Class I Prospectus April 30, 2010 The Universal Institutional Funds, Inc. U.S. Real Estate Portfolio Above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts. Investment Adviser Morgan Stanley Investment Management Inc. The Universal Institutional Funds, Inc. (the “Fund”) is a mutual fund that provides investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. The Securities and Exchange Commission (the “Commission”) has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Ticker Symbol: UEGIX Table of Contents Portfolio Summary U.S. Real Estate Portfolio 1 Details of the Portfolio U.S. Real Estate Portfolio 4 Additional Risk Factors and Information 6 Fund Management 7 Shareholder Information 8 Financial Highlights 10 Class I Prospectus Portfolio Summary Portfolio Summary U.S. Real Estate Portfolio Objective portion of such waivers and/or reimbursements when it deems that such action is appropriate. The expenses of the The Portfolio seeks to provide above average current Acquired Funds are not taken into account when calculating income and long-term capital appreciation by investing the fee waivers and/or expense reimbursements. primarily in equity securities of companies in the U.S. real estate industry, including real estate investment Example trusts. This example is intended to help you compare the cost of investing in the Portfolio with the cost of Fees and Expenses of the Portfolio (Class I) investing in other mutual funds. The table below describes the fees and expenses that you may pay if you buy and hold the classes of shares This example assumes that you invest $10,000 in the that may be offered by the Portfolio. The Portfolio Portfolio for the time periods indicated and then does not charge any sales loads or other fees when you redeem all of your shares at the end of those periods. purchase or redeem shares. The table and the example The example assumes that your investment has a 5% below do not reflect the impact of any charges by return each year and that the Portfolio’s operating your insurance company. If they did, Total Annual expenses remain the same. Although your actual costs Portfolio Operating Expenses would be higher. may be higher or lower, based on these assumptions, your costs would be equal to the amounts reflected in Annual Portfolio Operating Expenses the table below. (expenses that you pay each year as a percentage of the 1 Year 3 Years 5 Years 10 Years value of your investment) U.S. Real Estate Advisory Fees 0.80% Portfolio $116 $362 $628 $1,386 Distribution (12b-1) Fee None Other Expenses* 0.35% Portfolio Turnover Total Annual Portfolio Operating Expenses 1.15% The Portfolio pays transaction costs when it buys and sells securities (or “turns over” its portfolio). A higher Fee Waiver and/or Expense Reimbursement** 0.01% portfolio turnover rate may indicate higher trans- Total Annual Portfolio Operating Expenses action costs and may result in higher taxes when Port- After Fee Waiver and/or Expense Reimbursement 1.14% folio shares are held in a taxable account. These costs, which are not reflected in Total Annual Portfolio * The Portfolio may invest a portion of its assets in other investment companies (the “Acquired Funds”). The Portfolio’s Operating Expenses or in the example, affect the shareholders indirectly bear a pro rata portion of the Portfolio’s performance. During the most recent fiscal expenses of the Acquired Funds in which the Portfolio invests. year, the Portfolio’s portfolio turnover rate was 36% The Portfolio estimates that these expenses constituted less than 0.01% of the Portfolio’s average net assets for the fiscal of the average value of its portfolio. year ended December 31, 2009. The Portfolio’s estimated indirect expense from investing in the Acquired Funds is Principal Investment Strategies based upon the average allocation of the Portfolio’s The Adviser seeks a combination of above average investments in the Acquired Funds and upon the actual total operating expenses of the Acquired Funds (including any current income and long-term capital appreciation by current waivers and expense limitations) for the fiscal year investing primarily in equity securities of companies ended December 31, 2009. Actual Acquired Fund expenses in the U.S. real estate industry, including real estate incurred by the Portfolio may vary with changes in the investment trusts (“REITs”). The Portfolio focuses on allocation of Portfolio assets among the Acquired Funds and with other events that directly affect the expenses of the REITs as well as real estate operating companies Acquired Funds. (“REOCs”) that invest in a variety of property types ** The Portfolio’s adviser, Morgan Stanley Investment and regions. Management Inc. (the “Adviser”), has agreed to reduce its advisory fee and/or reimburse the Portfolio so that Total Under normal circumstances, at least 80% of the Annual Portfolio Operating Expenses, excluding certain Portfolio’s assets will be invested in equity securities investment related expenses (such as foreign country tax of companies in the U.S. real estate industry. This expense and interest expense on amounts borrowed), will not exceed 1.10%. The fee waivers and/or expense policy may be changed without shareholder approval; reimbursements are expected to continue until such time as however, you would be notified in writing of any the Fund’s Board of Directors acts to discontinue all or a changes. UIF U.S. Real Estate Portfolio 1 U.S. Real Estate Portfolio (Cont’d) Principal Risks adverse consequences for the Portfolio, including An investment in the Portfolio is subject to risks, and significantly reducing return to the Portfolio on its you could lose money on your investment in the investment in the company. Portfolio. There can be no assurance that the Portfo- lio will achieve its investment objective. An invest- • Non-Diversified Portfolio. The risks of investing in ment in the Portfolio is not a deposit of any bank or the Portfolio may be intensified because the Portfolio other insured depository institution and is not insured is non-diversified, which means that it may invest in or guaranteed by the Federal Deposit Insurance securities of a limited number of issuers. As a result, Corporation or any other government agency. the performance of a particular investment or a small group of investments may affect the Portfolio’s per- The Portfolio’s principal investment strategies are formance more than if the Portfolio were diversified subject to the following principal risks: and a decline in the value of a particular instrument would cause the Portfolio’s overall value to decline to • Equity Securities. In general, prices of equity secu- a greater degree. rities are more volatile than those of fixed income securities. The prices of equity securities will rise and Performance Information fall in response to a number of different factors, The bar chart and table below provide some including events that affect entire financial markets or indication of the risks of investing in the Portfolio by industries and events that affect particular issuers. To showing changes in the performance of the Portfolio’s the extent that the Portfolio invests in convertible securities, and the convertible security’s investment Class I shares year-by-year and by showing how the value is greater than its conversion value, its price will Portfolio’s Class I shares’ average annual returns for be likely to increase when interest rates fall and the past one, five and ten year periods compare with decrease when interest rates rise. If the conversion those of indices of similar securities over time. This value exceeds the investment value, the price of the performance information does not include the impact convertible security will tend to fluctuate directly with of any charges deducted by your insurance company. the price of the underlying equity security. If it did, returns would be lower. How the Portfolio has performed in the past does not necessarily • Real Estate. Investing in real estate companies entails indicate how the Portfolio will perform in the future. the risks of the real estate business generally, includ- Updated performance information is available on the ing sensitivity to economic and business cycles, Fund’s website at www.morganstanley.com/im. changing demographic patterns and government actions. In addition, at times the Portfolio’s market Annual Total Return—Calendar Years (Class I) sector, U.S. real estate securities, may under perform Commenced operations on March 3, 1997 relative to other sectors or the overall market. 60% 37.51 36.39 38.04 29.27 28.36 • REITs and REOCs. Investing in REITs and REOCs 30 17.05 9.84 exposes investors to the risks of owning real estate 0 directly, as well as to risks that relate specifically to –0.79 the way in which REITs and REOCs are organized -30 –17.07 and operated. Operating REITs requires specialized –37.89 -60 management skills and the Portfolio indirectly bears 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 REIT management expenses along with the direct High Quarter 07/09 - 09/09 30.30% expenses of the Portfolio. Individual REITs may own Low Quarter 10/08 - 12/08 37.80% a limited number of properties and may concentrate in a particular region or property type. REITs also must satisfy specific requirements of the Internal Revenue Code of 1986, as amended, in order to qual- ify for the tax-free pass through of income. The fail- ure of a company to qualify as a REIT could have 2 UIF U.S. Real Estate Portfolio Class I Prospectus Portfolio Summary U.S. Real Estate Portfolio (Cont’d) Average Annual Total Return (Class I) The Portfolio offers its shares only to insurance (for the calendar periods ended December 31, 2009) companies for separate accounts that they establish to U.S. FTSE fund variable life insurance and variable annuity con- Real NAREIT tracts, and to other entities under qualified pension Estate Equity S&P 500® Portfolio REITs Index* Index** and retirement plans. An insurance company pur- Past One Year 28.36% 27.99% 26.46% chases or redeems shares of the Portfolio based on, Past Five Years 1.33% 0.36% 0.42% among other things, the amount of net contract Past Ten Years 10.93% 10.63% 0.95% premiums or purchase payments allocated to a sepa- rate account investment division, transfers to or from * The FTSE NAREIT (National Association of Real Estate Investment Trusts) Equity REITs Index is a free float-adjusted a separate account investment division, contract loans market capitalization weighted index of tax qualified equity and repayments, contract withdrawals and surrenders, REITs listed on the New York Stock Exchange, NYSE Amex and benefit payments. The contract prospectus and the NASDAQ National Market List. An index is a describes how contract owners may allocate, transfer hypothetical measure of performance based on the ups and downs of securities that make up a particular market. The and withdraw amounts to, and from, separate Index is unmanaged and its returns do not include any sales accounts. charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. For more information, please refer to the ** The Standard & Poor’s 500® Index (S&P 500®) measures the “Shareholder Information—Purchasing and Selling performance of the large-cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities Portfolio Shares” section of this Prospectus. market. The Index includes 500 leading companies in leading industries of the U.S. economy. An index is a hypothetical Tax Information measure of performance based on the ups and downs of Special tax rules apply to life insurance companies, securities that make up a particular market. The index is variable annuity contracts and variable life insurance unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not contracts. For information on federal income taxation possible to invest directly in an index. of a life insurance company with respect to its receipt of distributions from the Portfolio and federal income Investment Adviser taxation of owners of variable annuity or variable life Adviser. Morgan Stanley Investment Management insurance contracts, refer to the contract prospectus. Inc. Portfolio Managers. The Real Estate team manages For more information, please refer to the the Portfolio. Information about the current member “Shareholder Information—Taxes” section of the of the Real Estate team primarily responsible for the Prospectus. day-to-day management of the Portfolio is shown Payments to Broker-Dealers and Other Financial below: Intermediaries Date Began If you purchase the Portfolio through a broker-dealer Managing the Name Title with Adviser Portfolio or other financial intermediary (such as a bank or Theodore R. Bigman Managing Director March 1997 insurance company), which may be affiliated or unaffiliated with the Adviser, the Adviser and/or the Purchase and Sale of Portfolio Shares Portfolio’s distributor may pay (out of their own This Prospectus offers Class I shares of the U.S. Real funds and not as an expense of the Portfolio) the Estate Portfolio. The Fund also offers Class II shares intermediary for the sale of Portfolio shares and of the Portfolio through a separate Prospectus. Class related services. These payments, which may be sig- II shares are subject to higher expenses due to the nificant in amount, may create a conflict of interest imposition of a 12b-1 fee. For eligibility information, by influencing the broker-dealer or other interme- contact your insurance company or qualified pension diary and your salesperson to recommend the Portfo- or retirement plan. lio over another investment. Ask your salesperson or visit your financial intermediary’s web site for more Fund shares will be sold at the net asset value information. (“NAV”) next determined after we receive your redemption request. UIF U.S. Real Estate Portfolio 3 Details of the Portfolio U.S. Real Estate Portfolio Objective the United States, (ii) if alone or on a consolidated The Portfolio seeks to provide above average current basis it derives 50% or more of its annual revenues income and long-term capital appreciation by investing from either goods produced, sales made or services primarily in equity securities of companies in the U.S. performed in the United States or (iii) if it is real estate industry, including real estate investment organized or has a principal office in the United trusts. States; and (2) a company is considered to be in the real estate industry if it (i) derives at least 50% of its Approach revenues or profits from the ownership, construction, The Adviser seeks a combination of above average management, financing or sale of residential, current income and long-term capital appreciation by commercial or industrial real estate, or (ii) has at least investing primarily in equity securities of companies 50% of the fair market value of its assets invested in in the U.S. real estate industry, including REITs. The residential, commercial or industrial real estate. Portfolio focuses on REITs as well as REOCs that invest in a variety of property types and regions. The Risks Adviser’s approach emphasizes bottom-up stock Investing in the Portfolio may be appropriate for you selection with a top-down asset allocation. if you are willing to accept the risks and uncertainties of investing in the equity securities of U.S. real estate Process companies. In general, prices of equity securities are The Adviser actively manages the Portfolio using a more volatile than those of fixed income securities. combination of top-down and bottom-up method- The prices of equity securities will rise and fall in ologies. The top-down asset allocation is determined response to a number of different factors. In partic- by focusing on key regional criteria, which include ular, prices of equity securities will respond to events demographic and macroeconomic considerations (for that affect entire financial markets or industries example, population, employment, household for- (changes in inflation or consumer demand, for exam- mation and income). The Adviser employs a value- ple) and to events that affect particular issuers (news driven approach to bottom-up security selection, about the success or failure of a new product, for which emphasizes underlying asset values, values per example). To the extent that the Portfolio invests in square foot and property yields. In seeking an optimal convertible securities, and the convertible security’s matrix of regional and property market exposure, the investment value is greater than its conversion value, Adviser considers broad demographic and macro- its price will be likely to increase when interest rates economic factors as well as other criteria, such as fall and decrease when interest rates rise. If the con- space demand, new construction and rental patterns. version value exceeds the investment value, the price The Adviser generally considers selling a portfolio of the convertible security will tend to fluctuate holding when it determines that the holding is less directly with the price of the underlying equity secu- attractive based on a number of factors, including rity. changes in the holding’s share price, earnings pros- pects relative to its peers and/or business prospects. Investing in real estate companies entails the risks of the real estate business generally, including sensitivity Under normal circumstances, at least 80% of the to economic and business cycles, changing demo- Portfolio’s assets will be invested in equity securities graphic patterns and government actions. In addition, of companies in the U.S. real estate industry. This at times the Portfolio’s market sector, U.S. real estate policy may be changed without shareholder approval; securities, may under perform relative to other sectors however, you would be notified in writing of any or the overall market. changes. Investing in REITs and REOCs exposes investors to A company is considered to be in the U.S. real estate the risks of owning real estate directly, as well as to industry if it meets the following tests: (1) a company risks that relate specifically to the way in which is considered to be from the United States (i) if its REITs and REOCs are organized and operated. securities are traded on a recognized stock exchange in REITs generally invest directly in real estate (equity REITs), in mortgages (mortgage REITs) or in some 4 UIF U.S. Real Estate Portfolio Class I Prospectus Details of the Portfolio U.S. Real Estate Portfolio (Cont’d) combination of the two (hybrid REITs). REOCs are which means that it may invest in securities of entities that generally are engaged directly in real a limited number of issuers. As a result, the estate management or development activities. The performance of a particular investment or a small Portfolio will invest primarily in equity REITs. Oper- group of investments may affect the Portfolio’s per- ating REITs requires specialized management skills formance more than if the Portfolio were diversified and the Portfolio indirectly bears REIT management and a decline in the value of a particular instrument expenses along with the direct expenses of the Portfo- would cause the Portfolio’s overall value to decline to lio. Individual REITs may own a limited number of a greater degree. properties and may concentrate in a particular region or property type. REITs also must satisfy specific Please see “Additional Risk Factors and Information” requirements of the Internal Revenue Code of 1986, for further information about these and other risks of as amended, in order to qualify for the tax-free pass investing in the Portfolio. through of income. The risks of investing in the Portfolio may be intensified because the Portfolio is non-diversified, UIF U.S. Real Estate Portfolio 5 Additional Risk Factors and Information This section discusses Price Volatility income with generally higher yields than those of additional risk factors and The value of your investment in the Portfolio is based common stock of the same or similar issuers. Con- information relating to the on the market prices of the securities the Portfolio vertible securities generally rank senior to common Portfolio. The Portfolio’s holds. These prices change daily due to economic and stock in a corporation’s capital structure but are usu- investment practices and other events that affect markets generally, as well as ally subordinated to comparable nonconvertible secu- limitations are described in those that affect particular regions or companies. rities. Convertible securities generally do not more detail in the Statement These price movements, sometimes called volatility, participate directly in any dividend increases or of Additional Information may be greater or less depending on the types of secu- decreases of the underlying securities although the (“SAI”), which is rities the Portfolio owns and the markets in which the market prices of convertible securities may be affected incorporated by reference securities trade. Over time, equity securities have by any dividend changes or other changes in the and legally is a part of this generally shown gains superior to fixed income secu- underlying securities. Prospectus. For details on rities, although they have tended to be more volatile how to obtain a copy of the in the short term. As a result of price volatility, there Real Estate Investing SAI and other reports and is a risk that you may lose money by investing in the The Portfolio invests in companies that are mainly in information, see the back Portfolio. the real estate industry. As a result, these companies cover of this Prospectus. (and, therefore, the Portfolio) will experience the risks Equity Securities of investing in real estate directly. Real estate is a Equity securities include common stock, preferred cyclical business, highly sensitive to general and local stock, convertible securities, depositary receipts, rights economic developments and characterized by intense and warrants. The Portfolio may invest in equity competition and periodic overbuilding. Real estate securities that are publicly traded on securities income and values may also be greatly affected by exchanges or over the counter or in equity securities demographic trends, such as population shifts or that are not publicly traded. Securities that are not changing tastes and values. Government actions, such publicly traded may be more difficult to sell and their as tax increases, zoning law changes or environmental value may fluctuate more dramatically than other regulations, may also have a major impact on real securities. The prices of convertible securities are estate. Changing interest rates and credit quality affected by changes similar to those of equity and requirements will also affect the cash flow of real fixed income securities. The value of a convertible estate companies and their ability to meet capital security tends to decline as interest rates rise and, needs. because of the conversion feature, tends to vary with Temporary Defensive Investments fluctuations in the market value of the underlying equity security. When the Adviser believes that changes in economic, financial or political conditions warrant, the Portfolio may invest without limit in certain short- and A convertible security is a bond, debenture, note, medium-term fixed income securities that may be preferred stock, right, warrant or other security that inconsistent with the Portfolio’s principal investment may be converted into or exchanged for a prescribed strategies for temporary defensive purposes. If the amount of common stock or other security of the Adviser incorrectly predicts the effects of these same or a different issuer or into cash within a partic- changes, such defensive investments may adversely ular period of time at a specified price or formula. A affect the Portfolio’s performance. The Portfolio may convertible security generally entitles the holder to not achieve its investment objective. receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the con- vertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Convertible securities ordinarily provide a stream of 6 UIF U.S. Real Estate Portfolio Class I Prospectus Fund Management Fund Management Investment Adviser A discussion regarding the Board of Directors’ appro- The Investment Adviser is Morgan Stanley Invest- val of the investment advisory agreement is available ment Management Inc. The Adviser, with principal in the Fund’s semi-annual report to shareholders for offices at 522 Fifth Avenue, New York, New York the period ended June 30, 2009. 10036, conducts a worldwide portfolio management business, and provides a broad range of portfolio The Adviser and/or the Distributor may pay compen- management services to customers in the United sation (out of their own funds and not as an expense States and abroad. Morgan Stanley is the direct of the Portfolio) to certain affiliated or unaffiliated parent of the Adviser and the indirect parent of brokers, dealers and/or certain insurance companies Morgan Stanley Distribution, Inc., the Fund’s or other financial intermediaries or service providers distributor (the “Distributor”). Morgan Stanley is a in connection with the sale, distribution, marketing preeminent global financial services firm engaged in and/or retention of shares of the Portfolio and/or securities trading and brokerage activities, as well as shareholder servicing. Such compensation may be providing investment banking, research and analysis, significant in amount and the prospect of receiving financing and financial advisory services. As of any such compensation may provide such affiliated or December 31, 2009, the Adviser, together with its unaffiliated entities with an incentive to favor sales of affiliated asset management companies, had approx- the Portfolio’s shares over other investment options. imately $395.3 billion in assets under management or Any such payments will not change the net asset value supervision. or the price of the Portfolio’s shares. For more information, please see the Fund’s SAI. Advisory Fee The Adviser is entitled to receive an advisory fee at an Portfolio Management annual percentage of the Portfolio’s average daily net The Portfolio’s assets are managed by members of the assets as set forth in the table below: Real Estate team. The team consists of a portfolio manager and analysts. Theodore R. Bigman is the Assets Fee member of the team primarily responsible for the day- First $500 million 0.80% to-day management of the Portfolio. Mr. Bigman has From $500 million to $1 billion 0.75% been associated with the Adviser in an investment More than $1 billion 0.70% management capacity since 1995. However, the Adviser has agreed to reduce its advi- The Portfolio is managed by Mr. Bigman, who is sory fee and/or reimburse the Portfolio so that total supported by a team of six research analysts. Togeth- annual operating expenses of the Portfolio will not er, Mr. Bigman and the team determine investment exceed 1.10% of its average daily net assets. For strategy, establish asset-allocation frameworks and purposes of determining the amount of the advisory direct the implementation of investment strategy. fee waiver and/or reimbursement, if any, the annual operating expenses of the Portfolio exclude certain The Fund’s SAI provides additional information investment related expenses such as foreign country about the portfolio manager’s compensation struc- tax expense and interest expense on amounts bor- ture, other accounts managed by the portfolio rowed. As a result, the expense ratio, including these manager and the portfolio manager’s ownership of expenses, after fee waivers and/or reimbursements securities in the Portfolio. may be higher than 1.10%. The fee waivers and/or expense reimbursements are expected to continue The composition of the team may change from time until such time as the Fund’s Board of Directors acts to time. to discontinue such waivers and/or reimbursements when it deems that such action is appropriate. For the fiscal year ended December 31, 2009, the Adviser received a fee for advisory services (net of fee waivers and/or expense reimbursements) equal to 0.79% of the Portfolio’s average daily net assets. UIF U.S. Real Estate Portfolio 7 Shareholder Information Share Class About Net Asset Value This Prospectus offers Class I shares of the U.S. Real The NAV per share of the Portfolio is determined by Estate Portfolio. The Fund also offers Class II shares dividing the total of the value of the Portfolio’s of the Portfolio through a separate prospectus. investments and other assets, less any liabilities, by the Class II shares are subject to higher expenses due to total number of outstanding shares of the Portfolio. the imposition of a 12b-1 fee. For eligibility In making this calculation, the Portfolio generally information, contact your insurance company or values securities at market price. If market prices are qualified pension or retirement plan. unavailable or may be unreliable because of events occurring after the close of trading, the value for those Purchasing and Selling Portfolio Shares securities will be determined in good faith at fair value Shares are offered on each day that the New York using methods approved by the Board of Directors. Stock Exchange (the “NYSE”) is open for business. Fair value pricing involves subjective judgments and it The Portfolio offers its shares only to insurance compa- is possible that the fair value determined for a security nies for separate accounts that they establish to fund is materially different than the value that could be variable life insurance and variable annuity contracts, realized upon the sale of that security. The Portfolio and to other entities under qualified pension and may hold portfolio securities that are listed on foreign retirement plans. An insurance company purchases or exchanges. These securities may trade on weekends or redeems shares of the Portfolio based on, among other other days when the Portfolio does not calculate its things, the amount of net contract premiums or pur- NAV. As a result, the value of these investments may chase payments allocated to a separate account change on days when you cannot purchase or sell investment division, transfers to or from a separate shares. To the extent the Portfolio invests in open-end account investment division, contract loans and management companies that are registered under the repayments, contract withdrawals and surrenders, and Investment Company Act of 1940, as amended, the benefit payments. The contract prospectus describes Portfolio’s NAV is calculated based upon the NAV of how contract owners may allocate, transfer and with- such funds. The prospectuses for such funds explain draw amounts to, and from, separate accounts. the circumstances under which they will use fair value There are no known disadvantages to variable product pricing and its effects. contract owners or qualified plan participants arising out of the fact that the Portfolio offers its shares to The NAV of Class I shares will differ from that of separate accounts of various insurance companies that other classes because of class-specific expenses that offer variable annuity and variable life insurance each class may pay. products and various other entities under qualified pension and retirement plans. Nevertheless, the Board Dividends and Distributions of Directors that oversees the Portfolio intends to The Portfolio distributes its net investment income, if monitor events to identify any material irreconcilable any, at least annually as dividends and makes dis- conflicts that may possibly arise due to these tributions of its net realized capital gains, if any, at arrangements and to determine what action, if any, least annually. should be taken in response. Taxes Pricing of Portfolio Shares The Portfolio expects that it will not have to pay The price per share will be the NAV per share next federal income taxes if it distributes annually all of its determined after the Fund or the insurance company net investment income and net realized capital gains. receives your purchase or redemption order. The The Portfolio does not expect to be subject to federal NAV for one share is the value of that share’s portion excise taxes with respect to undistributed income. of all of the net assets in the Portfolio. The Fund determines the NAV per share for the Portfolio as of Special tax rules apply to life insurance companies, the close of the NYSE (normally 4:00 p.m. Eastern variable annuity contracts and variable life insurance Time) on each day that the Portfolio is open for contracts. For information on federal income taxation business. of a life insurance company with respect to its receipt 8 UIF U.S. Real Estate Portfolio Class I Prospectus Shareholder Information Shareholder Information (Cont’d) of distributions from the Portfolio and federal income on an ongoing basis. Therefore, to some extent, the taxation of owners of variable annuity or variable life Portfolio relies on the insurance companies and quali- insurance contracts, refer to the contract prospectus. fied plans to monitor frequent short-term trading by contract owners. However, the Portfolio has entered Because each investor’s tax circumstances are unique into agreements with insurance companies and quali- and the tax laws may change, you should consult your fied plans whereby the insurance companies and tax advisor about the federal, state and local tax con- qualified plans are required to provide certain con- sequences applicable to your investment. tract owner identification and transaction information upon the Portfolio’s request. The Portfolio may use Frequent Purchases and Redemptions of Shares this information to help identify and prevent market- Frequent purchases and redemptions of shares pur- timing activity in the Portfolio. There can be no suant to the instructions of insurance company con- assurance that the Portfolio will be able to identify or tract owners or qualified plan participants is referred prevent all market-timing activity. to as “market-timing” or “short-term trading” and may present risks for other contract owners or partic- If the Portfolio identifies suspected market-timing ipants with long-term interests in the Portfolio, which activity, the insurance company or qualified plan will may include, among other things, dilution in the be contacted and asked to take steps to prevent fur- value of the Portfolio’s shares indirectly held by con- ther market-timing activity (e.g., sending warning tract owners or participants with long-term interests letters or blocking frequent trading by underlying in the Portfolio, interference with the efficient man- contract owners or participants). Insurance companies agement of the Portfolio, increased brokerage and may be prohibited by the terms of the underlying administrative costs and forcing the Portfolio to hold insurance contract from restricting short-term trading excess levels of cash. of mutual fund shares by contract owners, thereby limiting the ability of such insurance company to Investments in other types of securities also may be implement remedial steps to prevent market-timing susceptible to short-term trading strategies. These activity in the Portfolio. If the insurance company or investments include securities that are, among other qualified plan is unwilling or unable to take remedial things, thinly traded, traded infrequently or relatively steps to discourage or prevent frequent trading, or illiquid, which have the risk that the current market does not take action promptly, certain contract own- price for the securities may not accurately reflect cur- ers or participants may be able to engage in frequent rent market values. A contract owner may seek to trading to the detriment of contract owners or partic- engage in short-term trading to take advantage of ipants with long-term interests in the Portfolio. If the these pricing differences (referred to as “price- insurance company or qualified plan refuses to take arbitrage”). The Portfolio’s policies with respect to remedial action, or takes action that the Portfolio valuing portfolio securities are described above in deems insufficient, a determination will be made “About Net Asset Value.” whether it is appropriate to terminate the relationship with such insurance company or qualified plan. The Fund’s Board of Directors has adopted policies and procedures to discourage frequent purchases and Portfolio Holdings Information redemptions of Portfolio shares by Portfolio share- A description of the Fund’s policies and procedures holders. Insurance companies or qualified plans gen- with respect to the disclosure of the Portfolio’s secu- erally do not provide specific contract owner or plan rities is available in the Fund’s SAI. participant transaction instructions to the Portfolio UIF U.S. Real Estate Portfolio 9 Financial Highlights The financial highlights table is intended to help you it did, returns would be lower. The information has understand the financial performance of the Portfo- been audited by Ernst & Young LLP an independent lio’s Class I shares for the past five fiscal years. Certain registered public accounting firm. Ernst & Young information reflects financial results for a single Port- LLP’s unqualified report appears in the Portfolio’s folio share. The total returns in the table represent the Annual Report to Shareholders and is incorporated by rate that an investor would have earned (or lost) on reference in the SAI. The Annual Report and the an investment in the Portfolio (assuming reinvest- Portfolio’s financial statements, as well as the SAI, are ment of all dividends and distributions). In addition, available at no cost from the Portfolio at the toll free this performance information does not include the number noted on the back cover to this Prospectus or impact of any charges by your insurance company. If from your insurance company. Year Ended December 31, 2009 2008 2007 2006 2005 Selected Per Share Data and Ratios Net Asset Value, Beginning of Period $8.20 $22.05 $29.37 $23.09 $20.49 Income (Loss) From Investment Operations Net Investment Income# 0.17 0.31 0.32 0.36 0.36 Net Realized and Unrealized Gain (Loss) 2.04 (5.87) (4.90) 8.02 3.08 Total From Investment Operations 2.21 (5.56) (4.58) 8.38 3.44 Distributions from and/or in Excess of: Net Investment Income (0.26) (0.69) (0.31) (0.30) (0.26) Net Realized Gain – (7.60) (2.43) (1.80) (0.58) Total Distributions (0.26) (8.29) (2.74) (2.10) (0.84) Net Asset Value, End of Period $10.15 $8.20 $22.05 $29.37 $23.09 Total Return± 28.36% (37.89)% (17.07)% 38.04% 17.05% Ratios and Supplemental Data: Net Assets, End of Period (Thousands) $244,866 $396,921 $761,902 $1,408,168 $1,072,408 Ratio of Expenses to Average Net Assets(1) 1.13%+ 1.07%+ 1.04%+ 1.01% 1.03% Ratio of Expenses to Average Net Assets Excluding Investment Related Expenses 1.10%+ 1.05%+ 1.02%+ 1.01% 1.03% Ratio of Net Investment Income to Average Net Assets 2.25%+ 2.01%+ 1.14%+ 1.40% 1.72% Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets 0.00%§ 0.00%§ 0.00%§ N/A N/A Portfolio Turnover Rate 36% 35% 41% 25% 26% Supplemental Information on the Ratios to Average Net Assets: (1) Ratios Before Expenses Waived and/or Reimbursed by Adviser: Expenses to Average Net Assets 1.14%+ N/A N/A N/A N/A Net Investment Income to Average Net Assets 2.24%+ N/A N/A N/A N/A # Per share amount is based on average shares outstanding. ± Calculated based on the net asset value as of the last business day of the period. Performance does not reflect fees and expenses imposed by your insurance company’s separate account. If performance information included the effect of these additional charges, the total return would be lower. + Reflects rebate of certain Portfolio expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class during the period. As a result of such rebate, the expenses as a percentage of its net assets were affected by less than 0.005%. § Amount is less than 0.005%. 10 UIF U.S. Real Estate Portfolio [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Where to Find Additional Information Statement of Additional Information You may obtain the SAI and shareholder reports In addition to this Prospectus, the Fund has a SAI, without charge by contacting the Fund at the toll-free dated April 30, 2010, which contains additional, number above or your insurance company or on our more detailed information about the Fund and the web site at www.morganstanley.com/im. Portfolio. The SAI is incorporated by reference into this Prospectus and, therefore, legally forms a part of Information about the Fund, including the SAI, and this Prospectus. the annual and semi-annual reports, may be obtained from the Commission in any of the following ways: Shareholder Reports (1) In person: you may review and copy documents in The Fund publishes annual and semi-annual reports the Commission’s Public Reference Room in containing financial statements. These reports contain Washington, D.C. (for information on the operation additional information about the Portfolio’s invest- of the Public Reference Room, call 1-202-551-8090); ments. In the Fund’s shareholder reports, you will (2) On-line: you may retrieve information from the find a discussion of the market conditions and the EDGAR Database on the Commission’s web site at investment strategies that significantly affected http://www.sec.gov; or (3) By mail: you may request the Portfolio’s performance during that period. documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission, For additional Fund information, including Public Reference Section, Washington, D.C. information regarding the investments comprising the 20549-0102. You may also obtain this information, Portfolio, and to make shareholder inquiries, please upon payment of a duplicating fee, by e-mailing the call 1-800-281-2715 or contact your insurance Commission at the following address: company. email@example.com. To aid you in obtaining this information, the Fund’s Investment Company Act registration number is 811-7607.
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