<PAGE>
May 15, 1998
Dear Shareholder:
A Special Meeting of Shareholders of the Balanced and Small Cap Value Equity
Portfolios of Morgan Stanley Institutional Fund, Inc. ("MSIF") has been
scheduled for June 19, 1998. If you were a Shareholder of record of either of
these Portfolios as of the close of business on April 24, 1998, you are entitled
to vote at the meeting and for any adjournment of the meeting.
The attached Proxy Statement/Prospectus gives you information relating to
the proposal upon which you are being asked to vote. The Board of Directors is
recommending that you approve a reorganization under which your Portfolio would
transfer all of its assets and liabilities to a corresponding portfolio of MAS
Funds in return for shares of that MAS Funds Portfolio. Assuming approval by
Shareholders, you will receive an amount of shares of the appropriate class of
the corresponding MAS Funds Portfolio equal in value to your MSIF Portfolio
shares. Miller Anderson & Sherrerd, LLP, the adviser to the MAS Funds family of
funds, is an affiliate of Morgan Stanley Asset Management Inc., the adviser to
MSIF. It is anticipated that the transaction will be tax free for Shareholders,
and the Board of Directors expects it to result in operational efficiencies. We
encourage you to follow the Directors' recommendation to approve the proposal.
Your vote is important to us. Your immediate response will help prevent the
need for additional solicitations. Thank you for taking the time to consider
this important proposal and for your investment in the Portfolios.
PLEASE MARK, SIGN, AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
Sincerely,
Michael F. Klein
PRESIDENT
<PAGE>
INFORMATION ABOUT YOUR PROXY STATEMENT/PROSPECTUS
Q. WHY AM I RECEIVING THIS PROXY STATEMENT/PROSPECTUS?
A. MSIF is seeking your approval of a reorganization of the Balanced and
Small Cap Value Equity Portfolios whereby each Portfolio would
transfer all of its assets and liabilities to a similar, corresponding
portfolio of MAS Funds in return for shares of that MAS Funds
Portfolio. The MSIF Portfolios then would distribute those shares to
their shareholders in liquidation. MSIF shareholders who own Class A
shares will receive MAS Funds Institutional Class shares, while MSIF
Class B shareholders will receive MAS Funds Adviser Class shares. The
reorganizations are being proposed principally to achieve greater
efficiency in managing the Portfolios.
Please refer to the proxy statement/prospectus for a detailed
explanation of the proposed item and for a fuller description of MAS
Funds.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposal can be acted upon.
Your immediate response on the enclosed proxy card will help save on
the costs of any further solicitations for a shareholder vote. We
encourage all shareholders to participate in the governance of their
Fund.
Q. HOW DOES THE BOARD OF DIRECTORS SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Directors unanimously
recommends that you vote "FOR" the item proposed on the enclosed proxy
card.
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDER MEETING?
A. Each Portfolio is paying for its portion of the expenses relating to
the meeting.
Q. WHERE DO I MAIL MY PROXY CARD?
A. You may use the enclosed postage-paid envelope or mail your proxy card
to:
Proxy Tabulator
P.O. Box 9122
Hingham, MA 02043-9717
Q. WHO DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy
solicitation. Please call us at 1-800-733-8481 ext. 442 between 9:00
a.m. and 11:00 p.m. Eastern time, Monday through Friday.
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK, 10020
--------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1998
-------------
Notice is hereby given that a Special Meeting of Shareholders of the
Balanced and Small Cap Value Equity Portfolios of the Morgan Stanley
Institutional Fund, Inc. ("MSIF") will be held at the offices of Morgan Stanley
Asset Management Inc., 1221 Avenue of the Americas, New York, NY, Conference
Room 3, 22nd Floor on June 19, 1998 at 4:00 p.m. (Eastern Time) for the purposes
of considering the proposals set forth below.
PROPOSAL 1: Approval of an Agreement and Plan of Reorganization and
Liquidation providing for (i) the transfer of all of the assets
and liabilities of the MSIF Small Cap Value Equity Portfolio to
the MAS Funds ("MAS") Mid Cap Value Portfolio in exchange for
shares of the MAS Mid Cap Value Portfolio; (ii) the
distribution of the MAS Mid Cap Value Portfolio shares so
received to shareholders of the MSIF Small Cap Value Equity
Portfolio; and (iii) the termination under state law of the
MSIF Small Cap Value Equity Portfolio;
PROPOSAL 2: Approval of an Agreement and Plan of Reorganization and
Liquidation providing for (i) the transfer of all of the assets
and liabilities of the MSIF Balanced Portfolio to the MAS
Balanced Portfolio in exchange for shares of the MAS Balanced
Portfolio; (ii) the distribution of the MAS Balanced Portfolio
shares so received to shareholders of the MSIF Balanced
Portfolio; and (iii) the termination under state law of the
MSIF Balanced Portfolio;
PROPOSAL 3: The transaction of such other business as may properly be
brought before the meeting.
Shareholders of record as of the close of business on April 24, 1998 are
entitled to notice of, and to vote at, this meeting or any adjournment thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF MSIF. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES
MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING A WRITTEN
NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE
MEETING AND VOTING IN PERSON.
Valerie Y. Lewis
SECRETARY
May 15, 1998
<PAGE>
PROXY STATEMENT/PROSPECTUS
DATED MAY 8, 1998
--------------
RELATING TO THE ACQUISITION OF THE ASSETS OF CERTAIN PORTFOLIOS OF
MORGAN STANLEY INSTITUTIONAL FUND, INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
1-800-548-7786
--------------
BY AND IN EXCHANGE FOR
SHARES OF CERTAIN PORTFOLIOS OF
MAS FUNDS
ONE TOWER BRIDGE
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
1-800-354-8185
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of the Morgan Stanley
Institutional Fund, Inc. ("MSIF") in connection with the Special Meeting of
Shareholders (the "Meeting") of the MSIF Small Cap Value Equity and Balanced
Portfolios (each an "MSIF Portfolio") to be held on June 19, 1998 at 4:00 p.m.
(Eastern Time) at the offices of Morgan Stanley Asset Management Inc., 1221
Avenue of the Americas, New York, NY, Conference Room 3, 22nd Floor. At the
meeting, shareholders of each MSIF Portfolio will be asked to consider and
approve an Agreement and Plan of Reorganization and Liquidation (the
"Reorganization Agreement"), by and between MSIF and MAS Funds ("MAS") on behalf
of its Mid Cap Value and Balanced Portfolios thereof (each an "MAS Portfolio";
the MSIF Portfolios and MAS Portfolios are referred to collectively as
"Portfolios") and the matters contemplated therein. A copy of the Reorganization
Agreement is attached as Exhibit A.
The Reorganization Agreement provides that each MSIF Portfolio will transfer
all of its known assets and known liabilities to a corresponding MAS Portfolio
identified below opposite each name:
<TABLE>
<CAPTION>
MAS ACQUIRING PORTFOLIOS MSIF ACQUIRED PORTFOLIOS
- -------------------------------------------------------- ------------------------------------
<S> <C>
Mid Cap Value Portfolio................................. Small Cap Value Equity Portfolio
Balanced Portfolio...................................... Balanced Portfolio
</TABLE>
In exchange for the transfers of these assets and liabilities, MAS will
simultaneously issue shares in the two MAS Portfolios to the corresponding MSIF
Portfolios listed above in an amount equal in value to the net asset value of
the MSIF Portfolios' shares.
The MSIF Portfolios have two classes of shares (Class A and Class B), and
the MAS Portfolios have three classes of shares (Institutional, Investment and
Adviser). Holders of Class A shares of each MSIF Portfolio will receive an
amount of Institutional Class shares of the corresponding MAS Portfolio equal in
value to their MSIF Portfolio Class A shares. Holders of Class B shares of each
MSIF Portfolio will receive an amount of Adviser Class shares of the
corresponding MAS Portfolio equal in value to their MSIF Portfolio Class B
shares.
Immediately after the transfer of the MSIF Portfolios' assets and
liabilities, the MSIF Portfolios will make liquidating distributions of the MAS
Portfolios' shares received to shareholders of the MSIF Portfolios, so that a
holder of shares in a MSIF Portfolio at the Effective Time of the Reorganization
(as defined in the Reorganization Agreement) will receive shares of the
corresponding MAS Portfolio with the same aggregate net asset value as the
shareholder had in the MSIF Portfolio immediately before the Reorganization.
Following the Reorganization, shareholders of the MSIF Portfolios will be
shareholders of the corresponding MAS Portfolios, and the MSIF Portfolios will
be terminated under state law.
MAS and MSIF are both open-end, management investment companies. Miller
Anderson & Sherrerd, LLP ("Miller Anderson") provides investment advisory
services to the MAS Portfolios. Morgan Stanley Asset Management Inc. ("MSAM")
provides investment advisory services to MSIF. Miller Anderson is wholly-owned,
<PAGE>
indirectly, by MSAM and certain of its affiliates. Miller Anderson and MSAM are
wholly-owned, directly or indirectly, by Morgan Stanley Dean Witter & Co.
This Proxy Statement/Prospectus sets forth concisely the information that a
shareholder of each of the MSIF Portfolios should know before voting on the
Reorganization, and should be retained for future reference. Certain additional
relevant documents listed below, which have been filed with the SEC, are
incorporated in whole or in part by reference. A Statement of Additional
Information dated May 8, 1998, relating to this Proxy Statement/Prospectus and
the Reorganization and including certain financial information about the MSIF
Portfolios and the MAS Portfolios, has been filed with the SEC and is
incorporated in its entirety into this Proxy Statement/Prospectus. A copy of
such Statement of Additional Information is available upon request and without
charge by writing to MAS Funds, One Tower Bridge, West Conshohocken, PA 19428 or
by calling toll-free 1-800-354-8185.
For a more detailed discussion of the investment objectives, policies, risks
and restrictions of the MSIF Portfolios, see the prospectus for the MSIF
Portfolios, dated May 1, 1998, which has been filed with the SEC and is
incorporated by reference into this Proxy Statement/Prospectus insofar as it
relates to the MSIF Portfolios and not to any other portfolio of MSIF described
therein. It is available without charge by calling 1-800-548-7786. For a more
detailed discussion of the investment objectives, policies, risks and
restrictions of the MAS Portfolios, see the prospectus for MAS Funds relating to
(i) the Institutional Class shares of the MAS Portfolios, dated January 31,
1998, as supplemented, or (ii) the Adviser Class shares of the MAS Portfolios
dated January 31, 1998, as supplemented, which have been filed with the SEC and
are incorporated by reference into this Proxy Statement/Prospectus insofar as
they relate to the MAS Portfolios, and not to any other portfolio of MAS Funds
described therein. A copy of the applicable prospectus for the MAS Portfolios
accompanies this Proxy Statement/Prospectus. A Statement of Additional
Information for the MAS Portfolios dated January 31, 1998 has been filed with
the SEC, and is incorporated by reference into this Proxy Statement/Prospectus.
A copy is available upon request and without charge by calling 1-800-354-8185.
This Proxy Statement/Prospectus constitutes the proxy statement of MSIF for
the Meeting and is expected to be sent to shareholders on or about May 15, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Synopsis................................................................................................. 4
The Reorganization..................................................................................... 4
The Funds.............................................................................................. 4
Risks.................................................................................................... 8
Reasons for the Reorganization........................................................................... 11
Information Relating to the Reorganization............................................................... 13
The Portfolios' Investment Objectives and Policies....................................................... 15
The Portfolios' Purchase, Exchange and Redemption Procedures............................................. 16
Portfolio Transactions................................................................................... 17
Shareholder Rights....................................................................................... 17
Information About the Portfolios......................................................................... 19
Voting Matters........................................................................................... 20
Other Business........................................................................................... 27
Shareholder Inquiries.................................................................................... 27
Appendix A -- Performance of the Portfolios.............................................................. A-1
Exhibit A -- Form of Agreement and Plan of Reorganization and Liquidation................................ E-1
</TABLE>
3
<PAGE>
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus and is qualified by reference to the more
complete information contained herein and in the attached Exhibit A.
Shareholders should read this entire Proxy Statement/Prospectus carefully.
THE REORGANIZATION
BACKGROUND. The Board of Directors of MSIF, including the Directors who are
not "interested persons" of MSIF within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940 ("1940 Act"), has unanimously approved, subject
to shareholder approval, entry into an Agreement and Plan of Reorganization
between MSIF and MAS. A copy of the form of Agreement and Plan of Reorganization
and Liquidation (the "Reorganization Agreement") is attached hereto as Exhibit
A. The Reorganization Agreement provides that each MSIF Portfolio will transfer
all of its assets and stated liabilities to the corresponding MAS Portfolio in
exchange for shares of that MAS Portfolio. Each MSIF Portfolio will distribute
the MAS Portfolio shares that it receives to its shareholders in liquidation.
Each MSIF Portfolio will then be terminated under state law. No sales charge
will be imposed in connection with these transactions.
The Board of Directors of MSIF has concluded that the Reorganization would
be in the best interests of the MSIF Portfolios and their shareholders and that
the interests of existing shareholders in the MSIF Portfolios would not be
diluted as a result of the transactions contemplated by the Reorganization. The
Board of Directors of MSIF recommends that you vote for approval of the
Reorganization Agreement.
TAX CONSEQUENCES. The consummation of the Reorganization is subject to the
receipt of an opinion of counsel to MSIF to the effect that the Reorganization
will qualify as a tax-free reorganization for federal income tax purposes.
SPECIAL CONSIDERATIONS AND RISK FACTORS. Although the investment objectives
and policies of the MAS Portfolios and the MSIF Portfolios are, in many
respects, similar, management of MSIF believes that an investment in the
corresponding MAS Portfolios involves investment characteristics, including
risks, that are, in some respects, different from those of the MSIF Portfolios.
Because of these different risks and other differences in the investment
objectives and policies of the MAS Portfolios, shareholders should consider
whether the corresponding MAS Portfolio conforms to their investment objectives.
THE FUNDS
BUSINESS OF THE FUNDS. MSIF is a no-load, open-end management investment
company, which offers redeemable shares in a series of diversified and
non-diversified investment portfolios. It was organized as a Maryland
corporation on June 16, 1988. MSIF offers two classes of shares, Class A shares
and Class B shares. Class A shares differ from Class B shares with respect to
distribution costs, as set forth in the prospectus.
MAS is a no-load, open-end, management investment company, which offers
redeemable shares in a series of diversified and non-diversified investment
portfolios. It was organized as a Pennsylvania business trust on September 15,
1984. MAS offers three classes of shares, Institutional, Investment and Adviser,
which differ with respect to distribution and shareholder servicing costs, as
set forth in the prospectus.
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of the MAS Mid
Cap Value Portfolio is to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk. It invests in
undervalued common stocks with equity capitalization in the range of the
companies represented in the S&P MidCap 400 Index (currently ranging from $500
million to $6 billion).
The investment objective of the MSIF Small Cap Value Equity Portfolio is to
provide high long-term total return. It invests in undervalued equity securities
of small to medium sized corporations with market capitalizations in the range
of companies represented in the Russell 2500 Small Companies Index (currently
$70 million to $1.3 billion).
4
<PAGE>
The investment objective of the MAS Balanced Portfolio is to achieve above
average total return over a market cycle of three to five years, consistent with
reasonable risk. It invests in a diversified portfolio of common stocks and
fixed-income securities.
The investment objective of the MSIF Balanced Portfolio is to achieve high
total return while preserving capital by investing in a combination of
undervalued equity securities and fixed-income securities.
DIVIDEND POLICIES. Dividends from the net investment income of the MSIF and
MAS Portfolios, except the MAS Mid Cap Value Portfolio, are declared and paid to
shareholders on a quarterly basis. The MAS Mid Cap Value Portfolio declares and
pays dividends from its net investment income annually. For all Portfolios,
capital gains, if any, are distributed annually.
INVESTMENT ADVISERS AND ADVISORY FEES. Miller Anderson & Sherrerd, LLP
("Miller Anderson") is a registered investment adviser and serves as investment
adviser to the MAS Portfolios and the other investment portfolios of MAS. Miller
Anderson supervises and manages all of the investment operations of MAS. Miller
Anderson is wholly owned, indirectly, by MSAM and certain of its affiliates, all
of which are direct or indirect subsidiaries of Morgan Stanley Dean Witter & Co.
Miller Anderson also serves as investment adviser to employee benefit plans,
endowment funds, foundations and other institutional investors, and as
investment adviser or sub-adviser to several other investment companies. Miller
Anderson had approximately $68.4 billion of assets under management as of
February 28, 1998 and is located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428.
Under an agreement with MAS Funds, Miller Anderson is entitled to receive a
fee from each MAS Portfolio, calculated quarterly, at the following annual
percentage rates of each Portfolio's net assets:
<TABLE>
<CAPTION>
PERCENTAGE
MAS PORTFOLIO RATE
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Mid Cap Value Portfolio...................................................... 0.750%
Balanced Portfolio........................................................... 0.450%
</TABLE>
For the fiscal year ending September 30, 1997, Miller Anderson received the
following as compensation for its services:
<TABLE>
<CAPTION>
FEES
(AS A PERCENTAGE
MAS PORTFOLIO OF NET ASSETS)
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Mid Cap Value Portfolio...................................................... 0.727%*
Balanced Portfolio........................................................... 0.450%
</TABLE>
- --------------
* During part of the year, Miller Anderson voluntarily waived a portion of its
fee.
The Portfolio Managers of the MAS Portfolios share primary responsibility
for managing the Portfolio's assets. The Portfolio Managers of the MAS
Portfolios are as follows:
<TABLE>
<S> <C>
Mid Cap Value Portfolio: Bradley S. Daniels, William B. Gerlach, Chris
Leavy and Gary G. Schlarbaum
Balanced Portfolio: Thomas L. Bennett, Gary G. Schlarbaum,
Horacio A. Valeiras, and Richard B. Worley
</TABLE>
Morgan Stanley Asset Management Inc. ("MSAM"), wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., serves as the investment adviser for MSIF.
MSAM supervises and manages all of the investment operations of MSIF. As of
February 28, 1998, MSAM, together with its affiliated institutional asset
management companies (excluding Miller Anderson), had approximately $88.1
billion in assets under management as an investment manager or as a named
fiduciary or fiduciary adviser. MSAM is located at 1221 Avenue of the Americas,
New York, NY 10020.
5
<PAGE>
Under an agreement with MSIF, MSAM is entitled to receive a fee from each
MSIF Portfolio, payable quarterly, at the following annual percentage rates:
<TABLE>
<CAPTION>
PERCENTAGE
MSIF PORTFOLIO RATE
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Small Cap Value Equity Portfolio............................................. 0.85%
Balanced Portfolio........................................................... 0.50%
</TABLE>
For the year ending December 31, 1997, MSAM received the following as
compensation for its services:
<TABLE>
<CAPTION>
FEES
(AS A PERCENTAGE
MSIF PORTFOLIO OF NET ASSETS)
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Small Cap Value Equity Portfolio............................................. 0.54%
Balanced Portfolio........................................................... 0.00%
</TABLE>
- --------------
* MSAM voluntarily agreed to waive a portion of its fee so that the total
operating expenses of the Small Cap Value Equity and Balanced Portfolios did
not exceed 1.00% and 0.70%, respectively, for Class A Shares and 1.25% and
0.95%, respectively, for Class B Shares.
Pursuant to an arrangement between Miller Anderson and MSAM, two of the
individuals responsible for managing the investments of the MAS Mid Cap Value
Portfolio, Gary G. Schlarbaum and William B. Gerlach, are also responsible for
managing the investments of the MSIF Small Cap Value Equity Portfolio. Stephen
C. Sexauer and Philip W. Friedman manage the investments of the MSIF Balanced
Portfolio.
The following comparative fee tables show the current fees for the
corresponding MAS and MSIF Portfolios.
SHAREHOLDER TRANSACTION EXPENSES. Neither MAS nor MSIF impose fees on
shareholder transactions.
ANNUAL OPERATING EXPENSES. A comparison of the annual operating expenses of
the Portfolios is set forth below.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) --
NET OF FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
MANAGEMENT FEES TOTAL OPERATING EXPENSES
(NET OF FEE WAIVERS (NET OF FEE WAIVERS
AND EXPENSE 12B-1 OTHER AND EXPENSE
PORTFOLIO REIMBURSEMENTS) FEES EXPENSES REIMBURSEMENTS)(1)
- ------------------------------------------------------- ------------------- ---------- ----------- ---------------------------
<S> <C> <C> <C> <C>
MAS Mid Cap Value Institutional Class.................. 0.75% None 0.13% 0.88%
MAS Mid Cap Value Adviser Class........................ 0.75% 0.25% 0.13% 1.13%
MSIF Small Cap Value Equity -- Class A................. 0.54% None 0.46 % 1.00 %
MSIF Small Cap Value Equity -- Class B................. 0.54 % 0.25 % 0.46 % 1.25 %
MAS Balanced Institutional Class....................... 0.45 % None 0.13 % 0.58 %
MAS Balanced Adviser Class............................. 0.45 % 0.25 % 0.13 % 0.83 %
MSIF Balanced -- Class A............................... 0.00 % None 0.70 % 0.70 %
MSIF Balanced -- Class B............................... 0.00 % 0.25 % 0.70 % 0.95 %
</TABLE>
- --------------
(1) The Total Operating Expense ratios reflected in the table above may be
higher than the ratio of expenses actually deducted from portfolio assets
because of the effect of expense offset arrangements. The result of such
arrangements is to offset expenses that otherwise would be deducted from
portfolio assets. Amounts in the above table have been restated to reflect
current fees and expenses.
MSAM has voluntarily agreed to waive a portion of its fee so that the total
operating expenses of the Small Cap Value Equity and Balanced Portfolios do
not exceed 1.00% and 0.70%, respectively, for Class A Shares
6
<PAGE>
and 1.25% and 0.95%, respectively, for Class B Shares. Absent such waivers
and reimbursements, management fees would be 0.85% and 0.50% of the Small
Cap Value Equity and Balanced Portfolios' average daily net assets,
respectively. Absent waivers or reimbursements, the Total Operating
Expenses, as a percentage of the average daily net assets of each class, of
the MSIF Small Cap Value Equity Portfolio would be 1.32% for Class A and
1.56% for Class B, and of the MSIF Balanced Portfolio would be 1.83% for
Class A and 2.05% for Class B.
EXAMPLE
The purpose of this table is to assist investors in understanding the
various expenses that a shareholder in a Portfolio will bear directly or
indirectly. The following illustrates the expenses on a $1,000 investment under
the existing and proposed fees and the expenses stated above, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
MAS Mid Cap Value Institutional Class..................................... $ 9 $ 28 $ 49 $ 108
MAS Mid Cap Value Adviser Class........................................... $ 12 $ 36 $ 62 $ 137
MSIF Small Cap Value -- Class A........................................... $ 10 $ 32 $ 55 $ 122
MSIF Small Cap Value -- Class B........................................... $ 13 $ 40 $ 69 $ 151
MAS Balanced Institutional Class.......................................... $ 6 $ 19 $ 32 $ 73
MAS Balanced Adviser Class................................................ $ 8 $ 26 $ 46 $ 103
MSIF Balanced -- Class A.................................................. $ 7 $ 22 $ 39 $ 87
MSIF Balanced -- Class B.................................................. $ 10 $ 30 $ 53 $ 117
</TABLE>
The Example above should not be considered a representation of future expenses
of the Portfolios. Actual expenses may be greater or less than those shown. The
MAS Portfolios offer another class of shares which varies with respect to
distribution and shareholder service costs.
OTHER SIGNIFICANT FEES. In addition to serving as adviser, MSAM provides
shareholder services and other administrative services to the MSIF Portfolios
under an administration agreement. The administration agreement also provides
that MSAM, through its agents, will provide MSIF with dividend disbursing and
transfer agent services. For its services under this agreement, MSAM is entitled
to receive a monthly fee which, on an annual basis, equals 0.15% of the average
daily net assets of each MSIF Portfolio.
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an affiliate of MSAM,
serves as the exclusive distributor of Class A and Class B shares of MSIF. MSIF
has adopted a Plan of Distribution with respect to the Class B shares of each
MSIF Portfolio pursuant to Rule 12b-1 under the 1940 Act, under which Morgan
Stanley is entitled to receive a distribution fee from each MSIF Portfolio,
which is accrued daily and paid quarterly, of 0.25% of the average daily net
assets of the Class B shares of each MSIF Portfolio on an annualized basis. Each
plan is designed to compensate Morgan Stanley for its services, not to reimburse
Morgan Stanley for its expenses, and Morgan Stanley may retain any portion of
the fee that it does not expend in fulfillment of its obligation to MSIF. Morgan
Stanley may, in its discretion, voluntarily waive from time to time all or any
portion of its distribution fee and each of Morgan Stanley and MSAM is free to
make additional payments out of its own assets to promote the sale of MSIF
Portfolio shares, including payments that compensate financial institutions for
distribution services or shareholder services.
Miller Anderson provides administrative services to MAS pursuant to an
administration agreement. Under this agreement, Miller Anderson receives an
annual fee, accrued daily and payable monthly of 0.08% of MAS' average daily net
assets. MAS Fund Distribution, Inc. ("MASDI"), a wholly-owned subsidiary of
Miller Anderson, serves as the exclusive distributor of the shares of MAS. MASDI
receives no compensation for its services with respect to Institutional Class
Shares. MAS has adopted a Plan of Distribution with respect to its Adviser Class
shares of each MAS Portfolio pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan MASDI is entitled to receive a distribution fee from each MAS
Portfolio. The distribution fee, which is accrued daily and paid quarterly, is
equal to 0.25% of the average daily net assets of the Adviser Class shares of
each MAS Portfolio
7
<PAGE>
on an annualized basis. Each plan is designed to compensate MASDI for its
services and MASDI may retain any portion of the fee that it does not expend.
MASDI may, in its discretion, voluntarily waive from time to time all or any
portion of its distribution fee and each of MASDI and Miller Anderson is free to
make additional payments out of its own assets to promote the sale of MAS
Portfolio shares, including payments that compensate financial institutions for
distribution services or shareholder services.
Chase Global Funds Services Company ("CGFSC"), a subsidiary of The Chase
Manhattan Bank ("Chase"), provides sub-administration, fund accounting and other
services to MSIF and MAS pursuant to sub-administration agreements with MSAM and
Miller Anderson, respectively. CGFSC also serves as transfer and dividend
disbursing agent for both MSIF and MAS. CGFSC is located at 73 Tremont Street,
Boston, Massachusetts 02108.
Chase and Morgan Stanley Trust Company serve as custodians for the MSIF
Portfolios and Chase serves as custodian for the MAS Portfolios.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES. The terms of applicable
purchase, exchange and redemption procedures for MAS and MSIF shares are
substantially the same. However, there is a difference in the minimum investment
required to purchase shares of the MSIF and MAS Portfolios. The minimum initial
investment required is $5,000,000 to purchase MAS Institutional Class shares and
$500,000 for MAS Adviser Class shares. The minimum initial investment required
to purchase shares of the MSIF Portfolios is $500,000 for Class A and $100,000
for Class B. The MAS minimums are waived with respect to the applicable
Portfolio(s) for MSIF shareholders acquiring shares in the merger. For all
Portfolios and all classes of shares, the minimum subsequent investment is
$1,000. MSAM and Miller Anderson, in their discretion, may waive the respective
Portfolios' minimum investment requirements.
RISKS
MAS MID CAP VALUE AND MSIF SMALL CAP VALUE EQUITY PORTFOLIOS. The MAS Mid
Cap Value Portfolio and the MSIF Small Cap Value Equity Portfolio each invest
principally in equity securities of domestic companies that are deemed by their
respective investment advisers to be undervalued, although they also may invest
in other securities, including securities of foreign issuers. Each Portfolio
invests principally in companies whose market capitalizations are in the range
represented by companies included in certain market indices (discussed in more
detail below).
BECAUSE THE MARKET CAPITALIZATIONS OF THESE INDICES OVERLAP, THE PORTFOLIOS
OFTEN MAY, AND IN FACT CURRENTLY DO, INVEST IN MANY OF THE SAME COMPANIES. In
addition, the persons principally responsible for managing the assets of the MAS
Mid Cap Value Portfolio also manage the assets of the MSIF Small Cap Value
Equity Portfolio. Accordingly, as of September 30, 1997, the Portfolios had a
substantial portion of their assets invested in the same companies (see the pro
forma financial information included in the Statement of Additional Information
that relates to this Proxy Statement/Prospectus for more details on the
Portfolios' holdings).
Since the Portfolios generally may invest in the same or similar securities,
they are subject to substantially the same investment risks. However, there are
some differences between the Portfolios, which are described below. The
principal investment risk associated with an investment in a Portfolio is market
risk which can cause the prices of their portfolio securities to fluctuate over
time. Changes in market prices of securities held in a Portfolio will affect the
Portfolio's net asset value. Both Portfolios may invest substantially in smaller
companies, which can result in greater price volatility than is typically
associated with investments in larger companies.
MARKET CAPITALIZATION. The MAS and MSIF Portfolios differ with respect to
the market capitalizations of the companies in which they may invest. The MAS
Mid Cap Value Portfolio invests principally in equity securities of companies
with capitalizations generally ranging from $500 million to $6 billion. The MSIF
Small Cap Value Equity Portfolio invests principally in equity securities of
smaller companies with capitalizations generally ranging from $70 million to
$1.3 billion. Thus, each Portfolio may invest in some of the same securities
8
<PAGE>
as the other, depending on its adviser's judgment regarding market conditions
and the relative attractiveness of securities of larger or smaller companies. To
the extent that the MSIF Portfolio invests in companies that are smaller than
those in which the MAS Portfolio invests, such investments may present a higher
degree of risk and price volatility because such companies may have fewer
products or lines of business and may not possess management personnel equipped
to guide the firms beyond the initial entrepreneurial or start-up phases.
DERIVATIVES. The MAS and MSIF Portfolios may invest in certain derivative
instruments, including caps, floors and collars, futures and options on futures,
options, structured notes, and swaps. These instruments are described more fully
in the prospectuses of the respective Portfolios and involve certain risks
described therein. Certain of these instruments also require the Portfolios to
segregate some or all of their liquid assets to cover their obligations
thereunder. The MSIF Portfolio limits its use of derivative instruments
generally to 33 1/3% of its total assets, as measured by the aggregate notional
amount of outstanding derivative instruments, except that derivatives used for
hedging purposes are not subject to this limit. The MAS Portfolio may enter into
futures contracts and write put or call options subject to the limit that the
Portfolio may not enter into a futures contract to the extent that its
outstanding obligations to purchase securities, combined with its outstanding
obligations relating to options transactions, would exceed 50% of its total
assets. The MAS Portfolio is not subject to any percentage limit on its ability
to invest in other types of derivative instruments, such as swaps, except that
the requirement that it set aside liquid assets to cover its obligations under
certain instruments imposes practical limits on its ability to so invest.
The primary risks associated with the use of futures and options are (i)
imperfect correlation between the value of the securities held by a Portfolio
and the value of the particular futures or option instrument, and (ii) the risk
that a Portfolio could not close out a futures or options position when it would
be most advantageous to do so. In addition, the need to segregate assets to
cover its obligations could, at higher levels of segregation, result in a
Portfolio having less flexibility to manage its investments properly, meet
shareholder redemption requests, or meet other obligations and forcing the
Portfolio to sell other securities that it wanted to retain or to realize
unintended gains or losses. Other derivative instruments are subject to risks,
including the risk of default by the other party to a transaction, the risk of
loss due to changes in market values, interest rates or currency exchange rates,
and the risk that an instrument may become illiquid.
ILLIQUID SECURITIES. Neither the MAS Portfolio nor the MSIF Portfolio may
invest more than an aggregate of 15% of its net assets in illiquid securities.
In addition, the MSIF Portfolio may not invest more
than 10% of its total assets in securities that are restricted from sale to the
public without registration under the 1933 Act, except for securities that can
be sold to qualified institutional investors in accordance with Rule 144A under
the 1933 Act. The MAS Portfolio has no similar limit.
PLEDGING ASSETS. The MAS Portfolio may pledge, mortgage or hypothecate
assets in an amount up to 50% of its total assets, provided that it must
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. The MSIF Portfolio may not pledge,
mortgage, or hypothecate any of its assets to an extent greater than 10% of its
total assets at fair market value.
SELLING SHORT. The MAS Portfolio may engage in short selling, provided (i)
the Portfolio by virtue of its ownership of other securities, has the right to
obtain securities equivalent in kind and amount to the securities sold short
and, if the right is conditional, the sale is made upon the same conditions, or
(ii) the Portfolio maintains liquid assets in a segregated account in an amount
that, when combined with the amount of collateral deposited with the broker,
equals the current market value of the security sold short. The MSIF Portfolio
may not sell securities short.
TEMPORARY DEFENSIVE INVESTING. The MAS and MSIF Portfolios each may, for
temporary defensive purposes, invest up to 100% of its assets in money market
instruments or certain types of fixed income securities, or may hold cash. The
fixed income securities the MSIF Portfolio may invest in are high quality short
and
9
<PAGE>
medium term fixed income securities. The MAS Portfolio may, for these purposes,
invest in any fixed income instrument that the Portfolio is permitted to
purchase.
MAS AND MSIF BALANCED PORTFOLIOS. The Portfolios generally may invest in
the same or similar securities and, thus, are subject to substantially the same
investment risks. The MAS Balanced Portfolio generally invests 45-75% of its
assets in equity securities and 25-55% in fixed-income securities. The MSIF
Balanced Portfolio generally invests 35-65% of its assets in equity securities
and 35-65% of its assets in fixed-income securities and expects that over time
its equity exposure will average about 55% of its total assets. The principal
investment risks associated with an investment in the Portfolios are (a) market
risk, which can cause the prices of equity securities held by the Portfolios to
fluctuate over time, and (b) changes in interest rates, which affect the value
of fixed income securities held by the Portfolios. In addition, changes in
currency exchange rates can adversely affect the value of foreign securities
held by the Portfolios. Changes in market prices of securities held in a
Portfolio will affect the Portfolio's net asset value. There are some
differences between the Portfolios, which are described below.
DERIVATIVES. The MAS Balanced Portfolio and the MSIF Balanced Portfolio may
invest in certain derivative instruments, including caps, floors and collars,
futures and options on futures, options, structured notes, and swaps. These
instruments are described more fully in the prospectuses of the respective
Portfolios and involve certain risks described therein. Certain of these
instruments also require the Portfolios to segregate some or all of their liquid
assets to cover their obligations thereunder. The MSIF Portfolio limits its use
of derivative instruments generally to 33 1/3% of its total assets, as measured
by the aggregate notional amount of outstanding derivative instruments, except
that derivatives used for hedging purposes are not subject to this limit. The
MAS Portfolio may enter into futures contracts and write put or call options
subject to the limit that the Portfolio may not enter into a futures contract to
the extent that its outstanding obligations to purchase securities, combined
with its outstanding obligations relating to options transactions, would exceed
50% of its total assets. The MAS Portfolio is not subject to any percentage
limit on its ability to invest in other types of derivative instruments, such as
swaps, except that the requirement that it set aside liquid assets to cover its
obligations under certain instruments imposes practical limits on its ability to
so invest.
The primary risks associated with the use of futures and options are (i)
imperfect correlation between the value of the securities held by a Portfolio
and the value of the particular futures or option instrument, and (ii) the risk
that a Portfolio could not close out a futures or options position when it would
be most advantageous to do so. In addition, the need to segregate assets to
cover its obligations could, at higher levels of segregation, result in a
Portfolio having less flexibility to manage its investments properly, meet
shareholder redemption requests, or meet other obligations and forcing the
Portfolio to sell other securities that it wanted to retain or to realize
unintended gains or losses. Other derivative instruments are subject to risks,
including the risk of default by the other party to a transaction, the risk of
loss due to changes in market values, interest rates or currency exchange rates,
and the risk that an instrument may become illiquid.
FOREIGN INVESTMENT. The MAS and MSIF Portfolios may each invest up to 25%
of its assets in equity or fixed income securities of foreign issuers. The
Portfolios differ as to the types of foreign fixed income securities they may
purchase. The MSIF Portfolio may invest in foreign mortgage-backed securities,
corporate bonds, bank obligations and short-term money market instruments. It
may not invest in foreign government securities. The MAS Portfolio may invest in
a broader range of foreign fixed income securities, including foreign government
securities. In addition, the MAS Portfolio may invest up to 10% of its assets,
subject to its overall 25% limit on foreign securities, in Brady Bonds, which
are foreign fixed income securities created in connection with debt
restructurings. Because of the unique risks associated with investments in Brady
Bonds and the history of defaults by public and private entities in countries
issuing Brady Bonds, investments in Brady Bonds generally are viewed as more
speculative. The MSIF Portfolio generally may not invest in Brady Bonds.
ILLIQUID SECURITIES. Neither the MAS Portfolio nor the MSIF Portfolio may
invest more than an aggregate of 15% of its net assets in illiquid securities.
In addition, the MSIF Portfolio may not invest more
10
<PAGE>
than 10% of its total assets in securities that are restricted from sale to the
public without registration under the 1933 Act, except for securities that can
be sold to qualified institutional buyers in accordance with Rule 144A under the
1933 Act. The MAS Portfolio has no similar limit.
PLEDGING ASSETS. The MAS Portfolio may pledge, mortgage or hypothecate
assets in an amount up to 50% of its total assets, provided that it 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. The MSIF Portfolio may not pledge,
mortgage, or hypothecate any of its assets to an extent greater than 10% of its
total assets at fair market value.
SELLING SHORT. The MAS Portfolio may engage in short selling, provided (i)
the Portfolio has the right to obtain securities equivalent in kind and amount
to the securities sold short and, if the right is conditional, the sale is made
upon the same conditions, or (ii) the Portfolio maintains liquid assets in a
segregated account in an amount that, when combined with the amount of
collateral deposited with the broker, equals the current market value of the
security sold short. The MSIF Portfolio may not sell securities short.
TEMPORARY DEFENSIVE INVESTING. The MAS and MSIF Portfolios each may, for
temporary defensive purposes, invest up to 100% of its assets in money market
instruments or certain types of fixed income securities or may hold cash. The
MSIF Balanced Portfolio may, for temporary, defensive purposes invest in high
quality short and medium term fixed income securities. The MAS Balanced
Portfolio may, for these purposes, invest in any fixed income instrument that
the Portfolio is permitted to purchase.
REASONS FOR THE REORGANIZATION
In electing to approve the Reorganization Agreement and recommend it to
shareholders of MSIF, the Directors acted upon information provided to them
indicating that the proposed transaction would operate in the best interests of
MSIF shareholders. The Directors considered the terms and conditions of the
Reorganization Agreement, the affiliation between MSAM and Miller Anderson and
their cooperation in providing investment management and shareholder services,
the size and history of asset growth of the MSIF and MAS Portfolios, the fees
and expenses of the Portfolios, the Portfolios' investment performance, the
compatibility of the Portfolios' investment objectives, significant investment
policies and limitations, the anticipated tax treatment of the Reorganization,
and any costs to be incurred by the Portfolios in connection with the
Reorganization. In particular, the Directors determined that the proposed
transaction offered the following benefits:
- INVESTMENT IN FUNDS OFFERING GREATER EFFICIENCIES: The Directors
considered the relatively small size of the MSIF Portfolios and that the
proposed transaction would, if effected, result in the MSIF Portfolios'
shareholders being invested in significantly larger MAS Portfolios, which
may be better able to achieve cost efficiencies because of their larger
size. The Directors noted that the total operating expenses of the MAS
Portfolios were lower than those of the MSIF Portfolios.
- ACCESS TO A BROADER ARRAY OF INVESTMENT OPTIONS: The Directors noted
that, at the time they approved the Reorganization, MAS consisted of 26
portfolios and total anticipated assets in excess of $13 billion. Since
then, MAS has grown to 29 portfolios with over $19 billion in assets.
Shareholders of the MSIF Portfolios, by becoming part of the MAS complex,
would be able to exchange their shares for shares of other MAS portfolios.
MSIF shareholders also would be able to exchange their shares for shares
of other MSIF portfolios that are not part of the proposed transfer.
Shareholders should note that the MAS Funds Small Cap Value Portfolio is
currently closed to new investors.
- CONTINUITY OF MANAGEMENT: MSAM and Miller Anderson are closely affiliated
and work together in managing the assets of numerous MSIF and MAS
Portfolios and in providing services to shareholders. In addition, the
individuals responsible for managing the MSIF Small Cap Value Equity
Portfolio are also responsible, with one additional person, for managing
the MAS Mid Cap Value Portfolio.
11
<PAGE>
- SIMILARITIES OF THE PORTFOLIOS: The Directors considered the fact that
the Portfolios proposed to be combined have similar investment objectives,
policies and strategies. In particular, the Directors noted that there is
considerable overlap in the companies represented in the market
capitalization ranges of the companies tracked by the Russell 2500 Small
Company Index and the S&P Mid Cap 400 Index, within which ranges the MSIF
Small Cap Value Equity Portfolio and the MAS Mid Cap Value Portfolio,
respectively, principally invest. As demonstrated in the pro forma
financial information included in the Statement of Additional Information
relating to this Proxy Statement/Prospectus, these Portfolios have nearly
identical securities holdings. The Directors further noted that the MSIF
Balanced and MAS Balanced Portfolios invest in similar-sized companies.
- TAX-FREE NATURE OF TRANSACTION; LACK OF DILUTION: The Directors were
informed that the Reorganization would be accomplished without the
imposition of federal income taxes on the MSIF Portfolios, the MAS
Portfolios, or their shareholders and that outside counsel to MSIF would
issue an opinion to this effect. The interests of MSIF shareholders will
not be materially diluted as a result of the proposed transaction.
Shareholders of the MSIF Portfolios will receive shares of the MAS
Portfolios equal in value to the value of the MSIF Portfolio shares they
own.
- PERFORMANCE OF MAS: The Board considered information relating to the
historical performance of the MAS Portfolios. The Directors were given
details on the performance record for each MAS Portfolio, both on an
absolute basis and in comparison to the MSIF Portfolios and relevant
benchmarks and industry averages. The table below compares the performance
of the MAS and MSIF Portfolios for periods ending March 31, 1998 and
December 31, 1996 (shortly before the meeting of the MSIF Board).
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION*
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
MSIF Balanced Class A............................................. 24.48% 17.33% 12.35% 11.89%
MAS Balanced Institutional Class.................................. 28.28% 21.37% 14.86% 14.86%
MSIF Small Cap Value Equity Class A............................... 51.58% 29.55% 19.54% 20.06%
MAS Mid Cap Value Institutional Class............................. 56.04% 38.21% N/A 39.11%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION*
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
MSIF Balanced Class A............................................. 10.93% 10.23% 10.15% 10.39%
MAS Balanced Institutional Class.................................. 15.37% 12.94% n.a. 12.30%
MSIF Small Cap Value Equity Class A............................... 22.99% 15.01% n.a. 14.32%
MAS Mid Cap Value Institutional Class............................. 40.77% n.a. n.a. 36.62%
</TABLE>
- --------------
* Inception dates for the Portfolios are as follows: MSIF Balanced Portfolio
commenced operations 2/20/90; MAS Balanced Portfolio commenced operations
12/31/92; MSIF Small Cap Value Equity Portfolio commenced operations 12/17/92;
MAS Mid Cap Value Portfolio commenced operations 12/30/94.
In addition, based on the factors described above, the Directors of MSIF and
Trustees of MAS who are not "interested persons" of MSIF or MAS, within the
meaning of Section 2(a)(19) of the 1940 Act, determined that (i) participation
in the Reorganization is in the best interests of MSIF and MAS, respectively,
and (ii) the interests of shareholders of MSIF and MAS, respectively, will not
be diluted as a result of the Reorganization.
12
<PAGE>
INFORMATION RELATING TO THE REORGANIZATION
DESCRIPTION OF THE REORGANIZATION. The following summary is qualified in
its entirety by reference to the Reorganization Agreement found in Exhibit A.
The Reorganization Agreement provides that substantially all of the assets
and liabilities of each MSIF Portfolio will be transferred to the corresponding
MAS Portfolio at the Effective Time of the Reorganization. In exchange for the
transfer of these assets, MAS will simultaneously issue at the Effective Time of
the Reorganization a number of full and fractional shares of each MAS Portfolio
to the corresponding MSIF Portfolio equal in value to the respective net asset
values of each MSIF Portfolio immediately prior to the Effective Time of the
Reorganization. Each MAS Portfolio will issue Institutional Class shares to the
corresponding MSIF Portfolio equal in value to the net asset value of the MSIF
Portfolio's Class A shares. Similarly, each MAS Portfolio will issue Adviser
Class shares to the corresponding MSIF Portfolio equal in value to the net asset
value of the MSIF Portfolio's Class B shares.
Following the transfer of assets and liabilities in exchange for MAS
Portfolio shares, each MSIF Portfolio will distribute pro rata the shares of the
corresponding MAS Portfolios so received to its shareholders in liquidation.
Each shareholder of the MSIF Portfolios owning shares at the Effective Time of
the Reorganization will receive MAS Portfolio shares of the appropriate class of
equal value. Such liquidation and distribution will be accomplished by the
establishment of accounts in the names of the shareholders of the MSIF
Portfolios' shareholders on the share records of MAS' transfer agent. Each
account will represent the respective pro rata number of full and fractional
Institutional or Adviser Class Shares of the MAS Portfolios due to the
shareholders of the corresponding MSIF Portfolios. The MAS Portfolios do not
issue share certificates to shareholders. Shares of the MAS Portfolios to be
issued will have no preemptive or conversion rights. No sales charge will be
imposed in connection with the receipt of such Institutional or Adviser Class
shares by the MSIF Portfolios' shareholders. The MSIF Portfolios then will be
terminated under state law.
As provided in the Reorganization Agreement, each Portfolio will bear its
own expenses resulting from the Reorganization. The Reorganization is subject to
a number of conditions, including approval of the Reorganization Agreement by
shareholders of the MSIF Portfolios; the receipt of certain legal opinions
described in Section 6, 7 and 8 of the Reorganization Agreement (including an
opinion of counsel that the MAS Portfolios' shares issued in accordance with the
terms of the Reorganization Agreement are validly issued, fully paid and
non-assessable); the receipt of certain certificates from the parties concerning
aggregate asset values; and the parties' performance in all material respects of
the agreements and undertakings in the Reorganization Agreement.
The Reorganization Agreement and the Reorganization may be abandoned with
respect to one or both of the MSIF Portfolios or MAS Portfolios without penalty
at any time prior to the Effective Time of the Reorganization, as defined in the
Reorganization Agreement, by resolution of the Board of Directors of MSIF or the
Board of Trustees of MAS or at the discretion of any duly authorized officer of
MAS or MSIF, if circumstances should develop that, in the opinion of such Board
or officer, make proceeding with the Reorganization inadvisable.
FEDERAL INCOME TAXES. The Reorganization is intended to qualify for federal
income tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended. If so qualified, shareholders of
the MSIF Portfolios will not recognize gain or loss in the transaction; the tax
basis of the MAS shares received will be the same as the basis of the MSIF
shares surrendered; and the holding period of the MAS shares received will
include the holding period of the MSIF shares surrendered, provided that the
shares surrendered were capital assets in the hands of the MSIF shareholders at
the time of the transaction. As a condition to the closing of the
Reorganization, MSIF and MAS will receive an opinion from counsel to that
effect. MSIF, on behalf of the MSIF Portfolios, has not sought a tax ruling from
the Internal Revenue Service. The opinion of counsel is not binding on the
Internal Revenue Service and does not preclude the Internal Revenue Service from
adopting a contrary position. It is anticipated that the securities of the
combined Portfolios will not be sold in significant amounts to comply with the
policies and investment practices of the
13
<PAGE>
MAS Portfolios. Shareholders should consult their own tax advisers concerning
the potential tax consequences of the Reorganization to them, including state
and local tax consequences.
CAPITALIZATION. The following table sets forth as of September 30, 1997 (i)
the capitalization of each of the MAS Portfolios; (ii) the capitalization of
each of the MSIF Portfolios; and (iii) the pro forma combined capitalization of
the Portfolios assuming the Reorganization has been approved.
<TABLE>
<CAPTION>
NET ASSET
VALUE PER SHARES
PORTFOLIO NET ASSETS SHARE OUTSTANDING
- ----------------------------------------------------------------------- -------------- ----------- ------------
<S> <C> <C> <C>
MAS Mid Cap Value......................................................
Institutional Class.................................................... $ 220,259,681 $ 21.80 10,103,104
Adviser Class.......................................................... $ 0 $ 21.80 0
Investment Class....................................................... $ 1,238,516 $ 21.75 56,951
-------------- ------------
Total................................................................ $ 221,498,197 10,160,055
-------------- ------------
-------------- ------------
MSIF Small Cap Value Equity............................................
Class A................................................................ $ 34,648,575 $ 14.65 2,364,674
Class B................................................................ $ 8,043,615 $ 14.63 549,793
-------------- ------------
Total................................................................ $ 42,692,190 2,914,467
-------------- ------------
-------------- ------------
Combined Portfolios....................................................
Institutional Class.................................................... $ 254,908,256 $ 21.80 11,692,488
Adviser Class.......................................................... $ 8,043,615 $ 21.80 368,973
Investment Class*...................................................... $ 1,238,516 $ 21.75 56,951
-------------- ------------
Total................................................................ $ 264,190,387 12,118,412
-------------- ------------
-------------- ------------
MAS Balanced...........................................................
Institutional Class.................................................... $ 343,283,828 $ 15.30 22,437,992
Adviser Class.......................................................... $ 27,366,384 $ 15.30 1,789,135
Investment Class*...................................................... $ 3,943,685 $ 15.30 257,760
-------------- ------------
Total................................................................ $ 374,593,897 24,484,887
-------------- ------------
-------------- ------------
MSIF Balanced..........................................................
Class A................................................................ $ 4,351,469 $ 8.85 491,933
Class B................................................................ $ 707,025 $ 8.82 80,180
-------------- ------------
Total................................................................ $ 5,058,494 572,113
-------------- ------------
-------------- ------------
Combined Portfolios....................................................
Institutional Class.................................................... $ 347,635,297 $ 15.30 22,722,402
Adviser Class.......................................................... $ 28,073,409 $ 15.30 1,835,346
Investment Class*...................................................... $ 3,943,685 $ 15.30 257,760
-------------- ------------
Total................................................................ $ 379,652,391 24,815,508
-------------- ------------
-------------- ------------
</TABLE>
- --------------
* Investment Class Shares of MAS Funds are not involved in the Reorganization.
They differ from Institutional and Adviser Class Shares in expenses charged
and purchase requirements.
14
<PAGE>
THE PORTFOLIOS' INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the MAS Portfolios are, in many
respects, similar to those of the corresponding MSIF Portfolios. There are,
however, differences of which shareholders should be aware. These differences
are outlined below.
MAS MID CAP VALUE PORTFOLIO AND MSIF SMALL CAP VALUE EQUITY PORTFOLIO
The investment objective of the MAS Mid Cap Value Portfolio is to achieve
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. The Portfolio seeks to achieve this objective
by investing in common stocks with equity capitalizations in the range of the
companies represented in the S&P Mid Cap 400 Index which Miller Anderson
believes to be relatively undervalued at the time of purchase, based on certain
proprietary measures of value. The Portfolio may invest up to 5% of its total
assets in foreign equity securities (not including American Depository Receipts)
and may use derivatives such as futures, options, and swaps to pursue portfolio
strategy.
The investment objective of the MSIF Small Cap Value Equity Portfolio is to
provide high long-term total return. The Portfolio seeks to achieve its
objective by investing in equity securities of small- to medium-sized companies
that MSAM believes to be undervalued relative to the stock market in general at
the time of purchase. The Portfolio invests primarily in companies domiciled in
the United States with equity capitalizations in the range of the companies
represented in the Russell 2500 Small Company Index. The Portfolio may, from
time to time, invest in securities of similar sized foreign issuers.
As noted above, because the market capitalizations of companies tracked by
the S&P Mid Cap 400 Index and the Russell 2500 Small Company Index overlap, the
Portfolios often may be invested in the same companies. As of September 30,
1997, the Portfolios had a substantial portion of their assets invested in the
same companies (see the Statement of Additional Information relating to this
Proxy Statement/Prospectus). To the extent that the Portfolios continue to hold
securities of companies whose market capitalizations are within the ranges
tracked by both indices, it will reduce the need to dispose of securities that
do not meet the MAS Portfolio's investment criteria. Appendix A to this Proxy
Statement/Prospectus reproduces the discussion of the Portfolios' performance
contained in their most recent annual reports to shareholders.
MAS AND MSIF BALANCED PORTFOLIOS
The investment objective of the MAS Balanced Portfolio is to achieve above
average total return over a market cycle of three to five years, consistent with
reasonable risk. The Portfolio invests in a diversified portfolio of common
stocks and fixed income securities. Under normal conditions, the Portfolio will
be invested 60% in common stocks and 40% in fixed income securities and at least
25% will be invested in senior fixed income securities. The asset mix may be
changed with common stocks ordinarily representing between 45% and 75% of the
total investment. Up to 25% of the Portfolio's total assets may be invested in
foreign equity or fixed income securities, and up to 10% may be invested in
Brady Bonds. Derivatives may be used to pursue portfolio strategy. The average
weighted maturity of the Portfolio's fixed income securities will ordinarily be
greater than five years.
The investment objective of the MSIF Balanced Portfolio is to achieve high
total return while preserving capital. The Portfolio seeks to achieve its
objective by investing in a combination of undervalued equity securities and
fixed income securities. It primarily invests in large capitalization equity
securities, intermediate-maturity bonds and cash equivalents. The Portfolio
typically maintains between 35% and 65% of its total assets invested in equity
securities of large capitalization companies, principally companies domiciled in
the U.S. The Portfolio's fixed income investments will primarily consist of
short- and intermediate-term government, corporate and mortgage-related fixed
income instruments. Under normal circumstances, the average maturity of the
fixed income securities will be approximately five years. Up to 25% of the
Portfolio's total assets may be invested in the securities of foreign issuers.
Appendix A to this Proxy Statement/Prospectus reproduces the discussion of the
Portfolios' performance contained in their most recent annual reports to
shareholders.
15
<PAGE>
THE PORTFOLIOS' PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
The purchase, exchange and redemption procedures governing the Shares of the
Funds are substantially the same.
PURCHASE PROCEDURES.
MAS PORTFOLIOS. Shares of the MAS Portfolios may be purchased directly from
MASDI. Institutional and Adviser Class Shares are available to clients of Miller
Anderson with combined investments of $5 million and $500,000, respectively.
Shares of either class also are available to shareholder organizations who have
a contractual arrangement with MAS Funds or MASDI, including institutions such
as trusts, foundations or broker/dealers purchasing for the accounts of others.
Institutional and Adviser Class shares are offered directly to investors without
a sales commission at the net asset value of the Portfolio next determined after
receipt of the purchase order. Purchase orders may be transmitted by mail or by
wire.
Additional investments of Institutional and Adviser Class shares at net
asset value may be made at any time (minimum investment is $1,000). Additional
investment orders may be transmitted by mail or by wire.
The net asset value of the MAS Mid Cap Value Portfolio's shares is
determined as of the close of the New York Stock Exchange ('NYSE'), ordinarily
4:00 p.m. (Eastern time), on each day MAS is open for business. The net asset
value of the MAS Balanced Portfolio's shares is determined as of the later of
close of the NYSE (ordinarily 4:00 p.m. Eastern time) or one hour after the
close of the bond markets (ordinarily 4:00 Eastern Time), on each day MAS is
open for business. The net asset value per share is calculated 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.
MAS reserves the right, in its sole discretion, to suspend the offering of
Institutional or Adviser Class shares of any of its Portfolios or to reject any
purchase orders when, in the judgment of management, such suspension or
rejection is in the best interest of MAS. MAS also reserves the right, in its
sole discretion, to waive the minimum initial and subsequent investment amounts.
MSIF PORTFOLIOS. Shares of the MSIF Portfolios may be purchased directly
from MSIF or through its distributor. The minimum initial investment and minimum
account size are $500,000 for Class A shares and $100,000 for Class B shares.
Class A shares are offered directly to investors at net asset value with no
sales commission or 12b-1 fee. Class B shares are offered at net asset value
with no sales commission, but with a 12b-1 fee, which is accrued daily and paid
quarterly, equal to 0.25% of the Class B shares' average daily net assets on an
annualized basis. Additional investments may be made at any time (minimum
investment $1,000). Purchase orders may be transmitted by mail or by wire.
The purchase price of the Class A and Class B shares of each MSIF Portfolio
is the net asset value next determined after the order is received. An order
received prior to the close of the NYSE (ordinarily 4:00 p.m. Eastern time) will
be executed at the price computed on the date of receipt. Orders received after
the close of the NYSE will be executed at the price computed on the next day the
NYSE is open as long as the transfer agent received payment by check or by
Federal Funds wire prior to the regular close of the NYSE on such day.
The net asset value per share of a class of shares of each of the MSIF
Portfolios is determined by dividing the total market value of the Portfolio's
investments and other assets attributable to such class, less any liabilities
attributable to such class, by the total number of outstanding shares of such
class of the Portfolio. Net asset value is calculated separately for each class
of the Portfolio. Net asset value per share is determined as of the regular
close of the NYSE on each day that the NYSE is open for business.
EXCHANGE PRIVILEGES.
MAS PORTFOLIOS. Each MAS Portfolio's Institutional Class and Adviser Class
shares may be exchanged for the same class of shares of MAS' other portfolios
offering that class of shares based on the respective net asset
16
<PAGE>
values of the shares involved. There are no exchange fees. The officers of MAS
reserve the right not to accept any request for an exchange when, in their
opinion, the exchange privilege is being used as a tool for market timing. In
addition, MSIF Portfolio shareholders who become shareholders of an MAS
Portfolio as a result of the Reorganization will be permitted to exchange shares
of the MAS Portfolios for the shares of MSIF's other portfolios in accordance
with the procedures described in the MSIF portfolio's prospectus.
MSIF PORTFOLIOS. Shares of each MSIF Portfolio may be exchanged for shares
of any other available portfolio of MSIF. In exchange for shares of a portfolio
with more than one class, the class of shares received in the exchange is
determined in the same manner as any other purchase of shares and is not based
on the class of shares surrendered for the exchange. Consequently, the same
minimum initial investment and account size for determining the class of shares
received in the exchange will apply.
The exchange privileges of MAS and MSIF may be modified or terminated at any
time upon 60-days' notice to shareholders. Investors should obtain and read the
applicable prospectus prior to tendering shares for exchange.
REDEMPTION PROCEDURES.
Shares of the MAS and MSIF Portfolios may be redeemed without charge by mail
or by telephone. The shares will be redeemed at the next determined net asset
value of shares to their applicable class. Any redemption proceeds may be more
or less than the purchase price of the shares, depending on, among other things,
the market value of the investment securities held by the Portfolio.
If the Board of Directors of MSIF or the Board of Trustees of MAS determine
that it would be detrimental to the best interest of the remaining shareholders
to make payment wholly or partly in cash, redemption proceeds may be paid in
whole or in part by a distribution in-kind of readily marketable securities held
by a portfolio in lieu of cash in conformity with applicable rules of the SEC.
Investors may incur taxes and brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
PORTFOLIO TRANSACTIONS
The Portfolios' policies regarding portfolio transactions are substantially
the same. Please refer to the Portfolios' respective Prospectuses for more
information.
SHAREHOLDER RIGHTS
MAS
GENERAL. MAS Funds was established as a business trust under Pennsylvania
law by a Declaration of Trust dated February 15, 1984, as amended and restated
as of November 11, 1993. MAS is also governed by its Bylaws and by applicable
Pennsylvania law.
SHARES. MAS is authorized to issue an unlimited number of shares of
beneficial interest, without par value, from an unlimited number of series
(portfolios) of shares. Currently, MAS consists of twenty-eight portfolios and
three classes of shares, the Institutional Class, the Adviser Class and the
Investment Class shares. The three classes differ with respect to minimum
investment requirements, and administrative and distribution costs, as set forth
in the MAS prospectus. As a result of the Reorganization, shareholders of MSIF
Class A shares will receive Institutional Class shares of the MAS Portfolios and
MSIF Class B shareholders will receive Adviser Class shares of the MAS
Portfolios. The shares of each MAS Portfolio have no preference as to
conversion, exchange, dividends, retirement or other features, and have no
preemptive rights.
VOTING REQUIREMENTS. Shareholders of MAS Funds shares are entitled to one
vote for each full share held and fractional votes for fractional shares. The
shares of MAS 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. At shareholder meetings, the holders of
40% of a Portfolio's shares entitled to vote at the
17
<PAGE>
meeting constitute a quorum. Shareholders of a class have exclusive voting
rights regarding any matter submitted to shareholders that relates solely to
that class of shares, 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.
SHAREHOLDER MEETINGS. Annual meetings of shareholders will not be held, but
special meetings of shareholders may be held under certain circumstances. A
meeting will be held to vote on the removal of a Trustee(s) of MAS if requested
in writing by the holders of not less than 10% of the outstanding shares of MAS.
MAS will assist in shareholder communications in such matters to the extent
required by law.
ELECTION AND TERM OF TRUSTEES. MAS' affairs are supervised by the Trustees
under the laws governing business trusts in the Commonwealth of Pennsylvania.
Trustees of MAS are elected by a majority vote of a quorum cast by written
ballot at the regular meeting of shareholders, if any, or at a special meeting
held for that purpose. Trustees hold office until their successors are duly
elected and qualified or until their death, removal or resignation. Shareholders
may remove a Trustee by vote of a majority of the votes entitled to be cast for
the election of directors and may elect a successor to fill a resulting vacancy.
A Trustee elected thereby serves for the balance of the term of the removed
Trustee.
SHAREHOLDER LIABILITY. The shareholders of MAS Funds generally are not
personally liable for the acts, omissions or obligations of the Trustees or MAS.
LIABILITY OF TRUSTEES. The Trustees shall not be personally liable for any
obligation of MAS. MAS will indemnify its Trustees and officers against all
liabilities and expenses except for liabilities arising from such person's
self-dealing, willful misconduct or recklessness.
MSIF
GENERAL. MSIF was organized as a Maryland corporation on June 16, 1988.
MSIF is governed by its Articles of Incorporation, as amended and restated,
dated September 27, 1988, its By-Laws, and applicable Maryland law.
SHARES. MSIF is authorized to issue up to 40 billion shares of common
stock, with a $.001 par value per share, including up to one billion shares of
common stock of each of the MSIF Portfolios. The Board of Directors may increase
the number of shares MSIF is authorized to issue without the approval of the
shareholders of MSIF. The shares of common stock of each MSIF Portfolio are
currently classified into two classes, the Class A shares and the Class B
shares. Class A shares differ from Class B shares with respect to minimum
investment requirements and fund expenses. The shares have no preference as to
conversion, exchange, dividends, retirement or other features and have no
preemptive rights.
VOTING REQUIREMENTS. Shareholders of MSIF are entitled to one vote for each
full share held and fractional votes for fractional shares. The shares of MSIF
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. At shareholder meetings, the holders of one-third of a
Portfolio's shares outstanding and entitled to vote at the meeting, present in
person or by proxy, constitute a quorum. Shareholders of a class have exclusive
voting rights regarding any matter submitted to shareholders that relates solely
to that class of shares, 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.
SHAREHOLDER MEETINGS. Annual meetings of shareholders will not be held, but
special meetings of shareholders may be held under certain circumstances. A
meeting will be held to vote on the removal of a Director(s) of MSIF if
requested in writing by the holders of not less than 10% of the outstanding
shares of MSIF. MSIF will assist in shareholder communications in such matters
to the extent required by law.
18
<PAGE>
ELECTION AND TERM OF DIRECTORS. Pursuant to MSIF's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of MSIF's adviser, administrator and distributor. The
officers of MSIF conduct and supervise its daily business operations. Directors
of MSIF are elected by a majority vote of the shares present in person or by
proxy at the regular meeting of shareholders, if any, or at a special meeting
held for that purpose. Directors hold office until their successors are duly
elected and qualified or until their death, removal or resignation. Shareholders
may remove a Director by vote of a majority of the votes entitled to be cast for
the election of directors and may elect a successor to fill a resulting vacancy.
SHAREHOLDER LIABILITY. The shareholders of MSIF have no personal liability
for acts or obligations of MSIF.
LIABILITY OF DIRECTORS. The Articles of Incorporation provide that, to the
fullest extent permitted by Maryland law, no director or officer of MSIF shall
be liable to MSIF or to its shareholders for damages. The Articles of
Incorporation provide that MSIF will indemnify their directors and officers to
the fullest extent permitted under Maryland law and the 1940 Act.
LIQUIDATION OR DISSOLUTION. In the event of a liquidation or dissolution of
MSIF, shareholders of each class of common stock shall be entitled to receive,
as a class, out of the assets of MSIF available for distribution to
shareholders, but other than general assets not belonging to any particular
class of stock, the assets belonging to such class; such assets shall be
distributed among such shareholders in proportion to the number of shares of
such class held by them. In the event that there are any general assets not
belonging to any particular class of stock and available for distribution, such
distribution shall be made to the holders of stock of all classes of common
stock in proportion to the asset value of the respective classes of common
stock.
The foregoing is only a summary of certain rights of shareholders of MAS and
MSIF under their governing charter documents and By-Laws, state law and the 1940
Act and is not a complete description of provisions contained in those sources.
Shareholders should refer to the provisions of state law, the 1940 Act and rules
thereunder directly for a more thorough description.
INFORMATION ABOUT THE PORTFOLIOS
Information concerning the operation and management of the MAS Portfolios is
incorporated herein by reference to the current prospectuses relating to the
Institutional and Adviser Classes of shares of those Portfolios dated January
31, 1998, as supplemented. A copy of the applicable MAS prospectus accompanies
this Proxy Statement/Prospectus. Additional information about the MAS Portfolios
is included in the Statement of Additional Information dated January 31, 1998,
which is available upon request and without charge by calling 1-800-354-8185.
Information about the MSIF Portfolios is included in the current prospectus
relating to those Portfolios dated May 1, 1998, which is incorporated by
reference herein solely with respect to those Portfolios. Additional information
is included in the Statement of Additional Information of MSIF dated May 1,
1998, which is available upon request and without charge by calling
1-800-548-7786. Each Statement of Additional Information has been filed with the
SEC. The MAS Portfolios and MSIF Portfolios are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information, including
proxy material and charter documents, with the SEC. These items may be inspected
and copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices located
at Northwest Atrium Center, 500 West Madison St., Chicago, IL 60661-2511 and
Seven World Trade Center, Suite 1300, New York, NY 10048.
FINANCIAL STATEMENTS. The financial statements of the MAS Portfolios
contained in the MAS Funds annual report to shareholders for the fiscal year
ended September 30, 1997 have been audited by Price Waterhouse LLP, its
independent accountants. The financial statements of the MSIF Portfolios
contained in MSIF's annual report to shareholders for the fiscal year ended
December 31, 1997 have been audited by Price Waterhouse LLP, its independent
accountants. These financial statements and the unaudited pro forma financial
statements reflecting the MAS Mid Cap Value Portfolio after the Reorganization,
which are contained in the Statement of
19
<PAGE>
Additional Information dated May 8, 1998, relating to this Proxy
Statement/Prospectus, are incorporated by reference into this Proxy
Statement/Prospectus insofar as such financial statements relate to the
Portfolios, and not to any other portfolios that are part of the MSIF or MAS
Funds families and described therein. A copy of MAS Funds' and MSIF's Annual
Reports may be obtained on request without charge by contacting MAS at One Tower
Bridge, West Conshohocken, Pennsylvania 19428 or by calling 1-800-354-8185 and
MSIF at P.O. Box 2798, Boston, Massachusetts 02208 or by calling 1-800-548-7786.
LEGAL MATTERS. Morgan, Lewis & Bockius LLP, 1800 M Street, N.W.,
Washington, D.C. 20036, serves as counsel both to MAS and MSIF. Morgan, Lewis &
Bockius LLP will render opinions concerning the issuance of MAS Institutional
and Adviser Class shares, the validity of actions taken by MSIF with respect to
the Reorganization and the outstanding Class A and Class B shares of the MSIF
Portfolios and certain federal tax matters described above. Neither MSIF nor MAS
is involved in any litigation.
THE BOARDS OF DIRECTORS OF THE MSIF PORTFOLIOS RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE REORGANIZATION AGREEMENT.
VOTING MATTERS
GENERAL INFORMATION. This Proxy Statement/Prospectus is being furnished in
connection with the solicitation of proxies by the Boards of Directors of the
MSIF Portfolios in connection with the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of the MAS and MSIF Portfolios may also solicit proxies by
telephone, telegraph or in person. The cost of solicitation will be borne,
directly or indirectly, by each of MAS and MSIF.
VOTING RIGHTS AND REQUIRED VOTE. Each share of the MSIF Portfolios is
entitled to one vote. Approval of the Reorganization Agreement with respect to
each MSIF Portfolio requires the affirmative vote of a majority of the
outstanding voting securities of that Portfolio present at the meeting in person
or by proxy. The vote of a "majority of the outstanding securities" means the
vote of 67% or more of the voting securities present, if the holders of more
than 50% of the outstanding voting securities are present in person or by proxy
or the vote of more than 50% of the outstanding voting securities, whichever is
less. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting to MSIF a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and voting in person. The proposed
Reorganization of each MSIF Portfolio will be voted upon separately by the
shareholders of the respective Portfolios. The consummation of each Portfolio's
Reorganization is not conditioned on the approval of the other.
Shares represented by a properly executed proxy will be voted in accordance
with the instructions thereon, or if no specification is made, the shares will
be voted "FOR" the approval of the Reorganization Agreement. It is not
anticipated that any matters other than the adoption of the Reorganization
Agreement will be brought before the Meeting. Should other business properly be
brought before the Meeting, it is intended that the accompanying proxies will be
voted in accordance with the judgment of the persons named as such proxies. For
the purposes of determining the presence of a quorum for transacting business at
the Meeting, abstentions and broker "non-votes" (that is, proxies from brokers
or nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares on a particular
matter with respect to which the brokers or nominees do not have discretionary
power) will be treated as shares that are present but which have not been voted.
For this reason, abstentions and broker non-votes will have the effect of a "no"
vote for purposes of obtaining the requisite approval of the Reorganization
Agreement.
If sufficient votes in favor of the proposals set forth in the Notice of the
Special Meeting are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the Meeting for
a reasonable period of time to permit further solicitation of proxies with
respect to the proposals. Any such adjournment will require the affirmative vote
of a majority of the votes cast on the question in person or by proxy at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of such adjournment those proxies which they are entitled to vote in
favor of the proposals. They will vote against any
20
<PAGE>
such adjournment those proxies required to be voted against the proposals. The
costs of any additional solicitation and of any adjourned session will be borne
by MSIF and MAS.
RECORD DATE AND OUTSTANDING SHARES. Only shareholders of record of the MSIF
Portfolios at the close of business on April 24, 1998 (the "Record Date") are
entitled to notice of and to vote at the Meeting and any postponement or
adjournment thereof. At the close of business on the Record Date there were
outstanding and entitled to vote:
4,241,963.122 shares of common stock of MSIF Small Cap Value Equity
Portfolio;
700,316.538 shares of common stock of MSIF Balanced Portfolio.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
MSIF. As of April 24, 1998, to MSIF's knowledge, no person owned of record
or beneficially 5% or more of the MSIF Small Cap Value Equity Portfolio's Class
A shares. The following persons owned of record or beneficially 5% or more of
each other class of the MSIF Portfolios' outstanding shares as of April 24,
1998:
<TABLE>
<CAPTION>
MSIF SMALL CAP VALUE EQUITY
PORTFOLIO:
CLASS A
------------------------------------
PERCENTAGE OF
PERCENTAGE OF INSTITUTIONAL
CLASS A SHARES CLASS SHARES
OWNED BEFORE OWNED AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Quest Institutional Management 10.1% 1.0%
c/o Stephen E. Leatherman
1200 17th Street
Suite 1950
Denver, CO 80202
</TABLE>
<TABLE>
<CAPTION>
MSIF SMALL CAP VALUE EQUITY
PORTFOLIO:
CLASS B
------------------------------------
PERCENTAGE OF
PERCENTAGE OF ADVISER CLASS
CLASS B SHARES SHARES OWNED
OWNED BEFORE AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
James E. Himoff 5.4% 5.4%
7201 State Route 8
Brant Lake, NY 12815-2236
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
MSIF BALANCED PORTFOLIO:
CLASS A
------------------------------------
PERCENTAGE OF
PERCENTAGE OF INSTITUTIONAL
CLASS A SHARES CLASS SHARES
OWNED BEFORE OWNED AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
H. Conrad Meyer & Sarah Meyer 26.7% *
One Woodland Ave.
Bronxville, NY 10708
First Bank NA, Trustee 22.6% *
Kinney Printing Co.
P.O. Box 64010
St. Paul, MN 55154
Jeffrey R. Holzschuh 10.6% *
21 Kenilworth Terrace
Greenwich, CT 06830
MSIF BALANCED PORTFOLIO:
CLASS B
------------------------------------
PERCENTAGE OF
PERCENTAGE OF ADVISER CLASS
CLASS B SHARES SHARES OWNED
OWNED BEFORE AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
William Guthrie 62.1 % 1.5 %
MSTC Custodian
435 Sheridan Road
Winnetka, IL 60093-2626
Ramakrishna Kothalanka MD PA 37.9 % *
Profit Sharing Plan
MSTC Custodian
126 Bentley Avenue
Jersey City, NJ 07304-1702
</TABLE>
- --------------
* Less than 1%.
As of April 24, 1998, the Directors and officers of MSIF as a group owned
less than 1% of the total outstanding Class A and Class B shares of either MSIF
Portfolio.
22
<PAGE>
MAS. As of April 24, 1998, the MAS Mid Cap Value Portfolio Adviser Class
was not yet open, and thus had no shareholders. In addition, to MAS's knowledge,
the following persons owned of record or beneficially 5% or more of each other
class' outstanding shares on April 24, 1998:
<TABLE>
<CAPTION>
MAS FUNDS MID CAP VALUE PORTFOLIO:
INSTITUTIONAL CLASS
------------------------------------
PERCENTAGE OF PERCENTAGE OF
INSTITUTIONAL INSTITUTIONAL
CLASS SHARES CLASS SHARES
OWNED BEFORE OWNED AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Commonwealth of Pennsylvania 12.1% 10.8%
Public School Employees Retirement Sys.
5 North 5th Street
P.O. Box 125
Harrisburg, PA 17108-0125
Charles Schwab & Co., Inc. 9.4% 8.4%
Special Custody Account for the Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104
The Northern Trust Company As Trustee 8.5% 7.6%
FBO Morgan Stanley Pension Plans
DV-MS
P.O. Box 92956
Chicago, IL 60675
Georgetown Memorial Hospital 7.7% 6.8%
P.O. Drawer 1718
Administration
Georgetown, SC 29442
Fishnet & Company 5.7% 5.1%
FBO The Hearst Foundation
c/o State Street Bank & Trust
P.O. Box 1992
Boston, MA 02105
The Chase Manhattan Bank 5.7% 5.1%
FAO Hearst Corporation
Global Securities Services
3 Chase Metro Tech Center
6th Floor
New York, NY 11245
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
MAS FUNDS MID CAP VALUE PORTFOLIO:
INVESTMENT CLASS
------------------------------------
PERCENTAGE OF PERCENTAGE OF
INVESTMENT CLASS INVESTMENT CLASS
SHARES OWNED SHARES OWNED
BEFORE AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
Northern Trust Trustee 26.5 % 26.5 %
FBO UA Local 467
P.O. Box 92956
Chicago, IL 60675
First National Bank of Shelby Cust. for Gardner Webb University 21.1 % 21.1 %
P.O. Box 168
Shelby, NC 28151-0168
Kershaw County Medical Center Employees Pension Fund, Lynnwood H. Young, 17.6 % 17.6 %
Trustee
P.O. Box 7003
Camden, SC 29020-7003
Wendel & Co. FAO Health Systems Group Retirement 10.1 % 10.1 %
One Wall Street
6th Floor
New York, NY 10286
Wells Fargo Bank FBO 8.3 % 8.3 %
FCH General Hospital
P.O. Box 9800
Calabasas, CA 91372-9800
First Union National Bank, Trustee 5.2 % 5.2 %
Frueaff Foundation
1525 West Wt. Harris Blvd.
CMG-151
Charlotte, NC 28288-1151
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
MAS FUNDS BALANCED PORTFOLIO:
INSTITUTIONAL CLASS
------------------------------------
PERCENTAGE OF PERCENTAGE OF
INSTITUTIONAL INSTITUTIONAL
CLASS SHARES CLASS SHARES
OWNED BEFORE OWNED AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
Northern Trust Co., Trustee FBO Allianze Defined Cont. Plan Master Trust 32.5 % 32.0 %
P.O. Box 92956
Chicago, IL 60675
Wendel & Co., Trustee for A&P Savings Plan 9.9 % 9.7 %
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Wendel & Co. #018768 8.1 % 8.0 %
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Wendel & Co. #017735 7.4 % 7.3 %
c/o The Bank of New York
P.O. Box 1066
Wall Street Station
New York, NY 10268
Aramark Master Trust 6.4 % 6.3 %
Bank of New York
One Wall Street
12th Floor
New York, NY 10286
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
MAS FUNDS BALANCED PORTFOLIO:
ADVISER CLASS
------------------------------------
PERCENTAGE OF PERCENTAGE OF
ADVISER CLASS ADVISER CLASS
SHARES OWNED SHARES OWNED
BEFORE AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
Fidelity Investments Institutional Operations Co. as Agent for Certain EE 98.2 % 95.8 %
Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015
</TABLE>
<TABLE>
<CAPTION>
MAS FUNDS BALANCED PORTFOLIO:
INVESTMENT CLASS
------------------------------------
PERCENTAGE OF PERCENTAGE OF
INVESTMENT CLASS INVESTMENT CLASS
SHARES OWNED SHARES OWNED
BEFORE AFTER
NAME & ADDRESS REORGANIZATION REORGANIZATION
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Nabank & Co./DRK 63.2% 63.2%
P.O. Box 2180
Tulsa, OK 74101-2180
Roderick Dean Marcoux 32.0% 32.0%
The Chase Manhattan Bank
P.O. Box 3898
Incline Village, NV 89450
</TABLE>
As of April 24, 1998, the Trustees and officers of MAS as a group owned less
than 1% of the total outstanding Institutional, Investment, or Adviser Class
Shares of either MAS Portfolio.
EXPENSES. In order to obtain the necessary quorum at the Meeting,
additional solicitation may be made by mail, telephone, telegraph, facsimile or
personal interview by representatives of MSIF, MSAM or by Shareholder Services
Corporation, a solicitation firm located in New York, NY that has been engaged
to assist in proxy solicitation at an estimated cost of approximately $3,500.
All costs of solicitation (including the printing and mailing of this proxy
statement, meeting notice and form of proxy, as well as any necessary
supplementary solicitations) will be paid by MSIF. Persons holding shares as
nominees will, upon request, be reimbursed for their reasonable expenses in
sending soliciting material to their principals.
26
<PAGE>
OTHER BUSINESS
The Board of Directors of MSIF knows of no other business to be brought
before the Meeting. However, if any other matters come before the Meeting, it is
the intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
MSIF. Shareholder inquiries may be addressed to MSIF in writing at the
address on the cover page of this Proxy Statement/Prospectus or by telephoning
1-800-548-7786.
MAS. Shareholder inquiries may be addressed to MAS in writing at One Tower
Bridge, West Conshohocken, Pennsylvania 19428 or by calling 1-800-354-8185.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By the Order of the Board of
Directors,
Valerie Y. Lewis
SECRETARY
Morgan Stanley Institutional Fund,
Inc.
27
<PAGE>
APPENDIX A
PERFORMANCE OF THE PORTFOLIOS
MAS FUNDS/EQUITY
MID CAP VALUE PORTFOLIO
The Mid Cap Value Portfolio applies Miller Anderson & Sherrerd's value
investment philosophy to the medium-sized equity universe, combining fundamental
research with a disciplined, quantitative investment process. MAS generally
keeps sector weights within 5% of those of the S&P MidCap 400 Index, with
strategic over- and under-weightings assigned to different sectors based on
their relative investment attractiveness. Decisions about portfolio composition
and structure are made by a team of MAS equity professionals who specialize in
the small- and mid-cap market segments.
MAS's investment process is driven chiefly by bottom-up considerations, although
broad macroeconomic trends that influence the outlook for certain industries are
taken into account in the decision making process. As a value-oriented fund, the
Portfolio emphasizes stocks with below-average valuations. However, unlike many
value strategies, MAS's methodology also includes additional quality and growth
factors such as the expected future growth in earnings and dividends, the recent
pattern of earnings estimate revisions and subjective judgments regarding the
quality of a company's business franchise. As a result, the Portfolio will
generally look similar to the S&P MidCap 400 Index in the quality and growth
characteristics of its holdings, while the overall valuation of the Portfolio
will generally be lower.
Equity markets moved dramatically higher this year due to strong economic and
earnings growth coupled with declining levels of inflation and interest rates.
Although valuations, as measured by price-to-earnings multiples, are now in
record territory, the mid-cap market is still cheap compared to the large-cap
market. The Portfolio remains fully invested. This policy proved particularly
useful following the correction in April.
The Portfolio beat its benchmark in all quarters, including the difficult fiscal
second quarter. Stock selection was the primary determinant of performance this
year, with support from under-weighting electric utilities and over-weighting
energy and business service stocks relative to the benchmark. For the fiscal
year, top performing stocks came from a variety of industries: Herman Miller
(+166%), Sullivan Dental (+131%), Noble Drilling (+115%), Franklin Resources
(+111%),
EQUITY MARKETS MOVED DRAMATICALLY HIGHER
THIS YEAR DUE TO STRONG ECONOMIC AND
EARNINGS GROWTH COUPLED WITH DECLINING
LEVELS OF INFLATION AND INTEREST RATES.
Western Digital (+99%) and Air Express International (+94%). These securities
are not necessarily representative of the Portfolio's current or future
holdings.
A-1
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MID CAP VALUE
<S> <C> <C>
Growth of a $1 Million Investment
Since Inception
Dollars (000)
Fiscal years ending September 30 MAS Funds
S&P MidCap 400 Mid Cap Value
*12/30/1994 1,000 1,000
12/31/94 1,000 1,000
3/31/95 1,082 1,107
6/30/95 1,176 1,217
9/30/95 1,291 1,345
12/31/95 1,309 1,327
3/31/96 1,390 1,446
6/30/96 1,430 1,545
9/30/96 1,472 1,645
12/31/96 1,561 1,868
3/31/97 1,538 1,873
6/30/97 1,764 2,202
9/30/97 2,048 2,655
</TABLE>
AVERAGE ANNUAL RETURNS
ENDED 9/30/97*
<TABLE>
<CAPTION>
MAS MID CAP VALUE
-------------------------------- S&P MIDCAP
INSTITUTIONAL / / INVESTMENT- 400 INDEX
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ONE YEAR 61.40% 61.05% 39.15%
SINCE INCEPTION 42.61% 42.46% 29.77%
</TABLE>
MAS Funds returns are net of all fees. Returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
/ / Represents an investment in the Institutional Class.
- - Represents an investment in the Investment Class which commenced operations
5/10/96. Returns for periods beginning prior to this date are based on the
performance of the Institutional Class and do not include the 0.15%
Shareholder Servicing Fee applicable to the Investment Class.
The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary to keep total annual operating expenses
for the Institutional and Investment Classes of shares of the Mid Cap Value
Portfolio from exceeding 0.88% and 1.10% respectively, of average daily net
assets. Returns presented include the effects of these waivers and
reimbursements. If such waivers and reimbursements had not been made, the actual
returns would have been lower.
* The Mid Cap Value Portfolio commenced operations on 12/30/94. All returns are
compared to the S&P MidCap 400 Index, an unmanaged market index.
A-2
<PAGE>
MAS FUNDS/BALANCED
BALANCED PORTFOLIO
The Balanced Portfolio provides active asset allocation management of Miller
Anderson & Sherrerd's core equity and fixed-income strategies in a single
portfolio. MAS shifts assets as relative values change, using a 60% equity and
40% fixed-income allocation as a starting point, and manages diversification and
risk control across both asset classes.
Management of the Portfolio incorporates expertise from MAS's entire investment
team. Members of the domestic equity, international equity, domestic fixed-
income and international fixed-income teams comprise the MAS Asset Allocation
Committee, which also includes representatives from the interest-rate, economic,
and currency-management teams. The Asset Allocation Committee evaluates the
relative risks and returns of
MAS SHIFTS ASSETS AS RELATIVE VALUES
CHANGE, USING A 60% EQUITY AND 40%
FIXED-INCOME ALLOCATION AS A STARTING
POINT, AND MANAGES DIVERSIFICATION AND
RISK CONTROL ACROSS BOTH ASSET CLASSES.
the Portfolio's two asset classes and makes strategic asset allocation
decisions. The Portfolio's management team then makes decisions about portfolio
composition and structure, drawing on the strategies employed by MAS's equity
and fixed-income portfolio management teams.
The three key influences considered in determining asset allocation strategy are
relative real interest rates, the shape of the yield curve, and the equity risk
premium. To make the asset-allocation decision, MAS starts by calculating
expected returns on capital. The expected return on fixed-income investments
depends on the real interest rate and the steepness of the yield curve. MAS then
measures the risk-adjusted return an investor can expect to earn by investing in
the equity market versus the return he can expect to earn by investing in
fixed-income securities; the difference between these two expected returns
represents the equity risk premium. Measurement of the risk premium enables MAS
to determine whether the Portfolio should favor equities or fixed-income
securities; a higher premium would generally lead to a greater focus on
equities, while a lower premium would lead to an emphasis on fixed-income
securities. Asset-allocation decisions couple measures of value with economic
analysis. MAS's economic analysis focuses on fiscal and monetary policy and
prospective levels of inflation.
During fiscal 1997, the Portfolio returned slightly less than its custom
benchmark composed 60% of the S&P 500 and 40% of the Salomon Broad Index.
Value-added relative to the benchmark came from a higher-than-index exposure to
equities, but this was more than offset by security selection within the equity
portion of the fund. Security selection in the fixed-income portion of the
Portfolio added to relative performance.
The Portfolio started the fiscal year with a lower-than-benchmark position in
equities. Expected returns for stocks and bonds pointed to bonds offering better
value than equities, and high absolute valuations created concern about overall
stock market returns. However, after the brief market correction in the first
calendar quarter of 1997, equities became more attractive and in April stock
exposure was increased to 63%, which was maintained for the rest of the year.
At fiscal year-end, the Portfolio had higher-than-benchmark investments in
equity securities and slightly higher-than-index interest-rate exposure. The
Portfolio holds almost no cash, since all valuation measures indicate that
equity and bond markets will continue to perform well.
A-3
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BALANCED
<S> <C> <C> <C>
Growth of a $1 Million Investment
Since Inception
Dollars (000)
Fiscal years ending September 30
S&P 500 MAS Funds Balanced Salomon Broad
*12/31/1992 1,000 1,000 1,000
3/31/93 1,044 1,034 1,042
6/30/93 1,049 1,048 1,071
9/30/93 1,076 1,083 1,099
12/31/93 1,101 1,104 1,099
3/31/94 1,059 1,169 1,068
6/30/94 1,064 1,060 1,058
9/30/94 1,116 1,085 1,064
12/31/94 1,115 1,082 1,068
3/31/95 1,224 1,157 1,122
6/30/95 1,341 1,247 1,191
9/30/95 1,447 1,317 1,213
12/31/95 1,534 1,378 1,266
3/31/96 1,617 1,431 1,244
6/30/96 1,689 1,473 1,250
9/30/96 1,742 1,494 1,273
12/31/96 1,887 1,590 1,312
3/31/97 1,937 1,612 1,305
6/30/97 2,276 1,786 1,352
9/30/97 2,446 1,904 1,397
</TABLE>
AVERAGE ANNUAL RETURNS
ENDED 9/30/97*
<TABLE>
<CAPTION>
MAS BALANCED
---------------------------------------------- S&P 500 SALOMON BROAD
INSTITUTIONAL / / INVESTMENT- ADVISER TRIANGLE INDEX INDEX
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ONE YEAR 27.44% 27.35% 27.24% 40.46% 9.72%
SINCE INCEPTION 14.53% 14.51% 14.49% 20.73% 7.29%
</TABLE>
MAS Funds returns are net of all fees. Returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
/ / Represents an investment in the Institutional Class.
- - Represents an investment in the Investment Class which commenced operations
4/3/97. Returns for periods beginning prior to this date are based on the
performance of the Institutional Class and do not include the 0.15%
Shareholder Servicing Fee applicable to the Investment Class.
TRIANGLE Represents an investment in the Adviser Class which commenced
operations 11/1/96. Returns for periods beginning prior to this date
are based on the performance of the Institutional Class and do not
include the 0.25% 12b-1 fee applicable to the Adviser Class.
The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary to keep total annual operating expenses
for the Adviser Class of shares of the Balanced Portfolio from exceeding 0.90%
of average daily net assets. Returns presented include the effects of these
waivers and reimbursements. If such waivers and reimbursements had not been
made, the actual returns would have been lower.
* The Balanced Portfolio commenced operations on 12/31/92. All returns are
compared to the S&P 500 Index and the Salomon Broad Investment Grade Index,
both unmanaged market indices.
A-4
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1997)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Aerospace 0.3 %
Banking 13.1 %
Building 2.5 %
Capital Goods 3.3 %
Chemicals 1.3 %
Communications 4.8 %
Computers 5.4 %
Consumer--Durables 2.9 %
Consumer--Retail 7.2 %
Consumer--Service & Growth 0.9 %
Consumer--Staples 4.3 %
Electric 1.3 %
Energy 5.9 %
Entertainment 3.2 %
Financial--Diversified 3.0 %
Health Care 3.1 %
Industrial 7.5 %
Insurance 2.7 %
Metals 2.0 %
Paper & Packaging 1.0 %
Restaurants 0.7 %
Services 3.2 %
Technology 4.5 %
Tobacco 0.6 %
Transportation 5.4 %
Utilities 5.3 %
Other 4.6 %
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY RUSSELL 2500
PORTFOLIO--CLASS A INDEX(1)
<S> <C> <C>
12/17/92* $500,000 $500,000
12/31/92 $507,000 $515,665
12/31/93 $564,420 $601,000
12/31/94 $578,700 $595,350
12/31/95 $698,086 $784,076
12/31/96 $858,576 $933,443
12/31/97 $1,174,532 $1,160,736
* Commencement of operations
** Minimum
Investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE RUSSELL 2500 INDEX
AND S&P 500 INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
------------ ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... 36.80% 18.30% 18.46%
PORTFOLIO -- CLASS
B..................... 36.51 N/A 29.27
RUSSELL 2500 -- CLASS
A..................... 24.35 17.59 18.16
RUSSELL 2500 -- CLASS
B..................... 24.35 N/A 21.55
S&P 500 -- CLASS A.... 33.36 20.27 20.13
S&P 500 -- CLASS B.... 33.36 N/A 27.63
</TABLE>
1. The Russell 2500 Index and the S&P 500 Index are unmanaged indices of common
stock.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Small Cap Value Equity Portfolio invests in equity securities of small to
medium-sized companies that our research indicates are undervalued relative to
the market in general at the time of purchase. The Portfolio's disciplined value
approach seeks to outperform the Russell 2500 Small Company Index in the longer
term. We believe our emphasis on high quality companies will help the Portfolio
perform particularly well in difficult markets.
The Small Cap Value Equity Portfolio selects companies that can be purchased at
bargain prices. Bargains mostly arise as a result of public overreactions to
temporary problems associated with an otherwise healthy company, or because a
company is neglected and currently out-of-the limelight of investors' interest.
Often, these companies operate as major players in very focused markets and are
not widely followed by the investment community.
The Portfolio invests in all economic sectors of the market, and our strategy of
maintaining a well-diversified portfolio is intended to produce consistent and
reliable results over time. Our investment approach combines quantitative and
fundamental research, and is based on the premise that the prices of stocks move
more frequently, and in greater magnitude, than do the fundamentals of the
underlying companies. This discrepancy creates an opportunity for disciplined,
value-oriented investors. Our value approach importantly includes quality and
growth standards which are carefully designed to help avoid "value-traps", where
cheap stocks sometimes remain cheap (or become cheaper) because the company is
run by bad managers or is mired in a hopelessly difficult business environment.
The end result should be a portfolio with below-market valuation and an overall
growth rate as similar as possible to the Russell 2500 benchmark.
For the year ended December 31, 1997, the Portfolio had a total return of 36.80%
for the Class A shares and 36.51% for the Class B shares, compared to a total
return of 24.35% and 33.36% for the Russell 2500 Index and the S&P 500 Index,
respectively. For the five year period ended December 31, 1997, the average
annual total return of Class A was 18.30% compared to 17.59% for the Russell
2500 Index and 20.27% for the S&P 500 Index. From inception on December 17, 1992
through December 31, 1997, the average annual total return of Class A was 18.46%
compared to 18.16% for the Russell 2500 Index and 20.13% for the S&P 500 Index.
From inception on January 2, 1996 through December 31, 1997, the average annual
total return of Class B was 29.27% compared to 21.55% for the Russell 2500 Index
and 27.63% for the S&P 500 Index.
- --------------------------------------------------------------------------------
Small Cap Value Equity Portfolio
A-5
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO (CONT.)
For the three months ended December 31, 1997, the Portfolio had a total return
of -2.30% for Class A and -2.37% for Class B compared to -2.25% for the Russell
2500 Index and 2.87% for the S&P 500 Index.
Both stock and sector selection played roles in the slight underperformance for
the fourth quarter. Asian worries led to unusual market and economic events.
Electric utilities, despite high valuations, competitive risk, strict regulation
and anemic long-term growth, provided average returns of over 20% in the fourth
quarter, due to their credit sensitivity and perceived safety. Meanwhile, long
interest rates fell despite surging economic growth. Under normal circumstances
the Federal Reserve would likely have tightened rates but could not risk
draining liquidity from the market. In general, companies with stable, domestic
earnings exposure were rewarded, regardless of valuation or long-term growth
prospects. As such, food, beverage, consumer service and utility stocks faired
well. Our underweighted positions in utility and beverage stocks hurt
performance, while our overweighting in financial stocks and under weighting of
energy stocks aided performance. As value investors we continue to search for
companies with low valuations and better than average growth prospects.
Individual stocks which boosted performance included, First of America Bank
(+44.6%), Nationwide Financial Services (+29.8%) and Storage Technology
(+29.0%). Underperforming stocks included Danka Business Systems (-63.9%),
Microage (-48.1%), and Teradyne (-40.5%) .
Asian turmoil has simultaneously raised the possibility of deflation and
inflation. In the event of a worldwide financial crisis/recession commodity
prices will fall, demand will slow and interest rates and profits will decline.
Conversely, if Asian problems remain localized, the current state of low
inflation, low unemployment, falling interest rates and strong economic growth
is unsustainable. Inflation and interest rates are likely to rise. This
uncertainty has led us to increase holdings in utilities, REITs and food stocks,
while reducing Asian-exposed cyclicals and technology stocks.
Gary G. Schlarbaum
PORTFOLIO MANAGER
William Gerlach
PORTFOLIO MANAGER
January 1998
- --------------------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
A-6
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1997)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Aerospace 5.5 %
Banking 9.4 %
Capital Goods 3.0 %
Chemicals 0.9 %
Communications 3.6 %
Consumer--Durables 1.1 %
Consumer--Retail 3.4 %
Consumer--Staples 2.9 %
Energy 4.2 %
Financial-Diversified 1.5 %
Health Care 0.9 %
Insurance 3.5 %
Metals 0.8 %
Paper & Packaging 1.2 %
Services 0.8 %
Technology 2.5 %
Transportation 1.9 %
Utilities 4.3 %
U.S. Treasury Notes 40.2 %
Other 8.4 %
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BALANCED PORTFOLIO--CLASS
INDATA BALANCED--MEDIAN INDEX(1) A
<S> <C> <C>
2/20/90* $500,000 $500,000
10/31/91 601,750 582,845
10/31/92 659,000 638,635
12/31/92 680,250 656,635
12/31/93 747,350 736,015
12/31/94 743,800 718,950
12/31/95 929,081 888,838
12/31/96 1,062,776 985,988
12/31/97 1,256,414 1,156,564
*Commencement of operations
** Minimum Investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO INDATA
BALANCED-MEDIAN INDEX(1)
- -----------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
------------ ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... 17.30% 11.98% 11.25%
PORTFOLIO -- CLASS
B..................... 16.94 N/A 13.56
INDEX -- CLASS A...... 18.22 13.06 12.44
INDEX -- CLASS B...... 18.22 N/A 16.34
</TABLE>
1. The Indata Balanced-Median Index is an unmanaged index and includes an asset
allocation of 0.5% cash, 37.9% bonds and 61.6% equity based on $52.5 billion
in assets among 431 portfolios for the period ended December 31, 1997
(includes dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Balanced Portfolio's value investment objective is to seek high total return
while preserving capital by investing in a combination of undervalued equity
securities and fixed income securities.
The Balanced Portfolio's asset allocation strategy between equities, fixed
income and cash is based upon our estimate of the portfolio's risk. Since
equities are the highest risk asset class, we have maintained a below average
equity exposure during past periods of high market valuation. Typically, our
equity exposure will range between 35% and 65% with an expected long term
average of 55%.
For the year ended December 31, 1997, the Portfolio had a total return of 17.30%
for the Class A shares and 16.94% for the Class B shares, as compared to a total
return of 18.22% for the Indata Balanced-Median Index (the "Index"). For the
five year period ended December 31, 1997, the average annual total return of
Class A was 11.98% compared to 13.06% for the Index. From inception on February
20, 1990 through December 31, 1997, the average annual total return of Class A
was 11.25% compared to 12.44% for the Index. From inception on January 2, 1996
through December 31, 1997, the average annual total return of Class B was 13.56%
compared to 16.34% for the Index.
According to LIPPER MUTUAL FUNDS QUARTERLY, the average Balanced mutual fund
returned 19.00% for the year ended December 31, 1997.
Our asset allocation, based on market value at December 31, 1997, is as follows:
<TABLE>
<S> <C>
Equities................................. 51.4%
Fixed Income............................. 40.1
Cash..................................... 8.5
---
100%
---
---
</TABLE>
EQUITIES
For the quarter ended December 31, 1997, the equity component of the Balanced
Portfolio had a gross return of 2.80% and for year ended December 31, 1997
returned 30.23%. The S&P 500 returned 2.87% for the quarter ended December 31,
1997 and 33.36% for the year ended December 31, 1997.
In 1997, major market indices achieved strong double digit returns for the third
consecutive year. Large cap stocks once again significantly outperformed small
cap stocks as investors sought relative safety, liquidity and earnings
certainty. The larger cap Russell 1000 returned 32.86% compared to the smaller
cap Russell 2000 return of 22.28%. Growth stocks outperformed value, with the
S&P/ Barra Growth Index up 36.42% for the year compared to 29.96% for the
S&P/Barra Value Index.
- --------------------------------------------------------------------------------
Balanced Portfolio
A-7
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO (CONT.)
A progressively weak first quarter, followed by a solid rebound in the second
quarter resulted in an overall very strong first half. Major market indices
bottomed in April and then advanced to new highs through June. Sentiment in the
first quarter, including escalating fears of interest rate increases, and strong
economic growth of 4.9%, contrasted with subsiding fears of rate increases and a
moderating economy in the second quarter. The market continued to advance in the
third quarter, although it declined in August as concerns mounted about the
potential impact of the growing Southeast Asian financial crisis and currency
devaluations. These concerns intensified during the fourth quarter, as the
Southeast Asian turmoil spread to Hong Kong. As a result, the market declined
again in October, a month that saw the largest point decline ever in the Dow
Jones Industrial Average and a record volume day of 1.2 billion shares traded on
the NYSE. The market decline reflected investor concern that slowing economic
growth in Asia and imported Asian deflation would weaken U.S. economic and
earnings growth. Although the market recovered in November and December, profit
concerns overshadowed the very positive declining interest rate environment,
continued benign inflation and a moderating but growing economy.
The equity component of the Balanced Portfolio holds the same undervalued
companies that are held in the Value Equity Portfolio. The equity portion of the
Portfolio has a wide valuation gap as compared to the characteristics of the S&P
500.
<TABLE>
<CAPTION>
PRICE PRICE
EARNINGS BREAK
------------ ------------
<S> <C> <C>
Portfolio -- equity portion............. 17.7x 3.3x
S&P 500................................. 23.9x 5.5x
</TABLE>
The best performing sectors in the equity portion of the Portfolio for the year
on an absolute basis were financial services, up 54%, transportation, up 47%,
and capital goods, up 46%. Underperforming sectors included shelter, down 8%,
raw materials, up 1%, and consumer non-durables, up 6%. Relative to the S&P 500,
the equity portion of the Portfolio benefited from being overweight in financial
services and underweight in consumer non-durables, while the underweight
position in healthcare and in consumer services hurt the equity portion of the
Portfolio. The best performing stocks in 1997 were First of America, up 98%,
Mellon Bank, up 76%, Wal Mart, up 75%, Ogden, up 57%, and PNC Financial, also up
57%. Underperforming stocks included Fleming, down 22%, Louisiana-Pacific, down
8%, Woolworth, down 7%, and Phelps Dodge, down 5%.
The overweight position in financial services and stock selection within the
sector meaningfully contributed to performance in 1997. Banking stocks continued
to benefit from industry consolidation activity and the declining interest rate
environment, which more than offset concerns about the Asian crisis that arose
in the second half of the year. We pared back First of America after the company
agreed to be acquired by National City Corp. for a 30% premium. To maintain an
overweight position in banking, we added Fleet Financial and Banc One during the
year. We also increased our weighting in Sallie Mae. Shareholders of Sallie Mae
voted in new management during the year, and approved a reorganization plan to
restructure the company as a fully privatized corporation and eventually
eliminate its government charter. The company continues to generate strong
earnings growth, repurchase stock, and cut costs, and is well positioned to gain
market share in the education finance market.
We increased exposure in the transportation and aerospace/defense due to
favorable industry trends and attractive valuations. The commercial airline
cycle has maintained its strength during the year, supported by the strong
economy, higher business and consumer travel spending and more rational fare
pricing. The commercial aircraft manufacturing cycle is also very favorable. To
participate, we added to the United Technologies position, and established
positions in Parker Hannifin and Continental Airlines. The aerospace/defense
sector is seeing the benefits from past industry consolidation. During the year,
we added Lockheed Martin and Litton Industries to the portfolio. We also added
Gulfstream Aerospace, which is benefiting from a strong backlog in its business
jet aircraft manufacturing operations and a healthy annual repurchase program.
In the capital goods sector, another strong performer in 1997, we added Case
Corp. in addition to holding Deere & Co. Strong farm income and secular
worldwide growth in agricultural spending have been the major themes supporting
the industry. Deere continues to generate strong cash flow and repurchase stock.
Case possesses significant margin expansion opportunities, and trades at
attractive valuation levels. We adjusted the consumer durable sector by selling
Chrysler and adding Meritor Automotive and Borg Warner Automotive. Both of these
stocks are trading below 11 times 1998 estimated earnings. We expect them to
benefit from the continued globalization and consolidation in the auto and truck
supplier market.
We pared back on consumer staples, primarily tobacco stocks, as a preliminary
industry litigation settlement was reached mid-year. While the settlement would
provide protection from certain lawsuits, the industry still faces a lengthy
government approval process for the agreement during 1998. Until a settlement
nears approval, the stocks will most likely remain at attractive valuations of
12-14 times 1998 expected earnings. In the retail sector, we
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BALANCED PORTFOLIO
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[LOGO] Morgan Stanley
Institutional Fund, Inc.
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OVERVIEW
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BALANCED PORTFOLIO (CONT.)
added Wal Mart at the start of 1997, which finished the year as one of the top
performers in the Portfolio. Wal Mart began generating positive free cash flow
in 1996, and subsequently announced a 30% dividend increase and a stock buyback
program in early 1997. The company then delivered both sales and earnings growth
and consistency throughout the year. In the services and growth sector, we sold
the remaining position in Eastman Kodak. The company continues to struggle with
intensified film price competition, continuing losses from new business
initiatives and an inflated cost structure. We also sold McGraw Hill and pared
back on Ogden Corp. due to strong price appreciation.
Our exposure to the telecommunications industry increased throughout the year,
as we added to US West Communications, and as consolidation activity and
improved investor sentiment toward the group drove the stocks higher. AT&T
announced the appointment of a new CEO, and undertook several steps to improve
earnings, including cutting costs and selling non core businesses. In utilities,
we decreased the exposure to the sector by paring back on GPU, Nipsco Industries
and Texas Utilities. Regulatory concerns related to the resolution of stranded
asset costs and continued rate reductions remain a risk within the industry.
However, the sector benefited in the fourth quarter due to the extremely
favorable interest rate environment and improved investor sentiment toward the
group.
Within the commodity industry sectors, we lowered the exposure to energy and
paper and forest products, as oil prices weakened throughout the year, and as
the Asian turmoil hurt the paper cycle recovery. Within energy, we sold Exxon
and added USX-Marathon Group. Exxon, which had outperformed other integrated oil
stocks, had begun trading at a premium to the industry group and the market,
whereas Marathon traded at a more attractive valuation level. We also sold
Occidental Petroleum which had seen strong price appreciation throughout the
year, but which also has a large commodity chemical exposure. In the paper and
forest products sector, we swapped Willamette Industries for a partial position
in Georgia-Pacific. Management at Georgia-Pacific has taken aggressive steps
toward improving shareholder value, including cutting costs, reducing capital
spending, and repurchasing stock. We adjusted the composition of the chemicals
sector by selling Eastman Chemical and Olin, and adding DuPont. DuPont appears
to be better positioned to deliver earnings growth as it has strengthened key
areas of its business portfolio with acquisitions and has begun to build the
higher growth, higher margin life sciences business.
We maintain a cautious view going into 1998 as valuations levels remain at
fairly high levels, and as uncertainty to the earnings cycle has increased with
the Asian financial crisis. We continue to overweight financial services and
utilities, and underweight technology and healthcare.
FIXED INCOME
The fixed income portion of the Balanced Portfolio continues to maintain 100%
exposure to intermediate-term U.S. Government securities. For the quarter ended
December 31, 1997, the fixed income portion of the Balanced Portfolio had a
gross return of 2.33% and for the year ended December 31, 1997, returned 7.93%.
The Lehman Intermediate-Government/Corporate Index returned 2.14% for the
quarter ended December 31, 1997, and 7.87% for the year.
The fixed income portion of the Portfolio began the year at a weighted average
maturity of 3.3 years and average duration of 3.0. During the first quarter,
rates increased across all maturity spectrums, as investors anticipated the
Federal Reserve Bank's raising of the fed funds rate in late March by 25 basis
points. However, for the year, interest rates ended lower across maturity
spectrums of one year and greater. The largest decrease in rates occurred in the
five, ten and thirty year bonds, as investors anticipated the prospect of
deflation from the Asian crisis. This downward shift in long rates flattened the
yield curve. During the third quarter, when long bond rates approached 6.7%, we
lengthened the weighted average maturity and average duration of the portfolio
to take advantage of a temporary increase in rates. The moderation in interest
rates later in the year and the decline in long bond rates below the 6% level
helped performance. At year-end, the weighted average maturity was 3.6 years,
and average duration was 3.2.
Stephen C. Sexauer
PORTFOLIO MANAGER
Alford E. Zick, Jr.
PORTFOLIO MANAGER
January 1998
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Balanced Portfolio
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EXHIBIT A
AGREEMENT AND PLAN
OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of May 8, 1998
(the "Agreement"), by and between Morgan Stanley Institutional Fund, Inc.
("MSIF"), a Maryland corporation, on behalf of the Small Cap Value Equity and
Balanced Portfolios (each an "Acquired Fund," and collectively, the "Acquired
Funds"), and MAS Funds, a Pennsylvania business trust, on behalf of the Mid Cap
Value and Balanced Portfolios (each an "Acquiring Fund," and collectively, the
"Acquiring Funds").
WHEREAS, MSIF was organized under Maryland law as a corporation under
Articles of Incorporation dated September 27, 1988, as amended and restated;
MSIF is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); MSIF has authorized
capital consisting of 40,000,000,000 shares of common stock, par value $.001 per
share, including 1,000,000,000 shares of the Small Cap Value Equity Portfolio,
and 1,000,000,000 shares of the Balanced Portfolio; the Acquired Funds are duly
organized and validly existing series of MSIF; and
WHEREAS, MAS Funds was organized under Pennsylvania law as a business trust
under a Declaration of Trust dated February 15, 1984, as amended and restated;
MAS Funds is an open-end management investment company registered under the 1940
Act; and the Acquiring Funds are duly organized and validly existing series of
MAS Funds;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree to effect (i) the transfer of all of the assets of the
MSIF Small Cap Value Equity Portfolio solely in exchange for (a) the assumption
by the MAS Mid Cap Value Portfolio of all or substantially all of the
liabilities of the MSIF Small Cap Value Equity Portfolio and (b) beneficial
shares of the MAS Mid Cap Value Portfolio, followed by the distribution, at the
Effective Time (as defined in Section 9 of this Agreement), of such beneficial
shares of the MAS Mid Cap Value Portfolio to the holders of shares of common
stock of the MSIF Small Cap Value Equity Portfolio on the terms and conditions
hereinafter set forth in liquidation of the MSIF Small Cap Value Equity
Portfolio; and (ii) the transfer of all of the assets of the MSIF Balanced
Portfolio solely in exchange for (a) the assumption by the MAS Balanced
Portfolio of all or substantially all of the liabilities of the MSIF Balanced
Portfolio and (b) beneficial shares of the MAS Balanced Portfolio, followed by
the distribution, at the Effective Time (as defined in Section 9 of this
Agreement), of such beneficial shares of the MAS Balanced Portfolio to the
holders of shares of common stock of the MSIF Balanced Portfolio on the terms
and conditions hereinafter set forth in liquidation of the MSIF Balanced
Portfolio. For convenience: (x) the MSIF Small Cap Value Equity Portfolio and
the MAS Mid Cap Value Portfolio are referred to generically hereinafter as
"corresponding" Acquired and Acquiring Funds, as are the MSIF Balanced Portfolio
and the MAS Balanced Portfolio; (y) the beneficial shares of the MAS Mid Cap
Value and Balanced Portfolios that are given in exchange for the assets of the
corresponding Acquired Funds are referred to hereinafter as the "Acquiring Funds
Shares"; and (z) the shares of common stock of the MSIF Small Cap Value Equity
and Balanced Portfolios that are held by the holders of such shares at the
Effective Time are referred to hereinafter as the "Acquired Funds Shares." The
parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION. At the Effective Time, each Acquired Fund will
assign, deliver and otherwise transfer all of its assets and good and marketable
title thereto, free and clear of all liens, encumbrances and adverse claims
except as provided in this Agreement, and assign all or substantially all of its
liabilities as are set forth in a statement of assets and liabilities, to be
prepared as of the Effective Time (the "Statement of Assets and Liabilities") to
the corresponding Acquiring Fund and each Acquiring Fund shall acquire all such
assets, and shall assume all such liabilities of the corresponding Acquired
Fund, in exchange for delivery to the corresponding Acquired Fund by such
Acquiring Fund of a number of its Acquiring Funds Shares (both full and
fractional) equivalent in value to the Acquired Funds Shares of the
corresponding Acquired Fund outstanding immediately prior to the Effective Time.
The assets and stated liabilities of each Acquired Fund, as set forth in the
Statement of Assets and Liabilities attached hereto as Exhibit A, shall be
exclusively assigned to and assumed by the
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corresponding Acquiring Fund. All debts, liabilities, obligations and duties of
each Acquired Fund, to the extent that they exist at or after the Effective Time
and are stated in the Statement of Assets and Liabilities, shall after the
Effective Time attach to the corresponding Acquiring Fund and may be enforced
against the corresponding Acquiring Fund to the same extent as if the same had
been incurred by the corresponding Acquiring Fund.
2. TRANSFER OF ASSETS. The assets of each Acquired Fund to be acquired by
the corresponding Acquiring Fund shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest and dividends
receivable) as set forth in the Statement of Assets and Liabilities, as well as
any claims or rights of action or rights to register shares under applicable
securities laws, any books or records of such Acquired Fund and other property
owned by such Acquired Fund at the Effective Time.
3. LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUNDS. At the Effective
Time, the Acquired Funds will liquidate and the Acquiring Funds Shares (both
full and fractional) received by the Acquired Funds will be distributed to the
shareholders of record of the Acquired Funds as of the Effective Time in
exchange for their respective Acquired Funds Shares and in complete liquidation
of the Acquired Funds. Each shareholder of the Acquired Funds will receive a
number of Acquiring Funds Shares equal in value to the Acquired Funds Shares
held by that shareholder. Such liquidation and distribution will be accompanied
by the establishment of an open account on the share records of the Acquiring
Funds in the name of each shareholder of record of the Acquired Funds and
representing the respective number of Acquiring Funds Shares due such
shareholder. As soon as practicable after the Effective Time, but not later than
, 1998, MSIF shall take all steps as shall be necessary and proper to
effect a complete termination of the Acquired Funds.
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUNDS. The Acquiring
Funds represent and warrant to the Acquired Funds as follows:
(a) ORGANIZATION, EXISTENCE, ETC. MAS Funds is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has the power to carry on its business as
it is now being conducted.
(b) REGISTRATION AS INVESTMENT COMPANY. MAS Funds is registered under
the 1940 Act as an open-end management investment company; such registration
has not been revoked or rescinded and is in full force and effect.
(c) FINANCIAL STATEMENTS. The audited financial statements, if any, of
MAS Funds relating to the Acquiring Funds dated as of September 30, 1997
(the "Acquiring Funds Financial Statements"), which will, if available, be
delivered to the Acquired Funds as of the Effective Time, will fairly
present the financial position of the Acquiring Funds as of the date
thereof.
(d) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Funds
Shares to be issued in connection with the Reorganization have been duly
authorized and upon consummation of the Reorganization will be validly
issued, fully paid and nonassessable.
(e) AUTHORITY RELATIVE TO THIS AGREEMENT. MAS Funds, on behalf of the
Acquiring Funds, has the power to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by the MAS Funds Board of Trustees, and no other
proceedings by the Acquiring Funds are necessary to authorize its officers
to effectuate this Agreement and the transactions contemplated hereby. Each
of the Acquiring Funds is not a party to or obligated under any charter,
by-law, indenture or contract provision or any other commitment or
obligation, or subject to any order or decree, which would be violated by
its executing and carrying out this Agreement.
(f) LIABILITIES. There are no liabilities of the Acquiring Funds,
whether or not determined or determinable, other than liabilities disclosed
or provided for in the Acquiring Funds Financial Statements, if any, and
liabilities incurred in the ordinary course of business prior to the
Effective Time or otherwise previously disclosed to the Acquired Funds, none
of which has been materially adverse to the business,
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assets or results of operations of the Acquiring Funds. MAS Funds'
Registration Statement does not contain any untrue statement of a material
fact required to be stated therein or make the statements therein not
misleading.
(g) LITIGATION. Except as previously disclosed to the Acquired Funds,
there are no claims, actions, suits or proceedings pending or, to the actual
knowledge of the Acquiring Funds, threatened which would materially
adversely affect any of the Acquiring Funds or its assets or business or
which would prevent or hinder in any material respect consummation of the
transactions contemplated hereby.
(h) CONTRACTS. Except for contracts and agreements disclosed to the
Acquired Funds, under which no default exists, each of the Acquiring Funds
is not a party to or subject to any material contract, debt instrument,
plan, lease, franchise, license or permit of any kind or nature whatsoever
with respect to the Acquiring Funds.
(i) TAXES. As of the Effective Time, all Federal and other tax returns
and reports of the Acquiring Funds required by law to have been filed shall
have been filed, and all other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
the Acquiring Funds' knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any of such returns.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED FUNDS. The Acquired
Funds represent and warrant to the Acquiring Funds as follows:
(a) ORGANIZATION, EXISTENCE, ETC. MSIF is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Maryland and has the power to carry on its business as it is now being
conducted.
(b) REGISTRATION AS INVESTMENT COMPANY. MSIF is registered under the
1940 Act as an open-end management investment company; and such registration
has not been revoked or rescinded and is in full force and effect.
(c) FINANCIAL STATEMENTS. The audited financial statements of MSIF
relating to the Acquired Funds as of December 31, 1997 (the "Acquired Funds
Financial Statements"), as delivered to the Acquiring Funds, fairly
represent the financial position of the Acquired Funds as of the respective
dates thereof, and the results of their operations and changes in their net
assets for the periods indicated.
(d) MARKETABLE TITLE TO ASSETS. Each of the Acquired Funds will have,
at the Effective Time, good and marketable title to, and full right, power
and authority to sell, assign, transfer and deliver, the assets to be
transferred to the Acquiring Funds. Upon delivery and payment for such
assets, each of the Acquiring Funds will have good and marketable title to
such assets without restriction on the transfer thereof free and clear of
all liens, encumbrances and adverse claims.
(e) AUTHORITY RELATIVE TO THIS AGREEMENT. MSIF, on behalf of the
Acquired Funds, has the power to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by MSIF's Board of Directors, and no other
proceedings by the Acquired Funds are necessary to authorize its officers to
effectuate this Agreement and the transactions contemplated hereby. Each of
the Acquired Funds is not a party to or obligated under any charter, by-law,
indenture or contract provision or any other commitment or obligation, or
subject to any order or decree, which would be violated by its executing and
carrying out this Agreement.
(f) LIABILITIES. There are no liabilities of the Acquired Funds,
whether or not determined or determinable, other than liabilities disclosed
or provided for in the Acquired Funds Financial Statements and liabilities
incurred in the ordinary course of business prior to the Effective Time or
otherwise previously disclosed to the Acquiring Funds, none of which has
been materially adverse to the business, assets or results of operations of
the Acquired Funds. MSIF's Registration Statement, which is on file with
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the Securities and Exchange Commission, does not contain any untrue
statement of a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(g) LITIGATION. Except as previously disclosed to the Acquiring Funds,
there are no claims, actions, suits or proceedings pending or, to the
knowledge of the Acquired Funds, threatened which would materially adversely
affect the Acquired Funds or its assets or business or which would prevent
or hinder in any material respect consummation of the transactions
contemplated hereby.
(h) CONTRACTS. Except for contracts and agreements disclosed to the
Acquiring Funds, under which no default exists, each of the Acquired Funds,
at the Effective Time, is not a party to or subject to any material
contract, debt instrument, plan, lease, franchise, license or permit of any
kind or nature whatsoever.
(i) TAXES. As of the Effective Time, all Federal and other tax returns
and reports of the Acquired Funds required by law to have been filed shall
have been filed, and all other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
the Acquired Funds' knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any of such returns.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUNDS.
(a) All representations and warranties of the Acquired Funds contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time.
(b) The Acquiring Funds shall have received an opinion of counsel for
the Acquired Funds, dated as of the Effective Time, addressed to and in form
and substance satisfactory to counsel for the Acquiring Funds, to the effect
that (i) the Acquired Funds are duly organized and validly existing series
of MSIF under the laws of the State of Maryland; (ii) MSIF is an open-end
management investment company registered under the 1940 Act; (iii) this
Agreement and the Reorganization provided for herein and the execution of
this Agreement have been duly authorized and approved by all requisite
action of each of the Acquired Funds and this Agreement has been duly
executed and delivered by MSIF on behalf of the Acquired Funds and is a
valid and binding obligation of the Acquired Funds, subject to applicable
bankruptcy, insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally; (iv) to the
best of counsel's knowledge after reasonable inquiry, no consent, approval,
order or other authorization of any Federal or state court or administrative
or regulatory agency is required for each of the Acquired Funds to enter
into this Agreement or carry out its terms that has not been obtained other
than where the failure to obtain any such consent, approval, order or
authorization would not have a material adverse effect on the operations of
the Acquired Funds; and (v) upon consummation of this Agreement, the
Acquiring Funds shall have acquired all of the Acquired Funds' assets listed
in the Statement of Assets and Liabilities, free and clear of all liens,
encumbrances or adverse claims.
(c) The Acquired Funds shall have delivered to the Acquiring Funds at
the Effective Time the Acquired Funds' Statement of Assets and Liabilities,
prepared in accordance with generally accepted accounting principles
consistently applied, together with a certificate of the Treasurer or
Assistant Treasurer of the Acquired Funds as to the aggregate asset value of
the Acquired Funds' portfolio securities.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUNDS.
(a) All representations and warranties of the Acquiring Funds contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time.
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(b) The Acquired Funds shall have received an opinion of counsel for
the Acquiring Funds, dated as of the Effective Time, addressed to and in
form and substance satisfactory to counsel for the Acquired Funds, to the
effect that: (i) the Acquiring Funds are duly organized and validly existing
series of MAS Funds under the laws of the Commonwealth of Pennsylvania; (ii)
MAS Funds is an open-end management investment company registered under the
1940 Act; (iii) this Agreement and the Reorganization provided for herein
and the execution of this Agreement have been duly authorized and approved
by all requisite action of each of the Acquiring Funds and this Agreement
has been duly executed and delivered by the Acquiring Funds and is a valid
and binding obligation of the Acquiring Funds, subject to applicable
bankruptcy, insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally; (iv) to the
best of counsel's knowledge, no consent, approval, order or other
authorization of any Federal or state court or administrative or regulatory
agency is required for each of the Acquiring Funds to enter into this
Agreement or carry out its terms that has not already been obtained, other
than where the failure to obtain any such consent, approval, order or
authorization would not have a material adverse effect on the operations of
the Acquiring Funds; and (v) the Acquiring Funds Shares to be issued in the
Reorganization have been duly authorized and upon issuance thereof in
accordance with this Agreement will be validly issued, fully paid and
nonassessable.
(c) The Acquiring Funds shall have delivered to the Acquired Funds at
the Effective Time, a certificate of the Treasurer or Assistant Treasurer of
the Acquiring Funds as to the aggregate asset value of the Acquiring Funds'
portfolio securities.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUNDS AND
THE ACQUIRING FUNDS. The obligations of the Acquired Funds and the Acquiring
Funds to effectuate this Agreement shall be subject to the satisfaction of each
of the following conditions:
(a) Such authority from the Securities and Exchange Commission (the
"SEC") as may be necessary to permit the parties to carry out the
transactions contemplated by this Agreement shall have been received.
(b) The Registration Statement on Form N-1A of the Acquiring Funds
shall be effective under the Securities Act of 1933, as amended (the "1933
Act"), and, to the best knowledge of the Acquiring Funds, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
(c) The Acquiring Funds have filed all documents and paid all fees
required to permit their shares to be offered to the public in all states of
the United States, the Commonwealth of Puerto Rico and the District of
Columbia (except where such qualifications are not required) so as to permit
the transfer contemplated by this Agreement to be consummated.
(d) The Acquired Funds and the Acquiring Funds shall have received on
or before the Effective Time an opinion of counsel satisfactory to the
Acquired Funds and the Acquiring Funds substantially to the effect that for
Federal income tax purposes:
(1) No gain or loss will be recognized to the Acquired Funds upon
the transfer of its assets in exchange solely for the Acquiring Funds
Shares and the assumption by the Acquiring Funds of the corresponding
Acquired Fund's stated liabilities;
(2) No gain or loss will be recognized to the Acquiring Funds on
their receipt of the Acquired Funds' assets in exchange for the Acquiring
Funds Shares and the assumption by the Acquiring Funds of the
corresponding Acquired Fund's liabilities;
(3) The basis of an Acquired Fund's assets in the corresponding
Acquiring Fund's hands will be the same as the basis of those assets in
the Acquired Fund's hands immediately before the conversion;
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(4) The Acquiring Funds' holding period for the assets transferred
to the Acquiring Funds by the Acquired Funds will include the holding
period of those assets in the corresponding Acquired Fund's hands
immediately before the conversion;
(5) No gain or loss will be recognized to the Acquired Funds on the
distribution of the Acquiring Funds Shares to the Acquired Funds'
shareholders in exchange for their Acquired Funds Shares;
(6) No gain or loss will be recognized to the Acquired Funds'
shareholders as a result of the Acquired Funds' distribution of Acquiring
Funds Shares to the Acquired Funds' shareholders in exchange for the
Acquired Funds' shareholders' Acquired Funds Shares;
(7) The basis of the Acquiring Funds Shares received by the
Acquired Funds' shareholders will be the same as the adjusted basis of
that Acquired Funds' shareholders' Acquired Funds Shares surrendered in
exchange therefor; and
(8) The holding period of the Acquiring Funds Shares received by
the Acquired Funds' shareholders will include the Acquired Funds'
shareholders' holding period for the Acquired Funds' shareholders'
Acquired Funds Shares surrendered in exchange therefor, provided that
said Acquired Funds Shares were held as capital assets on the date of the
conversion.
(e) A vote approving this Agreement and the Reorganization contemplated
hereby shall have been adopted by at least a majority of the outstanding
shares of each of the Acquired Funds entitled to vote at an annual or
special meeting; provided that, if a majority of the shares of only one
Acquired Fund approve the Agreement and the Reorganization, the parties may
execute the Agreement and effect the Reorganization solely with respect to
such Acquired Fund.
(f) The Board of Trustees of MAS Funds, at a meeting duly called for
such purpose, shall have authorized the issuance by each of the Acquiring
Funds of Acquiring Funds Shares at the Effective Time in exchange for the
assets of the Acquired Funds pursuant to the terms and provisions of this
Agreement.
9. EFFECTIVE TIME OF THE REORGANIZATION. The exchange of the Acquired
Funds' assets for Acquiring Funds Shares shall be effective as of close of
business on , 1998, or at such other time and date as fixed by the
mutual consent of the parties (the "Effective Time").
10. TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated and abandoned with respect to one or more of the Acquiring
Funds and/or the Acquired Funds without penalty by resolution of the Board of
Directors of MSIF or the Board of Trustees of MAS Funds or at the discretion of
any duly authorized officer of MAS Funds or MSIF, at any time prior to the
Effective Time, if circumstances should develop that, in the opinion of such
Board or officer, make proceeding with the Agreement inadvisable.
11. AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented in such manner as may be mutually agreed upon in writing by the
parties; PROVIDED, that no such amendment may have the effect of changing the
provisions for determining the number or value of Acquiring Funds Shares to be
paid to the Acquired Funds' shareholders under this Agreement to the detriment
of the Acquired Funds' shareholders without their further approval. Furthermore,
either party may waive any breach by the other party or the failure to satisfy
any of the conditions to its obligations (such waiver to be in writing and
authorized by the President or any Vice President of the waiving party with or
without the approval of such party's shareholders).
12. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland.
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13. NOTICES. Any notice, report, statement or demand required or permitted
by any provision of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy, certified mail, internet or overnight express
courier addressed as follows:
if to the Acquiring Funds:
Ms. Lorraine Truten
MAS Funds
One Tower Bridge
West Conshohocken, PA 19428
with a copy to:
John H. Grady, Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
if to the Acquired Funds:
Harold J. Schaaff, Jr., Esq.
Morgan Stanley Institutional Fund, Inc.
1221 Avenue of the Americas
New York, NY 10020
with a copy to:
John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
14. FEES AND EXPENSES.
(a) Each of the Acquiring Funds and the Acquired Funds represents and
warrants to the other that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for
herein.
(b) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by each Portfolio will
be borne by such Portfolio. Such expenses include, without limitation, (i)
expenses incurred in connection with the entering into and the carrying out
of the provisions of this Agreement; (ii) expenses associated with the
preparation and filing of the Proxy Statement under the Securities Exchange
Act of 1934, as amended; (iii) registration or qualification fees and
expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Funds Shares to be
issued in connection herewith in each state in which the Acquired Funds'
shareholders are resident as of the date of the mailing of the Proxy
Statement to such shareholders; (iv) postage; (v) printing; (vi) accounting
fees; (vii) legal fees; and (viii) solicitation costs of the transaction.
Each of the Acquiring Funds shall pay its own Federal and state registration
fees.
15. HEADINGS, COUNTERPARTS, ASSIGNMENT.
(a) The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not effect in any way the meaning or
interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein
E-7
<PAGE>
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
16. ENTIRE AGREEMENT. Each of the Acquiring Funds and the Acquired Funds
agree that neither party has made any representation, warranty or covenant not
set forth herein and that this Agreement constitutes the entire agreement
between the parties. The representations, warranties and covenants contained
herein or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
17. FURTHER ASSURANCES. Each of the Acquiring Funds and the Acquired Funds
shall take such further action as may be necessary or desirable and proper to
consummate the transactions contemplated hereby.
18. BINDING NATURE OF AGREEMENT. As provided in each of (1) MSIF's
Articles of Incorporation, as amended and supplemented to date, on file with the
State Department of Assessments and Taxation of the State of Maryland; and (2)
MAS Funds Declaration of Trust, as amended and supplemented to date, on file
with the Pennsylvania Corporation Bureau of the Department of State, this
Agreement was executed by the undersigned officers of MAS Funds and MSIF, on
behalf of each of the Acquiring Funds and the Acquired Funds, respectively, as
officers and not individually, and the obligations of this Agreement are not
binding upon the undersigned officers individually, but are binding only upon
the assets and property of the corporation or trust. Moreover, no series of a
corporation or trust shall be liable for the obligations of any other series of
that corporation or trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Morgan Stanley Institutional Fund, Inc., on behalf of its series, Small Cap
Value Equity Portfolio and Balanced Portfolio
By
--------------------------------------
Name:
Title:
MAS Funds, on behalf of its series, Mid Cap Value Portfolio and Balanced
Portfolio
By
--------------------------------------
Name:
Title:
E-8
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 8, 1998
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798 BOSTON, MASSACHUSETTS, 02208-2798
MAS FUNDS
ONE TOWER BRIDGE
WEST CONSHOHOCKEN, PA 19428
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated May 8,
1998 for the Special Meeting of Shareholders of Morgan Stanley Institutional
Fund, Inc. ("MSIF"), to be held on June 19, 1998. Copies of the Combined Proxy
Statement/Prospectus may be obtained at no charge by calling MSIF at
1-800-548-7786.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement/Prospectus.
Further information about Institutional Class shares of MAS Funds is
contained in and incorporated by reference to said Fund's Statement of
Additional Information dated January 31, 1998, a copy of which is included
herewith. The audited financial statements and related independent accountant's
report for MAS Funds Mid Cap Value and Balanced Portfolios contained in the
Annual Report dated September 30, 1997 are hereby incorporated herein by
reference insofar as they relate to the MAS Portfolios. No other parts of the
Annual Report are incorporated by reference herein.
Further information about Class A and B shares of the MSIF Portfolios is
contained in and incorporated by reference to MSIF's Statement of Additional
Information dated May 1, 1998, a copy of which is included herewith. The audited
financial statements and related independent accountant's report for the Morgan
Stanley Institutional Fund, Inc. Small Cap Value Equity and Balanced Portfolios
("MSIF Portfolios") contained in the 1997 Annual Report to Shareholders dated
December 31, 1997 are hereby incorporated herein by reference. No other parts of
the Annual Report are incorporated by reference herein.
The date of this Statement of Additional Information is May 8, 1998.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.....................
Pro Forma Financial Statements.......... 2
</TABLE>
1
<PAGE>
MAS FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE (000)
- --------------------------------------- ------------------------------------------
MSIF MSIF
MAS SMALL CAP SMALL CAP
MID CAP VALUE PRO FORMA SECURITY DESCRIPTION MAS VALUE PRO FORMA
VALUE EQUITY COMBINED ----------------------------------- MID CAP VALUE EQUITY COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO SEPTEMBER 30, 1997 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------- --------- ----------------------------------- ------------- -------------- ---------
<C> <C> <C> <S> <C> <C> <C>
87,600 17,000 104,600 AccuStaff, Inc. $ 2,759 $ 535 $ 3,294
17,000 -- 17,000 ADC Telecommunications, Inc. 553 -- 553
30,400 5,900 36,300 Aeroquip-Vickers, Inc. 1,490 289 1,779
12,400 2,600 15,000 AGCO Corp. 393 82 475
123,300 23,900 147,200 Air Express International Corp. 4,500 872 5,372
9,800 2,000 11,800 Airborne Freight Corp. 594 121 715
23,200 4,700 27,900 Altera Corp. 1,189 241 1,430
14,800 3,000 17,800 AMBAC, Inc. 602 122 724
22,000 4,400 26,400 Apache Corp. 943 189 1,132
43,500 8,400 51,900 Applebee's International, Inc. 1,088 210 1,298
34,700 6,900 41,600 Arbor Drugs, Inc. 807 161 968
-- 200 200 ArchCoal, Inc. -- 6 6
54,600 11,000 65,600 Arnold Industries, Inc. 1,276 257 1,53
16,000 8,200 24,200 Arvin Industries, Inc. 628 322 950
24,100 -- 24,100 Aviation Sales Co. 729 -- 729
66,700 -- 66,700 Banner Associates, Inc. 684 -- 684
28,620 5,600 34,220 Bear Stearns Cos., Inc. 1,259 246 1,505
17,000 3,900 20,900 Biogen, Inc. 551 127 678
38,100 7,300 45,400 BJ Services Co. 2,829 542 3,371
25,200 5,100 30,300 Black Hills Corp. 739 149 888
7,000 1,600 8,600 BMC Software, Inc. 453 104 557
9,100 -- 9,100 Bowater, Inc. 464 -- 464
10,700 2,100 12,800 Box Hill Systems Corp. 187 37 224
12,600 3,000 15,600 Brylane, Inc. 578 138 716
21,300 4,100 25,400 Cadence Design Systems, Inc. 1,140 219 1,359
19,000 -- 19,000 Callaway Golf Co. 663 -- 663
21,500 4,600 26,100 Capital One Financial Corp. 984 210 1,194
16,900 3,400 20,300 Case Corp. 1,126 227 1,353
53,600 14,400 68,000 CDI Corp. 2,023 544 2,567
18,000 4,600 22,600 Ceridian Corp. 666 170 836
22,900 5,800 28,700 Champion Enterprises, Inc. 438 111 549
32,200 6,300 38,500 City National Corp. 1,030 202 1,232
23,300 4,700 28,000 CMAC Investment Corp. 1,249 252 1,501
42,100 8,300 50,400 CNF Transportation, Inc. 1,834 362 2,196
8,600 1,600 10,200 Coherent, Inc. 476 89 565
20,100 3,700 23,800 Colonial Bancgroup Inc. 578 106 684
16,800 3,100 19,900 Coltec Industries, Inc. 363 67 430
17,500 3,500 21,000 Columbia Gas System, Inc. 1,225 245 1,470
28,400 5,700 34,100 Comerica, Inc. 2,242 450 2,692
29,000 7,400 36,400 Community First Bankshares, Inc. 1,407 359 1,766
42,000 7,900 49,900 Computer Products, Inc. 1,250 235 1,485
33,100 6,400 39,500 Comverse Technology, Inc. 1,746 338 2,084
14,100 3,600 17,700 Consolidated Cigar Holdings, Inc. 576 147 723
14,200 2,800 17,000 Cooper Cameron Corp. 1,020 201 1,221
12,950 2,500 15,450 Crane Co. 533 103 636
10,100 2,000 12,100 Credence Systems Corp. 492 98 590
41,500 8,200 49,700 Crestar Financial Corp. 1,945 384 2,329
32,100 6,100 38,200 CTB International Corp. 506 96 602
25,000 5,000 30,000 Cullen/FrostBankers, Inc. 1,184 237 1,421
23,200 4,900 28,100 Culp, Inc. 481 102 583
37,700 7,100 44,800 CVS Corp. 2,144 404 2,548
43,200 7,100 50,300 Danka Business Systems plc ADR 1,922 316 2,238
</TABLE>
2
<PAGE>
MAS FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE (000)
- --------------------------------------- ------------------------------------------
MSIF MSIF
MAS SMALL CAP SMALL CAP
MID CAP VALUE PRO FORMA SECURITY DESCRIPTION MAS VALUE PRO FORMA
VALUE EQUITY COMBINED ----------------------------------- MID CAP VALUE EQUITY COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO SEPTEMBER 30, 1997 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------- --------- ----------------------------------- ------------- -------------- ---------
<C> <C> <C> <S> <C> <C> <C>
40,000 8,000 48,000 Datascope Corp. $ 880 $ 176 $ 1,056
18,600 3,800 22,400 Dean Foods Co. 860 176 1,036
32,600 6,300 38,900 Diamond Offshore Drilling, Inc. 1,799 348 2,147
68,400 17,600 86,000 Dimon, Inc. 1,710 440 2,150
11,200 2,600 13,800 Doncasters plc ADR 336 78 414
11,000 2,100 13,100 Doubletree Corp. 531 101 632
16,400 3,200 19,600 Dura Pharmaceuticals, Inc. 715 140 855
6,200 1,200 7,400 El Paso Natural Gas Co. 375 73 448
35,200 6,800 42,000 Elbit Systems, Ltd. 484 93 577
6,000 1,200 7,200 Electro Scientific Industries, Inc. 366 73 439
8,500 -- 8,500 ESS Technology, Inc. 129 -- 129
24,600 4,900 29,500 Everest Reinsurance Holdings, Inc. 1,009 201 1,210
19,100 3,600 22,700 EVI, Inc. 1,222 230 1,452
24,700 5,000 29,700 Expeditors International of
Washington, Inc. 1,034 209 1,243
80,600 15,700 96,300 Falcon Drilling Co., Inc. 2,846 554 3,400
-- 8,400 8,400 First Alliance Corp. -- 265 265
24,800 5,400 30,200 First Financial Corp. 845 184 1,029
30,713 6,000 36,713 First of America Bank Corp. 1,649 322 1,971
28,600 5,800 34,400 Fiserv, Inc. 1,255 254 1,509
15,200 2,900 18,100 Forecenergy, Inc. 590 113 703
53,300 10,400 63,700 FPA Medical Management, Inc. 1,832 357 2,189
43,750 8,300 52,050 Franklin Resources, Inc. 4,074 773 4,847
8,700 2,200 10,900 Fred Meyer, Inc. 463 117 580
12,042 2,400 14,442 Fuller (H.B.) Co. 653 130 783
20,400 4,300 24,700 Furniture Brands International,
Inc. 385 81 466
15,000 2,800 17,800 Gateway 2000, Inc. 472 88 560
47,400 9,600 57,000 General Cable Corp. 1,683 341 2,024
31,800 -- 31,800 Gibson Greetings, Inc. 823 -- 823
6,000 -- 6,000 Global Industries Ltd. 239 -- 239
8,500 1,700 10,200 Greenpoint Financial Corp. 539 108 647
13,400 3,200 16,600 Halter Marine Group, Inc. 648 155 803
35,400 7,200 42,600 Harley-Davidson, Inc. 1,033 210 1,243
13,600 2,700 16,300 Hartford Life, Inc., Class A 523 104 627
11,800 2,500 14,300 Health Care and Retirement Corp. 439 93 532
5,900 1,300 7,200 Healthcare Financial Partners, Inc. 182 40 222
127,000 25,300 152,300 Healthdyne Technologies, Inc. 2,365 471 2,836
-- 10,100 10,100 Herman Miller, Inc. -- 540 540
11,000 1,400 12,400 Hertz Corp., Class A 414 53 467
14,800 3,300 18,100 Hirsch International Corp., Class A 262 58 320
78,700 16,300 95,000 HMT Technology Corp. 1,235 256 1,491
11,700 -- 11,700 Hubco, Inc. 371 -- 371
52,500 3,450 55,950 Hughes Supply, Inc. 1,585 104 1,689
14,000 2,600 16,600 ICN Pharmaceuticals, Inc. 689 128 817
32,100 6,400 38,500 Inacom Corp. 1,194 238 1,432
4,650 -- 4,650 Ingersoll Rand Co. 200 -- 200
3,800 700 4,500 Innovex, Inc. 123 23 146
35,800 14,800 50,600 Interim Services, Inc. 1,007 416 1,423
16,800 3,200 20,000 Interstate Bakeries Corp. 1,152 219 1,371
27,300 7,000 34,300 Intevac, Inc. 386 99 485
27,800 5,600 33,400 IPALCO Enterprises, Inc. 952 192 1,144
10,800 -- 10,800 Ivex Packaging Corp. 173 -- 173
67,600 25,200 92,800 Journal Register Co. 1,327 495 1,822
</TABLE>
3
<PAGE>
MAS FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE (000)
- --------------------------------------- ------------------------------------------
MSIF MSIF
MAS SMALL CAP SMALL CAP
MID CAP VALUE PRO FORMA SECURITY DESCRIPTION MAS VALUE PRO FORMA
VALUE EQUITY COMBINED ----------------------------------- MID CAP VALUE EQUITY COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO SEPTEMBER 30, 1997 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------- --------- ----------------------------------- ------------- -------------- ---------
<C> <C> <C> <S> <C> <C> <C>
13,700 2,700 16,400 Kaydon Corp. $ 822 $ 162 $ 984
16,900 -- 16,900 Kilroy Realty Corp. 456 -- 456
14,900 2,800 17,700 KLA Tencor Corp. 1,007 189 1,196
9,300 1,400 10,700 Lancaster Colony Corp. 494 74 568
25,200 5,300 30,500 Lear Corp. 1,241 261 1,502
17,000 -- 17,000 Lehman Brothers Holdings, Inc. 912 -- 912
30,800 6,200 37,000 LG&E Energy Corp. 683 138 821
1 -- 1 Lockheed Martin Corp. -- -- --
25,500 3,400 28,900 Lone Star Industries, Inc. 1,377 184 1,561
22,100 4,200 26,300 Long Island Bancorp, Inc. 1,039 197 1,236
14,900 3,000 17,900 Lubrizol Corp. 626 126 752
30,100 4,200 34,300 Marquette Medical Systems, Inc.,
Class A 933 130 1,063
16,500 4,100 20,600 Mascotech, Inc. 338 84 42
26,175 5,100 31,275 McClatchy Newspapers, Inc., Class A 900 175 1,075
122 -- 122 Mercantile Bankshares Corp. 4 -- 4
15,500 3,100 18,600 Mercury General Corp. 1,356 271 1,627
17,300 3,500 20,800 MGM Grand, Inc. 751 152 903
44,300 8,400 52,700 Microage, Inc. 1,285 244 1,529
50,600 -- 50,600 Miller (Herman), Inc. 2,707 -- 2,707
32,600 6,200 38,800 Money Store (The), Inc. 929 177 1,106
28,100 5,300 33,400 Nabors Industries, Inc. 1,094 206 1,300
25,400 5,600 31,000 National Commerce Bancorp. 692 153 845
14,400 -- 14,400 National Fuel Gas Co. 634 -- 634
92,600 17,500 110,100 Nationwide Financial Services,
Inc., Class A 2,581 488 3,069
12,400 2,400 14,800 Neiman Marcus Group (The), Inc. 397 77 474
21,400 4,300 25,700 New Century Energies, Inc. 889 179 1,068
7,000 1,700 8,700 New York Times Co., Class A 368 89 457
52,500 10,200 62,700 Nextel Communications, Inc.,
Class[nb]A 1,516 295 1,811
13,500 2,700 16,200 NICOR, Inc. 506 101 607
13,400 2,600 16,000 Noble Affiliates, Inc. 600 116 716
24,100 4,700 28,800 Noble Drilling Corp. 777 152 929
79,700 16,400 96,100 North Fork Bancorp, Inc. 2,311 476 2,787
19,800 4,000 23,800 Northern Trust Corp. 1,171 236 1,407
24,800 4,800 29,600 NS Group, Inc. 803 155 958
65,600 12,300 77,900 Office Depot, Inc. 1,324 248 1,572
8,500 1,700 10,200 Old Republic International Corp. 332 66 398
300 -- 300 Omnicom Group, Inc. 22 -- 22
14,647 3,000 17,647 ONEOK, Inc. 478 98 576
16,500 -- 16,500 Owens-Illinois, Inc. 560 -- 560
37,100 10,000 47,100 P.H. Glatfelter Co. 823 222 1,045
17,400 3,500 20,900 PACCAR, Inc. 974 196 1,170
8,900 1,800 10,700 Pacific Enterprises 301 61 362
3,600 -- 3,600 Parker Hannifin Corp. 162 -- 162
19,300 3,900 23,200 Personnel Group of America, Inc. 661 134 795
53,250 12,750 66,000 Pier 1 Imports, Inc. 955 229 1,184
23,700 4,700 28,400 Pinnacle West Capital Corp. 797 158 955
7,500 -- 7,500 Power-One, Inc. 105 -- 105
25,600 5,300 30,900 Precision Castparts Corp. 1,664 344 2,008
22,900 5,200 28,100 Premark International, Inc. 733 166 899
4,300 800 5,100 Prime Bancshares, Inc. 82 15 97
54,800 -- 54,800 ProSource, Inc. 356 -- 356
-- 7,500 7,500 Quaker Chemical Corp. -- 141 141
</TABLE>
4
<PAGE>
MAS FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE (000)
- --------------------------------------- ------------------------------------------
MSIF MSIF
MAS SMALL CAP SMALL CAP
MID CAP VALUE PRO FORMA SECURITY DESCRIPTION MAS VALUE PRO FORMA
VALUE EQUITY COMBINED ----------------------------------- MID CAP VALUE EQUITY COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO SEPTEMBER 30, 1997 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------- --------- ----------------------------------- ------------- -------------- ---------
<C> <C> <C> <S> <C> <C> <C>
18,900 4,600 23,500 Quantum Corp. $ 724 $ 176 $ 900
28,800 10,300 39,100 Richfood Holdings, Inc. 747 267 1,014
33,800 -- 33,800 Reliance Group Holdings, Inc. 458 -- 458
7,000 -- 7,000 Rohm & Haas Co. 672 -- 672
51,800 10,500 62,300 Ross Stores, Inc. 1,768 358 2,126
19,500 3,900 23,400 Rotech Medical Corp. 375 75 450
37,600 7,200 44,800 Russ Berrie & Co., Inc. 1,100 211 1,311
32,100 6,100 38,200 S & P Mid-Cap 400 Depository
Receipts 2,070 393 2,463
37,200 4,000 41,200 Schweitzer-Mauduit International,
Inc. 1,581 170 1,751
63,000 11,700 74,700 SCI Systems, Inc. 3,122 580 3,702
26,600 5,100 31,700 Security Capital Group, Inc., Class
B 914 175 1,089
18,700 3,700 22,400 Semitool, Inc. 470 93 563
53,600 10,400 64,000 ShopKo Stores, Inc. 1,394 270 1,664
20,500 4,000 24,500 SL Green Realty Corp. REIT 530 104 634
27,400 5,800 33,200 Solectron Corp. 1,219 258 1,477
40,000 7,800 47,800 Southdown, Inc. 2,185 426 2,611
30,200 7,800 38,000 Southtrust Corp. 1,487 384 1,871
20,800 -- 20,800 SPS Technologies, Inc. 978 -- 978
16,200 3,000 19,200 Stage Stores, Inc. 699 129 828
20,100 3,800 23,900 Storage Technology Corp. 961 182 1,143
92,300 15,900 108,200 Sullivan Dental Products, Inc. 2,365 407 2,772
35,838 8,401 44,239 Summit Bancorp. 1,593 373 1,966
12,100 2,400 14,500 Sun Co., Inc. 530 105 635
90,800 17,600 108,400 Symantec Corp. 2,066 400 2,466
27,700 5,700 33,400 Tech Data Corp. 1,274 262 1,536
12,000 -- 12,000 Technitrol, Inc. 478 -- 478
31,200 6,200 37,400 Technology Modeling Association,
Inc. 478 95573
11,100 2,200 13,300 Tektronix, Inc. 749 148 897
32,500 6,200 38,700 Teradyne, Inc. 1,749 334 2,083
60,300 13,500 73,800 Tetra Technologies, Inc. 1,394 312 1,706
108,000 14,000 122,000 TJX Companies, Inc. 3,301 428 3,729
19,300 3,200 22,500 Tommy Hilfiger Corp. 964 160 1,124
20,800 4,400 25,200 Torchmark Corp. 816 173 989
16,300 4,100 20,400 Tower Automotive, Inc. 734 185 919
34,800 6,600 41,400 Trans Financial, Inc. 1,109 210 1,319
15,400 3,000 18,400 Transocean Offshore, Inc. 738 144 882
14,300 2,900 17,200 Trinity Industries, Inc. 690 140 830
19,000 3,800 22,800 Triumph Group, Inc. 635 127 762
26,700 5,500 32,200 Tuboscope Vetco International Corp. 838 172 1,010
25,200 -- 25,200 Tyson Foods, Inc., Class A 591 -- 591
-- 6,600 6,600 U.S. Office Products -- 233 233
24,800 5,800 30,600 Union Texas Petro Holdings, Inc. 583 136 719
12,700 2,400 15,100 UnionBanCal Corp. 1,099 208 1,307
20,300 4,000 24,300 United Meridian Corp. 746 147 893
124,400 24,400 148,800 Universal Corp. 4,509 885 5,394
25,600 4,500 30,100 Universal Health Services, Inc.,
Class B 1,107 195 1,302
30,700 5,700 36,400 USA Waste Services, Inc. 1,224 227 1,451
13,800 -- 13,800 USCS International, Inc. 309 -- 309
27,400 5,600 33,000 USG Corp. 1,313 269 1,582
6,200 4,300 10,500 V.F. Corp. 574 398 972
20,000 4,000 24,000 Valassis Communications, Inc. 638 127 765
10,300 2,000 12,300 Varco International, Inc. 500 97 597
</TABLE>
5
<PAGE>
MAS FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE (000)
- --------------------------------------- ------------------------------------------
MSIF MSIF
MAS SMALL CAP SMALL CAP
MID CAP VALUE PRO FORMA SECURITY DESCRIPTION MAS VALUE PRO FORMA
VALUE EQUITY COMBINED ----------------------------------- MID CAP VALUE EQUITY COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO SEPTEMBER 30, 1997 PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------- --------- ----------------------------------- ------------- -------------- ---------
<C> <C> <C> <S> <C> <C> <C>
13,800 2,800 16,600 Veritas DGC, Inc. $ 587 $ 119 $ 706
12,800 2,400 15,200 Vintage Petroleum, Inc. 630 118 748
21,300 4,200 25,500 Vishay Intertechnology, Inc. 563 111 674
-- 11,900 11,900 VIVUS, Inc. -- 446 446
2,300 400 2,700 Washington Post Co., Class B 1,031 179 1,210
10,400 2,100 12,500 Watson Pharmaceuticals, Inc. 621 126 747
38,800 7,700 46,500 Weatherford Enterra, Inc. 2,069 410 2,479
2,000 -- 2,000 Webster Financial Corp. 118 -- 118
40,100 9,200 49,300 Wellpoint Health Networks, Inc. 2,323 533 2,856
-- 725 725 Wellsford Real Properties, Inc. -- 12 12
11,100 2,100 13,200 Western Atlas, Inc. 977 185 1,162
37,400 7,600 45,000 Western National Corp. 1,073 218 1,291
16,300 2,500 18,800 Wilmington Trust Corp. 890 137 1,027
8,200 1,600 9,800 Xilinx, Inc. 415 81 496
20,000 -- 20,000 Xomed Surgical Products, Inc. 398 -- 398
4,600 -- 4,600 York International Corp. 206 -- 206
------------- ------- ---------
TOTAL COMMON STOCKS -- 96.79% (COST
$174,476 AND $34,960,
RESPECTIVELY.) 216,173 42,331 258,504
<CAPTION>
PAR VALUE
- ---------------------------------------
<C> <C> <C> <S> <C> <C> <C>
-- $ 648 $ 648 Chase Securities, Inc. 5.75% dated
9/30/97, due 10/01/97, to be
repurchased at $648 collateralized
by U.S. Treasury Notes, 6.625%, due
3/31/02, valued at $666 (Cost $648) -- 648 648
$5,792 -- 5,792 Chase Securities, Inc. 5.90%, dated
9/30/97, due 10/1/97, to be
repurchased at $5,793,
collateralized by various U.S.
Government Obligations, due
10/1/97-1/29/99, valued at $5,847
(Cost $5,792) 5,792 -- 5,792
------------- ------- ---------
TOTAL SHORT TERM INVESTMENT --
3.21% (COST $5,792 AND $648,
RESPECTIVELY) 5,792 648 6,440
------------- ------- ---------
TOTAL INVESTMENTS -- 100.00% (COST
$180,268 AND $35,608,
RESPECTIVELY.) $ 221,965 $42,979 $264,944
------------- ------- ---------
------------- ------- ---------
</TABLE>
6
<PAGE>
MAS FUNDS
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MAS MSIF
MID CAP SMALL CAP
VALUE VALUE EQUITY PRO FORMA
PORTFOLIO PORTFOLIO COMBINED
(000) (000) (000)
---------- ------------ ---------
<S> <C> <C> <C>
ASSETS:
Investments, at cost -- see accompanying portfolios............ $180,268 $35,608 $215,876
---------- ------------ ---------
---------- ------------ ---------
Investments, at value.......................................... 221,965 42,979 264,944
Dividends receivable........................................... 109 18 127
Interest receivable............................................ 1 -- 1
Receivable for investments sold................................ 785 147 932
Receivable for fund shares sold................................ 1,556 -- 1,556
Other Assets................................................... 3 25 28
---------- ------------ ---------
TOTAL ASSETS................................................. 224,419 43,169 267,588
LIABILITIES:
Payable for investments purchased.............................. 2,510 348 2,858
Payable for fund shares redeemed............................... 1 -- 1
Investment advisory fee payable................................ 337 79 416
Payable for Administrative Fees................................ 14 5 19
Payable for Trustees' Fees..................................... 2 3 5
Other Liabilities.............................................. 57 41 98
---------- ------------ ---------
TOTAL LIABILITIES............................................ 2,921 476 3,397
---------- ------------ ---------
NET ASSETS:...................................................... $221,498 $42,693 $264,191
---------- ------------ ---------
---------- ------------ ---------
NET ASSETS consist of:
Undistributed net investment income (loss)..................... $ 310 $ (13) $ 297
Undistributed net realized gain on investments................. 21,907 7,667 29,574
Unrealized appreciation of investments......................... 41,697 7,371 49,068
Paid-in capital................................................ 157,584 27,668 185,252
---------- ------------ ---------
TOTAL NET ASSETS:................................................ $221,498 $42,693 $264,191
---------- ------------ ---------
---------- ------------ ---------
SHARES:
INSTITUTIONAL CLASS
(MSIF Class A, MAS Institutional Class) Net Assets........... $220,259 $34,649 $254,908
Shares of Common Stock Outstanding........................... 10,103 2,365 11,692
Net Asset Value Per Share...................................... $ 21.80 $ 14.65 $ 21.80
---------- ------------ ---------
ADVISER CLASS
(MSIF Class B, MAS Adviser Class) Net Assets................. -- $ 8,044 $ 8,044
Shares of Common Stock Outstanding........................... -- 550 369
Net Asset Value Per Share...................................... -- $ 14.63 $ 21.80
INVESTMENT CLASS
Net Assets..................................................... $ 1,239 -- $ 1,239
Shares of Common Stock Outstanding........................... 57 -- 57
Net Asset Value Per Share...................................... $ 21.75 -- $ 21.75
---------- ---------
</TABLE>
SEE NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
7
<PAGE>
MAS FUNDS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDING SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MAS MSIF
MID CAP SMALL CAP
VALUE VALUE EQUITY PRO FORMA
PORTFOLIO PORTFOLIO COMBINED
(000) (000) ADJUSTMENTS (000)
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income................................................ $ 229 $ 44 $ 273
Dividend income................................................ 1,201 558 1,759
---------- ------------ --- ---------
TOTAL INCOME................................................. 1,430 602 2,032
EXPENSES:
Investment advisory fees....................................... 924 252 $(28)(b) 1,148
Less: Waived Fees............................................ (28) (118) 37(d) (109)
Administration fees............................................ 123 45 (46)(c) 122
Shareholder servicing agent fees -- Investment Class........... 1 -- 1
Distribution fee -- MSIF Class B, MAS Adviser Class (Pro
Forma)........................................................ -- 7 7
Custodian fees................................................. 46 30 76
Audit Fees..................................................... 12 21 (21)(e) 12
Miscellaneous expenses......................................... 62 70 (10)(e) 122
Less: Reimbursement of Expenses -- Investment Class.......... (24) -- -- (24)
---------- ------------ --- ---------
TOTAL EXPENSES............................................... 1,116 307 (68) 1,355
Expense Offset................................................. (30) -- 3 (27)
---------- ------------ --- ---------
NET EXPENSES................................................. 1,086 307 (65) 1,328
---------- ------------ --- ---------
NET INVESTMENT INCOME (LOSS)..................................... 344 295 65 704
---------- ------------ --- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss):
Security transactions........................................ 24,403 (9,094) 15,309
---------- ------------ ---------
Total net realized gain........................................ 24,403 (9,094) 15,309
Change in unrealized appreciation/depreciation on investments.... 38,391 4,425 42,816
---------- ------------ ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............. 62,794 (4,669) 58,125
---------- ------------ ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS...................................... $63,138 $(4,374) $ 65 $58,829
---------- ------------ --- ---------
---------- ------------ --- ---------
</TABLE>
SEE NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
8
<PAGE>
MAS FUNDS
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
Pro Forma Financial information is intended to provide shareholders of MAS
Mid Cap Value Portfolio and MSIF Small Cap Value Equity Portfolio with
information about the impact of the proposed merger by indicating how the merger
might have affected the information had the merger been consummated as of
September 30, 1997.
The pro forma combined statements of assets and liabilities and results of
operations as of September 30, 1997 have been prepared to reflect the merger of
MAS Mid Cap Value Portfolio and MSIF Small Cap Value Equity Portfolio after
giving effect to pro forma adjustments described in the notes below.
(a) Acquisition by MAS Mid Cap Value Portfolio of MSIF Small Cap Value
Equity Portfolio and issuance of MAS Mid Cap Value Portfolio, Institutional and
Adviser Class shares in exchange for all of the outstanding shares of MSIF Small
Cap Value Equity Portfolio Class A and B shares, respectively.
(b) Investment advisory fees were adjusted to reflect the application of the
fee structure for MAS Mid Cap Value Portfolio (0.75% of average net assets).
(c) Administration fees were adjusted to reflect the application of the fee
structure in effect as of September 30, 1997 for MAS Mid Cap Value Portfolio
(0.08% of average net assets).
(d) Waiver of investment advisory fees was adjusted to reflect the advisor's
commitment to voluntarily waive fees in excess of 0.88% of average net assets
for Institutional Class shares and 1.10% of average net assets for Investment
Class shares. The Adviser Class shares were unfunded as of September 30, 1997.
(e) Actual expenses incurred by the individual funds, for various expenses
included on a pro forma basis, were reduced to reflect estimated savings arising
from the merger.
9
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SMALL CAP VALUE EQUITY PORTFOLIO
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS, JUNE 19, 1998
The undersigned Shareholder(s) of the Small Cap Value Equity Portfolio
("Portfolio") of Morgan Stanley Institutional Fund, Inc. ("MSIF"), revoking
previous proxies, hereby appoint(s) Michael F. Klein, Harold J. Schaaff, Jr.,
and Valerie Y. Lewis, and each of them (each with full power of substitution),
as the proxy or proxies of the undersigned to attend the Special Meeting of
Shareholders of the Portfolio to be held on June 19, 1998, and any adjournment
thereof (the "Meeting"), and to vote all of the shares of the Portfolio that the
signer would be entitled to vote if personally present at the Meeting on the
proposal set forth below respecting the approval of the Agreement and Plan of
Reorganization and Liquidation and, in accordance with their own discretion, on
any other matters properly brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUND WHICH
RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization and Liquidation
providing for (i) the transfer of all of the assets and liabilities of the MSIF
Small Cap Value Equity Portfolio to the MAS Funds ("MAS") Mid Cap Value
Portfolio in exchange for shares of the MAS Mid Cap Value Portfolio; (ii) the
distribution of the MAS Mid Cap Value Portfolio shares so received to
shareholders of the MSIF Small Cap Value Equity Portfolio; and (iii) the
termination under state law of the MSIF Small Cap Value Equity Portfolio.
/ / FOR / / AGAINST / / ABSTAIN
2. Not applicable.
The undersigned acknowledges receipt with this proxy of a copy of the Notice
of Special Meeting of Shareholders and the Proxy/ Prospectus.
<PAGE>
This proxy will, when properly executed, be voted as directed herein by the
signing shareholder. IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE AN
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION PROVIDING FOR (I) THE
TRANSFER OF ALL OF THE ASSETS AND LIABILITIES OF THE MSIF SMALL CAP VALUE EQUITY
PORTFOLIO TO THE MAS MID CAP VALUE PORTFOLIO IN EXCHANGE FOR SHARES OF THE MAS
MID CAP VALUE PORTFOLIO; (II) THE DISTRIBUTION OF THE MAS MID CAP VALUE
PORTFOLIO SHARES SO RECEIVED TO SHAREHOLDERS OF THE MSIF SMALL CAP VALUE EQUITY
PORTFOLIO; AND (III) THE TERMINATION UNDER STATE LAW OF THE MSIF SMALL CAP VALUE
EQUITY PORTFOLIO, AND WILL BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE DATE, SIGN AND RETURN PROMPTLY WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND THE MEETING.
Dated: __________________________, 1998
YOUR SIGNATURE(S) ON THIS PROXY SHOULD
BE EXACTLY AS YOUR NAME OR NAMES APPEAR
ON THIS PROXY. IF THE SHARES ARE HELD
JOINTLY, EACH HOLDER SHOULD SIGN. IF
SIGNING IS BY ATTORNEY, EXECUTOR,
ADMINISTRATOR, DIRECTOR OR GUARDIAN,
PLEASE PRINT YOUR FULL TITLE BELOW YOUR
SIGNATURE.
---------------------------------------
Signature
---------------------------------------
Signature
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
BALANCED PORTFOLIO
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS, JUNE 19, 1998
The undersigned Shareholder(s) of the Balanced Portfolio ("Portfolio") of
Morgan Stanley Institutional Fund, Inc. ("MSIF"), revoking previous proxies,
hereby appoint(s) Michael F. Klein, Harold J. Schaaff, Jr. and Valerie Y. Lewis,
and each of them (each with full power of substitution), as the proxy or proxies
of the undersigned to attend the Special Meeting of Shareholders of the
Portfolio to be held on June 19, 1998, and any adjournment thereof (the
"Meeting"), and to vote all of the shares of the Portfolio that the signer would
be entitled to vote if personally present at the Meeting on the proposal set
forth below respecting the approval of the Agreement and Plan of Reorganization
and Liquidation and, in accordance with their own discretion, on any other
matters properly brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUND WHICH
RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
1. Not applicable.
2. To approve an Agreement and Plan of Reorganization and Liquidation
providing for (i) the transfer of all of the assets and liabilities of the MSIF
Balanced Portfolio to the MAS Funds ("MAS") Balanced Portfolio in exchange for
shares of the MAS Balanced Portfolio; (ii) the distribution of the MAS Balanced
Portfolio shares so received to shareholders of the MSIF Balanced Portfolio; and
(iii) the termination under state law of the MSIF Balanced Portfolio.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned acknowledges receipt with this proxy of a copy of the Notice
of Special Meeting of Shareholders and the Proxy/ Prospectus.
<PAGE>
This proxy will, when properly executed, be voted as directed herein by the
signing shareholder. IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE AN
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION PROVIDING FOR (I) THE
TRANSFER OF ALL OF THE ASSETS AND LIABILITIES OF THE MSIF BALANCED PORTFOLIO TO
THE MAS BALANCED PORTFOLIO IN EXCHANGE FOR SHARES OF THE MAS BALANCED PORTFOLIO;
(II) THE DISTRIBUTION OF THE MAS BALANCED PORTFOLIO SHARES SO RECEIVED TO
SHAREHOLDERS OF THE MSIF BALANCED PORTFOLIO; AND (III) THE TERMINATION UNDER
STATE LAW OF THE MSIF BALANCED PORTFOLIO, AND WILL BE VOTED IN THE APPOINTED
PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE
THE MEETING.
PLEASE DATE, SIGN AND RETURN PROMPTLY WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND THE MEETING.
Dated: __________________________, 1998
YOUR SIGNATURE(S) ON THIS PROXY SHOULD
BE EXACTLY AS YOUR NAME OR NAMES APPEAR
ON THIS PROXY. IF THE SHARES ARE HELD
JOINTLY, EACH HOLDER SHOULD SIGN. IF
SIGNING IS BY ATTORNEY, EXECUTOR,
ADMINISTRATOR, DIRECTOR OR GUARDIAN,
PLEASE PRINT YOUR FULL TITLE BELOW YOUR
SIGNATURE.
---------------------------------------
Signature
---------------------------------------
Signature