497 1 file1.htm

September 22, 2006

Supplement

 

SUPPLEMENT DATED SEPTEMBER 22, 2006 TO THE STATEMENT OF
ADDITIONAL INFORMATION OF MORGAN STANLEY VARIABLE INVESTMENT SERIES
CLASS X and CLASS Y
Dated May 1, 2006 

The information regarding the executive officers contained in the Statement of Additional Information (‘‘SAI’’) in the section titled ‘‘III. Management of the Fund’’ is hereby deleted and replaced (except as indicated herein) with the following: 

B.    Management Information 

Trustees and Officers.    The Board of the Fund consists of 13 Trustees. These same individuals also serve as directors or trustees for all of the funds advised by the Investment Adviser (the ‘‘Retail Funds’’) and certain of the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the ‘‘Institutional Funds’’). Eleven Trustees have no affiliation or business connection with the Investment Adviser or any of its affiliated persons and do not own any stock or other securities issued by the Investment Adviser's parent company, Morgan Stanley. These are the ‘‘non-interested’’ or ‘‘Independent’’ Trustees. The other two Trustees (the ‘‘Interested Trustees’’) are affiliated with the Investment Adviser. 

The Independent Trustees of the Fund, their age, address, term of office and length of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex (defined below) overseen by each Independent Trustee (as of August 23, 2006) and other directorships, if any, held by the Trustees, are shown below. The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment advisor that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.). 

Name, Age and Address
of Independent Trustee		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s)
During Past 5 Years		 Number of
Portfolios
in Fund
Complex
Overseen
by Trustee		 Other Directorships Held
by Trustee
Frank L. Bowman (61)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
August 2006		 President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (since February 2005); formerly variously, Admiral in the U.S. Navy, Director of Naval Nuclear Propulsion Program and Deputy Administrator—Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996-2004). Honorary Knight Commander of the Most Excellent Order of the British Empire. 108 Director of the National Energy Foundation, the U.S. Energy Association, the American Council for Capital Formation and the Armed Services YMCA of  the USA.
 

 * 

This is the earliest date the Trustee began serving the Retail Funds or Institutional Funds. Each Trustee serves an indefinite term, until his or her successor is elected. 

 

 
 
Name, Age and Address
of Independent Trustee		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s)
During Past 5 Years		 Number of
Portfolios
in Fund
Complex
Overseen
by Trustee		 Other Directorships Held
by Trustee
Michael Bozic (65)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
April 1994		 Private investor; Chairman of the Insurance Committee (since July 2006); Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October  2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May  1991-July 1995); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. 175 Director of various business organizations.
Kathleen A. Dennis (53)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
August 2006		 President, Cedarwood Associates (mutual fund consulting) (since 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). 108 None.
Edwin J. Garn (73)
1031 N. Chartwell Court
Salt Lake City, UT 84103		 Trustee Since
January 1993		 Consultant; Director or Trustee of the Retail Funds (since January 1993) and the Institutional Funds (since July 2003); Member of the Utah Regional Advisory Board of Pacific Corp. (utility company); formerly Managing Director of Summit Ventures LLC (lobbying and consulting firm) (2000-2004); United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985) and Vice Chairman, Huntsman Corporation (chemical company). 175 Director of Franklin Covey (time management systems), BMW Bank of North America, Inc. (industrial loan corporation), Escrow Bank USA (industrial loan corporation), United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of  various civic and charitable organizations.
Wayne E. Hedien (72)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
September 1997		 Retired; Director or Trustee of
the Retail Funds (since September 1997) and the Institutional Funds (since July 2003); formerly associated with the  Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993- December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989- December 1994).		 175 Director of The PMI Group Inc. (private mortgage insurance); Trustee and Vice Chairman of The Field Museum of Natural History; Director of various other business and charitable
organizations.
 

 * 

This is the earliest date the Trustee began serving the Retail Funds or Institutional Funds. Each Trustee serves an indefinite term, until his or her successor is elected. 

 

 
 
Name, Age and Address
of Independent Trustee		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s)
During Past 5 Years		 Number of
Portfolios
in Fund
Complex
Overseen
by Trustee		 Other Directorships Held
by Trustee
Dr. Manuel H. Johnson (57)
c/o Johnson Smick
Group Inc.
888 16th Street, NW
Suite 740
Washington, D.C. 20006		 Trustee Since
July 1991		 Senior Partner, Johnson Smick International, Inc., a consulting firm; Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July  2003); Co-Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. 175 Director of NVR, Inc. (home
construction); Director of KFX Energy; Director of RBS Greenwich Capital Holdings (financial holding company).
Joseph J. Kearns (64)
c/o Kearns & Associates LLC
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265		 Trustee Since
August  1994		 President, Kearns & Associates LLC (investment consulting); Deputy Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August  1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. 176 Director of Electro Rent
Corporation (equipment
leasing), The Ford Family
Foundation, and the UCLA
Foundation.
Michael F. Klein (47)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
August 2006		 Chief Operating Officer and Managing Director, Aetos Capital, LLC (since March 2000); formerly Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June  1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). 108 Director of certain investment funds managed or sponsored by Aetos Capital LLC.
Michael E. Nugent (70)
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
 Chairman of
the Board
and Trustee		 Chairman of the Board since
July 2006 and
Trustee since
July 1991		 General Partner of Triumph Capital, L.P., a private investment partnership; Chairman of the Board of the Retail Funds and Institutional Funds (since July 2006); Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Chairman of the Insurance Committee (until July 2006) and Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988).
 175 None.
 

 * 

This is the earliest date the Trustee began serving the Retail Funds or Institutional Funds. Each Trustee serves an indefinite term, until his or her successor is elected. 

 

 
 
Name, Age and Address
of Independent Trustee		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s)
During Past 5 Years		 Number of
Portfolios
in Fund
Complex
Overseen
by Trustee		 Other Directorships Held
by Trustee
W. Allen Reed (59)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036		 Trustee Since
August 2006		 President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994- December 2005). 108 Director of GMAC (financial services), GMAC Insurance Holdings, and Temple-Inland Industries (Packaging, Banking and Forrest Products); member of the Board of the Morgan Stanley Capital International Editorial Board; Director of Legg Mason and Director of various investment fund advisory boards.
Fergus Reid (74)
c/o Lumelite Plastics Corporation
85 Charles Colman Blvd. Pawling, NY 12564		 Trustee Since
June  1992		 Chairman of Lumelite Plastics Corporation; Chairman of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). 176 Trustee and Director of
certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc.
 

 * 

This is the earliest date the Trustee began serving the Retail Funds or Institutional Funds. Each Trustee serves an indefinite term, until his or her successor is elected. 

The Trustees who are affiliated with the Investment Adviser or affiliates of the Investment Adviser (as set forth below) and executive officers of the Fund, their age, address, term of office and length of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex overseen by each Interested Trustee (as of August 23, 2006) and the other directorships, if any, held by the Trustee, are shown below. Mr. Charles A. Fiumefreddo will be retiring from the Board of Trustees, effective September 30, 2006. 

Name, Age and Address of
Interested Trustee		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s) During
Past 5 Years		 Number of
Portfolios
in Fund
Complex
Overseen by
Interested
Trustee		 Other Directorships Held by
Trustee
Charles A. Fiumefreddo (73)
c/o Morgan Stanley Trust
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
 Trustee Since
July1991		 Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); formerly Chairman of the Retail Funds (July 1991-July 2006) and the Institutional Funds (July 2003-July 2006) and Chief Executive Officer of the Retail Funds (July 1991-September 2002). 175 None.
James F. Higgins (58)
c/o Morgan Stanley Trust
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
 Trustee Since June 2000 Director or Trustee of the Retail Funds (since June 2000) and the
Institutional Funds (since July
2003); Senior Advisor of Morgan
Stanley (since August 2000).		 175 Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).
 

  * 

This is the earliest date the Trustee began serving the Retail Funds or Institutional Funds. Each Trustee serves an indefinite term, until his or her successor is elected. 

 

 
 
Name, Age and Address of
Executive Officer		 Position(s)
Held with
Registrant		 Length of
Time
Served*		 Principal Occupation(s) During Past 5 Years
Ronald E. Robison (67)
1221 Avenue of the Americas
New York, NY 10020		 President and
Principal Executive Officer		 President since September 2005 and Principal Executive Officer since May 2003 President (since September 2005) and Principal Executive Officer (since May 2003) of funds in the Fund Complex; President (since September 2005) and Principal Executive Officer (since May 2003) of the Van Kampen Funds; Managing Director, Director and/or Officer of the Investment Adviser and various entities affiliated with the Investment Adviser; Director of Morgan Stanley SICAV (since May 2004). Formerly, Executive Vice President (July 2003 to September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001 to July 2003); Chief Global Operating Officer of Morgan Stanley Investment Management Inc.; Chief Administrative Officer of Morgan Stanley Investment Advisors Inc.; Chief Administrative Officer of Morgan Stanley Services Company Inc.
J. David Germany (52)
Morgan Stanley Investment Management Limited
25 Cabot Square
Canary Wharf, London
United Kingdom E144QA		 Vice President Since
February 2006		 Managing Director and (since December 2005) Chief Investment Officer – Global Fixed Income of Morgan Stanley Investment Management; Managing Director and Director of Morgan Stanley Investment Management Limited; Vice President of the Retail and Institutional Funds (since February 2006).
Dennis F. Shea (53)
1221 Avenue of the Americas
New York, NY 10020		 Vice President Since
February 2006		 Managing Director and (since February 2006) Chief Investment Officer – Global Equity of Morgan Stanley Investment Management; Vice President of the Retail and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley.
Barry Fink (51)
1221 Avenue of the Americas
New York, NY 10020
 Vice President Since
February  1997		 Managing Director and General Counsel of Morgan Stanley Investment Management; Managing Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds and (since July 2003) the Institutional Funds. Formerly, Secretary, General Counsel and/or Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary and General Counsel of the Retail Funds.
Amy R. Doberman (44)
1221 Avenue of the Americas
New York, NY 10020		 Vice President Since July 2004 Managing Director and General Counsel, U.S. Investment Management of Morgan Stanley Investment Management (since July 2004); Vice President of the Retail Funds and the Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly, Managing Director and General Counsel – Americas, UBS Global Asset Management (July 2000 to July 2004).
Carsten Otto (43)
1221 Avenue of the Americas
New York, NY 10020		 Chief
Compliance
Officer
 Since October 2004 Managing Director and U.S. Director of Compliance for Morgan Stanley Investment Management (since October 2004); Managing Director and Chief Compliance Officer of Morgan Stanley Investment Management. Formerly, Assistant Secretary and Assistant General Counsel of the Retail Funds.
Stefanie V. Chang Yu (40)
1221 Avenue of the Americas
New York, NY 10020		 Vice President Since December
1997		 Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of various entities affiliated with the Investment Adviser.
Francis J. Smith (41)
c/o Morgan Stanley Trust
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311		 Treasurer and Chief Financial Officer Treasurer since July 2003 and Chief Financial Officer since September 2002 Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Treasurer and Chief Financial Officer of the Retail Funds (since July 2003). Formerly, Vice President of the Retail Funds (September 2002 to July 2003).
Mary E. Mullin (39)
1221 Avenue of the Americas
New York, NY 10020		 Secretary Since June 1999 Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).
 

 * 

This is the earliest date the Officer began serving the Retail Funds or Institutional Funds. Each Officer serves an indefinite term, until his or her successor is elected. 

In addition, the following individuals who are officers of the Investment Adviser or its affiliates serve as assistant secretaries of the Fund: Joanne Antico, Joseph C. Benedetti, Daniel E. Burton, Joanne Doldo, Tara A. Farrelly, Alice J. Gerstel, Eric C. Griffith, Lou Anne D. McInnis, Edward J. Meehan, Elisa Mitchell, Elizabeth Nelson, Debra Rubano, Rita Rubin, Sheri L. Schreck and Julien H. Yoo. 

 

 
 

For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Fund and in the Family of Investment Companies (Family of Investment Companies includes all of the registered investment companies advised by the Investment Adviser, Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP) for the calendar year ended December  31, 2005, is set forth in the Fund's current SAI referenced above. Ms. Dennis and Messrs. Bowman, Klein and Reid did not serve as Trustees of the Fund during the calendar year ended December 31, 2005. 

As to each Independent Trustee and his immediate family members, no person owned beneficially or of record securities in an investment advisor or principal underwriter of the Fund, or a person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with an investment advisor or principal underwriter of the Fund. 

Independent Trustees and the Committees.    Law and regulation establish both general guidelines and specific duties for the Independent Trustees. The Retail Funds seek as Independent Trustees individuals of distinction and experience in business and finance, government service or academia; these are people whose advice and counsel are in demand by others and for whom there is often competition. To accept a position on the Retail Funds' boards, such individuals may reject other attractive assignments because the Retail Funds make substantial demands on their time. Seven of the Independent Trustees serve as members of the Audit Committee. In addition, four Trustees, including three Independent Trustees, serve as members of the Insurance Committee, and three Independent Trustees serve as members of the Governance Committee. 

The Independent Trustees are charged with recommending to the full Board approval of management, advisory and administration contracts, Rule 12b-1 plans and distribution and underwriting agreements; continually reviewing fund performance; checking on the pricing of portfolio securities, brokerage commissions, transfer agent costs and performance, and trading among funds in the same complex; and approving fidelity bond and related insurance coverage and allocations, as well as other matters that arise from time to time. The Independent Trustees are required to select and nominate individuals to fill any Independent Trustee vacancy on the board of any fund that has a Rule 12b-1 plan of distribution. Most of the Retail Funds have a Rule 12b-1 plan. 

The Board of Trustees has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is charged with recommending to the full Board the engagement or discharge of the Fund's independent registered public accounting firm; directing investigations into matters within the scope of the independent registered public accounting firm's duties, including the power to retain outside specialists; reviewing with the independent registered public accounting firm the audit plan and results of the auditing engagement; approving professional services provided by the independent registered public accounting firm and other accounting firms prior to the performance of the services; reviewing the independence of the independent registered public accounting firm; considering the range of audit and non-audit fees; reviewing the adequacy of the Fund's system of internal controls; and preparing and submitting Committee meeting minutes to the full Board. The Fund has adopted a formal, written Audit Committee Charter. During the Fund's fiscal year ended December 31, 2005, the Audit Committee held seven meetings. 

The members of the Audit Committee of the Fund are currently Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid. None of the members of the Fund's Audit Committee is an ‘‘interested person,’’ as defined under the Investment Company Act, of the Fund (with such disinterested Trustees being ‘‘Independent Trustees’’ or individually, ‘‘Independent Trustee’’). Each Independent Trustee is also ‘‘independent’’ from the Fund under the listing standards of the New York Stock Exchange, Inc. (‘‘NYSE’’). The current Chairperson of the Audit Committee of the Fund is Dr. Manuel H. Johnson. 

The Board of Trustees of the Fund also has a Governance Committee. The Governance Committee identifies individuals qualified to serve as Independent Trustees on the Fund's Board and on committees of such Board and recommends such qualified individuals for nomination by the Fund's Independent Trustees as candidates for election as Independent Trustees, advises the Fund's Board with respect to Board composition, procedures and committees, develops and recommends to the Fund's Board a set of corporate governance principles applicable to the Fund, monitors and makes recommendations on corporate governance matters and policies and procedures of the Fund's Board of Trustees and any Board committees and oversees periodic evaluations of the Fund's Board and its committees. The members of the Governance Committee of the Fund are currently Michael Bozic, Edwin J. Garn and Fergus Reid, each of whom is an Independent Trustee. The current Chairperson of the Governance Committee is Fergus Reid. During the Fund's fiscal year ended December 31, 2005, the Governance Committee held two meetings. 

 

 
 

The Fund does not have a separate nominating committee. While the Fund's Governance Committee recommends qualified candidates for nominations as Independent Trustees, the Board of Trustees of the Fund believes that the task of nominating prospective Independent Trustees is important enough to require the participation of all current Independent Trustees, rather than a separate committee consisting of only certain Independent Trustees. Accordingly, each current Independent Trustee (Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid) participates in the election and nomination of candidates for election as Independent Trustees for the Fund. Persons recommended by the Fund's Governance Committee as candidates for nomination as Independent Trustees shall possess such knowledge, experience, skills, expertise and diversity so as to enhance the Board's ability to manage and direct the affairs and business of the Fund, including, when applicable, to enhance the ability of committees of the Board to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation or any listing requirements of the NYSE. While the Independent Trustees of the Fund expect to be able to continue to identify from their own resources an ample number of qualified candidates for the Fund's Board as they deem appropriate, they will consider nominations from shareholders to the Board. Nominations from shareholders should be in writing and sent to the Independent Trustees as described below under the caption ‘‘Shareholder Communications.’’ 

There were 14 meetings of the Board of Trustees of the Fund held during the fiscal year ended December 31, 2005. The Independent Trustees of the Fund also met three times during that time, in addition to the 14 meetings of the full Boards. 

Finally, the Board has formed an Insurance Committee to review and monitor the insurance coverage maintained by the Fund. The Insurance Committee currently consists of Messrs. Bozic, Nugent, Fiumefreddo and Hedien. Messrs. Nugent and Hedien are Independent Trustees. Mr. Bozic is the Chairperson of the Insurance Committee. During the Fund's fiscal year ended December 31, 2005, the Insurance Committee held six meetings. 

The Board has approved restructuring the Board Committees as follows: 

Effective October 1, 2006, the Board will have four Committees: (1) Audit Committee, (2) Governance Committee, (3) Valuation, Insurance and Compliance Committee and (4) Investment Committee. The Investment Committee will have three sub-committees focusing on the Fund's primary areas of investment, namely equities, fixed income and alternatives, as detailed below. 

The members of the Audit Committee will be Joseph J. Kearns (Chairperson), Michael E. Nugent, Wayne E. Hedien, Frank L. Bowman and W. Allen Reed. None of the members of the Audit Committee is an ‘‘interested person.’’ 

The members of the Governance Committee will be Fergus Reid (Chairperson), Edwin J. Garn, Kathleen A. Dennis and Michael F. Klein. 

The members of the Valuation, Insurance and Compliance Committee will be Michael Bozic (Chairperson), Manuel H. Johnson and James F. Higgins. The Valuation, Insurance and Compliance Committee is responsible for overseeing the compliance function, reviewing the valuation process and addressing insurance coverage for the Fund and the Board. 

The members of the Investment Committee will be: Manuel H. Johnson (Chairperson), Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, Edwin Garn, Wayne Hedien, James Higgins, Joseph Kearns, Michael Klein, Michael Nugent, Fergus Reid and W. Allen Reed. The Investment Committee oversees the portfolio investment process for and reviews the performance of the Fund. The Investment Committee also recommends to the Board to approve or renew the Fund's Investment Advisory, Sub-Advisory and Administration Agreements. 

The Investment Committee will have three sub-committees, each with its own chairperson. The sub-committees and their members are as follows: 

(1) Equity – W. Allen Reed (Chairperson), Michael E. Nugent and Frank L. Bowman. 

(2) Fixed Income – Michael F. Klein (Chairperson), Fergus Reid, Michael Bozic and Edwin J. Garn. 

(3) Closed-end, Money Market and Alternatives – Kathleen A. Dennis (Chairperson), James F. Higgins, Joseph J. Kearns and Wayne E. Hedien. 

* * * 

 

 
 

The sub-sections in section III. Management of the Fund — B. Management Information entitled ‘‘Advantages of Having Same Individuals as Trustees for the Retail Funds and the Institutional Funds,’’ ‘‘Trustees and Officer Indemnification’’ and ‘‘Shareholder Communications,’’ set forth in the Fund's current SAI as referenced above, remains unchanged. 

* * * 

The first two paragraphs of the section III. Management of the Fund — C. Compensation are hereby deleted and replaced with the following: 

Each Independent Trustee receives an annual fee of $180,000 for serving the Retail Funds and the Institutional Funds. Prior to October 1, 2005, each Independent Trustee received an annual retainer fee of $168,000 for serving the Retail Funds and the Institutional Funds. In addition, each Independent Trustee received $2,000 for attending each of the four quarterly board meetings and two performance meetings that occur each year, so that an Independent Trustee who attended all six meetings received total compensation of $180,000 for serving the funds. 

Prior to October 1, 2006, the Chairperson of the Audit Committee received an additional annual retainer fee of $60,000. Other Committee Chairpersons and the Deputy Chairperson of the Audit Committee received an additional annual retainer fee of $30,000. Effective October 1, 2006, the Chairperson of the Audit Committee receives an additional annual retainer fee of $75,000 and the Investment Committee Chairperson receives an additional retainer of $60,000. Other Committee Chairpersons receive an additional annual retainer of $30,000 and the Investment Sub-Committee Chairpersons receive an additional annual retainer of $15,000. The aggregate compensation paid to each Independent Trustee is paid by the Retail Funds and the Institutional Funds, and is allocated on a pro rata basis among each of the operational funds/portfolios of the Retail Funds and the Institutional Funds based on the relative net assets of each of the funds/portfolios. As of July 1, 2006, Mr. Fiumefreddo resigned as Chairman of the Boards of the Retail Funds and the Institutional Funds and was succeeded by Mr. Nugent. Prior to July 1, 2006, Mr. Fiumefreddo received an annual fee for his services as Chairman of the Boards of the Retail Funds and the Institutional Funds and for administrative services provided to each Board. As of July 1, 2006, Mr. Nugent receives an annual fee of $360,000 for his services. 

* * * 

The remainder of section III. Management of the Fund — C. Compensation remains unchanged. Ms. Dennis and Messrs. Bowman, Klein and Reed did not serve as Trustees of the Fund during the Fund's most recent fiscal year end and therefore did not receive any compensation from the Fund during the period. 

* * * 

The section titled II. Description of the Fund and Its Investments and Risks — D. Fund Policies/Investment Restrictions is hereby deleted and replaced with the following: 

D.    Fund Policies/Investment Restrictions 

The investment restrictions listed below have been adopted by the Fund as fundamental policies of the Portfolios except as otherwise indicated. Under the Investment Company Act, a fundamental policy of a Portfolio may not be changed without the vote of a majority of the outstanding voting securities of the Portfolio. The Investment Company Act defines a majority as the lesser of (a) 67% or more of the shares of a Portfolio present at a meeting of Fund shareholders, if the holders of 50% of the outstanding shares of the Portfolio are present or represented by proxy; or (b) more than 50% of the outstanding shares of the Portfolio. For purposes of the following restrictions: (i) all percentage limitations apply immediately after a purchase or initial investment, except in the case of borrowings and investments in illiquid securities, and (ii) any subsequent change in any applicable percentage resulting from market fluctuations or other changes in total or net assets does not require elimination of any security from the portfolio. 

Investment Objectives 

The investment objective of each Portfolio is a fundamental policy which may not be changed without the approval of the shareholders of that Portfolio. 

 

 
 

Restrictions Applicable to All Portfolios 

Each Portfolio may not: 

1.    Invest in a manner inconsistent with its classification as a ‘‘diversified company’’ as provided by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time. 

 2.    Concentrate its investments in any particular industry, but if deemed appropriate for attainment of its investment objective, a Portfolio may invest up to 25% of its total assets (valued at the time of investment) in any one industry classification used by that Portfolio for investment purposes. This restriction does not apply to obligations issued or guaranteed by the United States Government or its agencies or instrumentalities, or, in the case of the Money Market Portfolio, to domestic bank obligations (not including obligations issued by foreign branches of such banks). This restriction does not apply, in the case of the Utilities Portfolio, to the utilities industry in which industry the Portfolio, will concentrate. 

3.    Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; provided that this restriction shall not prohibit the Fund from purchasing or selling options, futures contracts and related options thereon, forward contracts, swaps, caps, floors, collars and any other financial instruments or from investing in securities or other instruments backed by physical commodities or as otherwise permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time. 

4.    Borrow money, except the Fund may borrow money to the extent permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time. 

5.    Make loans of money or property to any person, except (a) to the extent that securities or interests in which the Fund may invest are considered to be loans, (b) through the loan of portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provision of the Investment Company Act, as amended from time to time. 

6.    Purchase or sell real estate; however, the Portfolios may purchase marketable securities of issuers which engage in real estate operations or which invest in real estate or interests therein, including real estate investment trusts and securities which are secured by real estate or interests therein. 

7.    Engage in the underwriting of securities, except insofar as a Portfolio may be deemed an underwriter under the Securities Act in disposing of a portfolio security. 

8.    Issue senior securities, except the Fund may issue senior securities to the extent permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time. 

Restrictions Applicable to the Equity Portfolio Only 

The Equity Portfolio may not: 

1.    Purchase non-convertible corporate bonds unless rated at the time of purchase Aa or better by Moody's or AA or better by S&P, or purchase commercial paper unless issued by a U.S. corporation and rated at the time of purchase Prime-1 by Moody's or A-1 by S&P, although it may continue to hold a security if its quality rating is reduced by a rating service below those specified. 

 

 
 

Non-Fundamental Restrictions 

In addition, as a non-fundamental policy (which may be changed with Board approval and without a shareholder vote): 

1.    In the case of each Portfolio, other than the Aggressive Equity Portfolio, the Global Advantage Portfolio, the Limited Duration Portfolio and the S&P 500 Index Portfolio may not invest its assets in the securities of any investment company except as may be permitted by (i) the Investment Company Act, as amended from time to time; (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time; or (iii) an exemption or other relief applicable to the Fund from provisions of the Investment Company Act, as amended from time to time. 

2.    Each of the Dividend Growth Portfolio, the Equity Portfolio, the European Equity Portfolio, the Income Plus Portfolio, the Money Market Portfolio, the Strategist Portfolio and the Utilities Portfolio, may not invest more than 15% (10% with respect to the Money Market Portfolio) of its net assets or such other amount as may be permitted by SEC guidelines in illiquid securities, including restricted securities that have been deemed illiquid. 

3.    With respect to the Equity Portfolio, High Yield Portfolio and the Money Market Portfolio may not write, purchase or sell puts, calls or combinations, thereof. 

The Fund has an operating policy, which may be changed by the Fund's Board of Trustees, not to borrow except from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed). 

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.