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Morgan Stanley Institutional Fund Trust – ‘497’ on 2/5/02

On: Tuesday, 2/5/02 · Accession #: 940180-2-259 · File #: 2-89729

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/05/02  Morgan Stanley Inst’l Fund Trust  497                    1:909K                                   Donnelley RR & So… 12/FA

Definitive Material — Rule 497
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 497         Prospectuses Dated January 31, 2002                  271   1.35M

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Aaa ADRs Adviser Agencies Appendix-Description of Securities and Ratings Assignments Brokerage Transactions Ccc CMOs Comparative Indices Distribution of Shares Distributor Financial Statements Forwards Fund Administration Futures General Information High Yield Securities Inverse Floaters Investment Adviser Investment Limitations Investments Investment Strategies Investment Strategies and Related Risks IPOs Litigation Management of the Fund Mortgage Securities Other Service Providers Performance Information Portfolios Portfolios' Investments and Strategies, The Principal Holders of Securities Principal Underwriter Purchase of Shares Redemption of Shares Service Plan Shareholder Services Smbs Swaps Table of Contents Tax Considerations The Portfolios' Investments and Strategies Transactions With Broker/Dealers U.S. Governments Valuation of Shares Value Investing
1	1st Page - Filing Submission
"	Shareholder Services
"	Investment Adviser
2	Table of Contents
33	Performance Information
42	Investment Strategies and Related Risks
"	IPOs
43	High Yield Securities
"	Mortgage Securities
48	Valuation of Shares
50	Adviser
53	Distributor
129	Service Plan
137	Portfolios
175	The Portfolios' Investments and Strategies
177	Assignments
181	Investment Strategies
184	Value Investing
"	Investments
"	ADRs
"	Agencies
187	CMOs
193	Forwards
194	Futures
196	Inverse Floaters
208	Smbs
"	Swaps
209	U.S. Governments
210	Investment Limitations
213	Purchase of Shares
"	Redemption of Shares
214	Transactions With Broker/Dealers
216	Management of the Fund
225	Principal Underwriter
"	Distribution of Shares
226	Fund Administration
"	Other Service Providers
227	Litigation
"	Brokerage Transactions
230	General Information
233	Tax Considerations
236	Principal Holders of Securities
261	Comparative Indices
267	Financial Statements
"	Appendix-Description of Securities and Ratings
"	Aaa
269	Ccc

497 1st Page of 271 TOC ↑Top Previous Next ↓Bottom Just 1st
 
[LOGO] Morgan Stanley 

Institutional Class Prospectus                                              

January 31, 2002                                                            

Morgan Stanley Institutional Fund Trust                                         

Equity Portfolios                                         
Equity Portfolio                                          
Mid Cap Growth Portfolio                                  
Mid Cap Growth II Portfolio                               
Mid Cap Value Portfolio                                   
Small Cap Growth Portfolio                                
Small Cap Value Portfolio                                 
Strategic Small Value Portfolio                           
Value Portfolio                                           

Fixed Income Portfolios                                   
Cash Reserves Portfolio                                   
Core Plus Fixed Income Portfolio                          
Investment Grade Fixed Income Portfolio                   
Global Fixed Income Portfolio                             
High Yield Portfolio                                      
Intermediate Duration Portfolio                           
International Fixed Income Portfolio                      
Limited Duration Portfolio                                
Municipal Portfolio                                       
Special Purpose Fixed Income Portfolio                    
Targeted Duration Portfolio                               
U.S. Core Fixed Income Portfolio                          

Balanced Portfolios                                       
Balanced Portfolio                                        
Multi-Asset-Class Portfolio                               

Shareholder Services:                                                           
1-800-548-7786                                                                  
--------------------------------------------------------------------------------

Prices and Investment Results:                                                  
www.morganstanley.com/im                                                        
--------------------------------------------------------------------------------

Investment Adviser: Morgan Stanley Investments LP                               
--------------------------------------------------------------------------------

Morgan Stanley Institutional Fund Trust (the "Fund") is a no-load mutual fund   
consisting of 29 different investment portfolios, 22 of which are described in  
this prospectus. Morgan Stanley Investments LP (the "Adviser"), an investment   
advisory affiliate of Morgan Stanley Investment Management Inc., is the Fund's  
investment adviser. This prospectus offers Institutional Class Shares of the    
portfolios (each a "Portfolio" and collectively the "Portfolios") described     
herein.                                                                         
--------------------------------------------------------------------------------

The Securities and Exchange Commission has not approved or disapproved these    
securities or passed upon the adequacy of this prospectus. Any representation   
to the contrary is a criminal offense.                                          

497 2nd Page of 271 TOC 1st Previous Next ↓Bottom Just 2nd
Institutional Class Prospectus                                              

January 31, 2002                                                            

Table of Contents                                                               

                                                                [Download Table]

                                                            Page
                                                                

Equity Portfolios                                               
----------------------------------------------------------------
Equity                                                         1
----------------------------------------------------------------
Mid Cap Growth                                                 2
----------------------------------------------------------------
Mid Cap Growth II                                              4
----------------------------------------------------------------
Mid Cap Value                                                  6
----------------------------------------------------------------
Small Cap Growth                                               7
----------------------------------------------------------------
Small Cap Value                                                9
----------------------------------------------------------------
Strategic Small Value                                         10
----------------------------------------------------------------
Value                                                         11
----------------------------------------------------------------

Fixed Income Portfolios                                         
----------------------------------------------------------------
Cash Reserves                                                 12
----------------------------------------------------------------
Core Plus Fixed Income                                        13
----------------------------------------------------------------
Investment Grade Fixed Income                                 15
----------------------------------------------------------------
Global Fixed Income                                           17
----------------------------------------------------------------
High Yield                                                    19
----------------------------------------------------------------
Intermediate Duration                                         21
----------------------------------------------------------------
International Fixed Income                                    23
----------------------------------------------------------------
Limited Duration                                              25
----------------------------------------------------------------
Municipal                                                     27
----------------------------------------------------------------
Special Purpose Fixed Income                                  29
----------------------------------------------------------------
Targeted Duration                                             31
----------------------------------------------------------------
U.S. Core Fixed Income                                        32
----------------------------------------------------------------

Balanced Portfolios                                             
----------------------------------------------------------------
Balanced                                                      34
----------------------------------------------------------------
Multi-Asset-Class                                             36
----------------------------------------------------------------

Fees and Expenses of the Portfolios                           38
----------------------------------------------------------------
Investment Strategies and Related Risks                       40
----------------------------------------------------------------
Purchasing Shares                                             44
----------------------------------------------------------------
Redeeming Shares                                              45
----------------------------------------------------------------
General Shareholder Information                               46
----------------------------------------------------------------
Fund Management                                               48
----------------------------------------------------------------
Financial Highlights                                          52
----------------------------------------------------------------

497 3rd Page of 271 TOC 1st Previous Next ↓Bottom Just 3rd
Institutional Class Prospectus                                              

January 31, 2002                                                            

Equity Portfolio                                                                

Objective                                                                       
The Equity Portfolio seeks above-average total return over a market cycle of    
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of large U.S. companies with   
market capitalizations generally greater than $5 billion. The Portfolio may     
invest, to a limited extent, in stocks of small companies and foreign equity    
securities.                                                                     

Process                                                                         
The Adviser assigns each member of the portfolio management team to specific    
"value" or "growth" sectors. The Portfolio's overall sector allocation is       
driven by bottom-up stock selection. The Adviser seeks to diversify the         
Portfolio's investments across market sectors, and to obtain the best values    
within each sector. In determining whether securities should be sold, the       
Adviser considers factors such as deteriorating fundamentals and relative       
valuation.                                                                      

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks.                                                      

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Equity Portfolio                                                                
Commenced operations on November 14, 1984                                       

1992   1993   1994   1995    1996    1997    1998    1999    2000     2001  
----   ----   ----   -----   -----   -----   -----   -----   -----   ------ 
7.78   6.66   0.50   33.02   20.59   25.84   19.67   28.80   -9.29   -17.03 

High Quarter    12/31/98        21.34%                                          

Low Quarter     9/30/01        -15.29%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Equity S&P 500
                                                          Portfolio   Index
---------------------------------------------------------------------------
                                                                           
One Year                                                     -17.03  -11.88
Five Year                                                      7.86   10.70
Ten Year                                                      10.46   12.93
Since Inception 11/14/84                                      13.83   14.98

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

                                                                           1

497 4th Page of 271 TOC 1st Previous Next ↓Bottom Just 4th
Mid Cap Growth Portfolio                                                        

Objective                                                                       
The Mid Cap Growth Portfolio seeks long-term capital growth.                    

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of U.S. mid cap companies and, to a limited   
extent, foreign companies. The Adviser selects issues from a universe comprised 
of mid cap companies, most with market capitalizations of generally less than   
$35 billion.                                                                    

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the business. In addition, the Adviser utilizes an      
extensive network of industry contacts and access to management teams to        
monitor changes in the competitive position of the companies in the Portfolio.  
The Adviser generally considers selling a portfolio holding when it determines  
that the holding no longer satisfies its investment criteria.                   

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

[CHART] 

Mid Cap Growth Portfolio                                                        
Commenced operations on March 30, 1990                                          

1992   1993   1994  1995   1996   1997   1998   1999   2000    2001     
----   ----   ----  -----  -----  -----  -----  -----  -----  ------    
2.91  18.23  -5.39  36.25  18.79  33.13  37.36  68.18  -7.34  -29.61    

High Quarter    12/31/99        39.27%                                          

Low Quarter     9/30/01        -27.63%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                            Mid Cap           
                                                             Growth S&P MidCap
                                                          Portfolio  400 Index
------------------------------------------------------------------------------
                                                                              
One Year                                                     -29.61      -0.58
Five Year                                                     14.94      16.12
Ten Year                                                      14.09      15.02
Since Inception 3/30/90                                       17.31      16.39

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5, and 10 year periods and since inception. The table also shows the         
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The S&P MidCap 400 Index is a market-value weighted index which consists of 400 
domestic stocks that are chosen for market size, liquidity, and industry group  
representation.                                                                 

2                                                                               

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Mid Cap Growth Portfolio (Cont'd)                                               

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. However, the Adviser cannot  
guarantee continued access to IPOs.                                             

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           3

497 6th Page of 271 TOC 1st Previous Next ↓Bottom Just 6th
Mid Cap Growth II Portfolio                                                     

Objective                                                                       
The Mid Cap Growth II Portfolio seeks long-term capital growth.                 

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of U.S. mid cap companies and, to a limited   
extent, foreign companies. The Adviser selects issues from a universe comprised 
of mid cap companies, most with market capitalizations of generally less than   
$35 billion.                                                                    

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the business. In addition, the Adviser utilizes an      
extensive network of industry contacts and access to management teams to        
monitor changes in the competitive position of the companies in the Portfolio.  
The Adviser generally considers selling a portfolio holding when it determines  
that the holding no longer satisfies its investment criteria.                   

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies                                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   
markets, financial resources and product lines, and                             

[CHART] 

Mid Cap Growth II Portfolio                                                     
Commenced operations on December 28, 2000                                       

2001                                                                            
-----                                                                           
-39.44                                                                          

High Quarter    12/31/01   21.24%                                               
Low Quarter     03/31/01  -32.75%                                               

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                         Mid Cap      Russell
                                                       Growth II      Mid Cap
                                                       Portfolio Growth Index
-----------------------------------------------------------------------------
                                                                             
One Year                                                  -39.44       -20.15
Since Inception 12/28/00                                  -40.94       -22.04

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 year period and since inception. The table also shows the corresponding       
returns of the Portfolio's benchmark index. The variability of performance over 
time provides an indication of the risks of investing in the Portfolio. How the 
Portfolio has performed in the past does not necessarily indicate how the       
Portfolio will perform in the future.                                           

The Russell Mid Cap Growth Index measures the performance of the 800 smallest   
companies in the Russell 1000 Index, which represent approximately 25% of the   
total market capitalization of the Russell 1000 Index.                          

4                                                                               

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Mid Cap Growth II Portfolio (Cont'd)                                            

may lack the depth of management of larger companies.                           

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. However, the Adviser cannot  
guarantee continued access to IPOs.                                             

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           5

497 8th Page of 271 TOC 1st Previous Next ↓Bottom Just 8th
Mid Cap Value Portfolio                                                         

Objective                                                                       
The Mid Cap Value Portfolio seeks above-average total return over a market      
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally in the range of companies included in the S&P MidCap  
400 Index. The Portfolio may purchase stocks that typically do not pay          
dividends.                                                                      

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the S&P MidCap 400 Index. For example, if the energy 
sector represents 10% of the S&P MidCap 400 Index, then, as a general matter,   
the energy sector would represent between 5-15% of total Portfolio assets.      
There are more than a dozen sectors represented in the S&P MidCap 400 Index     
including technology, heavy industry/transportation, health care, energy and    
basic resources. In determining whether securities should be sold, the Adviser  
considers factors such as high valuations relative to other investment          
opportunities, and deteriorating short or long-term earnings growth projections.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized. At times, the        
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Mid Cap Value Portfolio                                                         
Commenced operations on December 30, 1994                                       

1995    1996    1997    1998    1999    2000    2001        
----    -----   -----   -----   -----   -----   -----       
32.71   40.77   39.59   16.05   19.82   11.94   -3.38       

High Quarter    12/31/98        22.46%                                          

Low Quarter     9/30/01        -20.57%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Mid Cap S&P MidCap
                                                     Value Portfolio  400 Index
-------------------------------------------------------------------------------
                                                                               
One Year                                                       -3.38      -0.58
Five Year                                                      15.99      16.12
Since Inception 12/30/94                                       21.55      18.56

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The S&P MidCap 400 Index is a market-value weighted index which consists of 400 
domestic stocks that are chosen for market size, liquidity, and industry group  
representation.                                                                 

6                                                                               

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Small Cap Growth Portfolio                                                      

Objective                                                                       
The Small Cap Growth Portfolio seeks long-term capital growth.                  

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of small U.S. and, to a limited extent,       
foreign companies. The Adviser selects issues from a universe comprised of      
small cap companies, most with market capitalizations of generally less than    
$2.5 billion.                                                                   

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the business. In addition, the Adviser utilizes an      
extensive network of industry contacts and access to management teams to        
monitor changes in the competitive position of the companies in the Portfolio.  
The Adviser generally considers selling a portfolio holding when it determines  
that the holding no longer satisfies its investment criteria.                   

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of small cap companies. A company is considered to be 
a small cap company if it has a total market capitalization at the time of      
purchase of $4 billion or less. The market capitalization limit is subject to   
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of small cap companies.                                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in small companies may involve greater risk than            
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

[CHART] 

Small Cap Growth Portfolio                                                      
Commenced operations on June 30, 1998                                           

1999             2000             2001  
------           ------           ------  
313.91           -18.96           -20.56  

High Quarter    12/31/99        69.51%                                          

Low Quarter     9/30/01        -26.46%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                       Small Cap Russell 2000
                                                Growth Portfolio        Index
-----------------------------------------------------------------------------
                                                                             
One Year                                                  -20.56         2.49
Since Inception 6/30/98                                    43.24         3.27

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 year period and since inception. The table also shows the corresponding       
returns of the Portfolio's benchmark index. The variability of performance over 
time provides an indication of the risks of investing in the Portfolio. How the 
Portfolio has performed in the past does not necessarily indicate how the       
Portfolio will perform in the future.                                           

The Russell 2000 Index measures the performance of the 2,000 smallest companies 
in the Russell 3000 Index, which represents approximately 8% of the total       
market capitalization of the Russell 3000 Index. The average market             
capitalization of the companies contained in the Index is approximately $530    
million.                                                                        

                                                                           7

497 10th Page of 271 TOC 1st Previous Next ↓Bottom Just 10th
Small Cap Growth Portfolio (Cont'd)                                             

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. A significant portion of the 
Portfolio's performance to date is related to its investment in IPOs. However,  
the Adviser cannot guarantee continued access to IPOs, or the Portfolio's       
ability to profit from them.                                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

8                                                                               

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Small Cap Value Portfolio (Not currently being offered to new investors)        

Objective                                                                       
The Small Cap Value Portfolio seeks above-average total return over a market    
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally in the range of companies included in the Russell     
2000 Index. The Portfolio may purchase stocks that typically do not pay         
dividends.                                                                      

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the Russell 2000 Index. For example, if the energy   
sector represents 10% of the Russell 2000 Index, then, as a general matter, the 
energy sector would represent between 5-15% of total Portfolio assets. There    
are more than a dozen sectors represented in the Russell 2000 Index including   
technology, heavy industry/transportation, health care, energy and basic        
resources. In determining whether securities should be sold, the Adviser        
considers factors such as high valuations relative to other investment          
opportunities, and deteriorating short or long-term earnings growth projections.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of small cap companies. A company is considered to be 
a small cap company if it has a total market capitalization at the time of      
purchase of $4 billion or less. The market capitalization limit is subject to   
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of small cap companies.                                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized. At times, the        
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Small Cap Value Portfolio                                                       
Commenced operations on July 1, 1986                                            

1992    1993    1994   1995    1996    1997    1998    1999    2000   2001      
-----   -----   ----   -----   -----   -----   -----   -----   ----   -----     
22.77   21.16   2.18   21.04   35.15   30.63   -1.42   26.02   3.48   -6.80     

High Quarter    9/30/97         18.34%                                          

Low Quarter     9/30/01        -19.53%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                      Small Cap Russell 2000
                                                Value Portfolio        Index
----------------------------------------------------------------------------
                                                                            
One Year                                                  -6.80         2.49
Five Year                                                  9.37         7.52
Ten Year                                                  14.55        11.51
Since Inception 7/1/86                                    11.96         9.48

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Russell 2000 Index measures the performance of the 2,000 smallest companies 
in the Russell 3000 Index, which represents approximately 8% of the total       
market capitalization of the Russell 3000 Index. The average market             
capitalization of the companies contained in the Index is approximately $530    
million.                                                                        

                                                                           9

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Strategic Small Value Portfolio                                                 

Objective                                                                       
The Strategic Small Value Portfolio seeks above-average total return over a     
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of domestic companies with     
equity capitalizations generally in the range of companies included in the      
Russell 2000 Value Index.                                                       

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the Russell 2000 Value Index. For example, if the    
energy sector represents 10% of the Russell 2000 Value Index, then, as a        
general matter, the energy sector would represent between 5-15% of total        
Portfolio assets. There are more than a dozen sectors represented in the        
Russell 2000 Value Index including technology, heavy industry/transportation,   
health care, energy and basic resources. In determining whether securities      
should be sold, the Adviser considers factors such as high valuations relative  
to other investment opportunities, and deteriorating short or long-term         
earnings growth projections.                                                    

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of small cap companies. A company is considered to be 
a small cap company if it has a total market capitalization at the time of      
purchase of $4 billion or less. The market capitalization limit is subject to   
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of small cap companies.                                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. Some market conditions may favor value stocks   
or stocks of small companies, while other conditions may favor growth stocks or 
stocks of larger companies. The Adviser's perception that a stock is under- or  
over-valued may not be accurate or may not be realized. At times, the           
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for information about      
these and other risks of investing in the Portfolio.                            

Strategic Small Value Fund                                                      
Commenced operations on June 30, 2000                                           

[CHART] 

6.43                                                                            
-----                                                                           
2001                                                                            

High Quarter        12/31/01       15.34%                                       
Low Quarter          9/30/01      -10.32%                                       
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                            Strategic             
                          Small Value Russell 2000
                            Portfolio  Value Index
--------------------------------------------------
                                                  
One Year                         6.43        14.02
Since Inception (6/30/00)       13.98        20.46

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 year period and since inception. The table also shows the corresponding       
returns of the Portfolio's benchmark index. The variability of performance over 
time provides an indication of the risks of investing in the Portfolio. How the 
Portfolio has performed in the past does not necessarily indicate how the       
Portfolio will perform in the future.                                           

The Russell 2000 Value Index measures the performance of those Russell 2000     
companies with lower price-to-book ratios and lower forecasted growth values.   

10                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Value Portfolio                                                                 

Objective                                                                       
The Value Portfolio seeks above-average total return over a market cycle of     
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally greater than $2.5 billion. The Portfolio focuses on   
stocks that are believed to be undervalued in comparison with the stock market  
as a whole, as measured by the S&P 500 Index. The Portfolio may purchase stocks 
that do not pay dividends. The Portfolio may invest, to a limited extent, in    
foreign equity securities.                                                      

Process                                                                         
The Adviser selects investments through a three part analysis. The Adviser      
identifies stocks with low price/earnings ratios. The Adviser then applies      
fundamental analysis and its investment judgment to determine which of those    
securities are the most attractive. Finally, the Adviser may favor securities   
of companies that are in undervalued industries. The Adviser employs a formal   
sell discipline, under which the                                                
Portfolio sells securities when either their price/earnings ratios or           
alternative valuation parameters rise to what are believed to be unacceptable   
levels. Securities may also be sold if the Adviser determines that a            
significant deterioration in the fundamental outlook of a company has occurred. 

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized.                      

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Value Portfolio                                                                 
Commenced operations on November 5, 1984                                        

1992    1993    1994   1995    1996    1997    1998    1999    2000    2001   
-----   -----   ----   -----   -----   -----   -----   -----   -----   ----   
14.61   14.34   3.48   38.75   27.63   23.38   -2.88   -2.07   23.39   4.60   

High Quarter   12/31/00   15.64%                                                

Low Quarter     9/30/98  -19.02%                                                

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                              Value S&P 500
                                                          Portfolio   Index
---------------------------------------------------------------------------
                                                                           
One Year                                                       4.60  -11.88
Five Year                                                      8.66   10.70
Ten Year                                                      13.78   12.93
Since Inception 11/5/84                                       14.90   14.86

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

                                                                            11

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Cash Reserves Portfolio                                                         

Objective                                                                       
The Cash Reserves Portfolio seeks to realize maximum current income, consistent 
with the preservation of capital and liquidity.                                 

Approach                                                                        
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by  
investing exclusively in liquid, high quality money market instruments of       
private financial and non-financial corporations, as well as obligations of the 
U.S. Government and its agencies and instrumentalities. The Portfolio's average 
weighted maturity will not exceed 90 days, and no individual security will have 
a remaining maturity in excess of 397 days.                                     

Process                                                                         
The Portfolio's Sub-Adviser, Morgan Stanley Investment Advisors Inc.,           
determines the appropriate average maturity for the Portfolio based on the      
shape of the money market yield curve and its view of the direction of short    
term interest rates over the next one to six months. Securities are selected on 
the basis of their value, adjusted for risk. The Sub-Adviser invests in a       
variety of securities in order to diversify credit risk and interest rate risk. 
The Sub-Adviser may sell securities when it believes that expected              
risk-adjusted return is low compared to other investment opportunities, when a  
security is downgraded, or for liquidity needs.                                 

Principal Risks                                                                 
Although the Portfolio seeks to preserve the value of your investment at $1.00  
per share, the Portfolio is subject to various risks that could adversely       
affect its net asset value, yield and total return. It is possible for an       
investor to lose money by investing in the Portfolio.                           

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Prices of fixed    
income securities generally will move in correlation to changes in an issuer's  
credit rating. Repurchase agreements are subject to additional risks associated 
with the possibility of default by the seller at a time when the collateral has 
declined in value, or insolvency of the seller, which may affect the            
Portfolio's right to control the collateral.                                    

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

You may obtain the Portfolio's SEC 7-day current yield by calling               
1-800-548-7786.                                                                 

[CHART] 

Cash Reserves Portfolio                                                         
Commenced operations on August 29, 1990                                         

1992    1993    1994    1995    1996    1997    1998    1999    2000    2001    
----    ----    ----    ----    ----    ----    ----    ----    ----    ----    
3.37    2.82    3.99    5.75    5.24    5.39    5.36    5.00    6.19    3.98    

High Quarter    12/31/00          1.59%                                         
Low Quarter     12/31/01          0.58%                                         

Average Annual Total Return (as of 12/31/01)                                    

                                                        [Enlarge/Download Table]

                                                               Cash          Salomon Lipper Money
                                                           Reserves 1-Month Treasury       Market
                                                          Portfolio       Bill Index      Average
-------------------------------------------------------------------------------------------------
                                                                                                 
One Year                                                       3.98             3.71         3.43
Five Year                                                      5.18             4.64         4.67
Ten Year                                                       4.70             4.34         4.30
Since Inception 8/29/90                                        4.91             4.48         4.53

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index and the Lipper Money   
Market Average, an index that shows the performance of other money market       
funds. The variability of performance over time provides an indication of the   
risks of investing in the Portfolio. How the Portfolio has performed in the     
past does not necessarily indicate how the Portfolio will perform in the future.

The Salomon 1-Month Treasury Bill Index is an unmanaged index generally         
representative of the average yield of one month treasury bills.                

12                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Core Plus Fixed Income Portfolio                                                

Objective                                                                       
The Core Plus Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

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 seek to        
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 Portfolio may invest opportunistically in        
non-dollar denominated securities and in high yield securities (commonly        
referred to as "junk bonds"). The Portfolio may invest over 50% of its assets   
in mortgage securities. The Adviser may use futures, swaps and other            
derivatives in managing the Portfolio.                                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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 by                                               

monitoring interest rates, inflation, 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 seeking to balance the overall risk of the 
Portfolio. The Adviser may sell securities or exit positions when it believes   
that expected risk-adjusted return is low compared to other investment          
opportunities.                                                                  

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Core Plus Fixed Income Portfolio                                                
Commenced operations on November 14, 1984                                       

[CHART] 

1992   1993    1994    1995    1996   1997   1998    1999   2000     2001       
----   -----  -----   -----    ----   ----   ----   -----   -----   -----       
8.46   13.90  -5.51   19.03    7.36   9.61   6.91   -0.61   10.83   10.35       

High Quarter    6/30/95      5.64%                                              
Low Quarter     3/31/94     -3.13%                                              
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                   Core Plus    Salomon Broad
                                                Fixed Income       Investment
                                                   Portfolio Grade Bond Index
-----------------------------------------------------------------------------
                                                                             
One Year                                               10.35             8.50
Five Year                                               7.33             7.43
Ten Year                                                7.83             7.28
Since Inception 11/14/84                                9.94             9.43

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            13

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Core Plus Fixed Income Portfolio (Cont'd)                                       

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity, and sudden and  
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

14                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Investment Grade Fixed Income Portfolio                                         

Objective                                                                       
The Investment Grade Fixed Income Portfolio seeks above-average total return    
over a market cycle of three to five years.                                     

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to 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        
Portfolio invests exclusively in securities that carry an investment grade      
rating at the time of purchase, and may invest opportunistically in non-dollar  
denominated securities. The Portfolio may invest over 50% of its assets in      
mortgage securities. The Adviser may use futures, swaps and other derivatives   
in managing the Portfolio.                                                      

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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 by                                               

monitoring interest rates, inflation, 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 seeking to balance the overall risk of the 
Portfolio. The Adviser may sell securities or exit positions when it believes   
that expected risk-adjusted return is low compared to other investment          
opportunities.                                                                  

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in investment grade fixed income securities.                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

[CHART] 
Investment Grade Fixed Income Portfolio                                         
Commenced operations on August 31, 1990                                         

1992   1993     1994    1995   1996   1997   1998    1999    2000    2001       
----   ---      ---     ---    ---    ---    ---     ---    ---     ---         
7.03   12.62   -5.15   18.67   5.53   9.29   7.54   -1.20   10.51   11.04       

High Quarter    6/30/95  5.67%                                                  
Low Quarter     3/31/92 -2.78%                                                  
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                        Investment Grade    Salomon Broad
                            Fixed Income       Investment
                               Portfolio Grade Bond Index
---------------------------------------------------------
                                                         
One Year                           11.04             8.50
Five Year                           7.34             7.43
Ten Year                            7.39             7.28
Since Inception 8/31/90             8.92             8.35

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            15

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Investment Grade Fixed Income Portfolio (Cont'd)                                

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

16                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Global Fixed Income Portfolio                                                   

Objective                                                                       
The Global Fixed Income Portfolio seeks above-average total return over a       
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in investment grade fixed income securities     
issued by U.S. and foreign issuers, including those located in emerging         
markets. The Portfolio will invest in a combination of government, corporate    
and mortgage securities the Adviser believes offer attractive values. The       
Portfolio will ordinarily seek to maintain an average weighted maturity in      
excess of five years, although there is no minimum or maximum maturity for any  
individual security. The Portfolio may invest in high yield securities          
(commonly referred to as "junk bonds"). The Adviser may use futures, forwards,  
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the relative attractiveness of U.S. and       
foreign issuers, and also may consider the relative attractiveness of           
corporate, mortgage, asset-backed and government securities and CMOs. The       
Adviser relies upon value measures such as the level of real interest rates,    
yield curve slopes and credit-adjusted spreads to guide its decisions regarding 
interest rate, country, sector and security exposure. The Adviser also measures 
various types of risk by monitoring interest rates, inflation, 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 seeking to   
balance the overall risk of the Portfolio. The Adviser may sell securities or   
exit positions when it believes that expected risk-adjusted return is low       
compared to other investment opportunities.                                     

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

[CHART] 

Global Fixed Income Portfolio                                                   
Commenced operations on April 30, 1993                                          

1994    1995    1996    1997     1998   1999    2000    2001                    
----    ----    ----    ----    -----   ----    ----    ----                    
-1.57   20.02   6.03    -0.02   14.10   -4.80   -0.92   -0.22                   

High Quarter    3/31/95 8.03%                                                   
Low Quarter     3/31/97 -4.11%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                        Global Fixed Salomon World
                              Income    Government
                           Portfolio    Bond Index
--------------------------------------------------
                                                  
One Year                       -0.22         -0.99
Five Year                       1.43          2.16
Since Inception 4/30/93         4.51          4.62

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon World Government Bond Index is a market-capitalization weighted     
benchmark that tracks the performance of the 18 Government bonds markets of     
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,         
Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Sweden, Switzerland,   
the United Kingdom, and the U.S.                                                

                                                                            17

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Global Fixed Income Portfolio (Cont'd)                                          

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity, and sudden and  
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. A substantial portion   
of the Portfolio's investments may be denominated in a foreign currency.        
Changes in the values of those currencies compared to the U.S. dollar may       
affect the value of the Portfolio's investments. These risks are greater in     
emerging market countries.                                                      

The Portfolio is non-diversified, which means that it may invest in the         
securities of relatively few issuers. The Portfolio therefore may be more       
susceptible to an adverse event affecting a portfolio investment than a         
diversified portfolio.                                                          

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

18                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

High Yield Portfolio                                                            

Objective                                                                       
The High Yield Portfolio seeks above-average total return over a market cycle   
of three to five years.                                                         

Approach                                                                        
The Portfolio invests primarily in high yield securities (commonly referred to  
as "junk bonds"). The Portfolio also may invest in investment grade fixed       
income securities, including U.S. Government, corporate and mortgage            
securities. The Portfolio may invest to a limited extent in foreign fixed       
income securities, including emerging market securities. The Portfolio will     
ordinarily seek to maintain an average weighted maturity in excess of five      
years, although there is no minimum or maximum maturity for any individual      
security. The Adviser may use futures, swaps and other derivatives in managing  
the Portfolio.                                                                  

Process                                                                         
The Adviser uses equity and fixed income valuation techniques, together with    
analyses of economic and industry trends, to determine the Portfolio's overall  
structure, sector allocation and desired maturity. The Adviser emphasizes       
securities of companies that it believes have strong industry positions and     
favorable outlooks for cash flow and asset values. The Adviser conducts a       
credit analysis for each security considered for investment to evaluate its     
attractiveness relative to the level of risk it presents. The Portfolio seeks   
to maintain a high level of diversification to minimize its exposure to the     
risks associated with any particular issuer. The Adviser may sell securities or 
exit positions when it believes that expected risk-adjusted return is low       
compared to other investment opportunities.                                     

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in high yield securities.                                              

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

[CHART] 
High Yield Portfolio                                                            
Commenced operations on February 28, 1989                                       

1992    1993    1994    1995    1996    1997    1998   1999    2000    2001     
-----   -----   -----   -----   -----   -----   ----   ----   ------   -----    
18.51   24.57   -7.06   23.94   15.29   15.98   3.16   7.79   -10.52   -5.81    

High Quarter  6/30/95  10.60%                                                   
Low Quarter   9/30/01  -9.14%                                                   
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             CS First Boston
                                                  High Yield     Global High
                                                   Portfolio     Yield Index
----------------------------------------------------------------------------
                                                                            
One Year                                               -5.81            5.80
Five Year                                               1.68            3.25
Ten Year                                                7.86            7.84
Since Inception 2/28/89                                 7.66            8.36

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The CS First Boston Global High Yield Index is an unmanaged index of high yield 
corporate bonds.                                                                

                                                                            19

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High Yield Portfolio (Cont'd)                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

20                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Intermediate Duration Portfolio                                                 

Objective                                                                       
The Intermediate Duration Portfolio seeks above-average total return over a     
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in a diversified mix of U.S. Government         
securities, investment grade corporate bonds and mortgage securities. The       
Portfolio also may invest, to a limited extent, in non-dollar denominated       
securities. The Portfolio seeks value in the fixed income market with only a    
moderate sensitivity to changes in interest rates. The Portfolio will           
ordinarily seek to maintain an average duration between two and five years      
although there is no minimum or maximum maturity for any individual security.   
The Portfolio may invest over 50% of its assets in mortgage securities. The     
Adviser may use futures, swaps and other derivatives to manage the Portfolio.   

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
makes securities and sector decisions based on the anticipated tradeoff between 
long-run expected return and risk. The Adviser relies upon value measures such  
as the level of real interest rates, yield curve slopes and credit-adjusted     
spreads to guide its decisions regarding interest rate, country, sector and     
security exposure. A team of portfolio managers implements strategies based on  
these types of value measures. Certain team members focus on specific bonds     
within each sector. Others seek to ensure that the aggregate risk exposures to  
changes in the level of interest rates and yield spreads match the Portfolio's  
objective. The Adviser may sell securities when it believes that expected       
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

[CHART] 

Intermediate Duration Portfolio                                                 
Commenced operations on October 3, 1994                                         

1995      1996     1997     1998     1999     2000     2001   
-----     ----     ----     ----     ----     ----     ----   
15.38     5.94     8.07     7.03     0.86     9.07     9.98   

High Quarter    3/31/95 4.80%                                                   
Low Quarter     6/30/99 -1.10%                                                  
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                          Intermediate         Lehman Brothers
                                              Duration            Intermediate
                                             Portfolio Government/Credit Index
------------------------------------------------------------------------------
                                                                              
One Year                                          9.98                    8.96
Five Year                                         6.95                    7.10
Since Inception 10/3/94                           7.62                    7.50

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Lehman Brothers Intermediate Government/Credit Index is based on all        
publicly issued intermediate government and corporate debt securities with an   
average maturity of between 4 and 5 years.                                      

                                                                            21

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Intermediate Duration Portfolio (Cont'd)                                        

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

22                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

International Fixed Income Portfolio                                            

Objective                                                                       
The International Fixed Income Portfolio seeks above-average total return over  
a market cycle of three to five years.                                          

Approach                                                                        
The Portfolio invests primarily in investment grade fixed income securities of  
government and corporate issuers in countries other than the U.S., including,   
to a limited degree, high yield securities (commonly referred to as "junk       
bonds") and securities of issuers located in emerging markets. The securities   
held by the Portfolio ordinarily will be denominated in foreign currencies,     
including the Euro. The Portfolio will ordinarily seek to maintain an average   
weighted maturity in excess of five years, although there is no minimum or      
maximum maturity for any individual security. The Adviser may use futures,      
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the relative attractiveness of foreign        
government, corporate, mortgage and asset-backed securities and CMOs. The       
Adviser relies upon value measures, particularly the relative attractiveness of 
securities issued by foreign governments, against those of corporations and     
other private entities. The Adviser also measures various types of risk, by     
monitoring interest rates, the shape of the yield curve, credit 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 seeking to balance the overall risk of the Portfolio. The        
Adviser may sell securities or exit positions when it believes that expected    
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of issuers outside the U.S.                 

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These                                                    

[CHART] 

International Fixed Income Portfolio                                            
Commenced operations on April 29, 1994                                          

1995     1996    1997     1998     1999     2000     2001       
-----    ----    -----    -----    -----    -----    -----      
19.64    6.20    -3.97    17.74    -7.39    -2.37    -4.54      

High Quarter    3/31/95 10.86%                                                  
Low Quarter     3/31/97 -5.74%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                International   Salomon World
                                                 Fixed Income Government Bond
                                                    Portfolio   Ex-U.S. Index
-----------------------------------------------------------------------------
                                                                             
One Year                                                -4.54           -3.55
Five Year                                               -0.49            0.10
Since Inception 4/29/94                                  3.00            3.39

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon World Government Bond Ex-U.S. Index is a market-capitalization      
weighted benchmark that tracks the performance of the 18 Government bonds       
markets of Australia, Austria, Belgium, Canada, Denmark, Finland, France,       
Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Sweden,       
Switzerland, and the United Kingdom.                                            

                                                                            23

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International Fixed Income Portfolio (Cont'd)                                   

investments are considered speculative under traditional investment standards.  
Prices of high yield securities will rise and fall primarily in response to     
actual or perceived changes in the issuer's financial health, although changes  
in market interest rates also will affect prices. High yield securities may     
experience reduced liquidity, and sudden and substantial decreases in price.    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Substantially all of    
the Portfolio's investments will be denominated in a foreign currency. Changes  
in the values of those currencies compared to the U.S. dollar may affect the    
value of the Portfolio's investments. These risks are greater in emerging       
market countries.                                                               

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

The Portfolio is non-diversified which means that it may invest in the          
securities of relatively few issuers. The Portfolio therefore may be more       
susceptible to an adverse event affecting a portfolio investment than a         
diversified portfolio.                                                          

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

24                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Limited Duration Portfolio                                                      

Objective                                                                       
The Limited Duration Portfolio seeks above-average total return over a market   
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in U.S. Government securities, investment grade 
corporate bonds and mortgage securities. The Portfolio seeks value in the fixed 
income market with only a limited sensitivity to changes in interest rates. The 
Portfolio will ordinarily seek to maintain an average duration similar to that  
of the Merrill Lynch 1-3 Year Treasury Index, which generally ranges between    
zero and 3 years, although there is no minimum or maximum for any individual    
security. The Adviser may use futures, swaps and other derivatives to manage    
the Portfolio.                                                                  

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
makes securities and sector decisions based on the anticipated tradeoff between 
long-run expected return and risk. The Adviser relies upon value measures such  
as the level of real interest rates, yield curve slopes and credit-adjusted     
spreads to guide its decisions regarding interest rate, country, sector and     
security exposure. A team of portfolio managers implements strategies based on  
these types of value measures. Certain team members focus on specific bonds     
within each sector. Others seek to ensure that the aggregate risk exposures to  
changes in the level of interest rates and yield spreads match the Portfolio's  
objective. The Adviser may sell securities when it believes that                

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

[CHART] 

Limited Duration Portfolio                                                      
Commenced operations on March 31, 1992                                          

1993   1994    1995    1996   1997   1998   1999   2000   2001      
----   -----   -----   ----   ----   ----   ----   ----   ----      
5.97   -0.07   10.37   5.27   6.25   5.63   3.77   7.93   8.59      

High Quarter    3/31/95         3.23%                                           
Low Quarter     3/31/94         -.95%                                           

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                  Limited    Salomon 1-3 Year
                                                 Duration Treasury/Government
                                                Portfolio     Sponsored Index
-----------------------------------------------------------------------------
                                                                             
One Year                                             8.59                8.49
Five Year                                            6.42                6.67
Since Inception 3/31/92                              6.17                6.26

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon 1-3 Year Treasury/Government Sponsored Index is derived from the    
Salomon Brothers Broad Investment Grade Bond Index and includes only Treasury   
and Government Sponsored bonds with an average life of 1-3 years.               

                                                                            25

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Limited Duration Portfolio (Cont'd)                                             

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

26                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Municipal Portfolio                                                             

Objective                                                                       
The Municipal Portfolio seeks to realize above-average total return over a      
market cycle of three to five years, consistent with the conservation of        
capital and the realization of current income that is exempt from federal       
income tax.                                                                     

Approach                                                                        
The Portfolio invests primarily in fixed income securities issued by local,     
state and regional governments that provide income that is exempt from federal  
income taxes (municipal securities). The Portfolio may purchase municipal       
securities that pay interest that is subject to the federal alternative minimum 
tax, and securities on which the interest payments are taxable. The Portfolio   
may invest in high yield municipal securities (commonly referred to as "junk    
bonds"). The Portfolio will ordinarily seek to maintain an average weighted     
maturity of between five and ten years, although there is no minimum or maximum 
maturity for any individual security. The Adviser may use futures, swaps and    
other derivatives in managing the Portfolio.                                    

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
will vary the Portfolio's average duration and maturity and the amount invested 
in particular types of securities based on the risks and rewards offered by     
different investments. The Adviser analyzes the credit risk, prepayment risk    
and call risk posed by specific securities considered for investment. The       
Adviser may sell securities when it believes that expected after-tax            
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the total income of the Portfolio   
will be exempt from federal income tax.                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income                                                          

[CHART] 

Municipal Portfolio                                                             
Commenced operations on October 1, 1992                                         

1993     1994    1995   1996    1997    1998     1999   2000    2001            
----    -----   -----   ----    ----    ----    -----   -----   ----            
14.31   -6.30   19.98   5.60    8.68    5.82    -1.00   11.18   6.37            

High Quarter    3/31/95 8.94%                                                   
Low Quarter     3/31/94 -7.34%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                     Lehman    Lehman          
                                     5-Year   10-Year   Blended
                        Municipal Municipal Municipal Municipal
                        Portfolio     Index     Index     Index
---------------------------------------------------------------
                                                               
One Year                     6.37      6.21      4.62      5.41
Five Year                    6.13      5.35      5.94      5.65
Since Inception 10/1/92      6.92      5.52      6.50      6.35

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark indices. The variability of  
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Lehman 5-Year Municipal Index is a market capitalization-weighted index of  
investment-grade municipal bonds with maturities of four to six years.          

The Lehman 10-Year Municipal Index is market capitalization-weighted index of   
investment-grade municipal bonds with maturities of nine to eleven years.       

The Blended Municipal Index is an unmanaged index comprised of the Lehman Long  
Municipal Index from 10/1/92 to 3/31/96 and 50% Lehman 10-Year Municipal Index  
and 50% Lehman 5-Year Municipal Index thereafter.                               

                                                                            27

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Municipal Portfolio (Cont'd)                                                    

securities generally will move in correlation to changes in an issuer's credit  
rating.                                                                         

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Municipal obligations may be general obligations or revenue bonds. Revenue      
bonds are payable solely from the revenues derived from a specified revenue     
source. These bonds involve the risk that the revenues so derived will not be   
sufficient to meet interest and or principal payment obligations.               

The Portfolio may invest in municipal lease obligations. Certain lease          
obligations may contain non-appropriation clauses pursuant to which the         
municipality has no continuing obligation to make payments unless money is      
specifically appropriated annually or on some other periodic basis by the       
legislature.                                                                    

Municipal securities involve the risk that an issuer may call securities for    
redemption, which could force the Portfolio to reinvest the proceeds at a lower 
rate of interest.                                                               

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

28                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Special Purpose Fixed Income Portfolio                                          

Objective                                                                       
The Special Purpose Fixed Income Portfolio seeks above-average total return     
over a market cycle of three to five years.                                     

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to maintain an average weighted  
maturity in excess of five years, although there is no minimum or maximum       
maturity for any individual security. The Portfolio may invest                  
opportunistically in non-dollar denominated securities and high yield           
securities (commonly referred to as "junk bonds"). The Portfolio may invest     
over 50% of its assets in mortgage securities. The Adviser may use futures,     
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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 by monitoring interest rates, inflation, the     
shape of the yield curve, credit risk, prepayment risk and currency valuations. 
The Adviser's management team builds an investment portfolio designed to take   
advantage of its judgment on these factors, while seeking to balance the        
overall risk of the Portfolio. The Adviser may sell securities or exit          
positions when it believes that expected risk-adjusted return is low compared   
to other investment opportunities.                                              

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

[CHART] 

Special Purpose Fixed Income Portfolio                                          
Commenced operations on March 31, 1992                                          

1993    1994    1995    1996    1997    1998    1999    2000    2001            
-----   ----   -----    ----    -----   ----     ----   -----   -----           
14.85  -5.02   19.70    7.41    10.04   6.33    -0.21   10.71   10.43           

High Quarter    6/30/95 5.83%                                                   
Low Quarter     3/31/94 -2.74%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                        Special Purpose    Salomon Broad
                           Fixed Income Investment Grade
                              Portfolio       Bond Index
--------------------------------------------------------
                                                        
One Year                          10.43             8.50
Five Year                          7.38             7.43
Since Inception 3/31/92            8.53             7.60

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            29

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Special Purpose Fixed Income Portfolio (Cont'd)                                 

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing                                                                       
directly in the underlying asset. A derivative                                  
instrument may be illiquid and changes in its value may not correlate to        
changes in the value of its underlying asset, which may magnify losses.         

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

On January 23, 2002, the Board of Trustees of the Fund, on behalf of the        
Portfolio, approved an Agreement and Plan of Reorganization (the                
"Reorganization") pursuant to which substantially all of the assets of the      
Special Purpose Fixed Income Portfolio would be combined with those of the Core 
Plus Fixed Income Portfolio, another portfolio of the Fund. Shareholders of the 
Special Purpose Fixed Income Portfolio would become shareholders of the Core    
Plus Fixed Income Portfolio, receiving shares of the Core Plus Fixed Income     
Portfolio equal to the value of their holdings in the Special Purpose Fixed     
Income Portfolio. Shareholders would receive Institutional Class shares of the  
Core Plus Fixed Income Portfolio.                                               

The Reorganization is subject to the approval of the shareholders of the        
Portfolio, at a special meeting of shareholders scheduled to be held on or      
about May 15, 2002. A proxy statement formally detailing the proposal, the      
reasons for the Reorganization, and information concerning the Core Plus Fixed  
Income Portfolio will be distributed to shareholders of the Portfolio.          

30                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Targeted Duration Portfolio (Not Currently Open)                                

Objective                                                                       
The Targeted Duration Portfolio seeks above-average total return consistent     
with reasonable risk.                                                           

Approach                                                                        
The Portfolio seeks value in the fixed income market without significant        
sensitivity to changes in interest rates. The Portfolio invests primarily in    
U.S. Government securities, investment grade and high yield corporate bonds     
(commonly referred to as "junk bonds") and mortgage securities, and, to a       
limited extent, non-dollar denominated securities, regardless of maturity. The  
average duration the Portfolio will ordinarily seek to maintain is generally    
similar to that of the Merrill Lynch 1-3 Year Treasury Index, which generally   
ranges between zero and 3 years, although there is no minimum or maximum        
maturity for any individual security. The Portfolio may invest over 50% of its  
assets in mortgage securities. The Adviser may use futures, swaps and other     
derivatives to manage the Portfolio.                                            

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
makes securities and sector decisions based on the anticipated tradeoff between 
long-run expected return and risk. The Adviser relies upon value measures such  
as the level of real interest rates, yield curve slopes and credit-adjusted     
spreads to guide its decisions regarding interest rate, country, sector and     
security exposure. A team of portfolio managers implements strategies based on  
these types of value measures. Certain team members focus on specific bonds     
within each sector. Others seek to ensure that the aggregate risk exposures to  
changes in the level of interest rates and yield spreads match the Portfolio's  
objective. The Adviser may sell securities when it believes that expected       
risk-adjusted return is low compared to other investment opportunities.         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest         

rates, generally making them more volatile than securities with shorter         
durations. Lower rated fixed income securities have greater volatility because  
there is less certainty that principal and interest payments will be made as    
scheduled. Prices of fixed income securities generally will move in correlation 
to changes in an issuer's credit rating.                                        

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

Performance Information                                                         
No performance information is provided because the Targeted Duration Portfolio  
has not commenced operations.                                                   

                                                                            31

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U.S. Core Fixed Income Portfolio                                                

Objective                                                                       
The U.S. Core Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to 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        
Portfolio invests exclusively in securities issued by U.S. - based entities     
that carry an investment grade rating at the time of purchase. The Portfolio    
may invest over 50% of its assets in mortgage securities. The Adviser may use   
futures, swaps and other derivatives in managing the Portfolio.                 

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the relative attractiveness among corporate,  
mortgage and U.S. Government securities. The Adviser relies upon value measures 
to guide its decisions regarding sector and security 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 by monitoring interest rates, inflation, the shape of the yield curve,     
credit risk and prepayment risk. The Adviser's management team builds an        
investment portfolio designed to take advantage of its judgment on these        
factors, while seeking to balance the overall risk of the Portfolio. The        
Adviser may sell securities or exit positions when it believes that expected    
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of U.S. issuers.                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their                                                     

U.S. Core Fixed Income Portfolio                                                
Commenced operations on September 29, 1987                                      

[CHART] 

1992   1993    1994   1995    1996   1997   1998   1999   2000    2001          
----   ----    ----   -----   ----   ----   ----   ----   -----   -----         
9.12   13.75  -3.89   18.85   3.89   9.62   7.23  -1.64   10.50   10.58         

High Quarter   6/30/95    6.05%                                                 
Low Quarter    3/31/92   -2.28%                                                 

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                   U.S. Core    Salomon Broad
                                                Fixed Income       Investment
                                                   Portfolio Grade Bond Index
-----------------------------------------------------------------------------
                                                                             
One Year                                               10.58             8.50
Five Year                                               7.16             7.43
Ten Year                                                7.60             7.28
Since Inception 9/29/87                                 9.06             8.80

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1, 5 and 10 year periods and since inception. The table also shows the          
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          
The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

32                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

U.S. Core Fixed Income Portfolio (Cont'd)                                       

mortgages sooner than expected. The Portfolio's return may be reduced if        
prepayments occur and the Portfolio has to reinvest at lower interest rates.    
Prepayment rates can also shorten or extend the average life of the Portfolio's 
mortgage securities.                                                            

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                            33

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Balanced Portfolio                                                              

Objective                                                                       
The Balanced Portfolio seeks above-average total return over a market cycle of  
three to five years.                                                            

Approach                                                                        
The Portfolio invests in a mix of equity and fixed income securities. The       
Portfolio normally invests 45-75% of its assets in equity securities and 25-55% 
of its assets in fixed income securities. The Portfolio may invest up to 25% of 
its assets in foreign equity and foreign fixed income securities, including     
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio will ordinarily seek to maintain an average  
weighted maturity in excess of five years, although there is no minimum or      
maximum maturity for any individual security. The Adviser may use futures,      
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser determines the Portfolio's equity and fixed income investment       
strategies separately and then determines the mix of those strategies that it   
believes will maximize the return available from both the stock and bond        
markets, based on proprietary valuation disciplines and analysis. The Adviser   
evaluates international economic developments in determining the amount to      
invest in foreign securities. The Adviser also measures various types of risk,  
by monitoring the level of real interest rates and credit risk. In determining  
whether securities should be sold, the Adviser considers factors such as        
deteriorating earnings, cash flow and other fundamentals, as well as high       
valuations relative to the Portfolio's potential investment universe.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Balanced Portfolio                                                              
Commenced operations on December 31, 1992                                       

[CHART] 

1993    1994    1995    1996    1997    1998   1999    2000     2001      
-----   -----   -----   -----   -----   ----   -----   -----   -----      
10.37   -1.93   27.34   15.37   19.61   15.4   16.29   -0.72   -5.37      

High Quarter        12/31/98       12.06%                                       
Low Quarter          9/30/01       -7.26%                                       

34                                                                              

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                      Salomon Broad   60/40
                                  Balanced S&P 500       Investment Blended
                                 Portfolio   Index Grade Bond Index   Index
---------------------------------------------------------------------------
                                                                           
One Year                             -5.37  -11.88             8.50   -3.31
Five Year                             8.56   10.70             7.43    9.96
Since Inception 12/31/92             10.21   13.54             7.25   11.33

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark indices. The variability of  
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          
The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

The 60/40 Blended Index is an unmanaged index comprised of 60% S&P 500 Index    
and 40% Salomon Broad Investment Grade Bond Index.                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Balanced Portfolio (Cont'd)                                                     

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                            35

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Multi-Asset-Class Portfolio                                                     

Objective                                                                       
The Multi-Asset-Class Portfolio seeks above-average total return over a market  
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests in equity securities and fixed income securities of U.S.  
and foreign issuers in accordance with the Adviser's target allocation among    
certain asset classes. These securities may include, to a limited extent,       
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio seeks to invest in a combination of asset    
classes that do not move in tandem with each other, in an effort to improve     
potential return and control the Portfolio's overall risks. The Portfolio's     
neutral position is generally 50% domestic equity securities, 24% domestic      
fixed income securities, 14% foreign equity securities, 6% foreign fixed income 
securities and 6% high yield securities. The Portfolio will ordinarily seek to  
maintain an average weighted maturity in excess of five years, although there   
is no minimum or maximum maturity for any individual security. The Adviser may  
use futures, swaps and other derivatives in managing the Portfolio.             

Process                                                                         
The Adviser makes strategic judgments based on proprietary measures used to     
compare the relative risks and returns of stock and bond markets around the     
world. The Adviser's asset allocation team sets the target exposures for        
domestic and international equity and fixed income securities, high yield       
securities and cash, depending on the Adviser's appraisal of the relative       
attractiveness of each type of investment. The Adviser also measures various    
types of risk, by monitoring the level of real interest rates and credit risk.  
In determining whether securities should be sold, the Adviser considers factors 
such as deteriorating earnings, cash flows and other fundamentals, as well as   
high valuations relative to the Portfolio's investment opportunities.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

[CHART] 

Multi-Asset-Class Portfolio                                                     
Commenced operations on July 29, 1994                                           

1995     1996     1997    1998    1999    2000     2001                         
----     ----     ----    ----    ----    ----     ----                         
24.62    15.93    17.48   13.87   16.84   -8.43    -8.93                        

High Quarter    12/31/98        12.82%                                          
Low Quarter     9/30/98         -8.64%                                          
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                Multi-Asset-            Salomon Broad                  
                       Class S&P 500       Investment MSCI EAFE Blended
                   Portfolio   Index Grade Bond Index     Index   Index
-----------------------------------------------------------------------
                                                                       
One Year               -8.93  -11.88             8.50    -21.44   -6.48
Five Year               5.44   10.70             7.43      0.89    8.01
Since Inception         8.69   15.18             7.75      2.60   10.76
 7/29/94                                                               

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark indices. The variability of  
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          
The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

The MSCI EAFE Index is an unmanaged index of common stocks in Europe,           
Australasia and the Far East.                                                   

The Blended Index is an unmanaged index comprised of 50% S&P 500 Index, 24%     
Salomon Broad Investment Grade Index, 14% MSCI EAFE Index, 6% Salomon World     
Government Bond Ex-U.S. Index and 6% CS First Boston Global High Yield Index.   

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Multi-Asset-Class Portfolio (Cont'd)                                            

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. A substantial portion of the    
Portfolio's investments may be denominated in a foreign currency. Changes in    
the values of those currencies compared to the U.S. dollar may affect the value 
of the Portfolio's investments. These risks are greater in emerging market      
countries.                                                                      

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

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Fees and Expenses of the Portfolios                                             

The Portfolios do not charge any sales loads or other fees when you purchase or 
redeem shares.                                                                  

Annual Portfolio Operating Expenses for the fiscal year ended September 30, 2001
(expenses that are deducted from Portfolio assets)                              

                                                        [Enlarge/Download Table]

                                                                                 Total Annual  
                                        Management Distribution    Other  Portfolio Operating  
                                              Fees (12b-1) Fees Expenses             Expenses  
                                                                                               
Equity Portfolio                             0.50%         None     0.12%                0.62% 
-----------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                      0.50         None     0.11                 0.61  
-----------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio                   0.75         None     2.55                 3.30**
-----------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                       0.75         None     0.11                 0.86  
-----------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                    1.00         None     0.14                 1.14**
-----------------------------------------------------------------------------------------------
Small Cap Value Portfolio                     0.75         None     0.11                 0.86  
-----------------------------------------------------------------------------------------------
Strategic Small Value Portfolio               1.00         None     2.00                 3.00**
-----------------------------------------------------------------------------------------------
Value Portfolio                               0.50         None     0.12                 0.62  
-----------------------------------------------------------------------------------------------
Cash Reserves Portfolio                       0.25         None     0.20                 0.45**
-----------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio             0.375         None    0.105                 0.48  
-----------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio      0.375         None     0.12                 0.50  
-----------------------------------------------------------------------------------------------
Global Fixed Income Portfolio                0.375         None     0.23                 0.61  
-----------------------------------------------------------------------------------------------
High Yield Portfolio                          0.45         None     0.12                 0.57  
-----------------------------------------------------------------------------------------------
Intermediate Duration Portfolio              0.375         None     0.16                 0.54  
-----------------------------------------------------------------------------------------------
International Fixed Income Portfolio         0.375         None     0.17                 0.55  
-----------------------------------------------------------------------------------------------
Limited Duration Portfolio                    0.30         None     0.13                 0.43  
-----------------------------------------------------------------------------------------------
Municipal Portfolio                          0.375         None     0.14                 0.52**
-----------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio       0.375         None     0.12                 0.50  
-----------------------------------------------------------------------------------------------
Targeted Duration Portfolio+                 0.375         None     0.19*                0.57**
-----------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio             0.375         None     0.13                 0.51**
-----------------------------------------------------------------------------------------------
Balanced Portfolio                            0.45         None     0.13                 0.58  
-----------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                   0.65         None     0.18                 0.83**
-----------------------------------------------------------------------------------------------

Total Annual Portfolio Operating Expenses reflected in the table above may be   
higher than the expenses actually deducted from Portfolio assets because of the 
effect of expense offset arrangements and/or voluntary waivers.                 
*Other Expenses are based on estimated amounts.                               
**The Adviser has voluntarily agreed to reduce its advisory fee and/or          
reimburse the Portfolios so that total expenses will not exceed the rates   
shown in the table below. Fee waivers, expense offsets and/or expense       
reimbursements are voluntary and the Adviser reserves the right to terminate
any waiver and/or reimbursement at any time and without notice.             
+As of the fiscal year ended September 30, 2001, the Targeted Duration        
Portfolio had not commenced operations.                                     

                                                        [Enlarge/Download Table]

                                                       Total Annual Portfolio Operating Expenses
                                                             After Morgan Stanley Investments LP
                                                                  Waiver/Reimbursement & Offsets
                                                                                                
Mid Cap Growth II Portfolio                                                                 .90%
------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                                                                  1.15
------------------------------------------------------------------------------------------------
Strategic Small Value Portfolio                                                             1.15
------------------------------------------------------------------------------------------------
Cash Reserves Portfolio                                                                      .32
------------------------------------------------------------------------------------------------
Municipal Portfolio                                                                          .50
------------------------------------------------------------------------------------------------
Targeted Duration Portfolio+                                                                 .45
------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                                                             .50
------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                                                  .78
------------------------------------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Fees and Expenses of the Portfolios                                             

The example assumes that you invest $10,000 in each Portfolio for the time      
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that each Portfolio's operating expenses remain the same. Although your actual  
costs may be higher or lower, based on these assumptions your costs would be    
equal to the amounts reflected in the table to the right.                       

Example                                                                         
This example is intended to help you compare the cost of investing in each      
Portfolio with the cost of investing in other mutual funds.                     

                                                                [Download Table]

                                             1 Year 3 Years 5 Years 10 Years
                                                                            
Equity Portfolio                               $ 63  $  199  $  346   $  774
----------------------------------------------------------------------------
Mid Cap Growth Portfolio                         62     195     340      762
----------------------------------------------------------------------------
Mid Cap Growth II Portfolio                     333   1,015   1,722    3,595
----------------------------------------------------------------------------
Mid Cap Value Portfolio                          88     274     477    1,061
----------------------------------------------------------------------------
Small Cap Growth Portfolio                      116     362     628    1,386
----------------------------------------------------------------------------
Small Cap Value Portfolio                        88     274     477    1,061
----------------------------------------------------------------------------
Strategic Small Value Portfolio                 303     927   1,577    3,318
----------------------------------------------------------------------------
Value Portfolio                                  63     199     346      774
----------------------------------------------------------------------------
Cash Reserves Portfolio                          46     144     252      567
----------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                 49     154     269      604
----------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio          51     160     280      628
----------------------------------------------------------------------------
Global Fixed Income Portfolio                    62     195     340      762
----------------------------------------------------------------------------
High Yield Portfolio                             58     183     318      714
----------------------------------------------------------------------------
Intermediate Duration Portfolio                  55     173     302      677
----------------------------------------------------------------------------
International Fixed Income Portfolio             56     176     307      689
----------------------------------------------------------------------------
Limited Duration Portfolio                       44     138     241      542
----------------------------------------------------------------------------
Municipal Portfolio                              51     167     291      653
----------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio           52     160     280      628
----------------------------------------------------------------------------
Targeted Duration Portfolio+                     58     183     318      714
----------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                 52     164     285      640
----------------------------------------------------------------------------
Balanced Portfolio                               59     186     324      726
----------------------------------------------------------------------------
Multi-Asset-Class Portfolio                      85     265     460    1,025
----------------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Targeted Duration        
Portfolio had not commenced operations.                                     

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Investment Strategies and Related Risks                                         

This section discusses in greater detail the Portfolios' principal investment   
strategies and the other types of investments that the Portfolios may make.     
Please read this section in conjunction with the earlier summaries. The         
Portfolios' investment practices and limitations are also described in more     
detail in the Statement of Additional Information ("SAI"), which is             
incorporated by reference and legally is a 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.                                                  

An investment in a Portfolio is not insured or guaranteed by the Federal        
Deposit Insurance Corporation or any other government agency.                   

Equity Securities                                                               
Equity securities include common stock, preferred stock, convertible            
securities, ADRs, rights, warrants and shares of investment companies. The      
Portfolios may invest in equity securities that are publicly traded on          
securities exchanges or over-the-counter or in equity securities that are not   
publicly traded. Securities that are not publicly traded may be more difficult  
to sell and their value may fluctuate more dramatically than other securities.  

ADRs are U.S.-dollar denominated securities that represent claims to shares of  
foreign stocks. The Portfolios treat ADRs as U.S. securities for purposes of    
foreign investment limitations.                                                 

Growth stocks generally have higher growth rates, betas, and price/earnings     
ratios, and lower yields than the stock market in general as measured by an     
appropriate stock market index. Value stocks are stocks that are deemed by the  
Adviser to be undervalued relative to the stock market in general. The Adviser  
makes value decisions guided by the appropriate market index, based on value    
characteristics such as price/earnings and price/book ratios. Value stocks      
generally are dividend paying common stocks. However, non-dividend paying       
stocks also may be selected for their value characteristics.                    

IPOs                                                                            
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 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-public      
companies have fluctuated in significant amounts over short periods of time.    
The purchase of shares issued in IPOs may have a greater impact upon the        
Portfolio's total returns during any period that the Portfolio has a small      
asset base. As the Portfolio's assets grow, any impact of IPO investments on    
the Portfolio's total return may decline.                                       

Fixed Income Securities                                                         
Fixed income securities are securities that pay a fixed rate of interest until  
a stated maturity date. Fixed income securities include U.S. Government         
securities, securities issued by federal or federally sponsored agencies        
("agencies"), corporate bonds and notes, asset-backed securities, mortgage      
securities, high yield securities, municipal bonds, loan participations and     
assignments, zero coupon bonds, convertible securities, Eurobonds, Brady Bonds, 
Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.     

These securities are subject to risks related to changes in interest rates and  
in the financial health or credit rating of the issuers. The maturity and       
duration of a fixed income instrument also affects 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 price changes than shorter     
term securities because they are more sensitive to changes in interest rates or 
in the credit ratings of the issuers.                                           

Fixed income securities may be called (redeemed by the issuer) prior to final   
maturity. If a callable security is called, a Portfolio may have to reinvest    
the proceeds at a lower rate of interest.                                       

Duration                                                                        
The average duration of a portfolio of fixed income securities represents its   
exposure to changing interest rates. A portfolio with a lower average duration  
generally will experience less price volatility in response to changes in       
interest rates than a portfolio with a higher average duration.                 

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Institutional Class Prospectus                                              

January 31, 2002                                                            

High Yield Securities                                                           
Fixed income securities that are not investment grade are commonly referred to  
as junk bonds or high yield, high risk securities. These securities offer a     
higher yield than other higher rated securities, but they carry a greater       
degree of risk and are considered speculative by the major credit rating        
agencies. High yield securities may be issued by companies that are             
restructuring, are smaller and less creditworthy or are more highly indebted    
than other companies. This means that they may have more difficulty making      
scheduled payments of principal and interest. Changes in the value of high      
yield securities are influenced more by changes in the financial and business   
position of the issuing company than by changes in interest rates when compared 
to investment grade securities.                                                 

Mortgage Securities                                                             
These are fixed income securities that derive their value from or represent     
interests in a pool of mortgages or mortgage securities. Mortgage securities    
are subject to prepayment risk--the risk that, as interest rates fall,          
borrowers will refinance their mortgages and "prepay" principal. A portfolio    
holding mortgage securities that are experiencing prepayments will have to      
reinvest these payments at lower prevailing interest rates. On the other hand,  
when interest rates rise, borrowers are less likely to refinance, resulting in  
lower prepayments. This can effectively extend the maturity of a Portfolio's    
mortgage securities, resulting in greater price volatility. It can be difficult 
to measure precisely the remaining life of a mortgage security or the average   
life of a portfolio of such securities.                                         

Foreign Securities                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers    
can be less liquid and experience greater price movements. In some foreign      
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect an investing portfolio's           
investment. There also can be difficulty obtaining and enforcing judgments      
against issuers in foreign countries. Foreign stock exchanges, broker-dealers,  
and listed issuers may be subject to less government regulation and oversight.  
The cost of investing in foreign securities, including brokerage commissions    
and custodial expenses, can be higher than in the United States.                

Foreign Currency                                                                
Foreign securities are denominated in foreign currencies. The value of foreign  
currencies fluctuates relative to the value of the U.S. dollar. Since investing 
Portfolios must convert the value of foreign securities into dollars, changes   
in currency exchange rates can increase or decrease the U.S. dollar value of    
the Portfolios' assets. The Adviser may use derivatives to reduce this risk.    
The Adviser may in its discretion choose not to hedge against currency risk. In 
addition, certain market conditions may make it impossible or uneconomical to   
hedge against currency risk.                                                    

Emerging Market Securities                                                      
Investing in emerging market securities enhances the risks of foreign           
investing. In addition, emerging market securities generally are less liquid    
and subject to wider price and currency fluctuations than securities issued in  
more developed countries. In certain countries, the market may be dominated by  
a few issuers or sectors. Investment funds and structured investments are       
mechanisms for U.S. and other investors to invest in certain emerging markets   
that have laws precluding or limiting direct investments by foreign investors.  

Derivatives and Other Investments                                               
Derivatives are financial instruments whose value and performance are based on  
the value and performance of another security or financial instrument.          
Derivatives sometimes offer the most economical way of pursuing an investment   
strategy, limiting risks or enhancing returns, although there is no guarantee   
of success. Hedging strategies or instruments may not be available or practical 
in all circumstances. Derivative instruments may be publicly traded or          
privately negotiated. Derivatives used by the Adviser include futures           
contracts, options contracts, forward contracts, swaps, collateralized mortgage 
obligations ("CMOs"), stripped mortgage-backed securities ("SMBS"), and         
structured notes.                                                               

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A forward contract is an obligation to purchase or sell a security or 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. Forward currency contracts are used to protect against         
uncertainty in the level of future foreign currency exchange rates. A futures   
contract provides for the future sale by one party and purchase by another      
party of a specified amount of a specific security at a specified future time   
and at a specified price. The Portfolios may use futures contracts to gain      
exposure to an entire market (e.g., stock index futures) or to control their    
exposure to changing foreign currency exchange rates or interest rates.         
Portfolios investing in fixed income securities may use futures to control      
their exposure to changes in interest rates and to manage the overall maturity  
and duration of their securities holdings.                                      

If a Portfolio buys an option, it buys a legal contract giving it the right to  
buy or sell a specific amount of a security or futures contract at an           
agreed-upon price. If a Portfolio "writes" an option, it sells to another       
person the right to buy from or sell to the Portfolio a specific amount of a    
security or futures contract at an agreed-upon price.                           

The Portfolios may enter into swap transactions which are contracts in which a  
Portfolio agrees to exchange the return or interest rate on one instrument for  
the return or interest rate on another instrument. Payments may be based on     
currencies, interest rates, securities indices or commodity indices. Swaps may  
be used to manage the maturity and duration of a fixed income portfolio, or to  
gain exposure to a market without directly investing in securities traded in    
that market.                                                                    

Structured investments are units representing an interest in assets held in a   
trust that is not an investment company as defined in the Investment Company    
Act of 1940, as amended ("1940 Act"). The trust may pay a return based on the   
income it receives from those assets, or it may pay a return based on a         
specified index.                                                                

CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in  
a number of series (known as "tranches"), each of which has a stated maturity.  
Cash flow from the underlying mortgages is allocated to the tranches in a       
predetermined, specified order. SMBS are multi-class mortgage securities issued 
by U.S. government agencies and instrumentalities and financial institutions.   
They usually have two classes, one receiving most of the principal payments     
from the mortgages, and one receiving most of the interest. In some cases,      
classes may receive interest only (called "IOs") or principal only (called      
"POs"). Inverse floating rate obligations ("inverse floaters") are fixed income 
securities which have coupon rates that vary inversely (often at a multiple) to 
another specified floating rate, such as LIBOR (London Inter-Bank Offered       
Rate). If the specified reference rate rises, the coupon rate of the inverse    
floater falls, while a decrease in the reference rate causes an increase in the 
inverse floater's coupon rate.                                                  

Risks of Derivatives                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held or to be acquired by a Portfolio, and of derivatives relating   
to those securities, may not be proportionate, (ii) there may not be a liquid   
market for a Portfolio to sell a derivative, which could result in difficulty   
closing a position, and (iii) magnification of losses incurred due to changes   
in the market value of the securities, instruments, indices, or interest rates  
to which they relate.                                                           

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a forward or futures contract with the value of   
securities denominated in a particular currency.                                

Mortgage derivatives 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 CMO or SMBS that a Portfolio holds, these price       
movements may be significantly greater than those experienced by mortgage       
securities generally, depending on whether the payments are predominantly based 
on the principal or interest paid on the underlying mortgages. IOs, POs and     
inverse floaters may exhibit substantially greater price volatility than fixed  
rate obligations having similar credit quality, redemption provisions and       
maturities. IOs, POs and inverse floaters may exhibit greater                   

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Institutional Class Prospectus                                              

January 31, 2002                                                            

price volatility than the majority of mortgage pass-through securities or CMOs. 
In addition, the yield to maturity of IOs, POs and inverse floaters is          
extremely sensitive to prepayment levels. As a result, higher or lower rates of 
prepayment than that anticipated can have a material effect on a Portfolio's    
yield to maturity and could cause a Portfolio to suffer losses.                 

Temporary Defensive Investments                                                 
When the Adviser believes that changes in economic, financial or political      
conditions warrant, each Portfolio may invest without limit in fixed income     
securities for temporary defensive purposes, as described in the Statement of   
Additional Information. If the Adviser incorrectly predicts the effects of      
these changes, the defensive investments may adversely affect the Portfolio's   
performance.                                                                    

Portfolio Turnover                                                              
Consistent with their investment policies, the Portfolios will purchase and     
sell securities without regard to the effect on portfolio turnover. Higher      
portfolio turnover (e.g., over 100% per year) will cause the Portfolio to incur 
additional transaction costs and may result in taxable gains being passed       
through to shareholders.                                                        

Non-Diversification of Investments                                              
A Portfolio of investments in a small number of issuers or industries or in     
securities denominated in only a few foreign currencies increases risk. The     
Global Fixed Income Portfolio and the International Fixed Income Portfolio are  
non-diversifed funds for purposes of the 1940 Act. A non-diversified Portfolio  
may invest a greater percentage of its assets in the securities of a single     
issuer than a diversified Portfolio. Portfolios that invest in a relatively     
small number of issuers are more susceptible to risks associated with a single  
economic, political or regulatory occurrence than a more diversified portfolio  
might be. Some of those issuers also may present substantial credit, currency   
or other risks.                                                                 

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Purchasing Shares                                                               

Institutional Class Shares are available to clients of the Adviser with         
combined investments of $5,000,000 and corporations or other institutions such  
as trusts and foundations.                                                      

Institutional Class Shares of the Portfolios may be purchased directly from     
Morgan Stanley Institutional Fund Trust or through a financial intermediary.    
Investors purchasing shares through a financial intermediary may be charged a   
transaction-based or other fee by the financial intermediary for its services.  
If you are purchasing Institutional Class Shares through a financial            
intermediary, please consult your intermediary for purchase instructions.       

Institutional Class Shares of the Portfolios may, in the Fund's discretion, be  
purchased with investment securities (in lieu of or, in conjunction with, cash) 
acceptable to the Fund. The securities would be accepted by the Fund at their   
market value in return for Institutional Class Shares of the Portfolios.        

Institutional Class Shares of each Portfolio, except for the Cash Reserves      
Portfolio, may be purchased at the net asset value per share (NAV) next         
determined after we receive your purchase order. Institutional Class Shares of  
the Cash Reserves Portfolio may be purchased at the NAV next determined after   
we receive your purchase order and the Fund's Custodian Bank, J.P. Morgan Chase 
& Co. (the "Custodian") receives monies credited by a Federal Reserve Bank      
("Federal Funds").                                                              

Initial Purchase by Mail                                                        
You may open an account, subject to acceptance by Morgan Stanley Institutional  
Fund Trust, by completing and signing an Account Registration Form provided by  
J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's transfer      
agent, which you can obtain by calling J.P. Morgan at 1-800-548-7786 and        
mailing it to J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, 
MA 02108 together with a check payable to Morgan Stanley Institutional Fund     
Trust.                                                                          

Please note that payments to investors who redeem shares purchased by check     
will not be made until payment of the purchase has been collected, which may    
take up to eight business days after purchase. You can avoid this delay by      
purchasing shares by wire.                                                      

Initial Purchase by Wire                                                        
You may purchase Institutional Class Shares of each Portfolio by wiring Federal 
Funds to the Custodian. You should forward a completed Account Registration     
Form to J.P. Morgan in advance of the wire. For all Portfolios, except the Cash 
Reserves Portfolio, notification must be given to J.P. Morgan at 1-800-548-7786 
prior to the determination of NAV. See the section below entitled "Valuation of 
Shares." (Prior notification must also be received from investors with existing 
accounts.) Instruct your bank to send a Federal Funds wire in a specified       
amount to the Custodian using the following wire instructions:                  

J.P. Morgan Chase & Co.                                                         
1 Chase Manhattan Plaza                                                         
New York, NY 10081                                                              
ABA #021000021                                                                  
DDA #910-2-734143                                                               
Attn: Morgan Stanley Institutional Fund                                         
Trust Subscription Account                                                      
Ref: (Portfolio Name, Account Number,                                           
Account Name)                                                                   

You can also make purchases in the Cash Reserves Portfolio by Federal Funds     
wire to the Custodian. If notification of your order is received prior to 12:00 
noon (Eastern Time) and the Custodian receives the funds the same day, then     
your purchase will become effective and begin to earn income on that day.       
Otherwise, your purchase will be effective on the next business day.            

Additional Investments                                                          
You may make additional investments of Institutional Class Shares (minimum      
additional investment $1,000) at the NAV next determined after the request is   
received in good order, by mailing a check (payable to Morgan Stanley           
Institutional Fund Trust) to J.P. Morgan at the address noted under Initial     
Purchase by Mail or by wiring Federal Funds to the Custodian as outlined above. 
For all Portfolios, except the Cash Reserves Portfolio, notification must be    
given to J.P. Morgan at 1-800-548-7786 prior to the determination of NAV. For   
the Cash Reserves Portfolio, J.P. Morgan must receive notification of receipt   
of your Federal Funds wire by 12:00 noon (Eastern Time). We normally credit     
purchases made by check in the Cash Reserves Portfolio at the NAV determined    
two business days after we receive the check.                                   

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Other Purchase Information                                                      
The Fund may suspend the offering of shares, or any class of shares, of any     
Portfolio or reject any purchase orders when we think it is in the best         
interest of the Fund. The Fund, in its sole discretion, may waive the minimum   
initial and additional investment amounts in certain cases.                     

Frequent trading by shareholders can disrupt management of a Portfolio and      
raise its expenses. Therefore, we may not accept any request for a purchase,    
redemption or exchange when we think it is being used as a tool for market      
timing, and we may bar a shareholder who trades excessively from making further 
purchases for an indefinite period.                                             

Purchases of a Portfolio's shares will be made in full and fractional shares of 
the Portfolio calculated to three decimal places.                               

Redeeming Shares                                                                

You may redeem shares of each Portfolio by mail, or, if authorized, by          
telephone at no charge. The value of shares redeemed may be more or less than   
the purchase price, depending on the NAV at the time of redemption. Each        
Portfolio will redeem shares at the NAV next determined after the request is    
received in good order.                                                         

By Mail                                                                         
Requests should be addressed to Morgan Stanley Institutional Fund Trust, c/o    
J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA 02108.     

To be in good order, redemption requests must include the following             
documentation:                                                                  

(a) The share certificates, if issued;                                          

(b) A letter of instruction, if required, or a stock assignment specifying the  
number of shares or dollar amount to be redeemed, signed by all registered      
owners of the shares in the exact names in which the shares are registered;     

(c) Any required signature guarantees; and                                      

(d) Other supporting legal documents, if required, in the case of estates,      
trusts, guardianships, custodianship, corporations, pension and profit sharing  
plans and other organizations.                                                  

By Telephone                                                                    
If you have authorized the Telephone Redemption Option on the Account           
Registration Form, you may request a redemption of shares by calling the Fund   
at 1-800-548-7786 and requesting that the redemption proceeds be mailed or      
wired to you. You cannot redeem shares by telephone if you hold share           
certificates for those shares.                                                  

The Fund will ordinarily pay redemption proceeds within seven business days     
after receipt of your request. The Fund may suspend the right of redemption or  
postpone the payment of redemption proceeds at times when the New York Stock    
Exchange ("NYSE") is closed, the Fund is closed or under other circumstances in 
accordance with interpretations or orders of the U.S. Securities and Exchange   
Commission.                                                                     

If we determine that it is in the best interest of other shareholders not to    
pay redemption proceeds in cash, we may pay you partly or entirely by           
distributing to you readily marketable securities held by the Portfolio from    
which you are redeeming. You may incur brokerage charges when you sell those    
securities.                                                                     

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General Shareholder Information                                                 

Valuation of Shares                                                             
The NAV of the Portfolios is determined as of the close of the NYSE (normally   
4:00 p.m. Eastern Time) on each day the Portfolios are open for business,       
except for the NAV of the Cash Reserves Portfolio which is determined as of     
12:00 noon (Eastern Time).                                                      

Each Portfolio values its securities at market value, except the Cash Reserves  
Portfolio, which values its securities using amortized cost valuation. When no  
quotations are readily available for securities or when the value of securities 
has been materially affected by events occurring after the close of the market, 
we will determine the value for those securities in good faith at fair value    
using methods approved by the Board of Trustees.                                

Exchange Privilege                                                              
You may exchange each Portfolio's Institutional Class Shares for Institutional  
Class Shares of other available portfolios of the Fund or for Class A shares of 
available portfolios of Morgan Stanley Institutional Fund, Inc. based on their  
respective NAVs. We charge no fee for exchanges. To obtain a prospectus for     
another portfolio, call the Fund at 1-800-548-7786 or contact your financial    
intermediary. If you purchased Portfolio shares through a financial             
intermediary, certain portfolios may be unavailable for exchange. Contact your  
financial intermediary to determine which portfolios are available for exchange.

You can process your exchange by contacting your financial intermediary.        
Otherwise, you should send exchange requests by mail to the Fund's Transfer     
Agent, J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA     
02108-3919. Exchange requests can also be made by calling 1-800-548-7786.       

When you exchange for shares of another portfolio, your transaction will be     
treated the same as an initial purchase. You will be subject to the same        
minimum initial investment and account size as an initial purchase. The Fund,   
in its sole discretion, may waive the minimum initial investment amounts in     
certain cases.                                                                  

Taxes                                                                           
Income dividends you receive (except from the Municipal Portfolio) will be      
taxable as ordinary income, whether you receive them in cash or in additional   
shares. Corporate shareholders may be entitled to a dividends-received          
deduction for the portion of dividends they receive which are attributable to   
dividends received by such Portfolios from U.S. corporations. Capital gain      
distributions may be taxable at different rates depending on the length of time 
the Portfolio holds its assets.                                                 

The Municipal Portfolio intends to pay "exempt-interest" dividends which are    
excluded from your gross income for federal income tax purposes. When you       
receive exempt-interest dividends they may be subject to state and local taxes, 
although some states allow you to exclude that portion of a portfolio's         
tax-exempt income which is accountable to municipal securities issued within    
your state of residence.                                                        

Investment income received by the Portfolios from sources within foreign        
countries may be subject to foreign income taxes. The Portfolios may be able to 
pass through to you for foreign tax credit purposes the amount of foreign       
income taxes that they paid.                                                    

Distributions paid in January but declared by a Portfolio in October, November  
or December of the previous year are taxable to you in the previous year.       

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the     
taxable distributions paid to you in the previous year. The statement provides  
information on your dividends and capital gains for tax purposes.               

Exchanges and redemptions of shares in a Portfolio are taxable events and may   
result in a taxable gain or loss to you.                                        

When you open your account, you should provide your social security or tax      
identification number on your investment application. By providing this         
information, you will avoid being subject to a federal backup withholding tax   
(approximately 30% currently) on taxable distributions and redemption proceeds. 
Any withheld amount would be sent to the IRS as an advance tax payment.         

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Dividends and Distributions                                                     
The Portfolios normally distribute substantially all of their net investment    
income to shareholders as follows:                                              

                                                                [Download Table]

Portfolio                     Monthly Quarterly Annually
                                                        
Equity                                        .         
--------------------------------------------------------
Mid Cap Growth                                         .
--------------------------------------------------------
Mid Cap Growth II                                      .
--------------------------------------------------------
Mid Cap Value                                          .
--------------------------------------------------------
Small Cap Growth                                       .
--------------------------------------------------------
Small Cap Value                                        .
--------------------------------------------------------
Strategic Small Value                                  .
--------------------------------------------------------
Value                                         .         
--------------------------------------------------------
Cash Reserves                       .                   
--------------------------------------------------------
Core Plus Fixed Income                        .         
--------------------------------------------------------
Investment Grade Fixed Income                 .         
--------------------------------------------------------
Global Fixed Income                           .         
--------------------------------------------------------
High Yield                                    .         
--------------------------------------------------------
Intermediate Duration               .                   
--------------------------------------------------------
International Fixed Income                    .         
--------------------------------------------------------
Limited Duration                    .                   
--------------------------------------------------------
Municipal                           .                   
--------------------------------------------------------
Special Purpose Fixed Income                  .         
--------------------------------------------------------
Targeted Duration                   .                   
--------------------------------------------------------
U.S. Core Fixed Income                        .         
--------------------------------------------------------
Balanced                                      .         
--------------------------------------------------------
Multi-Asset-Class                             .         
--------------------------------------------------------

If any net gains are realized from the sale of underlying securities, the       
Portfolios normally distribute the gains with the last distributions for the    
calendar year. All dividends and distributions are automatically paid in        
additional shares of the Portfolio unless you elect otherwise. If you want to   
change how your dividends are paid you must notify Morgan Stanley Institutional 
Fund Trust in writing.                                                          

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Fund Management                                                                 

Adviser                                                                         
The Adviser to the Fund, Morgan Stanley Investments LP ("MSI" or the "Adviser") 
(formerly "Miller Andersen & Sherrerd LP"), is a Pennsylvania limited liability 
partnership founded in 1969. The Adviser is wholly-owned by subsidiaries of     
Morgan Stanley Dean Witter & Co. ("Morgan Stanley"). Morgan Stanley is a        
preeminent global financial services firm that maintains leading market         
positions in each of its three primary businesses--securities, asset            
management, and credit services. The Adviser is an investment advisory          
affiliate of Morgan Stanley Investment Management Inc. ("MSIM") and is located  
at One Tower Bridge, 100 Front Street, Suite 1100, West Conshohocken, PA        
19428-2881. The Adviser provides investment advisory services to employee       
benefit plans, endowment funds, foundations and other institutional investors.  
As of December 31, 2001, MSI, together with its affiliated asset management     
companies, had approximately $415.9 billion in assets under management with     
approximately $178.1 billion in institutional assets.                           

The Adviser makes investment decisions for the Fund's Portfolios and places     
each Portfolio's purchase and sales orders. Each Portfolio, in turn, pays the   
Adviser an annual advisory fee calculated by applying a quarterly rate. The     
table on the following page shows the Adviser's annual contractual and actual   
rates of compensation for the Fund's 2001 fiscal year.                          
Sub Adviser                                                                     
Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the   
Cash Reserves Portfolio. As Sub-Adviser, MSIA makes day-to-day investment       
decisions for the Cash Reserves Portfolio and places the Portfolio's purchase   
and sales orders. The Adviser pays MSIA 40% of the fee the Adviser receives     
from the Cash Reserves Portfolio as compensation for its sub-advisory services. 
MSIA, located at 1221 Avenue of the Americas, New York, New York 10020, is a    
wholly-owned subsidiary of Morgan Stanley. MSIA develops, markets and manages a 
broad spectrum of proprietary mutual funds that are sold by Morgan Stanley      
financial advisors and offers professional money management services on a       
customized basis to individuals, institutional investors and retirement plan    
sponsors.                                                                       

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Adviser's Rates of Compensation                                                 

                                                                [Download Table]

                                                  FY 2001            FY 2001 
                                              Contractual             Actual 
                                        Compensation Rate  Compensation Rate 
                                                                             
Equity Portfolio                                    0.500%             0.500%
-----------------------------------------------------------------------------
Mid Cap Growth Portfolio                            0.500              0.500 
-----------------------------------------------------------------------------
Mid Cap Growth II Portfolio*                        0.750                 -- 
-----------------------------------------------------------------------------
Mid Cap Value Portfolio                             0.750              0.750 
-----------------------------------------------------------------------------
Small Cap Growth Portfolio*                         1.000              1.000 
-----------------------------------------------------------------------------
Small Cap Value Portfolio                           0.750              0.750 
-----------------------------------------------------------------------------
Strategic Small Value Portfolio*                    1.000                 -- 
-----------------------------------------------------------------------------
Value Portfolio                                     0.500              0.500 
-----------------------------------------------------------------------------
Cash Reserves Portfolio*                            0.250              0.195 
-----------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                    0.375              0.375 
-----------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio             0.375              0.375 
-----------------------------------------------------------------------------
Global Fixed Income Portfolio                       0.375              0.375 
-----------------------------------------------------------------------------
High Yield Portfolio                                0.450              0.450 
-----------------------------------------------------------------------------
Intermediate Duration Portfolio                     0.375              0.375 
-----------------------------------------------------------------------------
International Fixed Income Portfolio                0.375              0.375 
-----------------------------------------------------------------------------
Limited Duration Portfolio                          0.300              0.300 
-----------------------------------------------------------------------------
Municipal Portfolio*                                0.375              0.363 
-----------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio              0.375              0.375 
-----------------------------------------------------------------------------
Targeted Duration Portfolio*+                       0.375                 -- 
-----------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio*                   0.375              0.375 
-----------------------------------------------------------------------------
Balanced Portfolio                                  0.450              0.375 
-----------------------------------------------------------------------------
Multi-Asset-Class Portfolio*                        0.650              0.612 
-----------------------------------------------------------------------------

*The Adviser is voluntarily waiving a portion of its fee and/or reimbursing     
certain expenses for the Mid Cap Growth II Portfolio, the Small Cap Growth    
Portfolio, the Strategic Small Value Portfolio, the Cash Reserves Portfolio,  
the Municipal Portfolio, the Targeted Duration Portfolio, the U.S. Core Fixed 
Income Portfolio and the Multi-Asset-Class Portfolio to keep Total Operating  
Expenses from exceeding .90%, 1.15%, 1.15%, .32%, .50%, .45%, .50%, and .78%, 
respectively.                                                                 
+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

Portfolio Management                                                            

Equity Portfolio                                                                
The Portfolio's assets are managed by the Core Equity Team. Current members of  
the team include Brian Kramp, Executive Director, and Eric F. Scharpf, Vice     
President.                                                                      

Mid Cap Growth Portfolio and Mid Cap Growth II Portfolio                        
The Portfolio's assets are managed by the Small/Mid-Cap Growth Team. Current    
members of the team include  David P. Chu, Executive Director, Dennis Lynch,    
Vice President, David Cohen, Vice President, and David Reidinger, Vice          
President.                                                                      

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Mid Cap Value Portfolio                                                         
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, William B. Gerlach, 
Managing Director, and Charles Purcell, Vice President.                         

Small Cap Growth Portfolio                                                      
The Portfolio's assets are managed by the Small/Mid-Cap Growth Team. Current    
members of the team include David P. Chu, Executive Director, Dennis Lynch,     
Vice President, and John Roscoe, Vice President.                                

Small Cap Value Portfolio                                                       
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, James Jolinger,     
Executive Director, and Matthew Todorow, Vice President.                        

Strategic Small Value Portfolio                                                 
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, William B. Gerlach, 
Managing Director, and James Jolinger, Executive Director.                      

Value Portfolio                                                                 
The Portfolio's assets are managed by the Large Cap Value and Core Equity       
Teams. Current members of the teams include Richard M. Behler, Managing         
Director, Brian Kramp, Executive Director, and Eric F. Scharpf, Vice President. 

Core Plus Fixed Income Portfolio, Investment Grade Fixed Income Portfolio and   
Special Purpose Fixed Income Portfolio                                          
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Thomas L.    
Bennett, Managing Director, and Roberto M. Sella, Managing Director.            

Global Fixed Income Portfolio and International Fixed Income Portfolio          
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include J. David Germany, Managing Director, Michael        
Kushma, Executive Director, Paul F. O'Brien, Executive Director, and Christian  
G. Roth, Executive Director.                                                    

High Yield Portfolio                                                            
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include Stephen F. Esser, Managing Director, Gordon W.      
Loery, Executive Director, and Deanna L. Loughnane, Executive Director.         

Intermediate Duration Portfolio                                                 
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include Angelo G. Manioudakis, Executive Director, Charles  
Moon, Executive Director, and Scott F. Richard, Managing Director.              

Limited Duration Portfolio                                                      
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include David S. Horowitz, Vice President, William          
Lawrence, Executive Director, and Scott F. Richard, Managing Director.          

Municipal Portfolio                                                             
Steven K. Kreider, Managing Director, MSIM joined MSI in 1988. He joined the    
management team for the Municipal Portfolio in 1992. Neil Stone, Executive      
Director, MSIM joined MSI in 1996. He served as Director of Fixed Income        
Research at CS First Boston Corporation from 1985 to 1995, and as Vice          
President of Mortgage Research at Morgan Stanley from 1995 to 1996. He joined   
the management team for the Municipal Portfolio in 1998.                        

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Institutional Class Prospectus                                              

January 31, 2002                                                            

Targeted Duration Portfolio                                                     
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include David S. Horowitz, Vice President, and Scott F.     
Richard, Managing Director.                                                     

U.S. Core Fixed Income Portfolio                                                
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Angelo G.    
Manioudakis, Executive Director, and Scott F. Richard, Managing Director.       

Balanced Portfolio                                                              
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Balanced Portfolio in 1992. Cyril            
Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He joined the    
management team for the Balanced Portfolio in 2001. Brian Kramp, Executive      
Director, MSIM, joined MSI in 1997. He joined the management team for the       
Balanced Portfolio in 2002.                                                     

Multi-Asset-Class Portfolio                                                     
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Multi-Asset-Class Portfolio in 1994.         
Barton M. Biggs, Managing Director, MSIM, since 1975, Chairman of MSIM since    
1980 and a Director of Morgan Stanley Group, Inc. He is also a Managing         
Director of MSIA and a director and chairman of various registered investment   
companies to which MSIM and certain of its affiliates provide investment        
advisory services. He joined the management team for the Multi-Asset-Class      
Portfolio in 1999. J. David Germany, Managing Director, MSIM, joined MSI in     
1991. He joined the management team for the Multi-Asset-Class Portfolio in      
1994. Cyril Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He   
joined the management team for the Multi-Asset Class Portfolio in 2001. Brian   
Kramp, Executive Director, MSIM, joined MSI in 1997. He joined the management   
team for the Multi-Asset-Class Portfolio in 2002.                               

Distributor                                                                     
Shares of the Fund are distributed exclusively through Morgan Stanley           
Distribution, Inc. ("MSDI"), a wholly-owned subsidiary of the Adviser. MSDI has 
entered into arrangements with certain financial intermediaries who may accept  
purchase and redemption orders for shares of certain Portfolios on its behalf.  

                                                                            51

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Financial Highlights                                                            

The following financial highlights tables are intended to help you understand   
the financial performance of each Portfolio for the past five years or, if less 
than five years, the life of the Portfolio or Class. Certain information        
reflects financial results for a single Portfolio share. The total returns in   
the tables represent the rate that an investor would have earned (or lost) on   
an investment in each Portfolio (assuming reinvestment of all dividends and     
distributions). As of the fiscal year ended September 30, 2001, the Targeted    
Duration Portfolio had not commenced operations. The information for the year   
2001 has been extracted from the Fund's                                         

                                                        [Enlarge/Download Table]

                                  Net Gains                                                               
        Net Asset                 or Losses                     Dividend     Capital Gain                 
           Value-        Net  on Securities  Total from    Distributions    Distributions                 
        Beginning Investment  (realized and  Investment  (net investment    (realized net          Other  
        of Period     Income    unrealized)  Activities          income)   capital gains)  Distributions  
                                                                                                          
----------------------------------------------------------------------------------------------------------
Equity Portfolio (Commencement of Institutional Class Operations 11/14/84)                                
2001+++    $17.28      $0.09         ($4.78)     ($4.69)          ($0.09)          ($0.61)        ($2.14)#
2000+++     19.82       0.05           3.53        3.58            (0.05)           (6.07)            --  
1999        20.44       0.14           5.24        5.38            (0.17)           (5.83)            --  
1998        29.45       0.24          (1.04)      (0.80)           (0.28)           (7.93)            --  
1997        25.67       0.36           8.22        8.58            (0.40)           (4.40)            --  
----------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio (Commencement of Institutional Class Operations 3/30/90)                         
2001       $35.15     ($0.05)       ($16.44)    ($16.49)              --               --         ($3.86)#
2000        25.77      (0.06)         13.71       13.65               --           ($4.27)            --  
1999        18.62      (0.01)         10.65       10.64           ($0.00).          (3.49)            --  
1998        21.84      (0.03)          0.24        0.21               --            (3.43)            --  
1997        20.53      (0.01)          4.75        4.74               --            (3.43)            --  
----------------------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio (Commencement of Institutional Class Operations 12/28/00)                     
2001       $10.00     ($0.03)        ($5.12)     ($5.15)              --               --             --  
----------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio (Commencement of Institutional Class Operations 12/30/94)                         
2001+++    $25.07      $0.05         ($4.91)     ($4.86)          ($0.08)          ($1.33)        ($1.89)#
2000+++     21.88       0.06           5.78        5.84            (0.08)           (2.57)            --  
1999+++     18.12       0.12           5.01        5.13            (0.06)           (1.31)            --  
1998+++     21.80       0.08          (1.53)      (1.45)           (0.04)           (2.19)            --  
1997+++     14.49       0.05           8.37        8.42            (0.10)           (1.01)            --  
----------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio (Commencement of Institutional Class Operations 6/30/98)                       
2001       $52.96     ($0.35)       ($25.78)    ($26.13)              --               --         ($2.79)#
2000        32.28      (0.34)         25.42       25.08               --           ($4.40)            --  
1999+++      8.57      (0.13)         23.84       23.71               --               --             --  
1998        10.00      (0.01)         (1.42)      (1.43)              --               --             --  
----------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio (Commencement of Institutional Class Operations 7/01/86)                        
2001+++    $21.18      $0.10+        ($4.35)     ($4.25)          ($0.07)              --         ($1.70)#
2000+++     18.62       0.09           4.01        4.10            (0.14)          ($1.40)            --  
1999+++     17.37       0.13           3.65        3.78            (0.07)           (2.46)            --  
1998        24.97       0.16          (4.33)      (4.17)           (0.14)           (3.29)            --  
1997        19.64       0.15           8.39        8.54            (0.11)           (3.10)            --  
----------------------------------------------------------------------------------------------------------
Strategic Small Value Portfolio (Commencement of Institutional Class Operations 6/30/00)                  
2001       $10.62      $0.09         ($0.15)     ($0.06)          ($0.05)              --             --  
2000        10.00       0.03           0.59        0.62               --               --             --  
----------------------------------------------------------------------------------------------------------


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Institutional Class Prospectus                                              

January 31, 2002                                                            

financial statements which were audited by Deloitte & Touche LLP whose report,  
along with the Fund's financial statements, are incorporated by reference into  
the Fund's Statement of Additional Information and are included in the Fund's   
September 30, 2001 Annual Report to Shareholders.                               

                                                        [Enlarge/Download Table]

                                       Net Assets-    Ratio of      Ratio of             
                  Net Asset                 End of    Expenses    Net Income   Portfolio 
        Total        Value-    Total        Period  to Average    to Average    Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets        Rate 
                                                                                         
-----------------------------------------------------------------------------------------

      ($2.84)        $ 9.75   (30.58%)  $  403,062        0.62%         0.71%        160%
       (6.12)         17.28    19.83       615,078        0.61          0.27         211 
       (6.00)         19.82    30.15       635,593        0.62          0.64         103 
       (8.21)         20.44    (2.66)      872,662        0.61          0.94          77 
       (4.80)         29.45    38.46     1,312,547        0.60          1.30          85 
-----------------------------------------------------------------------------------------

      ($3.86)        $14.80   (50.80%)  $1,063,186        0.61%        (0.25%)       145%
       (4.27)         35.15    56.60     2,109,750        0.62         (0.21)        169 
       (3.49)         25.77    64.27       785,659        0.62         (0.07)        208 
       (3.43)         18.62     2.00       429,955        0.62         (0.13)        172 
       (3.43)         21.84    28.05       446,963        0.63         (0.07)        134 
-----------------------------------------------------------------------------------------

           --        $ 4.85   (51.50%)  $    2,500        2.10%*       (0.61)*       247%
-----------------------------------------------------------------------------------------

      ($3.30)        $16.91   (21.23%)  $1,096,021        0.86%         0.22%        176%
       (2.65)         25.07    29.48     1,374,275        0.87          0.28         226 
       (1.37)         21.88    29.44       721,015        0.87          0.57         244 
       (2.23)         18.12    (6.92)      420,555        0.90          0.40         213 
       (1.11)         21.80    61.40       220,260        0.90++        0.28         184 
-----------------------------------------------------------------------------------------

      ($2.79)        $24.04   (50.83%)  $  193,469        1.14%        (0.98%)       176%
       (4.40)         52.96    80.31       437,898        1.14         (0.77         206 
           --         32.28   276.66        93,229        1.18++       (0.50)        300 
           --          8.57   (14.30)        3,004        1.16*++      (0.46)*        67 
-----------------------------------------------------------------------------------------

      ($1.77)        $15.16   (21.25%)  $1,017,346        0.86%         0.52%        157%
       (1.54)         21.18    23.11     1,269,171        0.86          0.43         193 
       (2.53)         18.62    23.83       897,629        0.86          0.70         251 
       (3.43)         17.37   (18.34)      716,729        0.86          0.71         163 
       (3.21)         24.97    49.81       897,396        0.86          0.70         107 
-----------------------------------------------------------------------------------------

      ($0.05)        $10.51    (0.60%)  $    2,434        1.15%++       0.73%         80%
           --         10.62     6.20         2,506        1.31*++       1.15*         33 
-----------------------------------------------------------------------------------------


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                                                        [Enlarge/Download Table]

                                         Net Gains                                                                
                Net Asset                or Losses                     Dividend    Capital Gain                   
                   Value-        Net on Securities  Total from    Distributions   Distributions                   
                Beginning Investment (realized and  Investment  (net investment   (realized net          Other    
                of Period     Income   unrealized)  Activities          income)  capital gains)  Distributions    
                                                                                                                  
------------------------------------------------------------------------------------------------------------------
Value Portfolio (Commencement of Institutional Class Operations 11/05/84)                                         
2001+++            $12.86     $ 0.19       $  0.93     $  1.12           ($0.18)             --             --    
2000+++             13.59       0.16          0.95        1.11            (0.18)          (1.27)         (0.39)#  
1999+++             15.16       0.21          1.11        1.32            (0.28)          (2.61)            --    
1998                20.37       0.34         (3.38)      (3.04)           (0.36)          (1.81)            --    
1997+++             15.61       0.34          5.75        6.09            (0.30)          (1.03)            --    
------------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio (Commencement of Institutional Class Operations 8/29/90)                                  
2001               $1.000     $0.049            --     $ 0.049          ($0.049)             --             --    
2000                1.000      0.058            --       0.058           (0.058)             --             --    
1999                1.000      0.048            --       0.048           (0.048)             --             --    
1998                1.000       .053            --        .053            (.053)             --             --    
1997                1.000       .052            --        .052            (.052)             --             --    
------------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio (Commencement of Institutional Class Operations 11/14/84)                        
2001               $11.25     $ 0.75       $  0.62     $  1.37           ($0.78)             --             --    
2000+++             11.26       0.77         (0.02)       0.75            (0.76)             --             --    
1999+++             12.22       0.77         (0.72)       0.05            (0.71)             --          (0.30)#  
1998+++             12.22       0.78          0.14        0.92            (0.75)          (0.17)            --    
1997+++             11.83       0.80          0.50        1.30            (0.78)          (0.13)            --    
------------------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio (Commencement of Institutional Class Operations 8/31/90)                  
2001               $10.67     $ 0.68       $  0.70     $  1.38           ($0.73)             --             --    
2000                10.74       0.78         (0.12)       0.66            (0.73)             --             --    
1999                11.69       0.69         (0.75)      (0.06)           (0.63)             --          (0.26)#  
1998                11.46       0.61          0.40        1.01            (0.66)          (0.12)            --    
1997                11.23       0.74          0.39        1.13            (0.79)          (0.11)            --    
------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio (Commencement of Institutional Class Operations 4/30/93)                            
2001               $ 9.23     $ 0.49        ($0.01)    $  0.48               --              --          (0.37)## 
2000                10.42       0.53         (1.06)      (0.53)           (0.11)             --          (0.28)#  
1999                11.03       0.51         (0.49)       0.02            (0.44)          (0.19)            --    
1998                10.64       0.55          0.38        0.93            (0.39)          (0.15)            --    
1997+++             11.01       0.60         (0.22)       0.38            (0.59)          (0.16)            --    
------------------------------------------------------------------------------------------------------------------
High Yield Portfolio (Commencement of Institutional Class Operations 2/28/89)                                     
2001+++            $ 7.86     $ 0.78        ($1.95)     ($1.17)          ($0.94)             --             --    
2000+++              8.77       0.89         (0.88)       0.01            (0.92)             --             --    
1999+++              8.99       0.86         (0.10)       0.76            (0.79)          (0.04)         (0.15)#  
1998+++             10.15       0.85         (0.93)      (0.08)           (0.82)          (0.26)            --    
1997+++              9.32       0.86          0.87        1.73            (0.87)          (0.03)            --    
------------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio (Commencement of Institutional Class Operations 10/3/94)                          
2001               $ 9.67     $ 0.57       $  0.69     $  1.26           ($0.56)             --             --    
2000+++              9.77       0.67         (0.19)       0.48            (0.58)             --             --    
1999                10.68       0.72         (0.65)       0.07            (0.76)             --          (0.22)#  
1998                10.48       0.58          0.28        0.86            (0.56)          (0.10)            --    
1997+++             10.28       0.61          0.27        0.88            (0.53)          (0.15)            --    
------------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio (Commencement of Institutional Class Operations 4/29/94)                     
2001+++            $ 8.88     $ 0.28       $  0.04     $  0.32               --              --          (0.24)## 
2000                10.12       0.35         (1.15)      (0.80)              --           (0.04)         (0.40)###
1999                10.75       0.34         (0.41)      (0.07)           (0.28)          (0.22)         (0.06)## 
1998                10.19       0.45          0.56        1.01            (0.36)          (0.09)            --    
1997                10.77       0.50         (0.44)       0.06            (0.38)          (0.26)            --    
------------------------------------------------------------------------------------------------------------------

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Institutional Class Prospectus                                              

January 31, 2002                                                            

                                                        [Enlarge/Download Table]


                                       Net Assets-    Ratio of      Ratio of            
                  Net Asset                 End of    Expenses    Net Income  Portfolio 
        Total        Value-    Total        Period  to Average    to Average   Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets       Rate 
                                                                                        
----------------------------------------------------------------------------------------

      ($0.18)        $13.80     8.68%   $  656,007        0.62%         1.26%        38%
       (1.84)         12.86     9.67       690,859        0.61          1.32         50 
       (2.89)         13.59     8.30     1,079,356        0.63          1.38         53 
       (2.17)         15.16   (16.41)    2,288,236        0.60          1.76         56 
       (1.33)         20.37    41.25     3,542,772        0.62          1.93         46 
----------------------------------------------------------------------------------------

     ($0.049)        $1.000     5.03%   $  132,901        0.39%++       4.86%       N/A 
      (0.058)         1.000     5.91       115,513        0.37++        5.72        N/A 
      (0.048)         1.000     4.93       156,510        0.33++        4.77        N/A 
       (.053)         1.000     5.47       168,228        0.32++        5.33        N/A 
       (.052)         1.000     5.32        98,464        0.33++        5.20        N/A 
----------------------------------------------------------------------------------------

      ($0.78)        $11.84    12.74%   $4,142,009        0.48%         6.46%       111%
       (0.76)         11.25     7.02     4,087,553        0.48          7.03         62 
       (1.01)         11.26     0.33     4,338,939        0.48          6.62        103 
       (0.92)         12.22     7.90     4,625,015        0.48          6.49        121 
       (0.91)         12.22    11.47     3,219,987        0.49          6.73        179 
----------------------------------------------------------------------------------------

      ($0.73)        $11.32    13.45%   $  278,657        0.50%         6.19%        89%
       (0.73)         10.67     6.48       279,141        0.49          6.99         43 
       (0.89)         10.74    (0.57)      384,893        0.48          6.20        106 
       (0.78)         11.69     9.23       443,923        0.50          6.19         92 
       (0.90)         11.46    10.58       226,662        0.50          6.54        182 
----------------------------------------------------------------------------------------

      ($0.37)        $ 9.34     5.26%   $   36,143        0.61%         5.16%        49%
       (0.66)          9.23    (5.39)       34,827        0.62          4.87         54 
       (0.63)         10.42    (0.05)       64,059        0.54          4.83         56 
       (0.54)         11.03     9.18        71,834        0.56          5.11         88 
       (0.75)         10.64     3.53        77,493        0.57          5.65        137 
----------------------------------------------------------------------------------------

      ($0.94)        $ 5.75   (16.27%)  $  583,110        0.57%        11.44%        67%
       (0.92)          7.86    (0.22)      848,507        0.56         10.50         55 
       (0.98)          8.77     8.81       937,482        0.49          9.61         45 
       (1.08)          8.99    (1.17)      703,110        0.50          8.74         75 
       (0.90)         10.15    19.90       523,899        0.51          9.05         96 
----------------------------------------------------------------------------------------

      ($0.56)        $10.37    13.42%   $   50,814        0.54%         5.62%        59%
       (0.58)          9.67     5.84        37,686        0.54          6.95         76 
       (0.98)          9.77     0.64        50,513        0.49          6.20         97 
       (0.66)         10.68     8.57       116,891        0.52          5.84        131 
       (0.68)         10.48     8.93        72,119        0.55++        5.93        204 
----------------------------------------------------------------------------------------

      ($0.24)        $ 8.96     3.63%   $   77,363        0.55%         3.31%        71%
       (0.44)          8.88    (8.23)      112,456        0.56          3.76         91 
       (0.56)         10.12    (0.93)      125,981        0.52          3.68         64 
       (0.45)         10.75    10.38       150,313        0.52          4.59         75 
       (0.64)         10.19     0.44       152,752        0.53          5.27        107 
----------------------------------------------------------------------------------------

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                                                        [Enlarge/Download Table]

                                        Net Gains                                                                
               Net Asset                or Losses                     Dividend    Capital Gain                   
                  Value-        Net on Securities  Total from    Distributions   Distributions                   
               Beginning Investment (realized and  Investment  (net investment   (realized net          Other    
               of Period     Income   unrealized)  Activities          income)  capital gains)  Distributions    
                                                                                                                 
-----------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio (Commencement of Institutional Class Operations 3/31/92)                              
2001              $10.17      $0.59         $0.42       $1.01           ($0.59)             --             --    
2000               10.18       0.60         (0.03)       0.57            (0.58)             --             --    
1999               10.54       0.68         (0.31)       0.37            (0.73)             --             --    
1998               10.49       0.59          0.03        0.62            (0.57)             --             --    
1997               10.38       0.62          0.08        0.70            (0.59)             --             --    
-----------------------------------------------------------------------------------------------------------------
Municipal Portfolio (Commencement of Institutional Class Operations 10/1/92)                                     
2001              $11.43      $0.48         $0.72       $1.20           ($0.49)             --             --    
2000               11.39       0.62          0.10        0.72            (0.62)          (0.06)            --    
1999               11.96       0.55         (0.53)       0.02            (0.59)             --             --    
1998               11.64       0.54          0.28        0.82            (0.50)             --             --    
1997               11.23       0.53          0.40        0.93            (0.52)             --             --    
-----------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio (Commencement of Institutional Class Operations 3/31/92)                  
2001              $11.31      $0.82         $0.60       $1.42           ($0.84)             --             --    
2000               11.32       0.81         (0.06)       0.75            (0.76)             --             --    
1999               12.33       0.78         (0.69)       0.09            (0.73)         ($0.04)         (0.33)#  
1998               12.58       0.84          0.03        0.87            (0.85)          (0.27)            --    
1997+++            12.26       0.85          0.52        1.37            (0.87)          (0.18)            --    
-----------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio (Commencement of Institutional Class Operations 9/29/87)                        
2001+++           $10.46      $0.65         $0.73       $1.38           ($0.69)             --             --    
2000+++            10.55       0.71         (0.12)       0.59            (0.68)             --             --    
1999               11.40       0.71         (0.83)      (0.12)           (0.52)             --          (0.21)#  
1998               11.27       0.73          0.32        1.05            (0.79)          (0.13)            --    
1997               10.89       0.74          0.33        1.07            (0.67)          (0.02)            --    
-----------------------------------------------------------------------------------------------------------------
Balanced Portfolio (Commencement of Institutional Class Operations 12/31/92)                                     
2001+++           $13.37      $0.35        ($2.07)     ($1.72)          ($0.38)             --         ($0.67)#  
2000+++            13.83       0.44          1.45        1.89            (0.46)         ($1.89)            --    
1999+++            13.46       0.45          1.71        2.16            (0.43)          (1.36)            --    
1998+++            15.30       0.48         (0.11)       0.37            (0.49)          (1.72)            --    
1997               13.81       0.51          2.91        3.42            (0.54)          (1.39)            --    
-----------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio (Commencement of Institutional Class Operations 7/29/94)                             
2001              $11.62      $0.33        ($2.24)     ($1.91)          ($0.07)             --         ($0.77)###
2000               12.43       0.36          0.60        0.96            (0.31)         ($1.36)         (0.10)#  
1999               11.74       0.37          1.62        1.99            (0.34)          (0.96)            --    
1998+++            13.64       0.38         (0.45)      (0.07)           (0.34)          (1.49)            --    
1997+++            12.28       0.38          2.57        2.95            (0.51)          (1.08)            --    
-----------------------------------------------------------------------------------------------------------------


56                                                                              

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Institutional Class Prospectus                                              

January 31, 2002                                                            

                                                        [Enlarge/Download Table]


                                       Net Assets-    Ratio of      Ratio of            
                  Net Asset                 End of    Expenses    Net Income  Portfolio 
        Total        Value-    Total        Period  to Average    to Average   Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets       Rate 
                                                                                        
----------------------------------------------------------------------------------------

       (0.59)        $10.59    10.23%     $224,358        0.43%         5.67%        59%
       (0.58)         10.17     6.37       177,776        0.42          6.61         57 
       (0.73)         10.18     3.61       161,538        0.41          6.16        102 
       (0.57)         10.54     6.13       252,711        0.42          5.89        107 
       (0.59)         10.49     6.98       155,570        0.43++        6.15        130 
----------------------------------------------------------------------------------------

      ($0.49)        $12.14    10.69%     $164,504        0.51%++       4.03%        70%
       (0.68)         11.43     6.66       115,217        0.51++        5.51         82 
       (0.59)         11.39     0.11       121,917        0.51++        4.72         88 
       (0.50)         11.96     7.20        82,282        0.52++        4.58        140 
       (0.52)         11.64     8.47        75,120        0.51++        4.70         54 
----------------------------------------------------------------------------------------

      ($0.84)        $11.89    13.04%     $294,858        0.50%         6.55%       103%
       (0.76)         11.31     6.99       429,327        0.49          7.13         53 
       (1.10)         11.32     0.71       459,674        0.49          6.46        124 
       (1.12)         12.33     7.31       552,269        0.49          6.89        105 
       (1.05)         12.58    11.78       492,784        0.49          6.88        198 
----------------------------------------------------------------------------------------

      ($0.69)        $11.15    13.68%     $195,467        0.51%         6.04%        86%
       (0.68)         10.46     5.88       181,884        0.51++        6.86         51 
       (0.73)         10.55    (1.12)      189,860        0.51          6.09        115 
       (0.92)         11.40     9.83        76,042        0.51++        6.32        145 
       (0.69)         11.27    10.20        96,954        0.51++        6.48        217 
----------------------------------------------------------------------------------------

      ($1.05)        $10.60   (13.51)%    $397,666        0.58%         2.98%       157%
       (2.35)         13.37    14.75       505,078        0.58          3.29        162 
       (1.79)         13.83    16.99       341,886        0.58          3.21        111 
       (2.21)         13.46     2.85       382,339        0.59          3.36        100 
       (1.93)         15.30    27.44       343,284        0.58          3.56        145 
----------------------------------------------------------------------------------------

      ($0.84)        $ 8.87   (17.23)%    $122,912        0.79%++       3.02%       149%
       (1.77)         11.62     7.74       143,434        0.78++        2.93        152 
       (1.30)         12.43    17.71       152,862        0.78++        2.86        101 
       (1.83)         11.74    (0.46)      165,039        0.78++        2.98        107 
       (1.59)         13.64    26.50       173,155        0.74++        3.07        141 
----------------------------------------------------------------------------------------


                                                                            57

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Notes to the Financial Highlights                                               

*Annualized                                                                     
**Total return figures for partial years are not annualized.                    
#Represents distributions in excess of net realized gains.                      
##Represents distributions in excess of net investment income.                  
###For International Fixed Income Portfolio and Multi-Asset-Class Portfolio     
represents distributions in excess of net investment income of 0.27 and   
0.02, respectively, and distributions in excess of net realized gains of  
0.13 and 0.75, respectively.                                              
+For the respective periods ended September 30, the Ratio of Expenses to        
Average Net Assets for the following portfolios excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average   
Net Assets would be as follows for the respective periods.                    

                                                                [Download Table]
                                                            
------------------------------------------------------------
          Ratio of Expenses to Average Net Assets           
------------------------------------------------------------
Portfolio                     1997  1998  1999  2000  2001  
Equity                        0.59% 0.59% 0.60% 0.61% 0.62% 
----------------------------------------------------------- 
Mid Cap Growth                0.61  0.60  0.60  0.61  0.60  
----------------------------------------------------------- 
Mid Cap Growth II               --    --    --    --  0.90* 
----------------------------------------------------------- 
Mid Cap Value                 0.88  0.88  0.86  0.85  0.85  
----------------------------------------------------------- 
Small Cap Growth                --  1.15* 1.15  1.12  1.12  
----------------------------------------------------------- 
Small Cap Value               0.86  0.86  0.86  0.85  0.86  
----------------------------------------------------------- 
Strategic Small Value           --    --    --  1.15* 1.15  
----------------------------------------------------------- 
Value                         0.61  0.59  0.62  0.60  0.61  
----------------------------------------------------------- 
Cash Reserves                 0.32  0.32  0.32  0.32  0.32  
----------------------------------------------------------- 
Core Plus Fixed Income        0.48  0.47  0.47  0.47  0.47  
----------------------------------------------------------- 
Investment Grade Fixed Income 0.49  0.49  0.47  0.48  0.50  
----------------------------------------------------------- 
Global Fixed Income           0.57  0.56  0.53  0.60  0.60  
----------------------------------------------------------- 
High Yield                    0.50  0.48  0.48  0.55  0.56  
----------------------------------------------------------- 
Intermediate Duration         0.52  0.51  0.48  0.53  0.54  
----------------------------------------------------------- 
International Fixed Income    0.53  0.52  0.52  0.55  0.55  
----------------------------------------------------------- 
Limited Duration              0.42  0.41  0.41  0.41  0.43  
----------------------------------------------------------- 
Municipal                     0.50  0.50  0.50  0.50  0.50  
----------------------------------------------------------- 
Special Purpose Fixed Income  0.48  0.48  0.48  0.48  0.49  
----------------------------------------------------------- 
U.S. Core Fixed Income        0.50  0.50  0.49  0.50  0.50  
----------------------------------------------------------- 
Balanced                      0.56  0.57  0.57  0.57  0.57  
----------------------------------------------------------- 
Multi-Asset-Class             0.74  0.78  0.78  0.78  0.78  
----------------------------------------------------------- 

++For the periods indicated, the Adviser voluntarily agreed to waive its        
advisory fees and/or reimburse certain expenses to the extent necessary in  
order to keep Total Operating Expenses actually deducted from portfolio     
assets for the respective portfolios from exceeding voluntary expense       
limitations. For the respective periods ended September 30, the voluntarily 
waived and/or reimbursed expenses totaled the below listed amounts.         

                                                                [Download Table]

---------------------------------------------------------------------------------
                              Voluntarily waived and/or reimbursed expenses for: 
---------------------------------------------------------------------------------
Portfolio                         1997            1998     1999    2000     2001 
                                                                                 
Mid Cap Growth II                 --              --      --        --    1.20%  
-------------------------------------------------------------------------------- 
Mid Cap Value                   0.02%             --      --        --      --   
-------------------------------------------------------------------------------- 
Small Cap Growth                  --            3.67%*  0.15%       --      --   
-------------------------------------------------------------------------------- 
Strategic Small Value             --              --      --      4.23%*  1.85   
-------------------------------------------------------------------------------- 
Cash Reserves                   0.07            0.05    0.04      0.05    0.06   
-------------------------------------------------------------------------------- 
Intermediate Duration           0.05              --      --        --      --   
-------------------------------------------------------------------------------- 
Limited Duration                0.00..            --      --        --      --   
-------------------------------------------------------------------------------- 
Municipal                       0.05            0.04    0.09      0.01    0.01   
-------------------------------------------------------------------------------- 
Multi-Asset-Class               0.08            0.04    0.02      0.03    0.04   
-------------------------------------------------------------------------------- 
U.S. Core Fixed Income          0.01            0.01      --      0.01      --   
-------------------------------------------------------------------------------- 

+++ Per share amounts for the year are based on average shares outstanding.   
.Amount is less than $0.01.                                                   
..Amount is less than 0.01%.                                                  

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Where to find Additional Information                                            

In addition to this prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated January 31, 2002, which contains additional, more    
detailed information about the Fund and the Portfolios. The SAI is incorporated 
by reference into this Prospectus and, therefore, legally forms a part of this  
Prospectus.                                                                     

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about each Portfolio's investments. In the       
Fund's annual report, you will find a discussion of the market conditions and   
the investment strategies that significantly affected each Portfolio's          
performance during the last fiscal year.                                        

You may obtain the SAI and Shareholder Reports, without charge, by contacting   
the Fund at the toll-free number below. If you purchased shares through a       
financial intermediary, you may also obtain these documents, without charge, by 
contacting your financial intermediary.                                         

Information about the Fund, including the SAI and Shareholder Reports, may be   
obtained from the Securities and Exchange 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 call 1-202-942-8090); 
(2) On-line: you may retrieve information from the Commission's web site at     
http://www.sec.gov; (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; or (4) By e-mail: you may       
request documents, upon payment of a duplicating fee, by e-mailing the          
Securities and Exchange Commission at the following address:                    
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's        
Investment Company Act registration number is 811-03980.                        

Morgan Stanley Institutional Fund Trust                                         
One Tower Bridge                                                                
100 Front Street, Suite 1100                                                    
West Conshohocken, PA 19428-2881.                                               

For Shareholder Inquiries,                                                      
call 1-800-548-7786.                                                            

Prices and Investment Results are available at www.morganstanley.com/im.        

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[LOGO] Morgan Stanley 

Adviser Class Prospectus                                                    

January 31, 2002                                                            

Morgan Stanley Institutional Fund Trust                                         

Equity Portfolios                                         
Equity Portfolio                                          

Mid Cap Growth Portfolio                                  
Mid Cap Growth II Portfolio                               
Mid Cap Value Portfolio                                   
Small Cap Growth Portfolio                                
Small Cap Value Portfolio                                 
Value Portfolio                                           

Fixed Income Portfolios                                   
Core Plus Fixed Income Portfolio                          
Investment Grade Fixed Income Portfolio                   
High Yield Portfolio                                      
U.S. Core Fixed Income Portfolio                          

Balanced Portfolios                                       
Balanced Portfolio                                        
Multi-Asset-Class Portfolio                               

Shareholder Services                                                            
1-800-548-7786                                                                  
--------------------------------------------------------------------------------

Prices and Investment Results:                                                  
www.morganstanley.com/im                                                        
--------------------------------------------------------------------------------

Investment Adviser: Morgan Stanley Investments LP                               
--------------------------------------------------------------------------------

Morgan Stanley Institutional Fund Trust (the "Fund") is a no-load mutual fund   
consisting of 29 different investment portfolios, 13 of which are described in  
this prospectus. Morgan Stanley Investments LP (the "Adviser"), an investment   
advisory affiliate of Morgan Stanley Investment Management Inc., is the Fund's  
investment adviser. This prospectus offers Adviser Class Shares of the          
portfolios (each a "Portfolio" and collectively the "Portfolios") described     
herein.                                                                         
--------------------------------------------------------------------------------

The Securities and Exchange Commission has not approved or disapproved these    
securities or passed upon the adequacy of this prospectus. Any representation   
to the contrary is a criminal offense.                                          

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Table of Contents                                                               

                                                                [Download Table]

                                                                      Page
                                                                          
Equity Portfolios                                                         
--------------------------------------------------------------------------
Equity                                                                   1
--------------------------------------------------------------------------
Mid Cap Growth                                                           2
--------------------------------------------------------------------------
Mid Cap Growth II                                                        4
--------------------------------------------------------------------------
Mid Cap Value                                                            6
--------------------------------------------------------------------------
Small Cap Growth                                                         7
--------------------------------------------------------------------------
Small Cap Value                                                          9
--------------------------------------------------------------------------
Value                                                                   10
--------------------------------------------------------------------------

Fixed Income Portfolios                                                   
--------------------------------------------------------------------------
Core Plus Fixed Income                                                  11
--------------------------------------------------------------------------
Investment Grade Fixed Income                                           13
--------------------------------------------------------------------------
High Yield                                                              15
--------------------------------------------------------------------------
U.S. Core Fixed Income                                                  17
--------------------------------------------------------------------------

Balanced Portfolios                                                       
--------------------------------------------------------------------------
Balanced                                                                19
--------------------------------------------------------------------------
Multi-Asset-Class                                                       21
--------------------------------------------------------------------------

Fees and Expenses of the Portfolios                                     23
--------------------------------------------------------------------------
Investment Strategies and Related Risks                                 25
--------------------------------------------------------------------------
Purchasing Shares                                                       29
--------------------------------------------------------------------------
Redeeming Shares                                                        30
--------------------------------------------------------------------------
General Shareholder Information                                         31
--------------------------------------------------------------------------
Fund Management                                                         33
--------------------------------------------------------------------------
Financial Highlights                                                    36
--------------------------------------------------------------------------

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Equity Portfolio                                                                

Objective                                                                       
The Equity Portfolio seeks above-average total return over a market cycle of    
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of large U.S. companies with   
market capitalizations generally greater than $5 billion. The Portfolio may     
invest, to a limited extent, in stocks of small companies and foreign equity    
securities.                                                                     

Process                                                                         
The Adviser assigns each member of the portfolio management team to specific    
"value" or "growth" sectors. The Portfolio's overall sector allocation is       
driven by bottom-up stock selection. The Adviser seeks to diversify the         
Portfolio's investments across market sectors, and to obtain the best values    
within each sector. In determining whether securities should be sold, the       
Adviser considers factors such as deteriorating fundamentals and relative       
valuation.                                                                      

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks.                                                      

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Equity Portfolio                                                                
Commenced operations on January 16, 1998                                        

1999     2000     2001                                                          
----     ----     ----                                                          
28.29   -9.95    -17.33                                                         

High Quarter    12/31/99   19.99%                                               
Low Quarter      9/20/01  -15.34%                                               
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Equity S&P 500
                                                          Portfolio   Index
---------------------------------------------------------------------------
                                                                           
One Year                                                     -17.33  -11.88
Since Inception 1/16/98                                        3.94    5.95

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

                                                                           1

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Mid Cap Growth Portfolio                                                        

Objective                                                                       
The Mid Cap Growth Portfolio seeks long-term capital growth.                    

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of U.S. mid cap companies and, to a limited   
extent, foreign companies. The Adviser selects issues from a universe comprised 
of mid cap companies, most with market capitalizations of generally less than   
$35 billion.                                                                    

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the business. In addition, the Adviser utilizes an      
extensive network of industry contacts and access to management teams to        
monitor changes in the competitive position of the companies in the Portfolio.  
The Adviser generally considers selling a portfolio holding when it determines  
that the holding no longer satisfies its investment criteria.                   

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject                       

[CHART] 
Mid Cap Growth Portfolio                                                        
Commenced operations on January 31, 1997                                        

1998    1999    2000     2001                                                   
----    ----    ----     ----                                                   
37.00   67.89  (7.57)  (29.78)                                                  

High Quarter   12/31/99     39.22%                                              
Low Quarter     9/30/01    (27.66)%                                             

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                          Mid Cap           
                           Growth S&P MidCap
                        Portfolio  400 Index
--------------------------------------------
                                            
One Year                   -29.78      -0.58
Since Inception 1/31/97     14.30      15.55

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P MidCap 400 Index is a market-value weighted index which consists of 400 
domestic stocks that are chosen for market size, liquidity, and industry group  
representation.                                                                 

2                                                                               

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Mid Cap Growth Portfolio (Cont'd)                                               

to more abrupt or erratic price movements. In addition, mid cap companies may   
have more limited markets, financial resources and product lines, and may lack  
the depth of management of larger companies.                                    

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. However, the Adviser cannot  
guarantee continued access to IPOs.                                             

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           3

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Mid Cap Growth II Portfolio                                                     

Objective                                                                       
The Mid Cap Growth II Portfolio seeks long-term capital growth.                 

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of U.S. mid cap companies and, to a limited   
extent, foreign companies. The Adviser selects issues from a universe comprised 
of mid cap companies, most with market capitalizations of generally less than   
$35 billion.                                                                    

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the                                                     
business. In addition, the Adviser utilizes an extensive network of industry    
contacts and access to management teams to monitor changes in the competitive   
position of the companies in the Portfolio. The Adviser generally considers     
selling a portfolio holding when it determines that the holding no longer       
satisfies its investment criteria.                                              

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   

[CHART] 

Mid Cap Growth II Portfolio                                                     
Commenced operations on December 28, 2000                                       

2001                                                                            
-----                                                                           
-39.44                                                                          

High Quarter    12/31/01   21.24%                                               
Low Quarter     03/31/01  -32.75%                                               

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                           Mid Cap      Russell
                         Growth II      Mid Cap
                         Portfolio Growth Index
-----------------------------------------------
                                               
One Year                    -39.44       -20.15
Since Inception 12/28/00    -40.94       -22.04

The bar chart and table show the Portfolio's Institutional Class Shares         
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 year period and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark index. The    
Adviser Class Shares would have had similar annual returns, but returns would   
have been generally lower as expenses of this class are higher. The variability 
of performance over time provides an indication of the risks of investing in    
the Portfolio. How the Portfolio has performed in the past does not necessarily 
indicate how the Portfolio will perform in the future.                          

The Russell Mid Cap Growth Index measures the performance of the 800 smallest   
companies in the Russell 1000 Index, which represent approximately 25% of the   
total market capitalization of the Russell 1000 Index.                          

4                                                                               

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Mid Cap Growth II Portfolio (Cont'd)                                            

markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. However, the Adviser cannot  
guarantee continued access to IPOs.                                             
Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           5

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Mid Cap Value Portfolio                                                         

Objective                                                                       
The Mid Cap Value Portfolio seeks above-average total return over a market      
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally in the range of companies included in the S&P MidCap  
400 Index. The Portfolio may purchase stocks that typically do not pay          
dividends.                                                                      

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the S&P MidCap 400 Index. For example, if the energy 
sector represents 10% of the S&P MidCap 400 Index, then, as a general matter,   
the energy sector would represent between 5-15% of total Portfolio assets.      
There are more than a dozen sectors represented in the S&P MidCap 400 Index     
including technology, heavy industry/transportation, health care, energy and    
basic resources. In determining whether securities should be sold, the Adviser  
considers factors such as high valuations relative to other investment          
opportunities, and deteriorating short or long-term earnings growth projections.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized. At times, the        
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 
Mid Cap Value Portfolio                                                         
Commenced operations on July 17, 1998                                           

1999       2000       2001                                                      
---        ---        ---                                                       
19.56      11.59      -3.57                                                     

High Quarter  12/31/01     20.15%                                               
Low Quarter    9/30/01    -20.65%                                               

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                       Mid Cap Value S&P MidCap
                                                           Portfolio  400 Index
-------------------------------------------------------------------------------
                                                                               
One Year                                                       -3.57      -0.58
Since Inception 7/17/98                                         8.07      10.47

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P MidCap 400 Index is a market-value weighted index which consists of 400 
domestic stocks that are chosen for market size, liquidity, and industry group  
representation.                                                                 

6                                                                               

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Small Cap Growth Portfolio                                                      

Objective                                                                       
The Small Cap Growth Portfolio seeks long-term capital growth.                  

Approach                                                                        
The Adviser seeks long-term capital appreciation by investing primarily in      
growth-oriented equity securities of small U.S. and, to a limited extent,       
foreign companies. The Adviser selects issues from a universe comprised of      
small cap companies, most with market capitalizations of generally less than    
$2.5 billion.                                                                   

Process                                                                         
The Adviser invests in companies that it believes exhibit some or all of the    
following characteristics: (i) superior growth prospects, (ii) accelerating     
returns on invested capital, (iii) sustainable competitive advantages, and (iv) 
experienced and incentivized management teams. The process for investing is     
research intensive and the Adviser focuses primarily on bottom-up fundamental   
analysis, rather than employing a top-down approach. The majority of the        
research is generated internally by portfolio managers and their analysts. The  
Adviser closely tracks companies' earnings quality through detailed financial   
modeling to ensure that reported results accurately reflect the underlying      
economics and trends in the business. In addition, the Adviser utilizes an      
extensive network of industry contacts and access to management teams to        
monitor changes in the competitive position of the companies in the Portfolio.  
The Adviser generally considers selling a portfolio holding when it determines  
that the holding no longer satisfies its investment criteria.                   

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of small cap companies. A company is considered to be 
a small cap company if it has a total market capitalization at the time of      
purchase of $4 billion or less. The market capitalization limit is subject to   
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of small cap companies.                                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in small companies may involve greater risk than            
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

[CHART] 

Small Cap Growth Portfolio                                                      
Commenced operations on June 30, 1998                                           

1999      2000     2001                                                       
----      ----     ----                                                       
313.91    (18.96)  (20.56)                                                      

High Quarter     12/31/99     69.51%                                            
Low Quarter       9/30/01    (26.46)%                                           

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                               Small Cap Russell 2000
                        Growth Portfolio        Index
-----------------------------------------------------
                                                     
One Year                          -20.56         2.49
Since Inception 6/30/98            43.24         3.27

The bar chart and table show the Portfolio's Institutional Class Shares         
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 year period and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark index. The    
Adviser Class Shares commenced operations on 1/10/01 and did not have a full    
calendar year of performance to report. The Adviser Class Shares would have had 
similar annual returns, but returns would have generally been lower as expenses 
of this class are higher. The variability of performance over time provides an  
indication of the risks of investing in the Portfolio. How the Portfolio has    
performed in the past does not necessarily indicate how the Portfolio will      
perform in the future.                                                          

The Russell 2000 Index measures the performance of the 2,000 smallest companies 
in the Russell 3000 Index, which represents approximately 8% of the total       
market capitalization of the Russell 3000 Index. The average market             
capitalization of the companies contained in the Index is approximately $530    
million.                                                                        

                                                                           7

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Small Cap Growth Portfolio (Cont'd)                                             

Purchases of shares issued in IPOs expose the Portfolio 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-public companies in the technology sector have fluctuated in significant  
amounts over short periods of time. From time to time, market conditions have   
allowed the Portfolio to profit from the purchase and sale of shares issued as  
part of, or a short period after, companies' IPOs. A significant portion of the 
Portfolio's performance to date is related to its investment in IPOs. However,  
the Adviser cannot guarantee continued access to IPOs, or the Portfolio's       
ability to profit from them.                                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

8                                                                               

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Small Cap Value Portfolio                                                       

Objective                                                                       
The Small Cap Value Portfolio seeks above-average total return over a market    
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally in the range of companies included in the Russell     
2000 Index. The Portfolio may purchase stocks that typically do not pay         
dividends.                                                                      

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the Russell 2000 Index. For example, if the energy   
sector represents 10% of the Russell 2000 Index, then, as a general matter, the 
energy sector would represent between 5-15% of total Portfolio assets. There    
are more than a dozen sectors represented in the Russell 2000 Index including   
technology, heavy industry/transportation, health care, energy and basic        
resources. In determining whether securities should be sold, the Adviser        
considers factors such as high valuations relative to other investment          
opportunities, and deteriorating short or long-term earnings growth projections.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of small cap companies. A company is considered to be 
a small cap company if it has a total market capitalization at the time of      
purchase of $4 billion or less. The market capitalization limit is subject to   
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of small cap companies.                                                         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized. At times, the        
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 
Small Cap Value Portfolio                                                       
Commenced operations on January 22, 1999                                        

2000      2001                                                                  
---       ---                                                                   
3.27     -7.08                                                                  

High Quarter     12/31/01     16.69%                                            
Low Quarter       9/30/01    -19.56%                                            

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                              Small Cap    Russell
                        Value Portfolio 2000 Index
--------------------------------------------------
                                                  
One Year                          -7.08       2.49
Since Inception 1/22/99            6.71       6.48

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Russell 2000 Index measures the performance of the 2,000 smallest companies 
in the Russell 3000 Index, which represents approximately 8% of the total       
market capitalization of the Russell 3000 Index. The average market             
capitalization of the companies contained in the Index is approximately $530    
million.                                                                        

                                                                           9

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Value Portfolio                                                                 

Objective                                                                       
The Value Portfolio seeks above-average total return over a market cycle of     
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally greater than $2.5 billion. The Portfolio focuses on   
stocks that are believed to be undervalued in comparison with the stock market  
as a whole, as measured by the S&P 500 Index. The Portfolio may purchase stocks 
that do not pay dividends. The Portfolio may invest, to a limited extent, in    
foreign equity securities.                                                      

Process                                                                         
The Adviser selects investments through a three part analysis. The Adviser      
identifies stocks with low price/earnings ratios. The Adviser then applies      
fundamental analysis and its investment judgment to determine which of those    
securities are the most attractive. Finally, the Adviser may favor securities   
of companies that are in undervalued industries. The Adviser employs a formal   
sell discipline, under which the Portfolio sells securities when either their   
price/earnings ratios or alternative valuation parameters rise to what are      
believed to be unacceptable levels. Securities may also be sold if the Adviser  
determines that a significant deterioration in the fundamental outlook of a     
company has occurred.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized.                      

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 
Value Portfolio                                                                 
Commenced operations on July 17, 1996                                           

1997     1998    1999    2000    2001                                           
---      ---     ---     ---     ---                                            
22.99   -3.11   -2.34    23.20   4.27                                           

High Quarter    12/31/00     15.68%                                             
Low Quarter      9/30/98    -19.10%                                             
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                            Value S&P 500
                        Portfolio   Index
-----------------------------------------
                                         
One Year                     4.27  -11.88
Five Year                    8.37   10.70
Since Inception 7/17/96     11.94   13.14

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 and 5 year periods and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark index. The    
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

10                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Core Plus Fixed Income Portfolio                                                

Objective                                                                       
The Core Plus Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

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 seek to        
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 Portfolio may invest opportunistically in        
non-dollar denominated securities and in high yield securities (commonly        
referred to as "junk bonds"). The Portfolio may invest over 50% of its assets   
in mortgage securities. The Adviser may use futures, swaps and other            
derivatives in managing the Portfolio.                                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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 by monitoring interest rates, inflation, 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    
seeking to balance the overall risk of the Portfolio. The Adviser may sell      
securities or exit positions when it believes that expected risk-adjusted       
return is low compared to other investment opportunities.                       

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

[CHART] 

Core Plus Fixed Income Portfolio                                                
Commenced operations on November 7, 1996                                        

1997        1998     1999     2000     2001                                     
---         ---      ---      ---      ---                                      
9.34        6.63    -0.84     10.58    10.00                                    

High Quarter    6/30/97      3.98%                                              
Low Quarter     6/30/99     -1.57%                                              
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                           Core Plus    Salomon Broad
                        Fixed Income Investment Grade
                           Portfolio       Bond Index
-----------------------------------------------------
                                                     
One Year                       10.00             8.50
Five Year                       7.06             7.43
Since Inception 11/7/96         6.98             7.25

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 and 5 year periods and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark index. The    
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            11

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Core Plus Fixed Income Portfolio (Cont'd)                                       

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity, and sudden and  
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

12                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Investment Grade Fixed Income Portfolio                                         

Objective                                                                       
The Investment Grade Fixed Income Portfolio seeks above-average total return    
over a market cycle of three to five years.                                     

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to 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        
Portfolio invests exclusively in securities that carry an investment grade      
rating at the time of purchase, and may invest opportunistically in non-dollar  
denominated securities. The Portfolio may invest over 50% of its assets in      
mortgage securities. The Adviser may use futures, swaps and other derivatives   
in managing the Portfolio.                                                      

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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    
investment grade securities other than those issued by the U.S. Treasury. The   
Adviser also measures various types of risk by monitoring interest rates,       
inflation, 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 seeking to balance the overall risk of the Portfolio. The        
Adviser may sell securities or exit positions when it believes that expected    
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in investment grade fixed income securities.                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments                             

[CHART] 
Investment Grade Fixed Income Portfolio                                         
Commenced operations on August 31, 1990                                         

1992   1993     1994    1995   1996   1997   1998    1999   2000    2001        
----   ----     ----    ----   ----   ----   ----    ----   ----    ----        
7.03   12.62   -5.15   18.67   5.53   9.29   7.54   -1.20   10.51   11.04       

High Quarter    6/30/95  5.67%                                                  
Low Quarter     3/31/92 -2.77%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                        Investment Grade    Salomon Broad
                            Fixed Income       Investment
                               Portfolio Grade Bond Index
---------------------------------------------------------
                                                         
One Year                           11.04             8.50
Five Year                           7.34             7.43
Ten Year                            7.39             7.28
Since Inception 8/31/90             8.92             8.35

The bar chart and table show the Portfolio's Institutional Class Shares         
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1, 5 and 10 year periods and since inception. 
The table also shows the corresponding returns of the Portfolio's benchmark     
index. The Adviser Class Shares would have had similar annual returns, but      
returns would have been generally lower as expenses of this class are higher.   
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            13

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Investment Grade Fixed Income Portfolio (Cont'd)                                

will be made as scheduled. Prices of fixed income securities generally will     
move in correlation to changes in an issuer's credit rating.                    

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

14                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

High Yield Portfolio                                                            

Objective                                                                       
The High Yield Portfolio seeks above-average total return over a market cycle   
of three to five years.                                                         

Approach                                                                        
The Portfolio invests primarily in high yield securities (commonly referred to  
as "junk bonds"). The Portfolio also may invest in investment grade fixed       
income securities, including U.S. Government, corporate and mortgage            
securities. The Portfolio may invest to a limited extent in foreign fixed       
income securities, including emerging market securities. The Portfolio will     
ordinarily seek to maintain an average weighted maturity in excess of five      
years, although there is no minimum or maximum maturity for any individual      
security. The Adviser may use futures, swaps and other derivatives in managing  
the Portfolio.                                                                  

Process                                                                         
The Adviser uses equity and fixed income valuation techniques, together with    
analyses of economic and industry trends, to determine the Portfolio's overall  
structure, sector allocation and desired maturity. The Adviser emphasizes       
securities of companies that it believes have strong industry positions and     
favorable outlooks for cash flow and asset values. The Adviser conducts a       
credit analysis for each security considered for investment to evaluate its     
attractiveness relative to the level of risk it presents. The Portfolio seeks   
to maintain a high level of diversification to minimize its exposure to the     
risks associated with any particular issuer. The Adviser may sell securities or 
exit positions when it believes that expected risk-adjusted return is low       
compared to other investment opportunities.                                     

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in high yield securities.                                              

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

[CHART] 
High Yield Portfolio                                                            
Commenced operations on January 31, 1997                                        

1998      1999    2000    2001                                                  
----      ----    ----    ----                                                  
2.83      7.61   -10.84  -5.96                                                  

High Quarter       12/31/01      5.31%                                          
Low Quarter         9/30/01     -9.18%                                          
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                   CS First Boston
                        High Yield     Global High
                         Portfolio     Yield Index
--------------------------------------------------
                                                  
One Year                     -5.96            5.80
Since Inception 1/31/97       1.06            3.16

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The CS First Boston Global High Yield Index is an unmanaged index of high yield 
corporate bonds.                                                                

                                                                            15

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High Yield Portfolio (Cont'd)                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

16                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

U.S. Core Fixed Income Portfolio                                                

Objective                                                                       
The U.S. Core Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to 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        
Portfolio invests exclusively in securities issued by U.S. - based entities     
that carry an investment grade rating at the time of purchase. The Portfolio    
may invest over 50% of its assets in mortgage securities. The Adviser may use   
futures, swaps and other 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. The Adviser relies upon value measures 
to guide its decisions regarding sector and security 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 by monitoring interest rates, inflation, the shape of the yield curve,     
credit risk and prepayment risk. The Adviser's management team builds an        
investment portfolio designed to take advantage of its judgment                 
on these factors, while seeking to balance the overall risk of the Portfolio.   
The Adviser may sell securities or exit positions when it believes that         
expected risk-adjusted return is low compared to other investment opportunities.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of U.S. issuers.                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     

[CHART] 
U.S. Core Fixed Income Portfolio                                                
Commenced operations on March 1, 1999                                           

2000      2001                                                                  
----      ----                                                                  
10.30     10.35                                                                 

High Quarter    12/31/00     4.15%                                              
Low Quarter     3/31/00      0.88%                                              

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                          U.S. Core    Salomon Broad
                       Fixed Income       Investment
                          Portfolio Grade Bond Index
----------------------------------------------------
                                                    
One Year                      10.35             8.50
Since Inception 3/1/99         6.95             7.21

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 year period and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                            17

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U.S. Core Fixed Income Portfolio (Cont'd)                                       

return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates.                                                           
Prepayment rates can also shorten or extend the average life of the Portfolio's 
mortgage securities.                                                            

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

18                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Balanced Portfolio                                                              

Objective                                                                       
The Balanced Portfolio seeks above-average total return over a market cycle of  
three to five years.                                                            

Approach                                                                        
The Portfolio invests in a mix of equity and fixed income securities. The       
Portfolio normally invests 45-75% of its assets in equity securities and 25-55% 
of its assets in fixed income securities. The Portfolio may invest up to 25% of 
its assets in foreign equity and foreign fixed income securities, including     
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio will ordinarily seek to maintain an average  
weighted maturity in excess of five years, although there is no minimum or      
maximum maturity for any individual security. The Adviser may use futures,      
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser determines the Portfolio's equity and fixed income investment       
strategies separately and then determines the mix of those strategies that it   
believes will maximize the return available from both the stock and bond        
markets, based on proprietary valuation disciplines and analysis. The Adviser   
evaluates international economic developments in determining the amount to      
invest in foreign securities. The Adviser also measures various types of risk,  
by monitoring the level of real interest rates and credit risk. In determining  
whether securities should be sold, the Adviser considers factors such as        
deteriorating earnings, cash flow and other fundamentals, as well as high       
valuations relative to the Portfolio's potential investment universe.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         

Balanced Portfolio                                                              
Commenced operations on November 1, 1996                                        

1997      1998     1999     2000     2001                                       
----      ----     ----     ----     ----                                       
19.26     15.09    15.91   -0.93    -5.65                                       

High Quarter    12/31/98      12.08%                                            
Low Quarter      9/30/01      -7.40%                                            

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                          Salomon Broad        
                                             Investment   60/40
                         Balanced S&P 500    Grade Bond Blended
                        Portfolio   Index         Index   Index
---------------------------------------------------------------
                                                               
One Year                    -5.65  -11.88          8.50   -3.31
Five Year                    8.26   10.70          7.43    9.96
Since Inception 11/1/96      8.73   11.52          7.36   10.40

The bar chart and table show the Portfolio's Adviser Class Shares performance   
year-by-year, best and worst performance for a quarter, and average annual      
total returns for the past 1 and 5 year periods and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark indices. The  
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB/Baa3 or     
better) corporate securities with maturities of one year or longer.             

The 60/40 Blended Index is an unmanaged index comprised of 60% S&P 500 Index    
and 40% Salomon Broad Investment Grade Index.                                   

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Balanced Portfolio (Cont'd)                                                     

particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Multi-Asset-Class Portfolio (Not Currently Open)                                

Objective                                                                       
The Multi-Asset-Class Portfolio seeks above-average total return over a market  
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests in equity securities and fixed income securities of U.S.  
and foreign issuers in accordance with the Adviser's target allocation among    
certain asset classes. These securities may include, to a limited extent,       
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio seeks to invest in a combination of asset    
classes that do not move in tandem with each other, in an effort to improve     
potential return and control the Portfolio's overall risks. The Portfolio's     
neutral position is generally 50% domestic equity securities, 24% domestic      
fixed income securities, 14% foreign equity securities, 6% foreign fixed income 
securities and 6% high yield securities. The Portfolio will ordinarily seek to  
maintain an average weighted maturity in excess of five years, although there   
is no minimum or maximum for any individual security. The Adviser may use       
futures, swaps and other derivatives in managing the Portfolio.                 

Process                                                                         
The Adviser makes strategic judgments based on proprietary measures used to     
compare the relative risks and returns of stock and bond markets around the     
world. The Adviser's asset allocation team sets the target exposures for        
domestic and international equity and fixed income securities, high yield       
securities and cash, depending on the Adviser's appraisal of the relative       
attractiveness of each type of investment. The Adviser also measures various    
types of risk, by monitoring the level of real interest rates and credit risk.  
In determining whether securities should be sold, the Adviser considers factors 
such as deteriorating earnings, cash flows and other fundamentals, as well as   
high valuations relative to the Portfolio's investment opportunities.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

[CHART] 
Multi-Asset-Class Portfolio                                                     
Commenced operations on July 29, 1994                                           

1995    1996    1997    1998    1999    2000    2001                            
----    ----    ----    ----    ----    ----    ----                            
24.62   15.93   17.48   13.87   16.84  -8.43   -8.93                            

High Quarter      12/31/98      12.82%                                          
Low Quarter        9/30/98      -8.64%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                            Salomon Broad                  
                             Multi-            Investment                  
                        Asset-Class S&P 500    Grade Bond MSCI EAFE Blended
                          Portfolio   Index         Index     Index   Index
---------------------------------------------------------------------------
                                                                           
One Year                      -8.93  -11.88          8.50    -21.44   -6.48
Five Year                      5.44   10.70          7.43      0.89    8.01
Since Inception 7/29/94        8.69   15.18          7.75      2.60   10.76

The bar chart and table show the Portfolio's Institutional Class Shares         
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark         
indices. The Adviser Class Shares would have had similar annual returns, but    
returns would have generally been lower as expenses of this class are higher.   
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

The MSCI EAFE Index is an unmanaged index of common stocks in Europe,           
Australasia and the Far East.                                                   

The Blended Index is an unmanaged index comprised of 50% S&P 500 Index, 24%     
Salomon Broad Investment Grade Index, 14% MSCI EAFE Index, 6% Salomon World     
Government Bond Ex-U.S. Index and 6% CS First Boston Global High Yield Index.   

                                                                            21

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Multi-Asset-Class Portfolio (Cont'd)                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. A substantial portion of the    
Portfolio's investments may be denominated in a foreign currency. Changes in    
the values of those currencies compared to the U.S. dollar may affect the value 
of the Portfolio's investments. These risks are greater in emerging market      
countries.                                                                      

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Fees and Expenses of the Portfolios                                             

The Portfolios do not charge any sales loads or other fees when you purchase or 
redeem shares.                                                                  
Annual Portfolio Operating Expenses for the fiscal year ended September 30, 2001
(expenses that are deducted from Portfolio assets)                              

                                                        [Enlarge/Download Table]

                                                                                     Total Annual  
                                         Management  Distribution     Other   Portfolio Operating  
                                               Fees  (12b-1) Fees  Expenses              Expenses  
                                                                                                   
Equity Portfolio                                .50%          .25%      .11%                  .86% 
---------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                        .50           .25       .11                   .86  
---------------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio+                    .75           .25      2.55                  3.55**
---------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                         .75           .25       .11                  1.11  
---------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                     1.00           .25       .15                  1.40**
---------------------------------------------------------------------------------------------------
Small Cap Value Portfolio                       .75           .25       .11                  1.11  
---------------------------------------------------------------------------------------------------
Value Portfolio                                 .50           .25       .12                   .87  
---------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio               .375           .25       .10                   .73  
---------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio+       .375           .25       .12*                  .75  
---------------------------------------------------------------------------------------------------
High Yield Portfolio                            .45           .25       .13                   .83  
---------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio               .375           .25       .12                   .75**
---------------------------------------------------------------------------------------------------
Balanced Portfolio                              .45           .25       .14                   .84  
---------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio+                    .65           .25        .18*                1.08**
---------------------------------------------------------------------------------------------------

Total Annual Portfolio Operating Expenses reflected in the table above may be   
higher than the expenses actually deducted from Portfolio assets because of the 
effect of expense offset arrangements and/or voluntary waivers.                 
*Other Expenses are based on estimated amounts.                               
**The Adviser has voluntarily agreed to reduce its advisory fee and/or          
reimburse the Portfolios so that total expenses will not exceed the rates   
shown in the table below. Fee waivers, expense offsets and/or expense       
reimbursements are voluntary and the Adviser reserves the right to terminate
any waiver and/or reimbursement at any time and without notice.             
+As of the fiscal year ended September 30, 2001, the Adviser Class of shares of 
the Portfolio had not commenced operations.                                   

                                                        [Enlarge/Download Table]

                                                  Total Annual Portfolio Operating Expenses 
                                                        After Morgan Stanley Investments LP 
                                                             Waiver/Reimbursement & Offsets 
                                                                                            
Mid Cap Growth II Portfolio+                                                           1.15%
--------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                                                             1.40 
--------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                                                        .75 
--------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                                            1.03 
--------------------------------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Adviser Class of shares of 
the Portfolio had not commenced operations.                                   

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Fees and Expenses of the Portfolios                                             

The example assumes that you invest $10,000 in each Portfolio for the time      
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that each Portfolio's operating expenses remain the same. Although your actual  
costs may be higher or lower, based on these assumptions your costs would be    
equal to the amounts reflected in the table to the right.                       

Example                                                                         
This example is intended to help you compare the cost of investing in each      
Portfolio with the cost of investing in other mutual funds.                     

                                                                [Download Table]

                                               1 Year 3 Years 5 Years 10 Years
                                                                              
Equity Portfolio                                 $ 88  $  274  $  477  $ 1,061
------------------------------------------------------------------------------
Mid Cap Growth Portfolio                           88     274     477    1,061
------------------------------------------------------------------------------
Mid Cap Growth II Portfolio+                      358   1,088   1,840    3,818
------------------------------------------------------------------------------
Mid Cap Value Portfolio                           113     353     612    1,352
------------------------------------------------------------------------------
Small Cap Growth Portfolio                        143     443     766    1,680
------------------------------------------------------------------------------
Small Cap Value Portfolio                         113     353     612    1,352
------------------------------------------------------------------------------
Value Portfolio                                    89     278     482    1,073
------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                   75     233     406      906
------------------------------------------------------------------------------
Investment Grade Fixed Income+                     77     240     417      930
------------------------------------------------------------------------------
High Yield Portfolio                               83     259     450    1,002
------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                   77     240     417      930
------------------------------------------------------------------------------
Balanced Portfolio                                 85     265     460    1,029
------------------------------------------------------------------------------
Multi-Asset-Class Portfolio+                      110     343     595    1,317
------------------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Portfolio had not          
commenced operations.                                                         

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Investment Strategies and Related Risks                                         

This section discusses in greater detail the Portfolios' principal investment   
strategies and the other types of investments that the Portfolios may make.     
Please read this section in conjunction with the earlier summaries. The         
Portfolios' investment practices and limitations are also described in more     
detail in the Statement of Additional Information ("SAI"), which is             
incorporated by reference and legally is a 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.                                                  

An investment in a Portfolio is not insured or guaranteed by the Federal        
Deposit Insurance Corporation or any other government agency.                   

Equity Securities                                                               
Equity securities include common stock, preferred stock, convertible            
securities, ADRs, rights, warrants and shares of investment companies. The      
Portfolios may invest in equity securities that are publicly traded on          
securities exchanges or over-the-counter or in equity securities that are not   
publicly traded. Securities that are not publicly traded may be more difficult  
to sell and their value may fluctuate more dramatically than other securities.  

ADRs are U.S. dollar-denominated securities that represent claims to shares of  
foreign stocks. The Portfolios treat ADRs as U.S. securities for purposes of    
foreign investment limitations.                                                 

Growth stocks generally have higher growth rates, betas, and price/earnings     
ratios, and lower yields than the stock market in general as measured by an     
appropriate stock market index. Value stocks are stocks that are deemed by the  
Adviser to be undervalued relative to the stock market in general. The Adviser  
makes value decisions guided by the appropriate market index, based on value    
characteristics such as price/earnings and price/book ratios. Value stocks      
generally are dividend paying common stocks. However, non-dividend paying       
stocks also may be selected for their value characteristics.                    

IPOs                                                                            
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 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-public      
companies have fluctuated in significant amounts over short periods of time.    
The purchase of shares issued in IPOs may have a greater impact upon the        
Portfolio's total returns during any period that the Portfolio has a small      
asset base. As the Portfolio assets grow, any impact of IPO investments on the  
Portfolio's total return may decline.                                           

Fixed Income Securities                                                         
Fixed income securities are securities that pay a fixed rate of interest until  
a stated maturity date. Fixed income securities include U.S. Government         
securities, securities issued by federal or federally sponsored agencies        
("agencies"), corporate bonds and notes, asset-backed securities, mortgage      
securities, high yield securities, municipal bonds, loan participations and     
assignments, zero coupon bonds, convertible securities, Eurobonds, Brady Bonds, 
Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.     

These securities are subject to risks related to changes in interest rates and  
in the financial health or credit rating of the issuers. The maturity and       
duration of a fixed income instrument also affects 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 price changes than shorter     
term securities because they are more sensitive to changes in interest rates or 
in the credit ratings of the issuers.                                           

Fixed income securities may be called (redeemed by the issuer) prior to final   
maturity. If a callable security is called, a Portfolio may have to reinvest    
the proceeds at a lower rate of interest.                                       

Duration                                                                        
The average duration of a portfolio of fixed income securities represents its   
exposure to changing interest rates. A portfolio with a lower average duration  
generally will experience less price volatility in                              

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response to changes in interest rates than a portfolio with a higher average    
duration.                                                                       

High Yield Securities                                                           
Fixed income securities that are not investment grade are commonly referred to  
as junk bonds or high yield, high risk securities. These securities offer a     
higher yield than other higher rated securities, but they carry a greater       
degree of risk and are considered speculative by the major credit rating        
agencies. High yield securities may be issued by companies that are             
restructuring, are smaller and less creditworthy or are more highly indebted    
than other companies. This means that they may have more difficulty making      
scheduled payments of principal and interest. Changes in the value of high      
yield securities are influenced more by changes in the financial and business   
position of the issuing company than by changes in interest rates when compared 
to investment grade securities.                                                 

Mortgage Securities                                                             
These are fixed income securities that derive their value from or represent     
interests in a pool of mortgages or mortgage securities. Mortgage securities    
are subject to prepayment risk--the risk that, as interest rates fall,          
borrowers will refinance their mortgages and "prepay" principal. A portfolio    
holding mortgage securities that are experiencing prepayments will have to      
reinvest these payments at lower prevailing interest rates. On the other hand,  
when interest rates rise, borrowers are less likely to refinance, resulting in  
lower prepayments. This can effectively extend the maturity of a Portfolio's    
mortgage securities, resulting in greater price volatility. It can be difficult 
to measure precisely the remaining life of a mortgage security or the average   
life of a portfolio of such securities.                                         

Foreign Securities                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers    
can be less liquid and experience greater price movements. In some foreign      
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect an investing portfolio's           
investment. There also can be difficulty obtaining and enforcing judgments      
against issuers in foreign countries. Foreign stock exchanges, broker-dealers,  
and listed issuers may be subject to less government regulation and oversight.  
The cost of investing in foreign securities, including brokerage commissions    
and custodial expenses, can be higher than in the United States.                

Foreign Currency                                                                
Foreign securities are denominated in foreign currencies. The value of foreign  
currencies fluctuates relative to the value of the U.S. dollar. Since investing 
Portfolios must convert the value of foreign securities into dollars, changes   
in currency exchange rates can increase or decrease the U.S. dollar value of    
the Portfolios' assets. The Adviser may use derivatives to reduce this risk.    
The Adviser may in its discretion choose not to hedge against currency risk. In 
addition, certain market conditions may make it impossible or uneconomical to   
hedge against currency risk.                                                    

Emerging Market Securities                                                      
Investing in emerging market securities enhances the risks of foreign           
investing. In addition, emerging market securities generally are less liquid    
and subject to wider price and currency fluctuations than securities issued in  
more developed countries. In certain countries, the market may be dominated by  
a few issuers or sectors. Investment funds and structured investments are       
mechanisms for U.S. and other investors to invest in certain emerging markets   
that have laws precluding or limiting direct investments by foreign investors.  

Derivatives and Other Investments                                               
Derivatives are financial instruments whose value and performance are based on  
the value and performance of another security or financial instrument.          
Derivatives sometimes offer the most economical way of pursuing an investment   
strategy, limiting risks or enhancing returns, although there is no guarantee   
of success. Hedging strategies or instruments may not be available or practical 
in all circumstances. Derivative instruments may be publicly traded or          
privately negotiated. Derivatives used by the Adviser include futures           
contracts, options contracts, forward contracts, swaps, collateralized mortgage 
obligations ("CMOs"),                                                           

26                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

stripped mortgage-backed securities ("SMBS"), and structured notes.             

A forward contract is an obligation to purchase or sell a security or 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. Forward currency contracts are used to protect against         
uncertainty in the level of future foreign currency exchange rates. A futures   
contract provides for the future sale by one party and purchase by another      
party of a specified amount of a specific security at a specified future time   
and at a specified price. The Portfolios may use futures contracts to gain      
exposure to an entire market (e.g., stock index futures) or to control their    
exposure to changing foreign currency exchange rates or interest rates.         
Portfolios investing in fixed income securities may use futures to control      
their exposure to changes in interest rates and to manage the overall maturity  
and duration of their securities holdings.                                      

If a Portfolio buys an option, it buys a legal contract giving it the right to  
buy or sell a specific amount of a security or futures contract at an           
agreed-upon price. If a Portfolio "writes" an option, it sells to another       
person the right to buy from or sell to the Portfolio a specific amount of a    
security or futures contract at an agreed-upon price.                           

The Portfolios may enter into swap transactions which are contracts in which a  
Portfolio agrees to exchange the return or interest rate on one instrument for  
the return or interest rate on another instrument. Payments may be based on     
currencies, interest rates, securities indices or commodity indices. Swaps may  
be used to manage the maturity and duration of a fixed income portfolio, or to  
gain exposure to a market without directly investing in securities traded in    
that market.                                                                    

Structured investments are units representing an interest in assets held in a   
trust that is not an investment company as defined in the Investment Company    
Act of 1940, as amended ("1940 Act"). The trust may pay a return based on the   
income it receives from those assets, or it may pay a return based on a         
specified index.                                                                

Collateralized mortgage obligations (CMOs) and stripped mortgage-backed         
securities (SMBS) are derivatives based on mortgage securities. CMOs are issued 
in a number of series (known as "tranches"), each of which has a stated         
maturity. Cash flow from the underlying mortgages is allocated to the tranches  
in a predetermined, specified order. SMBS are multi-class mortgage securities   
issued by U.S. government agencies and instrumentalities and financial          
institutions. They usually have two classes, one receiving most of the          
principal payments from the mortgages, and one receiving most of the interest.  
In some cases, classes may receive interest only (called "IOs") or principal    
only (called "POs"). Inverse floating rate obligations ("inverse floaters") are 
fixed income securities which have coupon rates that vary inversely (often at a 
multiple) to another specified floating rate, such as LIBOR (London Inter-Bank  
Offered Rate). If the specified reference rate rises, the coupon rate of the    
inverse floater falls, while a decrease in the reference rate causes an         
increase in the inverse floater's coupon rate.                                  

Risks of Derivatives                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held or to be acquired by a Portfolio, and of derivatives relating   
to those securities, may not be proportionate, (ii) there may not be a liquid   
market for a Portfolio to sell a derivative, which could result in difficulty   
closing a position, and (iii) magnification of losses incurred due to changes   
in the market value of the securities, instruments, indices, or interest rates  
to which they relate.                                                           

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a forward or futures contract with the value of   
securities denominated in a particular currency.                                

Mortgage derivatives 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 CMO or SMBS that a Portfolio holds, these price       
movements may be significantly greater than those experienced by mortgage       
securities generally, depending on whether the payments are predominantly based 
on the principal or interest paid on the underlying mortgages. IOs, POs and     
inverse floaters may exhibit substantially greater price volatility than fixed  
rate obligations                                                                

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having similar credit quality, redemption provisions and maturities. IOs, POs   
and inverse floaters may exhibit greater price volatility than the majority of  
mortgage pass-through securities or CMOs. In addition, the yield to maturity of 
IOs, POs and inverse floaters is extremely sensitive to prepayment levels. As a 
result, higher or lower rates of prepayment than that anticipated can have a    
material effect on a Portfolio's yield to maturity and could cause a Portfolio  
to suffer losses.                                                               

Temporary Defensive Investments                                                 
When the Adviser believes that changes in economic, financial or political      
conditions warrant, each Portfolio may invest without limit in fixed income     
securities for temporary defensive purposes, as described in the Statement of   
Additional Information. If the Adviser incorrectly predicts the effects of      
these changes, the defensive investments may adversely affect the Portfolio's   
performance.                                                                    

Portfolio Turnover                                                              
Consistent with their investment policies, the Portfolios will purchase and     
sell securities without regard to the effect on portfolio turnover. Higher      
portfolio turnover (e.g., over 100% per year) will cause the Portfolio to incur 
additional transaction costs and may result in taxable gains being passed       
through to shareholders.                                                        

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Purchasing Shares                                                               

Adviser Class Shares are available to clients of the Adviser with combined      
investments of $500,000 and corporations or other institutions, such as trusts  
and foundations.                                                                

Adviser Class Shares of the Portfolios may be purchased directly from Morgan    
Stanley Institutional Fund Trust or through a financial intermediary. Investors 
purchasing shares through a financial intermediary may be charged a             
transaction-based or other fee by the financial intermediary for its services.  
If you are purchasing Adviser Class Shares through a financial intermediary,    
please consult your intermediary for purchase instructions.                     

Adviser Class shares of the Portfolios may, in the Fund's discretion, be        
purchased with investment securities (in lieu of or, in conjunction with, cash) 
acceptable to the Fund. The securities would be accepted by the Fund at their   
market value in return for Adviser Class Shares of the Portfolios.              

Adviser Class Shares of each Portfolio may be purchased at the net asset value  
per share (NAV) next determined after we receive your purchase order.           

Initial Purchase by Mail                                                        
You may open an account, subject to acceptance by Morgan Stanley Institutional  
Fund Trust, by completing and signing an Account Registration Form provided by  
J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's Transfer      
Agent, which you can obtain by calling J.P. Morgan at 1-800-548-7786 and        
mailing it to J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, 
MA 02108 together with a check payable to Morgan Stanley Institutional Fund     
Trust.                                                                          

Please note that payments to investors who redeem shares purchased by check     
will not be made until payment of the purchase has been collected, which may    
take up to eight business days after purchase. You can avoid this delay by      
purchasing shares by wire.                                                      

Initial Purchase by Wire                                                        
You may purchase Adviser Class Shares of each Portfolio by wiring Federal Funds 
to the Fund's Custodian Bank, J.P. Morgan Chase & Co. (the "Custodian"). You    
should forward a completed Account  Registration Form to J.P. Morgan in advance 
of the wire. For all Portfolios, notification must be given to J.P. Morgan at   
1-800-548-7786 prior to the determination of NAV. See the section below         
entitled "Valuation of Shares." (Prior notification must also be received from  
investors with existing accounts.) Instruct your bank to send a Federal Funds   
wire in a specified amount to the Custodian using the following wire            
instructions:                                                                   

J.P. Morgan Chase & Co.                                                         
1 Chase Manhattan Plaza                                                         
New York, NY 10081                                                              
ABA #021000021                                                                  
DDA #910-2-734143                                                               
Attn: Morgan Stanley Institutional Fund Trust Subscription Account              
Ref: (Portfolio Name, Account Number, Account Name)                             

Additional Investments                                                          
You may make additional investments in Adviser Class Shares (minimum additional 
investment $1,000) at the NAV next determined after the request is received in  
good order, by mailing a check (payable to Morgan Stanley Institutional Fund    
Trust) to J.P. Morgan at the address noted under Initial Purchase by Mail or by 
wiring Federal Funds to the Custodian as outlined above. For all Portfolios,    
notification must be given to J.P. Morgan at 1-800-548-7786 prior to the        
determination of NAV.                                                           

Other Purchase Information                                                      
The Fund may suspend the offering of shares, or any class of shares, of any     
Portfolio or reject any purchase orders when we think it is in the best         
interest of the Fund. The Fund, in its sole discretion, may waive the minimum   
initial and additional investment amounts in certain cases.                     

Frequent trading by shareholders can disrupt management of a Portfolio and      
raise its expenses. Therefore, we may not accept any request for a purchase,    
redemption or exchange when we think it is being used as a tool for market      
timing, and we may bar a shareholder who trades excessively from making further 
purchases for an indefinite period.                                             

Purchases of a Portfolio's shares will be made in full and fractional shares of 
the Portfolio calculated to three decimal places.                               

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Redeeming Shares                                                                

You may redeem shares of each Portfolio by mail, or, if authorized, by          
telephone at no charge. The value of shares redeemed may be more or less than   
the purchase price, depending on the NAV at the time of redemption. Each        
Portfolio will redeem shares at the NAV next determined after the request is    
received in good order.                                                         

By Mail                                                                         
Requests should be addressed to Morgan Stanley Institutional Fund Trust, c/o    
J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA 02108.     

To be in good order, redemption requests must include the following             
documentation:                                                                  

(a) The share certificates, if issued;                                          

(b) A letter of instruction, if required, or a stock assignment specifying the  
number of shares or dollar amount to be redeemed, signed by all registered      
owners of the shares in the exact names in which the shares are registered;     

(c) Any required signature guarantees; and                                      

(d) Other supporting legal documents, if required, in the case of estates,      
trusts, guardianships, custodianship, corporations, pension and profit sharing  
plans and other organizations.                                                  

By Telephone                                                                    
If you have authorized the Telephone Redemption Option on the Account           
Registration Form, you may request a redemption of shares by calling the Fund   
at 1-800-548-7786 and requesting that the redemption proceeds be mailed or      
wired to you. You cannot redeem shares by telephone if you hold share           
certificates for those shares.                                                  

The Fund will ordinarily pay redemption proceeds within seven business days     
after receipt of your request. The Fund may suspend the right of redemption or  
postpone the payment of redemption proceeds at times when the New York Stock    
Exchange ("NYSE") is closed, the Fund is closed or under other circumstances in 
accordance with interpretations or orders of the U.S. Securities and Exchange   
Commission.                                                                     

If we determine that it is in the best interest of other shareholders not to    
pay redemption proceeds in cash, we may pay you partly or entirely by           
distributing to you readily marketable securities held by the Portfolio from    
which you are redeeming. You may incur brokerage charges when you sell those    
securities.                                                                     

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

General Shareholder Information                                                 

Valuation of Shares                                                             
The NAV of the Portfolios is determined as of the close of the NYSE (normally   
4:00 p.m. Eastern Time) on each day the Portfolios are open for business.       

Each Portfolio values its securities at market value. When no quotations are    
readily available for securities or when the value of securities has been       
materially affected by events occurring after the close of the market, we will  
determine the value for those securities in good faith at fair value using      
methods approved by the Board of Trustees.                                      

The NAV of Adviser Class Shares may differ from that of other classes because   
of class-specific expenses that each class may pay, the distribution fees       
charged to Adviser Class Shares and the shareholder servicing fees charged to   
Investment Class Shares.                                                        

Exchange Privilege                                                              
You may exchange each Portfolio's Adviser Class Shares for Adviser Class Shares 
of other available portfolios of the Fund or for Class B shares of available    
portfolios of Morgan Stanley Institutional Fund, Inc. based on their respective 
NAVs. We charge no fee for exchanges. To obtain a prospectus for another        
portfolio, call the Fund at 1-800-548-7786 or contact your financial            
intermediary. If you purchased Portfolio shares through a financial             
intermediary, certain portfolios may be unavailable for exchange. Contact your  
financial intermediary to determine which portfolios are available for exchange.

You can process your exchange by contacting your financial intermediary.        
Otherwise, you should send exchange requests by mail to the Fund's Transfer     
Agent, J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA     
02108-3919. Exchange requests can also be made by calling 1-800-548-7786.       

When you exchange for shares of another portfolio, your transaction will be     
treated the same as an initial purchase. You will be subject to the same        
minimum initial investment and account size as an initial purchase. The Fund,   
in its sole discretion, may waive the minimum initial investment amounts in     
certain cases.                                                                  

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Dividends and Distributions                                                     
The Portfolios normally distribute substantially all of their net investment    
income to shareholders as follows:                                              

                                                                [Download Table]

Portfolio                     Quarterly Annually
                                                
Equity                                .         
------------------------------------------------
Mid Cap Growth                                 .
------------------------------------------------
Mid Cap Growth II                              .
------------------------------------------------
Mid Cap Value                                  .
------------------------------------------------
Small Cap Growth                               .
------------------------------------------------
Small Cap Value                                .
------------------------------------------------
Value                                 .         
------------------------------------------------
Core Plus Fixed Income                .         
------------------------------------------------
Investment Grade Fixed Income         .         
------------------------------------------------
High Yield                            .         
------------------------------------------------
U.S. Core Fixed Income                .         
------------------------------------------------
Balanced                              .         
------------------------------------------------
Multi-Asset-Class                     .         
------------------------------------------------

If any net gains are realized from the sale of underlying securities, the       
Portfolios normally distribute the gains with the last distributions for the    
calendar year. All dividends and distributions are automatically paid in        
additional shares of the Portfolio unless you elect otherwise. If you want to   
change how your dividends are paid you must notify Morgan Stanley Institutional 
Fund Trust in writing.                                                          

Taxes                                                                           
Income dividends you receive will be taxable as ordinary income, whether you    
receive them in cash or in additional shares. Corporate shareholders may be     
entitled to a dividends-received deduction for the portion of dividends they    
receive which are attributable to dividends received by such Portfolios from    
U.S. corporations. Capital gains distributions may be taxable at different      
rates depending on the length of time the Portfolio holds its assets.           

Investment income received by the Portfolios from sources within foreign        
countries may be subject to foreign income taxes. The Portfolios may be able to 
pass through to you for foreign tax credit purposes the amount of foreign       
income taxes that they paid.                                                    

Distributions paid in January but declared by a Portfolio in October, November  
or December of the previous year are taxable to you in the previous year.       

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the     
taxable distributions paid to you in the previous year. The statement provides  
information on your dividends and capital gains for tax purposes.               

Exchanges and redemptions of shares in a Portfolio are taxable events and may   
result in a taxable gain or loss to you.                                        

When you open your account, you should provide your social security or tax      
identification number on your investment application. By providing this         
information, you will avoid being subject to a federal backup withholding tax   
(approximately 30% currently) on taxable distributions and redemption proceeds. 
Any withheld amount would be sent to the IRS as an advance tax payment.         

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Fund Management                                                                 

Adviser                                                                         
The Adviser to the Fund, Morgan Stanley Investments LP ("MSI" or the "Adviser") 
(formerly "Miller Anderson & Sherrerd LP"), is a Pennsylvania limited liability 
partnership founded in 1969. The Adviser is wholly-owned by subsidiaries of     
Morgan Stanley Dean Witter & Co. ("Morgan Stanley"). Morgan Stanley is a        
preeminent global financial services firm that maintains leading market         
positions in each of its three primary businesses--securities, asset            
management, and credit services. The Adviser is an investment advisory          
affiliate of Morgan Stanley Investment Management Inc. ("MSIM") and is located  
at One Tower Bridge, 100 Front Street, Suite 1100, West Conshohocken, PA        
19428-2881. The Adviser provides investment advisory services to employee       
benefit plans, endowment funds, foundations and other institutional investors.  
As of December 31, 2001, MSI, together with its affiliated asset management     
companies, had approximately $415.9 billion in assets under management with     
approximately $178.1 billion in institutional assets.                           

The Adviser makes investment decisions for the Fund's Portfolios and places     
each Portfolio's purchase and sales orders. Each Portfolio, in turn, pays the   
Adviser an annual advisory fee calculated by applying a quarterly rate. The     
following table shows the Adviser's annual contractual and actual rates of      
compensation for the Fund's 2001 fiscal year.                                   
Adviser's Rates of Compensation                                                 

                                                                [Download Table]

                                        FY2001 Contractual      FY2001 Actual 
                                         Compensation Rate  Compensation Rate 
                                                                              
Equity Portfolio                                       .50%               .50%
------------------------------------------------------------------------------
Mid Cap Growth Portfolio                               .50                .50 
------------------------------------------------------------------------------
Mid Cap Growth II Portfolio*                           .75                 -- 
------------------------------------------------------------------------------
Mid Cap Value Portfolio                                .75                .75 
------------------------------------------------------------------------------
Small Cap Growth Portfolio*                           1.00               1.00 
------------------------------------------------------------------------------
Small Cap Value Portfolio                              .75                .75 
------------------------------------------------------------------------------
Value Portfolio                                        .50                .50 
------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                      .375               .375 
------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio               .375               .375 
------------------------------------------------------------------------------
High Yield Portfolio                                   .45                .45 
------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio*                     .375               .375 
------------------------------------------------------------------------------
Balanced Portfolio                                     .45                .45 
------------------------------------------------------------------------------
Multi-Asset-Class Portfolio*                           .65                .61 
------------------------------------------------------------------------------

*The Adviser is voluntarily waiving a portion of its fee and/or reimbursing     
certain expenses for the Mid Cap Growth II Portfolio, the Small Cap Growth    
Portfolio, U.S. Core Fixed Income Portfolio and the Multi-Asset-Class         
Portfolio to keep Total Operating Expenses from exceeding 1.15%, 1.40%, .75%  
and 1.03%, respectively.                                                      

Portfolio Management                                                            

Equity Portfolio                                                                
The Portfolio's assets are managed by the Core Equity Team. Current members of  
the team include Brian Kramp, Executive Director, and Eric F. Scharpf, Vice     
President.                                                                      

Mid Cap Growth Portfolio and Mid Cap Growth II Portfolio                        
The Portfolio's assets are managed by the Small/Mid-Cap Growth Team. Current    
members of the team include David P. Chu, Executive Director, Dennis Lynch,     
Vice President, David Cohen, Vice President, and David Reidinger, Vice          
President.                                                                      

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Mid Cap Value Portfolio                                                         
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, William B. Gerlach, 
Managing Director, and Charles Purcell, Vice President.                         

Small Cap Growth Portfolio                                                      
The Portfolio's assets are managed by the Small/Mid-Cap Growth Team. Current    
members of the team include David P. Chu, Executive Director, Dennis Lynch,     
Vice President, and John Roscoe, Vice President.                                

Small Cap Value Portfolio                                                       
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, James Jolinger,     
Executive Director, and Matthew Todorow, Vice President.                        

Value Portfolio                                                                 
The Portfolio's assets are managed by the Large Cap Value and Core Equity       
Teams. Current members of the teams include Richard M. Behler, Managing         
Director,  Brian Kramp, Executive Director, and Eric F. Scharpf, Vice President.

Core Plus Fixed Income Portfolio and Investment Grade Fixed Income Portfolio    
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Thomas L.    
Bennett, Managing Director, and Roberto M. Sella, Managing Director.            

High Yield Portfolio                                                            
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include Stephen F. Esser, Managing Director, Gordon W.      
Loery, Executive Director, and Deanna L. Loughnane, Executive Director.         

U.S. Core Fixed Income Portfolio                                                
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Angelo G.    
Manioudakis, Executive Director, and Scott F. Richard, Managing Director.       

Balanced Portfolio                                                              
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Balanced Portfolio in 1992. Cyril            
Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He joined the    
management team for the Balanced Portfolio in 2001. Brian Kramp, Executive      
Director, MSIM, joined MSI in 1997. He joined the management team for the       
Balanced Portfolio in 2002.                                                     

Multi-Asset-Class Portfolio                                                     
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Multi-Asset-Class Portfolio in 1994. Barton  
M. Biggs, Managing Director, MSIM, since 1975, Chairman of MSIM since 1980 and  
a Director of Morgan Stanley Group, Inc. He is also a Managing Director of MSIA 
and a director and chairman of various registered investment companies to which 
MSIM and certain of its affiliates provide investment advisory services. He     
joined the management team for the Multi-Asset-Class Portfolio in 1999. J.      
David Germany, Managing Director, MSIM, joined MSI in 1991. He joined the       
management team for the Multi-Asset-Class Portfolio in 1994. Cyril              
Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He joined the    
management team for the Multi-Asset-Class Portfolio in 2001. Brian Kramp,       
Executive Director, MSIM, joined MSI in 1997. He joined the management team for 
the Multi-Asset-Class Portfolio in 2002.                                        

Distributor                                                                     
Shares of the Fund are distributed exclusively through Morgan Stanley           
Distribution, Inc. ("MSDI"), a wholly-owned subsidiary of the Adviser. MSDI has 
entered into arrangements with certain financial intermediaries who may accept  
purchase and redemption orders for shares of certain Portfolios on its behalf.  

34                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Distribution Plan                                                               
The Fund has adopted a Plan of Distribution for each Portfolio's Adviser Class  
Shares pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan,  
each Portfolio pays the Distributor a monthly distribution fee at an annual     
rate of 0.25% of the Portfolio's average daily net assets attributable to       
Adviser Class Shares. The Distributor may keep any or all of this fee as        
compensation for its services in connection with distributing Adviser Class     
Shares or providing shareholder or account maintenance services. The            
Distributor also may use this fee to pay financial intermediaries, plan         
fiduciaries, and investment professionals, including the Adviser, for providing 
distribution support services, and/or account maintenance services to           
shareholders (including, when applicable, any underlying beneficial owners) of  
Adviser Class Shares.                                                           

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Financial Highlights                                                            

The following financial highlights tables are intended to help you understand   
the financial performance of each Portfolio for the past five years or, if less 
than five years, the life of the Portfolio or Class. The total returns in the   
tables represent the rate that an investor would have earned (or lost) on an    
investment in each Portfolio (assuming reinvestment of all dividends and        
distributions). The information for the year 2001 has been extracted from the   
Fund's financial statements which were audited by Deloitte & Touche LLP, whose  
report, along with the Fund's financial statements, are incorporated by         
reference into the                                                              

                                                        [Enlarge/Download Table]

                                      Net Gains or                                                              
               Net Asset                    Losses                     Dividend    Capital Gain                 
                   Value        Net  on Securities  Total from    Distributions   Distributions                 
               Beginning Investment  (realized and  Investment  (net investment   (realized net          Other  
               of Period     Income    unrealized)  Activities          income)  capital gains)  Distributions  
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Equity Portfolio (Commencement of Adviser Class Operations 1/16/98)                                             
2001+++          $17.24     $ 0.06         ($4.78)     ($4.72)          ($0.06)         ($0.61)        ($2.14)# 
2000+++           19.79       0.01           3.53        3.54            (0.02)          (6.07)            --   
1999              20.42       0.11           5.21        5.32            (0.12)          (5.83)            --   
1998              20.50       0.10          (0.09)       0.01            (0.09)             --             --   
----------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio (Commencement of Adviser Class Operations 1/31/97)                                     
2001             $34.79    ($ 0.10)       ($16.24)    ($16.34)                              --         ($3.86)# 
2000              25.59      (0.09)         13.56       13.47               --           (4.27)            --   
1999              18.55      (0.05)         10.58       10.53               --           (3.49)            --   
1998              21.81      (0.03)          0.20        0.17               --           (3.43)            --   
1997              17.04      (0.02)          4.79        4.77               --              --             --   
----------------------------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio (Commencement of Institutional Class Operations 12/28/00)                           
2001             $10.00    ($ 0.03)        ($5.12)     ($5.15)              --              --             --   
----------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio (Commencement of Adviser Class Operations 7/17/98)                                      
2001+++          $25.02    ($ 0.01)        ($4.88)     ($4.89)          ($0.04)         ($1.33)        ($1.89)# 
2000+++           21.86       0.01           5.76        5.77            (0.04)          (2.57)            --   
1999+++           18.12       0.07           5.01        5.08            (0.03)          (1.31)            --   
1998+++           21.82       0.01          (3.71)      (3.70)              --              --             --   
----------------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio (Commencement of Adviser Class Operations 1/10/01)                                   
2001             $34.71    ($ 0.24)       ($10.45)    ($10.69)              --              --             --   
----------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio (Commencement of Adviser Class Operations 1/22/99)                                    
2001             $21.15     $ 0.05+        ($4.34)     ($4.29)          ($0.03)             --         ($1.70)# 
2000+++           18.62       0.04           4.02        4.06            (0.13)          (1.40)            --   
1999+++           17.32       0.06           1.24        1.30               --              --             --   
----------------------------------------------------------------------------------------------------------------
Value Portfolio (Commencement of Adviser Class Operations 07/17/96)                                             
2001+++          $12.83     $ 0.15+         $0.94       $1.09           ($0.14)             --             --   
2000+++           13.57       0.13           0.94        1.07            (0.15)          (1.27)         (0.39)# 
1999+++           15.13       0.17           1.12        1.29            (0.24)          (2.61)            --   
1998              20.35       0.29          (3.38)      (3.09)           (0.32)          (1.81)            --   
1997+++           15.61       0.30           5.74        6.04            (0.27)          (1.03)            --   
----------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio (Commencement of Adviser Class Operations 11/07/96)                            
2001             $11.24     $ 0.71          $0.63       $1.34           ($0.75)             --             --   
2000+++           11.26       0.75          (0.02)       0.73            (0.75)             --             --   
1999+++           12.23       0.74          (0.72)       0.02            (0.69)             --          (0.30)# 
1998+++           12.22       0.75           0.14        0.89            (0.71)          (0.17)            --   
1997+++           12.04       0.70           0.20        0.90            (0.59)          (0.13)            --   
----------------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio (Commencement of Institutional Class Operations 8/31/90)                
2001             $10.67     $ 0.68          $0.70       $1.38           ($0.73)             --             --   
2000              10.74       0.78          (0.12)       0.66            (0.73)             --             --   
1999              11.69       0.69          (0.75)      (0.06)           (0.63)             --          (0.26)# 
1998              11.46       0.61           0.40        1.01            (0.66)          (0.12)            --   
1997              11.23       0.74           0.39        1.13            (0.79)          (0.11)            --   

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

Fund's Statement of Additional Information and are included in the Fund's       
September 30, 2001 Annual Report to Shareholders. The Adviser Class Shares of   
the Mid Cap Growth II Portfolio, the Investment Grade Fixed Income Portfolio    
and the Multi-Asset-Class Portfolio had not commenced operations as of          
September 30, 2001, therefore Institutional Class Share information is provided 
to investors for informational purposes only and should be referred to as a     
historical guide to a portfolio's operations and expenses. Past performance     
does not indicate future results.                                               

                                                        [Enlarge/Download Table]

                                        Net Assets    Ratio of      Ratio of              
                  Net Asset                 End of    Expenses    Net Income    Portfolio 
        Total         Value    Total        Period  to Average    to Average     Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets         Rate 
                                                                                          
------------------------------------------------------------------------------------------

      ($2.81)        $ 9.71   (30.81%)    $  1,063        0.86%         0.48%         160%
       (6.09)         17.24    19.58         5,039        0.86          0.04          211 
       (5.95)         19.79    29.80         2,123        0.87          0.34          103 
       (0.09)         20.42    (0.02)          373        0.88*         0.65*          77 
------------------------------------------------------------------------------------------

           --        $14.59   (50.91%)    $656,786        0.86%        (0.50%)        145%
      ($4.27)         34.79    56.24       979,694        0.87         (0.46)         169 
       (3.49)         25.59    63.87       263,312        0.88         (0.31)         208 
       (3.43)         18.55     1.79        51,058        0.87         (0.25)         172 
           --         21.81    27.99         1,200        0.88*        (0.41)*        134 
------------------------------------------------------------------------------------------

           --        $ 4.85   (51.50%)    $  2,500        2.10%*       (0.61%)*       247%
------------------------------------------------------------------------------------------

      ($3.26)        $16.87   (21.40%)    $105,479        1.11%        (0.03%)        176%
       (2.61)         25.02    29.12        98,588        1.12          0.03          226 
       (1.34)         21.86    29.12        40,636        1.12          0.33          244 
           --         18.12   (16.96)        4,919        1.24*         0.25*         213 
------------------------------------------------------------------------------------------

           --        $24.02   (30.80%)    $ 10,022        1.40%*       (1.24%)*       176%
------------------------------------------------------------------------------------------

      ($1.73)        $15.13   (21.46%)    $ 55,259        1.11%         0.26%         157%
       (1.53)         21.15    22.83        47,708        1.11          0.18          193 
           --         18.62     7.51        16,117        1.11*         0.45*         251 
------------------------------------------------------------------------------------------

      ($0.14)        $13.78     8.49%     $805,799        0.87%         0.99%          38%
       (1.81)         12.83     9.31       301,497        0.86          1.05           50 
       (2.85)         13.57     8.10       254,483        0.88          1.10           53 
       (2.13)         15.13   (16.66)      325,272        0.85          1.52           56 
       (1.30)         20.35    40.87       201,253        0.90          1.63           46 
------------------------------------------------------------------------------------------

      ($0.75)        $11.83    12.43%     $176,849        0.73%         6.20%         111%
       (0.75)         11.24     6.79       144,754        0.73          6.78           62 
       (0.99)         11.26     0.07       141,709        0.73          6.38          103 
       (0.88)         12.23     7.63       131,303        0.73          6.22          121 
       (0.72)         12.22     7.79        76,683        0.77*++       6.50*         179 
------------------------------------------------------------------------------------------

      ($0.73)        $11.32    13.45%     $278,657        0.50%         6.19%          89%
       (0.73)         10.67     6.48       279,141        0.49          6.99           43 
       (0.89)         10.74    (0.57)      384,893        0.48          6.20          106 
       (0.78)         11.69     9.23       443,923        0.50          6.19           92 
       (0.90)         11.46    10.58       226,662        0.50          6.54          182 

                                                                            37

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                                                        [Enlarge/Download Table]

                               Net Gains or                                Capital Gain                   
        Net Asset                    Losses                     Dividend  Distributions                   
            Value        Net  on Securities  Total from    Distributions  (realized net                   
        Beginning Investment  (realized and  Investment  (net investment        capital          Other    
        of Period     Income    unrealized)  Activities          income)         gains)  Distributions    
                                                                                                          
--------------------------------------------------------------------------------------------------------- 
High Yield Portfolio (Commencement of Adviser Class Operations 1/31/97)                                   
2001+++    $ 7.85      $0.72+        ($1.92)     ($1.20)          ($0.93)            --             --    
2000+++      8.76       0.87          (0.88)      (0.01)           (0.90)            --             --    
1999+++      8.99       0.84          (0.11)       0.73            (0.77)         (0.04)         (0.15)#  
1998+++     10.15       0.83          (0.93)      (0.10)           (0.80)         (0.26)            --    
1997+++      9.39       0.56           0.59        1.15            (0.39)            --             --    
--------------------------------------------------------------------------------------------------------- 
U.S. Core Fixed Income Portfolio (Commencement of Adviser Class Operations 3/01/99)                       
2001+++    $10.43      $0.62        $  0.72     $  1.34         ($  0.67)            --             --    
2000+++     10.53       0.68          (0.11)      (0.57)           (0.67)            --             --    
1999        10.85       0.39          (0.43)      (0.04)           (0.28)            --             --    
----------------------------------------------------------------------------------------------------------
Balanced Portfolio (Commencement of Adviser Class Operations 11/01/96)                                    
2001+++    $13.34      $0.33+        ($2.09)     ($1.76)          ($0.34)            --        ($ 0.67)#  
2000+++     13.80       0.41           1.44        1.85            (0.42)         (1.89)            --    
1999+++     13.43       0.42           1.71        2.13            (0.40)         (1.36)            --    
1998+++     15.30       0.44          (0.12)       0.32            (0.47)         (1.72)            --    
1997        14.05       0.42           2.60        3.02            (0.38)         (1.39)            --    
----------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio (Commencement of Institutional Class Operations 7/29/94)                      
2001       $11.62      $0.33       ($  2.24)   ($  1.91)        ($  0.07)            --        ($ 0.77)## 
2000        12.43       0.36           0.60        0.96            (0.31)         (1.36)         (0.10)#  
1999        11.74       0.37           1.62        1.99            (0.34)         (0.96)            --    
1998+++     13.64       0.38          (0.45)      (0.07)           (0.34)         (1.49)            --    
1997+++     12.28       0.38           2.57        2.95            (0.51)         (1.08)            --    
--------------------------------------------------------------------------------------------------------- 


Notes to the Financial Highlights                                               
*Annualized                                                                     
**Total return figures for partial years are not annualized.                    
#Represents distributions in excess of net realized gains.                      
##Represents distributions in excess of net investment income of 0.02 and       
distributions in excess of net realized gains of 0.75.                      
+For the respective periods ended September 30, the Ratio of Expenses to        
Average Net Assets for the following portfolios excludes the effect of expense
offsets.                                                                      
If expense offsets were included, the Ratio of Expenses to Average Net Assets   
would be as follows for the respective periods.                                 

                                                                [Download Table]

----------------------------------------------------------------------
                              Ratio of Expenses to Average Net Assets 
----------------------------------------------------------------------
Portfolio                       1997      1998     1999  2000   2001  
                                                                      
Equity                            --      0.82*%  0.85%  0.86%  0.86% 
--------------------------------------------------------------------- 
Mid Cap Growth                  0.86*%    0.84    0.86   0.86   0.85  
--------------------------------------------------------------------- 
Mid Cap Value                     --      1.17*   1.11   1.10   1.10  
--------------------------------------------------------------------- 
Small Cap Growth                  --        --      --     --   1.38* 
--------------------------------------------------------------------- 
Small Cap Value                   --        --    1.10*  1.10   1.11  
--------------------------------------------------------------------- 
Value                           0.89      0.84    0.87   0.85   0.86  
--------------------------------------------------------------------- 
Core Plus Fixed Income          0.76*     0.72    0.72   0.72   0.72  
--------------------------------------------------------------------- 
Investment Grade Fixed Income   0.49      0.49    0.47   0.48   0.50  
--------------------------------------------------------------------- 
High Yield                      0.76*     0.73    0.73   0.80   0.82  
--------------------------------------------------------------------- 
U.S. Core Fixed Income            --        --    0.74*  0.75   0.75  
--------------------------------------------------------------------- 
Balanced                        0.84*     0.82    0.82   0.82   0.83  
--------------------------------------------------------------------- 
Multi-Asset-Class               0.74      0.78    0.78   0.78   0.78  
--------------------------------------------------------------------- 

38                                                                              

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Adviser Class Prospectus                                                    

January 31, 2002                                                            

                                                        [Enlarge/Download Table]


              Net Asset             Net Assets    Ratio of      Ratio of             
                  Value                 End of    Expenses    Net Income  Portfolio  
        Total    End of    Total        Period  to Average    to Average   Turnover  
Distributions    Period Return**   (thousands) Net Assets+    Net Assets       Rate  
                                                                                     
-------------------------------------------------------------------------------------

      ($0.93)    $ 5.72   (16.62%)    $ 95,483        0.83%        11.03%        67% 
       (0.90)      7.85    (0.42)       22,781        0.81         10.34         55  
       (0.96)      8.76     8.44        13,701        0.74          9.29         45  
       (1.06)      8.99    (1.37)       10,236        0.75          8.55         75  
       (0.39)     10.15    12.63         4,327        0.78*         8.68*        96  
-------------------------------------------------------------------------------------

      ($0.67)    $11.10    13.29%     $  4,635        0.75%         5.72%        86% 
       (0.67)     10.43     5.68         1,625        0.76++        6.61         51  
       (0.28)     10.53    (0.40)        1,192        0.75*         6.73*       115  
-------------------------------------------------------------------------------------

      ($1.01)    $10.57   (13.79%)    $ 57,172        0.84%         2.77%       157% 
       (2.31)     13.34    14.46        33,928        0.83          3.04        162  
       (1.76)     13.80    16.76        29,210        0.83          2.97        111  
       (2.19)     13.43     2.49        24,654        0.84          3.11        100  
       (1.77)     15.30    23.82        27,366        0.85*++       3.24*       145  
-------------------------------------------------------------------------------------

      ($0.84)    $ 8.87   (17.23)%    $122,912        0.79%++       3.02%       149% 
       (1.77)     11.62     7.74       143,434        0.78++        2.93        152  
       (1.30)     12.43    17.71       152,862        0.78++        2.86        101  
       (1.83)     11.74    (0.46)      165,039        0.78++        2.98        107  
       (1.59)     13.64    26.50       173,155        0.74++        3.07        141  
-------------------------------------------------------------------------------------


                    ++For the periods indicated, the Adviser voluntarily
                      agreed to waive its advisory fees and/or reimburse
                        certain expenses to the extent necessary in order to
                        keep Total Operating Expenses actually deducted from
                       portfolio assets for the respective portfolios from
                    exceeding voluntary expense limitations. For the
              respective periods ended September 30, the
                      voluntarily waived and reimbursed expenses totaled
the below listed amounts.   

                                                                [Download Table]

--------------------------------------------------------------------------
                       Voluntarily waived and/or reimbursed expenses for: 
--------------------------------------------------------------------------
Portfolio                  1997           1998     1999     2000    2001  
                                                                          
Mid Cap Growth II          --            --       --       --      1.20%* 
------------------------------------------------------------------------- 
Core Plus Fixed Income   0.01%*          --       --       --        --   
------------------------------------------------------------------------- 
U.S. Core Fixed Income   0.01          0.01%      --     0.01%       --   
------------------------------------------------------------------------- 
Balanced                 0.03*           --       --       --        --   
------------------------------------------------------------------------- 
Multi-Asset-Class        0.55          0.04     0.02%    0.03      0.04%  
------------------------------------------------------------------------- 

                    +++Per share amounts for the year are based on average
shares outstanding.         

                                                                            39

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Where to find Additional Information                                            

In addition to this prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated January 31, 2002, which contains additional, more    
detailed information about the Fund and the Portfolios. The SAI is incorporated 
by reference into this Prospectus and, therefore, legally forms a part of this  
Prospectus.                                                                     

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about each Portfolio's investments. In the       
Fund's annual report, you will find a discussion of the market conditions and   
the investment strategies that significantly affected each Portfolio's          
performance during the last fiscal year.                                        

You may obtain the SAI and Shareholder Reports without charge by contacting the 
Fund at the toll-free number below. If you purchased shares through a financial 
intermediary, you may also obtain these documents, without charge, by           
contacting your financial intermediary.                                         

Information about the Fund, including the SAI and Shareholder Reports, may be   
obtained from the Securities and Exchange 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 call 1-202-942-8090); 
(2) On-line: you may retrieve information from the Commission's web site at     
http://www.sec.gov; (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; or (4) By e-mail: you may       
request documents, upon payment of a duplicating fee, by e-mailing the          
Securities and Exchange Commission at the following address:                    
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's        
Investment Company Act registration number is 811-03980.                        

Morgan Stanley Institutional Fund Trust                                         
One Tower Bridge                                                                
100 Front Street, Suite 1100                                                    
West Conshohocken, PA 19428-2881.                                               

For Shareholder Inquiries,                                                      
call 1-800-548-7786                                                             

Prices and Investment Results are available at www.morganstanley.com/im.        

497 104th Page of 271 TOC 1st Previous Next ↓Bottom Just 104th
[LOGO] MORGAN STANLEY                                                           

Investment Class Prospectus                                                 

January 31, 2002                                                            

Morgan Stanley Institutional Fund Trust                                         

Equity Portfolios                                         
Equity Portfolio                                          
Mid Cap Value Portfolio                                   
Value Portfolio                                           

Fixed Income Portfolios                                   
Core Plus Fixed Income Portfolio                          
High Yield Portfolio                                      
U.S. Core Fixed Income Portfolio                          

Balanced Portfolios                                       
Balanced Portfolio                                        
Multi-Asset-Class Portfolio                               
Shareholder Services:                                                           
1-800-548-7786                                                                  
--------------------------------------------------------------------------------

Prices and Investment Results:                                                  
www.morganstanley.com/im                                                        
--------------------------------------------------------------------------------

Investment Adviser: Morgan Stanley Investments LP                               
--------------------------------------------------------------------------------

Morgan Stanley Institutional Fund Trust (the "Fund") is a no-load mutual fund   
consisting of 29 different investment portfolios, 8 of which are described in   
this prospectus. Morgan Stanley Investments LP (the "Adviser"), an investment   
advisory affiliate of Morgan Stanley Investment Management Inc., is the Fund's  
investment adviser. This prospectus offers Investment Class Shares of the       
portfolios (each a "Portfolio" and collectively the "Portfolios") described     
herein.                                                                         
--------------------------------------------------------------------------------

The Securities and Exchange Commission has not approved or disapproved these    
securities or passed upon the adequacy of this prospectus. Any representation   
to the contrary is a criminal offense.                                          

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Table of Contents                                                               

                                                                [Download Table]

                                        Page
                                            

Equity Portfolios                           
--------------------------------------------
Equity                                     1
--------------------------------------------
Mid Cap Value                              2
--------------------------------------------
Value                                      3
--------------------------------------------

Fixed Income Portfolios                     
--------------------------------------------
Core Plus Fixed Income                     4
--------------------------------------------
High Yield                                 6
--------------------------------------------
U.S. Core Fixed Income                     8
--------------------------------------------

Balanced Portfolios                         
--------------------------------------------
Balanced                                  10
--------------------------------------------
Multi-Asset-Class                         12
--------------------------------------------

Fees and Expenses of the Portfolios       14
--------------------------------------------
Investment Strategies and Related Risks   15
--------------------------------------------
Purchasing Shares                         19
--------------------------------------------
Redeeming Shares                          20
--------------------------------------------
General Shareholder Information           21
--------------------------------------------
Fund Management                           23
--------------------------------------------
Financial Highlights                      26
--------------------------------------------

497 106th Page of 271 TOC 1st Previous Next ↓Bottom Just 106th
Investment Class Prospectus                                                 

January 31, 2002                                                            

Equity Portfolio (Not currently open in the Investment Class)                   

Objective                                                                       
The Equity Portfolio seeks above-average total return over a market cycle of    
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of large U.S. companies with   
market capitalizations generally greater than $5 billion. The Portfolio may     
invest, to a limited extent, in stocks of small companies and foreign equity    
securities.                                                                     

Process                                                                         
The Adviser assigns each member of the portfolio management team to specific    
"value" or "growth" sectors. The Portfolio's overall sector allocation is       
driven by bottom-up stock selection. The Adviser seeks to diversify the         
Portfolio's investments across market sectors, and to obtain the best values    
within each sector. In determining whether securities should be sold, the       
Adviser considers factors such as deteriorating fundamentals and relative       
valuation.                                                                      

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks.                                                      

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total                                                    
return. It is possible for an investor to lose money by investing in the        
Portfolio.                                                                      

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies.                                                 

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Equity Portfolio                                                                
Commenced operations on April 10, 1996                                          

1997    1998    1999    2000     2001                                         
-----   -----   -----   -----    -----                                          
25.58   19.52   28.57   -9.41   -17.03                                          

High Quarter  12/31/98   21.29%                                                 
-------------------------------                                                 
Low Quarter    9/30/98  -14.45%                                                 

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Equity S&P 500
                                                          Portfolio   Index
---------------------------------------------------------------------------
                                                                           
One Year                                                     -17.03  -11.88
Five Year                                                      7.86   10.70
Since Inception 4/10/96                                       13.83   14.98

The bar chart shows the Portfolio's Investment Class Shares performance         
year-by-year, during the period the Portfolio was operational, April 10,        
1996-June 1, 2000. Performance for the period 6/1/00 to 12/31/00 is based on    
the performance of the Portfolio's Institutional Class Shares, modified to      
reflect the fee structure of the Investment Class Shares. Performance for the   
period 1/1/01 to 12/31/01 is based on the performance of the Institutional      
Class Shares. The table shows the Portfolio's Institutional Class Shares        
performance for the 1 and 5 year periods and since inception. The table also    
shows the corresponding returns of the Portfolio's benchmark index. The         
Investment Class Shares would have had similar annual returns, but returns      
would have generally been lower as expenses of this class are higher. The       
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

                                                                           1

497 107th Page of 271 TOC 1st Previous Next ↓Bottom Just 107th
Mid Cap Value Portfolio                                                         

Objective                                                                       
The Mid Cap Value Portfolio seeks above-average total return over a market      
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally in the range of companies included in the S&P MidCap  
400 Index. The Portfolio may purchase stocks that typically do not pay          
dividends.                                                                      

Process                                                                         
The Adviser analyzes securities to identify stocks that are believed to be      
undervalued, and measures the relative attractiveness of the Portfolio's        
current holdings against potential purchases. Sector weightings normally are    
kept within 5% of those of the S&P MidCap 400 Index. For example, if the energy 
sector represents 10% of the S&P MidCap 400 Index, then, as a general matter,   
the energy sector would represent between 5-15% of total Portfolio assets.      
There are more than a dozen sectors represented in the S&P MidCap 400 Index     
including technology, heavy industry/transportation, health care, energy and    
basic resources. In determining whether securities should be sold, the Adviser  
considers factors such as high valuations relative to other investment          
opportunities, and deteriorating short or long-term earnings growth projections.

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in common stocks of mid cap companies. A company is considered to be a 
mid cap company if it has a total market capitalization at the time of purchase 
of $35 billion or less. The market capitalization limit is subject to           
adjustment annually based upon the Adviser's assessment as to the               
capitalization range of companies which possess the fundamental characteristics 
of mid cap companies.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in mid cap companies may involve greater risk than          
investments in larger, more established companies. The securities issued by mid 
cap companies may be less liquid and their prices subject to more abrupt or     
erratic price movements. In addition, mid cap companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized. At times, the        
Portfolio's guideline for sector weightings may result in significant exposure  
to one or more market sectors.                                                  

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Mid Cap Value Portfolio                                                         
Commenced operations on May 10, 1996                                            

1997    1998    1999    2000    2001                                    
-----   -----   -----   -----   -----                                     
39.28   15.93   19.61   11.77   -3.58                                     

High Quarter    12/31/98        22.48%                                          
--------------------------------------                                          
Low Quarter      9/30/01       -20.65%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Mid Cap S&P MidCap
                                                     Value Portfolio  400 Index
-------------------------------------------------------------------------------
                                                                               
One Year                                                       -3.58      -0.58
Five Year                                                      15.79      16.12
Since Inception 5/10/96                                        21.38       0.14

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark index.  
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P MidCap 400 Index is a market-value weighted index which consists of 400 
domestic stocks that are chosen for market size, liquidity, and industry group  
representation.                                                                 

2                                                                               

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Value Portfolio                                                                 

Objective                                                                       
The Value Portfolio seeks above-average total return over a market cycle of     
three to five years.                                                            

Approach                                                                        
The Portfolio invests primarily in common stocks of companies with              
capitalizations generally greater than $2.5 billion. The Portfolio focuses on   
stocks that are believed to be undervalued in comparison with the stock market  
as a whole, as measured by the S&P 500 Index. The Portfolio may purchase stocks 
that do not pay dividends. The Portfolio may invest, to a limited extent, in    
foreign equity securities.                                                      

Process                                                                         
The Adviser selects investments through a three part analysis. The Adviser      
identifies stocks with low price/earnings ratios. The Adviser then applies      
fundamental analysis and its investment judgment to determine which of those    
securities are the most attractive. Finally, the Adviser may favor securities   
of companies that are in undervalued industries. The Adviser employs a formal   
sell discipline, under which the Portfolio sells securities when either their   
price/earnings ratios or alternative valuation parameters rise to what are      
believed to be unacceptable levels. Securities may also be sold if the Adviser  
determines that a significant deterioration in the fundamental outlook of a     
company has occurred.                                                           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer. Investments in smaller companies may involve greater risk than          
investments in larger, more established companies. The securities issued by     
smaller companies may be less liquid and their prices subject to more abrupt or 
erratic price movements. In addition, smaller companies may have more limited   
markets, financial resources and product lines, and may lack the depth of       
management of larger companies. The Adviser's perception that a stock is under- 
or over-valued may not be accurate or may not be realized.                      

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

[CHART] 

Value Portfolio                                                                 
Commenced operations on May 6, 1996                                             

1997    1998    1999    2000   2001                                   
-----   -----   -----   -----   ----                                    
23.18   -3.02   -2.25   23.29   4.42                                    

High Quarter    12/31/00         15.59%                                         
---------------------------------------                                         
Low Quarter      9/30/98        -19.08%                                         

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                                Value S&P 500
                                                            Portfolio   Index
-----------------------------------------------------------------------------
                                                                             
One Year                                                         4.42  -11.88
Five Year                                                        8.50   10.70
Since Inception 5/6/96                                          14.84   14.86

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark index.  
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

                                                                           3

497 109th Page of 271 TOC 1st Previous Next ↓Bottom Just 109th
Core Plus Fixed Income Portfolio                                                

Objective                                                                       
The Core Plus Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

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 seek to        
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 Portfolio may invest opportunistically in        
non-dollar denominated securities and in high yield securities (commonly        
referred to as "junk bonds"). The Portfolio may invest over 50% of its assets   
in mortgage securities. The Adviser may use futures, swaps and other            
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 by monitoring interest rates, inflation, 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    
seeking to balance the overall risk of the Portfolio. The Adviser may sell      
securities or exit positions when it believes that expected risk-adjusted       
return is low compared to other investment opportunities.                       

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there       

[CHART] 

Core Plus Fixed Income Portfolio                                                
Commenced operations on October 15, 1996                                        

1997    1998     1999    2000    2001                                           
----    ----    -----   -----   -----                                           
9.52    6.72    -0.73   10.63   10.21                                           

High Quarter    6/30/97          3.98%                                          
--------------------------------------                                          
Low Quarter     6/30/99         -1.66%                                          

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                    Core Plus Salomon Broad
                                                        Fixed    Investment
                                                       Income         Grade
                                                    Portfolio    Bond Index
---------------------------------------------------------------------------
                                                                           
One Year                                                10.21          8.50
Five Year                                                7.18          7.43
Since Inception 10/15/96                                 9.89          0.06

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark index.  
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

4                                                                               

497 110th Page of 271 TOC 1st Previous Next ↓Bottom Just 110th
Investment Class Prospectus                                                 

January 31, 2002                                                            

Core Plus Fixed Income Portfolio (Cont'd)                                       

is less certainty that principal and interest payments will be made as          
scheduled. Prices of fixed income securities generally will move in correlation 
to changes in an issuer's credit rating.                                        

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity, and sudden and  
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           5

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High Yield Portfolio                                                            

Objective                                                                       
The High Yield Portfolio seeks above-average total return over a market cycle   
of three to five years.                                                         

Approach                                                                        
The Portfolio invests primarily in high yield securities (commonly referred to  
as "junk bonds"). The Portfolio also may invest in investment grade fixed       
income securities, including U.S. Government, corporate and mortgage            
securities. The Portfolio may invest to a limited extent in foreign fixed       
income securities, including emerging market securities. The Portfolio will     
ordinarily seek to maintain an average weighted maturity in excess of five      
years, although there is no minimum or maximum maturity for any individual      
security. The Adviser may use futures, swaps and other derivatives in managing  
the Portfolio.                                                                  

Process                                                                         
The Adviser uses equity and fixed income valuation techniques, together with    
analyses of economic and industry trends, to determine the Portfolio's overall  
structure, sector allocation and desired maturity. The Adviser emphasizes       
securities of companies that it believes have strong industry positions and     
favorable outlooks for cash flow and asset values. The Adviser conducts a       
credit analysis for each security considered for investment to evaluate its     
attractiveness relative to the level of risk it presents. The Portfolio seeks   
to maintain a high level of diversification to minimize its exposure to the     
risks associated with any particular issuer. The Adviser may sell securities or 
exit positions when it believes that expected risk-adjusted return is low       
compared to other investment opportunities.                                     

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in high yield securities.                                              

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       

[CHART] 

High Yield Portfolio                                                            
Commenced operations on May 21, 1996                                            

1997   1998    1999     2000     2001                                         
-----   ----    ----    ------   -----                                          
15.73   2.94    7.73    -10.66   -5.91                                          

High Quarter    6/30/97  6.90%                                                  
-----------------------------                                                   
Low Quarter     9/30/01 -9.14%                                                  
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                               CS First Boston
                                                  High Yield Global High Yield
                                                   Portfolio             Index
------------------------------------------------------------------------------
                                                                              
One Year                                               -5.91              5.80
Five Year                                               1.53              3.25
Since Inception 5/21/96                                 7.59              0.08

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark index,  
CS First Boston High Yield Index. The variability of performance over time      
provides an indication of the risks of investing in the Portfolio. How the      
Portfolio has performed in the past does not necessarily indicate how the       
Portfolio will perform in the future.                                           

The CS First Boston Global High Yield Index in an unmanaged index of high yield 
corporate bonds.                                                                

6                                                                               

497 112th Page of 271 TOC 1st Previous Next ↓Bottom Just 112th
Investment Class Prospectus                                                 

January 31, 2002                                                            

High Yield Portfolio (Cont'd)                                                   

traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           7

497 113th Page of 271 TOC 1st Previous Next ↓Bottom Just 113th
U.S. Core Fixed Income Portfolio (Not currently open in the Investment Class)   

Objective                                                                       
The U.S. Core Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in a diversified mix of dollar denominated      
fixed income securities, particularly U.S. Government, corporate and mortgage   
securities. The Portfolio will ordinarily seek to 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        
Portfolio invests exclusively in securities issued by U.S. -  based entities    
that carry an investment grade rating at the time of purchase. The Portfolio    
may invest over 50% of its assets in mortgage securities. The Adviser may use   
futures, swaps and other 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. The Adviser relies upon value measures 
to guide its decisions regarding sector and security 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 by monitoring interest rates, inflation, the shape of the yield curve,     
credit risk and prepayment risk. The Adviser's management team builds an        
investment portfolio designed to take advantage of its judgment on these        
factors, while seeking to balance the overall risk of the Portfolio. The        
Adviser may sell securities or exit positions when it believes that expected    
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of U.S. issuers.                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations                                                                

[CHART] 

U.S. Core Fixed Income Portfolio                                                
Commenced operations on September 29, 1987                                      

1992    1993    1994    1995    1996    1997    1998    1999    2000    2001    
----    -----   -----   -----   ----    ----    ----    -----   -----   -----   
9.01    13.75   -3.89   18.85   3.89    9.62    7.23    -1.64   10.50   10.58   

High Quarter    6/30/95     6.05%                                               
---------------------------------                                               
Low Quarter     3/31/92    -2.28%                                               

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                               Salomon Broad
                                                     U.S. Core    Investment
                                                  Fixed Income    Grade Bond
                                                     Portfolio         Index
----------------------------------------------------------------------------
                                                                            
One Year                                                 10.58          8.50
Five Year                                                 7.16          7.43
Ten Year                                                  7.60          7.28
Since Inception 9/29/87                                   9.06          8.80

The bar chart and table show the Portfolio's Institutional Class Shares         
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1, 5 and 10 year periods and since inception. 
The table also shows the corresponding returns of the Portfolio's benchmark     
index. The Investment Class Shares would have had similar annual returns, but   
returns would have generally been lower as expenses of this class are higher.   
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

8                                                                               

497 114th Page of 271 TOC 1st Previous Next ↓Bottom Just 114th
Investment Class Prospectus                                                 

January 31, 2002                                                            

U.S. Core Fixed Income Portfolio (Cont'd)                                       

are likely to be more sensitive to changes in interest rates, generally making  
them more volatile than securities with shorter durations. Prices of fixed      
income securities generally will move in correlation to changes in an issuer's  
credit rating.                                                                  

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           9

497 115th Page of 271 TOC 1st Previous Next ↓Bottom Just 115th
Balanced Portfolio                                                              

Objective                                                                       
The Balanced Portfolio seeks above-average total return over a market cycle of  
three to five years.                                                            

Approach                                                                        
The Portfolio invests in a mix of equity and fixed income securities. The       
Portfolio normally invests 45-75% of its assets in equity securities and 25-55% 
of its assets in fixed income securities. The Portfolio may invest up to 25% of 
its assets in foreign equity and foreign fixed income securities, including     
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio will ordinarily seek to maintain an average  
weighted maturity in excess of five years, although there is no minimum or      
maximum maturity for any individual security. The Adviser may use futures,      
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser determines the Portfolio's equity and fixed income investment       
strategies separately and then determines the mix of those strategies that it   
believes will maximize the return available from both the stock and bond        
markets, based on proprietary valuation disciplines and analysis. The Adviser   
evaluates international economic developments in determining the amount to      
invest in foreign securities. The Adviser also measures various types of risk,  
by monitoring the level of real interest rates and credit risk. In determining  
whether securities should be sold, the Adviser considers factors such as        
deteriorating earnings, cash flow and other fundamentals, as well as high       
valuations relative to the Portfolio's potential investment universe.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments                             

[CHART] 

Balanced Portfolio                                                              
Commenced operations on April 4, 1997                                           

1998    1999    2000    2001                                                  
-----   -----   -----   -----                                                   
15.09   16.09   -0.87   -5.57                                                   

High Quarter  12/31/98  12.08%                                                  
------------------------------                                                  
Low Quarter    9/30/01  -7.29%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                          Salomon Broad        
                                                             Investment   60/40
                                         Balanced S&P 500    Grade Bond Blended
                                        Portfolio   Index         Index   Index
-------------------------------------------------------------------------------
                                                                               
One Year                                    -5.57  -11.88          8.50   -3.31
Since Inception 4/4/97                      10.10   13.54          7.25    0.11

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 year period and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark indices. The  
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

The 60/40 Blended Index is an unmanaged index comprised of 60% S&P 500 Index    
and 40% Salomon Broad Investment Grade Index.                                   

10                                                                              

497 116th Page of 271 TOC 1st Previous Next ↓Bottom Just 116th
Investment Class Prospectus                                                 

January 31, 2002                                                            

Balanced Portfolio (Cont'd)                                                     

will be made as scheduled. Prices of fixed income securities generally will     
move in correlation to changes in an issuer's credit rating.                    

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. Some of the Portfolio's         
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments. These risks are greater in emerging market countries.  

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                            11

497 117th Page of 271 TOC 1st Previous Next ↓Bottom Just 117th
Multi-Asset-Class Portfolio                                                     

Objective                                                                       
The Multi-Asset-Class Portfolio seeks above-average total return over a market  
cycle of three to five years.                                                   

Approach                                                                        
The Portfolio invests in equity securities and fixed income securities of U.S.  
and foreign issuers in accordance with the Adviser's target allocation among    
certain asset classes. These securities may include, to a limited extent,       
emerging market securities. The Portfolio's equity securities generally will be 
common stocks of large corporations with market capitalizations generally       
greater than $1 billion. The Portfolio's fixed income investments generally     
will include mortgage securities and high yield securities (commonly referred   
to as "junk bonds"). The Portfolio seeks to invest in a combination of asset    
classes that do not move in tandem with each other, in an effort to improve     
potential return and control the Portfolio's overall risks. The Portfolio's     
neutral position is generally 50% domestic equity securities, 24% domestic      
fixed income securities, 14% foreign equity securities, 6% foreign fixed income 
securities and 6% high yield securities. The Portfolio will ordinarily seek to  
maintain an average weighted maturity of fixed income securities in excess of   
five years, although there is no minimum or maximum maturity for any individual 
security. The Adviser may use futures, swaps and other derivatives in managing  
the Portfolio.                                                                  

Process                                                                         
The Adviser makes strategic judgments based on proprietary measures used to     
compare the relative risks and returns of stock and bond markets around the     
world. The Adviser's asset allocation team sets the target exposures for        
domestic and international equity and fixed income securities, high yield       
securities and cash, depending on the Adviser's appraisal of the relative       
attractiveness of each type of investment. The Adviser also measures various    
types of risk, by monitoring the level of real interest rates and credit risk.  
In determining whether securities should be sold, the Adviser considers factors 
such as deteriorating earnings, cash flows and other fundamentals, as well as   
high valuations relative to the Portfolio's investment opportunities.           

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The prices of common stocks rise and fall in response to events that affect     
entire financial markets or industries, and to events that affect a particular  
issuer.                                                                         

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income                                                      

[CHART] 

Multi-Asset-Class Portfolio                                                     
Commenced operations on June 10, 1996                                           

1997    1998    1999    2000    2001                                          
-----   -----   -----   -----   -----                                           
17.21   13.80   16.55   -8.57   -9.00                                           

High Quarter  12/31/98   12.08%                                                 
-------------------------------                                                 
Low Quarter    9/30/01   -8.60%                                                 

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                             Salomon Broad                  
                        Multi-Asset-            Investment                  
                               Class S&P 500    Grade Bond MSCI EAFE Blended
                           Portfolio   Index         Index     Index   Index
----------------------------------------------------------------------------
                                                                            
One Year                       -9.00  -11.88          8.50     21.44   -6.49
Five Year                       5.28   10.70          7.43      0.89    7.97
Since Inception 6/10/96         8.57   15.18          7.75      2.60    0.13

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 and 5 year periods and since inception. The 
table also shows the corresponding returns of the Portfolio's benchmark         
indices. The variability of performance over time provides an indication of the 
risks of investing in the Portfolio. How the Portfolio has performed in the     
past does not necessarily indicate how the Portfolio will perform in the future.

The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies    
with market capitalizations of $1 billion or more. These 500 companies          
represent approximately 100 industries chosen mainly for market size, liquidity 
and industry group representation.                                              

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

The MSCI EAFE Index is an unmanaged index of common stocks in Europe,           
Australasia and the Far East.                                                   

The Blended Index is an unmanaged index comprised of 50% S&P 500 Index, 24%     
Salomon Broad Investment Grade Index, 14% MSCI EAFE Index, 6% Salomon World     
Government Bond Ex-U.S. Index and 6% CS First Boston Global High Yield Index.   

12                                                                              

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Multi-Asset-Class Portfolio (Cont'd)                                            

securities respond to economic developments, particularly interest rate changes 
and changes in the actual or perceived creditworthiness of the issuer of the    
fixed income security. Securities with longer durations are likely to be more   
sensitive to changes in interest rates, generally making them more volatile     
than securities with shorter durations. Lower rated fixed income securities     
have greater volatility because there is less certainty that principal and      
interest payments will be made as scheduled. Prices of fixed income securities  
generally will move in correlation to changes in an issuer's credit rating.     

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign securities may involve greater risks than those issued by U.S.          
companies or the U.S. government. Economic, political and other events unique   
to a country or region will affect those markets and their issuers, but may not 
affect the U.S. market or similar U.S. issuers. A substantial portion of the    
Portfolio's investments may be denominated in a foreign currency. Changes in    
the values of those currencies compared to the U.S. dollar may affect the value 
of the Portfolio's investments. These risks are greater in emerging market      
countries.                                                                      

At various times, some asset classes will perform better or worse than others.  
There is a risk that the Portfolio could invest too much or too little in       
particular asset classes, which could adversely affect the Portfolio's overall  
performance.                                                                    

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

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Fees and Expenses of the Portfolios                                             

The Portfolios do not charge any sales loads or other fees when you purchase or 
redeem shares.                                                                  

Annual Portfolio Operating Expenses for the fiscal year ended September 30, 2001
(expenses that are deducted from Portfolio assets)                              

                                                        [Enlarge/Download Table]

                                                           Shareholder                  Total Annual 
                                   Management Distribution   Servicing    Other  Portfolio Operating 
                                         Fees (12b-1) Fees         Fee Expenses             Expenses 
                                                                                                     
Equity Portfolio++                      0.50%         None       0.15%     .12%                 .77% 
-----------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                   .75         None        0.15      .11                 1.01 
-----------------------------------------------------------------------------------------------------
Value Portfolio                           .50         None        0.15      .12                  .77 
-----------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio         .375         None        0.15     .105                  .63 
-----------------------------------------------------------------------------------------------------
High Yield Portfolio                      .45         None        0.15      .12                  .72 
-----------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio++       .375         None        0.15      .12+                 .65*
-----------------------------------------------------------------------------------------------------
Balanced Portfolio                        .45         None        0.15      .13                  .73 
-----------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio               .65         None        0.15      .18                  .98*
-----------------------------------------------------------------------------------------------------

Total Annual Portfolio Operating Expenses reflected in the table above may be   
higher than the expenses actually deducted from Portfolio assets because of the 
effect of expense offset arrangements and/or voluntary waivers.                 
+Other Expenses are based on estimated amounts.                               
*The Adviser has voluntarily agreed to reduce its advisory fee and/or reimburse 
the Portfolios so that total expenses will not exceed the rates shown in the  
table below. Fee waivers, expense offsets and/or expense reimbursements are   
voluntary and the Adviser reserves the right to terminate any waiver and/or   
reimbursement at any time and without notice.                                 
++As of the fiscal year ended September 30, 2001, the Investment Class of       
shares of the Portfolio was not operational.                                

                                                        [Enlarge/Download Table]

                                                                                 Total Annual
                                                                 Portfolio Operating Expenses
                                                          After Morgan Stanley Investments LP
                                                               Waiver/Reimbursement & Offsets
                                                                                             
U.S. Core Fixed Income Portfolio                                                         .65%
---------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                                               .93
---------------------------------------------------------------------------------------------

The example assumes that you invest $10,000 in each Portfolio for the time      
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that each Portfolio's operating expenses remain the same. Although your actual  
costs may be higher or lower, based on these assumptions your costs would be    
equal to the amounts reflected in the table to the right.                       

Example                                                                         
This example is intended to help you compare the cost of investing in each      
Portfolio with the cost of investing in other mutual funds.                     

                                                        [Enlarge/Download Table]

                                                            1 Year 3 Years 5 Years 10 Years
                                                                                           
Equity Portfolio++                                           $ 79   $246    $428    $  954 
-------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                                       103    322     558     1,236 
-------------------------------------------------------------------------------------------
Value Portfolio                                                79    246     428       954 
-------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                               64    202     351       786 
-------------------------------------------------------------------------------------------
High Yield Portfolio                                           74    230     401       894 
-------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio++                             66    208     362       810 
-------------------------------------------------------------------------------------------
Balanced Portfolio                                             75    233     406       906 
-------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                   100    312     542     1,201 
-------------------------------------------------------------------------------------------

++As of the fiscal year ended September 30, 2001, the Investment Class of       
shares of the Portfolio was not operational.                                

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Investment Strategies and Related Risks                                         

This section discusses in greater detail the Portfolios' principal investment   
strategies and the other types of investments that the Portfolios may make.     
Please read this section in conjunction with the earlier summaries. The         
Portfolios' investment practices and limitations are also described in more     
detail in the Statement of Additional Information ("SAI"), which is             
incorporated by reference and legally is a 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.                                                  

An investment in a Portfolio is not insured or guaranteed by the Federal        
Deposit Insurance Corporation or any other govenment agency.                    

Equity Securities                                                               
Equity securities include common stock, preferred stock, convertible            
securities, ADRs, rights, warrants and shares of investment companies. The      
Portfolios may invest in equity securities that are publicly traded on          
securities exchanges or over-the-counter or in equity securities that are not   
publicly traded. Securities that are not publicly traded may be more difficult  
to sell and their value may fluctuate more dramatically than other securities.  

ADRs are U.S.-dollar denominated securities that represent claims to shares of  
foreign stocks. The Portfolios treat ADRs as U.S. securities for purposes of    
foreign investment limitations.                                                 

Growth stocks generally have higher growth rates, betas, and price/earnings     
ratios, and lower yields than the stock market in general as measured by an     
appropriate stock market index. Value stocks are stocks that are deemed by the  
Adviser to be undervalued relative to the stock market in general. The Adviser  
makes value decisions guided by the appropriate market index, based on value    
characteristics such as price/earnings and price/book ratios. Value stocks      
generally are dividend paying common stocks. However, non-dividend paying       
stocks also may be selected for their value characteristics.                    

IPOs                                                                            
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 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-public      
companies have fluctuated in significant amounts over short periods of time.    
The purchase of shares issued in IPOs may have a greater impact upon the        
Portfolio's total returns during any period that the Portfolio has a small      
asset base. As the Portfolio's assets grow, any impact of IPO investments on    
the Portfolio's total return may decline.                                       

Fixed Income Securities                                                         
Fixed income securities are securities that pay a fixed rate of interest until  
a stated maturity date. Fixed income securities include U.S. Government         
securities, securities issued by federal or federally sponsored agencies        
("agencies"), corporate bonds and notes, asset-backed securities, mortgage      
securities, high yield securities, municipal bonds, loan participations and     
assignments, zero coupon bonds, convertible securities, Eurobonds, Brady Bonds, 
Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.     

These securities are subject to risks related to changes in interest rates and  
in the financial health or credit rating of the issuers. The maturity and       
duration of a fixed income instrument also affects 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 price changes than shorter     
term securities because they are more sensitive to changes in interest rates or 
in the credit ratings of the issuers.                                           

Fixed income securities may be called (redeemed by the issuer) prior to final   
maturity. If a callable security is called, a Portfolio may have to reinvest    
the proceeds at a lower rate of interest.                                       

Duration                                                                        
The average duration of a portfolio of fixed income securities represents its   
exposure to changing interest rates. A portfolio with a lower average duration  
generally will experience less price volatility in response to changes in       
interest rates than a portfolio with a higher average duration.                 

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High Yield Securities                                                           
Fixed income securities that are not investment grade are commonly referred to  
as junk bonds or high yield, high risk securities. These securities offer a     
higher yield than other higher rated securities, but they carry a greater       
degree of risk and are considered speculative by the major credit rating        
agencies. High yield securities may be issued by companies that are             
restructuring, are smaller and less creditworthy or are more highly indebted    
than other companies. This means that they may have more difficulty making      
scheduled payments of principal and interest. Changes in the value of high      
yield securities are influenced more by changes in the financial and business   
position of the issuing company than by changes in interest rates when compared 
to investment grade securities.                                                 

Mortgage Securities                                                             
These are fixed income securities that derive their value from or represent     
interests in a pool of mortgages or mortgage securities. Mortgage securities    
are subject to prepayment risk--the risk that, as interest rates fall,          
borrowers will refinance their mortgages and "prepay" principal. A portfolio    
holding mortgage securities that are experiencing prepayments will have to      
reinvest these payments at lower prevailing interest rates. On the other hand,  
when interest rates rise, borrowers are less likely to refinance, resulting in  
lower prepayments. This can effectively extend the maturity of a Portfolio's    
mortgage securities, resulting in greater price volatility. It can be difficult 
to measure precisely the remaining life of a mortgage security or the average   
life of a portfolio of such securities.                                         

Foreign Securities                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers    
can be less liquid and experience greater price movements. In some foreign      
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect an investing portfolio's           
investment. There also can be difficulty obtaining and enforcing judgments      
against issuers in foreign countries. Foreign stock exchanges, broker-dealers,  
and listed issuers may be subject to less government regulation and oversight.  
The cost of investing in foreign securities, including brokerage commissions    
and custodial expenses, can be higher than in the United States.                

Foreign Currency                                                                
Foreign securities are denominated in foreign currencies. The value of foreign  
currencies fluctuates relative to the value of the U.S. dollar. Since investing 
Portfolios must convert the value of foreign securities into dollars, changes   
in currency exchange rates can increase or decrease the U.S. dollar value of    
the Portfolios' assets. The Adviser may use derivatives to reduce this risk.    
The Adviser may in its discretion choose not to hedge against currency risk. In 
addition, certain market conditions may make it impossible or uneconomical to   
hedge against currency risk.                                                    

Emerging Market Securities                                                      
Investing in emerging market securities enhances the risks of foreign           
investing. In addition, emerging market securities generally are less liquid    
and subject to wider price and currency fluctuations than securities issued in  
more developed countries. In certain countries, the market may be dominated by  
a few issuers or sectors. Investment funds and structured investments are       
mechanisms for U.S. and other investors to invest in certain emerging markets   
that have laws precluding or limiting direct investments by foreign investors.  

Derivatives and Other Investments                                               
Derivatives are financial instruments whose value and performance are based on  
the value and performance of another security or financial instrument.          
Derivatives sometimes offer the most economical way of pursuing an investment   
strategy, limiting risks or enhancing returns, although there is no guarantee   
of success. Hedging strategies or instruments may not be available or practical 
in all circumstances. Derivative instruments may be publicly traded or          
privately negotiated. Derivatives used by the Adviser include futures           
contracts, options contracts, forward contracts, swaps, collateralized mortgage 
obligations ("CMOs"), stripped mortgage-backed securities ("SMBS"), and         
structured notes.                                                               

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Investment Class Prospectus                                                 

January 31, 2002                                                            

A forward contract is an obligation to purchase or sell a security or 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. Forward currency contracts are used to protect against         
uncertainty in the level of future foreign currency exchange rates. A futures   
contract provides for the future sale by one party and purchase by another      
party of a specified amount of a specific security at a specified future time   
and at a specified price. The Portfolios may use futures contracts to gain      
exposure to an entire market (e.g., stock index futures) or to control their    
exposure to changing foreign currency exchange rates or interest rates.         
Portfolios investing in fixed income securities may use futures to control      
their exposure to changes in interest rates and to manage the overall maturity  
and duration of their securities holdings.                                      

If a Portfolio buys an option, it buys a legal contract giving it the right to  
buy or sell a specific amount of a security or futures contract at an           
agreed-upon price. If a Portfolio "writes" an option, it sells to another       
person the right to buy from or sell to the Portfolio a specific amount of a    
security or futures contract at an agreed-upon price.                           

The Portfolios may enter into swap transactions which are contracts in which a  
Portfolio agrees to exchange the return or interest rate on one instrument for  
the return or interest rate on another instrument. Payments may be based on     
currencies, interest rates, securities indices or commodity indices. Swaps may  
be used to manage the maturity and duration of a fixed income portfolio, or to  
gain exposure to a market without directly investing in securities traded in    
that market.                                                                    

Structured investments are units representing an interest in assets held in a   
trust that is not an investment company as defined in the Investment Company    
Act of 1940, as amended ("1940 Act"). The trust may pay a return based on the   
income it receives from those assets, or it may pay a return based on a         
specified index.                                                                

CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in  
a number of series (known as "tranches"), each of which has a stated maturity.  
Cash flow from the underlying mortgages is allocated to the tranches in a       
predetermined, specified order. SMBS are multi-class mortgage securities issued 
by U.S. government agencies and instrumentalities and financial institutions.   
They usually have two classes, one receiving most of the principal payments     
from the mortgages, and one receiving most of the interest. In some cases,      
classes may receive interest only (called "IOs") or principal only (called      
"POs"). Inverse floating rate obligations ("inverse floaters") are fixed income 
securities which have coupon rates that vary inversely (often at a multiple) to 
another specified floating rate, such as LIBOR (London Inter-Bank Offered       
Rate). If the specified reference rate rises, the coupon rate of the inverse    
floater falls, while a decrease in the reference rate causes an increase in the 
inverse floater's coupon rate.                                                  

Risks of Derivatives                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held or to be acquired by a Portfolio, and of derivatives relating   
to those securities, may not be proportionate, (ii) there may not be a liquid   
market for a Portfolio to sell a derivative, which could result in difficulty   
closing a position, and (iii) magnification of losses incurred due to changes   
in the market value of the securities, instruments, indices, or interest rates  
to which they relate.                                                           

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a forward or futures contract with the value of   
securities denominated in a particular currency.                                

Mortgage derivatives 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 CMO or SMBS that a Portfolio holds, these price       
movements may be significantly greater than those experienced by mortgage       
securities generally, depending on whether the payments are predominantly based 
on the principal or interest paid on the underlying mortgages. IOs, POs and     
inverse floaters may exhibit substantially greater price volatility than fixed  
rate obligations having similar credit quality, redemption provisions and       
maturities. IOs, POs and inverse floaters may exhibit greater price             

                                                                            17

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volatility than the majority of mortgage pass-through securities or CMOs. In    
addition, the yield to maturity of IOs, POs and inverse floaters is extremely   
sensitive to prepayment levels. As a result, higher or lower rates of           
prepayment than that anticipated can have a material effect on a Portfolio's    
yield to maturity and could cause a Portfolio to suffer losses.                 

Temporary Defensive Investments                                                 
When the Adviser believes that changes in economic, financial or political      
conditions warrant, each Portfolio may invest without limit in fixed income     
securities for temporary defensive purposes, as described in the Statement of   
Additional Information. If the Adviser incorrectly predicts the effects of      
these changes, the defensive investments may adversely affect the Portfolio's   
performance.                                                                    

Portfolio Turnover                                                              
Consistent with their investment policies, the Portfolios will purchase and     
sell securities without regard to the effect on portfolio turnover. Higher      
portfolio turnover (e.g., over 100% per year) will cause the Portfolio to incur 
additional transaction costs and may result in taxable gains being passed       
through to shareholders.                                                        

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Purchasing Shares                                                               

Investment Class Shares are available to clients of the Adviser with combined   
investments of $1,000,000 and corporations or other institutions, such as       
trusts and foundations.                                                         

Investment Class Shares of the Portfolios may be purchased directly from Morgan 
Stanley Institutional Fund Trust or through a financial intermediary. Investors 
purchasing shares through a financial intermediary may be charged a             
transaction-based or other fee by the financial intermediary for its services.  
If you are purchasing Investment Class Shares through a financial intermediary, 
please consult your intermediary for purchase instructions.                     

Investment Class Shares of the Portfolios may, in the Fund's discretion, be     
purchased with investment securities (in lieu of or, in conjunction with, cash) 
acceptable to the Fund. The securities would be accepted by the Fund at their   
market value in return for Investment Class Shares of the Portfolios.           

Investment Class Shares of each Portfolio may be purchased at the net asset     
value per share (NAV) next determined after we receive your purchase order.     

Initial Purchase by Mail                                                        
You may open an account, subject to acceptance by Morgan Stanley Institutional  
Fund Trust, by completing and signing an Account Registration Form provided by  
J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's Transfer      
Agent, which you may obtain by calling J.P. Morgan at 1-800-548-7786 and        
mailing it to J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, 
MA 02108 together with a check payable to Morgan Stanley Institutional Fund     
Trust.                                                                          

Please note that payments to investors who redeem shares purchased by check     
will not be made until payment of the purchase has been collected, which may    
take up to eight business days after purchase. You can avoid this delay by      
purchasing shares by wire.                                                      

Initial Purchase by Wire                                                        
You may purchase Investment Class Shares of each Portfolio by wiring Federal    
Funds to the Fund's Custodian Bank, J.P. Morgan Chase & Co. (the "Custodian").  
You should forward a completed Account Registration Form to J.P. Morgan in      
advance of the wire. For all Portfolios, notification must be given to J.P.     
Morgan at 1-800-548-7786 prior to the determination of NAV. See the section     
below entitled "Valuation of Shares." (Prior notification must also be received 
from investors with existing accounts.) Instruct your bank to send a Federal    
Funds wire in a specified amount to the Custodian using the following wire      
instructions:                                                                   

J.P. Morgan Chase & Co.                                                         
1 Chase Manhattan Plaza                                                         
New York, NY 10081                                                              
ABA #021000021                                                                  
DDA #910-2-734143                                                               
Attn: Morgan Stanley Institutional Fund Trust Subscription Account              
Ref: (Portfolio Name, Account Number, Account Name)                             

Additional Investments                                                          
You may make additional investments in Investment Class Shares (minimum         
additional investment $1,000) at the NAV next determined after the request is   
received in good order, by mailing a check (payable to Morgan Stanley           
Institutional Fund Trust) to J.P. Morgan at the address noted under Initial     
Purchase by Mail or by wiring Federal Funds to the Custodian as outlined above. 
For all Portfolios, notification must be given to J.P. Morgan at 1-800-548-7786 
prior to the determination of NAV.                                              

Other Purchase Information                                                      
The Fund may suspend the offering of shares, or any class of shares, of any     
Portfolio or reject any purchase orders when we think it is in the best         
interest of the Fund. The Fund, in its sole discretion, may waive the minimum   
initial and additional investment amounts in certain cases.                     

Frequent trading by shareholders can disrupt management of a Portfolio and      
raise its expenses. Therefore, we may not accept any request for a purchase,    
redemption or exchange when we think it is being used as a tool for market      
timing, and we may bar a shareholder who trades excessively from making further 
purchases for an indefinite period.                                             

Purchases of a Portfolio's shares will be made in full and fractional shares of 
the Portfolio calculated to three decimal places.                               

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Redeeming Shares                                                                

You may redeem shares of each Portfolio by mail, or, if authorized, by          
telephone at no charge. The value of shares redeemed may be more or less than   
the purchase price, depending on the NAV at the time of redemption. Shares of   
each Portfolio will be redeemed at the net asset value (NAV) next determined    
after we receive your redemption request in good order.                         

By Mail                                                                         
Requests should be addressed to Morgan Stanley Institutional Fund Trust, c/o    
J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA 02108.     

To be in good order, redemption requests must include the following             
documentation:                                                                  

(a) The share certificates, if issued;                                          

(b) A letter of instruction, if required, or a stock assignment specifying the  
number of shares or dollar amount to be redeemed, signed by all registered      
owners of the shares in the exact names in which the shares are registered;     

(c) Any required signature guarantees; and                                      

(d) Other supporting legal documents, if required, in the case of estates,      
trusts, guardianships, custodianship, corporations, pension and profit sharing  
plans and other organizations.                                                  

By Telephone                                                                    
If you have authorized the Telephone Redemption Option on the Account           
Registration Form, you may request a redemption of shares by calling the Fund   
at 1-800-548-7786 and requesting that the redemption proceeds be mailed or      
wired to you. You cannot redeem shares by telephone if you hold share           
certificates for those shares.                                                  

The Fund will ordinarily pay redemption proceeds within seven business days     
after receipt of your request. The Fund may suspend the right of redemption or  
postpone the payment of redemption proceeds at times when the New York Stock    
Exchange ("NYSE") is closed, the Fund is closed, or under other circumstances   
in accordance with interpretations or orders of the U.S. Securities and         
Exchange Commission.                                                            

If we determine that it is in the best interest of other shareholders not to    
pay redemption proceeds in cash, we may pay you partly or entirely by           
distributing to you readily marketable securities held by the Portfolio from    
which you are redeeming. You may incur brokerage charges when you sell those    
securities.                                                                     

20                                                                              

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Investment Class Prospectus                                                 

January 31, 2002                                                            

General Shareholder Information                                                 

Valuation of Shares                                                             
The NAV of the Portfolios is determined as of the close of the NYSE (normally   
4:00 p.m. Eastern Time) on each day the Portfolios are open for business.       

Each Portfolio values its securities at market value. When no quotations are    
readily available for securities or when the value of securities has been       
materially affected by events occurring after the close of the market, we will  
determine the value for those securities in good faith at fair value using      
methods approved by the Board of Trustees.                                      

The NAV of Investment Class Shares may differ from that of other classes        
because of class-specific expenses that each class may pay, the distribution    
fees charged to Adviser Class Shares and the shareholder servicing fees charged 
to Investment Class Shares.                                                     

Exchange Privilege                                                              
You may exchange each Portfolio's Investment Class Shares for Investment Class  
Shares of other available portfolios of the Fund based on their respective      
NAVs. We charge no fee for exchanges. To obtain a prospectus for another        
portfolio, call the Fund at 1-800-548-7786 or contact your financial            
intermediary. If you purchased Portfolio shares through a financial             
intermediary, certain portfolios may be unavailable for exchange. Contact your  
financial intermediary to determine which portfolios are available for exchange.

You can process your exchange by contacting your financial intermediary.        
Otherwise, you should send exchange requests by mail to the Fund's Transfer     
Agent, J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA     
02108-3919. Exchange requests can also be made by calling 1-800-548-7786.       

When you exchange for shares of another portfolio, your transaction will be     
treated the same as an initial purchase. You will be subject to the same        
minimum initial investment and account size as an initial purchase. The Fund,   
in its sole discretion, may waive the minimum initial investment amounts in     
certain cases.                                                                  
Dividends and Distributions                                                     
The Portfolios normally distribute substantially all of their net investment    
income to shareholders as follows:                                              

                                                                [Download Table]

Portfolio                                                 Quarterly Annually
                                                                            
Equity                                                            .         
----------------------------------------------------------------------------
Mid Cap Value                                                              .
----------------------------------------------------------------------------
Value                                                             .         
----------------------------------------------------------------------------
Fixed Income                                                      .         
----------------------------------------------------------------------------
High Yield                                                        .         
----------------------------------------------------------------------------
U.S. Core Fixed Income                                            .         
----------------------------------------------------------------------------
Balanced                                                          .         
----------------------------------------------------------------------------
Multi-Asset-Class                                                 .         
----------------------------------------------------------------------------

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If any net gains are realized from the sale of underlying securities, the       
Portfolios normally distribute the gains with the last distributions for the    
calendar year. All dividends and distributions are automatically paid in        
additional shares of the Portfolio unless you elect otherwise. If you want to   
change how your dividends are paid you must notify Morgan Stanley Institutional 
Fund Trust in writing.                                                          

Taxes                                                                           
Income dividends you receive will be taxable as ordinary income, whether you    
receive them in cash or in additional shares. Corporate shareholders may be     
entitled to a dividends-received deduction for the portion of dividends they    
receive which are attributable to dividends received by such Portfolios from    
U.S. corporations. Capital gains distributions may be taxable at different      
rates depending on the length of time the Portfolio holds its assets.           

Investment income received by the Portfolios from sources within foreign        
countries may be subject to foreign income taxes. The Portfolios may be able to 
pass through to you for foreign tax credit purposes the amount of foreign       
income taxes that they paid.                                                    

Distributions paid in January but declared by a Portfolio in October, November  
or December of the previous year are taxable to you in the previous year.       

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the     
taxable distributions paid to you in the previous year. The statement provides  
information on your dividends and capital gains for tax purposes.               

Exchanges and redemptions of shares in a Portfolio are taxable events and may   
result in a taxable gain or loss to you.                                        

When you open your account, you should provide your social security or tax      
identification number on your investment application. By providing this         
information, you will avoid being subject to a federal backup withholding tax   
(approximately 30% currently) on taxable distributions and redemption proceeds. 
Any withheld amount would be sent to the IRS as an advance tax payment.         

22                                                                              

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Investment Class Prospectus                                                 

January 31, 2002                                                            

Fund Management                                                                 

Adviser                                                                         
The Adviser to the Fund, Morgan Stanley Investments LP ("MSI" or the            
"Adviser"), is a Pennsylvania limited liability partnership founded in 1969.    
The Adviser is wholly-owned by subsidiaries of Morgan Stanley Dean Witter & Co. 
("Morgan Stanley"). Morgan Stanley is a preeminent global financial services    
firm that maintains leading market positions in each of its three primary       
businesses - securities, asset management, and credit services. The Adviser is  
an investment advisory affiliate of Morgan Stanley Investment Management Inc.   
("MSIM") and is located at One Tower Bridge, 100 Front Street, Suite 1100, West 
Conshohocken, PA 19428-2881. The Adviser provides investment advisory services  
to employee benefit plans, endowment funds, foundations and other institutional 
investors. As of December 31, 2001, MSI, together with its affiliated asset     
management companies, had approximately $415.9 billion in assets under          
management with approximately $178.1 billion in institutional assets.           

The Adviser makes investment decisions for the Fund's Portfolios and places     
each Portfolio's purchase and sales orders. Each Portfolio, in turn, pays the   
Adviser an annual advisory fee calculated by applying a quarterly rate. The     
following table shows the Adviser's annual contractual and actual rates of      
compensation for the Fund's 2001 fiscal year.                                   

Adviser's Rates of Compensation                                                 

                                                                [Download Table]

                                                    FY 2001           FY 2001 
                                                Contractual            Actual 
                                          Compensation Rate Compensation Rate 
                                                                              
Equity Portfolio                                       .50%               .50%
------------------------------------------------------------------------------
Mid Cap Value Portfolio                                .75%               .75%
------------------------------------------------------------------------------
Value Portfolio                                        .50%               .50%
------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                      .375%              .375%
------------------------------------------------------------------------------
High Yield Portfolio                                   .45%               .45%
------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio*                     .375%              .363%
------------------------------------------------------------------------------
Balanced Portfolio                                     .45%               .45%
------------------------------------------------------------------------------
Multi-Asset-Class Portfolio*                           .65%              .613%
------------------------------------------------------------------------------

*The Adviser is voluntarily waiving a portion of its fee and/or reimbursing     
certain expenses for the U.S. Core Fixed Income Portfolio and the             
Multi-Asset-Class Portfolio to keep Total Operating Expenses from exceeding   
0.65% and 0.93%, respectively.                                                

Portfolio Management                                                            
Equity Portfolio                                                                
The Portfolio's assets are managed by the Core Equity Team. Current members of  
the team include Brian Kramp, Executive Director, and Eric F. Scharpf, Vice     
President.                                                                      

Mid Cap Value Portfolio                                                         
The Portfolio's assets are managed by the Mid-Cap Value Team. Current members   
of the team include Bradley S. Daniels, Executive Director, William B. Gerlach, 
Managing Director, and Charles Purcell, Vice President.                         

Value Portfolio                                                                 
The Portfolio's assets are managed by the Large Cap Value and Core Equity       
Teams. Current members of the teams include Richard M. Behler, Managing         
Director, Brian Kramp, Executive Director, and Eric F. Scharpf, Vice President. 

Core Plus Fixed Income Portfolio                                                
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Thomas L.    
Bennett, Managing Director, and Roberto M. Sella, Managing Director.            

                                                                            23

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High Yield Portfolio                                                            
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include Stephen F. Esser, Managing Director, Gordon W.      
Loery, Executive Director, and Deanna L. Loughnane, Executive Director.         

U.S. Core Fixed Income Portfolio                                                
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Angelo G.    
Manioudakis, Executive Director, and Scott F. Richard, Managing Director.       
Balanced Portfolio                                                              
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Balanced Portfolio in 1992. Cyril            
Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He joined the    
management team for the Balanced Portfolio in 2001. Brian Kramp, Executive      
Director, MSIM, joined MSI in 1997. He joined the management team for the       
Balanced Portfolio in 2002.                                                     

Multi-Asset-Class Portfolio                                                     
Thomas L. Bennett, Managing Director, MSIM and MSIA, joined MSI in 1984. He     
joined the management team for the Multi-Asset-Class Portfolio in 1994. Barton  
M. Biggs, Managing Director, MSIM, since 1975, Chairman of MSIM since 1980 and  
a Director of Morgan Stanley Group, Inc. He is also a Managing Director of MSIA 
and a director and chairman of various registered investment companies to which 
MSIM and certain of its affiliates provide investment advisory services. He     
joined the management team for the Multi-Asset-Class Portfolio in 1999. J.      
David Germany, Managing Director, MSIM, joined MSI in 1991. He joined the       
management team for the Multi-Asset-Class Portfolio in 1994. Cyril              
Moulle-Berteaux, Managing Director, MSIM, joined MSIM in 2001. He joined the    
management team for the Multi-Asset-Class Portfolio in 2001. Brian Kramp,       
Executive Director, MSIM, joined MSI in 1997. He joined the management team for 
the Multi-Asset-Class Portfolio in 2002.                                        

Distributor                                                                     
Shares of the Fund are distributed exclusively through Morgan Stanley           
Distribution, Inc. ("MSDI"), a wholly-owned subsidiary of the Adviser. MSDI has 
entered into arrangements with certain financial intermediaries who may accept  
purchase and redemption orders for shares of certain Portfolios on its behalf.  

Service Plan                                                                    
The Fund has adopted a Service Plan (the "Service Plan") for each Portfolio's   
Investment Class Shares. Under the Service Plan, each Portfolio pays the        
Distributor a monthly shareholder servicing fee at an annual rate of 0.15% of   
the Portfolio's average daily net assets attributable to Investment Class       
Shares. The Distributor may compensate other parties for providing shareholder  
support services to investors who purchase Investment Class Shares. Shareholder 
servicing fees are separate fees of the Investment Class Shares of each         
Portfolio and will reduce the net investment income and total return of the     
Investment Class Shares of these Portfolios.                                    

24                                                                              

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(This page intentionally left blank)            

                                                                            25

497 131st Page of 271 TOC 1st Previous Next ↓Bottom Just 131st
Financial Highlights                                                            

The following financial highlights tables are intended to help you understand   
the financial performance of each Portfolio for the past five years or, if less 
than five years, the life of the Portfolio or Class. The total returns in the   
tables represent the rate that an investor would have earned (or lost) on an    
investment in each Portfolio (assuming reinvestment of all dividends and        
distributions). The information for the year 2001 has been extracted from the   
Fund's financial statements which were audited by Deloitte & Touche LLP, whose  
report, along with the Fund's financial statements, are incorporated by         
reference into the Fund's Statement of Additional Information and are included  
in the Fund's September 30, 2001 Annual Report to Shareholders.                 

                                                        [Enlarge/Download Table]

                              Net Gains or                                                               
        Net Asset                Losses on                     Dividend    Capital Gain                  
           Value-        Net    Securities  Total from    Distributions   Distributions                  
        Beginning Investment (realized and  Investment  (net investment   (realized net          Other   
        of Period     Income   unrealized)  Activities          income)  capital gains)  Distributions   
                                                                                                         
---------------------------------------------------------------------------------------------------------
Equity Portfolio (Commencement of Investment Class Operations 4/10/96 through 6/01/00)                   
2000***     19.80       0.01          3.21        3.22            (0.02)          (6.07)            --   
1999        20.42       0.07          5.27        5.34            (0.13)          (5.83)            --   
1998        29.42       0.20         (1.03)      (0.83)           (0.24)          (7.93)            --   
1997        25.66       0.34          8.17        8.51            (0.35)          (4.40)            --   
-------------------------------------------------------------------------------------------------------- 
Mid Cap Value Portfolio (Commencement of Investment Class Operations 5/10/96)                            
2001+++    $24.97      $0.01        ($4.88)     ($4.87)          ($0.05)         ($1.33)        ($1.89)# 
2000+++     21.80       0.03          5.75        5.78            (0.04)          (2.57)            --   
1999+++     18.05       0.09          5.00        5.09            (0.03)          (1.31)            --   
1998+++     21.75       0.05         (1.53)      (1.48)           (0.03)          (2.19)            --   
1997+++     14.48       0.01          8.36        8.37            (0.09)          (1.01)            --   
-------------------------------------------------------------------------------------------------------- 
Value Portfolio (Commencement of Investment Class Operations 5/06/96)                                    
2001+++    $12.86      $0.16         $0.93       $1.09           ($0.15)             --             --   
2000+++     13.58       0.15          0.94        1.09            (0.15)          (1.27)         (0.39)# 
1999+++     15.15       0.19          1.12        1.31            (0.27)          (2.61)            --   
1998        20.36       0.31         (3.38)      (3.07)           (0.33)          (1.81)            --   
1997+++     15.60       0.31          5.75        6.06            (0.27)          (1.03)            --   
-------------------------------------------------------------------------------------------------------- 
Core Plus Fixed Income Portfolio (Commencement of Investment Class Operations 10/15/96)                  
2001       $11.25      $0.72         $0.64       $1.36           ($0.77)             --             --   
2000+++     11.27       0.76         (0.03)       0.73            (0.75)             --             --   
1999+++     12.22       0.76         (0.72)       0.04            (0.69)             --          (0.30)# 
1998+++     12.22       0.76          0.14        0.90            (0.73)          (0.17)            --   
1997+++     11.80       0.75          0.40        1.15            (0.60)          (0.13)            --   
-------------------------------------------------------------------------------------------------------- 

26                                                                              

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Investment Class Prospectus                                                 

January 31, 2002                                                            

The Investment Class Shares of the U.S. Core Fixed Income Portfolio had not     
commenced operations as of September 30, 2001. Therefore, Institutional Class   
Share financial information is provided to investors for informational purposes 
only and should be referred to as an historical guide to the Portfolio's        
operations and expenses. Past performance does not indicate future results.     

                                                        [Enlarge/Download Table]

                                       Net Assets-    Ratio of      Ratio of            
                  Net Asset                 End of    Expenses    Net Income  Portfolio 
        Total        Value-    Total        Period  to Average    to Average   Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets       Rate 
                                                                                        

      $(6.09)        $16.93  $ 10.30       $    --       $0.76*        $0.08*      $211 
       (5.96)         19.80    29.92           986        0.77          0.52        103 
       (8.17)         20.42    (2.78)        2,029        0.76          0.78         77 
       (4.75)         29.42    38.12         2,354        0.80++        1.12         85 

      ($3.27)        $16.83   (21.36%)     $46,063        1.01%         0.05%       176%
       (2.61)         24.97    29.25        29,593        1.02          0.14        226 
       (1.34)         21.80    29.30        25,197        1.02          0.42        244 
       (2.22)         18.05    (7.08)       18,861        1.05          0.25        213 
       (1.10)         21.75    61.05         1,238        1.09++        0.04        184 

      ($0.15)        $13.80     8.46%      $19,552        0.77%         1.08%        38%
       (1.81)         12.86     9.50         4,069        0.76          1.19         50 
       (2.88)         13.58     8.20         9,673        0.78          1.25         53 
       (2.14)         15.15   (16.55)       24,527        0.75          1.62         56 
       (1.30)         20.36    41.01        29,847        0.80++        1.75         46 

      ($0.77)        $11.84    12.59%      $74,905        0.63%         6.28%       111%
       (0.75)         11.25     6.84        63,944        0.63          6.89         62 
       (0.99)         11.27     0.24        39,165        0.63          6.50        103 
       (0.90)         12.22     7.72        48,944        0.63          6.31        121 
       (0.73)         12.22    10.07         9,527        0.66*++       6.57*       179 
----------------------------------------------------------------------------------------

                                                                            27

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                                                        [Enlarge/Download Table]

                               Net Gains or                                                               
         Net Asset                Losses on                     Dividend    Capital Gain                  
            Value-        Net    Securities  Total from    Distributions   Distributions                  
         Beginning Investment (realized and  Investment  (net investment   (realized net          Other   
         of Period     Income   unrealized)  Activities          income)  capital gains)  Distributions   
                                                                                                          
----------------------------------------------------------------------------------------------------------
High Yield Portfolio (Commencement of Investment Class Operations 5/21/96)                                
2001+++     $ 7.87      $0.77        ($1.96)     ($1.19)          ($0.93)             --             --   
2000+++       8.78       0.88         (0.89)      (0.01)           (0.90)             --             --   
1999+++       9.00       0.85         (0.10)       0.75            (0.78)          (0.04)         (0.15)# 
1998+++      10.16       0.83         (0.93)      (0.10)           (0.80)          (0.26)            --   
1997+++       9.31       0.84          0.88        1.72            (0.84)          (0.03)            --   
----------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio (Commencement of Institutional Class Operations 9/29/87)                 
2001+++     $10.46      $0.65         $0.73       $1.38           ($0.69)             --             --   
2000+++      10.55       0.71         (0.12)       0.59            (0.68)             --             --   
1999         11.40       0.71         (0.83)      (0.12)           (0.52)             --          (0.21)# 
1998         11.27       0.73          0.32        1.05            (0.79)          (0.13)            --   
1997         10.89       0.74          0.33        1.07            (0.67)          (0.02)            --   
----------------------------------------------------------------------------------------------------------
Balanced Portfolio (Commencement of Investment Class Operations 4/04/97)                                  
2001+++     $13.37      $0.34        ($2.08)     ($1.74)          ($0.35)             --         ($0.67)# 
2000+++      13.82       0.42          1.45        1.87            (0.43)          (1.89)            --   
1999+++      13.45       0.42          1.72        2.14            (0.41)          (1.36)            --   
1998+++      15.30       0.46         (0.13)       0.33            (0.46)          (1.72)            --   
1997         13.11       0.30          2.09        2.39            (0.20)             --             --   
----------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio (Commencement of Investment Class Operations 6/10/96)                         
2001        $11.58      $0.29        ($2.21)     ($1.92)          ($0.07)             --         ($0.77)##
2000         12.41       0.33          0.60        0.93            (0.30)          (1.36)         (0.10)  
1999         11.74       0.35          1.62        1.97            (0.34)          (0.96)            --   
1998+++      13.63       0.36         (0.45)      (0.09)           (0.31)          (1.49)            --   
1997+++      12.27       0.36          2.57        2.93            (0.49)          (1.08)            --   
----------------------------------------------------------------------------------------------------------


Notes to the Financial Highlights                                               
*Annualized                                                                 
**Total return figures for partial years are not annualized.                  
***Amounts for the period from October 1, 1999 to June 1, 2000 are unaudited.   
#Represents distribution in excess of net realized gains.                   
##Represents distributions in excess of net investment income of 0.02 and       
distributions in excess of net realized gains of 0.75.                      
+For the respective periods ended September 30, the Ratio of Expenses to    
Average Net Assets for the following Portfolios excludes the effect of    
 expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be as follows for the respective periods.        

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------
                                                                        Ratio of Expenses to Average Net Assets 
----------------------------------------------------------------------------------------------------------------
Portfolio                                                                 1997      1998   1999   2000    2001  
                                                                                                                
Equity                                                                   0.80%     0.74%  0.75%   0.76%*    --  
--------------------------------------------------------------------------------------------------------------- 
Mid Cap Value                                                            1.07      1.03   1.01    1.00    1.00% 
--------------------------------------------------------------------------------------------------------------- 
Value                                                                    0.79      0.74   0.77    0.75    0.76  
--------------------------------------------------------------------------------------------------------------- 
Core Plus Fixed Income                                                   0.65*     0.62   0.62    0.62    0.62  
--------------------------------------------------------------------------------------------------------------- 
High Yield                                                               0.69      0.63   0.63    0.70    0.71  
--------------------------------------------------------------------------------------------------------------- 
U.S. Core Fixed Income                                                   0.50      0.50   0.49    0.50    0.50  
--------------------------------------------------------------------------------------------------------------- 
Balanced                                                                 0.70*     0.72   0.72    0.72    0.72  
--------------------------------------------------------------------------------------------------------------- 
Multi-Asset-Class                                                        0.96      0.93   0.93    0.93    0.93  
--------------------------------------------------------------------------------------------------------------- 

28                                                                              

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Investment Class Prospectus                                                 

January 31, 2002                                                            

                                                        [Enlarge/Download Table]

                                       Net Assets-    Ratio of      Ratio of            
                  Net Asset                 End of    Expenses    Net Income  Portfolio 
        Total        Value-    Total        Period  to Average    to Average   Turnover 
Distributions End of Period Return**   (thousands) Net Assets+    Net Assets       Rate 
                                                                                        
----------------------------------------------------------------------------------------

      ($0.93)        $ 5.75   (16.42%)    $  9,603        0.72%        11.32%        67%
       (0.90)          7.87    (0.40)       10,151        0.71         10.43         55 
       (0.97)          8.78     8.67         7,041        0.64          9.50         45 
       (1.06)          9.00    (1.37)       11,262        0.65          8.58         75 
       (0.87)         10.16    19.77        10,916        0.70++        8.84         96 
----------------------------------------------------------------------------------------

      ($0.69)        $11.15    13.68%     $195,467        0.51%         6.04%        86%
       (0.68)         10.46     5.88       181,884        0.51++        6.86         51 
       (0.73)         10.55    (1.12)      189,860        0.51          6.09        115 
       (0.92)         11.40     9.83        76,042        0.51++        6.32        145 
       (0.69)         11.27    10.20        96,954        0.51++        6.48        217 
----------------------------------------------------------------------------------------

      ($1.02)        $10.61   (13.65%)    $  6,284        0.73%         2.83%       157%
       (2.32)         13.37    14.59         8,085        0.73          3.13        162 
       (1.77)         13.82    16.84           208        0.74          3.03        111 
       (2.18)         13.45     2.56           445        0.74          3.24        100 
       (0.20)         15.30    18.40         3,943        0.73*         3.32*       145 
----------------------------------------------------------------------------------------

      ($0.84)        $ 8.82   (17.42%)    $  4,555        0.94%++       2.85%       149%
       (1.76)         11.58     7.54         5,565        0.93++        2.77        152 
       (1.30)         12.41    17.53         7,246        0.93++        2.72        101 
       (1.80)         11.74    (0.61)        6,233        0.93++        2.86        107 
       (1.57)         13.63    26.32         5,075        0.96++        2.85        141 
----------------------------------------------------------------------------------------


                    ++For the periods indicated, the Adviser voluntarily
                      agreed to waive its advisory fees and/or reimburse
                        certain expenses to the extent necessary in order to
                        keep Total Operating Expenses actually deducted from
                       portfolio assets for the respective portfolios from
                    exceeding voluntary expense limitations. For the
              respective periods ended September 30, the
                         voluntarily waived and/or reimbursed expenses totaled
the below listed amounts.   

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------
                                      Voluntarily waived and/or reimbursed expenses for: 
-----------------------------------------------------------------------------------------
Portfolio                                  1997          1998     1999     2000     2001 
                                                                                         
Equity                                 1.28%            --       --       --       --    
---------------------------------------------------------------------------------------- 
Mid Cap Value                          4.60             --       --       --       --    
---------------------------------------------------------------------------------------- 
Value                                  0.09             --       --       --       --    
---------------------------------------------------------------------------------------- 
Core Plus Fixed Income                 0.12*            --       --       --       --    
---------------------------------------------------------------------------------------- 
High Yield                             0.22             --       --       --       --    
---------------------------------------------------------------------------------------- 
U.S. Core Fixed Income                 0.01           0.01%      --     0.01%      --    
---------------------------------------------------------------------------------------- 
Multi-Asset-Class                      0.55           0.04     0.02%    0.03     0.04%   
---------------------------------------------------------------------------------------- 

                    +++Per share amounts for the year are based on average
shares outstanding.         

                                                                            29

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Where to find Additional Information                                            

In addition to this prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated January 31, 2002, which contains additional, more    
detailed information about the Fund and the Portfolios. The SAI is incorporated 
by reference into this Prospectus and, therefore, legally forms a part of this  
Prospectus.                                                                     

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about each Portfolio's investments. In the       
Fund's annual report, you will find a discussion of the market conditions and   
the investment strategies that significantly affected each Portfolio's          
performance during the last fiscal year.                                        

You may obtain the SAI and Shareholder Reports without charge by contacting the 
Fund at the toll-free number below. If you purchased shares through a financial 
intermediary, you may also obtain these documents, without charge, by           
contacting your financial intermediary. Information about the Fund, including   
the SAI and Shareholder Reports, may be obtained from the Securities and        
Exchange 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 call 1-202-942-8090); (2) On-line: you may retrieve            
information from the Commission's web site at http://www.sec.gov; (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; or (4) By e-mail: you may request documents, upon payment of a      
duplicating fee, by e-mailing the Securities and Exchange Commission at the     
following address: publicinfo@sec.gov. To aid you in obtaining this             
information, the Fund's Investment Company Act registration number is 811-03980.

Morgan Stanley Institutional Fund Trust                                         
One Tower Bridge                                                                
100 Front Street, Suite 1100                                                    
West Conshohocken, PA 19428-2881.                                               

For Shareholder Inquiries,                                                      
call 1-800-548-7786.                                                            

Prices and Investment Results are available at www.morganstanley.com/im.        

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[LOGO] Morgan Stanley                                                           

Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Morgan Stanley Institutional Fund Trust                                         

Advisory Foreign Fixed Income Portfolio                   

Advisory Foreign Fixed Income II Portfolio                

Advisory Mortgage Portfolio                               

     These Portfolios are available only to private advisory clients
of the Adviser.                                           
Shareholder Services:                                                           
1-800-354-8185                                                                  
--------------------------------------------------------------------------------

Prices and Investment Results:                                                  
www.morganstanley.com/im                                                        
--------------------------------------------------------------------------------

Investment Adviser: Morgan Stanley Investments LP                               
--------------------------------------------------------------------------------

Morgan Stanley Institutional Fund Trust (the "Fund") is a no-load mutual fund   
consisting of 29 different investment portfolios, 3 of which are described in   
this prospectus. Morgan Stanley Investments LP (the "Adviser"), an investment   
advisory affiliate of Morgan Stanley Investment Management Inc., is the Fund's  
investment adviser. This prospectus offers shares of the portfolios (each a     
"Portfolio" and collectively the "Portfolios") described herein.                
--------------------------------------------------------------------------------

The Securities and Exchange Commission has not approved or disapproved these    
securities or passed upon the adequacy of this prospectus. Any representation   
to the contrary is a criminal offense.                                          

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Table of Contents                                                               

                                                                [Download Table]
                                           

Portfolios                                 
-------------------------------------------
Advisory Foreign Fixed Income            1 
-------------------------------------------
Advisory Foreign Fixed Income II         3 
-------------------------------------------
Advisory Mortgage                        5 
-------------------------------------------

Fees and Expenses of the Portfolios      7 
-------------------------------------------
Investment Strategies and Related Risks  8 
-------------------------------------------
Purchasing Shares                       11 
-------------------------------------------
Redeeming Shares                        11 
-------------------------------------------
General Shareholder Information         12 
-------------------------------------------
Fund Management                         13 
-------------------------------------------
Financial Highlights                    14 
-------------------------------------------

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Advisory Foreign Fixed Income Portfolio                                         

Objective                                                                       
The Advisory Foreign Fixed Income Portfolio seeks above-average total return    
over a market cycle of three to five years.                                     

Approach                                                                        
The Portfolio invests primarily in fixed income securities of government and    
corporate issuers in countries other than the U.S., including both investment   
grade and high yield securities rated B or higher (commonly referred to as      
"junk bonds"). The Portfolio may invest, to a limited degree, in issuers        
located in emerging markets. A portion of these securities may be asset-backed  
and, to a lesser extent, mortgage securities. The securities held by the        
Portfolio ordinarily will be denominated in foreign currencies, including the   
Euro. There is no minimum or maximum maturity for any individual security. The  
Adviser may use futures, forwards, swaps and other derivatives in managing the  
Portfolio.                                                                      

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the relative attractiveness of foreign        
government, corporate, mortgage and asset-backed securities. The Adviser relies 
upon value measures, particularly the relative attractiveness of securities     
issued by foreign governments, against those of corporations and other private  
entities. The Adviser also measures various types of risk, by monitoring        
interest rates, the shape of the yield curve, credit 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    
seeking to balance the overall risk of the Portfolio. The Adviser may sell      
securities or exit positions when it believes that expected risk-adjusted       
return is low compared to other investment opportunities.                       

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of non-U.S. issuers.                        

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally move in correlation to changes in   
an issuer's credit rating.                                                      

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These                                                    

[CHART] 
Advisory Foreign Fixed Income Portfolio                                         
Commenced operations on October 7, 1994                                         

1995   1996     1997     1998  1999     2000   2001                             
----    ----     ---     ---     ---     ----   ----                            
17.50   14.98    9.83   10.74   1.81    14.20    -0.01                          

High Quarter    9/30/01 11.67%                                                  
________________________________                                                
Low Quarter     6/30/01 -4.55%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                            Advisory Foreign    Salomon Broad
                                                Fixed Income Investment Grade
                                                   Portfolio       Bond Index
-----------------------------------------------------------------------------
                                                                             
One Year                                               -0.01             8.50
Five Year                                               7.17             7.43
Since Inception 10/7/94                                 9.62             8.22

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          
The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                           1

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Advisory Foreign Fixed Income Portfolio (Cont'd)                                

investments are considered speculative under traditional investment standards.  
Prices of high yield securities will rise and fall primarily in response to     
actual or perceived changes in the issuer's financial health, although changes  
in market interest rates also will affect prices. High yield securities may     
experience reduced liquidity, and sudden and substantial decreases in price.    

Asset-backed and mortgage securities are subject to the risk that changes in    
interest rates and other factors may affect the prepayment of the receivable,   
mortgage, loan or other assets underlying the security. The Portfolio's return  
may be reduced if prepayments occur and the Portfolio has to reinvest at lower  
rates. Prepayment rates also can shorten or extend the average life of the      
Portfolio's asset-backed or mortgage securities.                                

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Changes in the values   
of foreign currencies compared to the U.S. dollar may affect the value of the   
Portfolio's investments. These risks are greater in emerging market countries.  

The Portfolio is non-diversified, which means that it may invest in the         
securities of relatively few issuers. The Portfolio therefore may be more       
susceptible to an adverse event affecting a portfolio investment than a         
diversified portfolio.                                                          

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

2                                                                               

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Advisory Foreign Fixed Income II Portfolio                                      

Objective                                                                       
The Advisory Foreign Fixed Income II Portfolio seeks above-average total return 
over a market cycle of three to five years.                                     

Approach                                                                        
The Portfolio invests primarily in investment grade fixed income securities of  
government and corporate issuers in countries other than the U.S., including,   
to a limited degree, issuers located in emerging markets. A portion of these    
securities may be asset-backed and, to a lesser extent, mortgage securities.    
The securities held by the Portfolio ordinarily will be denominated in foreign  
currencies, including the Euro.There is no minimum or maximum maturity for any  
individual security. The Adviser may use futures, forwards, swaps and other     
types of derivatives in managing the Portfolio.                                 

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the relative attractiveness of foreign        
government, corporate, mortgage and asset-backed securities. The Adviser relies 
upon value measures, particularly the relative attractiveness of securities     
issued by foreign governments, against those of corporations and other private  
entities. The Adviser also measures various types of risk, by monitoring        
interest rates, the shape of the yield curve, credit 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     
seeking to balance the overall risk of the Portfolio. The Adviser may sell      
securities or exit positions when it believes that expected risk-adjusted       
return is low compared to other investment opportunities.                       

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities of non-U.S. issuers.                        

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally move in correlation to changes in   
an issuer's credit rating.                                                      

Asset-backed and mortgage securities are subject to the risk that changes in    
interest rates and other factors may                                            

[CHART] 
Advisory Foreign Fixed Income II Portfolio                                      
Commenced operations on June 20, 2000                                           

 2001  -0.39
High Quarter    9/30/01 11.09%                                                  
______________________________                                                  

Low Quarter     6/30/01 -4.47%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                              Salomon Broad
                                             Advisory Foreign    Investment
                                                 Fixed Income    Grade Bond
                                                    Portfolio         Index
---------------------------------------------------------------------------
                                                                           
One Year                                                -0.39          8.50
Since Inception 6/20/00                                  6.29         10.70

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 year period and since inception. The table also shows the corresponding       
returns of the Portfolio's benchmark index. The variability of performance over 
time provides an indication of the risks of investing in the Portfolio. How the 
Portfolio has performed in the past does not necessarily indicate how the       
Portfolio will perform in the future.                                           
The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage, and investment-grade (BBB-/Baa3 or    
better) corporate securities with maturities of one year or longer.             

                                                                           3

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Advisory Foreign Fixed Income II Portfolio (Cont'd)                             

affect the prepayment of the receivable, mortgage, loan or other assets         
underlying the security. The Portfolio's return may be reduced if prepayments   
occur and the Portfolio has to reinvest at lower rates. Prepayment rates also   
can shorten or extend the average life of the Portfolio's asset-backed or       
mortgage securities.                                                            

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Changes in the values   
of foreign currencies compared to the U.S. dollar may affect the value of the   
Portfolio's investments. These risks are greater in emerging market countries.  

The Portfolio is non-diversified, which means that it may invest in the         
securities of relatively few issuers. The Portfolio therefore may be more       
susceptible to an adverse event affecting a portfolio investment than a         
diversified portfolio.                                                          

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may                                                                  
involve risks different from, or greater than, the risks of investing directly  
in the underlying asset. A derivative instrument may be illiquid and changes in 
its value may not correlate to changes in the value of its underlying asset,    
which may magnify losses.                                                       

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

4                                                                               

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Advisory Mortgage Portfolio                                                     

Objective                                                                       
The Advisory Mortgage Portfolio seeks returns consistent with returns generated 
by the market for mortgage securities.                                          

Approach                                                                        
The Portfolio invests primarily in investment grade mortgage securities of the  
U.S. Government and private issuers, and in mortgage derivatives. The Portfolio 
also invests in other U.S. Government securities and investment grade fixed     
income securities. The Portfolio will ordinarily seek to maintain an average    
weighted maturity in excess of seven years, although there is no minimum or     
maximum maturity for any individual security. The Adviser may use futures,      
swaps and other derivatives in managing the Portfolio.                          

Process                                                                         
The Adviser employs a value approach toward mortgage investing. The Adviser's   
research teams determine the relative attractiveness of mortgage securities,    
mortgage derivatives, and other U.S. Government and fixed income securities.    
The Adviser measures returns generated by the market for mortgage securities by 
reference to the Portfolio's benchmark index. The Adviser also measures various 
types of risk, by monitoring interest rates, sensitivity to interest rate       
changes, credit risk, prepayment rates and the shape of the yield curve. The    
Adviser's management team builds an investment portfolio designed to take       
advantage of its judgment on these factors, while seeking to balance the        
overall risk of the Portfolio. The Adviser may sell securities or exit          
positions when it believes that expected risk-adjusted return is low compared   
to other investment opportunities.                                              

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in mortgage securities.                                                

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value, yield and total return. It is possible for an investor to lose     
money by investing in the Portfolio.                                            

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer. Securities with longer durations are likely to  
be more sensitive to changes in interest rates, generally making them more      
volatile than securities with shorter durations. Lower rated fixed income       
securities have greater volatility because there is less certainty that         
principal and interest payments will be made as scheduled. Prices of fixed      
income securities generally move in correlation to changes in an issuer's       
credit rating.                                                                  

Mortgage securities are also subject to the risk that if interest rates         
decline, borrowers may pay off their mortgages sooner than expected. The        
Portfolio's return may be reduced if prepayments occur and the Portfolio has to 
reinvest at lower rates. Prepayment rates also can shorten or extend the        
average life of the Portfolio's mortgage securities.                            

[CHART] 
Advisory Mortgage Portfolio                                                     
Commenced operations on April 12, 1995                                          

1996   1997     1998   1999     2000  2001                                      
____________________________________________                                    

6.52    10.43   7.60    -0.49   10.55   10.85                                   

High Quarter    9/30/01 4.14%%                                                  
_____________________________                                                   

Low Quarter     6/30/99 -1.36%                                                  

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                                             Advisory   Lehman
                                                             Mortgage Mortgage
                                                            Portfolio    Index
------------------------------------------------------------------------------
                                                                              
One Year                                                        10.85     8.22
Five Year                                                        7.70     7.49
Since Inception 4/12/95                                          8.14     7.85

The bar chart and table show the Portfolio's performance year-by-year, best and 
worst performance for a quarter, and average annual total returns for the past  
1 and 5 year periods and since inception. The table also shows the              
corresponding returns of the Portfolio's benchmark index. The variability of    
performance over time provides an indication of the risks of investing in the   
Portfolio. How the Portfolio has performed in the past does not necessarily     
indicate how the Portfolio will perform in the future.                          

The Lehman Mortgage Index includes GNMA, FNMA and FHLMC Pass-Through securities 
with original maturities of 15, 20 and 30 years, as well as balloon mortgages.  
It excludes buydowns, graduated equity mortgages, project loans, ARMS,          
non-agency mortgages and CMOs.                                                  

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Advisory Mortgage Portfolio (Cont'd)                                            

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing in the underlying asset. A derivative instrument may be illiquid and  
changes in its value may not correlate to changes in the value of its           
underlying asset, which may magnify losses.                                     

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

6                                                                               

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Fees and Expenses of the Portfolios                                             

The Portfolios do not charge any sales loads or other fees when you purchase or 
redeem shares.                                                                  

Annual Portfolio Operating Expenses for the fiscal year ended September 30, 2001
(expenses that are deducted from Portfolio assets)                              

                                                        [Enlarge/Download Table]

                                                                                     Total Annual 
                                           Management  Distribution    Other  Portfolio Operating 
                                                 Fees  (12b-1) Fees Expenses           Expenses** 
                                                                                                  
Advisory Foreign Fixed Income Portfolio          .375%         None      .13%                 .51%
--------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio       .375          None      .21                  .59 
--------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                      .375          None      .10                  .48 
--------------------------------------------------------------------------------------------------

Total Annual Portfolio Operating Expenses reflected in the table above may be   
higher than the expenses actually deducted from Portfolio assets because of the 
effect of expense offset arrangements and/or voluntary waivers.                 
**The Adviser has voluntarily agreed to reduce its advisory fee and reimburse   
the Portfolios so that total expenses will not exceed the rates shown in the
table below. Fee waivers, expense offsets and/or expense reimbursements are 
voluntary and the Adviser reserves the right to terminate any waiver and/or 
reimbursement at any time and without notice.                               

                                                        [Enlarge/Download Table]

                                                         Total Annual Portfolio Operating Expenses 
                                                               After Morgan Stanley Investments LP 
                                                                    Waiver/Reimbursement & Offsets 
                                                                                                   
Advisory Foreign Fixed Income Portfolio                                                        .15%
---------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                                                     .15 
---------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                                                                    .08 
---------------------------------------------------------------------------------------------------

The example assumes that you invest $10,000 in each Portfolio for the time      
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that each Portfolio's operating expenses remain the same. Although your actual  
costs may be higher or lower, based on these assumptions your costs would be    
equal to the amounts reflected in the table to the right.                       

Example                                                                         
This example is intended to help you compare the cost of investing in each      
Portfolio with the cost of investing in other mutual funds.                     

                                                        [Enlarge/Download Table]

                                                                   1 Year 3 Years 5 Years 10 Years
                                                                                                  
Advisory Foreign Fixed Income Portfolio                               $52    $164    $285     $640
--------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                             60     189     329      738
--------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                                            49     154     269      604
--------------------------------------------------------------------------------------------------

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Investment Strategies and Related Risks                                         

This secton discusses in greater detail the Portfolios' principal investment    
strategies and the other types of investments that the Portfolios may make.     
Please read this section in conjunction with the earlier summaries. The         
Portfolios' investment practices and limitations are also described in more     
detail in the Statement of Additional Information ("SAI"), which is             
incorporated by reference and legally is a 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.                                                  

An investment in a Portfolio is not insured or guaranteed by the Federal        
Deposit Insurance Corporation or any other government agency.                   

Fixed Income Securities                                                         
Fixed income securities are securities that pay a fixed rate of interest until  
a stated maturity date. Fixed income securities include U.S. Government         
securities, securities issued by federal or federally sponsored agencies        
("agencies"), corporate bonds and notes, asset-backed securities, mortgage      
securities, high yield securities, municipal bonds, loan participations and     
assignments, zero coupon bonds, convertible securities, Eurobonds, Brady Bonds, 
Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.     

These securities are subject to risks related to changes in interest rates and  
in the financial health or credit rating of the issuers. The maturity and       
duration of a fixed income instrument also affects 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 price changes than shorter     
term securities because they are more sensitive to changes in interest rates or 
in the credit ratings of the issuers.                                           

Fixed income securities may be called (redeemed by the issuer) prior to final   
maturity. If a callable security is called, a Portfolio may have to reinvest    
the proceeds at a lower rate of interest.                                       

Duration                                                                        
The average duration of a portfolio of fixed income securities represents its   
exposure to changing interest rates. A portfolio with a lower average duration  
generally will experience less price volatility in response to changes in       
interest rates than a portfolio with a higher average duration.                 

Mortgage and Asset-Backed Securities                                            
Mortgage and asset-backed securities are fixed income securities representing   
an interest in a pool of underlying mortgage loans or assets such as truck and  
auto loans, leases and credit card receivables. Due to the possibility of       
prepayment of the assets underlying these securities, it may not be possible to 
determine in advance the actual maturity date or average life of the security.  
Rising interest rates tend to discourage refinancings, and, as a result, the    
average life and volatility of the security will increase. When interest rates  
fall, the underlying asset must be reinvested at lower rates.                   

High Yield Securities                                                           
Fixed income securities that are not investment grade are commonly referred to  
as junk bonds or high yield, high risk securities. These securities offer a     
higher yield than other higher rated securities, but they carry a greater       
degree of risk and are considered speculative by the major credit rating        
agencies. High yield securities may be issued by companies that are             
restructuring, are smaller and less creditworthy or are more highly indebted    
than other companies. This means that they may have more difficulty making      
scheduled payments of principal and interest. Changes in the value of high      
yield securities are influenced more by changes in the financial and business   
position of the issuing company than by changes in interest rates when compared 
to investment grade securities.                                                 

Foreign Securities                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers    
can be less liquid and experience greater price movements. In some foreign      
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect an investing portfolio's           
investment. There also can be difficulty obtaining and enforcing judgments      
against issuers in foreign countries. Foreign stock exchanges, broker-dealers,  
and listed issuers may be subject to less government regulation and oversight.  
The cost of investing in foreign securities, including brokerage commissions    

8                                                                               

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

and custodial expenses, can be higher than in the United States.                

Foreign Currency                                                                
Foreign securities are denominated in foreign currencies. The value of foreign  
currencies fluctuates relative to the value of the U.S. dollar. Since investing 
Portfolios must convert the value of foreign securities into dollars, changes   
in currency exchange rates can increase or decrease the U.S. dollar value of    
the Portfolios' assets. The Adviser may use derivatives to reduce this risk.    
The Adviser may, in its discretion, choose not to hedge against currency risk.  
In addition, certain market conditions may make it impossible or uneconomical   
to hedge against currency risk.                                                 

Emerging Market Securities                                                      
Investing in emerging market securities enhances the risks of foreign           
investing. In addition, emerging market securities generally are less liquid    
and subject to wider price and currency fluctuations than securities issued in  
more developed countries. In certain countries, the market may be dominated by  
a few issuers or sectors. Investment funds and structured investments are       
mechanisms for U.S. and other investors to invest in certain emerging markets   
that have laws precluding or limiting direct investments by foreign investors.  

Derivatives and Other Investments                                               
Derivatives are financial instruments whose value and performance are based on  
the value and performance of another security or financial instrument.          
Derivatives sometimes offer the most economical way of pursuing an investment   
strategy, limiting risks or enhancing returns, although there is no guarantee   
of success. Hedging strategies or instruments may not be available or practical 
in all circumstances. Derivative instruments may be publicly traded or          
privately negotiated. Derivatives used by the Adviser include futures           
contracts, options contracts, forward contracts, swaps, collateralized mortgage 
obligations ("CMOs"), stripped mortgage-backed securities ("SMBS"), and         
structured notes.                                                               

A forward contract is an obligation to purchase or sell a security or 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. Forward currency contracts are used to protect against         
uncertainty in the level of future foreign currency exchange rates. A futures   
contract provides for the future sale by one party and purchase by another      
party of a specified amount of a specific security at a specified future time   
and at a specified price. The Portfolios may use futures contracts to gain      
exposure to an entire market (e.g., stock index futures) or to control their    
exposure to changing foreign currency exchange rates or interest rates. The     
portfolios may use futures to control their exposure to changes in interest     
rates and to manage the overall maturity and duration of their securities       
holdings.                                                                       

If a Portfolio buys an option, it buys a legal contract giving it the right to  
buy or sell a specific amount of a security or futures contract at an           
agreed-upon price. If a Portfolio "writes" an option, it sells to another       
person the right to buy from or sell to the Portfolio a specific amount of a    
security or futures contract at an agreed-upon price.                           

The Portfolios may enter into swap transactions which are contracts in which a  
Portfolio agrees to exchange the return or interest rate on one instrument for  
the return or interest rate on another instrument. Payments may be based on     
currencies, interest rates, securities indices or commodity indices. Swaps may  
be used to manage the maturity and duration of a fixed income portfolio, or to  
gain exposure to a market without directly investing in securities traded in    
that market.                                                                    

Structured investments are units representing an interest in assets held in a   
trust that is not an investment company as defined in the Investment Company    
Act of 1940, as amended ("1940 Act"). The trust may pay a return based on the   
income it receives from those assets, or it may pay a return based on a         
specified index.                                                                

CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in  
a number of series (known as "tranches"), each of which has a stated maturity.  
Cash flow from the underlying mortgages is allocated to the tranches in a       
predetermined, specified order. SMBS are multi-class mortgage securities issued 
by U.S. government                                                              

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agencies and instrumentalities and financial institutions. They usually have    
two classes, one receiving most of the principal payments from the mortgages,   
and one receiving most of the interest. In some cases, classes may receive      
interest only (called "IOs") or principal only (called "POs"). Inverse floating 
rate obligations ("inverse floaters") are fixed income securities which have    
coupon rates that vary inversely (often at a multiple) to another specified     
floating rate, such as LIBOR (London Inter-Bank Offered Rate). If the specified 
reference rate rises, the coupon rate of the inverse floater falls, while a     
decrease in the reference rate causes an increase in the inverse floater's      
coupon rate.                                                                    

Risks of Derivatives                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held or to be acquired by a Portfolio, and of derivatives relating   
to those securities, may not be proportionate, (ii) there may not be a liquid   
market for a Portfolio to sell a derivative, which could result in difficulty   
closing a position, and (iii) magnification of losses incurred due to changes   
in the market value of the securities, instruments, indices, or interest rates  
to which they relate.                                                           

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a forward or futures contract with the value of   
securities denominated in a particular currency.                                

Mortgage derivatives 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 CMO or SMBS that a Portfolio holds, these price       
movements may be significantly greater than those experienced by mortgage       
securities generally, depending on whether the payments are predominantly based 
on the principal or interest paid on the underlying mortgages. IOs, POs and     
inverse floaters may exhibit substantially greater price volatility than fixed  
rate obligations having similar credit quality, redemption provisions and       
maturities. IOs, POs and inverse floaters may exhibit greater price volatility  
than the majority of mortgage pass-through securities or CMOs. In addition, the 
yield to maturity of IOs, POs and inverse floaters is extremely sensitive to    
prepayment levels. As a result, higher or lower rates of prepayment than that   
anticipated can have a material effect on a Portfolio's yield to maturity and   
could cause a Portfolio to suffer losses.                                       

Temporary Defensive Investments                                                 
When the Adviser believes that changes in economic, financial or political      
conditions warrant, each Portfolio may invest without limit in securities of    
U.S. issuers for temporary defensive purposes, as described in the Statement of 
Additional Information. If the Adviser incorrectly predicts the effects of      
these changes, the defensive investments may adversely affect the Portfolio's   
performance.                                                                    

Portfolio Turnover                                                              
Consistent with their investment policies, the Portfolios will purchase and     
sell securities without regard to the effect on portfolio turnover. Higher      
portfolio turnover (e.g., over 100% per year) will cause the Portfolio to incur 
additional transaction costs and may result in taxable gains being passed       
through to shareholders.                                                        

Non-diversification of Investments                                              
A Portfolio of investments in a small number of issuers or industries or in     
securities denominated in only a few foreign currencies increases risk. The     
Advisory Foreign Fixed Income and Advisory Foreign Fixed Income II Portfolios   
are non-diversified funds, for purposes of the 1940 Act. A non-diversified      
Portfolio may invest a greater percentage of its assets in the securities of a  
single issuer than a diversified Portfolio. Portfolios that invest in a         
relatively small number of issuers are more susceptible to risks associated     
with a single economic, political or regulatory occurrence than a more          
diversified portfolio might be. Some of those issuers also may present          
substantial credit, currency or other risks.                                    

10                                                                              

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Purchasing Shares                                                               

Shares of each Portfolio may be purchased at the net asset value per share      
(NAV) next determined after we receive your purchase order. Institutional Class 
shares are available to clients of the Adviser with combined investments of     
$5,000,000 (minimum additional investment $1,000).                              

Other Purchase Information                                                      
The Fund may suspend the offering of shares, or any class of shares, of any     
Portfolio or reject any purchase orders when we think it is in the best         
interest of the Fund. The Fund, in its sole discretion, may waive the minimum   
initial and additional investment amounts in certain cases.                     

Purchases of a Portfolio's shares will be made in full and fractional shares of 
the Portfolio calculated to three decimal places.                               

Redeeming Shares                                                                

You may redeem shares of each Portfolio at no charge by writing to Morgan       
Stanley Institutional Fund Trust, c/o J.P. Morgan Investor Services Company, 73 
Tremont Street, Boston, MA 02108 or by calling 1-800-548-7786. The value of     
shares redeemed may be more or less than the purchase price, depending on the   
NAV at the time of redemption. Shares of each Portfolio will be redeemed at the 
net asset value (NAV) next determined after we receive your redemption request. 

The Fund will ordinarily pay redemption proceeds within seven business days     
after receipt of your request. The Fund may suspend the right of redemption or  
postpone the                                                                    
payment of redemption proceeds at times when the New York Stock Exchange        
("NYSE") is closed, the Fund is closed or under other circumstances in          
accordance with interpretations or orders of the U.S. Securities and Exchange   
Commission.                                                                     

If we determine that it is in the best interest of other shareholders not to    
pay redemption proceeds in cash, we may pay you partly or entirely by           
distributing to you readily marketable securities held by the Portfolio from    
which you are redeeming. You may incur brokerage charges when you sell those    
securities.                                                                     

                                                                            11

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General Shareholder Information                                                 

Valuation of Shares                                                             
The NAV of the Portfolios is determined as of the close of the NYSE (normally   
4:00 p.m. Eastern Time) on each day the Portfolios are open for business.       

Each Portfolio values its securities at market value. When no quotations are    
readily available for securities or when the value of securities has been       
materially affected by events occurring after the close of the primary market   
for the securities, we will determine the value for those securities in good    
faith at fair value using methods approved by the Board of Trustees.            
Dividends and Distributions                                                     
The Portfolios normally distribute substantially all of their net investment    
income to shareholders as follows:                                              

                                                                [Download Table]

Portfolio                                                   Monthly Quarterly
                                                                             
Advisory Foreign Fixed Income                                               .
-----------------------------------------------------------------------------
Advisory Foreign Fixed Income II                                            .
-----------------------------------------------------------------------------
Advisory Mortgage                                                 .          
-----------------------------------------------------------------------------

If any net gains are realized from the sale of underlying securities, the       
Portfolios normally distribute the gains with the last distributions for the    
calendar year. All dividends and distributions are automatically paid in        
additional shares of the Portfolio unless you elect otherwise. If you want to   
change how your dividends are paid you must notify Morgan Stanley Institutional 
Fund Trust in writing.                                                          

Taxes                                                                           
Income dividends you receive will be taxable as ordinary income, whether you    
receive them in cash or in additional shares. Corporate shareholders may be     
entitled to a dividends-received deduction for the portion of dividends they    
receive which are attributable to dividends received by such portfolios from    
U.S. corporations. Capital gains distributions may be taxable at different      
rates depending on the length of time the Portfolio holds its assets.           
Investment income received by the Advisory Foreign Fixed Income and Advisory    
Foreign Fixed Income II Portfolios from sources within foreign countries may be 
subject to foreign income taxes. These Portfolios may be able to pass through   
to you for foreign tax credit purposes the amount of foreign income taxes that  
they paid.                                                                      

Distributions paid in January but declared by a Portfolio in October, November  
or December of the previous year are taxable to you in the previous year.       

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the     
taxable distributions paid to you in the previous year. The statement provides  
information on your dividends and capital gains for tax purposes.               

Exchanges and redemptions of shares in a Portfolio are taxable events and may   
result in a taxable gain or loss to you.                                        

When you open your account, you should provide your social security or tax      
identification number on your investment application. By providing this         
information, you will avoid being subject to a federal backup withholding tax   
(approximately 30% currently) on taxable distributions and redemption proceeds. 
Any withheld amount would be sent to the IRS as an advance tax payment.         

12                                                                              

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

Fund Management                                                                 

Adviser                                                                         
The Adviser to the Fund, Morgan Stanley Investments LP ("MSI" or the            
"Adviser"), is a Pennsylvania limited liability partnership founded in 1969.    
The Adviser is wholly-owned by subsidiaries of Morgan Stanley Dean Witter &     
Co., ("Morgan Stanley"). Morgan Stanley is a preeminent global financial        
services firm that maintains leading market positions in each of its three      
primary businesses--securities, asset management, and credit services. The      
Adviser is an investment advisory affiliate of Morgan Stanley Investment        
Management Inc. ("MSIM") and is located at One Tower Bridge, 100 Front Street,  
Suite 1100, West Conshohocken, PA 19428-2881. The Adviser provides investment   
advisory services to employee benefit plans, endowment funds, foundations and   
other institutional investors. As of December 31, 2001, MSI, together with its  
affiliated asset management companies, had approximately $415.9 billion in      
assets under management with approximately $178.1 billion in institutional      
assets.                                                                         

The Adviser makes investment decisions for the Fund's Portfolios and places     
each Portfolio's purchase and sales orders. Each Portfolio, in turn, pays the   
Adviser an annual advisory fee calculated by applying a quarterly rate. The     
table below shows the Adviser's annual contractual and actual rates of          
compensation for the Fund's 2001 fiscal year.                                   

                                                                [Download Table]

                                                       FY2001           FY 2001
                                                  Contractual            Actual
Adviser's Rates of Compensation             Compensation Rate Compensation Rate
                                                                               
Advisory Foreign Fixed Income Portfolio*                .375%               .00
-------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio*              .375               .00
-------------------------------------------------------------------------------
Advisory Mortgage Portfolio*                             .375               .00
-------------------------------------------------------------------------------

*The Adviser is voluntarily waiving its fee and reimbursing certain expenses    
for the Advisory Foreign Fixed Income, Advisory Foreign Fixed Income II and   
Advisory Mortgage Portfolios, to the extent necessary, to keep Total Operating
Expenses from exceeding .15%, .15% and .08%, respectively.                    
Portfolio Management                                                            
Advisory Foreign Fixed Income Portfolio and Advisory Foreign Fixed Income II    
Portfolio                                                                       
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include J. David Germany, Managing Director, Michael        
Kushma, Executive Director, Paul F. O'Brien, Executive Director, and Christian  
G. Roth, Executive Director.                                                    

Advisory Mortgage Portfolio                                                     
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include  Roberto M. Sella, Managing Director, Scott F.      
Richard, Managing Director, and David S. Horowitz, Vice President.              

Distributor                                                                     
Shares of the Fund are distributed exclusively through Morgan Stanley           
Distribution, Inc., a wholly-owned subsidiary of the Adviser.                   

                                                                            13

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Financial Highlights                                                            

The following financial highlights tables are intended to help you understand   
the financial performance of each Portfolio for the past five years or, if less 
than five years, the life of the Portfolio. Certain information reflects        
financial results for a single Portfolio share. The total returns in the tables 
represent the rate that an investor would have earned (or lost) on an           
investment in each Portfolio (assuming reinvestment of all dividends and        
distributions). The information for the year 2001 has been extracted from the   
Fund's financial statements which were audited by Deloitte & Touche LLP, whose  
report, along with the Fund's financial statements, are incorporated by         
reference into the Fund's Statement of Additional Information and               

                                                        [Enlarge/Download Table]

                              Net Gains or                                                              
        Net Asset                   Losses                     Dividend    Capital Gain                 
           Value-        Net on Securities  Total from    Distributions   Distributions                 
        Beginning Investment (realized and  Investment  (net investment   (realized net          Other  
        of Period     Income   unrealized)  Activities          income)  capital gains)  Distributions  
                                                                                                        
--------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio (Commencement of Operations 10/7/94)                            
2001+++    $ 3.71      $0.19        $ 0.21      $ 0.40          ($ 0.14)             --             --  
2000+++      3.85       0.18          0.03        0.21            (0.35)             --             --  
1999+++     10.18       0.19            --        0.19            (5.52)          (1.00)                
1998+++     10.32       0.48          0.48        0.96            (1.10)             --             --  
1997+++     11.73       0.58          0.80        1.38            (1.88)          (0.88)         (0.03)#
--------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio (Commencement of Operations 6/20/00)                         
2001+++    $10.18      $0.50        $ 0.51      $ 1.01          ($ 0.27)             --             --  
2000+++     10.00       0.14          0.04        0.18               --              --             --  
--------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio (Commencement of Operations 4/12/95)                                        
2001       $10.00      $0.62        $ 0.66      $ 1.28          ($ 0.65)             --             --  
2000        10.03       0.72         (0.08)       0.64            (0.67)             --             --  
1999        10.86       0.66         (0.69)      (0.03)           (0.58)             --          (0.22)#
1998        10.59       0.69          0.36        1.05            (0.67)          (0.11)            --  
1997        10.29       0.75          0.34        1.09            (0.71)          (0.08)            --  
--------------------------------------------------------------------------------------------------------

Notes to the Financial Highlights                                               
*Annualized                                                                     
#Represents distribution in excess of net realized gains.                       
+For the periods ended September 30, 1997, September 30, 1998, September 30,    
1999, September 30, 2000 and September 30, 2001, the Ratio of Expenses to     
Average Net Assets for the Advisory Foreign Fixed Income and Advisory Mortgage
Portfolios excludes the effect of expense offsets. If expense offsets were    
included, the Ratio of Expenses to Average Net Assets would be 0.14%, and     
0.08%, respectively, for 1997, 0.12%, and 0.08%, respectively, for 1998,      
0.14%, and 0.08%, respectively, for 1999, 0.15% and 0.08%, respectively, for  
2000, 0.13% and 0.08%, respectively, for 2001. Likewise, for the period ended 
September 30, 2000 and September 30, 2001, the Ratio of Expenses to Average   
Net Assets for the Advisory Foreign Fixed Income II Portfolio excludes the    
effect of expense offsets. If expense offsets were included, the Ratio of     
Expenses to Average Net Assets would be 0.15% (annualized) for both periods.  
++The Adviser has voluntarily agreed to waive its advisory fees and/or          
reimburse certain expenses to the extent necessary in order to keep Total   
Operating Expenses actually deducted from portfolio assets for the Advisory 
Foreign Fixed Income, Advisory Foreign Fixed Income II and Advisory Mortgage
Portfolios from exceeding 0.15%, 0.15% and 0.08%, respectively. Voluntarily 
waived and/or reimbursed expenses of the Advisory Foreign Fixed Income and  
Advisory Mortgage Portfolios totaled 0.38% and 0.40%, respectively, for the 
 year ended September 30, 1997, 0.38%, 0.40%, respectively, for the year ended
September 30, 1998, 0.39% and 0.39%, respectively for the year ended        
 September 30, 1999, 0.57% and 0.38% respectively for the year ended September
30, 2000 and 0.37% and 0.39% respectively for the year ended September 30,  
2001. Voluntarily waived and/or reimbursed expenses of the Advisory Foreign 
Fixed Income II Portfolio totalled 3.02% (annualized) for the year ended    
September 30, 2000 and 0.43% for the year ended September 30, 2001.         
+++Per share amounts for the year are based on average shares outstanding.      

14                                                                              

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Advisory Portfolios Prospectus                                              

January 31, 2002                                                            

are included in the Fund's September 30, 2001 Annual Report to Shareholders.    

                                                        [Enlarge/Download Table]


              Net Asset           Net Assets-       Ratio of    Ratio of             
                 Value-                End of       Expenses  Net Income  Portfolio  
        Total    End of    Total       Period     to Average  to Average   Turnover  
Distributions    Period Return**  (thousands) Net Assets+,++  Net Assets       Rate  
                                                                                     
------------------------------------------------------------------------------------ 

      ($0.14)    $ 3.97    11.12%  $  215,557           0.14%       5.02%        10% 
       (0.35)      3.71     5.86        9,052           0.16        4.87          0  
       (6.52)      3.85     2.87       14,322           0.15        4.24          0  
       (1.10)     10.18    10.19       17,683           0.12        4.84        318  
       (2.79)     10.32    14.08       93,939           0.14        5.68        208  
-------------------------------------------------------------------------------------

      ($0.27)    $10.92    10.13%  $   58,010           0.16%       4.80%         4% 
           --     10.18     1.80        1,806           0.15*       5.09*         0  
-------------------------------------------------------------------------------------

      ($0.65)    $10.63    13.30%  $7,963,569           0.09%       6.01%       134% 
       (0.67)     10.00     6.76    7,019,170           0.09        7.19         49  
       (0.80)     10.03    (0.32)   8,463,568           0.09        6.62         94  
       (0.78)     10.86    10.36    6,396,764           0.09        6.83        126  
       (0.79)     10.59    11.03    3,071,427           0.09        7.55        144  
------------------------------------------------------------------------------------ 

                                                                            15

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Where to find Additional Information                                            

In addition to this prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated January 31, 2002, which contains additional, more    
detailed information about the Fund and the Portfolios. The SAI is incorporated 
by reference into this Prospectus and, therefore, legally forms a part of this  
Prospectus.                                                                     

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about each Portfolio's investments. In the       
Fund's annual report, you will find a discussion of the market conditions and   
the investment strategies that significantly affected each Portfolio's          
performance during the last fiscal year.                                        

You may obtain the SAI and Shareholder Reports without charge by contacting the 
Fund at the toll-free number below.                                             

Information about the Fund, including the SAI and Shareholder Reports, may be   
obtained from the Securities and Exchange 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 call 1-202-942-8090); 
(2) On-line: you may retrieve information from the Commission's web site at     
http://www.sec.gov; (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; or (4) By e-mail: you may       
request documents, upon payment of a duplicating fee, by e-mailing the          
Securities and Exchange Commission at the following address:                    
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's        
Investment Company Act registration number is 811-03980.                        

Morgan Stanley Institutional Fund Trust                                         
One Tower Bridge                                                                
100 Front Street, Suite 1100                                                    
West Conshohocken, PA 19428-2881.                                               

For Shareholder Inquiries,                                                      
1-800-354-8185.                                                                 

Prices and Investment Results are available at www.morganstanley.com/im.        

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[LOGO] MORGAN STANLEY                                                           

Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Morgan Stanley Institutional Fund Trust                                         

Cash Reserves Portfolio                                   

Core Plus Fixed Income Portfolio                          

Intermediate Duration Portfolio                           

Targeted Duration Portfolio                               

       This Prospectus must be preceded or accompanied by the Disclosure
Memorandum for the Morgan Stanley Stable Value Fund.      
Shareholder Services:                                                           
1-800-354-8185                                                                  
--------------------------------------------------------------------------------

Prices and Investment Results:                                                  
www.morganstanley.com/im                                                        
--------------------------------------------------------------------------------

Investment Adviser: Morgan Stanley Investments LP                               
--------------------------------------------------------------------------------

Morgan Stanley Institutional Fund Trust (the "Fund") is a no-load mutual fund   
consisting of 29 different investment portfolios, 4 of which are described in   
this prospectus. Morgan Stanley Investments LP (the "Adviser"), an investment   
advisory affiliate of Morgan Stanley Investment Management Inc., is the Fund's  
investment adviser. This prospectus offers Investment Class Shares of the       
portfolios (each a "Portfolio" and collectively the "Portfolios") described     
herein.                                                                         
--------------------------------------------------------------------------------

The Securities and Exchange Commission has not approved or disapproved these    
securities or passed upon the adequacy of this prospectus. Any representation   
to the contrary is a criminal offense.                                          

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Table of Contents                                                               

                                                                [Download Table]

                                        Page
                                            
Portfolios                                  
--------------------------------------------
Cash Reserves                              1
--------------------------------------------
Core Plus Fixed Income                     2
--------------------------------------------
Intermediate Duration                      4
--------------------------------------------
Targeted Duration                          6
--------------------------------------------

Fees and Expenses of the Portfolios        8
--------------------------------------------

Investment Strategies and Related Risks    9
--------------------------------------------

General Shareholder Information           12
--------------------------------------------

Fund Management                           13
--------------------------------------------

Financial Highlights                      16
--------------------------------------------

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Cash Reserves Portfolio                                                         

Objective                                                                       
The Cash Reserves Portfolio seeks to realize maximum current income, consistent 
with the preservation of capital and liquidity.                                 

Approach                                                                        
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by  
investing exclusively in liquid, high quality money market instruments of       
private financial and non-financial corporations, as well as obligations of the 
U.S. Government and its agencies and instrumentalities. The Portfolio's average 
weighted maturity will not exceed 90 days, and no individual security will have 
a remaining maturity in excess of 397 days.                                     

Process                                                                         
The Portfolio's Sub-Adviser, Morgan Stanley Investment Advisors Inc.,           
determines the appropriate average maturity for the Portfolio based on the      
shape of the money market yield curve and its view of the direction of short    
term interest rates over the next one to six months. Securities are selected on 
the basis of their value, adjusted for risk. The Sub-Adviser invests in a       
variety of securities in order to diversify credit risk and interest rate risk. 
The Sub-Adviser may sell securities when it believes that expected              
risk-adjusted return is low compared to other investment opportunities, when a  
security is downgraded, or for liquidity needs.                                 

Principal Risks                                                                 
Although the Portfolio seeks to preserve the value of your investment at $1.00  
per share, the Portfolio is subject to various risks that could adversely       
affect its net asset value, yield and total return. It is possible for an       
investor to lose money by investing in the Portfolio.                           

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Prices of fixed    
income securities generally will move in correlation to changes in an issuer's  
credit rating. Repurchase agreements are subject to additional risks associated 
with the possibility of default by the seller at a time when the collateral has 
declined in value, or insolvency of the seller, which may affect the            
Portfolio's right to control the collateral.                                    

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

You may obtain the Portfolio's SEC 7-day current yield by calling               
1-800-354-8185.                                                                 

Cash Reserves Portfolio                                                         
Commenced operations on August 16, 1999                                         

[CHART] 

2000   2001                                                                     
----   ----                                                                     
6.03   3.83                                                                     

High Quarter    12/31/00     1.56%                                              
Low Quarter     12/31/01     0.54%                                              
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                     Salomon  Lipper
                             Cash    1-month   Money
                         Reserves   Treasury  Market
                        Portfolio Bill Index Average
----------------------------------------------------
                                                    
One Year                     3.83       3.71    3.43
Since Inception 8/16/99      4.96       4.48    4.59

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total returns for the past 1 year period and since inception. The table  
also shows the corresponding returns of the Portfolio's benchmark indices. The  
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon 1-month Treasury Bill Index is an unmanaged index generally         
representative of the average yield of one month treasury bills.                

The return of the Lipper Money Market average is the average return of all      
Money Market Funds in the Lipper Money Market Universe. Money Market funds are  
defined as funds that invest in high quality financial instruments rated in the 
top two grades, with dollar-weighted average maturities of less than 90 days.   
These funds intend to keep a constant Net Asset Value.                          

                                                                           1

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Core Plus Fixed Income Portfolio                                                

Objective                                                                       
The Core Plus Fixed Income Portfolio seeks above-average total return over a    
market cycle of three to five years.                                            

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 seek to        
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 Portfolio may invest opportunistically in        
non-dollar denominated securities and in high yield securities (commonly        
referred to as "junk bonds"). The Portfolio may invest over 50% of its assets   
in mortgage securities. The Adviser may use futures, swaps and other            
derivatives in managing the Portfolio.                                          

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The         
Adviser's research teams evaluate the 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 by monitoring interest rates, inflation, 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    
seeking to balance the overall risk of the Portfolio. The Adviser may sell      
securities or exit positions when it believes that expected risk-adjusted       
return is low compared to other investment opportunities.                       

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Core Plus Fixed Income Portfolio                                                
Commenced operations on October 15, 1996                                        

[CHART] 

1997   1998   1999    2000    2001                                              
----   ----   ----    ----    ----                                              
9.52   6.72   -0.73   10.63   10.21                                             

High Quarter    6/30/97    3.98%                                                
Low Quarter     6/30/99   -1.66%                                                
Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                            Salomon
                                              Broad
                         Core Plus Fixed Investment
                                  Income Grade Bond
                               Portfolio      Index
---------------------------------------------------
                                                   
One Year                      10.21         8.50   
Five Year                      7.18         7.43   
Since Inception 10/15/96       7.43         7.55   

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total return for the past 1 and 5 year periods and since inception. The  
table also shows the corresponding returns of the Portfolio's benchmark index.  
The variability of performance over time provides an indication of the risks of 
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Salomon Broad Investment Grade Bond Index is a market                       
capitalization-weighted fixed-income index that includes fixed-rate U.S.        
Treasury, Government-sponsored, mortgage , and investment-grade (BBB-/Baa3 or   
better) corporate securities with maturities of one year or longer.             

2                                                                               

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Core Plus Fixed Income Portfolio (Cont'd)                                       

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity, and sudden and  
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

                                                                           3

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Intermediate Duration Portfolio                                                 

Objective                                                                       
The Intermediate Duration Portfolio seeks above-average total return over a     
market cycle of three to five years.                                            

Approach                                                                        
The Portfolio invests primarily in a diversified mix of U.S. Government         
securities, investment grade corporate bonds and mortgage securities. The       
Portfolio also may invest, to a limited extent, in non-dollar denominated       
securities. The Portfolio seeks value in the fixed income market with only a    
moderate sensitivity to changes in interest rates. The Portfolio will           
ordinarily seek to maintain an average duration between two and five years,     
although there is no minimum or maximum maturity for any individual security.   
The Portfolio may invest over 50% of its assets in mortgage securities. The     
Adviser may use futures, swaps and other derivatives to manage the Portfolio.   

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
makes securities and sector decisions based on the anticipated tradeoff between 
long-run expected return and risk. The Adviser relies upon value measures such  
as the level of real interest rates, yield curve slopes and credit-adjusted     
spreads to guide its decisions regarding interest rate, country, sector and     
security exposure. A team of portfolio managers implements strategies based on  
these types of value measures. Certain team members focus on specific bonds     
within each sector. Others seek to ensure that the aggregate risk exposures to  
changes in the level of interest rates and yield spreads match the Portfolio's  
objective. The Adviser may sell securities when it believes that expected       
risk-adjusted return is low compared to other investment opportunities.         

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in fixed income securities.                                            

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the                              

Intermediate Duration Portfolio                                                 
Commenced operations on August 16, 1999                                         
[CHART] 

2000     2001                                                                   
-----    ----                                                                   
8.99     9.75                                                                   

High Quarter 9/30/01   4.69%                                                    
----------------------------                                                    
Low Quarter  3/31/00    .21%                                                    

Average Annual Total Return (as of 12/31/01)                                    

                                                                [Download Table]

                                       Lehman Brothers
                        Intermediate      Intermediate
                            Duration Government/Credit
                           Portfolio             Index
------------------------------------------------------
                                                      
One Year                        9.75              8.96
Since Inception 8/16/99         8.81              8.55

The bar chart and table show the Portfolio's Investment Class Shares            
performance year-by-year, best and worst performance for a quarter, and average 
annual total return for the past 1 year period and since inception. The table   
also shows the corresponding returns of the Portfolio's benchmark index. The    
variability of performance over time provides an indication of the risks of     
investing in the Portfolio. How the Portfolio has performed in the past does    
not necessarily indicate how the Portfolio will perform in the future.          

The Lehman Brothers Intermediate Government/Credit Index is based on all        
publicly issued intermediate government and corporate debt securities with an   
average maturity of between 4 and 5 years.                                      

4                                                                               

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Intermediate Duration Portfolio (Cont'd)                                        

Portfolio has to reinvest at lower interest rates. Prepayment rates can also    
shorten or extend the average life of the Portfolio's mortgage securities.      

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

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Targeted Duration Portfolio (Not currently open)                                

Objective                                                                       
The Targeted Duration Portfolio seeks above-average total return consistent     
with reasonable risk.                                                           

Approach                                                                        
The Portfolio seeks value in the fixed income market without significant        
sensitivity to changes in interest rates. The Portfolio invests primarily in    
U.S. Government securities, investment grade and high yield corporate bonds     
(commonly referred to as "junk bonds'') and mortgage securities, and, to a      
limited extent, non-dollar denominated securities, regardless of maturity. The  
average duration the Portfolio will ordinarily seek to maintain is generally    
similar to that of the Merrill Lynch 1-3 Year Treasury Index, which generally   
ranges between zero and 3 years, although there is no minimum or maximum        
maturity for any individual security. The Portfolio may invest over 50% of its  
assets in mortgage securities. The Adviser may use futures, swaps and other     
derivatives to manage the Portfolio.                                            

Process                                                                         
The Adviser employs a value approach toward fixed income investing. The Adviser 
makes securities and sector decisions based on the anticipated tradeoff between 
long-run expected return and risk. The Adviser relies upon value measures such  
as the level of real interest rates, yield curve slopes and credit-adjusted     
spreads to guide its decisions regarding interest rate, country, sector and     
security exposure. A team of portfolio managers implements strategies based on  
these types of value measures. Certain team members focus on specific bonds     
within each sector. Others seek to ensure that the aggregate risk exposures to  
changes in the level of interest rates and yield spreads match the Portfolio's  
objective. The Adviser may sell securities when it believes that expected       
risk-adjusted return is low compared to other investment opportunities.         

Principal Risks                                                                 
The Portfolio is subject to various risks that could adversely affect its net   
asset value and total return. It is possible for an investor to lose money by   
investing in the Portfolio.                                                     

The Portfolio is subject to the risks of investing in fixed income securities.  
The prices of fixed income securities respond to economic developments,         
particularly interest rate changes and changes in the actual or perceived       
creditworthiness of the issuer of the fixed income security. Securities with    
longer durations are likely to be more sensitive to changes in interest rates,  
generally making them more volatile than securities with shorter durations.     
Lower rated fixed income securities have greater volatility because there is    
less certainty that principal and interest payments will be made as scheduled.  
Prices of fixed income securities generally will move in correlation to changes 
in an issuer's credit rating.                                                   

The Portfolio's investments in high yield securities expose it to a substantial 
degree of credit risk. These investments are considered speculative under       
traditional investment standards. Prices of high yield securities will rise and 
fall primarily in response to actual or perceived changes in the issuer's       
financial health, although changes in market interest rates also will affect    
prices. High yield securities may experience reduced liquidity and sudden and   
substantial decreases in price.                                                 

Mortgage securities are subject to the risk that if interest rates decline,     
borrowers may pay off their mortgages sooner than expected. The Portfolio's     
return may be reduced if prepayments occur and the Portfolio has to reinvest at 
lower interest rates. Prepayment rates can also shorten or extend the average   
life of the Portfolio's mortgage securities.                                    

Foreign fixed income securities may involve greater risks than those issued by  
U.S. companies or the U.S. government. Economic, political and other events     
unique to a country or region will affect those markets and their issuers, but  
may not affect the U.S. market or similar U.S. issuers. Some of the Portfolio's 
investments may be denominated in a foreign currency. Changes in the values of  
those currencies compared to the U.S. dollar may affect the value of the        
Portfolio's investments.                                                        

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Targeted Duration Portfolio (Cont'd)                                            

The Portfolio is subject to the risks of using derivatives. A derivative        
instrument may involve risks different from, or greater than, the risks of      
investing directly in the underlying asset. A derivative instrument may be      
illiquid and changes in its value may not correlate to changes in the value of  
its underlying asset, which may magnify losses.                                 

Please see "Investment Strategies and Related Risks" for further information    
about these and other risks of investing in the Portfolio.                      

Performance Information                                                         
No performance information is provided because the Targeted Duration Portfolio  
has not commenced operations.                                                   

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Fees and Expenses of the Portfolios                                             

The Portfolios do not charge any sales loads or other fees when you purchase or 
redeem shares.                                                                  

Annual Portfolio Operating Expenses for the fiscal year ended September 30, 2001
(expenses that are deducted from Portfolio assets)                              

                                                        [Enlarge/Download Table]

                                                         Shareholder                 Total Annual  
                                 Management Distribution   Servicing    Other Portfolio Operating  
                                       Fees         Fees         Fee Expenses            Expenses  
                                                                                                   
Cash Reserves Portfolio                .25%         None        .15%     .19%                 .59**
---------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio       .375         None         .15      .10                 .63  
---------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio        .375         None         .15      .16                 .69  
---------------------------------------------------------------------------------------------------
Targeted Duration Portfolio+           .375         None         .15     .19*                 .72**
---------------------------------------------------------------------------------------------------

Total Annual Portfolio Operating Expenses reflected in the table above may be   
higher than the expenses actually deducted from portfolio assets because of the 
effect of expense offset arrangements and/or voluntary waivers.                 
*Other Expenses are based on estimated amounts.                               
**The Adviser has voluntarily agreed to reduce its advisory fee and/or          
reimburse the Portfolios so that total expenses will not exceed the rate    
shown in the table below. Fee waivers, expense offsets and/or expense       
reimbursements are voluntary and the Adviser reserves the right to terminate
any waiver and/or reimbursement at any time and without notice.             
+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

                                                                [Download Table]

                             Total Annual Portfolio Operating Expenses 
                                   After Morgan Stanley Investments LP 
                                        Waiver/Reimbursement & Offsets 
                                                                       
Cash Reserves Portfolio                                            .47%
-----------------------------------------------------------------------
Targeted Duration Portfolio+                                       .60 
-----------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

The example assumes that you invest $10,000 in each Portfolio for the time      
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that each Portfolio's operating expenses remain the same. For Portfolios that   
have been in operation for 6 months or less, the example is limited to 3 years. 
Although your actual costs may be higher or lower, based on these assumptions   
your costs would be equal to the amounts reflected in the table to the right.   

Example                                                                         
This example is intended to help you compare the cost of investing in each      
Portfolio with the cost of investing in other mutual funds.                     

                                                                [Download Table]

                                 1 Year 3 Years 5 Years 10 Years
                                                                
Cash Reserves Portfolio             $60    $189    $329     $738
----------------------------------------------------------------
Core Plus Fixed Income Portfolio     64     202     351      786
----------------------------------------------------------------
Intermediate Duration Portfolio      70     221     384      859
----------------------------------------------------------------
Targeted Duration Portfolio+         74     230      --       --
----------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

8                                                                               

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Investment Strategies and Related Risks                                         

This section discusses in greater detail the Portfolio's principal investment   
strategies and the other types of investments that the Portfolios may make.     
Please read this section in conjunction with the earlier summaries. The         
Portfolios' investment practices and limitations are also described in more     
detail in the Statement of Additional Information ("SAI"), which is             
incorporated by reference and legally is a 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.                                                  

An investment in a Portfolio is not insured or guaranteed by the Federal        
Deposit Insurance Corporation or any other government agency.                   

Fixed Income Securities                                                         
Fixed income securities are securities that pay a fixed rate of interest until  
a stated maturity date. Fixed income securities include U.S. Government         
securities, securities issued by federal or federally sponsored agencies        
("agencies"), corporate bonds and notes, asset-backed securities, mortgage      
securities, high yield securities, municipal bonds, loan participations and     
assignments, zero coupon bonds, convertible securities, Eurobonds, Brady Bonds, 
Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.     

These securities are subject to risks related to changes in interest rates and  
in the financial health or credit rating of the issuers. The maturity and       
duration of a fixed income instrument also affects 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 price changes than shorter     
term securities because they are more sensitive to changes in interest rates or 
in the credit ratings of the issuers.                                           

Fixed income securities may be called (redeemed by the issuer) prior to final   
maturity. If a callable security is called, a Portfolio may have to reinvest    
the proceeds at a lower rate of interest.                                       

Duration                                                                        
The average duration of a portfolio of fixed income securities represents its   
exposure to changing interest rates. A portfolio with a lower average duration  
generally will experience less price volatility in response to changes in       
interest rates than a portfolio with a higher average duration.                 

High Yield Securities                                                           
Fixed income securities that are not investment grade are commonly referred to  
as junk bonds or high yield, high risk securities. These securities offer a     
higher yield than other higher rated securities, but they carry a greater       
degree of risk and are considered speculative by the major credit rating        
agencies. High yield securities may be issued by companies that are             
restructuring, are smaller and less creditworthy or are more highly indebted    
than other companies. This means that they may have more difficulty making      
scheduled payments of principal and interest. Changes in the value of high      
yield securities are influenced more by changes in the financial and business   
position of the issuing company than by changes in interest rates when compared 
to investment grade securities.                                                 

Mortgage Securities                                                             
These are fixed income securities that derive their value from or represent     
interests in a pool of mortgages or mortgage securities. Mortgage securities    
are subject to prepayment risk--the risk that, as interest rates fall,          
borrowers will refinance their mortgages and "prepay" principal. A portfolio    
holding mortgage securities that are experiencing prepayments will have to      
reinvest these payments at lower prevailing interest rates. On the other hand,  
when interest rates rise, borrowers are less likely to refinance, resulting in  
lower prepayments. This can effectively extend the maturity of a Portfolio's    
mortgage securities, resulting in greater price volatility. It can be difficult 
to measure precisely the remaining life of a mortgage security or the average   
life of a portfolio of such securities.                                         

Foreign Securities                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers    
can be less liquid and experience greater price movements. In some foreign      
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect an investing portfolio's           
investment. There also can be difficulty obtaining and enforcing judgments      
against issuers in foreign countries. Foreign stock exchanges, broker-dealers,  

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and listed issuers may be subject to less government regulation and oversight.  
The cost of investing in foreign securities, including brokerage commissions    
and custodial expenses, can be higher than in the United States.                

Foreign Currency                                                                
Foreign securities are denominated in foreign currencies. The value of foreign  
currencies fluctuates relative to the value of the U.S. dollar. Since investing 
Portfolios must convert the value of foreign securities into dollars, changes   
in currency exchange rates can increase or decrease the U.S. dollar value of    
the Portfolios' assets. The Adviser may use derivatives to reduce this risk.    
The Adviser may in its discretion choose not to hedge against currency risk.    
In addition, certain market conditions may make it impossible or uneconomical   
to hedge against currency risk.                                                 

Emerging Market Securities                                                      
Investing in emerging market securities enhances the risks of foreign           
investing. In addition, emerging market securities generally are less liquid    
and subject to wider price and currency fluctuations than securities issued in  
more developed countries. In certain countries, the market may be dominated by  
a few issuers or sectors. Investment funds and structured investments are       
mechanisms for U.S. and other investors to invest in certain emerging markets   
that have laws precluding or limiting direct investments by foreign investors.  

Derivatives And Other Investments                                               
Derivatives are financial instruments whose value and performance are based on  
the value and performance of another security or financial instrument.          
Derivatives sometimes offer the most economical way of pursuing an investment   
strategy, limiting risks or enhancing returns, although there is no guarantee   
of success. Hedging strategies or instruments may not be available or practical 
in all circumstances. Derivative instruments may be publicly traded or          
privately negotiated. Derivatives used by the Adviser include futures           
contracts, options contracts, forward contracts, swaps, collateralized mortgage 
obligations ("CMOs"), stripped mortgage-backed securities ("SMBS"), and         
structured notes.                                                               

A forward contract is an obligation to purchase or sell a security or 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. Forward currency contracts are used to protect against         
uncertainty in the level of future foreign currency exchange rates. A futures   
contract provides for the future sale by one party and purchase by another      
party of a specified amount of a specific security at a specified future time   
and at a specified price. The Portfolios may use futures contracts to gain      
exposure to an entire market (e.g., stock index futures) or to control their    
exposure to changing foreign currency exchange rates or interest rates.         
Portfolios investing in fixed income securities may use futures to control      
their exposure to changes in interest rates and to manage the overall maturity  
and duration of their securities holdings.                                      

If a Portfolio buys an option, it buys a legal contract giving it the right to  
buy or sell a specific amount of a security or futures contract at an           
agreed-upon price. If a Portfolio "writes" an option, it sells to another       
person the right to buy from or sell to the Portfolio a specific amount of a    
security or futures contract at an agreed-upon price.                           

The Portfolios may enter into swap transactions which are contracts in which a  
Portfolio agrees to exchange the return or interest rate on one instrument for  
the return or interest rate on another instrument. Payments may be based on     
currencies, interest rates, securities indices or commodity indices. Swaps may  
be used to manage the maturity and duration of a fixed income portfolio, or to  
gain exposure to a market without directly investing in securities traded in    
that market.                                                                    

Structured investments are units representing an interest in assets held in a   
trust that is not an investment company as defined in the Investment Company    
Act of 1940, as amended (''1940 Act''). The trust may pay a return based on the 
income it receives from those assets, or it may pay a return based on a         
specified index.                                                                

CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in  
a number of series (known as "tranches"), each of which has a stated maturity.  
Cash flow from the underlying mortgages is allocated to the tranches in a       
predetermined, specified order. SMBS are multi-class mortgage securities issued 
by U.S. government agencies and instrumentalities and financial institutions.   
They usually have two                                                           

10                                                                              

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

classes, one receiving most of the principal payments from the mortgages, and   
one receiving most of the interest. In some cases, classes may receive interest 
only (called "IOs") or principal only (called "POs"). Inverse floating rate     
obligations ("inverse floaters") are fixed income securities which have coupon  
rates that vary inversely (often at a multiple) to another specified floating   
rate, such as LIBOR (London Inter-Bank Offered Rate). If the specified          
reference rate rises, the coupon rate of the inverse floater falls, while a     
decrease in the reference rate causes an increase in the inverse floater's      
coupon rate.                                                                    

Risks of Derivatives                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held or to be acquired by a Portfolio, and of derivatives relating   
to those securities, may not be proportionate, (ii) there may not be a liquid   
market for a Portfolio to sell a derivative, which could result in difficulty   
closing a position, and (iii) magnification of losses incurred due to changes   
in the market value of the securities, instruments, indices, or interest rates  
to which they relate.                                                           

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a forward or futures contract with the value of   
securities denominated in a particular currency.                                

Mortgage derivatives 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 CMO or SMBS that a Portfolio holds, these price       
movements may be significantly greater than those experienced by mortgage       
securities generally, depending on whether the payments are predominantly based 
on the principal or interest paid on the underlying mortgages. IOs, POs and     
inverse floaters may exhibit substantially greater price volatility than fixed  
rate obligations having similar credit quality, redemption provisions and       
maturities. IOs, POs and inverse floaters may exhibit greater price volatility  
than the majority of mortgage pass-through securities or CMOs. In addition, the 
yield to maturity of IOs, POs and inverse floaters is extremely sensitive to    
prepayment levels. As a result, higher or lower rates of prepayment than that   
anticipated can have a material effect on a Portfolio's yield to maturity and   
could cause a Portfolio to suffer losses.                                       

Temporary Defensive Investments                                                 
When the Adviser believes that changes in economic, financial or political      
conditions warrant, each Portfolio may invest without limit in fixed income     
securities for temporary defensive purposes, as described in the Statement of   
Additional Information. If the Adviser incorrectly predicts the effects of      
these changes, the defensive investments may adversely affect the Portfolio's   
performance.                                                                    

Portfolio Turnover                                                              
Consistent with their investment policies, the Portfolios will purchase and     
sell securities without regard to the effect on portfolio turnover. Higher      
portfolio turnover (e.g., over 100% per year) will cause the Portfolio to incur 
additional transaction costs and may result in taxable gains being passed       
through to shareholders.                                                        

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General Shareholder Information                                                 

Valuation of Shares                                                             
The NAV of the Portfolios is determined as of the close of the NYSE (normally   
4:00 p.m. Eastern Time) on each day the Portfolios are open for business.       

The Core Plus Fixed Income, Intermediate Duration and Targeted Duration         
Portfolios value their securities at market value. The Cash Reserves Portfolio  
values its securities using amortized cost valuation. When no quotations are    
readily available for securities or when the value of securities has been       
materially affected by events occurring after the close of the market, we will  
determine the value for those securities in good faith at fair value using      
methods approved by the Board of Trustees.                                      

The NAV of Investment Class Shares may differ from that of other classes        
because of class-specific expenses that each class may pay, the distribution    
fees charged to Adviser Class Shares and the shareholder servicing fees charged 
to Investment Class Shares.                                                     

Dividends and Distributions                                                     
The Portfolios normally distribute substantially all of their net investment    
income to shareholders as follows:                                              

                                                                [Download Table]

Portfolio                                                   Monthly Quarterly
                                                                             
Cash Reserves                                                     .          
-----------------------------------------------------------------------------
Core Plus Fixed Income                                                      .
-----------------------------------------------------------------------------
Intermediate Duration                                             .          
-----------------------------------------------------------------------------
Targeted Duration+                                                .          
-----------------------------------------------------------------------------

+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       

If any net gains are realized from the sale of underlying securities, the       
Portfolios normally distribute the gains with the last distributions for the    
calendar year. All dividends and distributions are automatically paid in        
additional shares of the Portfolio unless you elect otherwise. If you want to   
change how your dividends are paid you must notify Morgan Stanley Institutional 
Fund Trust in writing.                                                          

Taxes                                                                           
Income dividends you receive will be taxable as ordinary income, whether you    
receive them in cash or in additional shares. Corporate shareholders may be     
entitled to a dividends-received deduction for the portion of dividends they    
receive which are attributable to dividends received by such Portfolios from    
U.S. corporations. Capital gains distributions may be taxable at different      
rates depending on the length of time the Portfolio holds its assets.           

Investment income received by the Portfolios from sources within foreign        
countries may be subject to foreign income taxes. The Portfolios may be able to 
pass through to you for foreign tax credit purposes the amount of foreign       
income taxes that they paid.                                                    

Distributions paid in January but declared by a Portfolio in October, November  
or December of the previous year are taxable to you in the previous year.       

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the     
taxable distributions paid to you in the previous year. The statement provides  
information on your dividends and capital gains for tax purposes.               

Exchanges and redemptions of shares in a Portfolio are taxable events and may   
result in a taxable gain or loss to you.                                        

When you open your account, you should provide your social security or tax      
identification number on your investment application. By providing this         
information, you will avoid being subject to a federal backup withholding tax   
(approximately 30% currently) on taxable distributions and redemption proceeds. 
Any withheld amount would be sent to the IRS as an advance tax payment.         

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Fund Management                                                                 

Adviser                                                                         
The Adviser to the Fund, Morgan Stanley Investments LP ("MSI" or the "Adviser") 
(formerly "Miller Andersen & Sherrerd LP"), is a Pennsylvania limited liability 
partnership founded in 1969. The Adviser is wholly-owned by subsidiaries of     
Morgan Stanley Dean Witter & Co. ("Morgan Stanley"). Morgan Stanley is a        
preeminent global financial services firm that maintains leading market         
positions in each of its three primary businesses--securities, asset            
management, and credit services. The Adviser is an investment advisory          
affiliate of Morgan Stanley Investment Management Inc. ("MSIM") and is located  
at One Tower Bridge, 100 Front Street, Suite 1100, West Conshohocken, PA        
19428-2881. The Adviser provides investment advisory services to employee       
benefit plans, endowment funds, foundations and other institutional investors.  
As of December 31, 2001, MSI, together with its affiliated asset management     
companies, had approximately $415.9 billion in assets under management with     
approximately $178.1 billion in institutional assets.                           

The Adviser makes investment decisions for the Fund's Portfolios and places     
each Portfolio's purchase and sales orders. Each Portfolio, in turn, pays the   
Adviser an annual advisory fee calculated by applying a quarterly rate. The     
following table shows the Adviser's annual contractual and actual rates of      
compensation for the Fund's 2001 fiscal year.                                   

Sub Adviser                                                                     
Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the   
Cash Reserves Portfolio. As Sub-Adviser, MSIA makes day-to-day investment       
decisions for the Cash Reserves Portfolio and places the Portfolio's purchase   
and sales orders. The Adviser pays MSIA 40% of the fee the Adviser receives     
from the Cash Reserves Portfolio as compensation for its sub-advisory services. 
MSIA, located at 1221 Avenue of the Americas, New York, New York 10020, is a    
wholly-owned subsidiary of Morgan Stanley. MSIA develops, markets and manages a 
broad spectrum of proprietary mutual funds that are sold by Morgan Stanley      
financial advisors and offers professional money management services on a       
customized basis to individuals, institutional investors and retirement plan    
sponsors.                                                                       

                                                                [Download Table]

                                        FY 2001 Contractual     FY 2001 Actual 
Adviser Rates of Compensation             Compensation Rate  Compensation Rate 
                                                                               
Cash Reserves Portfolio*                                .25%              .195%
-------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                       .375               .375 
-------------------------------------------------------------------------------
Intermediate Duration Portfolio                        .375               .375 
-------------------------------------------------------------------------------
Targeted Duration Portfolio+                           .375                 -- 
-------------------------------------------------------------------------------

*The Adviser is voluntarily waiving a portion of its fee and/or reimbursing     
certain expenses for the Cash Reserves and Targeted Duration Portfolios to    
keep Total Operating Expenses from exceeding .47% and .60%, respectively.     
+As of the fiscal year ended September 30, 2001, the Targeted Duration          
Portfolio had not commenced operations.                                       
Portfolio Management                                                            

Core Plus Fixed Income Portfolio                                                
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include W. David Armstrong, Managing Director, Thomas L.    
Bennett, Managing Director, and Roberto M. Sella, Managing Director.            

Intermediate Duration Portfolio                                                 
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include Angelo G. Manioudakis, Executive Director, Charles  
Moon, Executive Director, and Scott F. Richard, Managing Director.              

Targeted Duration Portfolio                                                     
The Portfolio's assets are managed by the Taxable Fixed Income Team. Current    
members of the team include David S. Horowitz, Vice President, and Scott F.     
Richard, Managing Director.                                                     

                                                                            13

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Distributor                                                                     
Shares of the Fund are distributed exclusively through Morgan Stanley           
Distribution, Inc. ("MSDI"), a wholly-owned subsidiary of the Adviser. MSDI has 
entered into arrangements with certain financial intermediaries who may accept  
purchase and redemption orders for shares of certain Portfolios on its behalf.  

Service Plan                                                                    
The Fund has adopted a Service Plan (the "Service Plan") for each Portfolio's   
Investment Class Shares. Under the Service Plan, each Portfolio pays the        
Distributor a monthly shareholder servicing fee at an annual rate of 0.15% of   
the Portfolio's average daily net assets attributable to Investment Class       
Shares. The Distributor may compensate other parties for providing shareholder  
support services to investors who purchase Investment Class Shares. Shareholder 
servicing fees are separate fees of the Investment Class Shares of each         
Portfolio and will reduce the net investment income and total return of the     
Investment Class Shares of these Portfolios.                                    

14                                                                              

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

(This page intentionally left blank)  

                                                                            15

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Financial Highlights                                                            

The following financial highlights tables are intended to help you understand   
the financial performance of each Portfolio for the past five years or, if less 
than five years, the life of the Portfolio or Class. The total returns in the   
tables represent the rate that an investor would have earned (or lost) on an    
investment in each Portfolio (assuming reinvestment of all dividends and        
distributions). As of the fiscal year ended September 30, 2001, the Targeted    
Duration Portfolio had not commenced operations. The information for the year   
2001 has been extracted from the Fund's financial statements which were audited 
by Deloitte & Touche LLP, whose report, along with the Fund's financial         
statements, are incorporated by reference into the                              

                                                        [Enlarge/Download Table]

                              Net Gains or                                                              
        Net Asset                   Losses                    Dividend    Capital Gain                  
           Value-        Net on Securities  Total from   Distributions   Distributions                  
        Beginning Investment (realized and  Investment (net investment   (realized net          Other   
        of Period     Income   unrealized)  Activities         income)  capital gains)  Distributions   
                                                                                                        
--------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio (Commencement of Investment Class Operations 8/16/99)                           
2001       $1.000     $0.048            --      $0.048         ($0.048)             --             --   
2000        1.000      0.056            --       0.056          (0.056)             --             --   
1999        1.000      0.006            --       0.006          (0.006)             --             --   
--------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio (Commencement of Investment Class Operations 10/15/96)                 
2001       $11.25     $ 0.72        $ 0.64      $ 1.36          ($0.77)             --             --   
2000+++     11.27       0.76         (0.03)       0.73           (0.75)             --             --   
1999+++     12.22       0.76         (0.72)       0.04           (0.69)             --          (0.30)# 
1998+++     12.22       0.76          0.14        0.90           (0.73)          (0.17)            --   
1997+++     11.80       0.75          0.40        1.15           (0.60)          (0.13)            --   
--------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio (Commencement of Investment Class Operations 8/16/99)                   
2001       $ 9.66     $ 0.54        $ 0.70      $ 1.24          ($0.55)             --             --   
2000+++      9.77       0.65         (0.23)       0.42           (0.53)             --             --   
1999         9.76       0.11          0.04        0.15           (0.14)             --             --   

Notes to the Financial Highlights                                               
#   Represents distribution in excess of net realized gains.                    
*   Annualized                                                                  
**  Total return figures for partial years are not annualized.                  
+   For the respective periods ended September 30, the Ratio of Expenses to     
Average Net Assets for the following Portfolios excludes the effect of  
   expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be as follows for the respective periods.      

                                                                [Download Table]

--------------------------------------------------------------
                      Ratio of Expenses to Average Net Assets 
--------------------------------------------------------------
Portfolio               1997      1998   1999    2000   2001  
                                                              
Cash Reserves             --       --    0.47%*  0.47%  0.47% 
------------------------------------------------------------- 
Core Plus Fixed                                               
 Income                 0.65*%   0.62%   0.62    0.62   0.62  
------------------------------------------------------------- 
Intermediate Duration     --       --    0.63*   0.68   0.69  
------------------------------------------------------------- 

++For the periods indicated, the Adviser voluntarily agreed to waive its        
advisory fees and/or reimburse certain expenses to the extent necessary in  
order to keep Total Operating Expenses actually deducted from portfolio     
assets for the respective portfolios from exceeding voluntary expense       
limitations. For the respective periods ended September 30, the voluntarily 
waived and/or reimbursed expenses totaled the below listed amounts.         

                                                                [Download Table]

-------------------------------------------------------------------------
                      Voluntarily waived and/or reimbursed expenses for: 
-------------------------------------------------------------------------
Portfolio                 1997           1998     1999     2000     2001 
                                                                         
Cash Reserves             --             --     0.04%*  0.07%    0.05%   
------------------------------------------------------------------------ 
Core Plus Fixed                                                          
 Income                 0.12%*           --       --      --       --    
------------------------------------------------------------------------ 
Intermediate Duration     --             --       --      --       --    
------------------------------------------------------------------------ 

+++Per share amounts for the year are based on average shares outstanding.      

16                                                                              

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Stable Value Investment Class Prospectus                                    

January 31, 2002                                                            

Fund's Statement of Additional Information and are included in the Fund's       
September 30, 2001 Annual Report to Shareholders.                               

                                                        [Enlarge/Download Table]


                                      Net Assets-    Ratio of      Ratio of             
                  Net Asset                End of    Expenses    Net Income  Portfolio  
        Total        Value-    Total       Period  to Average    to Average   Turnover  
Distributions End of Period Return**  (thousands) Net Assets+    Net Assets       Rate  
                                                                                        
----------------------------------------------------------------------------------------

     ($0.048)        $1.000     4.88%     $16,100        0.54%++       4.58%       N/A  
      (0.056)         1.000     5.75        1,977        0.52++        5.74        N/A  
      (0.006)         1.000     0.60          919        0.48*++       4.83*       N/A  
----------------------------------------------------------------------------------------

      ($0.77)        $11.84    12.59%     $74,905        0.63%         6.28%       111% 
       (0.75)         11.25     6.84       63,944        0.63          6.89         62  
       (0.99)         11.27     0.24       39,165        0.63          6.50        103  
       (0.90)         12.22     7.72       48,944        0.63          6.31        121  
       (0.73)         12.22    10.07        9,527        0.66*++       6.57*       179  
----------------------------------------------------------------------------------------

         0.55        $10.35    13.24%     $35,094        0.69%         5.47%        59% 
         0.53          9.66     5.68       27,678        0.69          6.81         76  
         0.14          9.77     1.49        9,304        0.64*         8.99*        97  

                                                                            17

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Where to find Additional Information                                            

In addition to this prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated January 31, 2002, which contains additional, more    
detailed information about the Fund and the Portfolios. The SAI is incorporated 
by reference into this Prospectus and, therefore, legally forms a part of this  
Prospectus.                                                                     

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about each Portfolio's investments. In the       
Fund's annual report, you will find a discussion of the market conditions and   
the investment strategies that significantly affected each Portfolio's          
performance during the last fiscal year.                                        

You may obtain the SAI and Shareholder Reports without charge by contacting the 
Fund at the toll-free number below. If you purchased shares through a financial 
intermediary, you may also obtain these documents, without charge, by           
contacting your financial intermediary.                                         

Information about the Fund, including the SAI and Shareholder Reports, may be   
obtained from the Securities and Exchange 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 call 1-202-942-8090;  
(2) On-line: you may retrieve information from the Commission's web site at     
http://www.sec.gov; (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; or (4) By e-mail: you may       
request documents, upon payment of a duplicating fee, by e-mailing the          
Securities and Exchange Commission at the following address:                    
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's        
Investment Company Act registration number is 811-03980.                        

Morgan Stanley Institutional Fund Trust                                         
One Tower Bridge                                                                
100 Front Street, Suite 1100                                                    
West Conshohocken, PA 19428-2881.                                               

For Shareholder Inquiries,                                                      
call at 1-800-354-8185.                                                         

Prices and Investment Results are available at                                  
www.morganstanley.com/im                                                        

497 174th Page of 271 TOC 1st Previous Next ↓Bottom Just 174th
MORGAN STANLEY INSTITUTIONAL FUND TRUST   
 STATEMENT OF ADDITIONAL INFORMATION

January 31, 2002    

Morgan Stanley Institutional Fund Trust (the "Fund") is a no load mutual fund   
consisting of twenty-nine portfolios (each a "Portfolio" and collectively the   
"Portfolios") offering a variety of investment alternatives. This Statement of  
Additional Information (the "SAI") sets forth information about the Fund        
applicable to all twenty-nine Portfolios.                                       

This SAI is not a prospectus but should be read in conjunction with the Fund's  
prospectuses dated January 31, 2002, as may be revised from time to time. To    
obtain any of these prospectuses, please call Shareholder Services at the number
indicated below.                                                                

The Fund's most recent annual report is a separate document supplied with this  
SAI and includes the Fund's audited financial statements, which are incorporated
by reference into this SAI.                                                     

Shareholder Services: 1-800-548-7786
Prices and Investment Results: www.morganstanley.com/im   

 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]
                                                                                                            
THE PORTFOLIOS' INVESTMENTS AND STRATEGIES .............................................................  2 

INVESTMENT STRATEGIES ..................................................................................  8 

INVESTMENTS ............................................................................................ 11 

INVESTMENT LIMITATIONS ................................................................................. 37 

PURCHASE OF SHARES ..................................................................................... 40 

REDEMPTION OF SHARES ................................................................................... 40 

TRANSACTIONS WITH BROKER/DEALERS ....................................................................... 41 

SHAREHOLDER SERVICES ................................................................................... 41 

VALUATION OF SHARES .................................................................................... 42 

MANAGEMENT OF THE FUND ................................................................................. 43 

INVESTMENT ADVISER ..................................................................................... 47 

PRINCIPAL UNDERWRITER .................................................................................. 52 

DISTRIBUTION OF SHARES ................................................................................. 52 

FUND ADMINISTRATION .................................................................................... 53 

OTHER SERVICE PROVIDERS ................................................................................ 53 

LITIGATION ............................................................................................. 54 

BROKERAGE TRANSACTIONS ................................................................................. 54 

GENERAL INFORMATION .................................................................................... 57 

TAX CONSIDERATIONS ..................................................................................... 60 

PRINCIPAL HOLDERS OF SECURITIES ........................................................................ 60 

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                                                        [Enlarge/Download Table]
                                                                                                             
PERFORMANCE INFORMATION ................................................................................  85 

COMPARATIVE INDICES ....................................................................................  94 

FINANCIAL STATEMENTS ................................................................................... 100 

APPENDIX-DESCRIPTION OF SECURITIES AND RATINGS ......................................................... 100 

THE PORTFOLIOS' INVESTMENTS AND STRATEGIES                                      

The prospectus describes the investment objectives, principal investment        
strategies and principal risks associated with each Portfolio. The Portfolios   
may engage in a variety of investment strategies and invest in a variety of     
securities and other instruments. The following tables summarize the permissible
strategies and investments for each Portfolio (abbreviations are explained      
following each table). The tables exclude strategies and investments that       
Portfolios may make solely for temporary defensive purposes. More details about 
each strategy and investment are provided in the discussion following the       
tables.                                                                         

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                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------------
                                             EQUITY AND BALANCED PORTFOLIOS                                        
-------------------------------------------------------------------------------------------------------------------
                                                                                             Mid Cap               
                                            Balanced                            Mid Cap      Growth       Mid Cap  
                                 Balanced      Plus      Equity     Growth       Growth        II          Value   
                                 Portfolio  Portfolio  Portfolio   Portfolio   Portfolio    Portfolio    Portfolio 
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
 Strategies                                                                                                        
-------------------------------------------------------------------------------------------------------------------
 Asset Allocation Management           x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Core Equity Investing                 x     x           x           x                                             
-------------------------------------------------------------------------------------------------------------------
 Emerging Markets Investing            x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Fixed Income and Asset Allocation     x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Foreign Fixed Income Investing        x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Foreign Investing                     x     x           x                                      x                  
-------------------------------------------------------------------------------------------------------------------
 Growth Stock Investing                                  x           x             x            x           x      
-------------------------------------------------------------------------------------------------------------------
 High Yield Investing                  x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 International Equity Investing        x     x           x                                      x                  
-------------------------------------------------------------------------------------------------------------------
 Maturity and Duration Management      x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Mortgage Investing                    x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Value Investing                       x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Value Stock Investing                 x                 x                                      x                  
-------------------------------------------------------------------------------------------------------------------
 Investments                                                                                                       
-------------------------------------------------------------------------------------------------------------------
 ADRs                                  x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Agencies                              x     x           x           x                                       x     
-------------------------------------------------------------------------------------------------------------------
 Asset-Backed Securities               x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Brady Bonds                           x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Cash Equivalents                      x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 CMOs                                  x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Commercial Paper                      x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Common Stock                          x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Convertibles                          x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Corporates                            x     x           x           x                                       x     
-------------------------------------------------------------------------------------------------------------------
 Depositary Receipt                    x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Emerging Markets Securities           x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Floaters                              x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Foreign Currency                      x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Foreign Equity                        x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Foreign Fixed Income Securities       x     x           x           x                                       x     
-------------------------------------------------------------------------------------------------------------------
 Forwards                              x     x           x           x                                       x     
-------------------------------------------------------------------------------------------------------------------
 Futures                               x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 High Yield Securities                 x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Inverse Floaters                      x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Investment Companies                  x     x           x           x             x             x           x     
-------------------------------------------------------------------------------------------------------------------
 Investment Funds                      x     x                                                                     
-------------------------------------------------------------------------------------------------------------------
 Loan Participations and               x     x                                                                     
-------------------------------------------------------------------------------------------------------------------


                                     Multi-Asset-   Small Cap   Small Cap   Strategic Small                        
                                        Class         Growth      Value          Value         Value     Value II  
                                      Portfolio     Portfolio   Portfolio      Portfolio     Portfolio   Portfolio 
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
 Strategies                                                                                                        
-------------------------------------------------------------------------------------------------------------------
 Asset Allocation Management             x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Core Equity Investing                   x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Emerging Markets Investing              x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Fixed Income and Asset Allocation       x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Foreign Fixed Income Investing          x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Foreign Investing                       x                      x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Growth Stock Investing                              x          x                                                  
-------------------------------------------------------------------------------------------------------------------
 High Yield Investing                    x                                                                         
-------------------------------------------------------------------------------------------------------------------
 International Equity Investing          x                      x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Maturity and Duration Management        x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Mortgage Investing                      x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Value Investing                         x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Value Stock Investing                                          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Investments                                                                                                       
-------------------------------------------------------------------------------------------------------------------
 ADRs                                    x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Agencies                                x                      x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Asset-Backed Securities                 x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Brady Bonds                             x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Cash Equivalents                        x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 CMOs                                    x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Commercial Paper                        x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Common Stock                            x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Convertibles                            x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Corporates                              x                      x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Depositary Receipt                      x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Emerging Markets Securities             x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Floaters                                x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Foreign Currency                        x           x          x                              x            x      
-------------------------------------------------------------------------------------------------------------------
 Foreign Equity                          x           x          x                              x            x      
-------------------------------------------------------------------------------------------------------------------
 Foreign Fixed Income Securities         x                      x                              x            x      
-------------------------------------------------------------------------------------------------------------------
 Forwards                                x                      x                              x            x      
-------------------------------------------------------------------------------------------------------------------
 Futures                                 x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 High Yield Securities                   x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Inverse Floaters                        x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Investment Companies                    x           x          x            x                 x            x      
-------------------------------------------------------------------------------------------------------------------
 Investment Funds                        x                                                                         
-------------------------------------------------------------------------------------------------------------------
 Loan Participations and                 x                                                                         
-------------------------------------------------------------------------------------------------------------------

3 

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                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------------------
                                              EQUITY AND BALANCED PORTFOLIOS                                     
-----------------------------------------------------------------------------------------------------------------

                                                                                            Mid Cap              
                                                Balanced                          Mid Cap    Growth     Mid Cap  
                                     Balanced     Plus      Equity     Growthy    Growth       II        Value   
                                     Portfolio  Portfolio  Portfolio  Portfolio  Portfolio  Portfolio  Portfolio 
 ----------------------------------------------------------------------------------------------------------------
                                                                                                                 
 Assignments                                                                                                     
 ----------------------------------------------------------------------------------------------------------------
 Mortgage Securities                     x          x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Municipals                              x          x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Options                                 x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Preferred Stock                         x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Repurchase Agreements                   x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Reverse Repurchase Agreements           x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Rights                                  x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 SMBS                                    x          x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Securities Lending                      x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Short Sales                             x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Structured Investments                             x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Structured Notes                        x          x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Swaps                                   x          x          x          x                                x     
 ----------------------------------------------------------------------------------------------------------------
 U.S. Governments                        x          x          x          x                                x     
 ----------------------------------------------------------------------------------------------------------------
 Warrants                                x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 When-Issued Securities                  x          x          x          x          x          x          x     
 ----------------------------------------------------------------------------------------------------------------
 Yankees and Eurobonds                   x          x                                                            
 ----------------------------------------------------------------------------------------------------------------
 Zero Coupons                            x          x          x          x                                x     
 ----------------------------------------------------------------------------------------------------------------


                                    Multi-Asset-    Small     Small Cap   Strategic Small                        
                                       Class         Cap        Value          Value         Value    Value II   
                                     Portfolio    Portfolio   Portfolio      Portfolio     Portfolio  Portfolio  
 ----------------------------------------------------------------------------------------------------------------
                                                                                                                 
 Assignments                                                                                                     
 ----------------------------------------------------------------------------------------------------------------
 Mortgage Securities                     x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Municipals                              x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Options                                 x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Preferred Stock                         x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Repurchase Agreements                   x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Reverse Repurchase Agreements           x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Rights                                  x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 SMBS                                    x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Securities Lending                      x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Short Sales                             x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Structured Investments                  x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Structured Notes                        x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Swaps                                   x                        x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 U.S. Governments                        x                        x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Warrants                                x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 When-Issued Securities                  x            x           x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------
 Yankees and Eurobonds                   x                                                                       
 ----------------------------------------------------------------------------------------------------------------
 Zero Coupons                            x                        x              x             x          x      
 ----------------------------------------------------------------------------------------------------------------

 4

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                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------------- 
                                                            FIXED INCOME PORTFOLIOS                                                 
----------------------------------------------------------------------------------------------------------------------------------- 
                                                  U.S.        Core                                                                  
                                                  Core        Plus      Investment     Global                                       
                                       Cash       Fixed      Fixed        Grade        Fixed       High     Intermediate    Inter-  
                                       Reserve    Income     Income       Income       Income     Yield       Duration     national 
                                      Portfolio  Portolio   Portfoilo   Portfolio    Portfolio   Portfolio    Portfolio      Fix    
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                                                    
Emerging Markets Investing                                                              x           x                         x     
----------------------------------------------------------------------------------------------------------------------------------- 
Fixed Income and Asset                                                                                                              
Allocation                                                                                                                          
----------------------------------------------------------------------------------------------------------------------------------- 
Foreign Fixed Income Investing                                 x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Foreign Investing                                              x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
High Yield Investing                                           x                        x           x                         x     
----------------------------------------------------------------------------------------------------------------------------------- 
Maturity and Duration Management                    x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Mortgage Investing                                  x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Money Market Investing                  x                                                                                           
----------------------------------------------------------------------------------------------------------------------------------- 
Municipals Management                                                                                                               
----------------------------------------------------------------------------------------------------------------------------------- 
Value Investing                                     x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Agencies                                x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Asset-Backed Securities                 x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Brady Bonds                                                    x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Cash Equivalents                        x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
CMOs                                                x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Commercial Paper                        x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Convertibles                                        x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Corporates                              x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Emerging Markets Securities                                    x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Floaters                                x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Foreign Currency                                               x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Foreign Equity                                                                                      x                               
----------------------------------------------------------------------------------------------------------------------------------- 
Foreign Fixed Income Securities                                x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Forwards                                                       x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Futures                                             x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
High Yield Securities                                          x                        x           x                         x     
----------------------------------------------------------------------------------------------------------------------------------- 
Inverse Floaters                                    x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Investment Companies                    x           x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Investment Funds                                                                                                                    
----------------------------------------------------------------------------------------------------------------------------------- 
Loan Participations and                                        x                                    x                               
Assignments                                                                                                                         
----------------------------------------------------------------------------------------------------------------------------------- 
Mortgage Securities                                 x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
Municipals                                          x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 
NY Municipals                                                                                                                       
----------------------------------------------------------------------------------------------------------------------------------- 
Options                                             x          x           x            x           x             x           x     
----------------------------------------------------------------------------------------------------------------------------------- 


                                                                          Special                   Advisory                        
                                                                          Purpose                   Foreign     Advisory            
                                         Limited                  NY       Fixed      Targeted       Fixed      Foreign    Advisory 
                                        Duration  Municipal   Municipal   Income      Duration      Income      Income     Mortgage 
                                        Portfolio Portfolio   Portfolio  Portfolio    Portfolio    Portfolio   Portfolio   Portfolio
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
Emerging Markets Investing                                                                             x           x                
------------------------------------------------------------------------------------------------------------------------------------
Fixed Income and Asset                                                        x                                                     
Allocation                                                                                                                          
------------------------------------------------------------------------------------------------------------------------------------
Foreign Fixed Income Investing                                                x           x            x           x                
------------------------------------------------------------------------------------------------------------------------------------
Foreign Investing                                                             x           x            x           x                
------------------------------------------------------------------------------------------------------------------------------------
High Yield Investing                                  x           x           x           x            x                            
------------------------------------------------------------------------------------------------------------------------------------
Maturity and Duration Management            x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Mortgage Investing                          x         x           x           x           x            x           x           x    
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Money Market Investing                                                                                                              
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Municipals Management                                 x           x                                                                 
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Value Investing                             x         x           x           x           x            x           x           x    
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Agencies                                    x         x           x           x           x            x           x           x    
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Asset-Backed Securities                     x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Brady Bonds                                 x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Cash Equivalents                            x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
CMOs                                        x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Commercial Paper                            x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Convertibles                                x         x           x           x           x            x           x                
------------------------------------------------------------------------------------------------------------------------------------
Corporates                                  x         x           x           x           x            x           x                
------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Securities                 x         x           x           x                        x           x                
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Floaters                                    x         x           x           x           x            x           x           x    
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Foreign Currency                                      x           x           x           x            x           x                
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Foreign Equity                                                                                                                      
------------------------------------------------------------------------------------------------------------------------------------
Foreign Fixed Income Securities                       x           x           x           x            x           x                
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Forwards                                              x           x           x           x            x           x                
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Futures                                     x         x           x           x           x            x           x           x    
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High Yield Securities                                 x           x           x           x            x                            
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Inverse Floaters                            x         x           x           x           x            x           x           x    
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Investment Companies                        x         x           x           x           x            x           x           x    
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Investment Funds                                                                                                                    
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Loan Participations and                                                       x           x                                         
Assignments                                                                                                                         
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Mortgage Securities                         x         x           x           x           x            x           x           x    
------------------------------------------------------------------------------------------------------------------------------------
Municipals                                            x           x           x           x            x           x                
------------------------------------------------------------------------------------------------------------------------------------
NY Municipals                                                     x                                                                 
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Options                                     x         x           x           x           x            x           x           x    
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                                                        [Enlarge/Download Table]

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                                                FIXED INCOME PORTFOLIOS                                                            
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                                             U.S.        Core                                                                      
                                             Core        Plus     Investment                                                       
                                 Cash        Fixed       Fixed      Grade        Global       High     Intermediate                
                               Reserved      Income      Income     Income     Fix Income     Yield      Duration     International
                               Portfolio   Portfolio   Portfolio   Portfolio   Portfolio    Portfolio    Portfolio         Fix     
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Preferred Stock                                x           x           x            x            x           x             x       
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Repurchase Agreements              x           x           x           x            x            x           x             x       
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Reverse Repurchase Agreements      x           x           x           x            x            x           x             x       
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Rights                                                     x                                     x                                 
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SMBS                                           x           x           x            x            x           x             x       
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Securities Lending                 x           x           x           x            x            x           x             x       
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Short Sales                                    x           x           x            x            x           x             x       
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Structured Investments                                                                                                             
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Structured Notes                               x           x           x            x            x           x             x       
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Swaps                                          x           x           x            x            x           x             x       
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U.S. Governments                   x           x           x           x            x            x           x             x       
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Warrants                                       x                                                 x                                 
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When-Issued Securities                         x           x           x            x            x           x             x       
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Yankees and Eurobonds              x                       x           x            x            x           x             x       
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Zero Coupons                       x           x           x           x            x            x           x             x       
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                                                                  Special               Advisory                                   
                                                                  Purpose               Foreign    Advisory                        
                               Limited                   NY        Fixed    Targeted     Fixed     Foreign     Advisory            
                               Duration   Municipal   Municipal    Income   Duration     Income     Income     Mortgage            
                               Portfolio  Portfolio   Portfolio  Portfolio  Portfolio  Portfolio  Portfolio   Portfolio            
------------------------------------------------------------------------------------------------------------------------           
                                                                                                                                   
Preferred Stock                               x          x          x          x          x           x                            
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Repurchase Agreements             x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Reverse Repurchase Agreements     x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Rights                                                                                                                             
------------------------------------------------------------------------------------------------------------------------           
SMBS                              x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Securities Lending                x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Short Sales                       x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Structured Investments                                x                                                                            
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Structured Notes                  x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Swaps                             x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
U.S. Governments                  x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Warrants                                                                                                                           
------------------------------------------------------------------------------------------------------------------------           
When-Issued Securities            x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Yankees and Eurobonds             x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           
Zero Coupons                      x           x          x          x          x          x           x           x                
------------------------------------------------------------------------------------------------------------------------           

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 INVESTMENT STRATEGIES

Asset Allocation Management: The approach of Morgan Stanley Investments LP (the 
"Adviser") to asset allocation management is to determine investment strategies 
for each asset class in a Portfolio separately, and then determine the mix of   
those strategies expected to maximize the return potential within each market.  
Strategic judgments on the mix among asset classes are based on valuation       
disciplines and tools for analysis which have been developed over the Adviser's 
long history of managing balanced accounts.                                     

Tactical asset-allocation shifts are based on comparisons of prospective risks, 
potential returns, and the likely risk-reducing benefits derived from combining 
different asset classes into a single portfolio. Experienced teams of equity,   
fixed income, and international investment professionals manage the investments 
in each asset class.                                                            

Core Equity Investing: The Adviser's "core" or primary equity strategy          
emphasizes common stocks of large companies, with targeted investments in small 
company stocks that promise special growth opportunities. Depending on the      
Adviser's outlook for the economy and different market sectors, the mix between 
value stocks and growth stocks will change.                                     

Emerging Market Investing: The Adviser's approach to emerging market investing  
is based on the Adviser's evaluation of both short-term and long-term           
international economic trends and the relative attractiveness of emerging       
markets and individual emerging market securities.                              

As used in this SAI, an emerging market describes any country which is generally
considered to be an emerging or developing country by 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. There are currently over 130 countries which are generally 
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. Emerging     
markets may include every nation in the world except the United States, Canada, 
Japan, Australia, New Zealand and most nations located in Western Europe.       

Currently, investing in many emerging markets is either not feasible or very    
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a  
communist regime which would institute policies to expropriate, nationalize or  
otherwise confiscate investments. A Portfolio will focus its investments on     
those emerging market countries in which the Adviser believes the potential for 
market appreciation outweighs these risks and the cost of investment. Investing 
in emerging markets also involves 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).                              

Fixed Income Management and Asset Allocation: In selecting fixed income         
securities for certain Portfolios, the Adviser considers the value offered by   
various segments of the fixed income securities market relative to cash         
equivalents and equity securities. The Adviser may find that certain segments of
the fixed income securities market offer more or less attractive relative value 
when compared to equity securities or when compared to other fixed income       
securities.                                                                     

For example, in a given interest rate environment, equity securities may be     
judged to be fairly valued when compared to intermediate duration fixed income  
securities, but overvalued compared to long duration fixed income securities.   
Consequently, while a Portfolio investing only in fixed income securities may   
not emphasize long duration assets to the same extent, the fixed-income portion 
of a balanced investment may invest a percentage of its assets in long duration 
bonds on the basis of their valuation relative to equity securities.            

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Foreign Fixed Income Investing: The Adviser invests in foreign bonds and other  
fixed income securities denominated in foreign currencies, where, in the opinion
of the Adviser, the combination of current yield and currency value offer       
attractive expected returns. When the total return opportunities in a foreign   
bond market appear attractive in local currency terms, but where in the         
Adviser's judgment unacceptable currency risk exists, currency futures and      
options, forwards and swaps may be used to hedge the currency risk.             

Foreign Investing: Investors should recognize that investing in foreign bonds   
and foreign equities involves certain special considerations which are not      
typically associated with investing in domestic securities.                     

As non-U.S. companies are not generally subject to uniform accounting, auditing 
and financial reporting standards and practices comparable to those applicable  
to U.S. companies, there may be less publicly available information about       
certain foreign securities than about U.S. securities. Foreign bonds and foreign
equities may be less liquid and more volatile than securities of comparable U.S.
companies. There is generally less government supervision and regulation of     
stock exchanges, brokers and listed companies than in the U.S. With respect to  
certain foreign countries, there is the possibility of expropriation or         
confiscatory taxation, political or social instability, or diplomatic           
developments which could affect U.S. investments in those countries.            
Additionally, there may be difficulty in obtaining and enforcing judgments      
against foreign issuers.                                                        

Because foreign bonds and foreign equities may be denominated in foreign        
currencies, and because a Portfolio may temporarily hold uninvested reserves in 
bank deposits of foreign currencies prior to reinvestment or conversion to U.S. 
dollars, a Portfolio may be affected favorably or unfavorably by changes in     
currency rates and in exchange control regulations, and may incur costs in      
connection with conversions between various currencies.                         

Although a Portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many  
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial          
arrangements of a Portfolio's foreign securities will be greater than the       
expenses for the custodial arrangements for handling U.S. securities of equal   
value. Certain foreign governments levy withholding taxes against dividend and  
interest income. Although in some countries a portion of these taxes is         
recoverable, the non-recovered portion of foreign withholding taxes will reduce 
the income a Portfolio receives from the companies comprising the Portfolio's   
investments.                                                                    

Growth Stock Investing: This strategy involves the Adviser's focus on common    
stocks that generally have higher growth rates, betas, and price/earnings       
ratios, and lower yields than the stock market in general as measured by an     
appropriate market index.                                                       

High Yield Investing: This strategy involves investments in high yield          
securities based on the Adviser's analysis of economic and industry trends and  
individual security characteristics. The Adviser conducts credit analysis for   
each security considered for investment to evaluate its attractiveness relative 
to its risk. A high level of diversification is also maintained to limit credit 
exposure to individual issuers. See "High Yield Securities" below for further   
discussion of these securities, including risks.                                

International Equity Investing: The Adviser's approach to international equity  
investing is based on its evaluation of both short-term and long-term           
international economic trends and the relative attractiveness of non-U.S. equity
markets and individual securities.                                              

The Adviser generally considers fundamental investment characteristics, the     
principles of valuation and diversification, and a relatively long-term         
investment time horizon. Since liquidity will also be a consideration, emphasis 
will likely be influenced by the relative market capitalizations of different   
non-U.S. stock markets and individual securities. Portfolios seek to diversify  
investments broadly among both developed and newly industrializing foreign      
countries. Where appropriate, a Portfolio may also invest in                    

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regulated investment companies or investment funds which invest in such         
countries to the extent allowed by applicable law.                              

Maturity and Duration Management: One of two main components of the Adviser's   
fixed income investment strategy is maturity and duration management. The       
maturity and duration structure of a Portfolio investing in fixed income        
securities is actively managed in anticipation of cyclical interest rate        
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer  
term shifts in the levels of interest rates. Adjustments made to shorten        
portfolio maturity and duration are made to limit capital losses during periods 
when interest rates are expected to rise. Conversely, adjustments made to       
lengthen maturity are intended to produce capital appreciation in periods when  
interest rates are expected to fall. The foundation for maturity and duration   
strategy lies in analysis of the U.S. and global economies, focusing on levels  
of real interest rates, monetary and fiscal policy actions, and cyclical        
indicators. See "value investing" for a description of the second main component
of the Adviser's fixed income strategy.                                         

About Maturity and Duration: Most debt obligations provide interest (coupon)    
payments in addition to a final (par) payment at maturity. Some obligations also
have call provisions. Depending on the relative magnitude of these payments and 
the nature of the call provisions, the market values of debt obligations may    
respond differently to changes in the level and structure of interest rates.    
Traditionally, a debt security's term-to-maturity has been used as a proxy for  
the sensitivity of the security's price to changes in interest rates (which is  
the interest rate risk or volatility of the security). However, term-to-maturity
measures only the time until a debt security provides its final payment, taking 
no account of the pattern of the security's payments prior to maturity.         

Duration is a measure of the expected life of a fixed income security that was  
developed as a more precise alternative to the concept of term-to-maturity.     
Duration incorporates a bond's yield, coupon interest payments, final maturity  
and call features into one measure. Duration is one of the fundamental tools    
used by the Adviser in the selection of fixed income securities. Duration is a  
measure of the expected life of a fixed income security on a present value      
basis. Duration takes the length of the time intervals between the present time 
and the time that the interest and principal payments are scheduled or, in the  
case of a callable bond, expected to be received, and weights them by the       
present values of the cash to be received at each future point in time. For any 
fixed income security with interest payments occurring prior to the payment of  
principal, duration is always less than maturity. In general, all other factors 
being the same, the lower the stated or coupon rate of interest of a fixed      
income security, the longer the duration of the security; conversely, the higher
the stated or coupon rate of interest of a fixed income security, the shorter   
the duration of the security.                                                   

There are some situations where even the standard duration calculation does not 
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;  
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final   
maturity of such securities generally is thirty years, but current prepayment   
rates are more critical in determining the securities' interest rate exposure.  
In these and other similar situations, the Adviser will use sophisticated       
analytical techniques that incorporate the economic life of a security into the 
determination of its interest rate exposure.                                    

Money Market Investing: The Cash Reserves Portfolio invests in securities which 
present minimal credit risk and may not yield as high a level of current income 
as securities of lower quality or longer maturities which generally have less   
liquidity, greater market risk and more price fluctuation. The Cash Reserves    
Portfolio is designed to provide maximum stability of principal. However,       
because the Cash Reserves Portfolio invests in the money market obligations of  
private financial and non-financial corporations in addition to those of the    
U.S. Government or its agencies and instrumentalities, it offers higher credit  
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,   
but does not guarantee, a constant net asset value of $1.00 per share.          

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Mortgage Investing: As described in the prospectus, certain Portfolios may      
invest in mortgage-related securities. These include mortgage securities        
representing interests in pools of mortgage loans made by lenders such as       
commercial banks, savings and loan associations, mortgage bankers and others.   
The pools are assembled by various organizations, including the Government      
National Mortgage Association ("GNMA"), Freddie Mac, Fannie Mae, other          
government agencies, and private issuers. It is expected that a Portfolio's     
primary emphasis will be in mortgage securities issued by the various           
government-related organizations. However, a Portfolio may invest, without      
limit, in mortgage securities 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. Securities issued by private issuers will  
be rated investment grade by Moody's or Standard & Poor's or be deemed by the   
Adviser to be of comparable investment quality.                                 

Municipals Management: Municipals management emphasizes a diversified portfolio 
of high grade municipal debt securities. These securities generally provide     
interest income that is exempt from federal regular income tax. However, the    
interest on certain types of municipal securities may be subject to the         
alternative minimum tax.                                                        

The Adviser manages the Fund's municipal Portfolios with the goal of maximizing 
their total return. This means that they may invest in taxable investments when 
the prospective after-tax total return on such investments is attractive,       
regardless of the taxable nature of income on the security. Municipal Portfolios
also may invest in taxable investments such as U.S. Governments, agencies,      
corporates, cash equivalents, preferred stocks, mortgage securities,            
asset-backed securities, floaters, and inverse floaters.                        

Value Investing: One of two primary components of the Adviser's fixed income    
strategy is value investing. The Adviser seeks to identify undervalued sectors  
and securities through analysis of credit quality, option characteristics and   
liquidity. Quantitative models are used in conjunction with judgment and        
experience to evaluate and select securities with embedded put or call options  
which are attractive on a risk- and option-adjusted basis. Successful value     
investing will permit a Portfolio to benefit from the price appreciation of     
individual securities during periods when interest rates are unchanged.         

Value Stock Investing: This strategy involves investing primarily in common     
stocks that it believes are undervalued relative to the stock market in general 
as measured by an appropriate market index. The Adviser determines value using a
variety of measures, including price/earnings and price/book ratios. Value      
stocks generally pay dividends, but the Adviser may select non-dividend paying  
stocks for their value characteristics.                                         

 INVESTMENTS

ADRs: American Depositary Receipts ("ADRs") are dollar-denominated securities   
which are listed and traded in the United States, but which represent claims to 
shares of foreign stocks. They are treated as U.S. Equity Securities for        
purposes of the Portfolios' investment policies. ADRs may be either sponsored or
unsponsored. Unsponsored ADR facilities typically provide less information to   
ADR holders. ADRs also include American Depositary Shares.                      

Agencies: Agencies are Fixed Income Securities issued or guaranteed by federal  
agencies and U.S. Government sponsored instrumentalities. They may or may not be
backed by the full faith and credit of the U.S. Government. If they are not     
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the        
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not    
meet its commitment. Agencies which are backed by the full faith and credit of  
the United States include the Export Import Bank, Farmers Home Administration,  
Federal Financing Bank, and others. Certain debt issued by Resolution Funding   
Corporation has both its principal and interest backed by the full faith and    
credit of the U.S. Treasury in that its principal is defeased by U.S. Treasury  
zero coupon issues, while the U.S. Treasury is explicitly required to advance   
funds sufficient to pay interest on it, if needed. Certain agencies and         
instrumentalities, such as the GNMA, are, in effect, backed by the full faith   

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and credit of the United States through provisions in their charters that they  
may make "indefinite and unlimited" drawings on the Treasury, if needed to      
service its debt. Debt from certain other agencies and instrumentalities,       
including the Federal Home Loan Bank and Fannie Mae, are not guaranteed by the  
United States, but those institutions are protected by the discretionary        
authority of the U.S. Treasury to purchase certain amounts of their securities  
to assist them in meeting their debt obligations. Finally, other agencies and   
instrumentalities, such as the Farm Credit System and the Freddie Mac, are      
federally chartered institutions under Government supervision, but their debt   
securities are backed only by the credit worthiness of those institutions, not  
the U.S. Government. Some of the U.S. Government agencies that issue or         
guarantee securities include the Export-Import Bank of the United States,       
Farmers Home Administration, Federal Housing Administration, Maritime           
Administration, Small Business Administration and The Tennessee Valley          
Authority.                                                                      

An instrumentality of the U.S. Government is a government agency organized under
federal charter with government supervision. Instrumentalities issuing or       
guaranteeing securities include, among others, Federal Home Loan Banks, the     
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit  
Banks and Fannie Mae.                                                           

Asset-Backed Securities: Asset-backed securities are securities secured by      
non-mortgage assets such as company receivables, truck and auto loans, leases   
and credit card receivables. Such securities are generally issued as            
pass-through certificates, which represent undivided fractional ownership       
interests in the underlying pools of assets. Such securities also may be debt   
instruments, which are also known as collateralized obligations and are         
generally issued as the debt of a special purpose entity, such as a trust,      
organized solely for the purpose of owning such assets and issuing such debt.   
Credit support for asset-backed securities may be based on the underlying assets
and/or provided by a third party through credit enhancements. Credit enhancement
techniques include letters of credit, insurance bonds, limited guarantees (which
are generally provided by the issuer), senior-subordinated structures and       
over-collateralization.                                                         

Asset-backed securities are not issued or guaranteed by the United States       
Government or its agencies or instrumentalities; however, the payment of        
principal and interest on such obligations may be guaranteed up to certain      
amounts for a certain period by a letter of credit issued by a financial        
institution (such as a bank or insurance company) unaffiliated with the issuers 
of such securities. The purchase of asset-backed securities raises risk         
considerations peculiar to the financing of the instruments underlying such     
securities. For example, there is a risk that another party could acquire an    
interest in the obligations superior to that of the holders of the asset-backed 
securities. There also is the possibility that recoveries on repossessed        
collateral may not, in some cases, be available to support payments on those    
securities. Asset-backed securities entail prepayment risk, which may vary      
depending on the type of asset, but is generally less than the prepayment risk  
associated with the mortgage-backed securities. In addition, credit card        
receivables are unsecured obligations of the card holders.                      

The market for asset-backed securities is not as developed as other markets.    
Accordingly, there may be a limited secondary market for such securities.       

Brady Bonds: Brady Bonds are both Emerging Market Securities and Foreign Fixed  
Income Securities. They are created by exchanging existing commercial bank loans
to foreign entities for new obligations for the purpose of restructuring the    
issuers' debts under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the Brady Plan). Brady Bonds have been issued fairly         
recently, and, accordingly, do not have a long payment history. They may be     
collateralized or uncollateralized and issued in various currencies (although   
most are dollar-denominated). They are actively traded in the over-the-counter  
secondary market. Portfolios will only invest in Brady Bonds consistent with    
quality specifications.                                                         

Dollar-denominated, collateralized Brady Bonds may be fixed rate par bonds or   
floating rate discount bonds. These Brady Bonds are generally collateralized in 
full as to principal due at maturity by U.S. Treasury Zero Coupon Obligations   
having the same maturity as the Brady Bonds. Interest payments on               

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these Brady Bonds generally are collateralized by cash or securities in an      
amount that, in the case of fixed rate bonds, is equal to at least one year of  
rolling interest payments or, in the case of floating rate bonds, initially is  
equal to at least one year's rolling interest payments based on the applicable  
interest rate at that time and is adjusted at regular intervals thereafter.     
Certain Brady Bonds are entitled to "value recovery payments" in certain        
circumstances, which in effect constitute supplemental interest payments but    
generally are not collateralized.                                               

Brady Bonds are often viewed as having three or four valuation components: (i)  
the collateralized repayment of principal at final maturity; (ii) the           
collateralized interest payments; (iii) the uncollateralized interest payments; 
and (iv) any uncollateralized repayment of principal at maturity (these         
uncollateralized amounts constitute the "residual risk"). In the event of a     
default with respect to collateralized Brady Bonds as a result of which the     
payment obligations of the issuer are accelerated, the U.S. Treasury Zero Coupon
Obligations held as collateral for the payment of principal will not be         
distributed to investors, nor will such obligations be sold and the proceeds    
distributed. The collateral will be held by the collateral agent to the         
scheduled maturity of the defaulted Brady Bonds, which will continue to be      
outstanding, at which time the face amount of the collateral will equal the     
principal payments due on the Brady Bonds in the normal course. In light of the 
residual risk of the Brady Bonds and, among other factors, the history of       
default with respect to commercial bank loans by public and private entities of 
countries issuing Brady Bonds, investments in Brady Bonds generally are viewed  
as speculative.                                                                 

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).                                          

Each Portfolio may invest in obligations of U.S. banks, and, except for the U.S.
Core Fixed Income Portfolio, in foreign branches of U.S. banks (Eurodollars) and
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 this SAI.     

The Portfolios 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, (ii) in the case  
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, 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 debt securities
which the Portfolio may purchase.                                               

(2) Each Portfolio (except the Cash Reserves Portfolio) may invest in 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 Standard & Poor's 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, Standard & Poor's or Fitch 
IBCA ("Fitch") ). The Cash Reserves Portfolio invests only in commercial paper  
rated in the highest category;                                                  

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

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(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 Cash Reserves Portfolio's investments in Cash Equivalents are limited  
by the quality, maturity and diversification requirements adopted under Rule    
2a-7 of the Investment Company Act of 1940 ("1940 Act").                        

Commercial paper refers to short-term fixed income securities with maturities   
ranging from 1 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 Standard & Poor's.                                          

Commercial paper rated A-1 by Standard & Poor's Corporation ("Standard &        
Poor's") has the following characteristics: (1) liquidity ratios are adequate to
meet cash requirements; (2) long-term senior debt is rated "A" or better; (3)   
the issuer has access to at least two additional channels of borrowing; (4)     
basic earnings and cash flow have an upward trend with allowance made for       
unusual circumstances; (5) typically, the issuer's industry is well established 
and the issuer has a strong position within the industry; and (6) the           
reliability and quality of management are unquestioned. Relative strength or    
weakness of the above factors determine whether the issuer's commercial paper is
A-1, A-2, or A-3. The rating Prime-1 is the highest commercial paper rating     
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors      
considered by Moody's in assigning ratings are the following: (1) evaluation of 
the management of the issuer; (2) economic evaluation of the issuer's industry  
or industries and the appraisal of speculative-type risks which may be inherent 
in certain areas; (3) evaluation of the issuer's products in relation to        
competition and customer acceptance; (4) liquidity; (5) amount and quality of   
long-term debt; (6) trend of earnings over a period of ten years; (7) financial 
strength of a parent company and the relationships that exist with the issuer;  
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such    
obligations.                                                                    

CMOs: Collateralized mortgage obligations ("CMOs") are Derivatives structured as
debt obligations or multiclass pass-through certificates. CMOs are issued by    
agencies or instrumentalities of the U.S. Government or by private originators  
or investors in mortgage loans. They are backed by mortgage 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       
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  

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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.                                                    

Possible Risks: Due to the possibility that prepayments (on home mortgages and  
other collateral) will alter the cash flow on CMOs, 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 prepayments 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.  
In selecting these securities, the Adviser will look for those securities that  
offer a higher yield to compensate for any variation in average maturity.       

Like bonds in general, mortgage securities 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 mortgage securities  
that a Portfolio holds may be lengthened. This extension of average life causes 
the market price of the securities to decrease further than if their average    
lives were fixed. In part to compensate for these risks, mortgages will         
generally offer higher yields than comparable bonds. 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.                                                           

Commercial Paper: See Cash Equivalents.                                         

Common Stock: Common stocks are Equity Securities representing an ownership     
interest in a corporation, entitling the shareholder to voting rights and       
receipt of dividends paid based on proportionate ownership.                     

Convertibles: Convertibles may be considered either Equity Securities or Fixed  
Income Securities. They are commonly corporates or preferred stocks which may be
exchanged for a fixed number of shares of common stock at the purchaser's       
option. Convertibles may be viewed as an investment in the convertible security 
or the security into which it may be exchanged. Therefore, the Fund's equity,   
fixed income and balanced Portfolios may all purchase convertibles.             

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Corporates: Corporate bonds ("Corporates") are Fixed Income Securities issued by
private corporations. Bondholders, as creditors, have a prior legal claim over  
common and preferred stockholders of the corporation as to both income and      
assets for the principal and interest due to the bondholder. A Portfolio will   
buy corporates subject to any quality constraints. If a Portfolio holds a       
security that is down-graded, the Portfolio may retain the security if the      
Adviser deems retention of the security to be in the best interests of the      
Portfolio.                                                                      

Depositary Receipts: Depositary receipts are Foreign Equity Securities,         
including Global Depositary Receipts ("GDRs") and European Depositary Receipts  
("EDRs"), and other similar types of depositary shares. Depositary receipts are 
securities that can be traded in U.S. or foreign securities markets but which   
represent ownership interests in a security or pool of securities by a foreign  
or U.S. corporation. Depositary receipts may be sponsored or unsponsored. The   
depositary of unsponsored depositary receipts may provide less information to   
receipt holders.                                                                

Holders of unsponsored GDRs and EDRs generally bear all the costs associated    
with establishing the unsponsored GDRs and EDRs. The depositary of unsponsored  
GDRs and EDRs is under no obligation to distribute shareholder communications   
received from the underlying issuer or to pass through to the holders of the    
unsponsored GDRs and EDRs voting rights with respect to the deposited securities
or pool of securities. GDRs and EDRs are not necessarily denominated in the same
currency as the underlying securities to which they may be connected. Generally,
GDRs or EDRs in registered form are designed for use in the U.S. securities     
market and GDRs or EDRs in bearer form are designed for use in securities       
markets outside the United States. Portfolios may invest in sponsored and       
unsponsored GDRs and EDRs. For purposes of the Fund's investment policies, a    
Portfolio's investments in GDRs or EDRs will be deemed to be investments in the 
underlying securities.                                                          

Derivatives: Derivatives are financial instruments whose value and performance  
are based on the value and performance of another security or financial         
instrument. Derivatives include the following instruments, each of which is     
described in this Statement of Additional Information: CMOs, Forwards, Futures, 
Options, SMBS, Structured Investments, Structured Notes, and Swaps.             

The Portfolios may enter into over-the-counter Derivatives transactions with    
counterparties approved by the Adviser in accordance with guidelines established
by the Board of Trustees ("Board").                                             

When a Portfolio engages in certain types of derivatives transactions, including
certain forwards, futures, options and mortgage derivatives, it will have to    
segregate cash and/or liquid securities to cover its obligations. At certain    
levels, this can cause a Portfolio to lose flexibility in managing its          
investments properly, responding to shareholder redemption requests, or meeting 
other obligations. A Portfolio in that position could be forced to sell other   
securities that it wanted to retain or to realize unintended gains or losses.   

Emerging Market Securities: Emerging market securities are Foreign Equity       
Securities or Foreign Fixed Income Securities issued by a company that has one  
or more of the following characteristics: (i) its principal securities trading  
market is in an emerging market, (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, and has a principal office in, an emerging                             

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market country. The Adviser will base determinations as to eligibility on       
publicly available information and inquiries made to the companies.             

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. With      
respect to any emerging market country, there is the possibility 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. 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).                

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 equity         
securities generally 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. Equity securities include the following types of instruments, each  
of which is described in this Statement of Additional Information: ADRs, Common 
Stock, Convertibles, Investment Companies, Preferred Stock, Rights and Warrants.

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,   
and the type of collateral, if any. Some fixed income securities may have other 
novel features such as conversion rights. Fixed income securities include the   
following types of instruments, each of which is described in this Statement of 
Additional Information: Agencies, Asset-Backed Securities, Cash Equivalents,    
Convertibles, Corporates, Floaters, High Yield Securities, Inverse Floaters,    
Loan Participations and Assignments, Mortgage Securities, Municipals, NY        
Municipals, Preferred Stock, Repurchase Agreements, U.S. Governments,           
When-Issued Securities, Yankee and Eurodollar Obligations and Zero Coupons.     

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. The duration and maturity of a fixed income security also 
affect its price volatility. These concepts are described above in Maturity and 
Duration Management. Generally, securities with longer maturities or durations  
will experience greater price volatility.                                       

Generally, the values of fixed income securities vary inversely with changes in 
interest rates, so that 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 and
call provisions also will affect the maturity and value of some fixed income    
securities. The occurrence of prepayments and calls generally increases 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.                

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Floaters: Floaters are Fixed Income Securities with a floating or variable rate 
of interest, i.e., the rate of interest varies with changes in specified market 
rates or indices, such as the prime rate, or at specified intervals. Certain    
floating or variable rate obligations 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 floating or variable rate obligations represents an obligation of a     
foreign entity, the demand feature will be subject to certain risks discussed   
under foreign investing.                                                        

Foreign currency: Portfolios investing in Foreign Securities will regularly     
transact security purchases and sales in foreign currencies. These Portfolios   
may hold foreign currency or purchase or sell currencies on a forward basis. See
Forwards, below.                                                                

Foreign currency warrants. Portfolios may invest in foreign currency warrants,  
which entitle the holder to receive from the issuer an amount of cash           
(generally, for warrants issued in the United States, in U.S. dollars) which is 
calculated pursuant to a predetermined formula and based on the exchange rate   
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their  
issuance and expire as of a specified date and time.                            

Foreign currency warrants have been issued in connection with U.S.              
dollar-denominated debt offerings by major corporate issuers in an attempt to   
reduce the foreign currency exchange risk which, from the point of view of      
prospective purchasers of the securities, is inherent in the international fixed
income marketplace. Foreign currency warrants may attempt to reduce the foreign 
exchange risk assumed by purchasers of a security by, for example, providing for
a supplemental payment in the event that the U.S. dollar depreciates against the
value of a major foreign currency such as the Japanese Yen or the Euro. The     
formula used to determine the amount payable upon exercise of a foreign currency
warrant may make the warrant worthless unless the applicable foreign currency   
exchange rate moves in a particular direction (e.g., unless the U.S. dollar     
appreciates or depreciates against the particular foreign currency to which the 
warrant is linked or indexed). Foreign currency warrants are severable from the 
debt obligations with which they may be offered, and may be listed on exchanges.

Foreign currency warrants may be exercisable only in certain minimum amounts,   
and an investor wishing to exercise warrants who possesses less than the minimum
number required for exercise may be required either to sell the warrants or to  
purchase additional warrants, thereby incurring additional transaction costs. In
the case of any exercise of warrants, there may be a time delay between the time
a holder of warrants gives instructions to exercise and the time the exchange   
rate relating to exercise is determined, during which time the exchange rate    
could change significantly, thereby affecting both the market and cash          
settlement values of the warrants being exercised. The expiration date of the   
warrants may be accelerated if the warrants should be delisted from an exchange 
or if their trading should be suspended permanently, which would result in the  
loss of any remaining "time value" of the warrants (i.e., the difference between
the current market value and the exercise value of the warrants), and, in the   
case where the warrants were "out-of-the-money," in a total loss of the purchase
price of the warrants.                                                          

Foreign currency warrants are generally unsecured obligations of their issuers  
and are not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by the OCC, the     
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of  
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is      
generally considerably in excess of the price that a commercial user of foreign 
currencies might pay in the interbank market for a comparable option involving  
significantly larger amounts of foreign currencies. Foreign currency warrants   
are subject to complex political or economic factors.                           

Principal exchange rate linked securities. Principal exchange rate linked       
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"     
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked                                                    

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appreciates against the U.S. dollar, and is adversely affected by increases in  
the foreign exchange value of the U.S. dollar; "reverse" principal exchange rate
linked securities are like the "standard" securities, except that their return  
is enhanced by increases in the value of the U.S. dollar and adversely impacted 
by increases in the value of foreign currency. Interest payments on the         
securities are generally made in U.S. dollars at rates that reflect the degree  
of foreign currency risk assumed or given up by the purchaser of the notes      
(i.e., at relatively higher interest rates if the purchaser has assumed some of 
the foreign exchange risk, or relatively lower interest rates if the issuer has 
assumed some of the foreign exchange risk, based on the expectations of the     
current market). Principal exchange rate linked securities may in limited cases 
be subject to acceleration of maturity (generally, not without the consent of   
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.                                   

Performance indexed paper. Performance indexed paper is U.S. dollar-denominated 
commercial paper the yield of which is linked to certain foreign exchange rate  
movements. The yield to the investor on performance indexed paper is between the
U.S. dollar and a designated currency as of or about that time (generally, the  
index maturity two days prior to maturity). The yield to the investor will be   
within a range stipulated at the time of purchase of the obligation, generally  
with a guaranteed minimum rate of return that is below, and a potential maximum 
rate of return that is above, market yields on U.S. dollar-denominated          
commercial paper, with both the minimum and maximum rates of return on the      
investment corresponding to the minimum and maximum values of the spot exchange 
rate two business days prior to maturity.                                       

Foreign Equity Securities: Foreign equity securities are Equity Securities of   
foreign issuers denominated in foreign currency and traded primarily in non-U.S.
markets, including depositary receipts. See also Foreign Securities, below.     

Foreign Fixed Income Securities: Foreign fixed income securities are Fixed      
Income Securities denominated in foreign currency and issued and traded         
primarily outside of the U.S., including: (1) obligations issued or guaranteed  
by foreign national governments, their agencies, instrumentalities, or political
subdivisions; (2) debt securities issued, guaranteed or sponsored by            
supranational organizations established or supported by several national        
governments, including the World Bank, the European Community, the Asian        
Development Bank and others; (3) non-government foreign corporate debt          
securities; and (4) foreign mortgage securities and various other mortgages and 
asset-backed securities. See also Foreign Securities, below.                    

Foreign Securities: Foreign Securities include Brady Bonds, Depositary Receipts,
Emerging Market Securities, Foreign Currency, Foreign Equity Securities, Foreign
Fixed Income Securities, and Investment Funds. Investing in foreign securities  
involves certain special risks not typically associated with investing in       
domestic securities. Since the securities of foreign issuers are frequently     
denominated in foreign currencies, and since the Portfolios may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Portfolios will 
be affected favorably or unfavorably by changes in currency rates and in        
exchange control regulations, and may incur costs in connection with conversions
between various currencies. Certain Portfolios may enter into forward foreign   
currency exchange contracts to hedge their respective holdings and commitments  
against changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price  
set at the time of the contract.                                                

As non-U.S. companies are not generally subject to uniform accounting, auditing 
and financial reporting standards and practices comparable to those applicable  
to domestic issuers, there may be less publicly available information about     
certain foreign securities than about domestic securities. Securities of some   
foreign issuers are generally less liquid and more volatile than securities of  
comparable domestic companies. 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 the    
possibility of expropriation or confiscatory taxation, political or social      
instability, or diplomatic developments which could affect U.S. investments in  
those countries.                                                                

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Although the Portfolios will endeavor to achieve most favorable execution costs 
in their Portfolio transactions, fixed commissions on many foreign exchanges are
generally higher than negotiated commissions on U.S. exchanges. In addition, it 
is expected that the expenses for custodian arrangements of the Portfolio's     
foreign securities will be somewhat greater than the expenses for the custodian 
arrangements for handling U.S. securities of equal value.                       

Certain foreign governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes is recoverable, the 
non-recovered portion of foreign withholding taxes will reduce the income       
received from investments in such countries. However, these foreign withholding 
taxes are not expected to have a significant impact on those Portfolios for     
which the investment objective is to seek long-term capital appreciation and any
income should be considered incidental.                                         

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.                                                      

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 worldwide 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 worldwide.                                      

Forwards: Forward Foreign Currency Exchange Contracts ("Forwards") are          
Derivatives which may be used to protect against uncertainty in the level of    
future foreign exchange rates. A forward foreign currency exchange contract is  
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. Such contracts do not      
eliminate fluctuations caused by changes in the local currency prices of the    
securities, but rather, they establish an exchange rate at a future date. Also, 
although such contracts can minimize the risk of loss due to a decline in the   
value of the hedged currency, at the same time they limit any potential gain    
that might be realized.                                                         

A Portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.    
dollar value of portfolio positions (position hedge). In addition, the          
Portfolios may cross hedge currencies by entering into a transaction to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which a Portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into   
positions in one currency to hedge investments denominated in another currency, 
where the two currencies are economically linked. A Portfolio's entry into      
forward contracts, as well as any use of cross or proxy hedging techniques will 
generally require the Portfolio to hold liquid securities or cash equal to the  
Portfolio's obligations in a segregated account throughout the duration of the  
contract.                                                                       

A Portfolio may also combine forward contracts with investments in securities   
denominated in other currencies in order to achieve desired credit and currency 
exposures. Such combinations are generally referred to as synthetic securities. 
For example, in lieu of purchasing a foreign bond, a Portfolio may purchase a   
U.S. dollar-denominated security and at the same time enter into a forward      
contract to exchange U.S. dollars for the contract's underlying currency at a   
future date. By matching the amount of U.S. dollars to be exchanged with the    
anticipated value of the U.S. dollar-denominated security, a Portfolio may be   
able                                                                            

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to lock in the foreign currency value of the security and adopt a synthetic     
investment position reflecting the credit quality of the U.S. dollar-denominated
security.                                                                       

Risks. Forward contracts are not traded on contract markets regulated by the    
Securities and Exchange Commission ("SEC") or the Commodity Futures Trading     
Commission ("CFTC"). They are traded through financial institutions acting as   
market-makers. Portfolios that trade forward contracts could lose amounts       
substantially in excess of their initial investments, due to the margin and     
collateral requirements associated with them.                                   

Forward contracts may be traded on foreign exchanges. These transactions are    
subject to the risk of governmental actions affecting trading in or the prices  
of foreign currencies or securities. The value of such positions also could be  
adversely affected by (i) other complex foreign political and economic factors, 
(ii) lesser availability than in the United States of data on which to make     
trading decisions, (iii) delays in a Portfolio's ability to act upon economic   
events occurring in foreign markets during non business hours in the United     
States, (iv) the imposition of different exercise and settlement terms and      
procedures and margin requirements than in the United States, and (v) lesser    
trading volume.                                                                 

Currency hedging strategies involve certain other risks as well. There is a risk
in adopting a transaction hedge or position hedge to the extent that the value  
of a security denominated in foreign currency is not exactly matched with a     
Portfolio's obligation under the forward contract. On the date of maturity, a   
Portfolio may be exposed to some risk of loss from fluctuations in that         
currency. Although the Adviser will attempt to hold such mismatching to a       
minimum, there can be no assurance that the Adviser will be able to do so. For  
proxy hedges, cross hedges or a synthetic position, there is an additional risk 
in that these transactions create residual foreign currency exposure. When a    
Portfolio enters into a forward contract for purposes of creating a position    
hedge, transaction hedge, cross hedge or a synthetic security, it will generally
be required to hold liquid securities or cash in a segregated account with a    
daily value at least equal to its obligation under the forward contract.        

Futures: Futures contracts and options on futures contracts ("Futures") are     
Derivatives. Each Portfolio, except the Cash Reserves Portfolio, may invest in  
Futures. Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security at a specified    
future time and at a specified price. Futures contracts which are standardized  
as to maturity date and underlying financial instrument are traded on national  
futures exchanges. Futures exchanges and trading are regulated under the        
Commodity Exchange Act by the CFTC.                                             

Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before 
the settlement date without the making or taking of delivery. Closing out an    
open futures position is done by taking an opposite position ("buying" a        
contract which has previously been "sold" or "selling" a contract previously    
"purchased") in an identical contract to terminate the position. Brokerage      
commissions are incurred when a futures contract is bought or sold.             

Futures traders are required to make a good faith margin deposit in cash or     
acceptable securities with a broker or custodian to initiate and maintain open  
positions in futures contracts. A margin deposit is intended to assure          
completion of the contract (delivery or acceptance of the underlying securities)
if it is not terminated prior to the specified delivery date. Minimum initial   
margin requirements are established by the futures exchange and may be changed. 
Brokers may establish deposit requirements which are higher than the exchange   
minimums. Futures contracts are customarily purchased and sold on the basis of  
margin deposits that may range upward from less than 5% of the value of the     
contract being traded. A Portfolio's margin deposits will be placed in a        
segregated account maintained by the Fund's custodian or with a futures         
commission merchant as approved by the Board.                                   

After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the   
margin on deposit does not satisfy margin requirements, payment of additional   
"variation" margin will be required. Conversely, a change in the contract value 
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation                                                      

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margin payments are made to and from the futures broker for as long as the      
contract remains open. The Fund expects to earn interest income on its margin   
deposits.                                                                       

Traders in futures contracts may be broadly classified as either "hedgers" or   
"speculators." Hedgers use the futures markets primarily to offset unfavorable  
changes in the value of securities otherwise held for investment purposes or    
expected to be acquired by them. Speculators are less inclined to own the       
securities underlying the futures contracts which they trade, and use futures   
contracts with the expectation of realizing profits from fluctuations in the    
value of the underlying securities. Regulations of the CFTC applicable to the   
Fund require that the aggregate initial margins and premiums required to        
establish non-hedging positions not exceed 5% of the liquidation value of a     
Portfolio.                                                                      

Although techniques other than the sale and purchase of futures contracts could 
be used to control a Portfolio's exposure to market fluctuations, the use of    
futures contracts may be a more effective means of hedging this exposure. While 
the Portfolios will incur commission expenses in both opening and closing out   
futures positions, these costs are lower than transaction costs incurred in the 
purchase and sale of the underlying securities.                                 

Risks. Positions in futures contracts may be closed out only on an exchange     
which provides a secondary market for such futures. However, there can be no    
assurance that a liquid secondary market will exist for any particular futures  
contract at any specific time. Thus, it may not be possible to close a futures  
position. In the event of adverse price movements, a Portfolio would continue to
be required to make daily cash payments to maintain its required margin. In such
situations, if the Portfolio has insufficient cash, it may have to sell         
portfolio securities to meet daily margin requirements at a time when it may be 
disadvantageous to do so. In addition, the Portfolio may be required to make    
delivery of the instruments underlying interest rate futures contracts it holds.
The inability to close options and futures positions also could have an adverse 
impact on a Portfolio's ability to effectively hedge. A Portfolio will minimize 
the risk that it will be unable to close out a futures contract by only entering
into futures which are traded on national futures exchanges and for which there 
appears to be a liquid secondary market.                                        

The risk of loss in trading futures contracts in some strategies can be         
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small 
price movement in a futures contract may result in immediate and substantial    
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent   
10% decrease in the value of the futures contract would result in a total loss  
of the margin deposit, before any deduction for the transaction costs, if the   
account were then closed out. A 15% decrease would result in a loss equal to    
150% of the original margin deposit if the contract were closed out. Thus, a    
purchase or sale of a futures contract may result in losses in excess of the    
amount invested in the contract. A Portfolio would presumably have sustained    
comparable losses if, instead of the futures contract, it had invested in the   
underlying financial instrument and sold it after the decline.                  

A Portfolio's use of futures involves the risk of imperfect or no correlation   
where the securities underlying futures contracts have different maturities than
the Portfolio securities being hedged. It is also possible that a Portfolio     
could both lose money on futures contracts and also experience a decline in     
value of its portfolio securities. There is also the risk that a Portfolio could
lose margin deposits in the event of bankruptcy of a broker with whom the       
Portfolio has an open position in a futures contract or related option. Most    
futures exchanges limit the amount of fluctuation permitted in futures contract 
prices during a single trading day. The daily limit establishes the maximum     
amount that the price of a futures contract may vary either up or down from the 
previous day's settlement price at the end of a trading session. Once the daily 
limit has been reached in a particular type of contract, no trades may be made  
on that day at a price beyond that limit. The daily limit governs only price    
movement during a particular trading day and therefore does not limit potential 
losses, because the limit may prevent the liquidation of unfavorable positions. 
Futures contract prices have occasionally moved to the daily limit for several  
consecutive trading days with little or no trading, thereby preventing prompt   
liquidation of futures positions and subjecting some futures traders to         
substantial losses.                                                             

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High Yield Securities: High yield securities are Fixed Income Securities,       
generally corporates, preferred stocks, and convertibles, rated Ba through C by 
Moody's or BB through D by Standard & Poor's, and unrated fixed income          
securities considered to be of equivalent quality. Securities rated less than   
Baa by Moody's or BBB by Standard & Poor's are classified as non-investment     
grade securities and are commonly referred to as junk bonds or high yield, high 
risk securities. Such securities carry a high degree of risk and are considered 
speculative by the major credit rating agencies. See the Appendix for more      
information about fixed income security ratings. Investment grade securities    
that Portfolios hold may be downgraded to below investment grade by the rating  
agencies. If a Portfolio holds a security that is downgraded, the Portfolio may 
choose to retain the security.                                                  

While fixed income securities rated below investment grade offer high yields,   
they also normally carry with them a greater degree of risk than securities with
higher ratings. Lower-rated bonds are considered speculative by traditional     
investment standards. High yield securities may be issued as a consequence of   
corporate restructuring or similar events. Also, high yield securities are often
issued by smaller, less credit worthy companies, or by highly leveraged         
(indebted) firms, which are generally less able than more established or less   
leveraged firms to make scheduled payments of interest and principal. High yield
securities issued under these circumstances pose substantial risks. The price   
movement of high yield securities is influenced less by changes in interest     
rates and more by the financial and business position of the issuing corporation
when compared to investment grade bonds. Compared with investment grade         
securities, the values of high yield securities tend to be more volatile and may
react with greater sensitivity to changes in interest rates.                    

The High Yield market is subject to credit risk. Default rates and recoveries   
fluctuate, driven by numerous factors including the general economy. In         
addition, the secondary market for high yield securities is generally less      
liquid than that for investment grade corporate securities. In periods of       
reduced market liquidity, high yield bond prices may become more volatile, and  
both the high yield market and a Portfolio may experience sudden and substantial
price declines.                                                                 

A lower level of liquidity might have an effect on a Portfolio's ability to     
value or dispose of such securities. Also, there may be significant disparities 
in the prices quoted for high yield securities by various dealers. Under such   
conditions, a Portfolio may find it difficult to value its securities           
accurately. A Portfolio may also be forced to sell securities at a significant  
loss in order to meet shareholder redemptions. These factors add to the risks   
associated with investing in high yield securities.                             

High yield bonds may also present risks based on payment expectations. For      
example, high yield bonds may contain redemption or call provisions. If an      
issuer exercises these provisions in a declining interest rate market, a        
Portfolio would have to replace the security with a lower yielding security,    
resulting in a decreased return for investors.                                  

Certain types of high yield bonds are non-income paying securities. For example,
zero coupons pay interest only at maturity and payment-in-kind bonds pay        
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,     
however, be treated as ordinary income which will be distributed to shareholders
even though the Portfolio does not receive periodic cash flow from these        
investments.                                                                    

Inverse Floaters: Inverse floating rate obligations ("inverse floaters") are    
Fixed Income Securities which have coupon rates that vary inversely to another  
specified floating rate, such as LIBOR (London Inter-Bank Offered Rate). If the 
specified reference rate rises, the coupon rate of the inverse floater falls,   
while a decrease in the reference rate causes an increase in the inverse        
floater's coupon rate. Inverse floaters may exhibit substantially greater price 
volatility than fixed rate obligations having similar credit quality, redemption
provisions and maturity. Inverse floater CMOs exhibit greater price volatility  
than the majority of mortgage pass-through securities or CMOs. Some inverse     
floater CMOs are extremely sensitive to changes in prepayments. As a result, the
yield to maturity of an inverse floater CMO is sensitive not only to changes in 
interest rates but also to changes in prepayment rates on the related underlying
mortgage assets.                                                                

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Investment Companies: Investment companies are Equity Securities and include    
open-end or closed-end investment companies. The 1940 Act generally prohibits   
the Portfolios 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. The 1940 Act also prohibits the        
Portfolios from acquiring in the aggregate more than 10% of the outstanding     
voting shares of any registered closed-end investment company.                  

To the extent a Portfolio invests a portion of its assets in investment         
companies, those assets will be subject to the expenses of the investment       
company as well as to the expenses of the Portfolio itself. The Portfolios may  
not purchase shares of any affiliated investment company except as permitted by 
SEC rule or order.                                                              

Investment Funds: Investment funds can include Emerging Market Securities. Some 
emerging market countries have laws and regulations that currently preclude or  
limit direct foreign investment in the securities of their companies. However,  
indirect foreign 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. Portfolios that may invest in these         
Investment Funds are subject to applicable law as discussed under Investment    
Restrictions and will invest in such Investment Funds only where appropriate    
given that the Portfolio's shareholders will bear indirectly the layer of       
expenses of the underlying investment funds in addition to their proportionate  
share of the expenses of the Portfolio. Under certain circumstances, an         
investment in an investment fund will be subject to the additional limitations  
that apply to investments in investment companies.                              

Investment Grade Securities: Investment grade securities are Fixed Income       
Securities that are (a) rated by one or more NRSROs in one of the four highest  
rating categories at the time of purchase (e.g., AAA, AA, A or BBB by Standard &
Poor's or Fitch or Aaa, Aa, A or Baa by Moody's); (b) guaranteed by the U.S.    
Government or a private organization; or (c) considered by the Adviser to be    
investment grade quality. 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. Securities rated A or higher are considered to be "high  
grade." Any Portfolio is permitted to hold Investment Grade Securities or "high 
grade" securities, and may hold unrated securities if the Adviser considers the 
risks involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security or "high grade" security, respectively. The
Adviser may retain securities if their ratings fall below investment grade if it
deems retention of the security to be in the best interests of the Portfolio.   

Mortgage securities, including mortgage pass-throughs and CMOs, deemed          
investment grade by the Adviser, will either carry a guarantee from an agency of
the U.S. Government or a private issuer of the timely payment of principal and  
interest (such guarantees do not extend to the market value of such securities  
or the net asset value per share of the Portfolio) or, in the case of unrated   
securities, be sufficiently seasoned that they are considered by the Adviser to 
be investment grade quality.                                                    

Loan Participations and Assignments: Loan participations and assignments are    
Fixed Income Securities. A Portfolio may invest in fixed rate and floating rate 
loans ("Loans") arranged through private negotiations between an issuer of      
sovereign debt obligations and one or more financial institutions ("Lenders"). A
Portfolio's investments in Loans are expected in most instances to be in the    
form of 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. If a Lender selling a Participation becomes insolvent, 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 the Lender's insolvency, the Lender's   
servicing of the Participation may be delayed and the assignability of the      
Participation may be impaired. A                                                

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Portfolio will acquire Participations only if the Lender interpositioned between
the 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 the 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, the    
Portfolio anticipates 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 the Portfolio's      
ability to dispose of particular Assignments or Participations when necessary to
meet the 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 the Portfolio to assign a value to those securities for      
purposes of valuing the Portfolio's holdings and calculating its net asset      
value.                                                                          

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 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. Those Participations and Assignments present         
additional risk of default or loss.                                             

Mortgage Securities: Mortgage-backed securities ("Mortgage Securities") are     
Fixed Income Securities representing an ownership interest in a pool of         
residential and commercial mortgage loans. Generally, these securities are      
designed to provide monthly payments of interest and principal to the investor. 
The mortgagee's monthly payments to his/her lending institution are passed      
through to investors such as the Portfolio. Most issuers or poolers provide     
guarantees of payments, regardless of whether the mortgagor actually makes the  
payment. The guarantees made by issuers or poolers are supported by various     
forms of credit, collateral, guarantees or insurance, including individual loan,
title, pool and hazard insurance purchased by the issuer. The pools are         
assembled by various governmental, government-related and private organizations.
Portfolios may invest in securities issued or guaranteed by GNMA, FHLMC, Fannie 
Mae, private issuers and other government agencies. There can be no assurance   
that the private insurers can meet their obligations under the policies.        
Mortgage securities issued by non-agency issuers, whether or not such securities
are subject to guarantees, may entail greater risk. If a Portfolio purchases a  
mortgage security that does not have an issuer-provided guarantee, the security 
will be rated investment grade at the time of purchase by one or more NRSROs,   
or, if unrated, deemed by the Adviser to be of equivalent quality.              

A mortgage-backed bond is a collateralized debt security issued by a thrift or  
financial institution. The bondholder has a first priority perfected security   
interest in collateral, usually consisting of agency mortgage pass-through      
securities, although other assets, including U.S. Treasuries (including zero    
coupon U.S. Treasuries), agencies, cash equivalent securities, whole loans and  
corporate bonds, may qualify. The amount of collateral must be continuously     
maintained at levels from 115% to 150% of the principal amount of the bonds     
issued, depending on the specific issue structure and collateral type.          

Average Life. The average life of pass-through pools varies with the maturities,
coupon rates, and type of the underlying mortgage instruments. In addition, a   
pool's term may be shortened by unscheduled or early payments of principal and  
interest on the underlying mortgages. The occurrence of mortgage prepayments is 
affected by factors including the level of interest rates, general economic     
conditions, the location and age of the mortgage and other social and           
demographic conditions.                                                         

Returns of Mortgage Securities. Yields on mortgage pass-through securities are  
typically quoted based on a prepayment assumption derived from the coupon and   
maturity of the underlying instruments. Actual                                  

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prepayment experience may cause the realized return to differ from the assumed  
yield. Reinvestment of prepayments may occur at higher or lower interest rates  
than the original investment, thus affecting the realized returns of the        
Portfolios. The compounding effect from reinvestment of monthly payments        
received by each Portfolio will increase its return to shareholders, compared to
bonds that pay interest semi-annually.                                          

About Mortgage Securities. Interests in pools of mortgage securities differ from
other forms of debt securities, which normally provide for periodic payment of  
interest in fixed amounts with principal payments at maturity or specified call 
dates. Instead, these securities provide a monthly payment which consists of    
both interest and principal payments. In effect, these payments are a           
"pass-through" of the monthly payments made by the borrowers on their mortgage  
loans, net of any fees paid to the issuer or guarantor of such securities.      
Additional payments are caused by repayments resulting from the sale of the     
underlying property, refinancing or foreclosure net of fees or costs which may  
be incurred. Some mortgage securities are described as "modified pass-through." 
These securities entitle the holders to receive all interest and principal      
payments owed on the mortgages in the pool, net of certain fees, regardless of  
whether or not the mortgagors actually make payment.                            

Residential Mortgage-Backed Securities. Pools consist of whole mortgage loans or
participation in loans. The majority of these loans are made to purchasers of   
1-4 family homes. The terms and characteristics of the mortgage instruments are 
generally uniform within a pool but may vary among pools. For example, in       
addition to fixed-rate fixed-term mortgages, the Portfolios may purchase pools  
of adjustable rate mortgages ("ARM"), growing equity mortgages ("GEM"),         
graduated payment mortgages ("GPM") and other types where the principal and     
interest payment procedures vary. ARM's are mortgages which reset the mortgage's
interest rate with changes in open market interest rates. The Portfolios'       
interest income will vary with changes in the applicable interest rate on pools 
of ARM's. GPM and GEM pools maintain constant interest rates, with varying      
levels of principal repayment over the life of the mortgage. These different    
interest and principal payment procedures should not impact the Portfolios' net 
asset values since the prices at which these securities are valued each day will
reflect the payment procedures.                                                 

All poolers apply standards for qualifications to local lending institutions    
which originate mortgages for the pools. Poolers also establish credit standards
and underwriting criteria for individual mortgages included in the pools. In    
addition, many mortgages included in pools are insured through private mortgage 
insurance companies.                                                            

Residential mortgage loans are pooled by FHLMC. FHLMC is a corporate            
instrumentality of the U.S. Government and was created by Congress in 1970 for  
the purpose of increasing the availability of mortgage credit for residential   
housing. FHLMC issues Participation Certificates ("PC's") which represent       
interests in mortgages from FHLMC's national portfolio. FHLMC guarantees the    
timely payment of interest and ultimate collection of principal.                

Fannie Mae is a Government-sponsored corporation owned entirely by private      
stockholders. It is subject to general regulation by the Secretary of Housing   
and Urban Development. Fannie Mae purchases residential mortgages from a list of
approved seller/servicers which include state and federally-chartered savings   
and loan associations, banks, commercial banks, credit unions, mortgage bankers,
state and local housing finance agencies and other financial institutions.      
Pass-through securities issued by Fannie Mae are guaranteed as to timely payment
of principal and interest by Fannie Mae.                                        

The principal Government guarantor of mortgage-backed securities is GNMA. GNMA  
is a wholly-owned U.S. Government corporation within the Department of Housing  
and Urban Development. GNMA is authorized to guarantee, with the full faith and 
credit of the U.S. Government, the timely payment of principal and interest on  
securities issued by approved institutions and backed by pools of FHA-insured or
VA-guaranteed mortgages.                                                        

Commercial banks, savings and loan institutions, private mortgage insurance     
companies, mortgage bankers and other secondary market issuers also create      
pass-through pools of conventional residential mortgage                         

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loans. Pools created by such non-governmental issuers generally offer a higher  
rate of interest than Government and Government-related pools because there are 
no direct or indirect Government guarantees of payments in the former pools.    
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are  
issued by governmental entities, private insurers and the mortgage poolers.     
There can be no assurance that the private insurers can meet their obligations  
under the policies. The Portfolios will purchase mortgage securities that are   
rated investment grade quality by Moody's and/or Standard & Poor's or, if       
unrated, deemed by the Adviser to be of investment grade quality.               

It is expected that Governmental or private entities may create mortgage loan   
pools offering pass-through investments in addition to those described above.   
The mortgages underlying these securities may be alternative mortgage           
instruments, that is, mortgage instruments whose principal or interest payment  
may vary or whose terms to maturity may be shorter than previously customary. As
new types of mortgage-backed securities are developed and offered to investors, 
the Portfolios will, consistent with their investment objective and policies,   
consider making investments in such new types of securities.                    

There are two methods of trading mortgage securities. 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 mortgage security transaction, called a TBA (to be    
announced) transaction, in which the type of mortgage securities 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 will be announced shortly before     
settlement takes place. The terms of the TBA trade may be made more specific if 
desired. Generally, agency pass-through mortgage securities are traded on a TBA 
basis.                                                                          

Possible Risks: Due to the possibility that prepayments on home mortgages will  
alter cash flow on Mortgage Securities, it is not possible to determine in      
advance the actual final maturity date or average life. Like bonds in general,  
mortgage-backed securities 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 mortgage securities held by 
a Portfolio may be lengthened. This extension of average life causes the market 
price of the securities to decrease further 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 that movement could be and to calculate 
the effect that it will have on the price of the security. Prepayments at a time
when interest rates are falling generally means that a Portfolio may have to    
invest the principal payments it receives at lower interest rates. In selecting 
mortgage securities, the Adviser will look for those securities that offer a    
higher yield to compensate for any variation in average maturity.               

Commercial Mortgage-Backed Securities ("CMBS"): CMBS are generally multi-class  
or pass-through securities backed by a mortgage loan or a pool of mortgage loans
secured by commercial property, such as industrial and warehouse properties,    
office buildings, retail space and shopping malls, multifamily properties and   
cooperative apartments. The commercial mortgage loans that underlie CMBS have   
certain distinct characteristics. Commercial mortgage loans are generally not   
amortizing or not fully amortizing. That is, at their maturity date, repayment  
of the remaining principal balance or "balloon" is due and is repaid through the
attainment of an additional loan or sale of the property. Unlike most single    
family residential mortgages, commercial real estate property loans often       
contain provisions which substantially reduce the likelihood that such          
securities will be prepaid. The provisions generally impose significant         
prepayment penalties on loans, and, in come cases there may be prohibitions on  
principal prepayments for several years following origination.                  

Municipals: Municipal securities are Fixed Income Securities issued by local,   
state and regional governments that provide interest income which is exempt from
federal income taxes. Municipals include both municipal bonds (those securities 
with maturities of five years or more) and municipal notes (those               

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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 tax. 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 sewage works.  
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.                                            

The two principal classifications of municipal bonds are "general obligation"   
and "revenue" or "special tax" bonds. General obligation bonds are secured by   
the issuer's pledge of its full faith, credit and taxing power for the payment  
of principal and interest. Revenue or special tax bonds are payable only from   
the revenues derived from a particular facility or class of facilities or, in   
some cases, from the proceeds of a special excise or other tax, but not from    
general tax revenues.                                                           

Industrial revenue bonds in most cases are revenue bonds and generally do not   
have the pledge of the credit of the issuer. The payment of the principal and   
interest on such industrial revenue bonds is dependent solely on the ability of 
the user of the facilities financed by the bonds to meet its financial          
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Short-term municipal obligations issued by states,   
cities, municipalities or municipal agencies, include tax anticipation notes,   
revenue anticipation notes, bond anticipation notes, construction loan notes and
short-term discount notes.                                                      

Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are    
short-term debt obligations issued by state and local governments to aid cash   
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the Portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments.                                          

Municipal bonds generally include debt obligations issued by states and their   
political subdivisions, and duly constituted authorities and corporations, to   
obtain funds to construct, repair or improve various public facilities such as  
airports, bridges, highways, hospitals, housing, schools, streets and water and 
sewer works. Municipal bonds may also be issued to refinance outstanding        
obligations as well as to obtain funds for general operating expenses and for   
loans to other public institutions and facilities.                              

Note obligations with demand or put options may have a stated maturity in excess
of one year, but permit any holder to demand payment of principal plus accrued  
interest upon a specified number of days' notice. Frequently, such obligations  
are secured by letters of credit or other credit support arrangements provided  
by banks. The issuer of such notes normally has a corresponding right, after a  
given period, to repay at its discretion the outstanding principal of the note  
plus accrued interest upon a specific number of days' notice to the bondholders.
The interest rate on a demand note may be based upon a known lending rate, such 
as the prime lending rate, and be adjusted when such rate changes, or the       
interest rate on a demand note may be a market rate that is adjusted at         
specified intervals. Each note purchased by the Portfolios will meet the quality
criteria set out in the prospectus for the Portfolios.                          

The yields of municipal bonds depend on, among other things, general money      
market conditions, conditions in the municipal bond market, the size of a       
particular offering, the maturity of the obligation, and the rating of the      
issue. The ratings of Moody's and Standard & Poor's represent their opinions of 
the quality of the municipal bonds rated by them. It should be emphasized that  
such ratings are general and are not absolute standards of quality.             
Consequently, municipal bonds with the same maturity, coupon and rating may have
different yields, while municipal bonds of the same maturity and coupon, but    
with                                                                            

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different ratings may have the same yield. It will be the responsibility of the 
investment management staff to appraise independently the fundamental quality of
the bonds held by the Portfolios.                                               

Municipal bonds are sometimes purchased on a "when-issued" basis, meaning the   
Portfolio has committed to purchase certain specified securities at an agreed   
upon price when they are issued. The period between commitment date and issuance
date can be a month or more. It is possible that the securities will never be   
issued and the commitment canceled.                                             

From time to time proposals have been introduced before Congress to restrict or 
eliminate the federal income tax exemption for interest on municipal bonds.     
Similar proposals may be introduced in the future. If any such proposal were    
enacted, it might restrict or eliminate the ability of the Portfolios to achieve
their investment objectives. In that event, the Fund's Trustees and officers    
would reevaluate investment objectives and policies and consider recommending to
shareholders changes in such objectives and policies.                           

Similarly, from time to time proposals have been introduced before state and    
local legislatures to restrict or eliminate the state and local income tax      
exemption for interest on municipal bonds. Similar proposals may be introduced  
in the future. If any such proposal were enacted, it might restrict or eliminate
the ability of a Portfolio to achieve its investment objective. In that event,  
the Fund's Trustees and officers would reevaluate investment objectives and     
policies and consider recommending to shareholders changes in such objectives   
and policies.                                                                   

The Portfolios eligible to purchase municipal bonds may also purchase bonds the 
income on which is subject to the alternative minimum tax ("AMT bonds"). AMT    
bonds are tax-exempt private activity bonds issued after August 7, 1986, the    
proceeds of which are directed, at least in part, to private, for-profit        
organizations. While the income from AMT bonds is exempt from regular federal   
income tax, it is a tax preference item in the calculation of the alternative   
minimum tax. The alternative minimum tax is a special separate tax that applies 
to some taxpayers who have certain adjustments to income or tax preference      
items.                                                                          

NY Municipals: NY Municipals are Fixed Income Securities issued by the New York 
State government, state agencies and various local governments, including       
counties, cities, municipalities, townships, special districts and authorities. 
In general, the credit quality and credit risk of any issuer's debt is          
contingent upon the state and local economy, the health of the issuer's         
finances, the amount of the issuer's debt, the quality of management and the    
strength of legal provisions in the debt document that protects debt holders.   
Credit risk is usually lower wherever the economy is strong, growing and        
diversified, where financial operations are sound and the debt burden is        
reasonable.                                                                     

Concentration of investment in the securities of one state exposes the NY       
Municipal Portfolio to greater credit risks than would be present in a          
nationally diversified portfolio of municipal securities. The risks associated  
with investment in the securities of a single state include possible tax changes
or a deterioration in economic conditions and differing levels of supply and    
demand for the municipal securities of that state.                              

Certain state-created agencies have statutory authority to incur debt for which 
legislation providing for state appropriations to pay debt service thereon is   
not required. The debt of these agencies is supported by assets of, or revenues 
derived from, the various projects financed; it is not an obligation of the     
State. Some of these agencies, however, are indirectly dependent on State funds 
through various state-assisted programs.                                        

The NY Municipal Portfolio will make significant investments in NY Municipal    
Bonds. The Portfolio's performance will depend in part upon the ability of the  
issuers of these Bonds to meet their obligations for the payment of principal   
and interest. The Portfolio may acquire Bonds whose issuers are affected by the 
financial circumstances facing New York generally. While the overall wealth of  
New York, as reflected by its per capita income, is among the highest in the    
nation, New York has a large accumulated deficit, the per capita debt is among  
the highest in the country and New York City, which represents a significant    
part of the state's economy, has struggled at times to maintain fiscal          
stability.                                                                      

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Additionally, the costs to New York City resulting from the September 11th      
terrorist attack on the World Trade Center are expected to substantially exceed 
the amount of Federal aid and State resources which, to date, have been         
identified by the Federal and State governments as available for these purposes.
Prior to September 11th, the national and local economies had been weakening,   
reflecting lower business investment, increased unemployment and a decline in   
consumer confidence. New York City officials expect that the destruction of the 
World Trade Center will have a substantial impact on the City and its economy.  
The events of September 11th increased the risks of a recession and a delay in  
recovery. It is not possible to quantify at present with any certainty the      
short-term or long-term adverse impact of the tragic events of September 11th on
New York City and its economy, any off-setting economic benefits which may      
result from recovery and rebuilding activities, and the amount of additional    
resources from Federal, State, New York City and other resources which will be  
required. It also is not possible to predict the short-term or long-term impact,
if any, these events will have on the municipal obligations held by the         
Portfolio and the ability of the issuer to make timely payments of principal and
interest.                                                                       

Financial difficulties affecting New York's economy generally may affect        
municipal securities issuers, by jeopardizing their credit standing, impairing  
their borrowing abilities, and affording fewer markets for their outstanding    
debt obligations. In recent years, Standard & Poor's and Moody's have downgraded
several different issues of municipal securities of New York City and New York  
State and their agencies and instrumentalities. Historically, there has been a  
strong demand for New York Municipal Bonds, and as a consequence, New York      
Municipal Bonds are often issued with relatively lower yields, and traded in the
marketplace at relatively higher prices than comparably rated municipal bonds   
issued in other jurisdictions.                                                  

Options: Options are Derivatives. An option is a legal contract that gives the  
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the      
option. A call option conveys the right to buy and a put option conveys the     
right to sell a specified quantity of the underlying security.                  

Portfolios may purchase over-the-counter options ("OTC Options") from, or sell  
them to, securities dealers, financial institutions or other parties            
("Counterparties") through direct bilateral agreement with the Counterparty. In 
contrast to exchange listed options, which generally have standardized terms and
performance mechanics, all the terms of an OTC Option, including such terms as  
method of settlement, term, exercise price, premium, guarantees and security,   
are set by negotiation of the parties. The Portfolios expect generally to enter 
into OTC Options that have cash settlement provisions, although it is not       
required to do so.                                                              

Unless the parties provide for it, there is no central clearing or guaranty     
function in an OTC Option. As a result, if the Counterparty fails to make or    
take delivery of the security, currency or other instrument underlying an OTC   
Option it has entered into with a Portfolio or fails to make a cash settlement  
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the    
transaction. Accordingly, the Adviser must assess the creditworthiness of each  
such Counterparty or any guarantor of credit enhancement of the Counterparty's  
credit to determine the likelihood that the terms of the OTC Option will be     
satisfied. The staff of the SEC currently takes the position that OTC Options   
purchased by the Portfolios or sold by them (the cost of the sell-back plus the 
in-the-money amount, if any) are illiquid, and are subject to each Portfolio's  
limitation on investing in illiquid securities.                                 

The Portfolios may also write covered-call options on foreign currencies for    
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to protect against a decline in the U.S. dollar value
of a currency due to the changes of exchange rates vis a vis the U.S. dollar and
the option is written for a currency other than the currency in which the       
security is denominated. In such circumstances, the Portfolios will follow the  
coverage requirements as described in the preceding paragraph.                  

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Risks of Options. Investments in options involve some of the same risks that are
involved in connection with investments in futures contracts (e.g., the         
existence of a liquid secondary market). In addition, the purchase of an option 
also entails the risk that changes in the value of the underlying security or   
contract will not be fully reflected in the value of the option purchased. Those
price changes also can result in a Portfolio holding an option that will expire 
worthless. For example, if a Portfolio purchases a call option and the price of 
the underlying security falls to rise above the option's strike price, the      
Portfolio would not exercise the option. As a result, the option will expire    
worthless and the Portfolio will lose the price it paid for the option. By      
contrast, if a Portfolio writes a call option on a security and the price of the
underlying security rises above the strike price, the purchaser of the option   
may exercise the option, so that the Portfolio will not benefit from the        
increase in value of the underlying security.                                   

Depending on the pricing of the option compared to either the futures contract  
or securities, an option may or may not be less risky than ownership of the     
futures contract or actual securities. The market prices of options generally   
can be more volatile than the market prices on the underlying futures contract  
or securities. Another risk is that the Counterparty to an over-the-counter     
option will be unable to fulfill its obligation to the Portfolio due to         
bankruptcy or other circumstances.                                              

Options on Currencies. All Portfolios, except the Cash Reserves, U.S. Core Fixed
Income, Limited Duration and Advisory Mortgage Portfolios, may purchase and     
write options on foreign currencies in a manner similar to that in which they   
would use futures contracts on foreign currencies, or forward contracts. For    
example, a decline in the dollar value of a foreign currency in which Portfolio 
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. To protect against such
diminution in the value of portfolio securities, a Portfolio may purchase put   
options on the foreign currency. If the value of the currency falls, a Portfolio
will have the right to sell the currency for a fixed amount in dollars and      
thereby offset, in whole or in part, the adverse effect that the foreign        
currency's fall would have had on the Portfolio's holdings.                     

Conversely, a Portfolio may buy call options on a foreign currency when the     
Adviser wants to purchase securities denominated in that currency and believes  
that the dollar value of that foreign currency will increase, thereby increasing
the cost of acquiring those securities. Purchasing such options may offset, at  
least partially, the effects of the adverse movements in exchange rates. As in  
the case of other types of options, however, the benefit to a Portfolio derived 
from purchases of foreign currency options will be reduced by the amount of the 
premium and related transaction costs. In addition, where currency exchange     
rates do not move in the direction or to the extent anticipated, the Portfolios 
lose money on transactions in foreign currency options, which could reduce the  
gain the Portfolio might have achieved from advantageous changes in the exchange
rates.                                                                          

The Portfolios may write options on foreign currencies for the same purposes.   
For example, where a Portfolio anticipates a decline in the dollar value of     
foreign currency denominated securities due to adverse fluctuations in exchange 
rates it could, instead of purchasing a put option, write a call option on the  
relevant currency. If the anticipated decline occurs, the option will most      
likely not be exercised, and the diminution in value of portfolio securities    
will be offset by the amount of the premium received.                           

Similarly, instead of purchasing a call option to hedge against an anticipated  
increase in the dollar cost of securities to be acquired, a Portfolio could     
write a put option on the relevant currency which, if rates move in the manner  
projected, will expire unexercised and allow the Portfolio to hedge such        
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only 
a partial hedge up to the amount of the premium, and only if rates move in the  
expected direction. If this does not occur, the option may be exercised and the 
Portfolio would be required to purchase or sell the underlying currency at a    
loss which may not be offset by the amount of the premium. Through the writing  
of options on foreign currencies, a Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from      
favorable movements in exchange rates.                                          

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The Portfolios may only write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if the         
Portfolio owns the underlying foreign currency covered by the call, an absolute 
and immediate right to acquire that foreign currency without additional cash    
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held 
in its portfolio. A written call option is also covered if a Portfolio has a    
call on the same foreign currency and in the same principal amount as the call  
written where the exercise price of the call held (a) is equal to or less than  
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or 
liquid securities in a segregated account with the Custodian, or (c) maintains  
in a segregated account cash or liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars, marked-to-market      
daily.                                                                          

The Portfolios may also write call options on foreign currencies for            
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.     
dollar value of a security which a Portfolio owns or has the right to acquire   
due to an adverse change in the exchange rate and which is denominated in the   
currency underlying the option. In such circumstances, the Portfolio will either
"cover" the transaction as described above or collateralize the option by       
maintaining in a segregated account with the Custodian, cash or liquid          
securities in an amount not less than the value of the underlying foreign       
currency in U.S. dollars marked-to-market daily.                                

Combined Transactions. The Portfolios may enter into multiple transactions,     
including multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including forward foreign currency exchange      
contracts) and any combination of futures, options and foreign currency         
transactions, instead of a single transaction, as part of a single hedging      
strategy when, in the opinion of the Adviser, it is in the best interest of the 
Portfolio to do so. A combined transaction, while part of a single strategy, may
contain elements of risk that are present in each of its component transactions 
and will be structured in accordance with applicable SEC regulations and SEC    
staff guidelines.                                                               

Risks of options on futures contracts and on foreign currencies. Options on     
foreign currencies are traded over-the-counter through financial institutions   
acting as market-makers, although they are also traded on certain national      
securities exchanges, such as the Philadelphia Stock Exchange and the Chicago   
Board Options Exchange, subject to SEC regulation. In an over-the-counter       
trading environment, many of the protections afforded to exchange participants  
will not be available. For example, there are no daily price fluctuation limits,
and adverse market movements could therefore continue to an unlimited extent    
over a period of time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this entire amount    
could be lost. Moreover, a Portfolio that writes options could lose amounts     
substantially in excess of its initial investment, due to the margin and        
collateral requirements.                                                        

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.  
As a result, many of the protections provided to traders on organized exchanges 
will be available with respect to such transactions. In particular, all foreign 
currency option positions entered into on a national securities exchange are    
cleared and guaranteed by the OCC, thereby reducing the risk of counterparty    
default. Furthermore, a liquid secondary market in options traded on a national 
securities exchange may be more readily available than in the over-the-counter  
market, potentially permitting a Portfolio to liquidate open positions at a     
profit prior to exercise or expiration, or to limit losses in the event of      
adverse market movements.                                                       

The purchase and sale of exchange-traded foreign currency options, however, are 
subject to the risks of the availability of a liquid secondary market described 
above, as well as the risks regarding adverse market movements, margining of    
options written, the nature of the foreign currency market, possible            
intervention by governmental authorities and the effect of other political and  
economic events. In addition, exchange-traded options of foreign currencies     
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the    
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign       
governmental restrictions or taxes would prevent the orderly settlement of      

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foreign currency option exercises, or would result in undue burdens on the OCC  
or its clearing member, impose special procedures on exercise and settlement,   
such as technical changes in the mechanics of delivery of currency, the fixing  
of dollar settlement prices or prohibitions on exercise.                        

In addition, options on foreign currencies may be traded on foreign exchanges.  
Such transactions are subject to the risk of governmental actions affecting     
trading in or the prices of foreign currencies or securities. The value of such 
positions also could be adversely affected by (i) other complex foreign         
political and economic factors, (ii) lesser availability than in the United     
States of data on which to make trading decisions, (iii) delays in a Portfolio's
ability to act upon economic events occurring in foreign markets during non     
business hours in the United States, (iv) the imposition of different exercise  
and settlement terms and procedures and margin requirements than in the United  
States, and (v) lesser trading volume.                                          

Preferred Stock: Preferred stocks are non-voting ownership shares in a          
corporation which 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. Preferred stocks have many of the characteristics of both Equity        
Securities and Fixed Income Securities. Therefore, the Fund's equity, fixed     
income and balanced Portfolios may all purchase preferred stocks.               

Repurchase Agreements: Repurchase agreements are Fixed Income Securities in the 
form of an agreement backed by collateral. Each of the Fund's Portfolios may    
invest in repurchase agreements collateralized by U.S. Government securities,   
certificates of deposit and certain bankers' acceptances. Repurchase agreements 
are transactions by which a Portfolio purchases a security and simultaneously   
commits to resell that security to the seller (a bank or securities dealer) at  
an agreed upon price on an agreed upon date (usually within seven days of       
purchase). 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. In these transactions, the securities       
purchased by a Portfolio have a total value in excess of the value of the       
repurchase agreement and are held by the Portfolio's custodian bank until       
repurchased. Such agreements permit a Portfolio to keep all its assets at work  
while retaining "overnight" flexibility in pursuit of investments of a          
longer-term nature. The Adviser and the Fund's Administrator will continually   
monitor the value of the underlying securities to ensure that their value always
equals or exceeds the repurchase price.                                         

Pursuant to an SEC order, the Fund's Portfolios may pool their daily uninvested 
cash balances in order to invest in repurchase agreements on a joint basis. By  
entering into repurchase agreements on a joint basis, it is expected that the   
Portfolios will 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.                 

The use of repurchase agreements involves certain risks. For example, if the    
seller of the agreements defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a         
Portfolio may incur a loss upon disposition of them. If the seller of the       
agreement becomes insolvent and subject to liquidation or reorganization under  
the Bankruptcy Code or other laws, a bankruptcy court may determine that the    
underlying securities are collateral not within the control of a Portfolio and  
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible 
that a Portfolio may not be able to substantiate its interest in the underlying 
securities. While the Fund's management acknowledges these risks, it is expected
that they can be controlled through stringent security and counterparty         
selection criteria and careful monitoring procedures.                           

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 establish 
a separate custodial 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)                    

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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.          

Rights: Rights are Equity Securities representing a preemptive right of         
stockholders to purchase additional shares of a stock at the time of a new      
issuance, before the stock is offered to the general public. A stockholder who  
purchases rights may be able to retain the same ownership percentage after the  
new stock offering. A right usually enables the stockholder to purchase common  
stock at a price below the initial offering price. A Portfolio that purchases a 
right takes the risk that the right might expire worthless because the market   
value of the common stock falls below the price fixed by the right.             

Securities Lending: Each Portfolio may lend its investment securities to        
qualified institutional investors who 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 income through the  
receipt of interest on 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, the 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 (a) the  
borrower pledge and maintain with the Portfolio collateral consisting of cash,  
an irrevocable letter of credit issued by a domestic U.S. bank, or securities   
issued or guaranteed by the U.S. Government having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such   
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to        
termination by the Portfolio at any time, and (d) the Portfolio receives        
reasonable interest on the loan (which may include the Portfolio investing any  
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value. 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 Trustees.                               

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 Trustees. In addition, voting rights may pass with the     
loaned securities, but if a material event were to occur affecting an investment
on loan, the loan must be called and the securities voted.                      

Short Selling: A short sale is a transaction in which a Portfolio sells         
securities that it 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.                                      

A Portfolio secures its obligation to replace the borrowed securities by        
depositing collateral with the broker, consisting of cash or other liquid       
securities. The Portfolio also must place in a segregated account with its      
custodian cash or other liquid securities equal in value to the difference, if  
any, between (i) the current market value of the securities sold short, and (ii)
any cash or other liquid securities deposited as collateral with the broker in  
connection with the short sale. This amount will be adjusted daily to reflect   
changes in the value of the securities sold short. A Portfolio also can cover   
its obligations by owning another security (such as a call option) giving it the
right to obtain the same kind and amount of the security it sold short.         

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Risks: Short sales by a Portfolio involve certain risks and special             
considerations. If the Adviser incorrectly predicts that the price of a borrowed
security will decline, the Portfolio will have to replace the securities by     
purchasing them at a higher price than it received from the sale. Therefore,    
losses from short sales may be unlimited. By contrast, when a Portfolio         
purchases a security and holds it, the Portfolio cannot lose more than the      
amount it paid for the security.                                                

SMBS: Stripped mortgage-backed securities ("SMBS") are Derivatives in the form  
of multiclass mortgage securities. SMBS 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 
banks, commercial banks, investment banks and special purpose entities of the   
foregoing.                                                                      

SMBS are usually structured with two classes that receive different proportions 
of the interest and principal distributions on a pool of mortgage assets. A     
common type of SMBS will have one class receiving some of the interest and most 
of the principal from the mortgage assets, while the other class will receive   
most of the interest and the remainder of the principal. In the most extreme    
case, one class will receive all of the interest (the interest-only or "IO"     
class), while the other class will receive all of the principal (the            
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the      
related underlying mortgage assets, and a rapid rate of principal payments may  
have a material adverse effect on a Portfolio's yield to maturity from these    
securities. 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.                                                      

SMBS are generally purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers. Certain of these         
securities may be deemed "illiquid" and subject to each Portfolio's limitation  
on investing in illiquid securities.                                            

Structured Investments: Structured investments are Derivatives in the form of a 
unit or units representing an undivided interest(s) in assets held in a trust   
that is not an investment company as defined in the 1940 Act. A trust unit pays 
a return based on the total return of securities and other investments held by  
the trust and the trust may enter into one or more swaps to achieve its         
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by   
another basket or index of securities. A Portfolio will purchase Structured     
Investments in trusts that engage in such swaps only where the counterparties   
are approved by the Adviser in accordance with credit-risk guidelines           
established by the Board.                                                       

Structured Notes: Structured notes are Derivatives on 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 Index. In some cases, the impact of the       
movements of these factors may increase or decrease through the use of          
multipliers or deflators. The use of structured notes allows a Portfolio to     
tailor its investments to the specific risks and returns the Adviser wishes to  
accept while avoiding or reducing certain other risks.                          

Swaps: All Portfolios, except the Cash Reserves and Mid Cap Growth Portfolios,  
may enter into swap contracts ("Swaps"). A swap is a Derivative in the form of  
an agreement to exchange the return generated by one instrument for the return  
generated by another instrument. The payment streams are calculated by reference
to a specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well as  
amounts derived from arithmetic operations on these indices). For example, a    
Portfolio may agree to swap the return generated by a fixed-income index for the
return generated by a second fixed-income index. The currency swaps in which 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 national amount.             

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The swaps in which the Portfolios may engage also include rate caps, floors and 
collars under which one party pays a single or periodic fixed amount(s) (or     
premium), and the other party pays periodic amounts based on the movement of a  
specified index. Swaps do not involve the delivery of securities, other         
underlying assets, or principal. Accordingly, the risk of loss with respect to  
swaps is limited to the net amount of payments that a Portfolio is contractually
obligated to make. If the other party to a swap defaults, a Portfolio's risk of 
loss consists of the net amount of payments that a Portfolio is contractually   
entitled to receive. Currency swaps usually involve the delivery of the entire  
principal value of one designated currency in exchange for the other designated 
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual       
delivery obligations. If there is a default by the Counterparty, the Portfolios 
may have contractual remedies pursuant to the agreements related to the         
transaction. The swap market has grown substantially in recent years with a     
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap      
market has become relatively liquid. Caps, floors, and collars are more recent  
innovations for which standardized documentation has not yet been fully         
developed and, accordingly, they are less liquid than swaps.                    

The Portfolios will usually enter into swaps on a net basis, i.e., the two      
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case  
may be, only the net amount of the two payments. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the 
Portfolio) and any accrued but unpaid net amounts owed to a swap Counterparty   
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities to avoid any potential leveraging of the Portfolio. To the    
extent that these swaps, caps, floors, and collars are entered into for hedging 
purposes, the Adviser believes such obligations do not constitute "senior       
securities" under the 1940 Act and, accordingly, will not treat them as being   
subject to a Portfolio's borrowing restrictions. All of the Portfolios, except  
the Cash Reserves Portfolio, may enter into OTC Derivatives transactions (swaps,
caps, floors, puts, etc., but excluding foreign exchange contracts) with        
Counterparties that are approved by the Adviser in accordance with guidelines   
established by the Board. These guidelines provide for a minimum credit rating  
for each Counterparty and various credit enhancement techniques (for example,   
collateralization of amounts due from Counterparties) to limit exposure to      
Counterparties with ratings below AA.                                           

Risks: Interest rate and total rate of return Swaps do not involve the delivery 
of securities, other underlying assets, or principal. Accordingly, the risk of  
loss with respect to interest rate and total rate of return Swaps is limited to 
the net amount of interest payments that a Portfolio is contractually obligated 
to make. If the other party to an interest rate or total rate of return swap    
defaults, a Portfolio's risk of loss consists of the net amount of interest     
payments that a Portfolio is contractually entitled to receive. In contrast,    
currency swaps may involve the delivery of the entire principal value of one    
designated currency in exchange for the other designated currency. Therefore,   
the entire principal value of a currency swap may be subject to the risk that   
the other party to the swap will default on its contractual delivery            
obligations. If there is a default by the counterparty, a Portfolio may have    
contractual remedies pursuant to the agreements related to the transaction. The 
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing  
standardized swap documentation. As a result, the swap market has become        
relatively liquid.                                                              

The use of swaps 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 its forecasts of market 
values, interest rates, and currency exchange rates, the investment performance 
of the Portfolios would be less favorable than it would have been if this       
investment technique were not used.                                             

U.S. Governments: The term "U.S. Government securities" ("U.S. Governments")    
refers to a variety of Fixed Income Securities issued or guaranteed by the U.S. 
Government and various instrumentalities which have been established or         
sponsored by the U.S. Government, on which the payment of principal and interest
is backed by the full faith and credit of the U.S. Government. For example, U.S.
Treasury securities are backed by the "full faith and credit" of the U.S.       

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Warrants: Warrants are Equity Securities in the form of options issued by a     
corporation which give the holder the right to purchase stock, usually at a     
price that is higher than the market price at the time the warrant is issued. A 
purchaser takes the risk that the warrant may expire worthless because the      
market price of the common stock fails to rise above the price set by the       
warrant.                                                                        

When-Issued Securities: Certain Fixed Income Securities are purchased on a      
"when-issued" basis. This means that the securities are purchased at a certain  
price, but may not be delivered for up to 90 days. No payment or delivery is    
made until the Portfolio receives payment or delivery from the other party to   
the transaction. Although a Portfolio receives no income from the above         
described securities prior to delivery, the market value of such securities is  
still subject to change. As a consequence, it is possible that the market price 
of the securities at the time of delivery may be higher or lower than the       
purchase price. A Portfolio will maintain with the custodian a segregated       
account consisting of cash or liquid securities in an amount at least equal to  
these commitments.                                                              

Yankee and Eurobond Obligations: Each Portfolio, except the U.S. Core Fixed     
Income Portfolio, may invest in Eurobond and Yankee obligations, which are Fixed
Income Securities. The Eurobonds that the Portfolios will purchase may include  
bonds issued and denominated in euros (the new currency unit implemented on     
January 1, 1999 by the countries participating in the European Monetary Union). 
Eurobonds may be issued by government and corporate issuers in Europe. Yankee   
bank obligations are U.S. dollar-denominated obligations issued in the U.S.     
capital markets by foreign banks.                                               

Eurobond and Yankee obligations are subject to the same risks that pertain to   
domestic issues, notably credit risk, market risk and liquidity risk. However,  
Eurobond (and to a limited extent, Yankee) obligations also are subject to      
certain sovereign risks. One such risk is the possibility that a sovereign      
country might prevent capital from flowing across its borders. Other risks      
include: adverse political and economic developments; the extent and quality of 
government regulation of financial markets and institutions; the imposition of  
foreign withholding taxes, and the expropriation or nationalization of foreign  
issuers. The Cash Reserves Portfolio will perform the same credit analysis on   
Eurobond and Yankee obligations that it purchases as it does on domestic issues,
and will seek to invest in obligations of issuers that have at least the same   
financial strength as the domestic issuers whose securities it purchases.       

Zero Coupons: Zero coupon bonds are Fixed Income Securities that do not make    
regular interest payments. Instead, zero coupon obligations are sold at         
substantial discounts from their face value. The difference between a zero      
coupon obligation's issue or purchase price and its face value represents the   
imputed interest an investor will earn if the obligation is held until maturity.
For tax purposes, a portion of this imputed interest is deemed as income        
received by zero coupon bondholders each year. The Fund, which expects to       
qualify as a regulated investment company, intends to pass along such interest  
as a component of the Portfolio's distributions of net investment income.       

Zero Coupons may offer investors the opportunity to earn higher yields than     
those available on ordinary interest-paying obligations of similar credit       
quality and maturity. However, zero coupon obligation prices may also exhibit   
greater price volatility than ordinary fixed income securities because of the   
manner in which their principal and interest are returned to the investor. Zero 
Coupon Treasury Bonds are sold under a variety of different names, such as:     
Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts       
("TRS"), Separate Trading of Registered Interest and Principal of Securities    
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").                  

INVESTMENT LIMITATIONS

Fundamental Limitations. Each Portfolio of the Fund is subject to 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.                                                                      

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As a matter of fundamental policy, each Portfolio will not change its objective 
and will not:                                                                   

(1)  invest in physical commodities or contracts on physical commodities;       

(2)  purchase or sell real estate, although it may purchase and sell securities 
of companies which deal in real estate, other than real estate limited          
partnerships, and may purchase and sell marketable securities which are secured 
by interests in real estate;                                                    

(3)  make loans except: (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,     
subject to the limitations described in non-fundamental limitation (7), below,  
(ii) by lending its portfolio securities, and (iii) by lending Portfolio assets 
to other Portfolios of the Fund, so long as such loans are not inconsistent with
the 1940 Act, or the rules and regulations, or interpretations or orders of the 
SEC thereunder;                                                                 

(4)  with respect to 75% of its assets, purchase a security if, as a result, it 
would hold more than 10% (taken at the time of such investment) of the          
outstanding voting securities of any issuer (this restriction is not applicable 
to the Global Fixed Income, International Fixed Income, Advisory Foreign Fixed  
Income or the Advisory Foreign Fixed Income II Portfolios);                     

(5)  with respect to 75% of its assets, purchase securities of any issuer if, as
a result, more than 5% of the Portfolio's total assets, taken at market value at
the time of such investment, would be invested in the securities of such issuer 
except that this restriction does not apply to securities issued or guaranteed  
by the U.S. Government or its agencies or instrumentalities (this restriction   
does not apply to the Global Fixed Income, International Fixed Income, Advisory 
Foreign Fixed Income or Advisory Foreign Fixed Income II Portfolios);           

(6)  borrow money, except (i) as a temporary measure for extraordinary or       
emergency purposes, and (ii) in connection with reverse repurchase agreements,  
provided that (i) and (ii) in combination do not exceed 33 1/3% of the          
Portfolio's total assets (including the amount borrowed) less liabilities       
(exclusive of borrowings);                                                      

(7)  underwrite the securities of other issuers (except to the extent that the  
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 ("1933 Act") in connection with the disposition of restricted           
securities); and                                                                

(8)  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,    
however that (i) there shall be no limitation on the purchase of obligations    
issued or guaranteed by the U.S. Government, its agencies or instrumentalities; 
(ii) the Cash Reserves Portfolio may invest without limitation in certificates  
of deposit or bankers' acceptances of domestic banks; (iii) utility companies   
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (iv)        
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; (v) asset-backed securities
will be classified according to the underlying assets securing such securities; 
and (vi) the Advisory Mortgage Portfolio will concentrate in mortgage-backed    
securities.                                                                     

Non-Fundamental Limitations. Each Portfolio is also subject to the following    
restrictions which may be changed by the Board without shareholder approval.    

As a matter of non-fundamental policy, no Portfolio will:                       

(1)  in the case of any equity or balanced Portfolio                            

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  (a)   enter into futures contracts 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            
transactions would exceed 50% of each Portfolio's total assets, and will        
maintain assets sufficient to meet its obligations under such contracts in a    
segregated account with the custodian bank or will otherwise comply with the    
SEC's position on asset coverage; or                                            

   (b)   write put or call options except to the extent described above in
(a);                                                                            

(2)   in the case of any fixed income Portfolio, enter into futures contracts or
options on futures contracts for purposes other than bona fide hedging if more  
than 5% of the Portfolio's total assets at the time of the transaction would be 
required as margin and option premiums to secure the Portfolio's obligations    
under such contracts;                                                           

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

(4)   sell short unless the Portfolio (i) by virtue of its ownership of other   
securities, has the right to obtain securities equivalent in kind and amount to 
the securities sold and, if the right is conditional, the sale is made upon the 
same conditions, or (ii) maintains in a segregated account on the books of the  
Fund's custodian an amount that, when combined with the amount of collateral    
deposited with the broker in connection with the short sale, equals the current 
market value of the security sold short or such other amount as the SEC or its  
staff may permit by rule, regulation, order or interpretation (transactions in  
futures contracts and options, however, are not deemed to constitute selling    
securities short);                                                              

(5)   borrow money other than from banks or other Portfolios of the Fund,       
provided that a Portfolio may borrow from banks or other Portfolios of the Fund 
so long as such borrowing is not inconsistent with the 1940 Act or the rules,   
regulations, interpretations or orders of the SEC and its staff thereunder; or  
purchase additional securities when borrowings exceed 5% of total (gross)       
assets;                                                                         

(6)   pledge, mortgage or hypothecate assets in an amount greater than 50% of   
its total assets, provided that each Portfolio may segregate assets without     
limit in order to comply with the requirements of Section 18(f) of the 1940 Act 
and applicable rules, regulations or interpretations of the SEC and its staff;  

(7)   invest more than an aggregate of 15% of the net assets of the Portfolio,  
determined at the time of investment, in illiquid securities provided that this 
limitation shall not apply to any investment in securities that are not         
registered under the 1933 Act but that can be sold to qualified institutional   
investors in accordance with Rule 144A under the 1933 Act and are determined to 
be liquid securities under guidelines or procedures adopted by the Board;       

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

(9)   invest its assets in securities of any investment company, except as      
permitted by the 1940 Act or the rules, regulations, interpretations or orders  
of the SEC and its staff thereunder.                                            

Unless otherwise indicated, if a percentage limitation on investment or         
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or    
total cost of the Portfolio's assets will not be considered a violation of the  
restriction, and the sale of securities will not be required.                   

Pursuant to an order from the SEC, the Portfolios may enter into interfund      
lending arrangements. Interfund loans and borrowings permit each Portfolio to   
lend money directly to and borrow from other Portfolios of the Fund for         
temporary purposes. Such loans and borrowings normally extend overnight but may 
have a maximum duration of seven days. A Portfolio will borrow through the      
interfund lending facility only when the costs are lower than the costs of bank 
loans, and will lend through the facility only when the returns are             

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higher than those available from an investment in repurchase agreements. In     
addition, a Portfolio will borrow and lend money through interfund lending      
arrangements only if, and to the extent that, such practice is consistent with  
the Portfolio's investment objective and other investments. Any delay in        
repayment to a lending Portfolio could result in a lost investment opportunity  
or additional borrowing costs.                                                  

PURCHASE OF SHARES

The Portfolios requested should be designated on the Account Registration Form. 
Each Portfolio reserves the right in its sole discretion (i) to suspend the     
offering of its shares, (ii) to reject purchase orders, and (iii) to reduce or  
waive the minimum for initial and subsequent investments. The officers of the   
Fund may from time to time waive the minimum initial and subsequent investment  
requirements in connection with investments in the Fund by certain investors,   
including but not limited to (a) employees of the Adviser and its affiliates,   
and (b) other investors with whom the Adviser wishes to develop a relationship  
or whose investments are expected, over a reasonable period of time, to exceed  
the minimum initial investment requirement.                                     

The Cash Reserves Portfolio declares dividends daily and, therefore, at the time
of a purchase must have funds immediately available for investment. As a result,
you must pay for shares of the Cash Reserves Portfolio with Federal Funds       
(monies credited to the Portfolio's Custodian by a Federal Reserve Bank).       
Payment for shares of the other Portfolios need not be converted into Federal   
Funds before acceptance by the Fund.                                            

Investors purchasing and redeeming shares of the Portfolios through a financial 
intermediary may be charged a transaction-based fee or other fee for the        
financial intermediary's services. Each financial intermediary is responsible   
for sending you a schedule of fees and information regarding any additional or  
different conditions regarding purchases and redemptions. Customers of financial
intermediaries should read this SAI in light of the terms governing accounts    
with their organization. The Fund does not pay compensation to or receive       
compensation from financial intermediaries for the sale of Institutional Class  
Shares.                                                                         

Neither the Distributor nor the Fund will be responsible for any loss,          
liability, cost, or expense for acting upon facsimile instructions or upon      
telephone instructions that they reasonably believe to be genuine. In order to  
confirm that telephone instructions in connection with redemptions are genuine, 
the Fund and Distributor will provide written confirmation of transactions      
initiated by telephone.                                                         

REDEMPTION OF SHARES

Each Portfolio may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange ("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. The Fund has made an        
election with the SEC pursuant to Rule 18f-1 under the 1940 Act to pay in cash  
all redemptions requested by any shareholder of record limited in amount during 
any 90-day period to the lesser of $250,000 or 1% of the net assets of the      
Portfolio at the beginning of such period. Such commitment is irrevocable       
without the prior approval of the SEC. Redemptions in excess of the above limits
may be paid in whole or in part in investment securities or in cash, as the     
Trustees may deem advisable; however, payment will be made wholly in cash unless
the Trustees believe that economic or market conditions exist which would make  
such a practice detrimental to the best interests of the Fund. If redemptions   
are paid in investment securities, such securities will be valued as set forth  
in the Fund's prospectuses under "Valuation of Shares" and a redeeming          
shareholder would normally incur brokerage expenses in converting these         
securities to cash.                                                             

No charge is made by a Portfolio for redemptions. Redemption proceeds may be    
more or less than the shareholder's cost depending on the market value of the   
securities held by the Portfolio.                                               

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TRANSACTIONS WITH BROKER/DEALERS

The Fund has authorized certain brokers to accept on its behalf purchase and    
redemption orders. Some of these brokers are authorized to designate other      
intermediaries to accept purchase and redemption orders on the Fund's behalf.   
For purposes of determining the purchase price of shares, the Fund will be      
deemed to have received a purchase or redemption order when an authorized       
broker, or if applicable, a broker's authorized designee, accepts the order. In 
other words, orders will be priced at the net asset value next computed after   
such orders are accepted by an authorized broker or the broker's authorized     
designee.                                                                       

SHAREHOLDER SERVICES

Transfer of Shares                                                              

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Shareholders may transfer shares of the Fund's Portfolios to another person by  
written request to the Shareholder Services Group at the address noted above. If
shares are being transferred to a new account, requests for transfer must be    
accompanied by a completed Account Registration Form for the receiving party. If
shares are being transferred to an existing account, the request should clearly 
identify the account and number of shares to be transferred and include the     
signature of all registered owners and all share certificates, if any, which are
subject to the transfer. The signature on the letter of request, the share      
certificate or any stock power must be guaranteed in the same manner as         
described under "Redemption of Shares." As in the case of redemptions, the      
written request must be received in good order before any transfer can be       
made.                                                                           

 VALUATION OF SHARES

Net asset value per share ("NAV") is determined by dividing the total market    
value of each Portfolio's investments and other assets, less any liabilities, by
the total outstanding shares of that Portfolio. NAV for Investment Class Shares,
Institutional Class Shares and Adviser Class Shares may differ due to           
class-specific expenses paid by each class, and the shareholder servicing fees  
charged to Investment Class Shares and distribution fees charged to Adviser     
Class Shares.                                                                   

Equity securities listed on a U.S. securities exchange or Nasdaq for which      
market quotations are available are valued at the last quoted sale price on the 
day of valuation. Price information on listed equity securities is taken from   
the exchange where the security is primarily traded. Equity securities listed on
a foreign exchange are valued at the latest quoted sales price available before 
the time when assets are valued. For purposes of NAV, all assets and liabilities
initially expressed in foreign currencies are converted into U.S. dollars at the
bid price of the foreign currencies against U.S. dollars. Unlisted equity       
securities and listed U.S. equity securities not traded on the valuation date   
for which market quotations are readily available are valued at the mean of the 
most recent quoted bid and asked price.                                         

Bonds and other fixed income securities listed on a foreign exchange are valued 
at the latest quoted sales price available before the time when assets are      
valued. NAV includes interest on bonds and other fixed income securities which  
are accrued daily. Bonds and other fixed income securities which are traded over
the counter and on an exchange will be valued according to the broadest and most
representative market, and it is expected that for bonds and other fixed income 
securities this ordinarily will be the over-the-counter market.                 

However, bonds and other fixed income securities may be valued on the basis of  
prices provided by a pricing service when such prices are believed to reflect   
the fair market value of such securities. The prices provided by a pricing      
service are determined without regard to bid or last sale prices but take into  
account institutional size trading in similar groups of securities and any      
developments related to specific securities. Bonds and other fixed income       
securities not priced in this manner are valued at the most recent quoted bid   
price, or when stock exchange valuations are used, at the latest quoted sale    
price on the day of valuation. If there is no such reported sale, the latest    
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board determines that     
amortized cost reflects fair value. In the event that amortized cost does not   
approximate market, market prices as determined above will be used.             

Cash Reserves Portfolio: For the purpose of calculating the Cash Reserves       
Portfolio's NAV, securities are valued by the amortized cost method of          
valuation, which does not take into account unrealized gains or losses. This    
involves valuing an instrument at its cost and thereafter assuming a constant   
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this    
method provides certainty in valuation, it may result in periods during which   
value based on amortized cost is higher or lower than the price the Portfolio   
would receive if it sold the instrument.                                        

The use of amortized cost and the maintenance of the Portfolio's per share NAV  
at $1.00 is based on its election to operate under the provisions of Rule 2a-7  
under the 1940 Act. As conditions of operating under                            

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Rule 2a-7, the Portfolio must maintain a dollar-weighted average Portfolio      
maturity of 90 days or less, purchase only instruments having remaining         
maturities of thirteen months or less and invest only in U.S. dollar-denominated
securities which are determined by the Trustees to present minimal credit risks 
and which are of eligible quality as determined under the rule.                 

The Board has established procedures reasonably designed, taking into account   
current market conditions and the Portfolio's investment objective, to stabilize
the net asset value per share as computed for the purposes of sales and         
redemptions at $1.00. These procedures include periodic review, as the Trustees 
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 net asset value per share based upon available indications of market
value. In such a review, investments for which market quotations are readily    
available are valued at the most recent bid price or quoted yield equivalent 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 Board.                                                        

In the event of a deviation of over 1/2 of 1% between a Portfolio's NAV based   
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost, the Trustees will promptly consider what action, if any,     
should be taken. The Board will also take any action 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. This action may include redeeming shares in kind, selling instruments prior
to maturity to realize capital gains or losses or to shorten average maturity,  
withholding dividends, paying distributions from capital gains or losses, or    
utilizing a NAV not equal to $1.00 based upon available market quotations.      

MANAGEMENT OF THE FUND

Trustees' Responsibilities                                                      

The Trustees supervise the Trust's affairs under the laws governing business    
trusts in the Commonwealth of Pennsylvania. The Trustees have approved contracts
under which certain companies provide essential management, administrative and  
shareholder services to the Trust.                                              

Trustees and Officers                                                           

The Fund's officers, under the supervision of the Board of Trustees, manage the 
day-to-day operations of the Fund. The Trustees set broad policies for the Fund 
and choose its officers. Trustees and officers of the Fund are also trustees and
officers of some or all of the funds in the Fund Complex (defined below) or     
other investment companies managed, administered or distributed by Morgan       
Stanley Investments LP or its affiliates. The Fund Complex includes all funds   
advised by Morgan Stanley Investments LP or Morgan Stanley Investment Management
Inc. and any funds that have an investment adviser that is an affiliated person 
of Morgan Stanley Investments LP. The following is a list of the Trustees and   
officers of the Fund and a brief statement of their present positions and       
principal occupations during the past 5 years:                                  

Barton M. Biggs,* 11/26/32, Chairman of the Board of Trustees and Trustee;      
Chairman, Director and Managing Director of Morgan Stanley Investment Management
Inc. and Chairman and Director of Morgan Stanley Investment Management Limited; 
Managing Director of Morgan Stanley & Co. Incorporated; Member of the Yale      
Development Board; Chairman and Director of the Board of various funds in the   
Fund Complex.                                                                   

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John D. Barrett II, 8/21/35, Trustee; Chairman and Director of Barrett          
Associates, Inc. (investment counseling); Director of the Ashforth Company (real
estate); Director of various funds in the Fund Complex.                         

Thomas P. Gerrity, 7/13/41, Trustee; Professor of Management, and formerly Dean,
Wharton School of Business, University of Pennsylvania; Director, Sunoco, Fannie
Mae, Reliance Group Holdings, CVS Corporation, Knight-Ridder, Inc., Internet    
Capital Group; formerly Director, Electronic Commerce Forum, IKON Office        
Solutions, Inc., Fiserv, Digital Equipment Corporation, ICG Commerce, Inc.,     
Investor Force Holdings, Inc. and Union Carbide Corporation; Director of various
funds in the Fund Complex.                                                      

Gerard E. Jones, 1/23/37, Trustee; Of Counsel, Shipman & Goodwin LLP (law       
firm); Director of Tractor Supply Company, Tiffany Foundation, Fairfield County 
Foundation; Director of various funds in the Fund Complex.                      

Joseph J. Kearns, 8/2/42, Trustee; investment consultant; Director, Electro Rent
Corporation, The Ford Family Foundation; formerly CFO of The J. Paul Getty      
Trust; Director of various funds in the Fund Complex.                           

Vincent R. McLean, 6/1/31, Trustee; Director, Legal and General America, Inc.,  
Banner Life Insurance Co., William Penn Life Insurance Company of New York;     
formerly Executive Vice President, Chief Financial Officer, Director and Member 
of the Executive Committee of Sperry Corporation (now part of Unisys            
Corporation); Director of various funds in the Fund Complex.                    

C. Oscar Morong, Jr., 4/22/35, Trustee; Managing Director, Morong Capital       
Management; Trustee and Chairman of the mutual funds in the Smith               
Barney/CitiFunds fund complex; formerly Senior Vice President and Investment    
Manager for CREF, TIAA-CREF Investment Management, Inc.; formerly Director, The 
Indonesia Fund, Ministers and Missionaries Benefit Board of American Baptist    
Churches; Director of various funds in the Fund Complex.                        

William G. Morton, Jr., 3/13/37, Trustee; Chairman Emeritus and former Chief    
Executive Officer of Boston Stock Exchange; Director of Radio Shack Corporation 
(electronics); Director of various funds in the Fund Complex.                   

Michael Nugent, 5/25/36, Trustee; General Partner, Triumph Capital, L.P.,       
(private investment partnership); Chairman of the Insurance Committee and       
Director or Trustee of the retail families of funds advised by Morgan Stanley   
Investment Advisors Inc.; formerly, Vice President, Bankers Trust Company and BT
Capital Corporation; director of various business organizations; Director of    
various funds in the Fund Complex.                                              

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Fergus Reid, 8/12/32, Trustee; Chairman and Chief Executive Officer of Lumelite 
Plastics Corporation; Trustee and Director of approximately 30 investment       
companies in the JPMorgan Funds complex managed by JP Morgan Investment         
Management Inc.; Director of various funds in the Fund Complex.                 

Ronald E. Robison,* 1/13/39, President and Trustee; Chief Global Operations     
Officer and Managing Director of Morgan Stanley Investment Management Inc.;     
Managing Director of Morgan Stanley & Co. Incorporated; formerly, Managing      
Director and Chief Operating Officer of TCW Investment Management Company;      
Director, Chief Administrative Officer and President of various funds in the    
Fund Complex.                                                                   

James A. Gallo, 6/18/64, Treasurer; Executive Director of Morgan Stanley        
Investment Management Inc.; Treasurer of certain funds in the Fund Complex;     
formerly, Director of Fund Accounting at PFPC, Inc.                             

Lorraine Truten, 5/11/61, Vice President; Executive Director of Morgan Stanley  
Investment Management Inc.; Head of Global Client Services, Morgan Stanley      
Investment Management Inc.; President, Morgan Stanley Fund Distribution, Inc.;  
formerly, President of Morgan Stanley Institutional Fund Trust; Vice President  
of certain funds in the Fund Complex.                                           

Stefanie V. Chang, 11/30/66, Vice President; Executive Director of Morgan       
Stanley & Co. Incorporated and Morgan Stanley Investment Management Inc.;       
formerly, practiced law with the New York law firm of Rogers & Wells (now       
Clifford Chance Rogers & Wells LLP); Vice President of certain funds in the Fund
Complex.                                                                        

Mary E. Mullin, 3/22/67, Secretary; Vice President of Morgan Stanley & Co.      
Incorporated and Morgan Stanley Investment Management Inc.; formerly, practiced 
law with the New York law firms of McDermott, Will & Emery and Skadden, Arps,   
Slate, Meagher & Flom LLP; Secretary of certain funds in the Fund Complex.      

Belinda A. Brady, 1/23/68, Assistant Treasurer; Fund Administration Senior      
Manager, J.P. Morgan Investor Services Co. (formerly, Chase Global Funds        
Services Company); formerly, Senior Auditor at Price Waterhouse LLP (now        
PricewaterhouseCoopers LLP); Assistant Treasurer of certain funds in the Fund   
Complex.                                                                        

*   Trustees Biggs and Robison are deemed to be "interested persons" of the Fund
as that term is defined in the 1940 Act.                                        

Compensation of Trustees and Officers                                           

The Fund pays each Trustee, who is not also an officer or interested person, an 
annual retainer, as well as a fee for each Board Meeting attended plus travel   
and other expenses incurred in attending such meetings. Trustees who are also   
officers or interested persons receive no remuneration for their service as     
Trustees. The Fund's officers and employees are paid by the Adviser or J.P.     
Morgan Investor Services Company, the sub-administrator.s                       

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The Fund maintains an unfunded Deferred Compensation Plan ("Plan") which allows 
each independent Trustee to defer payment of his or her retainer and fees to a  
later date. The Plan also permits the Eligible Trustee (defined by the Plan as a
member of the Board who is not an "interested person" of the Fund, as such term 
is defined under Section 2(a)(19) of the 1940 Act) to defer all, or a portion,  
of the fees received for attending meetings of the Board throughout the year.   
Amounts deferred by each Eligible Trustee are credited with a return equal to   
what those amounts would have received if they had been invested in Portfolios  
of the Fund, Morgan Stanley Institutional Fund, Inc., the Universal Funds or 90 
day U.S. Treasury bills. The choice is at the Trustee's option. Deferred amounts
will be distributed commencing when the Trustee ceases to serve the Fund in such
capacity. Distributions are paid either in the form of a lump sum or equal      
annual installments over five (5) years. There were no payments under the Plan  
during the fiscal year ended September 30, 2001.                                

As of the fiscal year ended September 30, 2001, the Trustees and officers of the
Fund owned, in the aggregate, less than 1% of the outstanding shares of the     
Fund. The aggregate compensation paid by the Fund to each of the Trustees during
its fiscal year ended September 30, 2001 is set forth below.                    

                                                                [Download Table]

                            Aggregate     Pension or Benefits                    
                       Compensation from  Accrued as Part of   Total Compensation
     Name of Trustee       the Fund**#       Fund Expenses        from the Fund  
     ---------------       -----------       -------------        -------------  
                                                                                 
Barton M. Biggs*                  0                0                      0      
John D. Barrett               2,960                0                  2,960      
Thomas P. Gerrity            50,960                0                 50,960      
Gerard E. Jones               2,960                0                  2,960      
Joseph J. Kearns             50,960                0                 50,960      
Vincent R. McLean            50,960                0                 50,960      
C. Oscar Morong              50,960                0                 50,960      
William G. Morton, Jr.        2,960                0                  2,960      

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                                                                [Download Table]

                           Aggregate     Pension or Benefits                    
                      Compensation from  Accrued as Part of   Total Compensation
     Name of Trustee      the Fund**#       Fund Expenses        from the Fund  
     ---------------      -----------       -------------        -------------  
                                                                                
Michael Nugent              12,960                0                  12,960     
Fergus Reid                  2,960                0                   2,960     
Ronald E. Robison*               0                0                       0     

*   Trustees Biggs and Robison are deemed to be "interested persons" of the Fund
as that term is defined in the 1940 Act.                                        
**  For fiscal years ended September 30. Effective after September 30, 2001, the
compensation schedules have been changed. Under the new structure, the funds for
which Morgan Stanley Investments LP and Morgan Stanley Investment Management    
Inc. serve as investment adviser will pay each independent Trustee/Director an  
annual retainer fee of $75,000 and will pay the following additional amounts to 
Trustees/Directors for performing certain services for the funds; $5,000        
annually for performing the duties of Chairman of the Audit Committee, $5,000   
annually for performing the duties of Chairman of the Nominating and            
Compensation Committee, $2,500 for each in-person Board meeting attended, and   
$1,000 for each telephonic Board meeting attended.                              
#   Includes amounts deferred at the election of Trustees under the Deferred    
Compensation Plan.                                                              

INVESTMENT ADVISER

The Investment Adviser to the Fund, Morgan Stanley Investments LP (formerly     
"Miller Andersen & Sherrerd, LP"), is wholly owned by subsidiaries of Morgan    
Stanley Dean Witter & Co. ("Morgan Stanley"), and is an investment advisory     
affiliate of Morgan Stanley Investment Management Inc. ("MSIM"). The Adviser is 
located at One Tower Bridge, 100 Front Street, Suite 1100, West Conshohocken,   
Pennsylvania 19428-2881. The Adviser provides investment services to employee   
benefit plans, endowment funds, foundations and other institutional investors.  
As of December 31, 2001, the Adviser, together with its affiliated asset        
management companies, had approximately $415.9 billion in assets under          
management with approximately $178.1 billion in institutional assets.           

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the   
Cash Reserves Portfolio. MSIA, located at 1221 Avenue of the Americas, New York,
New York 10020, is a wholly-owned subsidiary of Morgan Stanley. Under an        
Investment Sub-Advisory Agreement with the Adviser, MSIA, subject to the control
and supervision of the Fund, its officers and Trustees and the Adviser, and in  
accordance with the investment objectives, policies and restrictions of the Cash
Reserves Portfolio, makes day-to-day investment decisions for the Cash Reserves 
Portfolio and places the Portfolio's purchase and sales orders. The Adviser pays
MSIA 40% of the fee the Adviser receives from the Cash Reserves Portfolio as    
compensation for sub-advisory services. The Investment Sub-Advisory Agreement   
will continue in effect for an initial term of two years, and thereafter for    
successive annual periods as long as such continuance is approved in accordance 
with the 1940 Act. MSIA received $1,186,626 as compensation for its sub-advisory
services for the Cash Reserves Portfolio during the fiscal year ended September 
30, 2001.                                                                       

Under an Investment Advisory Agreement ("Agreement") with the Fund, the Adviser,
subject to the control and supervision of the Fund's Board and in conformance   
with the stated investment objectives and policies of each Portfolio of the     
Fund, manages the investment and reinvestment of the assets of each Portfolio of
the Fund (except for the Cash Reserves Portfolio). In this regard, it is the    
responsibility of the Adviser to make investment decisions for the Fund's       
Portfolios and to place each Portfolio's purchase and sales orders for          
investment securities.                                                          

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As compensation for the services rendered by the Adviser under the Agreement and
the assumption by the Adviser of the expenses related thereto (other than the   
cost of securities purchased for the Portfolios and the taxes and brokerage     
commissions, if any, payable in connection with the purchase and/or sale of such
securities), each Portfolio pays the Adviser an advisory fee calculated by      
applying a quarterly rate, based on the following annual percentage rates, to   
the Portfolio's average daily net assets for the quarter:                       

                                                                [Download Table]

--------------------------------------------------------------------------------
Portfolio                                             Rate (%)                  
---------                                             --------                  
--------------------------------------------------------------------------------
                                                                                
Equity Portfolio                                      0.50                      
--------------------------------------------------------------------------------
Growth Portfolio                                      Unfunded                  
--------------------------------------------------------------------------------
Mid Cap Growth Portfolio                              0.50                      
--------------------------------------------------------------------------------
Mid Cap Growth II Portfolio                           0.75                      
--------------------------------------------------------------------------------
Mid Cap Value Portfolio                               0.75                      
--------------------------------------------------------------------------------
Small Cap Growth Portfolio                            1.00                      
--------------------------------------------------------------------------------
Small Cap Value Portfolio                             0.75                      
--------------------------------------------------------------------------------
Strategic Small Value Portfolio                       1.00                      
--------------------------------------------------------------------------------
Value Portfolio                                       0.50                      
--------------------------------------------------------------------------------
Value II Portfolio                                    Unfunded                  
--------------------------------------------------------------------------------
Cash Reserves Portfolio                               0.25                      
--------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                      0.375                     
--------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                      0.375                     
--------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio               0.375                     
--------------------------------------------------------------------------------
Global Fixed Income Portfolio                         0.375                     
--------------------------------------------------------------------------------
High Yield Portfolio                                  0.45                      
--------------------------------------------------------------------------------
Intermediate Duration Portfolio                       0.375                     
--------------------------------------------------------------------------------
International Fixed Income Portfolio                  0.375                     
--------------------------------------------------------------------------------
Limited Duration Portfolio                            0.30                      
--------------------------------------------------------------------------------
Municipal Portfolio                                   0.375                     
--------------------------------------------------------------------------------
NY Municipal Portfolio                                Unfunded                  
--------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio                0.375                     
--------------------------------------------------------------------------------
Targeted Duration Portfolio                           0.375                     
--------------------------------------------------------------------------------
Balanced Portfolio                                    0.45                      
--------------------------------------------------------------------------------
Balanced Plus Portfolio                               Unfunded                  
--------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                           0.65                      
--------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio               0.375                     
--------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio            0.375                     
--------------------------------------------------------------------------------
Advisory Mortgage Portfolio                           0.375                     
--------------------------------------------------------------------------------

In cases where a shareholder of any of the Portfolios (other than the Advisory  
Foreign Fixed Income, Advisory Foreign Fixed Income II and Advisory Mortgage    
Portfolios) has an investment counseling relationship with the Adviser, the     
Adviser may, at its discretion, reduce the shareholder's investment counseling  
fees by an amount equal to the pro-rata advisory fees paid by the Fund. This    
procedure will be utilized with clients having contractual relationships based  
on total assets managed by Morgan Stanley Investments LP to avoid situations    
where excess advisory fees might be paid to the Adviser. In no event will a     
client pay higher total advisory fees as a result of the client's investment in 
the Fund. In addition, the Adviser has voluntarily agreed to waive its advisory 
fees and/or reimburse certain expenses to the extent necessary, if any, to keep 
total annual operating expenses actually deducted from Portfolio assets for the 
Institutional Class of the Cash Reserves, U.S. Core Fixed Income, Mid Cap Growth
II, Municipal, Multi-Asset-Class, Small Cap Growth, Strategic Small Value,      
Advisory Foreign Fixed Income, Advisory Foreign Fixed Income II and Advisory    
Mortgage Portfolios from exceeding .32%, .50%, .90%, .50%, .78%, 1.15%, 1.15%,  
 .15% and .08% of their average daily net assets, respectively. The Adviser also
has voluntarily agreed to waive its advisory fees and/or reimburse certain      
expenses to the extent necessary, if any, to keep total annual operating        
expenses                                                                        

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actually deducted from Portfolio assets for the Investment Class of the Small   
Cap Growth, Cash Reserves and Multi-Asset-Class Portfolios from exceeding 1.30%,
.47% and .93% of their average daily net assets, respectively, and for the    
Adviser Class of the Small Cap Growth, U.S. Core Fixed Income, Multi-Asset-Class
and Mid Cap Growth II Portfolios from exceeding 1.40%, .75%, 1.03% and 1.15% of 
their average daily net assets, respectively.                                   

For the fiscal years ended September 30, 1999, 2000 and 2001 the Fund paid the  
following advisory fees:                                                        

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                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------
                                                 Advisory Fees Paid              Advisory Fees Waived       

------------------------------------------------------------------------------------------------------------
Portfolio                                      1999       2000       2001       1999       2000       2001  
                                               (000)      (000)      (000)      (000)      (000)      (000) 
------------------------------------------------------------------------------------------------------------
                                                                                                            
Equity Portfolio                               4,147      3,433      2,736          0          0          0 
------------------------------------------------------------------------------------------------------------
Growth Portfolio                                   *          *          *          *          *          * 
------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                       3,801     11,237     12,210          0          0          0 
------------------------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio                        *          *          0          *          *         22 
------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                        4,636      8,821     11,145          0          0          0 
------------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                       260      3,628      2,932         47          0          0 
------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio                      6,359      9,073      9,480          0          0          0 
------------------------------------------------------------------------------------------------------------
Strategic Small Value                              *          0          0          *          5         27 
------------------------------------------------------------------------------------------------------------
Value Portfolio                               10,356      5,261      7,763          0          0          0 
------------------------------------------------------------------------------------------------------------
Value II Portfolio                                 *          *          *          *          *          * 
------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio                          368        246        239         66         66         68 
------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                 570        642        684          0         22          0 
------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio              17,842     16,928     16,184          0          0          0 
------------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio        1,502      1,276      1,079          0          0          0 
------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio                    251        185        132          0          0          0 
------------------------------------------------------------------------------------------------------------
High Yield Portfolio                           3,425      4,536      4,145          0          0          0 
------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio                  350        217        285          0          0          0 
------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio             488        435        351          0          0          0 
------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio                       632        485        572          0          0          0 
------------------------------------------------------------------------------------------------------------
Municipal Portfolio                              318        465        499         96         12         17 
------------------------------------------------------------------------------------------------------------
NY Municipal Portfolio                             *          *          *          *          *          * 
------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio         1,870      1,587      1,390          0          0          0 
------------------------------------------------------------------------------------------------------------
Targeted Duration Portfolio                        *          *          *          *          *          * 
------------------------------------------------------------------------------------------------------------
Balanced Portfolio                             1,971      1,809      2,225          0          0          0 
------------------------------------------------------------------------------------------------------------
Balanced Plus Portfolio                            *          *          *          *          *          * 
------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                    1,108      1,013        972         40         44         60 
------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio            0          0          0         56         47        574 
------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II                                                                            
Portfolio                                          *          0          0          *          2        132 
------------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                        0          0          0     26,671     28,776     26,365 
------------------------------------------------------------------------------------------------------------

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                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------
                                 Advisory Fees Paid              Advisory Fees Waived       

--------------------------------------------------------------------------------------------
Portfolio                      1999       2000       2001       1999       2000       2001  
                               (000)      (000)      (000)      (000)      (000)      (000) 
--------------------------------------------------------------------------------------------
                                                                                            
                                                                 71                         
--------------------------------------------------------------------------------------------

*    Not in operation during the period.                                        

The Agreement continues for successive one year periods, only if each renewal is
specifically approved by an in-person vote of the Fund's Board, including the   
affirmative votes of a majority of the Trustees who are not parties to the      
agreement or "interested persons" (as defined in the 1940 Act) of any such party
at a meeting called for the purpose of considering such approval. In addition,  
the question of continuance of the Agreement may be presented to the            
shareholders of the Fund; in such event, continuance shall be effected only if  
approved by the affirmative vote of a majority of the outstanding voting        
securities of each Portfolio of the Fund. If the holders of any Portfolio fail  
to approve the Agreement, the Adviser may continue to serve as investment       
adviser to each Portfolio which approved the Agreement, and to any Portfolio    
which did not approve the Agreement until new arrangements have been made. The  
Agreement is automatically terminated if assigned, and may be terminated by any 
Portfolio without the payment of any penalty, at any time, (1) by vote of a     
majority of the entire Board or (2) by vote of a majority of the outstanding    
voting securities of the Portfolio on sixty (60) days' written notice to the    
Adviser or (3) by the Adviser without the payment of any penalty, upon 90 days' 
written notice to the Fund.                                                     

The Fund bears all of its own costs and expenses, including but not limited to: 
services of its independent accountants, its administrator and dividend         
disbursing and transfer agent, legal counsel, taxes, insurance premiums, costs  
incidental to meetings of its shareholders and Trustees, the cost of filing its 
registration statements under federal and state securities laws, reports to     
shareholders, and custodian fees. These Fund expenses are, in turn, allocated to
each Portfolio, based on their relative net assets. Each Portfolio bears its own
advisory fees and brokerage commissions and transfer taxes in connection with   
the acquisition and disposition of its investment securities.                   

The Fund, the Adviser and the Distributor have each adopted a Code of Ethics    
pursuant to Rule 17j-1 under the Investment Company Act. The Codes of Ethics are
designed to detect and prevent improper personal trading. The Codes of Ethics   
permit personnel subject to the Codes to invest in securities, including        
securities that may be purchased, sold or held by the Fund, subject to a number 
of restrictions and controls including prohibitions against purchases of        
securities in an Initial Public Offering and a preclearance requirement with    
respect to personal securities transactions.                                    

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 PRINCIPAL UNDERWRITER

Morgan Stanley Distribution, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, with its principal office at One Tower Bridge, 100 Front Street,
Suite 1100, West Conshohocken, Pennsylvania 19428-2881, distributes the shares  
of the Fund. Under the Distribution Agreement, the Distributor, as agent of the 
Fund, agrees to use its best efforts as sole distributor of the Fund's shares.  
The Distribution Agreement continues in effect so long as such continuance is   
approved at least annually by the Fund's Board, including a majority of those   
Trustees who are not parties to such Distribution Agreement nor interested      
persons of any such party. The Distribution Agreement provides that the Fund    
will bear the costs of the registration of its shares with the SEC and various  
states and the printing of its prospectuses, statements of additional           
information and reports to shareholders.                                        

Shareholder Service Agreement. The Fund has entered into a Shareholder Service  
Agreement with the Distributor whereby the Distributor will compensate service  
providers who provide certain services to clients who beneficially own          
Investment Class shares of the Portfolios described in the Investment Class     
prospectus. Each Portfolio will pay to the Distributor a fee at the annual rate 
of .15% of the average daily net assets of such Portfolio attributable to the   
shares serviced by the service provider, which fee will be computed daily and   
paid monthly. During the fiscal year ended September 30, 2001, the Mid Cap      
Value, Value, Cash Reserves, Core Plus Fixed Income, High Yield, Intermediate   
Duration, Balanced and Multi-Asset Class Portfolios paid $65,338, $22,186,      
$5,387, $103,816, $15,314, $51,662, $9,918 and $7,678, respectively, to         
compensate the Distributor under this Shareholder Service Agreement.            

DISTRIBUTION OF SHARES

The Fund's Distribution Plan provides that the Adviser Class Shares will pay the
Distributor an annualized fee of up to .25% of the average daily net assets of  
each Portfolio attributable to Adviser Class Shares, which the Distributor can  
use to compensate broker/dealers and service providers which provide            
distribution services to Adviser Class Shareholders or their customers who      
beneficially own Adviser Class Shares.                                          

The Fund has adopted the Distribution Plan in accordance with the provisions of 
Rule 12b-1 under the 1940 Act which regulates circumstances under which an      
investment company may directly or indirectly bear expenses relating to the     
distribution of its shares. Continuance of the Plan must be approved annually by
a majority of the Trustees of the Fund and the Trustees who are not "interested 
persons" of the Fund within the meaning of the 1940 Act. The Plan requires that 
quarterly written reports of amounts spent under the Plan and the purposes of   
such expenditures be furnished to and reviewed by the Trustees. The Plan may not
be amended to increase materially the amount which may be spent thereunder      
without approval by a majority of the outstanding Adviser Class Shares of the   
Fund. All material amendments of the Plan will require approval by a majority of
the Trustees of the Fund and of the Trustees who are not "interested persons" of
the Fund. For the fiscal year ended September 30, 2001, the Equity, Mid Cap     
Growth, Mid Cap Value, Small Cap Growth, Small Cap Value, Value, U.S. Core Fixed
Income, Core Plus Fixed Income, High Yield and Balanced Portfolios paid $18,102,
$2,218,282, $287,376, $20,686, $145,984, $1,894,611, $7,448, $394,896, $105,374 
and $116,112, respectively, in distribution fees pursuant to the Distribution   
Plan. Other than $235,720 of fees retained by the Distributor, fees paid to     
the Distributor during the fiscal year were used to reimburse third-parties for 
distribution-related services performed on behalf of the Fund.                  

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 FUND ADMINISTRATION

Morgan Stanley Investments LP also serves as Administrator to the Fund pursuant 
to an Administration Agreement dated as of November 18, 1993. Under its         
Administration Agreement with the Fund, Morgan Stanley Investments LP receives  
an annual fee, accrued daily and payable monthly, of 0.08% of the Fund's average
daily net assets, and is responsible for all fees payable under any             
sub-administration agreements. J.P. Morgan Investor Services Company, serves as 
transfer agent and provides fund accounting and other services pursuant to a    
sub-administration agreement.                                                   

For the fiscal years ended September 30, 1999, 2000 and 2001, the Fund paid the 
following administrative fees (no administrative fees were waived):             

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------
                                                          Administrative Fees Paid    
--------------------------------------------------------------------------------------
                                                         1999        2000       2001  
Portfolio                                               (000)       (000)      (000)  
--------------------------------------------------------------------------------------
                                                                                      
Equity Portfolio                                           664         549        438 
--------------------------------------------------------------------------------------
Growth Portfolio                                             *           *          * 
--------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                                   608       1,795      1,954 
--------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio                                  *           *          2 
--------------------------------------------------------------------------------------
Mid Cap Value Portfolio                                    494         941      1,188 
--------------------------------------------------------------------------------------
Small Cap Growth Portfolio                                  24         290        235 
--------------------------------------------------------------------------------------
Small Cap Value Portfolio                                  678         968      1,010 
--------------------------------------------------------------------------------------
Strategic Small Value Portfolio                              *           1          2 
--------------------------------------------------------------------------------------
Value Portfolio                                          1,655         842      1,242 
--------------------------------------------------------------------------------------
Value II Portfolio                                           *           *          * 
--------------------------------------------------------------------------------------
Cash Reserves Portfolio                                    139         100         99 
--------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                           122         142        146 
--------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                         3,805       3,612      3,453 
--------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio                    320         272        230 
--------------------------------------------------------------------------------------
Global Fixed Income Portfolio                               56          40         28 
--------------------------------------------------------------------------------------
High Yield Portfolio                                       731         806        737 
--------------------------------------------------------------------------------------
Intermediate Duration Portfolio                             75          46         61 
--------------------------------------------------------------------------------------
International Fixed Income Portfolio                       108          93         75 
--------------------------------------------------------------------------------------
Limited Duration Portfolio                                 169         129        153 
--------------------------------------------------------------------------------------
Municipal Portfolio                                         88         102        110 
--------------------------------------------------------------------------------------
NY Municipal Portfolio                                       *           *          * 
--------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio                     399         339        297 
--------------------------------------------------------------------------------------
Targeted Duration Portfolio                                  *           *          * 
--------------------------------------------------------------------------------------
Balanced Portfolio                                         350         321        396 
--------------------------------------------------------------------------------------
Balanced Plus Portfolio                                      *           *          * 
--------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                141         130        129 
--------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio                      6          10        122 
--------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                   *           1         28 
--------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                              5,688       6,139      5,625 
--------------------------------------------------------------------------------------

*   Not in operation during the period.                                         

 OTHER SERVICE PROVIDERS

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Custodian. J.P. Morgan Chase & Co., located at 3 Chase MetroTech Center,        
Brooklyn, NY 11245 serves as Custodian for the Fund. The Custodian holds cash,  
securities, and other assets of the Fund as required by the 1940 Act.           

Transfer and Dividend Disbursing Agent. J.P. Morgan Investor Services Company,  
73 Tremont Street, Boston, MA 02108-3913, serves as the Funds' Transfer Agent   
and Dividend Disbursing Agent.                                                  

Independent Accountants. Deloitte & Touche LLP, located at 200 Berkeley Street, 
Boston, MA 02116, serves as independent accountants for the Fund and audits the 
annual financial statements of each Portfolio.                                  

Fund Counsel. Mayer, Brown, Rowe & Maw, located at 1675 Broadway, New York, NY  
10019, acts as the Fund's legal counsel.                                        

LITIGATION

The Fund is not involved in any litigation.                                     

BROKERAGE TRANSACTIONS

Portfolio Transactions                                                          

The Investment Advisory Agreement authorizes the Adviser to select the brokers  
or dealers that will execute the purchases and sales of investment securities   
for each of the Fund's Portfolios and directs the Adviser to use its best       
efforts to obtain the best execution with respect to all transactions for the   
Portfolios. In so doing, the Adviser will consider all matters it deems         
relevant, including the following: the Adviser's knowledge of negotiated        
commission rates and spreads currently available; the nature of the security or 
instrument being traded; the size and type of the transaction; the nature and   
character of the markets for the security or instrument to be purchased or sold;
the desired timing of the transaction; the activity existing and expected in the
market for the particular security or instrument; confidentiality; the          
execution, clearance, and settlement capabilities of the broker or dealer       
selected and other brokers or dealers considered; the reputation and perceived  
soundness of the broker or dealer selected and other brokers or dealers         
considered; the Adviser's knowledge of any actual or apparent operational       
problems of a broker or dealer; and the reasonableness of the commission or its 
equivalent for the specific transaction.                                        

In seeking to implement the Fund's policies, the Adviser effects transactions   
with those brokers and dealers who the Adviser believes provide the most        
favorable prices and are capable of providing efficient executions. If the      
Adviser believes the prices and executions are obtainable from more than one    
broker or dealer, it may give consideration to placing portfolio transactions   
with those brokers                                                              

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and dealers who also furnish research and other services to the Portfolios or   
the Adviser. The services may include, but are not limited to, any one or more  
of the following: information as to the availability of securities for purchase 
or sale; statistical or factual information or opinions pertaining to           
investment; wire services; and appraisals or evaluations of portfolio           
securities. The information and services received by the Adviser from brokers   
and dealers may be of benefit to them and any of their asset management         
affiliates in the management of accounts of some of their other clients and may 
not in all cases benefit the Fund directly.                                     

It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or      
dealers. However, the Adviser may place Portfolio orders with qualified         
broker-dealers who recommend the Fund's Portfolios or who act as agents in the  
purchase of shares of the Portfolios for their clients.                         

The Adviser and certain of its affiliates currently serve as investment adviser 
to a number of clients, including other investment companies, and may in the    
future act as investment adviser to others. It is the practice of the Adviser   
and its affiliates to cause purchase and sale transactions to be allocated among
clients whose assets they manage (including the Fund) in such manner they deem  
equitable. In making such allocations among the Fund and other client accounts, 
various factors may be considered, including the respective investment          
objectives, the relative size of portfolio holdings of the same or comparable   
securities, the availability of cash for investment, the size of investment     
commitments generally held and the opinions of the persons responsible for      
managing the Portfolios and other client accounts. The Adviser and its          
affiliates may operate one or more order placement facilities and each facility 
will implement order allocation in accordance with the procedures described     
above. From time to time, each facility may transact in a security at the same  
time as other facilities are trading in that security.                          

As an indirect subsidiary of Morgan Stanley Dean Witter & Co., the Adviser is   
affiliated with certain U.S.-registered broker-dealers and foreign              
broker-dealers (collectively, the "Affiliated Brokers"). The Adviser may, in the
exercise of its discretion under its investment advisory agreement, effect      
transactions in securities or other instruments for the Fund through the        
Affiliated Brokers.                                                             

Commissions Paid                                                                

For the fiscal years ended September 30, 1999, 2000, and 2001, the Fund paid    
brokerage commissions of approximately $34,111,732, $45,305,271, and $42,792,839
respectively. For the fiscal years ended September 30, 1999, 2000 and 2001, the 
Fund paid in the aggregate, $0, $591,402, and $99,489 respectively, as brokerage
commissions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an         
affiliated broker-dealer, which represented 0%,                                 

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31%, and 0.23% of the total amount of brokerage commissions paid in each        
respective period. For the fiscal years ended September 30, 1999, 2000 and 2001,
the Fund did not pay any brokerage commissions to Dean Witter Reynolds, Inc.,   
("DWR"), an affiliated broker-dealer.                                           

For the fiscal year ended September 30, 1999, the Fund did not pay any brokerage
commissions to any affiliated broker-dealer. For the fiscal year ended September
30, 2000, the Fund paid brokerage commissions to an affiliated broker-dealer in 
an approximate amount of $591,402. For the fiscal year ended September 30, 2001,
the Fund paid brokerage commissions, including brokerage commissions paid to    
affiliated broker-dealers as follows:                                           

                                                        [Enlarge/Download Table]

                                                     --------------------------------------
                                                      Fiscal Year Ended September 30, 2001 
-------------------------------------------------------------------------------------------
                                                                           Percent of Total
                                                        Total               Commissions to 
Portfolio                                                ($)                Morgan Stanley 
-------------------------------------------------------------------------------------------
                                                                                           
Equity                                                2,357,804                       0.03 
-------------------------------------------------------------------------------------------
Growth                                                      N/A                        N/A 
-------------------------------------------------------------------------------------------
Mid Cap Growth                                       12,282,473                        N/A 
-------------------------------------------------------------------------------------------
Mid Cap Growth II                                        12,944                        N/A 
-------------------------------------------------------------------------------------------
Mid Cap Value                                        10,459,884                        N/A 
-------------------------------------------------------------------------------------------
Small Cap Growth                                      2,939,569                        N/A 
-------------------------------------------------------------------------------------------
Small Cap Value                                      10,630,465                        N/A 
-------------------------------------------------------------------------------------------
Strategic Small Value                                    13,418                        N/A 
-------------------------------------------------------------------------------------------
Value                                                 2,544,821                       0.18 
-------------------------------------------------------------------------------------------
Value II                                                    N/A                        N/A 
-------------------------------------------------------------------------------------------
Cash Reserves                                               N/A                        N/A 
-------------------------------------------------------------------------------------------
U.S. Core Fixed Income                                      N/A                        N/A 
-------------------------------------------------------------------------------------------
Core Plus Fixed Income                                      N/A                        N/A 
-------------------------------------------------------------------------------------------
Investment Grade Fixed Income                               N/A                        N/A 
-------------------------------------------------------------------------------------------
Global Fixed Income                                         N/A                        N/A 
-------------------------------------------------------------------------------------------
High Yield                                                  N/A                        N/A 
-------------------------------------------------------------------------------------------
Intermediate Duration                                       N/A                        N/A 
-------------------------------------------------------------------------------------------
International Fixed Income                                  N/A                        N/A 
-------------------------------------------------------------------------------------------
Limited Duration                                            N/A                        N/A 
-------------------------------------------------------------------------------------------
Municipal                                                   N/A                        N/A 
-------------------------------------------------------------------------------------------
NY Municipal                                                N/A                        N/A 
-------------------------------------------------------------------------------------------
Special Purpose Fixed Income                                N/A                        N/A 
-------------------------------------------------------------------------------------------
Targeted Duration                                           N/A                        N/A 
-------------------------------------------------------------------------------------------
Balanced                                              1,312,886                        N/A 
-------------------------------------------------------------------------------------------
Balanced Plus                                               N/A                        N/A 
-------------------------------------------------------------------------------------------
Multi-Asset-Class                                       238,575                       0.02 
-------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income                               N/A                        N/A 
-------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II                            N/A                        N/A 
-------------------------------------------------------------------------------------------
Advisory Mortgage                                           N/A                        N/A 
-------------------------------------------------------------------------------------------

N/A -- Not Applicable                                                           

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 GENERAL INFORMATION

Fund History                                                                    

Morgan Stanley Institutional Fund Trust (formerly MAS Funds) is an open end     
management investment company established under Pennsylvania law as a           
Pennsylvania business                                                           

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trust under an Amended and Restated Agreement and Declaration of Trust dated    
November 18, 1993. The Fund was originally established as The MAS Pooled Trust  
Fund, a Pennsylvania business trust, in February, 1984.                         

Description of Shares and Voting Rights                                         

The Declaration of Trust permits the Trustees to issue an unlimited number of   
shares of beneficial interest, without par value, from an unlimited number of   
series ("Portfolios") of shares. Currently the Fund consists of twenty-nine     
Portfolios.                                                                     

The shares of each Portfolio of the Fund are fully paid and non-assessable,     
except as set forth below, and have no preference as to conversion, exchange,   
dividends, retirement or other features. The shares of each Portfolio of the    
Fund have no preemptive 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 Trustees can elect 100% of the Trustees if they      
choose to do so. A shareholder of a class is entitled to one vote for each full 
class share held (and a fractional vote for each fractional class share held) in
the shareholder's name on the books of the Fund. Shareholders of a class have   
exclusive voting rights regarding any matter submitted to shareholders that     
relates solely to that class of shares (such as a distribution plan or service  
agreement relating to that class), and separate voting rights on any other      
matter submitted to shareholders in which the interests of the shareholders of  
that class differ from the interests of holders of any other class.             

Meetings of shareholders will not be held except as required by the 1940 Act and
other applicable law. A meeting will be held to vote on the removal of a Trustee
or Trustees of the Fund if requested in writing by the holders of not less than 
10% of the outstanding shares of the Fund. The Fund will assist in shareholder  
communication in such matters to the extent required by law.                    

Dividends and Distributions                                                     

The Fund's policy is to distribute substantially all of each Portfolio's net    
investment income, if any, together with any net realized capital gains in the  
amount and at the times that will avoid both income (including capital gains)   
taxes on it and the imposition of the federal excise tax on undistributed income
and capital 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                          

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dividend or distribution, except for the Cash Reserves Portfolio. Furthermore,  
such dividends or distributions, although in effect a return of capital, are    
subject to income taxes.                                                        

Unless the shareholder elects otherwise in writing, all dividends and           
distributions are automatically received in additional shares of that Portfolio 
of the Fund at net asset value (as of the business day following the record     
date). This will remain in effect until the Fund is notified by the shareholder 
in writing at least three days prior to the record date that either the Income  
Option (income dividends in cash and capital gains distributions in additional  
shares at net asset value) or the Cash Option (both income dividends and capital
gain distributions in cash) has been elected. An account statement is sent to   
shareholders whenever a dividend or distribution is paid.                       

Each Portfolio of the Fund is treated as a separate entity (and hence, as a     
separate "regulated investment company") for federal tax purposes. Any net      
capital gains recognized by a Portfolio are distributed to its investors without
need to offset (for federal income tax purposes) such gains against any net     
capital losses of another Portfolio.                                            

In all Portfolios except the Cash Reserves Portfolio, undistributed net         
investment income is included in the Portfolio's net assets for the purpose of  
calculating NAV. Therefore, on the ex-dividend date, the NAV excludes the       
dividend (i.e., is reduced by the per share amount of the dividend). Dividends  
paid shortly after the purchase of shares by an investor, although in effect a  
return of capital, are taxable as ordinary income.                              

Certain mortgage securities may provide for periodic or unscheduled payments of 
principal and interest as the mortgages underlying the securities are paid or   
prepaid. However, such principal payments (not otherwise characterized as       
ordinary discount income or bond premium expense) will not normally be          
considered as income to the Portfolio and therefore will not be distributed as  
dividends. Rather, these payments on mortgage-backed securities will be         
reinvested on your behalf by the Portfolio.                                     

Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.   
Such dividends are payable to Cash Reserves Portfolio shareholders of record as 
of 12:00 noon (Eastern Time) on that day, if the Portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to  
dividends for that day. Dividends declared for Saturdays, Sundays and holidays  
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the    
preceding business day on which the Portfolio was open for business. Net        
realized short-term capital gains, if any, of the Cash Reserves Portfolio will  
be distributed whenever the Trustees determine that such distributions would be 
in the best interest of shareholders, but at least once a year. The Portfolio   
does not expect to realize any long-term capital gains. Should any such gains be
realized, they will be distributed annually.                                    

Shareholder and Trustee Liability                                               

Under Pennsylvania law, shareholders of a trust such as the Fund may, under     
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Fund's Declaration of Trust contains an express disclaimer of 
shareholder liability for acts or obligations of the Fund and requires that     
notice of such disclaimer be given in each agreement, obligation, or instrument 
entered into or executed by the Fund or the Trustees, but this disclaimer may   
not be effective in some jurisdictions or as to certain types of claims. The    
Declaration of Trust further provides for indemnification out of the Fund's     
property of any shareholder held personally liable for the obligations of the   
Fund. The Declaration of Trust also provides that the Fund shall, upon request, 
assume the defense of any claim made against any shareholder for any act or     
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a    
shareholder incurring financial loss on account of shareholder liability is     
limited to circumstances in which the Fund itself would be unable to meet its   
obligations.                                                                    

Pursuant to the Declaration of Trust, the Trustees may also authorize the       
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with                              

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distinct investment objectives and policies and share purchase, redemption and  
net asset valuation procedures) with such preferences, privileges, limitations  
and voting and dividend rights as the Trustees may determine. All consideration 
received by the Fund for shares of any additional series or class, and all      
assets in which such consideration is invested, would belong to that series or  
class (subject only to the rights of creditors of the Fund) and would be subject
to the liabilities related thereto. Pursuant to the 1940 Act shareholders of any
additional series or class of shares would normally have to approve the adoption
of any advisory contract relating to such series or class and of any changes in 
the investment policies relating thereto.                                       

The Declaration of Trust further provides that the Trustees will not be liable  
for errors of judgment or mistakes of fact or law, but nothing in the           
Declaration of Trust protects a Trustee against any liability to which he would 
otherwise be subject by reason of willful misfeasance, bad faith, gross         
negligence, or reckless disregard of the duties involved in the conduct of the  
office.                                                                         

TAX CONSIDERATIONS

Each Portfolio of the Fund is treated as a separate entity for federal income   
tax purposes and intends to qualify for the special tax treatment afforded      
regulated investment companies. As such, each Portfolio will not be subject to  
federal income tax to the extent it distributes net investment company taxable  
income and net capital gains to shareholders. The Fund will notify you annually 
as to the tax classification of all distributions.                              

Each Portfolio intends to declare and pay dividends and capital gain            
distributions so as to avoid imposition of the federal excise tax. To do so,    
each Portfolio expects to distribute an amount at least equal to (i) 98% of its 
calendar year ordinary income, (ii) 98% of its capital gains net income for the 
one-year period ending October 31st, and (iii) 100% of any undistributed        
ordinary and capital gain net income from the prior year.                       

In order for a Portfolio to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a       
taxable year must be derived from qualifying income; i.e., dividends, interest, 
income derived from loans of securities, and gains from the sale of securities  
or foreign currencies, or other income derived with respect to its business of  
investing in such securities or currencies. It is anticipated that any net gain 
realized from the closing out of futures contracts will be considered gain from 
the sale of securities and therefore be qualifying income for purposes of the   
90% requirement. In addition, (i) a Portfolio must distribute annually to its   
shareholders at least the sum of 90% of its net interest income excludable from 
gross income and 90% of its investment company taxable income; (ii) at the close
of each quarter of a Portfolio's taxable year, at least 50% of its total assets 
must be represented by cash and cash items, U.S. government securities,         
securities of other regulated investment companies and such other securities    
with limitations; and (iii) at the close of each quarter of a Portfolio's       
taxable year, not more than 25% of the value of its assets may be invested in   
securities of any one issuer, or of two or more issuers engaged in same or      
similar businesses if the Portfolio owns at least 20% of the voting power of    
such issuers.                                                                   

Each Portfolio of the Fund will distribute to shareholders annually any net     
capital gains which have been recognized for federal income tax purposes        
including unrealized gains at the end of the Portfolio's fiscal year on certain 
futures transactions. Such distributions will be combined with distributions of 
capital gains realized on the Portfolio's other investments and shareholders    
will be advised of the nature of the payments.                                  

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Some of the options, futures contracts, forward contracts, and swap contracts   
entered into by the Portfolios may be "Section 1256 contracts." Section 1256    
contracts held by a Portfolio at the end of its taxable year (and, for purposes 
of the 4% excise tax, on certain other dates as prescribed under the Internal   
Revenue Code (the "Code")) are "marked to market" with unrealized gains or      
losses treated as though they were realized. Any gains or losses, including     
"marked to market" gains or losses, on Section 1256 contracts other than forward
contracts are generally 60% long-term and 40% short-term capital gains or losses
("60/40") although all foreign currency gains and losses from such contracts may
be treated as ordinary in character absent a special election.                  

Generally, hedging transactions and certain other transactions in options,      
futures, forward contracts and swap contracts undertaken by a Portfolio, may    
result in "straddles" for U.S. federal income tax purposes. The straddle rules  
may affect the character of gain or loss realized by a Portfolio. In addition,  
losses realized by a Portfolio on positions that are part of a straddle may be  
deferred under the straddle rules, rather than being taken into account in      
calculating the taxable income for the taxable year in which such losses are    
realized. Because only a few regulations implementing the straddle rules have   
been promulgated, the tax consequences of transactions in options, futures,     
forward contracts, and swap agreements to a Portfolio are not entirely clear.   
The transactions may increase the amount of short-term capital gain realized by 
a Portfolio. Short-term capital gain is taxed as ordinary income when           
distributed to shareholders.                                                    

A Portfolio may make one or more of the elections available under the Code which
are applicable to straddles. If a Portfolio makes any of the elections, the     
amount, character, and timing of the recognition of gains or losses from the    
affected straddle positions will be determined under rules that vary according  
to the elections made. The rules applicable under certain of the elections      
operate to accelerate the recognition of gains or losses from the affected      
straddle positions.                                                             

Because application of the straddle rules may affect the character of gains or  
losses, defer losses and/or accelerate the recognition of gains or losses from  
the affected straddle positions, the amount which must be distributed to        
shareholders, and which will be taxed to shareholders as ordinary income or     
long-term capital gain, may be increased or decreased substantially as compared 
to a Portfolio that did not engage in such hedging transactions.                

The Code provides constructive sales treatment for appreciated financial        
positions such as stock which has increased in value in the hands of a          
Portfolio. Under this constructive sales treatment, the Portfolio may be treated
as having sold such stock and be required to recognize gain if it enters into a 
short sale, an offsetting notional principal contract, a futures or forward     
contract, or a similar transaction with respect to such stock or substantially  
identical property.                                                             

The Fund is required by federal law to withhold 30% of reportable payments      
(which may include dividends and capital gains distributions) paid to           
shareholders. In order to avoid this withholding requirement, you must certify  
on your Account Registration Form that your Social Security Number or Taxpayer  
Identification Number is correct, and that you are not subject to backup        
withholding.                                                                    

Shareholders who are not citizens or residents of the United States and certain 
foreign entities may be subject to withholding of United States tax on          
distributions made by a Portfolio of investment income and short-term capital   
gains.                                                                          

Although income received on direct U.S. Government obligations is taxable at the
Federal level, such income may be exempt from state tax, depending on the state,
when received by a shareholder. Each Portfolio will inform shareholders annually

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of the percentage of income and distributions derived from direct U.S.          
Government obligations. Shareholders should consult their tax advisers to       
determine whether any portion of dividends received from the Portfolio is       
considered tax exempt in their particular states.                               

Any gain or loss recognized on a sale or redemption of shares of a Portfolio by 
a shareholder who is not a dealer in securities will generally be treated as    
long-term capital gain or loss if the shares have been held for more than twelve
months and short-term if for twelve months or less. Generally, for non-corporate
shareholders, long-term capital gains are currently taxed at a maximum rate of  
20% and short-term gains are currently taxed at ordinary income tax rates. A    
special lower tax rate of 18% on long-term capital gains is available for       
non-corporate shareholders who purchased shares after December 31, 2000, and    
held such shares for more than five years. If shares held for six months or less
are sold or redeemed for a loss, two special rules apply: First, if shares on   
which a net capital gain distribution has been received are subsequently sold or
redeemed, and such shares have been held for six months or less, any loss       
recognized will be treated as long-term capital loss to the extent of the       
long-term capital gain distributions. Second, any loss recognized by a          
shareholder upon the sale or redemption of shares of a municipal Portfolio fund 
held for six months or less will be disallowed to the extent of any             
exempt-interest dividends received by the Shareholder with respect to such      
shares.                                                                         

Gain or loss on the sale or redemption of shares of a Portfolio is measured by  
the difference between the amount received and the tax basis of the shares.     
Shareholders should keep records of investments made (including shares acquired 
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or        
redemption of shares.                                                           

Exchanges of shares of a Portfolio for shares of another Portfolio are also     
subject to similar tax treatment. Such an exchange is treated for tax purposes  
as a sale of the original shares in the first Portfolio, followed by the        
purchase of shares in the second Portfolio.                                     

If a shareholder realizes a loss on the redemption or exchange of a Portfolio's 
shares and reinvests in that Portfolio's shares within 30 days before or after  
the redemption or exchange, the transactions may be subject to the "wash sale"  
rules, resulting in a postponement of the recognition of such loss for tax      
purposes.                                                                       

Foreign Income Taxes: Investment income received by the Portfolios from sources 
within foreign countries may be subject to foreign income taxes withheld at the 
source. The United States has entered into tax treaties with many foreign       
countries which would entitle the Portfolios to a reduced rate of tax or        
exemption from tax on such income. It is impossible to determine the effective  
rate of foreign tax in advance since the amount of the Portfolios' assets to be 
invested within various countries is not known. The Portfolios intend to operate
so as to qualify for treaty-reduced rates of tax where applicable.              

If at the end of a Portfolio's year, more than 50% of a Portfolio's assets are  
represented by foreign securities, then such Portfolio may file an election with
the Internal Revenue Service to pass through to shareholders the amount of      
foreign income taxes paid by such Portfolio. A Portfolio will make such an      
election only if it is deemed to be in the best interests of such shareholders. 

If a Portfolio makes the above-described election, the Portfolio will not be    
allowed a deduction or a credit for foreign taxes it paid and the amount of such
taxes will be treated as a dividend paid by the Portfolio. The shareholders of  
the Portfolios will be required to: (i) include in gross income, even though not
actually received, their respective pro rata share of foreign taxes paid by the 
Portfolio; (ii) treat their pro rata share of foreign taxes as paid by them;    
(iii) treat as gross income from sources within the respective foreign          
countries, for purposes of the foreign tax credit, their pro rata share of such 
foreign taxes and their pro rate share of any dividend paid by the Portfolio    
which represents income from sources within foreign countries; and (iv) either  
deduct their pro rata share of foreign taxes in computing their taxable income  
or use it within the limitations set forth in the Code as a foreign tax credit  
against U.S. income taxes (but not both). In no                                 

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event shall a shareholder be allowed a foreign tax credit if the shareholder    
holds shares in a Portfolio for 15 days or less during the 30-day period        
beginning on the date which is 15 days before the date on which such shares     
become ex-dividend with respect to such dividends.                              

Each shareholder of a Portfolio will be notified within 60 days after the close 
of each taxable (fiscal) year of the Fund if the foreign taxes paid by the      
Portfolio will pass through for that year, and, if so, the amount of each       
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and    
(ii) the Portfolio's gross income from foreign sources. The notice from the     
Portfolio to shareholders will also include the amount of foreign taxes paid by 
the Portfolio which are not allowable as a foreign tax credit because the       
Portfolio did not hold the foreign securities for more than 15 days during the  
30-day period beginning on the date which is 15 days before the date on which   
the security becomes ex-dividend with respect to the foreign source dividend or 
because, and to the extent that, the recipient of the dividend is under an      
obligation to make related payments with respect to positions in substantially  
similar or related property. Shareholders who are not liable for federal income 
taxes, such as retirement plans qualified under Section 401 of the Code, will   
not be affected by any such "pass-through" of foreign tax credits.              

State and Local Income Taxes: The Fund is not liable for any corporate income or
franchise tax in the Commonwealth of Pennsylvania. Shareholders should consult  
their tax advisers for the state and local income tax consequences of           
distributions from the Portfolios.                                              

Special Tax Considerations for the Municipal and NY Municipal Portfolios: Each  
of the Municipal and NY Municipal Portfolios intends that at the close of each  
quarter of its taxable year, at least 50% of the value of the Portfolio's total 
assets will consist of obligations the interest on which is excludable from     
gross income (i.e., municipal bonds and notes), so that it may pay              
"exempt-interest" dividends to shareholders. Exempt-interest dividends, which   
are defined in the Code, are excluded from a shareholder's gross income for     
federal income tax purposes, but may nevertheless be subject to the alternative 
minimum tax (imposed at a rate of 26%-28% in the case of non-corporate taxpayers
and at the rate of 20% in the case of corporate taxpayers). A shareholder may,  
however, lose the federal tax-exempt status of the accrued income of the        
Portfolio if the shareholder redeems its shares before a dividend has been      
declared. Exempt-interest dividends received by shareholders from these         
Portfolios may be subject to state and local taxes, although some states allow a
shareholder to exclude that portion of a portfolio's tax-exempt income which is 
accountable to municipal securities issued within the shareholder's state of    
residence.                                                                      

These Portfolios may invest in private activity municipal securities, the       
interest on which is subject to the federal alternative minimum tax for         
corporations and individuals. These Portfolios may not be an appropriate        
investment for persons who are "substantial users" (or persons related to       
"substantial users") of facilities financed by industrial development bonds or  
private activity bonds. A "substantial user" is defined generally to include    
certain persons who regularly use in a trade or business or facility financed   
from the proceeds of industrial development bonds or private activity bonds.    
Such persons should consult their tax advisors before purchasing shares.        

Any distributions paid to shareholders of either Portfolio that are derived from
taxable interest or capital gains will be subject to federal income tax.        
Additionally, such distributions are not eligible for the dividends received    
deduction for corporations.                                                     

Interest on indebtedness incurred or continued by a shareholder in order to     
purchase or carry shares of these Portfolios is not deductible for federal      
income tax purposes to the extent that it relates to exempt-interest dividends  
distributed to the shareholder during the taxable year.                         

 PRINCIPAL HOLDERS OF SECURITIES

As of January 5, 2002, the following represents persons or entities that owned, 
directly or beneficially, more than 5% of the shares of any Class of the        
following Portfolios' outstanding shares:                                       

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                                                        [Enlarge/Download Table]

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                                         INSTITUTIONAL CLASS PORTFOLIOS                                          
-----------------------------------------------------------------------------------------------------------------
                                                                                 NUMBER OF            % OF       
 PORTFOLIO                          NAME AND ADDRESS                              SHARES              CLASS      
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
Advisory Foreign Fixed Income  Bost & Co A/C LCRF0391002                       5,542,815.546          11.57      
                               Mutual Fund Operations                                                            
                               PO Box 3198                                                                       
                               Pittsburgh PA 15230-3198                                                          
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                               Northern Trust Company Trustee FBO              4,581,484.212           9.56      
                               Ford Motor Company A/C 22-01854                                                   
                               PO Box 92956                                                                      
                               Chicago IL 60675                                                                  
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                               Minnesota State Board Of Investments            4,255,878.837           8.88      
                               Attn Jason Matz                                                                   
                               Suite 105 Mea Bldg                                                                
                               55 Sherburne Ave                                                                  
                               St Paul MN 55155                                                                  
-----------------------------------------------------------------------------------------------------------------
                               State Street Bank As Ttee                       3,776,545.295           7.88      
                               FBO Pacific Gas & Electric                                                        
                               Attn   Arthur Barnes                                                              
                               1776 Heritage Dr                                                                  
                               North Quincy MA 02171                                                             
-----------------------------------------------------------------------------------------------------------------
                               The Boston Co                                  54,634,790.138           7.60      
                               Attn  Mutual Fund Operations                                                      
                               PO Box 3198                                                                       
                               Pittsburgh PA 15230-3198                                                          
-----------------------------------------------------------------------------------------------------------------
                               Northern Trust Company Trustee FBO             44,595,734.093           6.21      
                               Ford Motor Company A/C 22-01854                                                   
                               PO Box 92956                                                                      
                               Chicago IL 60675                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Pacific Gas & Electric Company                 38,145,705.552           5.31      
-----------------------------------------------------------------------------------------------------------------

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                                         INSTITUTIONAL CLASS PORTFOLIOS                                          
-----------------------------------------------------------------------------------------------------------------
                                                                              NUMBER OF               % OF       
           PORTFOLIO                  NAME AND ADDRESS                         SHARES                 CLASS      
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
                               Attn Carolyn Margiotti                                                            
                               Mail Code B24K                                                                    
                               San Francisco CA 94177                                                            
-----------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed         Kaiser Permanente Retirement Plans            1,618,349.009           30.85       
Income II                      Attn Vivian Heath                                                                 
                               1 Kaiser Plaza Oldsway Bldg                                                       
                               Oakland CA 94612-3610                                                             
-----------------------------------------------------------------------------------------------------------------
                               Monsanto Company Defined Contribution           393,538.126            7.50       
                               Ownership Trust                                                                   
                               Attn Gary Stentz                                                                  
                               800 N Lindbergh Blvd E Bldg                                                       
                               St Louis MO 63167                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Hershey Trust Company Trustee For The           373,624.766            7.12       
                               Milton Hershey School - Principal                                                 
                               PO Box 445                                                                        
                               100 Mansion Rd East                                                               
                               Hershey PA 17033-0445                                                             
-----------------------------------------------------------------------------------------------------------------
                               Mr Steve Gallas                                 358,523.138            6.84       
                               Nisource Inc Master Retirement Trust                                              
                               801 E 86th Ave                                                                    
                               Merrillville IN 46410                                                             
-----------------------------------------------------------------------------------------------------------------
                               The Johns Hopkins University                    351,724.198            6.71       
                               3400 North Charles St                                                             
                               Baltimore MD 21218                                                                
-----------------------------------------------------------------------------------------------------------------
                               The Northern Trust Company                      301,122.344            5.74       
                               FBO Union Pacific Corp                                                            
                               PO  Box 92956                                                                     
                               Chicago IL 60675                                                                  
-----------------------------------------------------------------------------------------------------------------
Balanced                       Northern Trust Co As Ttee                     9,343,521.260           25.25       
                               FBO Allianz Defined Cont Plan                                                     
                               PO Box 92956                                                                      
                               Chicago IL 60675                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Southwest Airlines Co 401K Plan c/o           8,005,011.169           21.63       
                               State Street Bank Attn Karen Albright                                             
                               105 Rosemont Rd                                                                   
                               Westwood MA 02090-2318                                                            
-----------------------------------------------------------------------------------------------------------------
                               Investors Bank & Trust Co FBO Bay             3,018,822.068            8.16       
                               Area Rapid Transit District Def Comp P                                            
                               Vantagepoint Transfer Agents LLC                                                  
                               NE Suite 600 Attn Victor Edgar                                                    
                               777 N Capitol St                                                                  
                               Washington DC 20002                                                               
-----------------------------------------------------------------------------------------------------------------
                               Southwest Airline Co Profit Sharing c/o       2,708,210.825            7.32       
                               State Street Bank Attn Karen Albright                                             
                               105 Rosemont Rd                                                                   
                               Westwood MA 02090                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Investors Bank & Trust Co Ttee FBO Bay        2,441,516.620            6.60       
                               Area Rapid Transit District Mon Pur Pl                                            
                               Vantagepoint Transfer Agents LLC                                                  
                               NE Suite 600 Attn Victor Edgar                                                    
                               777 N Capitol St                                                                  
                               Washington DC 20002                                                               
-----------------------------------------------------------------------------------------------------------------

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                                         INSTITUTIONAL CLASS PORTFOLIOS                                          
-----------------------------------------------------------------------------------------------------------------
           PORTFOLIO                      NAME AND ADDRESS                   NUMBER OF SHARES         % OF       
                                                                                                      CLASS      
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
Cash Reserves                  Mac & Co A/C Mswf1000302                       55,174,529.050          40.15      
                               PO Box 3198                                                                       
                               Pittsburgh PA 15230-3198                                                          
-----------------------------------------------------------------------------------------------------------------
                               Sharon Hospital Pension Fund                   21,909,614.930          15.94      
                               Attn  Daniel G Dombal                                                             
                               VP  Fiscal Services                                                               
                               Sharon CT 06069                                                                   
-----------------------------------------------------------------------------------------------------------------
                               Bankers Trust Co FBO CNMC 174351               16,342,415.540          11.89      
                               Attn M Bloebaum                                                                   
                               PO Box 9014 Church Street Station                                                 
                               New York NY 10008                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Connelly Foundation                             7,990,375.500           5.81      
                               Ste 1450                                                                          
                               One Tower Bridge                                                                  
                               West Conshohocken PA 19428                                                        
-----------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income         Fidelity Investments Institutional              7,699,661.145          42.92      
                               Operations FIIOC As Agent For                                                     
                               100 Magellan Way Kw1c                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Management Trust Co As Trustee         2,313,898.429          12.90      
                               For US Airways Inc - Cap Growth                                                   
                               Attn  Trust Operations - H10C                                                     
                               82 Devonshire St                                                                  
                               Boston MA 02109                                                                   
-----------------------------------------------------------------------------------------------------------------
                               Dean Witter Reynolds Inc                        1,268,623.957           7.07      
                               6th Floor                                                                         
                               5 World Trade Center                                                              
                               New York NY 10048                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Management Trust Co As Trustee           933,460.317           5.20      
                               For US Airways Inc - Moderate                                                     
                               Attn  Trust Operations - H10C                                                     
                               82 Devonshire St                                                                  
                               Boston MA 02109                                                                   
-----------------------------------------------------------------------------------------------------------------
Equity                         Dean Witter Reynolds Inc                        4,307,469.199          11.31      
                               6th Floor                                                                         
                               5 World Trade Center                                                              
                               New York NY 10048                                                                 
-----------------------------------------------------------------------------------------------------------------
                               MAC & Co A/C VCBF1770022                        3,786,685.493           9.94      
                               Mutual Funds Operations                                                           
                               PO Box 3198                                                                       
                               Pittsburgh PA 15230-3198                                                          
-----------------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income  Hubco                                           4,205,038.092          17.09      
                               Regions Financial Corporation                                                     
                               P O  Box 10247                                                                    
                               Birmingham AL 35202                                                               
-----------------------------------------------------------------------------------------------------------------
                               First Union National Bank                       3,048,108.858          12.39      
                               FBO Diocese Of Camden Trust Inc                                                   
                               CMG 3C4 NC 1151                                                                   
                               1525 W Wt Harris Blvd                                                             
                               Charlotte NC 28288                                                                
-----------------------------------------------------------------------------------------------------------------
                               Mercantile Safe Deposit & Trust                 3,047,342.329          12.39      
                               Attn  Mutual Funds                                                                

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                                                  INSTITUTIONAL CLASS PORTFOLIOS                                 
-----------------------------------------------------------------------------------------------------------------
     PORTFOLIO                      NAME AND ADDRESS                             NUMBER OF             % OF      
                                                                                  SHARES               CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
                               766 Old Hammonds Ferry Rd                                                         
                               Linthicum MD 21090                                                                
-----------------------------------------------------------------------------------------------------------------
                               JHU Retiree Medical Benefits Trust              1,706,896.596           6.94      
                               Johns Hopkins University                                                          
                               Attn   Harriet Olsen                                                              
                               3400 N Charles St                                                                 
                               Baltimore MD 21218                                                                
-----------------------------------------------------------------------------------------------------------------
                               Amsouth Bank As Ttee Infirmary Health           1,540,594.501           6.26      
                               Systems Inc                                                                       
                               Attn  Mutual Fund Team                                                            
                               P O  Box 11426                                                                    
                               Birmingham AL 35202                                                               
---------------------------------------------------------------------------------------------------------------- 
                               University Of Illinois                          1,302,667.918           5.29      
                               Director Cash Mgmt & Investments                                                  
                               506 South Wright Street    MC-363                                                 
                               Urbana IL 61801-3620                                                              
-----------------------------------------------------------------------------------------------------------------
                               Mac & Co A/C MSWF1000302                       41,603,432.736          12.36      
                               PO Box 3198                                                                       
                               Pittsburgh PA 15230-3198                                                          
-----------------------------------------------------------------------------------------------------------------
Global Fixed Income            The Charles A Dana Foundation Inc               1,977,833.373          53.26      
                               Attn  Herbert Vine                                                                
                               745 Fifth Ave Ste 700                                                             
                               New York NY 10151                                                                 
-----------------------------------------------------------------------------------------------------------------
                               All For Her Fund                                  737,042.848          19.85      
                               Attn  Rev John Phalen - CSC                                                       
                               518 Washington Street                                                             
                               N Easton MA 02356-1200                                                            
-----------------------------------------------------------------------------------------------------------------
                               Rockefeller Family Fund Inc                       478,530.891          12.89      
                               437 Madison Avenue 37th Floor                                                     
                               New York NY 10022                                                                 
---------------------------------------------------------------------------------------------------------------- 
                               Chase Manhattan Bank Ttee For                     284,135.778           7.65      
                               NY State Deferred Comp Plan                                                       
                               4 New York Plz 2nd Floor                                                          
                               New York NY 10004                                                                 
---------------------------------------------------------------------------------------------------------------- 
High Yield                     Charles Schwab & Co Inc                        14,839,512.318          15.06      
                               Special Custody Account For The                                                   
                               Attn   Mutual Funds                                                               
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
                               Minnesota Life Insurance Company               11,430,067.903          11.60      
                               c/o Advantus Capital Management Inc                                               
                               Station 16-4202                                                                   
                               400 Robert St                                                                     
                               St Paul MN 55101                                                                  
-----------------------------------------------------------------------------------------------------------------
                               PFPC FBO LPL Supermarket Program                6,797,324.891           6.90      
                               Attn   Kop-LPL                                                                    
                               211 South Gulph Road                                                              
                               King of Prussia PA 19406                                                          
-----------------------------------------------------------------------------------------------------------------
                               Michelin North America Inc                      5,408,863.654           5.49      
                               Attn Kris Kapoor                                                                  
                               One Parkway South PO Box 19001                                                    
                               Greenville SC 29602                                                               
-----------------------------------------------------------------------------------------------------------------

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                                                  INSTITUTIONAL CLASS PORTFOLIOS                                 
-----------------------------------------------------------------------------------------------------------------
                                                                                 NUMBER OF             % OF      
      PORTFOLIO                    NAME AND ADDRESS                               SHARES               CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
                               Western Metal Industry                          5,069,975.532           5.14      
                               c/o Miller Anderson & Sherrerd                                                    
                               One Tower Bridge                                                                  
                               West Conshohocken PA 19428                                                        
-----------------------------------------------------------------------------------------------------------------
Intermediate Duration          Union Bank Of California TR Nominee             1,718,634.827          32.72      
                               FBO Los Angeles Hotel Restaurant                                                  
                               610001264 00                                                                      
                               PO Box 85484                                                                      
                               San Diego CA 92186                                                                
-----------------------------------------------------------------------------------------------------------------
                               Trust For Civil Society                         1,324,114.982          25.21      
                               In Central & Eastern Europe                                                       
                               Attn Marianne Ginsburg                                                            
                               11 Dupont Circle NW Suite 750                                                     
                               Washington DC 20036                                                               
-----------------------------------------------------------------------------------------------------------------
                               Boston Safe Deposit And Trust Co As               997,598.630          18.99      
                               Trustee Of Scovill Inc                                                            
                               Attn James Wenstrom                                                               
                               135 Santilli Hwy                                                                  
                               Everett MA 02149                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Morgan Stanley Strategic Adviser                  421,882.494           8.03      
                               Fund Inc Moderate                                                                 
                               73 Tremont St                                                                     
                               Boston MA 02108                                                                   
-----------------------------------------------------------------------------------------------------------------
                               Mariposa Foundation                               280,160.298           5.33      
                               c/o Morgan Stanley                                                                
                               1251 Ave Of The Americas 23rd Flr                                                 
                               New York NY 10020                                                                 
-----------------------------------------------------------------------------------------------------------------
International Fixed Income     Western Metal Industry Pension Fund             3,617,154.105          38.66      
                               c/o Miller Anderson & Sherrerd                                                    
                               One Tower Bridge                                                                  
                               West Conshohocken PA 19428                                                        
-----------------------------------------------------------------------------------------------------------------
                               Dean Witter Reynolds Inc                        2,046,315.022          21.87      
                               6th Floor                                                                         
                               5 World Trade Center                                                              
                               New York NY 10048                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Charles Schwab & Co Inc                         1,788,066.974          19.11      
                               Attn Mutual Funds                                                                 
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
                               Wellesley College                               1,157,008.575          12.36      
                               Attn Robert Bower Controller                                                      
                               106 Central St                                                                    
                               Wellesley MA 02481                                                                
-----------------------------------------------------------------------------------------------------------------
Limited Duration               Dean Witter Reynolds Inc                        7,714,720.701          34.93      
                               6th Floor                                                                         
                               5 World Trade Center                                                              
                               New York NY 10048                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Union Bank Of California TR Nominee             2,459,929.869          11.14      
                               FBO Los Angeles Hotel Restaurant                                                  
                               610001264 00                                                                      
                               PO Box 85484                                                                      
                               San Diego CA 92186                                                                
-----------------------------------------------------------------------------------------------------------------

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                                     INSTITUTIONAL CLASS PORTFOLIOS                                       
----------------------------------------------------------------------------------------------------------
                                                                             NUMBER OF             % OF   
   PORTFOLIO                    NAME AND ADDRESS                              SHARES               CLASS  
----------------------------------------------------------------------------------------------------------
                                                                                                          
                            Northern California Bakery Drivers              1,685,948.623           7.63  
                            Security Fund c/o Zenith                                                      
                            301 Mission St - 6th Floor                                                    
                            San Francisco CA 94105                                                        
----------------------------------------------------------------------------------------------------------
Mid Cap Growth              Charles Schwab & Co Inc                        15,547,702.944          22.44  
                            Special Custody Account For The                                               
                            Attn  Mutual Funds                                                            
                            101 Montgomery St                                                             
                            San Francisco CA 94104                                                        
----------------------------------------------------------------------------------------------------------
                            Fidelity Investments Institutional             13,814,270.524          19.94  
                            Operations FIIOC As Agent For                                                 
                            100 Magellan Way Kwic                                                         
                            Covington KY 41015                                                            
----------------------------------------------------------------------------------------------------------
Mid Cap Growth II           Morgan Stanley Dean Witter Group                  300,000.000          63.83  
                            Attn Karen Terry                                                              
                            1221 Avenue Of The Americas 23rd Floor                                        
                            New York NY 10020                                                             
----------------------------------------------------------------------------------------------------------
                            Charles Schwab & Co Inc                            79,670.775          16.95  
                            Special Custody Account For The                                               
                            Attn Mutual Funds                                                             
                            101 Montgomery St                                                             
                            San Francisco CA 94104                                                        
----------------------------------------------------------------------------------------------------------
Mid Cap Value               Charles Schwab & Co Inc                         9,598,002.863          15.24  
                            Special Custody Account For The                                               
                            Attn Mutual Funds                                                             
                            101 Montgomery St                                                             
                            San Francisco CA 94104                                                        
----------------------------------------------------------------------------------------------------------
                            The Northern Trust Company                      6,107,566.538           9.70  
                            FBO Ameren Corp Defined Cont Plan                                             
                            PO Box 92956                                                                  
                            Chicago IL 60675                                                              
----------------------------------------------------------------------------------------------------------
                            The Bank Of New York As Ttee For                3,620,015.839           5.75  
                            The BF Goodrich Co Master Trust                                               
                            Attn Thomas Macioce                                                           
                            12th Floor                                                                    
                            New York NY 10286                                                             
----------------------------------------------------------------------------------------------------------
                            JP Morgan Chase                                 3,468,740.916           5.51  
                            FAO Hearst Corporation                                                        
                            3 Attn Steve Gray                                                             
                            New York NY 11245                                                             
----------------------------------------------------------------------------------------------------------
Multi-Asset-Class           Albany Medical College A-29                     4,014,570.008          30.59  
                            Combined Funds                                                                
                            Attn Irene W Palasz Asset Management                                          
                            47 New Scotland Ave Mail Code 29                                              
                            Albany NY 12208                                                               
----------------------------------------------------------------------------------------------------------
                            The Northern Trust Co FBO                       3,385,655.354          25.79  
                            Emerson Electric                                                              
                            PO Box 92956                                                                  
                            Chicago IL 60675                                                              
----------------------------------------------------------------------------------------------------------
                            Chase Manhattan Bank As Trustee For             1,744,118.643          13.29  
                            Milbank Tweed Hadley & McCloy                                                 
                            Attn Jeff Salazar 5 Floor                                                     
----------------------------------------------------------------------------------------------------------

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                                         INSTITUTIONAL CLASS PORTFOLIOS                                          
---------------------------------------------------------------------------------------------------------------- 
                                                                                 NUMBER OF            % OF       
    PORTFOLIO                       NAME AND ADDRESS                              SHARES              CLASS      
---------------------------------------------------------------------------------------------------------------- 
                                                                                                                 
                               3 Chase Metrotech Ctr                                                             
                               Brooklyn NY 11245                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Albany Medical Center Hospital                    789,780.767           6.02      
                               Combined Funds                                                                    
                               Attn Controller                                                                   
                               New Scotland Avenue                                                               
                               Albany NY 12208                                                                   
-----------------------------------------------------------------------------------------------------------------
Municipal                      Charles Schwab & Co Inc                         3,957,717.748          27.73      
                               Attn Mutual Funds                                                                 
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
                               Jr Trueman Qualified Subchapter S Trust         1,446,430.129          10.14      
                               Attn Barbara Trueman                                                              
                               5490 Hayden Run Rd                                                                
                               Hilliard OH 43026                                                                 
-----------------------------------------------------------------------------------------------------------------
Small Cap Growth               Charles Schwab & Co Inc                         1,656,892.433          20.86      
                               Special Custody Account For The                                                   
                               Attn Mutual Funds                                                                 
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
                               PFPC FBO LPL Supermarket Program                  918,992.353          11.57      
                               Attn  Kop-LPL                                                                     
                               211 South Gulph Road                                                              
                               King of Prussia PA 19406                                                          
-----------------------------------------------------------------------------------------------------------------
                               The Duke Endowment                                842,461.869          10.61      
                               Chief Investment Officer                                                          
                               100 North Tryon St Suite 3500                                                     
                               Charlotte NC 28202-4012                                                           
-----------------------------------------------------------------------------------------------------------------
                               National Financial Services Corp FBO              470,466.002           5.92      
                               Their Customers                                                                   
                               Church Street Station                                                             
                               New York NY 10008-3908                                                            
-----------------------------------------------------------------------------------------------------------------
Small Cap Value                Fidelity Investments Institutional              4,949,160.085           7.36      
                               Operations FIIOC As Agent For                                                     
                               100 Magellan Way Kwic                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               Northern Trust Company As Ttee                  3,692,966.327           5.49      
                               FBO Potomac Electric Power Co Gen R Pl                                            
                               PO Box 92956                                                                      
                               Chicago IL 60675                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Charles Schwab & Co Inc                         3,450,381.180           5.13      
                               Special Custody Account For The                                                   
                               Attn Mutual Funds                                                                 
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
Strategic Small Value          Bradley S Daniels                                  53,314.961          27.06      
                               801 Foxfield Rd                                                                   
                               Lower Gwynedd PA 19002                                                            
-----------------------------------------------------------------------------------------------------------------
                               A Morris Williams Jr                               52,344.236          26.57      
                               120 Righters Mill Road                                                            
                               Gladwyne PA 19035-1531                                                            
-----------------------------------------------------------------------------------------------------------------

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                                  INSTITUTIONAL CLASS PORTFOLIOS                                      
------------------------------------------------------------------------------------------------------
                                                                            NUMBER OF       % OF      
    PORTFOLIO                     NAME AND ADDRESS                            SHARES        CLASS     
------------------------------------------------------------------------------------------------------
                                                                                                      
                           Ellen D Harvey                                   10,472.414       5.32     
                           756 Rugby Rd                                                               
                           Bryn Mawr PA 19010-3833                                                    
------------------------------------------------------------------------------------------------------
                           Marna C Whittington                              10,468.847       5.31     
                           2959 Barley Road                                                           
                           Yorklyn DE 19736                                                           
------------------------------------------------------------------------------------------------------
Special Purpose Fixed      Robertson Research Fund                       3,314,427.194      13.62     
Income                     Cold Spring Harbor Laboratory                                              
                           Attn Alison McDermott                                                      
                           PO Box 100                                                                 
                           Cold Spring Harbor NY 11724-0100                                           
------------------------------------------------------------------------------------------------------
                           The Cold Spring Harbor Fund                   2,608,198.697      10.71     
                           Attn  Alison McDermott                                                     
                           PO Box 100 Burgtown Road                                                   
                           Cold Spring Harbor NY 11724                                                
------------------------------------------------------------------------------------------------------
                           Fleet National Bank                           2,289,764.149       9.41     
                           FBO Hartford Hospital                                                      
                           PO Box 92800                                                               
                           Rochester NY 14692-8900                                                    
------------------------------------------------------------------------------------------------------
Value                      Charles Schwab & Co Inc                      14,655,195.990      34.60     
                           Special Custody Account For The                                            
                           Attn Mutual Funds                                                          
                           101 Montgomery St                                                          
                           San Francisco CA 94104                                                     
------------------------------------------------------------------------------------------------------
                           Mac & Co A/C MSWF1000162                      4,260,130.793      10.06     
                           PO Box 3198                                                                
                           Pittsburgh PA 15230-3198                                                   
------------------------------------------------------------------------------------------------------
                           Mellon Trust As Trustee Of The Eastman        2,399,293.539       5.66     
                           Kodak Savings And Investment Plan                                          
                           135 Santilli Hwy                                                           
                           Everett MA 02149-1906                                                      
------------------------------------------------------------------------------------------------------
                           Norwest Bank Ttee FBO                         2,312,195.801       5.46     
                           County Of Los Angeles 401K Savings Plan                                    
                           Attn Great-West Life & Annuity                                             
                           8515 East Orchard Rd Attn  2T2                                             
                           Englewood CO 80111                                                         
------------------------------------------------------------------------------------------------------

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                                    INVESTMENT CLASS PORTFOLIOS                                       
------------------------------------------------------------------------------------------------------
                                                                            NUMBER OF       % OF      
    PORTFOLIO                     NAME AND ADDRESS                            SHARES        CLASS     
------------------------------------------------------------------------------------------------------
                                                                                                      

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                                           INVESTMENT CLASS PORTFOLIOS                                            
------------------------------------------------------------------------------------------------------------------
                                                                                  NUMBER                          
      PORTFOLIO                       NAME AND ADDRESS                           OF SHARES         % OF CLASS     
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
Balanced                       Mitra & Co                                       586,150.100           98.12       
                               1000 N Water Street                                                                
                               Milwaukee WI 53202-6648                                                            
------------------------------------------------------------------------------------------------------------------
Cash Reserves                  MSDW Stable Value Plan--SEI Trustee            4,340,105.840          100.00       
                               Attention Jeff Ryan                                                                
                               530 E Swedesford Road                                                              
                               Wayne PA 19087-1693                                                                
------------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income         MSDW Stable Value Plan--SEI Trustee            3,484,997.516           55.86       
                               Attention Jeff Ryan                                                                
                               530 E Swedesford Road                                                              
                               Wayne PA 19087-1693                                                                
------------------------------------------------------------------------------------------------------------------
                               Morgan Stanley Co FBO                            594,737.225            9.53       
                               Ecological Trust Fund of                                                           
                               The Nature Conservancy                                                             
                               4245 North Fairfax Drive 100                                                       
                               Arlington VA 22203                                                                 
------------------------------------------------------------------------------------------------------------------
                               Zoological Society of Philadelphia               372,514.246            5.97       
                               Endowment                                                                          
                               Attn Joe Steuer                                                                    
                               3400 West Girard Ave                                                               
                               Philadelphia PA 19104-1196                                                         
------------------------------------------------------------------------------------------------------------------
                               Testa And Co                                     371,794.678            5.96       
                               Attn Mutual Fund Dept                                                              
                               PO Box 31412                                                                       
------------------------------------------------------------------------------------------------------------------

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                                           INVESTMENT CLASS PORTFOLIOS                                            
------------------------------------------------------------------------------------------------------------------
                                                                                  NUMBER                          
      PORTFOLIO                       NAME AND ADDRESS                           OF SHARES         % OF CLASS     
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
                               Rochester; NY 14603-1412                                                           
------------------------------------------------------------------------------------------------------------------
High Yield                     Boston & Co 10113608004                          474,898.236           26.37       
                               PO Box 534005                                                                      
                               Pittsburgh PA 15253-4005                                                           
------------------------------------------------------------------------------------------------------------------
                               First Union National Bank                        428,749.060           23.81       
                               FBO No American Van Lines Retirement Pl                                            
                               1524 West W T Harris Blvd - NC1151                                                 
                               Charlotte NC 28288-1151                                                            
------------------------------------------------------------------------------------------------------------------
                               The Philadelphia Foundation                      334,712.305           18.59       
                               Attn Julia R Dutton                                                                
                               1234 Market St Suite 1900                                                          
                               Philadelphia PA 19102                                                              
------------------------------------------------------------------------------------------------------------------
                               Eamco-910004035 c/o Riggs Bank NA                127,055.880            7.06       
                               Mutual Fund Desk RS 300                                                            
                               PO Box 96211                                                                       
                               Washington DC 20090-6211                                                           
------------------------------------------------------------------------------------------------------------------
                               Northern Trust Company As Custodian              120,743.345            6.70       
                               For Noblehouse International Ltd                                                   
                               PO Box 92956                                                                       
                               Chicago IL 60675                                                                   
------------------------------------------------------------------------------------------------------------------
Intermediate Duration          MSDW Stable Value Plan- SEI Trustee            3,943,780.355          100.00       
                               Attention Jeff Ryan                                                                
                               530 E Swedesford Road                                                              
                               Wayne PA 19087-1693                                                                
------------------------------------------------------------------------------------------------------------------
Mid Cap Value                  FTC & Co Attn Datalynx 022                       794,588.041           29.80       
                               PO Box 173736                                                                      
                               Denver CO 80217-3736                                                               
------------------------------------------------------------------------------------------------------------------
                               Donaldson Lufkin & Jenrette                      181,997.698            6.83       
------------------------------------------------------------------------------------------------------------------

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                                           INVESTMENT CLASS PORTFOLIOS                                            
------------------------------------------------------------------------------------------------------------------
                                                                                  NUMBER                          
      PORTFOLIO                       NAME AND ADDRESS                           OF SHARES         % OF CLASS     
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
                               Securities Corporation                                                             
                               1 Pershing Plaza                                                                   
                               Jersey City NJ 07399                                                               
------------------------------------------------------------------------------------------------------------------
                               Suntrust Bank Inc Ttee                           174,137.700            6.53       
                               The Philadelphia Coca-Cola Bottling Co                                             
                               Master Tr - Furman Selz CM                                                         
                               AC 11051301137302 PO                                                               
                               Box 105870-Ctr3144 Atlanta GA 30348-5870                                           
------------------------------------------------------------------------------------------------------------------
                               Columbia Trust Company Ttee                      161,504.832            6.06       
                               FBO The Columbian Employees PSP                                                    
                               Attn Vicki Artis                                                                   
                               1301 SW Fifth Ave                                                                  
                               Portland OR 97201-5601                                                             
------------------------------------------------------------------------------------------------------------------
Multi-Asset Class              Kano - Zimmerman Profit Sharing Plan             264,138.420           50.88       
                               Attn Rhoads Zimmerman                                                              
                               PO Box 110098                                                                      
                               Nashville TN 37222                                                                 
------------------------------------------------------------------------------------------------------------------
                               English Speaking Union                           255,004.916           49.12       
                               Central Florida Branch                                                             
                               Attn Robert D Hostetter Jr                                                         
                               1330 Mayfield Ave                                                                  
                               Winter Park FL 32789                                                               
------------------------------------------------------------------------------------------------------------------
Value                          Chase Manhattan Bank Ttee For                  1,306,818.444           89.52       
                               NY State Deferred Comp Plan                                                        
                               Attn Gladstone Stephenson                                                          
                               2nd Floor                                                                          
                               New York NY 10004                                                                  
------------------------------------------------------------------------------------------------------------------
                               The Clovernook Center                            131,770.285            9.03       
                               Attn VP of Finance                                                                 
                               7000 Hamilton Avenue                                                               
                               Cincinnati, OH 45231                                                               
------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------
                                            ADVISER CLASS PORTFOLIOS                                              
------------------------------------------------------------------------------------------------------------------
                                                                                  NUMBER                          
      PORTFOLIO                       NAME AND ADDRESS                           OF SHARES         % OF CLASS     
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
Balanced                       Fidelity Investments Institutional             3,306,902.183           54.95       
                               Operations Co FIIOC as Agent for                                                   
                               100 Magellan Way KWLC                                                              
                               Covington KY 41015                                                                 
------------------------------------------------------------------------------------------------------------------
                               Putnam Investments Ttee                        1,566,397.698           26.03       
                               FBO Nissan Employee Savings Plan                                                   
                               Attn DC Plan Admin Team                                                            
                               One Investors Way MS C4d                                                           
                               Norwood MA 02062                                                                   
------------------------------------------------------------------------------------------------------------------
                               Putnam Investments Ttee                          617,771.736           10.27       
                               FBO ABN Amro LLC Securities 401K Saving                                            
                               Attn DC Plan Admin Team                                                            
                               One Investors Way MS N3G                                                           
                               Norwood MA 02062-9105                                                              
------------------------------------------------------------------------------------------------------------------

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                                            ADVISER CLASS PORTFOLIOS                                             
-----------------------------------------------------------------------------------------------------------------
                                                                                  NUMBER OF            % OF      
         PORTFOLIO                      NAME AND ADDRESS                           SHARES              CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
                               Putnam Investments Ttee FBO                       430,849.434           7.16      
                               ING US Financial Holdings Corp                                                    
                               401K Savings Plan                                                                 
                               Attn DC Plan Admin Team                                                           
                               One Investors Way MS N3G                                                          
                               Norwood MA 02062                                                                  
-----------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income         American Express Trust Company FBO                527,378.722          98.44      
                               The Benefit of American Express                                                   
                               Trust Retirement Services Plans                                                   
                               996 AXP Financial Ctr                                                             
                               Minneapolis MN 55474                                                              
-----------------------------------------------------------------------------------------------------------------
Equity                         T Rowe Price Trust Co                              65,974.211          81.00      
                               FBO Alliance Partners                                                             
                               RPS Asset Reconciliation                                                          
                               PO Box 17215                                                                      
                               Baltimore MD 21297-7215                                                           
-----------------------------------------------------------------------------------------------------------------
                               USET Retirement Trust                              12,294.172          15.09      
                               c/o US Equestrian Team Inc                                                        
                               Attn Mark P Piwowar CFO                                                           
                               Pottersville Road                                                                 
                               Gladstone NJ 07934                                                                
-----------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income         Fidelity Investments Institutional              5,878,396.600          39.22      
                               Operations Co FIIOC as Agent for                                                  
                               100 Magellan Way KWLC                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               Transco & Co                                    2,210,241.949          14.75      
                               Attn  Wealth Management 10th Floor                                                
                               PO Box 48698                                                                      
                               Wichita KS 67201                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Transco & Co                                    1,938,476.006          12.93      
                               Attn Wealth Management 10th Floor                                                 
                               PO Box 48698                                                                      
                               Wichita KS 67201                                                                  
-----------------------------------------------------------------------------------------------------------------
                               Wendel & Co A/C 295773                          1,273,695.423           8.50      
                               c/o The Bank Of New York                                                          
                               P O Box 1066 Wall Street Station                                                  
                               New York NY 10286                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Management Trust Company               1,171,190.295           7.81      
                               Attn Ben Branham                                                                  
                               Mail Zone H10C                                                                    
-----------------------------------------------------------------------------------------------------------------

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                                     ADVISER CLASS PORTFOLIOS                                                    
-----------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF               % OF     
        PORTFOLIO                    NAME AND ADDRESS                            SHARES                CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
                               82 Devonshire ST                                                                  
                               Boston MA 02109                                                                   
-----------------------------------------------------------------------------------------------------------------
                               Resources Trust Co                                921,989.174           6.15      
                               For The Exclusive Benefit of                                                      
                               Various IMS Customers                                                             
                               P O Box 3865                                                                      
                               Englewood CO 80155-3865                                                           
-----------------------------------------------------------------------------------------------------------------
                               Pan-American Life Insurance Company               915,925.988           6.11      
                               Separate Account VII                                                              
                               14th Floor                                                                        
                               601 Poydras ST                                                                    
                               New Orleans LA 70130                                                              
-----------------------------------------------------------------------------------------------------------------
High Yield                     National Financial Services Corporation        16,045,192.579          86.24      
                               For Exclusive Benefit of Our Customers                                            
                               Attn  Mutual Funds Dept  5th Floor                                                
                               One World Financial Center                                                        
                               New York NY 10281                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Investments Institutional              1,393,262.257           7.49      
                               Operations Co FIIOC As Agent For                                                  
                               100 Magellan Way KW1C                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
Mid Cap Growth                 Fidelity Investments Institutional             21,208,467.732          45.22      
                               Operations Co FIIOC As Agent For                                                  
                               100 Magellan Way KWLC                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               Merrill Lynch Trust Co Ttee                     5,727,521.950          12.21      
                               FBO Qualified Retirement Plans                                                    
                               Attn Jerry Stone                                                                  
                               265 Davidson Ave                                                                  
                               Somerset NJ 08873                                                                 
-----------------------------------------------------------------------------------------------------------------
                               National Financial Services Corporation         5,445,793.768          11.61      
                               For Exclusive Benefit Of Our Customers                                            
                               Attn  Mutual Funds Dept 5th Floor                                                 
                               One World Financial Center                                                        
                               New York NY 10281                                                                 
-----------------------------------------------------------------------------------------------------------------

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                                     ADVISER CLASS PORTFOLIOS                                                    
-----------------------------------------------------------------------------------------------------------------
                                                                                 NUMBER OF             % OF      
        PORTFOLIO                    NAME AND ADDRESS                             SHARES               CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
-----------------------------------------------------------------------------------------------------------------
Mid Cap Value                  Fidelity Investments Institutional              1,500,067.254          21.29      
                               Operations Co FIIOC As Agent For                                                  
                               100 Magellan Way  KWLC                                                            
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               Mellon Bank As Agent/Omnibus Account              807,036.066          11.45      
                               Omnibus Aim 026 0027                                                              
                               135 Santilli Hwy                                                                  
                               Everett MA 02149-1950                                                             
-----------------------------------------------------------------------------------------------------------------
                               The Union Central Life Insurance                  618,857.889           8.78      
                               Company-Group Separate Account                                                    
                               Attn Roberta Ujuary                                                               
                               1876 Waycross Rd                                                                  
                               Cincinnati OH 45240                                                               
-----------------------------------------------------------------------------------------------------------------
                               UMB Bank NA                                       607,829.297           8.63      
                               PO Box 419692 Employee Benefits Div                                               
                               1010 Grand Ave                                                                    
                               Kansas City MO 64141-6692                                                         
-----------------------------------------------------------------------------------------------------------------
                               Charles Schwab & Co Inc                           519,910.417           7.38      
                               Special Custody FBO Customers                                                     
                               101 Montgomery St                                                                 
                               San Francisco CA 94104                                                            
-----------------------------------------------------------------------------------------------------------------
Small Cap Growth               National Financial Services Corporation            78,379.567          82.71      
                               For Exclusive Benefit Of Our Customers                                            
                               Attn  Mutual Funds Dept 5th Floor                                                 
                               One World Financial Center                                                        
                               New York, NY 10281                                                                
-----------------------------------------------------------------------------------------------------------------
                               Morgan Stanley Co FBO                              13,344.009          14.08      
                               Mr Frank Mori                                                                     
                               c/o Lewis Braff Co                                                                
                               60 E 42nd Street                                                                  
                               NY, NY 10165                                                                      
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Investments Institutional              1,396,747.277          35.88      
                               Operations Co FIIOC As Agent For                                                  
                               100 Magellan Way  KW1C                                                            
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------
                               UMB Bank NA                                       827,566.798          21.26      
                               PO Box 419692 Employee Benefits Div                                               
                               1010 Grand Ave                                                                    
                               Kansas City MO 64141-6692                                                         
-----------------------------------------------------------------------------------------------------------------
                               Putnam                                            387,999.540           9.97      
-----------------------------------------------------------------------------------------------------------------

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                                     ADVISER CLASS PORTFOLIOS                                                     
----------------------------------------------------------------------------------------------------------------- 
                                                                                NUMBER OF               % OF      
        PORTFOLIO                    NAME AND ADDRESS                            SHARES                CLASS      
----------------------------------------------------------------------------------------------------------------- 
                                                                                                                  
                               Investments Ttee FBO                                                               
                               Koch Industries Inc                                                                
                               Attn DC Plan Admin Team                                                            
                               One Investors Way MS N2E                                                           
                               Norwood MA 02062                                                                   
----------------------------------------------------------------------------------------------------------------- 
                               MAC & CO A/C SBKF97C4082                          321,740.088           8.27       
                               Attn  Mutual Funds Operations                                                      
                               PO Box 3198                                                                        
                               Pittsburgh PA 15230-3198                                                           
----------------------------------------------------------------------------------------------------------------- 
                               Vanguard Fiduciary Trust Co                       237,949.134           6.11       
                               FBO MAS Adviser Class Funds                                                        
                               Attn Outside Funds                                                                 
                               PO BOX 2600 VM #613                                                                
                               Valley Forge PA 19482                                                              
----------------------------------------------------------------------------------------------------------------- 
Value                          State Street Bank Ttee FBO                     30,548,163.203          52.77       
                               200 Newport Avenue                                                                 
                               JQ6N                                                                               
                               North Quincy MA 02171                                                              
------------------------------------------------------------------------------------------------------------------

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                                     ADVISER CLASS PORTFOLIOS                                                    
-----------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF               % OF     
        PORTFOLIO                    NAME AND ADDRESS                            SHARES                CLASS     
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
-----------------------------------------------------------------------------------------------------------------
                               National Financial Services Corporation        14,402,079.109          24.88      
                               For Exclusive Benefit Of Our Customers                                            
                               Attn Mutual Funds Dept 5th Floor                                                  
                               One World Financial Center                                                        
                               New York NY 10281                                                                 
-----------------------------------------------------------------------------------------------------------------
                               Fidelity Investments Institutional             10,471,794.564          18.09      
                               Operations Co FIIOC As Agent For                                                  
                               100 Magellan Way KW1C                                                             
                               Covington KY 41015                                                                
-----------------------------------------------------------------------------------------------------------------

The persons listed above as owning 25% or more of the outstanding shares of each
Portfolio may be presumed to "control" (as that term is defined in the 1940 Act)
such Portfolios. As a result, those persons would have the ability to vote a    
majority of the shares of the Portfolios on any matter requiring the approval of
shareholders of such Portfolios.                                                

 PERFORMANCE INFORMATION

The Fund may from time to time quote various performance figures to illustrate  
the past performance of its Portfolios. Performance quotations by investment    
companies are subject to rules adopted by the SEC, which require the use of     
standardized performance quotations or, alternatively, that every               
non-standardized performance quotation furnished by the Fund be accompanied by  
certain standardized performance information computed as required by the SEC. An
explanation of the methods for computing performance follows.                   

Total Return                                                                    

A Portfolio's average annual total return is determined by finding the average  
annual compounded rates of return over 1, 5, and 10 year periods (or, if        
shorter, the period since inception 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, if shorter, the period since inception of the
Portfolio) and the deduction of all applicable Fund expenses on an annual basis.
When considering average total return figures for periods longer than one year, 
it is important to note that a Portfolio's annual total return for any one      
period might have been greater or less than the average for the entire period.  
Average annual total return is calculated according to the following formula:   

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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 a hypothetical $1,000 payment
      made at the beginning of the stated period

The average annual total return of the Institutional Class Shares of each       
Portfolio for the periods noted is set forth below:                             

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------
                                              1 Year ended   5 Years ended     10 Years     Inception to   Inception  
        Portfolio                               9/30/01         9/30/01          9/30/01      9/30/01       Date      
----------------------------------------------------------------------------------------------------------------------
                                                                                                                      
Equity Portfolio                                  -30.58            7.85          10.71        13.49      11/14/84    
----------------------------------------------------------------------------------------------------------------------
Growth Portfolio *                                   N/A             N/A            N/A          N/A           N/A    
----------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                          -50.80           10.57          13.99        16.05       3/30/90    
----------------------------------------------------------------------------------------------------------------------
Mid Cap Growth II                                    N/A             N/A            N/A          N/A      12/28/00    
----------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                           -21.23           14.68            N/A        19.14      12/30/94    
----------------------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                        -50.83             N/A            N/A        38.17       6/30/98    
----------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio                         -21.25            7.99          13.86        11.03        7/1/86    
----------------------------------------------------------------------------------------------------------------------
Strategic Small Value Portfolio                     -.60             N/A            N/A         4.41       6/30/00    
----------------------------------------------------------------------------------------------------------------------
Value Portfolio                                     8.68            8.79          13.25        14.41       11/5/84    
----------------------------------------------------------------------------------------------------------------------
Value II Portfolio *                                 N/A             N/A            N/A          N/A           N/A    
----------------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio                             5.03            5.33           4.77         4.97       8/29/90    
----------------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                   13.68            7.57           8.20         9.13       9/29/87    
----------------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                   12.74            7.80           8.37         9.99      11/14/84    
----------------------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio            13.45            7.72           7.94         8.97       8/31/90    
----------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio                       5.26            2.39            N/A         4.83       4/30/93    
----------------------------------------------------------------------------------------------------------------------
High Yield Portfolio                              -16.27            1.50           7.81         7.38       2/28/89    
----------------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio                    13.42            7.40            N/A         7.81       10/3/94    
----------------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio                3.63             .88            N/A         3.63       4/29/94    
----------------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio                         10.23            6.64            N/A         6.23       3/31/92    
----------------------------------------------------------------------------------------------------------------------
Municipal Portfolio                                10.69            6.57            N/A         7.12       10/1/92    
----------------------------------------------------------------------------------------------------------------------
NY Municipal Portfolio *                             N/A             N/A            N/A          N/A           N/A    
----------------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio             13.04            7.88            N/A         8.60       3/31/92    
----------------------------------------------------------------------------------------------------------------------
Targeted Duration Portfolio *                        N/A             N/A            N/A          N/A           N/A    
----------------------------------------------------------------------------------------------------------------------
Balanced Portfolio                                -13.51            8.76            N/A         9.85      12/31/92    
----------------------------------------------------------------------------------------------------------------------
Balanced Plus Portfolio *                            N/A             N/A            N/A          N/A           N/A    
----------------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                       -17.23            5.73            N/A         8.31       7/29/94    
----------------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio            11.12            8.75            N/A        10.33       10/7/94    
----------------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio         10.13             N/A            N/A         9.35       6/20/00    
----------------------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                        13.30            8.12            N/A         8.25       4/12/95    
----------------------------------------------------------------------------------------------------------------------

*     The Growth, Value II, NY Municipal, Targeted Duration and Balanced Plus   
Portfolios had not commenced operations as of September 30, 2001.   

The average annual total return of the Investment Class shares of each Portfolio
for the periods noted is set forth below:                                       

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---------------------------------------------------------------------------------------------------------------
                                           1 Year         5 Years         10 Years                             
                                            ended          ended           ended     Inception to   Inception  
                Portfolio                  9/30/01        9/30/01         9/30/01       9/30/01        Date    
                ---------                                                                                      
---------------------------------------------------------------------------------------------------------------
                                                                                                               
Mid Cap Value Portfolio                     -21.36           14.48            N/A         14.43       5/10/96  
---------------------------------------------------------------------------------------------------------------
Value Portfolio                               8.46            8.62            N/A          8.89        5/6/96  
---------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio                       4.88             N/A            N/A          5.29       8/16/99  
---------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio             12.59             N/A            N/A          7.47      10/15/96  
---------------------------------------------------------------------------------------------------------------
High Yield Portfolio                        -16.42            1.34            N/A          2.23       5/21/96  
---------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio              13.24             N/A            N/A          9.59       8/16/99  
---------------------------------------------------------------------------------------------------------------
Balanced Portfolio                          -13.65             N/A            N/A          7.84        4/3/97  
---------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                 -17.42            5.56            N/A          5.57       6/10/96  
---------------------------------------------------------------------------------------------------------------

The average annual total return of the Adviser Class Shares of each Portfolio   
for the periods noted is set forth below:                                       

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------
                                           1 Year         5 Years         10 Years                             
                                            ended          ended            ended    Inception to   Inception  
                Portfolio                  9/30/01        9/30/01          9/30/01      9/30/01        Date    
                ---------                                                                                      
---------------------------------------------------------------------------------------------------------------
                                                                                                               
Equity Portfolio                            -30.81             N/A            N/A          1.94       1/16/98  
---------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                    -50.91             N/A            N/A         11.16       1/31/97  
---------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                     -21.40             N/A            N/A          2.67       7/17/98  
---------------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                     N/A             N/A            N/A        -30.80       1/10/01  
---------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio                   -21.46             N/A            N/A          1.37       1/22/99  
---------------------------------------------------------------------------------------------------------------
Value Portfolio                               8.49             N/A            N/A         10.29       7/17/96  
---------------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio             13.29             N/A            N/A          7.06        3/1/99  
---------------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio             12.43             N/A            N/A          7.02       11/7/96  
---------------------------------------------------------------------------------------------------------------
High Yield Portfolio                        -16.62             N/A            N/A          0.00       1/31/97  
---------------------------------------------------------------------------------------------------------------
Balanced Portfolio                          -13.79             N/A            N/A          8.04       11/1/96  
---------------------------------------------------------------------------------------------------------------

The Portfolios may also calculate total return on an aggregate basis which      
reflects the cumulative percentage change in value over the measuring period.   
Aggregate total returns may be shown by means of schedules, charts or graphs and
may include subtotals of the various components of total return (e.g., income   
dividends or returns for specific types of securities such as industry or       
country types). The formula for calculating aggregate total return can be       
expressed as follows:                                                           

Aggregate Total Return =  [ ( ERV ) - P ] 
                         -----------------
                                   P

The aggregate total return of each Portfolio for the periods noted is set forth 
below. One year aggregate total return figures and Portfolio inception dates are
reflected under the average annual total return figures provided above.         

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-----------------------------------------------------------------------------------------------------------
                                                          5 Years Ended    10 Years Ended   Inception to   
                       Portfolio                            9/30/01 *        9/30/01 *        9/30/01 *    
-----------------------------------------------------------------------------------------------------------
                                                                                                           
Equity Portfolio                                              45.93            176.52          746.18      
-----------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio                                      65.28            270.37          454.34      
-----------------------------------------------------------------------------------------------------------
Mid Cap Growth II Portfolio                                    N/A              N/A            -51.50      
-----------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio                                       98.33             N/A            226.24      
-----------------------------------------------------------------------------------------------------------
Small Cap Growth Portfolio                                     N/A              N/A            186.17      
-----------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio                                     46.86            266.05          393.19      
-----------------------------------------------------------------------------------------------------------
Strategic Small Value Portfolio                                N/A              N/A             5.56       
-----------------------------------------------------------------------------------------------------------
Value Portfolio                                               52.42            247.14          873.35      
-----------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio                                       29.64            59.35            71.18      
-----------------------------------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                              44.05            119.88          239.76      
-----------------------------------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                              45.59            123.42          398.62      
-----------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio                       45.07            114.72          159.05      
-----------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio                                 12.51             N/A             48.77      
-----------------------------------------------------------------------------------------------------------
High Yield Portfolio                                           7.72            112.21          145.12      
-----------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio                               42.89             N/A             69.14      
-----------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio                           4.46             N/A             30.30      
-----------------------------------------------------------------------------------------------------------
Limited Duration Portfolio                                    37.92             N/A             77.53      
-----------------------------------------------------------------------------------------------------------
Municipal Portfolio                                           37.43             N/A             85.74      
-----------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio                        46.10             N/A            119.09      
-----------------------------------------------------------------------------------------------------------
Balanced Portfolio                                            52.18             N/A            127.42      
-----------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                   32.17             N/A             77.30      
-----------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio                       52.11             N/A             98.63      
-----------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                     N/A              N/A             12.11      
-----------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio                                   47.75             N/A             66.93      
-----------------------------------------------------------------------------------------------------------

* The above performance information relates solely to the Institutional Class.  
Performance for the Investment Class and Adviser Class would be lower because of
the Shareholder Servicing fees and 12b-1 fees charged to the Investment Class   
and Adviser Class, respectively.                                                

The Portfolios may also calculate a total return gross of all expenses which    
reflects the cumulative percentage change in value over the measuring period    
prior to the deduction of all fund expenses. The formula for calculating the    
total return gross of all expenses can be expressed as follows:                 

Total Return Gross of all Expenses = ((ERV + E)/P) -1)                          

E = Fund expenses deducted from the ending redeemable value during the measuring
period.                                                                         

The annualized since inception gross of fees returns of the Institutional Class 
                                                           -------------------
Portfolios are set forth below:                                                 
----------                                                                      

     ---------------------------------------------------------------------------
                     Portfolio                        Total Return (%)
     ---------------------------------------------------------------------------
Equity Portfolio                                           14.20      
     ---------------------------------------------------------------------------
Mid Cap Growth Portfolio                                   16.74      
     ---------------------------------------------------------------------------
Mid Cap Growth II                                          -51.50     
     ---------------------------------------------------------------------------
Mid Cap Value Portfolio                                    20.14      
     ---------------------------------------------------------------------------

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---------------------------------------------------------------------------------
                     Portfolio                            Total Return (%)       
---------------------------------------------------------------------------------
                                                                                 
Small Cap Growth Portfolio                                     39.65             
---------------------------------------------------------------------------------
Small Cap Value Portfolio                                      11.98             
---------------------------------------------------------------------------------
Strategic Small Value Portfolio                                 5.75             
---------------------------------------------------------------------------------
Value Portfolio                                                15.13             
---------------------------------------------------------------------------------
Cash Reserves Portfolio                                         5.27             
---------------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                                9.66             
---------------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                               10.51             
---------------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio                         9.49             
---------------------------------------------------------------------------------
Global Fixed Income Portfolio                                   5.45             
---------------------------------------------------------------------------------
High Yield Portfolio                                            8.00             
---------------------------------------------------------------------------------
Intermediate Duration Portfolio                                 8.34             
---------------------------------------------------------------------------------
International Fixed Income Portfolio                            4.18             
---------------------------------------------------------------------------------
Limited Duration Portfolio                                      6.66             
---------------------------------------------------------------------------------
Municipal Portfolio                                             7.70             
---------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio                          9.13             
---------------------------------------------------------------------------------
Balanced Portfolio                                             10.46             
---------------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                     9.08             
---------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio                        10.36             
---------------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                      1.74             
---------------------------------------------------------------------------------
Advisory Mortgage Portfolio                                     7.43             
---------------------------------------------------------------------------------

The annualized since inception gross of fees returns of the Investment Class    
                                                        ----------------
Portfolios are set forth below:                                                 
----------                                                                      

                                                                [Download Table]

---------------------------------------------------------------------------------
                     Portfolio                            Total Return (%)       
---------------------------------------------------------------------------------
                                                                                 
Mid Cap Value                                                  15.28             
---------------------------------------------------------------------------------
Value                                                           9.68             
---------------------------------------------------------------------------------
Cash Reserves *                                                 5.80             
---------------------------------------------------------------------------------
Core Plus Fixed Income                                          8.13             
---------------------------------------------------------------------------------
High Yield                                                      2.91             
---------------------------------------------------------------------------------
Intermediate Duration                                          10.12             
---------------------------------------------------------------------------------
Balanced                                                        8.68             
---------------------------------------------------------------------------------
Multi-Asset-Class                                               6.55             
---------------------------------------------------------------------------------

*    Cumulative Return Since Inception (8/16/99)                                

The annualized since inception gross of fees returns of the Adviser Class       
                                                     -------------
Portfolios are set forth below:                                                 
----------                                                                      

                                                                [Download Table]

---------------------------------------------------------------------------------
                     Portfolio                            Total Return (%)       
---------------------------------------------------------------------------------
                                                                                 
Equity Portfolio                                                2.83             
---------------------------------------------------------------------------------
Mid Cap Growth                                                 12.06             
---------------------------------------------------------------------------------
Mid Cap Value                                                   5.02             
---------------------------------------------------------------------------------
Small Cap Growth                                              -19.62             
---------------------------------------------------------------------------------
Small Cap Value                                                 2.36             
---------------------------------------------------------------------------------
Value                                                          11.19             
---------------------------------------------------------------------------------

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---------------------------------------------------------------------------------
                Portfolio                                  Total Return(%)       
---------------------------------------------------------------------------------
                                                                                 
U.S. Core Fixed Income                                          7.64             
---------------------------------------------------------------------------------
Core Plus Fixed Income                                          7.78             
---------------------------------------------------------------------------------
High Yield                                                       .75             
---------------------------------------------------------------------------------
Balanced                                                        8.90             
---------------------------------------------------------------------------------


The Municipal and NY Municipal Portfolio may also calculate a total return which
reflects the cumulative percentage change in value over the measuring period    
after the deduction of income taxes. The formula for calculating the total after
tax return can be expressed as follows:                                         

Total After Tax Return = (((((ERV-M)/P) x T) + (M/P))-1)                        
M = Portion of ending redeemable value which was derived from tax exempt income.

T = Applicable tax rate.                                                        

The after tax returns are as follows for the Municipal Portfolio for the period 
10/1/92 (inception) through 9/30/01:                                            

       Pre-tax return                                          Post-tax return
Municipal Portfolio      6.69 */ 67.80 ** 6.72 */ 68.26 **                      

*Annualized                                                                     
**Cumulative                                                                    
The federal tax rate used was 31%. All municipal interest was considered exempt 
from federal taxes.                                                             

Yield                                                                           

In addition to total return, each Portfolio of the Fund (except the Cash        
Reserves Portfolio) may quote performance in terms of a 30-day yield. The yield 
formula provides for semiannual compounding, which assumes that net investment  
income is earned and reinvested at a constant rate and annualized at the end of 
a six-month period. Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods differ from the     
accounting methods used by the Portfolio to maintain its books and records,     
therefore the advertised 30-day yield may not reflect the income paid to your   
own account or the yield reported in the Portfolio's reports to shareholders. A 
Portfolio may also advertise or quote a yield which is gross of expenses.       

The yield figures provided will be calculated according to a formula prescribed 
by the SEC and can be expressed as follows:                                     

       Yield = 2 [((a-b/cd) + 1)/6/ - 1]

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 dividends.                       
d =  the maximum offering price per share on the last day of the period.        

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For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by a Portfolio at a discount or premium,
the formula generally calls for amortization of the discount or premium; the    
amortization schedule will be adjusted monthly to reflect changes in the market 
value of the debt obligations. The 30-day yield figures for each of the Fund's  
Fixed Income and equity Portfolios (except for the Cash Reserve Portfolio) is   
set forth below:                                                                

                                                                [Download Table]

------------------------------------------------------------------------
                                                          Period Ending 
      Institutional Class Portfolios                        9/30/01     
------------------------------------------------------------------------
                                                                        
Equity Portfolio                                                  0.73% 
------------------------------------------------------------------------
Growth Portfolio *                                                  N/A 
------------------------------------------------------------------------
Mid Cap Growth Portfolio                                         -0.10% 
------------------------------------------------------------------------
Mid Cap Growth II Portfolio                                             
------------------------------------------------------------------------
Mid Cap Value Portfolio                                           0.17% 
------------------------------------------------------------------------
Small Cap Growth Portfolio                                       -1.71% 
------------------------------------------------------------------------
Small Cap Value Portfolio                                         0.55% 
------------------------------------------------------------------------
Strategic Small Value Portfolio                                         
------------------------------------------------------------------------
Value Portfolio                                                   1.21% 
------------------------------------------------------------------------
Value II Portfolio *                                                N/A 
------------------------------------------------------------------------
U.S. Core Fixed Income Portfolio                                  4.72% 
------------------------------------------------------------------------
Core Plus Fixed Income Portfolio                                  5.38% 
------------------------------------------------------------------------
Investment Grade Fixed Income Portfolio                           5.06% 
------------------------------------------------------------------------
Global Fixed Income Portfolio                                     5.37% 
------------------------------------------------------------------------
High Yield Portfolio                                             13.86% 
------------------------------------------------------------------------
Intermediate Duration Portfolio                                   4.61% 
------------------------------------------------------------------------
International Fixed Income Portfolio                              3.25% 
------------------------------------------------------------------------
Limited Duration Portfolio                                        4.39% 
------------------------------------------------------------------------
Municipal Portfolio                                               3.29% 
------------------------------------------------------------------------
NY Municipal Portfolio *                                            N/A 
------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio                            6.25% 
------------------------------------------------------------------------
Targeted Duration Portfolio *                                       N/A 
------------------------------------------------------------------------
Balanced Portfolio                                                2.65% 
------------------------------------------------------------------------
Balanced Plus Portfolio *                                           N/A 
------------------------------------------------------------------------
Multi-Asset-Class Portfolio                                       2.29% 
------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio                           4.95% 
------------------------------------------------------------------------
Advisory Foreign Fixed Income II Portfolio                        4.29% 
------------------------------------------------------------------------
Advisory Mortgage Portfolio                                       4.51% 
------------------------------------------------------------------------

*    As of September 30, 2001, the Growth, Value II, NY Municipal, Targeted     
Duration, and the Balanced Portfolios had not commenced operations.   

                                                                [Download Table]

------------------------------------------------------------------------
                                                          Period Ending 
 Investment Class Portfolios                                9/30/01     
------------------------------------------------------------------------
                                                                        
Mid Cap Value Portfolio                                           0.01% 
------------------------------------------------------------------------
Value Portfolio                                                   1.06% 
------------------------------------------------------------------------
U.S. Core Fixed Income*                                             N/A 
------------------------------------------------------------------------
Core Plus Fixed Income                                            5.20% 
------------------------------------------------------------------------
High Yield                                                       13.86% 
------------------------------------------------------------------------
Intermediate Duration                                             4.44% 
------------------------------------------------------------------------
Balanced                                                          2.50% 
------------------------------------------------------------------------
Multi-Asset-Class                                                 2.13% 
------------------------------------------------------------------------

*    As of September 30, 2001, the U.S. Core Fixed Income Portfolio had not     
commenced operations.                                                           

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                                                                [Download Table]

------------------------------------------------------------------------
                                                        Period Ending   
Adviser Class Portfolios                                  9/30/01       
------------------------------------------------------------------------
                                                                        
Equity Portfolio                                             0.55%      
------------------------------------------------------------------------
Mid Cap Growth Portfolio                                    -0.36%      
------------------------------------------------------------------------
Mid Cap Value Portfolio                                      0.17%      
------------------------------------------------------------------------
Small Cap Growth*                                             N/A       
------------------------------------------------------------------------
Small Cap Value                                              0.28%      
------------------------------------------------------------------------
Value Portfolio                                              0.96%      
------------------------------------------------------------------------
U.S. Core Fixed Income                                       4.48%      
------------------------------------------------------------------------
Core Plus Fixed Income                                       5.01%      
------------------------------------------------------------------------
High Yield                                                  13.86%      
------------------------------------------------------------------------
Balanced                                                     2.40%      
------------------------------------------------------------------------
Multi-Asset-Class *                                           N/A       
------------------------------------------------------------------------

* As of September 30, 2001, the Multi-Asset-Class Portfolio and Small Cap Growth
Portfolio had not commenced operations.                                         

Yield of the Cash Reserves Portfolio                                            

The current yield of the Cash Reserves Portfolio is calculated daily on a base  
period return of 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   
the value of the account at the beginning of the period and then multiplying it 
by 365/7 to get 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 annualizing 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 results.                                                             

Set forth below is an example, for purposes of illustration only, of the current
and effective yield calculations for the Cash Reserves Portfolio for the 7 day  
base period ending September 30, 2001.                                          

                                   Period ending           Period ending
                             9/30/01                 9/30/01
                             -------                 -------
                                      Institutional Class     Investment Class
Value at beginning of period          $1.00                   $1.00         
Value at end of period                $1.00                   $1.00         
Current yield                          3.01%                   2.86%        
Effective yield                        3.05%                   2.90%        

The net asset value per share of the Cash Reserves Portfolio is $1.00 and has   
remained at that amount since the initial offering of the Portfolio. The yield  
of the Portfolio will fluctuate. The annualizing 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 net 
asset value and calculating yield.                                              

Other Performance Information                                                   

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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 net asset value and      
determining performance.                                                        

From time to time, a Portfolio's performance may be compared to other mutual    
funds tracked by financial or business publications and periodicals. For        
example, a Portfolio may quote Morningstar, Inc. in its 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 the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising. The performance of a Portfolio, as well as the   
composite performance of all fixed income Portfolios and all equity Portfolios, 
may be compared to data prepared by Lipper Analytical Services, Inc., CDA       
Investment Technologies, Inc., Morningstar, Inc., the Donoghue Organization,    
Inc. or other independent services which monitor the performance of investment  
companies, and may be quoted in advertising in terms of their rankings in each  
applicable universe. In addition, the Fund may use performance data reported in 
financial and industry publications, including Barron's, Business Week, Forbes, 
Fortune, Investor's Business Daily, IBC/Donoghue's Money Fund Report, Money     
Magazine, The Wall Street Journal and USA Today.                                

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. The Portfolios may use the performance of these capital      
markets 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. 

The Portfolios may include in advertisements, 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, shareholder profiles and   
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and various investment alternatives. Advertisements may 
include lists of representative Morgan Stanley clients. The Portfolios may also 
from time to time include discussions or illustrations of the effects of        
compounding in advertisements. "Compounding" refers to the fact that, if        
dividends or other distributions on a Portfolio investment are reinvested by    
being paid in additional Portfolio shares, any future income or capital         
appreciation of a Portfolio would increase the value, not only of the original  
investment in the Portfolio, but also of the additional Portfolio shares        
received through reinvestment.                                                  

The Portfolios may include in its advertisements, 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). Advertisements and sales materials       

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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 Morgan Stanley; and the portfolio        
manager's goals, strategies and investment techniques.                          

The Portfolios' 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. The Portfolios may include     
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. 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 Morgan Stanley 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 may quote various measures of volatility and benchmark           
correlation in advertising. The Portfolios may compare these measures 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. A Portfolio may also advertise its current interest rate       
sensitivity, duration, weighted average maturity or similar maturity            
characteristics.                                                                

The Portfolio may advertise examples of the effects of periodic investment      
plans, including the principle 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.                                             

The after-tax returns of the Portfolios may also be advertised or otherwise     
reported. This is generally calculated in a manner similar to the computation of
average annual total returns discussed above, except that the calculation also  
reflects the effect of taxes on returns.                                        

 COMPARATIVE INDICES

Each Portfolio of the Fund may from time to time use one or more of the         
following unmanaged indices for performance comparison purposes:                

Consumer Price Index                                                            
--------------------                                                            

The Consumer Price Index is published by the US Department of Labor and is a    
measure of the average change over time in the prices paid by urban consumers   
for a market basket of consumer goods and services.                             

Financial Times Actuaries World Ex US Index                                     
-------------------------------------------                                     

The FT-A World Ex US Index is a capitalization-weighted price index, expressed  
in dollars, after dividend withholding taxes, of foreign stock prices. This     
Index is calculated daily and reflects price changes in 24 major foreign equity 
markets. It is jointly compiled by the Financial Times, Ltd., Goldman, Sachs &  
Co., and County NatWest/Wood Mackenzie in conjunction with the Institute of     
Actuaries and the Faculty of Actuaries.                                         

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CS First Boston Global High Yield Index                                         
---------------------------------------                                         

The CS First Boston Global High Yield Index serves as a benchmark to evaluate   
the performance of low quality bonds. Low quality is defined as those bonds in  
the range from BBB to CCC and defaults. Morningstar receives and publishes this 
figure as a monthly total return.                                               

JP Morgan Traded Government Bond Index                                          
--------------------------------------                                          

The JP Morgan Traded Government Bond Index is designed to provide a             
comprehensive measure of total return performance of the domestic Government    
bond market of 13 countries. The Index is maintained by JP Morgan Securities,   
Inc. and includes only liquid issues.                                           

J.P. Morgan Emerging Markets Bond Global Index (EMBI Global)                    
------------------------------------------------------------                    

The EMBI Global tracks total returns for U.S.-dollar denominated debt           
instruments issued by emerging market sovereign and quasi-sovereign entities:   
Brady bonds, loans, Eurobonds, and local market instruments. Countries covered  
are Algeria, Argentina, Brazil, Bulgaria, Chile, China, Colombia, Cote d'Ivoire,
Croatia, Ecuador, Greece, Hungary, Lebanon, Malaysia, Mexico, Morocco, Nigeria, 
Panama, Peru, the Philippines, Poland, Russia, South Africa, South Korea,       
Thailand, Turkey, and Venezuela.                                                

Lehman Brothers 5-Year Municipal Bond Index                                     
-------------------------------------------                                     

Lehman Brothers 5-Year Municipal Bond Index is a total return performance       
benchmark for the intermediate investment grade tax exempt bond market. The     
Index includes general obligation bonds, revenue bonds, insured bonds and       
prefunded bonds with maturities between 4 and 6 years.                          

Lehman Brothers 10-Year Municipal Bond Index                                    
--------------------------------------------                                    

Lehman Brothers 10-Year Municipal Bond Index is a total return performance      
benchmark for the long term, investment grade tax exempt bond market. The Index 
includes general obligation bonds, revenue bonds, insured bonds and prefunded   
bonds with maturities between 8 and 12 years.                                   

Lehman Brothers Aggregate Index                                                 
-------------------------------                                                 

The Lehman Brothers Aggregate Index is a fixed-income market value-weighted     
Index that combines the Lehman Brothers Government/Credit Index and the Lehman  
Brothers Mortgage-Backed Securities Index. It includes fixed rate issues of     
investment grade (BBB) or higher, with maturities of at least one year and      
outstanding par values of at least $150 million.                                

Lehman Brothers Government/Credit Index                                         
---------------------------------------                                         

The Lehman Government/Credit Index includes securities in the Government and    
Corporate Indices. Specifically, the Government Index includes treasuries (i.e.,
public obligations of the U.S. Treasury that have remaining maturities of more  
than one year) and agencies (i.e., publicly issued debt of U.S. Government      
agencies, quasi-federal corporations, and corporate or foreign debt guaranteed  
by the U.S. Government). The Corporate Index includes publicly issued U.S.      
corporate and Yankee                                                            

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debentures and secured notes that meet specified maturity, liquidity, and       
quality requirements. Subgroups of the Lehman Government/Corporate Bond Index,  
based on maturity, are the Lehman Government/Corporate Intermediate Index and   
the Lehman Government/Corporate Long Index.                                     

Lehman Brothers Intermediate Government/Credit Index                            
----------------------------------------------------                            

The Lehman Brothers Intermediate Government/Credit Index measures the           
performance of the 1,000 largest companies in the Russell 3000 Index, which     
represents approximately 92% of the total market capitalization of the Russell  
3000 Index. As of the latest reconstitution, the average market capitalization  
was approximately $13 billion; the median market capitalization was             
approximately $3.8 billion. The smallest company in the index had an approximate
market capitalization of $1.4 billion.                                          

Lehman Brothers Long Municipal Bond Index                                       
-----------------------------------------                                       

The Lehman Brothers Long Municipal Bond Index is a total return for the         
long-term, investment-grade tax-exempt bond market for bonds. The Index includes
municipal bonds with maturities of 22 years or more.                            

Lehman Brothers Mortgage-Backed Securities Index                                
------------------------------------------------                                

The Lehman Brothers Mortgage-Backed Securities Index is a market                
capitalization-weighted index of 15- and 30-year fixed-rate securities backed by
mortgage pools of the Government National Mortgage Association (GNMA), Fannie   
Mae and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgage
with fixed-rate coupons.                                                        

Lipper Growth & Income Fund Index                                               
---------------------------------                                               

The Lipper Growth & Income Fund Index is a net asset value weighted Index of the
30 largest Funds within the Growth & Income investment objective. It is         
calculated daily with adjustments for income dividends and capital gains        
distributions as of the ex-dividend dates.                                      

Lipper High Current Yield Fund Average                                          
--------------------------------------                                          

The Lipper High Current Yield Fund Average reports the average return of all the
Funds tracked by Lipper Analytical Services, Inc. classified as high yield      
funds. The number of Funds tracked varies. As a result, reported returns for    
longer time periods do not always match the linked product of shorter period    
returns.                                                                        

Salomon World Government Bond Index ex US                                       
-----------------------------------------                                       

The Salomon World Government Bond Index ex US is designed to provide a          
comprehensive measure of total return performance of the domestic government    
bond markets of 12 countries outside the U.S. The index has been constructed    
with the aim of choosing "an inclusive" universe of institutionally traded fixed
rate bonds. The selection of security types to be included in the index is made 
with the aim of being as comprehensive as possible, while satisfying the        
criterion of reasonable availability to domestic and international institutions 
and the existence of complete pricing and market profile data.                  

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International Finance Corporation Emerging Markets Index                        
--------------------------------------------------------                        

The International Finance Corporation Emerging Markets Index is an Index        
designed to measure the total return in either US or local currency terms of    
developing markets as defined by the World Bank. The selection of stocks is made
based on size, liquidity and industry. The weight given to any stock is         
determined by its market capitalization.                                        

Lipper Money Market Average                                                     
---------------------------                                                     

The Lipper Money Market Average reports the average return of all the Funds     
tracked by Lipper Analytical Services, Inc., classified as money market funds   
for any given period. The number of funds tracked varies. As a result, reported 
returns for longer time periods do not always match the linked product of       
shorter period returns.                                                         

Merrill Lynch Corporate & Government Bond Index                                 
-----------------------------------------------                                 

The Merrill Lynch Corporate & Government Bond Index includes over 4,500 U.S.    
Treasury, Agency and investment grade corporate bonds. The Index is calculated  
daily and will be used from time to time in performance comparison for partial  
month periods.                                                                  

Morgan Stanley Capital International World ex USA Index                         
-------------------------------------------------------                         

The Morgan Stanley Capital International World ex USA Index is a                
capitalization-weighted price index expressed in dollars. The Index reflects the
performance of over 1,100 companies in 19 foreign equity markets. The Index     
includes dividends, net of foreign withholding taxes.                           

Morgan Stanley Capital International EAFE Index                                 
-----------------------------------------------                                 

The Morgan Stanley Capital International EAFE Index is an arithmetic, market    
value-weighted average of the performance of over 900 securities listed on the  
stock exchanges of countries in Europe, Australia and the Far East.             

Morgan Stanley Capital International EAFE-GDP Weighted Index                    
------------------------------------------------------------                    

The Morgan Stanley Capital International EAFE-GDP index is an arithmetic average
of the performance of over 900 securities listed on the stock exchanges of      
countries in Europe, Australia and the Far East. The Index is weighted by the   
Gross Domestic Product of the various countries in the index.                   

Morgan Stanley Capital International Emerging Markets Free Index                
----------------------------------------------------------------                

The Morgan Stanley Capital International Emerging Markets Free Index is a       
capitalization weighted Index of over 800 stocks from 17 different emerging     
market countries.                                                               

Nasdaq Industrials Index                                                        
------------------------                                                        

The Nasdaq Industrials Index is a measure of all Nasdaq National Market System  
issues classified as industrial based on Standard Industrial Classification     
codes relative to a company's major source of revenue. The Index is exclusive of
warrants, and all domestic common stocks traded in the regular Nasdaq market    
which are not part of the Nasdaq National Market System. The Nasdaq Industrials 
Index is market value weighted.                                                 

Russell 1000                                                                    
------------                                                                    

The Russell 1000 Index measures the performance of the 1,000 largest companies  
in the Russell 3000 Index,                                                      

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which represents approximately 92% of the total market capitalization of the    
Russell 3000 Index. As of the latest reconstitution, the average market         
capitalization was approximately $13 billion; the median market capitalization  
was approximately $3.8 billion. The smallest company in the index had an        
approximate market capitalization of $1.4 billion.                              

Russell 2000                                                                    
------------                                                                    

The Russell 2000 Index measures the performance of the 2,000 smallest companies 
in the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the  
average market capitalization was approximately $530 million; the median market 
capitalization was approximately $410 million. The largest company in the index 
had an approximate market capitalization of $1.4 billion.                       

Russell 2500                                                                    
------------                                                                    

The Russell 2500 Index measures the performance of the 2,500 smallest companies 
in the Russell 3000 Index, which represents approximately 17% of the total      
market capitalization of the Russell 3000 Index. As of the latest               
reconstitution, the average market capitalization was approximately $885        
million; the median market capitalization was approximately $541 million. The   
largest company in the index had an approximate market capitalization of $3.8   
billion.                                                                        

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Russell 3000                                                                    
------------                                                                    

The Russell 3000 Index is a combination of the Russell 1000 Index and the       
Russell 2000 Index.                                                             

Salomon 1-3 Year Treasury/Government Sponsored Index                            
----------------------------------------------------                            

The Salomon 1-3 Year Treasury/Government Sponsored Index includes U.S. Treasury 
and agency securities with maturities one year or greater and less than three   
years. Securities with amounts outstanding of at least $25 million are included 
in the Index.                                                                   

Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index                  
--------------------------------------------------------------                  

The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index includes U.S.
Treasury, agency and investment grade (BBB or better) securities with maturities
one year or greater and less than three years. Securities with amounts          
outstanding of at least $25 million are included in the Index.                  

Salomon Broad Index                                                             
-------------------                                                             

The Salomon Broad Index, also known as the Broad Investment Grade (BIG) Index,  
is a fixed-income market capitalization-weighted index, including U. S.         
Treasury, agency, mortgage and investment grade (BBB or better) corporate       
securities with maturities of one year or longer and with amounts outstanding of
at least $25 million. The government Index includes traditional agencies; the   
mortgage index includes agency pass-throughs and FHA and GNMA project loans; the
corporate index includes returns for 17 industry sub-sectors. Securities        
excluded from the Broad Index are floating/variable rate bonds, private         
placements, and derivatives (e.g., U. S. Treasury zeros, CMOs, mortgage strips).
Every issue is trader-priced at month-end and the Index is published monthly.   

Salomon High-Yield Market Index                                                 
-------------------------------                                                 

The Salomon High-Yield Market Index includes public, non-convertible corporate  
bond issues with at least one year remaining to maturity and $50 million in par 
amount outstanding which carry a below investment-grade quality rating from     
either Standard & Poor's or Moody's rating services.                            

Salomon Mortgage Index                                                          
----------------------                                                          

The Salomon Mortgage Index includes agency pass-throughs (GNMA, FHLMC, FNMA) and
FHA and GNMA project loans. Pools with remaining terms shorter than 25 years are
seasoned; pools with longer terms are classified as new. The Index is published 
monthly.                                                                        

Salomon One To Three Year Treasury Index                                        
----------------------------------------                                        

The Salomon One To Three Year Treasury Index includes only U.S. Treasury Notes  
and Bonds with maturities one year or greater and less than three years.        

Salomon World Government Bond Index                                             
-----------------------------------                                             

The Salomon World Government Bond Index is designed to provide a comprehensive  
measure of total return performance of the domestic Government bond market of   
thirteen countries. The Index has been constructed with the aim of choosing an  
"all inclusive" universe of institutionally traded fixed-rate bonds. The        
selection of security types to be included in the Index is made with the aim of 
being as comprehensive as possible, while satisfying the criterion of reasonable
availability to domestic and international institutions and the existence of    
complete pricing and market profile data.                                       

S&P 500                                                                         
-------                                                                         

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The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and 
industry group representation. It is a market-value weighted index (stock price 
times number of shares outstanding), with each stock's weight in the Index      
proportionate to its market value. The "500" is one of the most widely used     
benchmarks of U.S. equity performance.                                          

S&P Mid Cap 400 Index                                                           
---------------------                                                           

The S&P Mid Cap 400 Index consists of 400 domestic stocks chosen for market     
size, liquidity, and industry group representation. It is also a market-value   
weighted index and was the first benchmark of midcap stock price movement.      

S&P/BARRA Mid Cap 400 Growth Index                                              
----------------------------------                                              

The S&P/BARRA Mid Cap 400 Growth Index is constructed by dividing the stocks in 
the S&P MidCap 400 Index according to a single attribute: price-to-book ratios. 
The MidCap 400 Growth Index is composed of firms with higher price-to-book      
ratios. Like the MidCap 400, the MidCap 400 Growth Index is                     
capitalization-weighted, meaning that each stock is weighted in the appropriate 
index in proportion to its market value.                                        

S&P 500 Ex South Africa Index                                                   
-----------------------------                                                   

The S&P 500 Ex South Africa Index is the same as the S&P 500 Index excluding    
companies that are on the Investor Responsibility Research Center ("IRRC") list 
of companies doing business in South Africa. This Index is maintained by        
Wilshire Associates.                                                            

The Wilshire Total Market Index (Formerly the Wilshire 5000 Equity Index)       
------------------------------------------------------------------------        

The Wilshire 5000 Index contains over 7500 stocks that trade in the U.S. It is  
often referred to as the "total market index" because it covers such a large and
wide amount of shares - it is the largest index in the World.                   

FINANCIAL STATEMENTS

The Fund's Financial Statements for the fiscal year ended September 30, 2001,   
including notes thereto and the report of Deloitte & Touche LLP thereon are     
incorporated herein by reference. A copy of the 2001 Annual Report will         
accompany the delivery of this Statement of Additional Information.             

APPENDIX-DESCRIPTION OF SECURITIES AND RATINGS

I. Description of Bond Ratings Excerpts from Moody's Investors Service, Inc.'s  
Corporate Bond Ratings:                                                         

Aaa: judged to be the best quality; carry the smallest degree of investment     
risk; Aa--judged to be of high quality by all standards; A: possess many        
favorable investment attributes and are to be considered as higher              

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medium grade obligations; Baa: considered as lower medium grade obligations,    
i.e., they are neither highly protected nor poorly secured; Ba: B: protection of
interest and principal payments is questionable.                                

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in      
default or there may be present elements of danger with respect to principal or 
interest. Ca: Bonds which are rated Ca represent obligations which are          
speculative in a high degree. Such issues are often in default or have other    
marked shortcomings. C: Bonds which are rated C are lowest rated class of bonds 
and issues so rated can be regarded as having extremely poor prospects of ever  
attaining any real investment standing.                                         

Note: Moody's may apply 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.                                                                       

Excerpts from Standard & Poor's Corporation's Corporate Bond Ratings:           

AAA: highest grade obligations; possess the ultimate degree of protection as to 
principal and interest; AA: also qualify as high grade obligations, and in the  
majority of instances differs from AAA issues only in small degree; A: regarded 
as upper medium grade; have considerable investment strength but are not        
entirely free from adverse effects of changes in economic and trade conditions. 
Interest and principal are regarded as safe; BBB: regarded as borderline between
definitely sound obligations and those where the speculative element begins to  
predominate; this group is the lowest which qualifies for commercial bank       
investments.                                                                    

BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as  
predominantly speculative with respect to capacity to pay interest and repay    
principal in accordance with the terms of the obligation. BB indicates the      
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are    
outweighed by large uncertainties or major risk exposures to adverse conditions.
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's believes that such        
payments will be made during such grace period. The D rating also will be used  
upon the filing of a bankruptcy petition if debt service payments are           
jeopardized.                                                                    

Plus(+) or Minus(-): The ratings from "AA" to "CCC" may be modified by the      
addition of a plus or minus sign to show relative standing within the major     
rating categories.                                                              

Excerpts from Fitch IBCA Corporate Bond Ratings:                                

AAA: Bonds considered to be investment grade and of the highest credit quality. 
The obligor has an exceptionally strong ability to pay interest and repay       
principal, which is unlikely to be affected by reasonably foreseeable events.   

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although  
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and  
"AA" categories are not significantly vulnerable to foreseeable future          
developments, short term debt of these issuers is generally rated "-,+".        

A: Bonds considered to be investment grade and of high credit quality. The      
obligor's ability to pay interest and repay principal is considered to be       
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.                                   

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be   
adequate. Adverse changes in economic conditions and                            

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circumstances, however, are more likely to have adverse impact on these bonds,  
and therefore impair timely payment. The likelihood that the ratings of these   
bonds will fall below investment grade is higher than for bonds with higher     
ratings.                                                                        

BB: Bonds are considered speculative. The obligor's ability to pay interest and 
repay principal may be affected over time by adverse economic changes. However, 
business and financial alternatives can be identified which could assist the    
obligor in satisfying its debt service requirements.                            

B: Bonds are considered highly speculative. While bonds in this class are       
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of      
safety and the need for reasonable business and economic activity throughout the
life of the issue.                                                              

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous       
business and economic environment.                                              

CC: Bonds are minimally protected. Default in payment of interest and/or        
principal seems probable over time.                                             

C: Bonds are in imminent default in payment of interest or principal.           

DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their      
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"  
represents the highest potential for recovery on the these bonds, and "D"       
represents the lowest potential for recovery.                                   

Plus(+) Minus(-) Plus and minus signs are used with a rating symbol to indicate 
the relative position of a credit within the rating category. Plus and minus    
signs, however, are not used in the "DDD", "DD", or "D" categories.             

Excerpts from Duff & Phelps Corporate Bond Ratings:                             

AAA: Highest credit quality. The risk factors are negligible, being only        
slightly more than for risk-free U.S. Treasury debt.                            

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time of economic conditions.                 

A+, A, A-: Protection factors are average but adequate. However, risk factors   
are more variable and greater in periods of economic stress.                    

BBB+,BBB, BBB-: Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations when 
due. Present or prospective financial protection factors fluctuate according to 
industry conditions or company fortunes. Overall quality may move up or down    
frequently within this category.                                                

B+, B, B-: Below investment grade and possessing risk that obligations will not 
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists  
for frequent changes in the rating within this category or into a higher or     
lower rating grade.                                                             

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CCC: Well below investment grade securities. Considerable uncertainty exists as 
to timely payment of principal, interest or preferred dividends. Protections    
factors are narrow and risk can be substantial with unfavorable                 
economic/industry conditions, and/or with unfavorable company developments.     

DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.                                                              

DP: Preferred stock with dividend arrearage.                                    

Description of Bond Ratings                                                     

Excerpts from Moody's Investors Service, Inc.'s Preferred Stock Ratings         

aaa: An issue which is rated aaa is considered to be a top-quality preferred    
stock. This rating indicates good asset protection and the least risk of        
dividend impairment within the universe of preferred stocks. aa: An issue which 
is rated aa is considered a high-grade preferred stock. This rating indicates   
that there is reasonable assurance that earnings and asset protection will      
remain relatively well maintained in the foreseeable future. a: An issue which  
is rated a is considered to be an upper medium grade preferred stock. While     
risks are judged to be somewhat greater than in the aaa and aa classifications, 
earnings and asset protection are, nevertheless expected to be maintained at    
adequate levels. baa: An issue which is rated baa is considered to be medium    
grade, neither highly protected nor poorly secured. Earnings and asset          
protection appear adequate at present but may be questionable over any great    
length of time. ba: an issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset   
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An     
issue which is rated b generally lacks the characteristics of a desirable       
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated   
caa is likely to be in arrears on dividend payments. This rating designation    
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is speculative in a high degree an is likely to be in arrears on       
dividends with little likelihood of eventual payment. c: This is the lowest     
rated class of preferred of preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing. 

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating           
classification from "aa "through "b" in its preferred stock rating system. The  
modifier 1 indicated that the security ranks in the higher end of its generic   
rating category; the modifier 2 indicates a mid-range raking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category. 

Excerpts from Standard & Poor's Corporation's Preferred Stock Ratings           

AAA: This is the highest rating that may be assigned by S&P's to a preferred    
stock issue and indicates an extremely strong capacity to pay the preferred     
stock obligations. AA: A preferred stock issue rated AA also qualifies as a high
quality fixed income security. The capacity to pay preferred stock obligations  
is very strong, although not as overwhelming as for issues rated AAA. A: An     
issue rated A is backed by a sound capacity to pay the preferred stock          
obligations, although it is somewhat more susceptible to the adverse effect of  
the changes in circumstances and economic conditions. BBB: An issue rated BBB is
regarded as backed by an adequate capacity to pay the preferred stock           
obligations. Whereas it normally exhibits adequate protection parameter, adverse
economic conditions or changing circumstances are more likely to lead to a      
weakened capacity to make payments for a preferred stock in this category than  
for issues in the A category. BB, B, CCC: Preferred stock rated BB, B, and CCC  
are regarded, on balance, as predominantly speculative with respect to the      
issuer's capacity to pay preferred stock obligations. Bb indicates the lowest   
degree of speculation and CCC the highest degree of speculation. While such     
issues will likely have some quality and protective characteristics, these are  
outweighed by large uncertainties of major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends or  
sinking fund payments but that is currently paying. C: A preferred stock rated C
is a non-paying issue. D: A preferred stock rated D is a non-paying issue with  
the issuer in default on debt instruments.                                      

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Plus(+) or Minus(-): The ratings from "AA" for "B" may be modified by the       
addition of a plus or minus sign to show relative standing within the major     
rating categories.                                                              

Excerpts from Fitch IBCA Preferred Stock Ratings:                               

AAA: Preferred stocks assigned this rating are the highest quality. Strong asset
protection, conservative balance sheet ratios, and positive indications of      
continued protection of preferred dividend requirements are prerequisites for an
"AAA" rating.                                                                   

AA: Preferred of preference issues assigned this rating are good quality. Asset 
protection and coverages of preferred dividends are considered adequate and are 
expected to be maintained.                                                      

A: Preferred of preference issues assigned this rating are good quality. Asset  
protection and coverages of preferred dividends are considered adequate and are 
expected to be maintained.                                                      

BBB: Preferred or preference issues assigned this rating are reasonably safe but
lack the protections of the "A" to "AAA" categories. Current results should be  
watched for possible of deterioration.                                          

BB: Preferred or preference issues assigned this rating are considered          
speculative. The margin of protection is slim or subject to wide fluctuations.  
The loner-term financial capacities of the enterprises cannot be predicted with 
assurance.                                                                      

B: Issues assigned this rating are considered highly speculative. While earnings
should normally cover dividends, directors may reduce or omit payment due to    
unfavorable developments, inability to finance, or wide fluctuations in         
earnings.                                                                       

CCC: Issues assigned this rating are extremely speculative and should be        
assessed on their prospects in a possible reorganization. Dividend payments may 
be in arrears with the status of the current dividend uncertain.                

CC: Dividends are not currently being paid and may be in arrears. The outlook   
for future payments cannot be assured.                                          

C: Dividends are not currently being paid and may be in arrears. Prospects for  
future payments are remote.                                                     

D: Issuer is in default on its debt obligations and has filed for reorganization
or liquidation under the bankruptcy law.                                        

Plus(+) Minus(-) Plus and minus signs are used with a rating symbol to indicate 
the relative position of a credit within the rating category. Plus and minus    
signs, however, are not used in the "AAA", "CCC", "CC", "C", and "D" categories.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘497’ Filing	Date	First	Last	Other Filings

	5/15/02	32
Filed on:	2/5/02
	1/31/02	1	174
	1/23/02	32
	1/5/02	236
	12/31/01	50	220
	9/30/01	40	267	24F-2NT, N-30D, NSAR-B
	12/31/00	235
	12/28/00	6	67
	9/30/00	151	229	24F-2NT, N-30D, NSAR-B, NT-NSAR
	6/30/00	12
	6/20/00	140
	6/1/00	106	133
	10/1/99	133
	9/30/99	151	229	24F-2NT, 497, N-30D, NSAR-B, NT-NSAR
	8/16/99	156	159
	3/1/99	80		497
	1/22/99	72		497
	1/1/99	193	210
	9/30/98	151		24F-2NT, N-30D, NSAR-B, NT-NSAR
	7/17/98	69
	6/30/98	9	70
	1/16/98	64
	9/30/97	151		24F-2NT, N-30D, NSAR-B, NT-NSAR
	4/4/97	115
	1/31/97	65	78
	11/7/96	74
	11/1/96	82
	10/15/96	109	157
	7/17/96	73
	6/10/96	117
	5/21/96	111
	5/10/96	107
	5/6/96	108
	4/10/96	106
	4/12/95	142
	12/30/94	8
	10/7/94	138
	10/3/94	23
	7/29/94	38	84
	4/29/94	25
	11/18/93	226	231
	4/30/93	19
	12/31/92	36
	10/1/92	29
	3/31/92	27	31
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Morgan Stanley Institutional Fund Trust – ‘497’ on 2/5/02

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