board of
Directors pursuant to authority and power contained in Section 2-105(c) of the
MGCL and the Corporation's Articles of Incorporation.

FOURTH: The description of the shares of stock designated and classified as
set forth above, including any preference, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth
<PAGE>

in the Articles of Incorporation and has not changed in connection with these
Articles Supplementary to the Articles of Incorporation.
<PAGE>

IN WITNESS WHEREOF, The Universal Institutional Funds, Inc. has caused
these Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on this day of , 2000.

THE UNIVERSAL INSTITUTIONAL FUNDS, INC.

By:
-----------------------------------
Harold J. Schaaff, Jr.
President

Attest:

- ----------------------------------
Mary E. Mullin
Secretary
<PAGE>

THE UNDERSIGNED, President of THE UNIVERSAL INSTITUTIONAL FUNDS, INC., who
executed on behalf of said corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles Supplementary to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.

--------------------------------
Harold J. Schaaff, Jr.
President

<PAGE>

Exhibit (d)(8)

THE UNIVERSAL INSTITUTIONAL FUNDS, INC..
Form of
SUPPLEMENT TO MILLER ANDERSON & SHERRERD, LLP INVESTMENT ADVISORY AGREEMENT

Investment Grade Fixed Income

SUPPLEMENT (the "Supplement") TO INVESTMENT ADVISORY AGREEMENT dated as of
May 31, 1997 by and between Morgan Stanley Universal Funds, Inc. (now known as
The Universal Institutional Funds, Inc.) (the "Fund") and Miller Anderson &
Sherrerd, LLP (the "Adviser") (the "Agreement").

RECITALS

WHEREAS, the Fund has executed and delivered the Agreement which sets forth
the rights and obligations of the parties with respect to the management of the
portfolios of the Fund set forth on Schedule A to such Agreement, as amended and
supplemented from time to time.

WHEREAS, the Fund has created an additional portfolio, the Investment
Grade Fixed Income Portfolio (the "Additional Portfolio").

AGREEMENTS

Now, therefore, the parties agree as follows:

As provided in Section 1 of the Agreement, the Fund hereby appoints the
Adviser to act as investment adviser to the Additional Portfolio.

The compensation of the Adviser as set forth in Paragraph 3 of the
Agreement with respect to the Additional Portfolio will be as set forth below:

Assets
------
<S> <C> <C> <C>
Portfolio First $500 Million From $500 Million to $1 Billion More than $1 Billion

Investment Grade
Fixed Income

</TABLE>

This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

The parties listed below have executed this Supplement as of the __ day of
_______________, 2000

MILLER ANDERSON THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
& SHERRERD, LLP

- ---------------------------------- ----------------------------------
Name: Lorraine Truten Name: Harold J. Schaaff, Jr.
Title: Principal Title: President