MORGAN STANLEY INSTITUTIONAL FUND INC, 497, 1995-06-30

MORGAN STANLEY INSTITUTIONAL FUND INC
497, 1995-06-30

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<PAGE>
SUPPLEMENT DATED JUNE 30, 1995
TO PROSPECTUS DATED MAY 1, 1995 OF

MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------

The prospectus dated May 1, 1995 (the "Prospectus") of the Fixed Income,
Global Fixed Income, Municipal Bond, Mortgage-Backed Securities, High Yield,
Real Yield, Money Market and Municipal Money Market Portfolios of the Morgan
Stanley Institutional Fund, Inc. (the "Fund") is hereby amended and supplemented
by adding the following paragraph to page 31 before the paragraph with the
heading "REDEMPTION OF SHARES":

EXCESSIVE TRADING. Frequent trades involving either substantial
fund assets or a substantial portion of your account or accounts
controlled by you can disrupt management of a Portfolio and raise its
expenses. Consequently, in the interest of all the stockholders of the
Portfolio and the Portfolio's performance, the Fund may in its
discretion bar a stockholder that engages in excessive trading of shares
of a Portfolio from further purchases of shares of the Fund for an
indefinite period. The Fund considers excessive trading to be more than
one purchase and sale involving shares of the same Portfolio of the Fund
within any 120-day period. For example, exchanging shares of Portfolios
of the Fund as follows: exchanging shares of Portfolio A for shares of
Portfolio B, then exchanging shares of Portfolio B for shares of
Portfolio C and again exchanging shares of Portfolio C for shares of
Portfolio B within a 120-day period amounts to excessive trading. Two
types of transactions are exempt from these excessive trading
restrictions: (1) trades exclusively between money market portfolios;
and (2) trades done in connection with an asset allocation service
managed or advised by MSAM and/or any of its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------

FIXED INCOME PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
MUNICIPAL BOND PORTFOLIO
MORTGAGE-BACKED SECURITIES PORTFOLIO
HIGH YIELD PORTFOLIO
REAL YIELD PORTFOLIO
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-548-7786
----------------
Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and non-diversified series
("portfolios"). The Fund currently consists of twenty-seven portfolios offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of the
portfolios are offered with no sales charge or exchange or redemption fee (with
the exception of one of the portfolios). This Prospectus pertains to eight
portfolios (the "Portfolios") with the following range of investment choices:
(i) UNITED STATES FIXED INCOME FUNDS -- Fixed Income Portfolio, Municipal Bond
Portfolio, Mortgage-Backed Securities Portfolio, and High Yield Portfolio; (ii)
GLOBAL FIXED INCOME FUNDS -- Global Fixed Income Portfolio, and Real Yield
Portfolio; (iii) MONEY MARKET FUNDS -- Money Market Portfolio, and Municipal
Money Market Portfolio.
THE HIGH YIELD PORTFOLIO INVESTS PREDOMINANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS PORTFOLIO. SEE "RISK FACTORS RELATING TO INVESTING IN HIGH YIELD
SECURITIES."
INVESTMENTS IN THE MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE
THAT THE MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTORS SHOULD NOTE THAT THE GLOBAL FIXED INCOME AND REAL YIELD PORTFOLIOS
MAY EACH INVEST UP TO 10% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES.
INVESTMENTS IN RESTRICTED SECURITIES IN EXCESS OF 5% OF A PORTFOLIO'S TOTAL
ASSETS MAY BE CONSIDERED A SPECULATIVE ACTIVITY, MAY INVOLVE GREATER RISK AND
MAY INCREASE THE PORTFOLIO'S EXPENSES.
THE REAL YIELD PORTFOLIO IS NOT CURRENTLY OFFERING SHARES.
The Fund is designed to meet the investment needs of discerning investors
who place a premium on quality and personal service. With Morgan Stanley Asset
Management Inc. as Adviser and Administrator, (the "Adviser" and the
"Administrator") and with Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as Distributor, the Fund makes available to institutional and high net worth
individual investors a series of portfolios which benefit from the investment
expertise and commitment to excellence associated with Morgan Stanley and its
affiliates.
This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under the Prospectus Summary section herein.
The Fund currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Active Country Allocation, Asian Equity, China Growth, Emerging
Markets, European Equity, Global Equity, Gold, International Equity,
International Small Cap, Japanese Equity and Latin American Portfolios; (ii)
U.S. EQUITY -- Aggressive Equity, Emerging Growth, Equity Growth, Small Cap
Value Equity, U.S. Real Estate and Value Equity Portfolios; (iii) BALANCED --
Balanced Portfolio; (iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income,
Global Fixed Income, High Yield, Mortgage-Backed Securities, Municipal Bond and
Real Yield Portfolios; and (v) MONEY MARKET -- Money Market and Municipal Money
Market Portfolios. Additional information about the Fund is contained in a
"Statement of Additional Information" dated May 1, 1995, which is incorporated
herein by reference. The Statement of Additional Information and Prospectuses
pertaining to the other portfolios of the Fund are available upon request and
without charge by writing or calling the Fund at the address and telephone
number set forth above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
<PAGE>
FUND EXPENSES

The following table illustrates all expenses and fees that a shareholder of
the Portfolios indicated below will incur:
<TABLE>
<CAPTION>
GLOBAL MORTGAGE-
FIXED FIXED MUNICIPAL BACKED MONEY
INCOME INCOME BOND SECURITIES HIGH YIELD REAL YIELD MARKET
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases............................... None None None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends............................... None None None None None None None
Deferred Sales Load...................... None None None None None None None
Redemption Fees.......................... None None None None None None None
Exchange Fees............................ None None None None None None None

<CAPTION>
MUNICIPAL
MONEY
MARKET
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO
- ----------------------------------------- -----------
<S> <C>
Maximum Sales Load Imposed on
Purchases............................... None
Maximum Sales Load Imposed on Reinvested
Dividends............................... None
Deferred Sales Load...................... None
Redemption Fees.......................... None
Exchange Fees............................ None

GLOBAL MORTGAGE-
FIXED FIXED MUNICIPAL BACKED MONEY
INCOME INCOME BOND SECURITIES HIGH YIELD REAL YIELD MARKET
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (Net of Fee
Waivers)................................ 0.22%* 0.24%* 0.20%* 0.20%* 0.49%* 0.34%* 0.30%*
Administrative & Shareholder
Account Costs........................... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
12b-1 Fees............................... None None None None None None None
Custody Fees............................. 0.02% 0.05% 0.01% 0.01% 0.02% 0.04% 0.01%
Other Expenses........................... 0.06% 0.06% 0.09% 0.09% 0.09% 0.22% 0.03%
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses (Net of Fee
Waivers)............................ 0.45%* 0.50%* 0.45%* 0.45%* 0.75%* 0.75%* 0.49%*
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

<CAPTION>
MUNICIPAL
MONEY
MARKET
ANNUAL FUND OPERATING EXPENSES PORTFOLIO
- ----------------------------------------- -----------
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
<S> <C>
Investment Advisory Fee (Net of Fee
Waivers)................................ 0.30%*
Administrative & Shareholder
Account Costs........................... 0.15%
12b-1 Fees............................... None
Custody Fees............................. 0.02%
Other Expenses........................... 0.04%
-----------
Total Operating Expenses (Net of Fee
Waivers)............................ 0.51%*
-----------
-----------
<FN>

- ------------------
*The Adviser has agreed to a reduction in the fees payable to it as Adviser and
to reimburse the Portfolios, if necessary, if such fees would cause any of such
Portfolios' total annual operating expenses to exceed specified percentages of
their respective average daily net assets. Set forth below are the maximum
total operating expenses after fee waivers and/or expenses reimbursements and
total operating expenses absent such fee waivers and/or reimbursements, each
stated as a percent of average daily net assets:
</TABLE>

<TABLE>
<CAPTION>
MAXIMUM TOTAL
OPERATING EXPENSES TOTAL OPERATING EXPENSES
PORTFOLIO AFTER FEE WAIVERS ABSENT FEE WAIVERS
- ----------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Fixed Income........................................ 0.45% 0.58%
Global Fixed Income................................. 0.50% 0.66%
Municipal Bond...................................... 0.45% 0.60%+
Mortgage-Backed Securities.......................... 0.45% 0.60%+
High Yield.......................................... 0.75% 0.76%
Real Yield.......................................... 0.75% 0.91%+
Money Market........................................ 0.55% 0.49%++
Municipal Money Market.............................. 0.57% 0.51%++

<FN>
- --------------
+Estimated.
++No fee/expense reimbursement was in effect for this Portfolio for the year
ended December 31, 1994.
</TABLE>

These reductions became or will become effective as of the inception of each
Portfolio. As a result of these reductions, the Investment Advisory Fees stated
above are lower than the contractual fees stated under "Management of the Fund."
For further information on Fund expenses see "Management of the Fund."

2
<PAGE>
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Fund will bear directly or indirectly.
The fees and expenses for the Fixed Income, Global Fixed Income, High Yield,
Money Market and Municipal Money Market Portfolios are based on actual figures
for the fiscal year ended December 31, 1994. The fees and expenses for the
Municipal Bond, Mortgage-Backed Securities and Real Yield Portfolios are based
on estimates and assume that the average daily net assets will be $50,000,000
with respect to each of such Portfolios. "Other Expenses" include Board of
Directors' fees and expenses, amortization of organizational costs, professional
fees, filing fees, and costs for reports to shareholders.

The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the Portfolios charge
no redemption fees of any kind. The following example is based on total
operating expenses of the Portfolios after fee waivers.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed Income Portfolio........................................... $ 5 $ 14 $ 25 $ 57
Global Fixed Income.............................................. 5 16 28 63
Municipal Bond Portfolio......................................... 5 14 * *
Mortgage-Backed Securities Portfolio............................. 5 14 * *
High Yield Portfolio............................................. 8 24 42 93
Real Yield Portfolio............................................. 8 24 * *
Money Market Portfolio........................................... 5 16 27 62
Municipal Money Market Portfolio................................. 5 16 29 64

<FN>
- --------------
*Because the Municipal Bond, Mortgage-Backed Securities and Real Yield
Portfolios were not operational as of the Fund's fiscal year end, the Fund has
not projected expenses beyond the three-year period shown.
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The Fund intends to continue to comply with all state laws that restrict
investment company expenses. Currently, the most restrictive state law requires
that the aggregate annual expenses of an investment company shall not exceed two
and one-half percent (2 1/2%) of the first $30 million of average net assets,
two percent (2%) of the next $70 million of average net assets, and one and
one-half percent (1 1/2%) of the remaining net assets of such investment
company.

The Adviser has agreed to a reduction in the amounts payable to it, and to
reimburse any Portfolio, if necessary, if in any fiscal year the sum of the
Portfolio's expenses exceeds the limit set by applicable state law.

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Fixed Income,
Global Fixed Income, High Yield, Money Market and Municipal Money Market
Portfolios for each of the periods presented and are part of the Fund's
financial statements which appear in the Fund's December 31, 1994 Annual Report
to Shareholders, and which are incorporated by reference into the Fund's
Statement of Additional Information. The financial highlights for each of the
periods presented have been audited by Price Waterhouse LLP, whose report
thereon was unqualified and is also incorporated by reference into the Statement
of Additional Information. Additional performance information for the Fixed
Income, Global Fixed Income, High Yield, Money Market and Municipal Money Market
Portfolios is contained in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. The Municipal Bond,
Mortgage-Backed Securities and Real Yield Portfolios were not operational as of
December 31, 1994. Subsequent to October 31, 1992, the Fund changed its fiscal
year end to December 31. The Real Yield Portfolio ceased offering shares and
terminated its operations as of August 26, 1994. The following information
should be read in conjunction with the financial statements and notes thereto.

FIXED INCOME PORTFOLIO

<TABLE>
<CAPTION>
TWO MONTHS
MAY 15, 1991 YEAR ENDED ENDED YEAR ENDED YEAR ENDED
TO OCTOBER OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
31, 1991 1992 1992 1993 1994
------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 10.00 $ 10.55 $ 10.92 $ 10.93 $ 11.05
------------ ----------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)................ 0.22 0.69 0.10 0.54 0.59
Net Realized and Unrealized Gain/(Loss)
on Investments.......................... 0.49 0.39 0.01 0.41 (0.92)
------------ ----------- ------------- ------------- -------------
Total from Investment Operations......... 0.71 1.08 0.11 0.95 (0.33)
------------ ----------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income.................... (0.16) (0.69) (0.10) (0.56) (0.53)
In Excess of Net Investment Income....... -- -- -- (0.01) --
Net Realized Gain........................ -- (0.02) -- (0.26) (0.37)
In Excess of Net Realized Gain........... -- -- -- -- (0.00)
------------ ----------- ------------- ------------- -------------
Total Distributions...................... (0.16) (0.71) (0.10) (0.83) (0.90)
------------ ----------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD............. $ 10.55 $ 10.92 $ 10.93 $ 11.05 $ 9.82
------------ ----------- ------------- ------------- -------------
------------ ----------- ------------- ------------- -------------
TOTAL RETURN............................... 7.12% 10.61% 1.02% 9.07% (3.10)%
------------ ----------- ------------- ------------- -------------
------------ ----------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).... $72,326 $146,546 $154,210 $240,668 $209,331
Ratio of Expenses to Average Net Assets
(1)(2).................................. 0.45%** 0.45% 0.45%** 0.45% 0.45%
Ratio of Net Investment Income to Average
Net Assets (1)(2)....................... 7.29%** 6.59% 5.56%** 4.97% 5.73%
Portfolio Turnover Rate.................. 48% 105% 15% 240% 388%

<FN>
- ---------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income.................................... $ 0.01 $ 0.02 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net
Assets............................... 0.81%** 0.59% 0.75%** 0.60% 0.58%
Net Investment Income to Average Net
Assets............................... 6.93%** 6.45% 5.26%** 4.82% 5.60%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.35%
of the average daily net assets of the Fixed Income Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.45% of the average daily net assets of the Portfolio. In the period
ended October 31, 1991, the year ended October 31, 1992, the two month
period ended December 31, 1992, and the years ended December 31, 1993 and
1994, the Adviser waived advisory fees and/or reimbursed expenses totalling
$69,000, $165,000, $74,000, $307,000 and $276,000, respectively, for the
Fixed Income Portfolio.

* Commencement of Operations.

** Annualized.
</TABLE>

4
<PAGE>
GLOBAL FIXED INCOME PORTFOLIO

<TABLE>
<CAPTION>
MAY 1, 1991* YEAR ENDED TWO MONTHS YEAR ENDED YEAR ENDED
TO OCTOBER OCTOBER 31, ENDED DECEMBER DECEMBER 31, DECEMBER 31,
31, 1991 1992 31, 1992 1993 1994
------------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00 $ 10.61 $ 11.41 $ 11.26 $ 11.68
------------ ------- ------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).............. 0.16 0.53 0.14 0.69 0.70
Net Realized and Unrealized Gain (Loss)
on Investments........................ 0.45 0.55 (0.29) 0.90 (1.38)
------------ ------- ------- ------------- -------------
Total from Investment Operations......... 0.61 1.08 (0.15) 1.59 (0.68)
------------ ------- ------- ------------- -------------
DISTRIBUTIONS
Net Investment Income.................. -- (0.27) -- (0.79) (0.40)
In Excess of Net Investment Income..... -- -- -- (0.22) --
Net Realized Gain...................... -- (0.01) -- (0.16) (0.31)
------------ ------- ------- ------------- -------------
Total Distributions...................... -- (0.28) -- (1.17) (0.71)
------------ ------- ------- ------------- -------------
NET ASSET VALUE, END OF PERIOD........... $ 10.61 $ 11.41 $ 11.26 $ 11.68 $ 10.29
------------ ------- ------- ------------- -------------
------------ ------- ------- ------------- -------------
TOTAL RETURN............................. 6.10% 10.29% (1.31)% 15.34% (6.08)%
------------ ------- ------- ------------- -------------
------------ ------- ------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).... $28,236 $94,847 $92,897 $172,468 $130,675
Ratio of Expenses to Average Net Assets
(1)(2).................................. 0.50%** 0.50% 0.50%** 0.50% 0.50%
Ratio of Net Investment Income to Average
Net Assets (1)(2)....................... 7.24%** 6.92% 6.99%** 5.99% 6.34%
Portfolio Turnover Rate.................. 20% 144% 9% 108% 171%
<FN>
- ---------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income............................. $ 0.02 $ 0.03 $ 0.01 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets....... 1.62%** 0.86% 0.90%** 0.70% 0.66%
Net Investment Income to Average Net
Assets............................. 6.12%** 6.56% 6.59%** 5.79% 6.18%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.40% of
the average daily net assets of the Global Fixed Income Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.50% of the average daily net assets of the Portfolio. In the fiscal
period ended October 31, 1991, the year ended October 31, 1992, the two months
ended December 31, 1992, and the years ended December 31, 1993 and 1994, the
Adviser waived advisory fees and/or reimbursed expenses totalling $67,000,
$201,000, $64,000, $260,000 and $238,000, respectively, for the Global Fixed
Income Portfolio.

* Commencement of Operations.

** Annualized.
</TABLE>

5
<PAGE>
HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
SEPTEMBER 28, TWO MONTHS
1992 ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 10.00 $ 9.77 $ 9.95 $ 11.16
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).......................... 0.08 0.14 0.90 0.97
Net Realized and Unrealized Gain/(Loss) on
Investments....................................... (0.31) 0.19 1.21 (1.40)
------- ------- ------- -------
Total from Investment Operations................... (0.23) 0.33 2.11 (0.43)
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income.............................. -- (0.15) (0.90) (0.97)
Net Realized Gain.................................. -- -- -- (0.21)
------- ------- ------- -------
Total Distributions................................ -- (0.15) (0.90) (1.18)
NET ASSET VALUE, END OF PERIOD....................... $ 9.77 $ 9.95 $ 11.16 $ 9.55
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN......................................... (2.30)% 3.41% 22.11% (4.18)%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............. $16,950 $20,194 $74,500 $97,223
Ratio of Expenses to Average Net Assets (1)(2)..... 0.75%** 0.75%** 0.75% 0.75%
Ratio of Net Investment Income to Average Net
Assets (1)(2)..................................... 9.89%** 8.96%** 8.70% 9.42%
Portfolio Turnover Rate............................ 9% 24% 104% 74%
<FN>
- ---------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income....... $ 0.01 $ 0.01 $ 0.02 $ 0.001
Ratios before expense limitation:
Expenses to Average Net Assets................... 1.23%** 1.62%** 0.96% 0.76%
Net Investment Income to Average Net Assets...... 9.41%** 8.09%** 8.49% 9.41%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.50%
of the average daily net assets of the High Yield Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.75% of the average daily net assets of the Portfolio. In the period
ended October 31, 1992, the two months ended December 31, 1992, and the
years ended December 31, 1993 and 1994, the Adviser waived advisory fees
and/or reimbursed expenses totalling $22,000, $27,000, $82,000 AND $7,000,
respectively, for the High Yield Portfolio.

* Commencement of Operations.

** Annualized.

</TABLE>

6
<PAGE>
MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
NOVEMBER 15, TWO MONTHS
1988* TO YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1989 1990 1991 1992 1992 1993 1994
------------- ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- ----------- ----------- ----------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1)..... 0.085 0.079 0.062 0.039 0.005(1) 0.027(1) 0.040
------------- ----------- ----------- ----------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income......... (0.085) (0.079) (0.062) (0.039) (0.005) (0.027) (0.040)
In Excess of Net Investment
Income....................... -- -- -- -- -- (0.000) --
------------- ----------- ----------- ----------- ------------- ------------- -------------
Total Distributions........... (0.085) (0.079) (0.062) (0.039) (0.005) (0.027) (0.040)
------------- ----------- ----------- ----------- ------------- ------------- -------------
NET ASSET VALUE, END OF
PERIOD......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- ----------- ----------- ----------- ------------- ------------- -------------
------------- ----------- ----------- ----------- ------------- ------------- -------------
TOTAL RETURN.................... 8.81% 8.16% 6.37% 3.77% 0.50% 2.76% 3.84%
------------- ----------- ----------- ----------- ------------- ------------- -------------
------------- ----------- ----------- ----------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).................... $ 158,582 $ 516,182 $ 607,087 $ 612,968 $ 599,172 $ 657,163 $ 690,503
Ratio of Expenses to Average Net
Assets (1)(2).................. 0.55%** 0.55% 0.53% 0.52% 0.55%** 0.53% 0.49%
Ratio of Net Investment Income
to Average Net Assets (1)(2)... 8.80%** 7.87% 6.11% 3.74% 3.11%** 2.71% 3.77%
Portfolio Turnover Rate......... N/A N/A N/A N/A N/A N/A N/A
<FN>
- ------------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income..................... $ 0.001 $ 0.000 N/A N/A $ 0.000 $ 0.000 N/A
Ratios before expense limitation:
Expenses to Average Net
Assets......................... 0.64%** 0.58% N/A N/A 0.59%** 0.54% N/A
Net Investment Income to
Average
Net Assets................. 8.71%** 7.85% N/A N/A 3.07%** 2.70% N/A

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.30%
of the average daily net assets of the Money Market Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed a set percentage (currently set at 0.55%) of the average daily net
assets of the Portfolio. The Adviser did not waive fees or reimburse
expenses for the years ended October 31, 1991, October 31, 1992 and December
31, 1994. In the year ended October 31, 1990, the two months ended December
31, 1992, and the year ended December 31, 1993, the Adviser waived advisory
fees and/or reimbursed expenses totalling approximately $110,000, $75,000,
$37,000 and $18,000 respectively.
* Commencement of Operations.
** Annualized.
</TABLE>

7
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
FEBRUARY 10, TWO MONTHS
1989* TO YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1989 1990 1991 1992 1992 1993 1994
------------ ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ----------- ----------- ----------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)...... 0.046 0.054 0.043 0.026 0.004 0.019 0.020
------------ ----------- ----------- ----------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income.......... 0.046 (0.054) (0.043) (0.026) (0.004) (0.019) (0.020)
In Excess of Net Investment
Income........................ -- -- -- -- -- (0.000) --
------------ ----------- ----------- ----------- ------------- ------------- -------------
Total Distributions............ (0.046) (0.054) (0.043) (0.026) (0.004) (0.019) (0.020)
------------ ----------- ----------- ----------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ----------- ----------- ----------- ------------- ------------- -------------
------------ ----------- ----------- ----------- ------------- ------------- -------------
TOTAL RETURN..................... 4.6% 5.51% 4.35% 2.74% 0.37% 1.91% 2.44%
------------ ----------- ----------- ----------- ------------- ------------- -------------
------------ ----------- ----------- ----------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)..................... $ 38,540 $ 102,195 $ 166,953 $ 206,691 $ 208,866 $ 266,524 $ 359,444
Ratio of Expenses to Average Net
Assets (1)(2)................... 0.32%** 0.51% 0.56% 0.55% 0.57%** 0.54% 0.51%
Ratio of Net Investment Income to
Average Net Assets (1)(2)....... 6.05%** 5.38% 4.18% 2.66% 2.31%** 1.89% 2.42%
Portfolio Turnover Rate.......... N/A N/A N/A N/A N/A N/A N/A
<FN>
- ---------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income........... $ 0.002 $ 0.001 N/A N/A $ 0.000 $ 0.000 N/A
Ratios before expense limitation:
Expenses to Average
Net Assets.................. 0.74%** 0.63% N/A N/A 0.67%** 0.56% N/A
Net Investment Income to
Average Net Assets.......... 5.63%** 5.26% N/A N/A 2.21%** 1.87% N/A

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.30%
of the average daily net assets of the Municipal Money Market Portfolio. The
Adviser has agreed to waive a portion of this fee and/or reimburse expenses
of the Portfolio to the extent that the total operating expenses of the
Portfolio exceed a set percentage (currently set at 0.57%) of the average
daily net assets of the Portfolio. The Adviser did not waive fees or
reimburse expenses for the years ended October 31, 1991, October 31, 1992
and December 31, 1994. In the period ended October 31, 1989, the year ended
October 31, 1990, the two months ended December 31, 1992, and the year ended
December 31, 1993, the Adviser waived advisory fees and/or reimbursed
expenses totalling approximately $75,000, $92,000, $36,000 and $46,000,
respectively.

* Commencement of Operations.

** Annualized.

</TABLE>

8
<PAGE>
PROSPECTUS SUMMARY

THE FUND

The Fund consists of twenty-seven portfolios, offering institutional and
high net worth individual investors a broad range of investment choices coupled
with the advantages of a no-load mutual fund with Morgan Stanley and its
affiliates providing customized services as Adviser, Administrator and
Distributor. Each portfolio has its own investment objectives and policies
designed to meet its specific goals. This Prospectus pertains to the Fixed
Income, Global Fixed, Municipal Bond, Mortgage-Backed Securities, High Yield,
Real Yield, Money Market and Municipal Money Market Portfolios (the Real Yield
Portfolio is not currently offering shares):

-The FIXED INCOME PORTFOLIO seeks to produce a high total return consistent
with the preservation of capital by investing in a diversified portfolio of
fixed income securities.

-The GLOBAL FIXED INCOME PORTFOLIO seeks to produce an attractive real rate
of return while preserving capital by investing in fixed income securities
of issuers throughout the world, including U.S. issuers.

-The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with preservation of principal through investment
primarily in municipal obligations, the interest on which is exempt from
federal income tax.

-The MORTGAGE-BACKED SECURITIES PORTFOLIO seeks to produce as high a level
of current income as is consistent with the preservation of capital by
investing primarily in a variety of investment-grade mortgage-backed
securities.

-The HIGH YIELD PORTFOLIO seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the three
highest rating categories of the recognized rating services.

-The REAL YIELD PORTFOLIO seeks to produce a high total return consistent
with preservation of capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.

-The MONEY MARKET PORTFOLIO seeks to maximize current income and preserve
capital while maintaining high levels of liquidity through investing in
high quality money market instruments with remaining maturities of one year
or less.

-The MUNICIPAL MONEY MARKET PORTFOLIO seeks to maximize current tax-exempt
income and preserve capital while maintaining high levels of liquidity
through investing in high quality money market instruments with remaining
maturities of one year or less which are exempt from federal income tax.

The other portfolios of the Fund are described in other prospectuses which
may be obtained from the Fund at the address and telephone number noted on the
cover page of this Prospectus. The objectives of these other portfolios are
listed below:

GLOBAL AND INTERNATIONAL EQUITY:

-The ACTIVE COUNTRY ALLOCATION PORTFOLIO seeks long-term capital
appreciation by investing in accordance with country weightings determined
by the Adviser in common stocks of non-U.S. issuers which, in the
aggregate, replicate broad country indices.

-The ASIAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of Asian issuers.

-The CHINA GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in the equity securities of issuers in The People's
Republic of China, Hong Kong and Taiwan.

9
<PAGE>
-The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of emerging country issuers.

-The EUROPEAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of European issuers.

-The GLOBAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of issuers throughout the world,
including U.S. issuers.

-The GOLD PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of foreign and domestic issuers engaged in
gold-related activities.

-The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of non-U.S. issuers.

-The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in common stocks of non-U.S. issuers with equity
market capitalizations of less than $500 million.

-The JAPANESE EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Japanese issuers.

-The LATIN AMERICAN PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Latin American issuers and debt
securities issued or guaranteed by Latin American governments or
governmental entities.

U.S. EQUITY:

-The AGGRESSIVE EQUITY PORTFOLIO seeks capital appreciation by investing
primarily in corporate equity and equity-linked securities.

-The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented common stocks of small- to
medium-sized corporations.

-The EQUITY GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented common stocks of medium and large
capitalization companies.

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued common stocks of small- to medium-sized companies.

-The U.S. REAL ESTATE PORTFOLIO seeks to provide above average current
income and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.

-The VALUE EQUITY PORTFOLIO seeks high total return by investing in common
stocks which the Adviser believes to be undervalued relative to the stock
market in general at the time of purchase.

BALANCED:

-The BALANCED PORTFOLIO seeks high total return while preserving capital by
investing in a combination of undervalued common stocks and fixed income
securities.

FIXED INCOME:

-The EMERGING MARKETS DEBT PORTFOLIO seeks high current income, and
secondarily, capital appreciation, by investing primarily in debt
securities of government, government-related and corporate issuers located
in emerging countries.

10
<PAGE>
INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc., a wholly owned subsidiary of Morgan
Stanley Group Inc., which, together with its affiliated asset management
companies, at December 31, 1994 had approximately $48.7 billion in assets under
management as an investment manager or as a fiduciary adviser, acts as
investment adviser to the Fund and each of its portfolios. See "Management of
the Fund -- Investment Adviser" and "Management of the Fund -- Administrator."

HOW TO INVEST

Shares of each Portfolio are offered directly to investors at net asset
value with no sales commission or 12b-1 charges. While each of the Money Market
and Municipal Money Market Portfolios expects to maintain a net asset value per
share of $1.00, there can be no assurance that either Portfolio can maintain a
net asset value of $1.00 per share. Share purchases may be made by sending
investments directly to the Fund. The minimum initial investment for each of the
Fixed Income, Global Fixed Income, Municipal Bond, Mortgage-Backed Securities,
High Yield and Real Yield Portfolios is $500,000; the minimum initial investment
for each of the Money Market and Municipal Money Market Portfolios is $50,000.
The minimum subsequent investment is $1,000 for each Portfolio (except for
automatic reinvestment of dividends and capital gains distributions for which
there is no minimum). The minimum investment levels may be waived for certain
Morgan Stanley employees and customers at the discretion of the Adviser,
including those who participate in the Automatic Purchase of Portfolio Shares
program. See "Purchase of Shares."

HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of the Portfolio next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. If a shareholder reduces its total investment in shares of the Fixed
Income, Municipal Bond, Mortgage-Backed Securities, High Yield or Real Yield
Portfolios to less than $500,000, or of the Money Market or Municipal Money
Market Portfolios to less than $10,000, the investment may be subject to
redemption. See "Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. The Fixed Income, Global
Fixed Income, High Yield, Real Yield and Money Market Portfolios may invest in
securities of foreign issuers, which are subject to certain risks not typically
associated with U.S. securities. In addition, the High Yield Portfolio may
invest in lower rated and unrated securities which are subject to risk factors.
In particular: (1) adverse economic and corporate changes and changes in
interest rates may have a greater impact on issuers of such securities and may
lead to greater price volatility, and (2) such securities may be more difficult
to value accurately or sell in the secondary market. See "Investment Objectives
and Policies" and "Additional Investment Information." In addition, each
Portfolio may invest in repurchase agreements, lend its portfolio securities and
purchase securities on a when-issued or delayed delivery basis. The Money Market
Portfolio may invest in reverse repurchase agreements. Each Portfolio, except
the Global Fixed Income and Real Yield Portfolios, may invest in futures
contracts and options on futures contracts. The Fixed Income, Global Fixed
Income, High Yield and Real Yield Portfolios may invest in forward foreign
currency exchange contracts to hedge currency risks associated with investment
in non-U.S. dollar denominated securities. The Municipal Money Market Portfolio
may invest in "puts" on municipal bonds or notes and the Municipal Bond and
Municipal Money Market Portfolios may invest up to 20% of such Portfolios' total
assets in taxable securities. Each of these investment strategies involves
specific risks which are described under "Investment Objectives and Policies"
and "Additional Investment Information" herein and under "Investment Objectives
and Policies" in the Statement of Additional Information.

11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objectives of each Portfolio are described below, together
with the policies the Fund employs in its efforts to achieve these objectives.
Each Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Portfolio will attain its objectives.
The investment policies described below are not fundamental policies unless
otherwise noted and may be changed without shareholder approval.

THE FIXED INCOME PORTFOLIO

The Portfolio seeks to produce a high total return consistent with the
preservation of capital by investing primarily in a diversified portfolio of
U.S. Government securities, corporate bonds (including competitively priced
Eurodollar bonds), mortgage backed securities and other fixed income securities,
such as certificates of deposit and short-term money market instruments. Short-
and intermediate-term bonds form the core of the Portfolio, and long-term bonds
(i.e., those with maturities over ten years) are purchased on a short-term
opportunistic basis when the Adviser believes they will enhance return without
significantly increasing risk. The Adviser sets an annual target rate of return
for the Portfolio based on current and projected market and economic conditions
and manages the Portfolio conservatively -- primarily through gradual shifts in
maturities in attempting to achieve this target rate.

Emphasis in the Portfolio will be on U.S. Government and mortgage-backed
securities. Typically, between 50% and 75% of the Portfolio's total assets will
be invested in these securities. When corporate bonds are purchased, they will
generally be rated in the two highest rating categories by Moody's Investors
Service, Inc. ("Moody's") (Aaa or Aa) or Standard & Poor's Corporation ("S&P")
(AAA or AA). The Portfolio will not invest in a corporate security if at the
time of investment the security is not rated at least investment grade by either
rating agency. Although U.S. dollar-denominated securities will represent the
major portion of the Portfolio, up to 15% of the Portfolio may be invested in
foreign currency obligations of corporate and governmental issuers when the
Adviser feels that the currency component and underlying market characteristics
of such obligations will add value to the Portfolio.

For information about these and other permitted investment practices, see
"Additional Investment Information" in this Prospectus.

THE GLOBAL FIXED INCOME PORTFOLIO

The Global Fixed Income Portfolio seeks to produce an attractive real rate
of return while preserving capital by investing in fixed income securities of
U.S. and foreign issuers denominated in U.S. dollars and in other currencies.
The Portfolio seeks to achieve its objectives by investing in U.S. government
securities, foreign government securities, securities of supranational entities,
Eurobonds, and corporate bonds with varying maturities denominated in various
currencies. In selecting portfolio securities, the Adviser evaluates the
currency, market, and individual features of the securities being considered for
investment. At least 65% of the total assets of the Portfolio will be invested
in fixed income securities under normal circumstances.

The Adviser seeks to minimize investment risk by investing only in high
quality debt securities. U.S. Government securities that the Portfolio may
invest in include obligations issued or guaranteed by the U.S. Government, such
as U.S. Treasury securities, as well as those backed by the full-faith and
credit of the U.S., such as obligations of the Government National Mortgage
Association and The Export-Import Bank. The Portfolio may also invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Portfolio must look principally to the issuing or
guaranteeing agency for ultimate repayment. The Portfolio may

12
<PAGE>
invest in obligations issued or guaranteed by foreign governments and their
political subdivisions, authorities, agencies or instrumentalities, and by
supranational entities (such as the World Bank, The European Economic Community,
The Asian Development Bank and the European Coal and Steel Community).
Investment in foreign government securities will be limited to those of
developed nations which the Adviser believes to pose limited credit risk. These
countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand,
Norway, Spain, Sweden, Switzerland, The United Kingdom and Germany. Corporate
and supranational obligations which the Portfolio will invest in will be limited
to those rated A or better by Moody's Investors Service, Inc., Standard & Poor's
Corporation or IBCA Ltd., or if unrated, to those that are of comparable quality
in the determination of the Board of Directors and the Adviser.

The Adviser's approach to multicurrency fixed-income management is strategic
and value-based and designed to produce an attractive real rate of return. The
Adviser's assessment of the bond markets and currencies is based on an analysis
of real interest rates. Current nominal yields of securities are adjusted for
inflation prevailing in each currency sector using an analysis of past and
projected inflation rates. The Portfolio's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.

The Portfolio will have a neutral investment position in medium-term
securities (I.E., those with a remaining maturity of between three and seven
years) and will respond to changing interest rate levels by shortening or
lengthening portfolio maturity through investment in longer or shorter term
instruments. For example, the Portfolio will respond to high levels of real
interest rates through a lengthening in portfolio maturity. Current and
historical yield spreads among the three main market segments -- the Government,
Foreign and Euro markets -- guide the Adviser's selection of markets and
particular securities within those markets. The analysis of currencies is made
independent of the analysis of markets. Value in foreign exchange is determined
by relative purchasing power parity of a given currency. The Portfolio seeks to
invest in currencies currently undervalued based on purchasing power parity. The
Adviser analyzes current account and capital account performance and real
interest rates to adjust for shorter-term currency flows.

The Portfolio seeks to maintain portfolio turnover at a low level. Although
the Portfolio's primary objective is not to invest for short-term trading, the
Portfolio will seek to take advantage of trading opportunities as they arise to
the extent that they are consistent with the Portfolio's objectives. It is
anticipated that the Portfolio's annual turnover rate will not exceed 100% in
normal circumstances, but the Portfolio's annual turnover rate may exceed 100%.
An annual turnover rate that exceeds 100% involves correspondingly greater
brokerage commissions or transaction costs which will be borne directly by the
Portfolio. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Portfolio.

The Portfolio will occasionally enter into forward currency exchange
contracts. These are used to hedge foreign currency exchange exposures when
required. See "Forward Currency Exchange Contracts" in this Prospectus and
"Investment Objectives and Policies -- Forward Currency Exchange Contracts" in
the Statement of Additional Information.

THE MUNICIPAL BOND PORTFOLIO

The Portfolio seeks high current income consistent with preservation of
principal through investment in a portfolio consisting primarily of
intermediate- and long-term investment grade Municipal Obligations, the interest
on which is exempt from federal income tax. "Municipal Obligations" include
notes, bonds and other securities issued by or on behalf of states, territories
and possessions of the U.S. and the District of Columbia,

13
<PAGE>
and their political subdivisions, agencies and instrumentalities, the interest
on such Obligations, in the opinion of counsel for the issuer or the Portfolio,
is exempt from federal income tax. See the Statement of Additional Information
for a further description of Municipal Obligations.

The Portfolio will only invest in Municipal Obligations that are "investment
grade securities." Investment grade securities are (i) bonds rated within one of
the four highest rating categories of Moody's (Aaa, Aa, A or Baa) or S&P (AAA,
AA, A or BBB); (ii) notes rated within one of the two highest rating categories
of Moody's (MIG1 or MIG2) or one of the two highest rating categories of S&P
(SP-1 or SP-2); (iii) commercial paper rated P-1 or P-2 by Moody's or A-1 or A-2
by S&P; (iv) variable rate securities rated VMIG1 or VMIG2 by Moody's; and (iv)
unrated Municipal Obligations that the Adviser believes are of comparable
quality to securities in the foregoing rating categories. See the Statement of
Additional Information for a further description of these rating categories.
Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics.

Under normal market conditions, the Portfolio will invest at least 80% of
its net assets in Municipal Obligations (or futures contracts or options on
futures relating thereto), which at the time of investment are "investment grade
securities." This policy is fundamental and may not be changed without the
approval of a majority of the Portfolio's outstanding voting securities. In
addition, under normal market conditions, at least 65% of the Portfolio's net
assets will be invested in such Municipal Obligations having an initial maturity
of more than one year.

Although there are no maturity restrictions on the Municipal Obligations in
which the Portfolio invests, it is currently anticipated that the average
maturity of the Portfolio will range between 7 and 20 years. The Adviser will
actively manage the Portfolio, and adjust the average maturity thereof
(including the use of futures contracts and options on futures), depending on
its assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. During
periods of rising interest rates and declining prices, the average maturity of
the Portfolio may be shorter, while during periods of declining interest rates
and rising prices, the Portfolio may have a longer average maturity.

The Portfolio may also invest up to 20% of its net assets in cash, cash
equivalents, U.S. Government Securities and taxable corporate "investment grade
securities." U.S. Government Securities consist of direct obligations of the
U.S. Treasury and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by
agencies or instrumentalities may be backed by the full faith and credit of the
United States (such as securities issued by the Government National Mortgage
Association), or supported by the issuing agency's right to borrow from the U.S.
Treasury (such as Federal Home Loan Banks), or backed only by the credit of the
issuing instrumentality (e.g., the Federal National Mortgage Association). In
addition, for temporary defensive purposes, the Portfolio may invest part or all
of its assets in cash or in short-term securities, including certificates of
deposit, commercial paper, U.S. Government Securities and repurchase agreements
involving such government securities. The Portfolio will not invest more than
20% of its net assets in Municipal Obligations the interest on which is subject
to alternative minimum tax.

For information about these and other permitted investment practices, see
"Additional Investment Information" in this Prospectus.

THE MORTGAGE-BACKED SECURITIES PORTFOLIO

The Portfolio seeks to produce as high a level of current income as is
consistent with preservation of capital by investment primarily in
mortgage-backed securities either (i) issued or guaranteed by the U.S.
Government or (ii) rated A or higher by Moody's or S&P, or if unrated,
determined by the Adviser to be of comparable quality.

14
<PAGE>
"Mortgage-backed securities" are securities that, directly or indirectly,
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including governmental pass-through securities such as those
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Unlike GNMA certificates, FNMA and FHLMC
obligations are not backed by the full faith and credit of the U.S. government;
they are supported by the issuing instrumentality's right to borrow from the
U.S. Treasury. Each of GNMA, FNMA and FHLMC guarantees timely distributions of
interest to certificate holders and GNMA and FNMA also guarantee timely
distributions of scheduled principal. Mortgage-backed securities also include
collateralized mortgage obligations ("CMOs") and pass-through securities issued
or guaranteed by private sector entities. CMOs are debt obligations or
pass-through certificates issued by agencies or instrumentalities of the U.S.
government or by private originators or investors in mortgage loans. CMOs are
backed by mortgage pass-through securities or whole loans and are evidenced by a
series of bonds or certificates issued in multiple classes or tranches. Private
pass-through securities are issued by private originators of or investors in
mortgage loans and are structured similarly to governmental pass-through
securities. Because private pass-throughs typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality,
they are generally structured with one or more types of credit enhancement. See
the Statement of Additional Information for a further description of
Mortgage-Backed Securities.

The Portfolio will only invest in mortgage-backed securities that are either
(i) issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities or (ii) at the time of investment rated within one of the
three highest rating categories of Moody's (Aaa, Aa or A) or S&P (AAA, AA or A),
or if unrated, determined by the Adviser to be of comparable quality. Under
normal market conditions, the Adviser expects that at least 75% of the
Portfolio's net assets will be invested in mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or rated
Aaa by Moody's or AAA by S&P. Up to 15% of the Portfolio's net assets may be
invested in mortgage-backed securities rated A by Moody's or S&P.

The Adviser expects that short- and intermediate-term mortgage-backed
securities will form the core of the Portfolio, with long-term securities (i.e.,
with maturities over ten years) being purchased when the Adviser believes that
they will enhance return without significantly increasing risk. The Adviser sets
an annual target rate of return for the Portfolio based on current and projected
market and economic conditions and manages the Portfolio conservatively --
primarily through gradual shifts in maturities -- in attempting to achieve this
target rate.

The Portfolio may also invest up to 25% of its net assets in cash, cash
equivalents or other short-term securities, including certificates of deposit,
commercial paper and money market instruments, U.S. Government securities and
repurchase agreements involving such government securities. In addition, the
Portfolio may invest up to all of its assets in cash and such instruments for
temporary defensive purposes. For information about these and other permitted
investment practices, see "Additional Investment Information" in this
Prospectus.

THE HIGH YIELD PORTFOLIO

The Portfolio seeks to maximize total return by investing in a diversified
portfolio of high yield fixed income securities that offer a yield above that
generally available on debt securities in the three highest rating categories of
the recognized rating services. The Portfolio normally invests between 80% and
100% of its total assets in

15
<PAGE>
these higher yielding securities, which generally entails increased credit and
market risk. To mitigate these risks the Portfolio will diversify its holdings
by issuer, industry and credit quality, but investors should carefully review
the section below entitled "Risk Factors Relating to Investing in High Yield
Securities."

Appendix A to this Prospectus sets forth a description of the corporate bond
rating categories of Moody's and S&P. Corporate bonds rated below Baa by Moody's
or BBB by S&P are considered speculative. Securities in the lowest rating
categories may have predominantly speculative characteristics or may be in
default. Ratings of S&P and Moody's represent their opinions of the quality of
bonds and other debt securities they undertake to rate at the time of issuance.
However, ratings are not absolute standards of quality and may not reflect
changes in an issuer's creditworthiness. Accordingly, although the Adviser will
consider ratings, it will perform its own analysis and will not rely principally
on ratings. The Adviser will consider, among other things, the price of the
security, and the financial history and condition, the prospects and the
management of an issuer in selecting securities for the Portfolio. The Portfolio
may buy unrated securities that the Adviser believes are comparable to rated
securities and are consistent with the Portfolio's objective and policies. The
Adviser may vary the average maturity of the securities in the Portfolio without
limit and there is no restriction on the maturity of any individual security.

The Portfolio may acquire fixed income securities of both U.S. and foreign
issuers, including debt obligations (e.g., bonds, debentures, notes, equipment
lease certificates, equipment trust certificates, conditional sales contracts,
commercial paper and obligations issued or guaranteed by the U.S. Government,
any foreign government with which the United States maintains relations or any
of their respective political subdivisions, agencies or instrumentalities) and
preferred stock. The Portfolio may not invest more than 5% of its total assets
at time of acquisition in either (1) equipment lease certificates, equipment
trust certificates and conditional sales contracts or (2) limited partnership
interests. The Portfolio may neither invest more than 10% of its total assets in
foreign securities nor invest more than 5% of its total assets in foreign
governmental issuers in any one country. The Portfolio's fixed income securities
may have equity features, such as conversion rights or warrants, and the
Portfolio may invest up to 10% of its total assets in equity securities other
than preferred stock (common stocks, warrants and rights and limited partnership
interests). The Portfolio may invest up to 20% of its total assets in fixed
income securities that are investment grade (i.e., rated in one of the top three
categories or comparable) and have maturities of one year or less. For temporary
defensive purposes, the Portfolio may invest part or all of its total assets in
cash or in short-term securities, including certificates of deposit, commercial
paper, notes, obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities, and repurchase agreements involving such
government securities. The Portfolio may invest in or own securities of
companies in various stages of financial restructuring, bankruptcy or
reorganization which are not currently paying interest or dividends. The total
value, at time of purchase, of the sum of all such securities will not exceed
10% of the value of the Portfolio's total assets.

The Portfolio may also invest in zero coupon, pay-in-kind or deferred
payment securities. Zero coupon securities are securities that are sold at a
discount to par value and securities on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received "phantom
income" annually. Because the Portfolio will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares of the Portfolio, it
will have fewer assets with which to purchase income producing securities. The
Portfolio accrues income with respect to these securities prior to the receipt
of cash payments. Pay-in-kind securities are securities that have interest
payable by delivery of additional securities. Upon maturity, the holder

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is entitled to receive the aggregate par value of the securities. Deferred
payment securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.

For more information about these and other permitted investment practices,
see "Additional Investment Information" in this Prospectus.

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES. Fixed income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk), and may also be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react to movements in the general level of
interest rates primarily. The market values of fixed-income securities tend to
vary inversely with the level of interest rates. Yields and market values of
high yield securities will fluctuate over time, reflecting not only changing
interest rates but the market's perception of credit quality and the outlook for
economic growth. When economic conditions appear to be deteriorating, medium to
lower rated securities may decline in value due to heightened concern over
credit quality, regardless of prevailing interest rates. Fluctuations in the
value of the Portfolio's investments will be reflected in the Portfolio's net
asset value per share. The Adviser considers both credit risk and market risk in
making investment decisions for the Portfolio. Investors should carefully
consider the relative risks of investing in high yield securities and understand
that such securities are not generally meant for short-term investing.

The high yield market is still relatively new and its recent growth
parallels a long period of economic expansion and an increase in merger,
acquisition and leveraged buyout activity. Adverse economic developments may
disrupt the market for high yield securities, and severely affect the ability of
issuers, especially highly leveraged issuers, to service their debt obligations
or to repay their obligations upon maturity. In addition, the secondary market
for high yield securities, which is concentrated in relatively few market
makers, may not be as liquid as the secondary market for more highly rated
securities. As a result, the Adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Portfolio's net asset value.

Prices for high yield securities may be affected by legislative and
regulatory developments. These laws could adversely affect the Portfolio's net
asset value and investment practices, the secondary market for high yield
securities, the financial condition of issuers of these securities and the value
of outstanding high yield securities. For example, federal legislation requiring
the divestiture by federally insured savings and loan associations of their
investments in high yield bonds and limiting the deductibility of interest by
certain corporate issuers of high yield bonds adversely affected the market in
recent years.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Portfolio's investment portfolio
and increasing the exposure of the Portfolio to the risks of high yield
securities.

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<PAGE>
THE REAL YIELD PORTFOLIO

The Real Yield Portfolio seeks to produce a high total return consistent
with the preservation of capital by investing in fixed income securities of
issuers in global fixed income markets displaying high real (inflation adjusted)
yields. The Adviser believes that countries displaying the highest real yields
will over time generate a high total return, and accordingly, the Adviser's
focus for the Portfolio will be to analyze the relative rates of real yield of
twenty global fixed income markets. In selecting securities to be included in
the Portfolio, the Adviser will first identify the global markets in which the
Portfolio's assets will be invested by ranking such countries in order of
highest real yield. The Portfolio will invest its assets primarily in fixed
income securities denominated in the currencies of countries within the top
quartile of the Adviser's ranking.

The Adviser's assessment of the global fixed income markets is based on an
analysis of real interest rates. The Adviser calculates real yield for each
global market by adjusting current nominal yields of securities in each such
market for inflation prevailing in each country using an analysis of past and
projected (one-year) inflation rates for that country. The Adviser expects to
review and update on a regular basis its real yield ranking of countries and to
alter the allocation of the Portfolio's investments among markets as necessary
when changes to real yields and inflation estimates significantly alter the
relative rankings of the countries.

Under normal circumstances, at least 65% of the total assets of the
Portfolio will be invested in fixed income securities, allocated among issuers
in markets with real yield rates within the top quartile of the Adviser's
ranking. Fixed income securities in which the Portfolio may invest include U.S.
and foreign government securities, securities of supranational entities,
Eurobonds, asset or mortgage-backed securities, and corporate bonds with varying
maturities denominated in various currencies. The Portfolio may invest in
obligations issued or guaranteed by U.S. or foreign governments and their
political subdivisions, authorities, agencies or instrumentalities, and by
supranational entities (such as the World Bank, The European Economic Community,
The Asian Development Bank and the European Coal and Steel Community). Corporate
and supranational obligations in which the Portfolio will invest will be limited
to those rated A or better by Moody's Investors Service, Inc., Standard & Poor's
Corporation or IBCA Ltd., or if unrated, to those that are of comparable quality
in the determination of the Board of Directors and the Adviser.

The average time to maturity of the Portfolio's securities varies depending
upon the Adviser's perception of market conditions. The Adviser invests in
medium-term securities (i.e., those with a remaining maturity of approximately
five years) in a market neutral environment. However, when the Adviser believes
that real yields are high, the Adviser lengthens the remaining maturities of
securities held by the Portfolio, and conversely, when the Adviser believes real
yields are low, it shortens the remaining maturities. Accordingly, the Adviser
is not restricted to any maximum or minimum time to maturity in purchasing
Portfolio securities.

The Portfolio may enter into forward currency exchange contracts. These are
used to hedge foreign currency exchange exposures when required. See "Forward
Currency Exchange Contracts" in this Prospectus and "Investment Objectives and
Policies -- Forward Currency Exchange Contracts" in the Statement of Additional
Information.

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<PAGE>
THE MONEY MARKET PORTFOLIO

The Portfolio's investment objectives are to maximize current income and
preserve capital while maintaining high levels of liquidity through investing in
the following high quality money market instruments which have effective
maturities of one year or less. The Portfolio's average maturity (on a
dollar-weighted basis) will not exceed 90 days. The Portfolio will purchase only
securities having a remaining maturity of one year or less. The Portfolio is
expected to maintain a net asset value of $1.00 per share. There can be no
assurance, however, that the Portfolio will be successful in maintaining a net
asset value of $1.00 per share. See "Valuation of Shares."

UNITED STATES GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest
in obligations issued or guaranteed by the United States Government, such as
U.S. Treasury securities and those backed by the full faith and credit of the
United States, such as obligations of GNMA, the Farmers Home Administration and
the Export-Import Bank. The Portfolio may also invest in obligations issued or
guaranteed by United States Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System and the Federal Home Loan Banks.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities in which the Money
Market Portfolio may invest, such as GNMA securities, differ from other fixed
income securities in that the principal is paid back by the borrower over the
life of the loan rather than returned in a lump sum at maturity. When prevailing
interest rates rise, the value of a GNMA security may decrease as do other debt
securities. When prevailing interest rates decline, however, the value of GNMA
securities may not rise on a comparable basis with other debt securities because
of the prepayment feature of GNMA securities. Additionally, if a GNMA
certificate is purchased at a premium above its principal value because its
fixed rate of interest exceeds the prevailing level of yields, the decline in
price to par may result in a loss of the premium in the event of prepayment.
Funds received from prepayments may be reinvested at the prevailing interest
rates which may be lower than the rate of interest that had previously been
earned.

BANK OBLIGATIONS. The Money Market Portfolio may invest in high quality
U.S. dollar-denominated negotiable certificates of deposit, time deposits,
deposit notes and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under United States Federal or state law, (ii) foreign
branches of these banks ("Euros") and (iii) U.S. branches of foreign banks of
equivalent size ("Yankees"). See "Additional Investment Information" for further
information on foreign investments. The Portfolio may also invest in obligations
of the International Bank for Reconstruction and Development ("World Bank").
These obligations are supported by appropriated but unpaid commitments of the
World Bank's member countries, and there is no assurance these commitments will
be undertaken or met in the future.

COMMERCIAL PAPER; CORPORATE BONDS. The Money Market Portfolio may invest in
high quality commercial paper and corporate bonds issued by U.S. corporations.
The Portfolio may also invest in commercial paper issued by foreign corporations
if the issuer is a direct subsidiary of a U.S. corporation, the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax, and the
aggregate of these foreign investments does not exceed 10% of the Fund's net
assets. For more information about foreign investments, see "Additional
Investment Information."

QUALITY INFORMATION. The Money Market Portfolio utilizes the amortized cost
method of valuation in accordance with regulations issued by the Securities and
Exchange Commission. See "Valuation of Shares."

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<PAGE>
Accordingly, the Portfolio will limit its portfolio investments to those
instruments that present minimal credit risks and are of "eligible quality" as
determined by the Adviser under the supervision of the Board of Directors in
accordance with regulations of the Securities and Exchange Commission, as they
may from time to time be amended. For this purpose, "eligible quality" means a
security rated (i) in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations assigning a rating to the
security or issuer or, (ii) if only one rating organization assigned a rating,
by that rating organization or (iii) if unrated, of comparable quality as
determined by the Board of Directors. Among the criteria adopted by the Board of
Directors, the Money Market Portfolio will not purchase any bank or corporate
obligation unless it is rated at least Aa or Prime-1 by Moody's or AA or A-1 by
S&P, or it is unrated, and in the determination of the Board of Directors and
the Adviser, it is of comparable quality. Ratings, however, are not the only
criteria utilized under the procedures adopted by the Board of Directors. For a
more detailed discussion of other quality requirements applicable to the
Portfolio, see "Description of Securities and Ratings and Policies" in the
Statement of Additional Information.

These standards must be satisfied at the time an investment is made. In the
event that an investment held by the Portfolio is assigned a lower rating or
ceases to be rated, the Adviser under the supervision of the Board of Directors
will promptly reassess whether such security presents minimal credit risk and
whether the Portfolio should continue to hold the security in its portfolio. If
a portfolio security no longer presents minimal credit risk or is in default,
the Portfolio will dispose of the security as soon as reasonably practicable
unless the Board of Directors determines that to do so is not in the best
interests of the Portfolio.

THE MUNICIPAL MONEY MARKET PORTFOLIO

The Portfolio's investment objectives are to maximize current income that is
exempt from federal income tax and preserve capital while maintaining high
levels of liquidity through investing in the following high quality municipal
money market instruments which, in the opinion of bond counsel for the issuer,
earn interest exempt from federal income tax. The Portfolio will purchase only
securities having a remaining maturity of one year or less. Under normal
circumstances, the Portfolio will invest at least 80% of its assets in
tax-exempt municipal securities. Additionally, the Portfolio will not purchase
private activity bonds, the interest from which is subject to the alternative
minimum tax. Interest on tax-exempt municipal securities may be subject to state
and local taxes. See "Taxes." The Portfolio's average maturity (on a
dollar-weighted basis) will not exceed 90 days. The Portfolio is expected to
maintain a net asset value of $1.00 per share. There can be no assurance,
however, that the Portfolio will be successful in maintaining a net asset value
of $1.00 per share. See "Valuation of Shares."

MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf
of states, territories and possessions of the U.S. and its political
subdivisions, agencies, authorities and instrumentalities. These obligations may
be general obligation bonds secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest, or they may
be revenue bonds payable from specific revenue sources, but not generally backed
by the issuer's taxing power. These obligations include private activity bonds
where payment is the responsibility of the private industrial user of the
facility financed by the bonds. The Portfolio may invest more than 25% of its
total assets in private activity bonds (provided that the interest on such bonds
is not subject to the alternative minimum tax), but may not invest more than 25%
of its total assets in these bonds in projects of similar type or in the same
state.

MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds and project
notes, as well as municipal commercial paper and municipal demand obligations.
There may be no

20
<PAGE>
secondary market for project notes, and it is the intention of the Fund to hold
such notes until maturity. There is no specific percentage limitation on these
investments. For more information about municipal notes, see "Description of
Securities and Ratings" in the Statement of Additional Information.

QUALITY INFORMATION. The Portfolio utilizes the amortized cost method of
valuation in accordance with regulations issued by the Securities and Exchange
Commission. See "Valuation of Shares." Accordingly, the Portfolio will limit its
portfolio investments to those instruments which present minimal credit risk and
which are of "eligible quality" as determined by the Adviser under the
supervision of the Board of Directors in accordance with regulations of the
Securities and Exchange Commission, as they may from time to time be amended.
For this purpose, "eligible quality" means a security rated (i) in one of the
two highest rating categories by at least two nationally recognized statistical
rating organizations assigning a rating to the security or issuer or, (ii) if
only one rating organization assigned a rating, by that rating organization or
(iii) if unrated, of comparable quality as determined by the Board of Directors.
Among the criteria adopted by the Board of Directors, the Municipal Money Market
Portfolio will not purchase any municipal obligation unless it is rated at least
Aa, MIG-1 (or MIG-2 in the case of New York State municipal notes), or Prime-1
by Moody's, or AA, SP-1 or A-1 by S&P, or it is unrated, and in the
determination of the Board of Directors and the Adviser it is of comparable
quality. Ratings, however, are not the only criteria which must be utilized
under the procedures adopted by the Board of Directors. For a more detailed
discussion of quality requirements applicable to municipal commercial paper and
master demand obligations, see the "Description of Securities and Ratings" in
the Statement of Additional Information.

PUTS FOR THE MUNICIPAL MONEY MARKET PORTFOLIO. The Portfolio may purchase
without limit municipal bonds or notes together with the right to resell them at
an agreed price or yield within a specified period prior to maturity. This right
to resell is known as a "put". The aggregate price paid for securities with puts
may be higher than the price which otherwise would be paid. The purpose of this
practice is to permit the Portfolio to be fully invested in tax-exempt
securities while maintaining the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions, to purchase at a later
date securities other than those subject to the put and to facilitate the
Adviser's ability to manage the Portfolio actively. The principal risk of puts
is that the put writer may default on its obligation to repurchase. The Adviser
will monitor each writer's ability to meet its obligations under puts. Under the
supervision of the Board of Directors, the Adviser will purchase securities with
puts only to the extent that such purchase is consistent with the Portfolio's
investment policies.

The amortized cost method is used by the Portfolio to value all municipal
securities; no value is assigned to any puts. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires.

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<PAGE>
ADDITIONAL INVESTMENT INFORMATION

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines of the Fund's
Board of Directors. In a repurchase agreement, a Portfolio buys a security from
a seller that has agreed to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. The
term of these agreements is usually from overnight to one week and never exceeds
one year. Repurchase agreements may be viewed as a fully collateralized loan of
money by the Portfolio to the seller. The Portfolio always receives securities
with a market value at least equal to the purchase price (including accrued
interest) as collateral, and this value is maintained during the term of the
agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the collateral may be
delayed or limited. The aggregate of certain repurchase agreements and certain
other investments is limited as set forth under "Investment Limitations."

LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its securities to
brokers, dealers, domestic and foreign banks or other financial institutions for
the purpose of increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral or by a letter of credit at least
equal to the market value of the securities loaned plus accrued interest or
income. There may be risks of delay in recovery of the securities or even loss
of rights in the collateral should the borrower of the securities fail
financially. A Portfolio will not enter into securities loan transactions
exceeding, in the aggregate, 33 1/3% of the market value of the Portfolio's
total assets. For more detailed information about securities lending see
"Investment Objectives and Policies" in the Statement of Additional Information.

REVERSE REPURCHASE AGREEMENTS FOR THE MONEY MARKET PORTFOLIO. The Money
Market Portfolio may enter into reverse repurchase agreements with brokers,
dealers, domestic and foreign banks or other financial institutions. In a
reverse repurchase agreement, the Portfolio sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the proceeds
of a reverse repurchase agreement is the speculative factor known as leverage.
The Portfolio may enter into a reverse repurchase agreement only if the interest
income from investment of the proceeds is greater than the interest expense of
the transaction and the proceeds are invested for a period no longer than the
term of the agreement. The Portfolio will maintain with the Custodian a separate
account with a segregated portfolio of securities at least equal to its purchase
obligations under these agreements. If interest rates rise during a reverse
repurchase agreement, it may adversely affect the Portfolio's ability to
maintain a stable net asset value. The aggregate of these agreements is limited
as set forth under "Investment Limitations." Reverse repurchase agreements are
considered to be borrowings and are subject to the percentage limitations on
borrowings set forth in "Investment Limitations."

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<PAGE>
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is a fundamental policy of the Money Market
Portfolio and a current policy of the Municipal Money Market Portfolio not to
enter into when-issued commitments exceeding, in the aggregate, 15% of the
market value of the Portfolio's total assets less liabilities other than the
obligations created by these commitments.

TAXABLE INVESTMENTS FOR THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET
PORTFOLIOS. The Municipal Bond and Municipal Money Market Portfolios attempt to
invest 80% and 100%, respectively, of their assets in tax-exempt municipal
securities. However, the Portfolios are permitted to invest up to 20% of the
value of their total assets in securities, the interest income of which is
subject to federal income tax. Either Portfolio may make taxable investments
pending investment of proceeds from sales of its shares or portfolio securities
or pending settlement of purchases of portfolio securities in order to maintain
liquidity to meet redemptions or when it is advisable in the Adviser's opinion
because of adverse market conditions. The taxable investments permitted for
either Portfolio include obligations of the U.S. Government and its agencies and
instrumentalities, bank obligations, commercial paper and repurchase agreements.
Fees from loans of tax-exempt securities will also be taxable income of the
Portfolio. See "Taxes."

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In order to remain
fully invested and to reduce transaction costs, each Portfolio, except the
Global Fixed Income and Real Yield Portfolios, may utilize appropriate stock
futures contracts and options on futures contracts to a limited extent. Because
transaction costs associated with futures and options may be lower than the
costs of investing in stocks directly, it is expected that the use of index
futures and options to facilitate cash flows may reduce a Portfolio's overall
transaction costs. The Portfolios will engage in futures and options on futures
transactions only for hedging purposes.

Each Portfolio may enter into futures contracts and options on futures
provided that not more than 5% of its total assets are required as deposit to
secure obligations under such contracts, and provided further that not more than
20% of its total assets are invested, in the aggregate, in futures contracts and
options on futures.

The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the stocks
held by the Portfolio and the prices of futures and options relating to the
stocks purchased or sold by the Portfolio; and (ii) possible lack of a liquid
secondary market for a futures contract and the resulting inability to close a
futures position which could have an adverse impact on the Portfolio's ability
to hedge. In the opinion of the Board of Directors, the risk that the Portfolio
will be unable to close out a futures position or options contract will be
minimized by only entering into futures contracts or options transactions for
which there appears to be a liquid secondary market. For more detailed
information about futures transactions, see "Investment Objectives and Policies"
in the Statement of Additional Information.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fixed Income, Global Fixed
Income, High Yield and Real Yield Portfolios may enter into forward foreign
currency exchange contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. Purposes for
which such contracts may be used include protecting against a decline in a
foreign currency against the U.S. dollar between the trade date and settlement
date when the Portfolio purchases or sells securities, locking in the U.S.
dollar value of dividends and interest on securities held by the Portfolio and
generally protecting the U.S. dollar value of securities held by a Portfolio
declared against exchange rate fluctuation. Such contracts may also be used as a
protective measure against the effects of fluctuating rates of currency exchange
and exchange control regulations. While such forward contracts may limit losses
to a portfolio as a result of exchange rate fluctuations, they will also limit
any gains that may otherwise have been realized. See "Investment Objectives and
Policies --

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<PAGE>
Forward Currency Exchange Contracts" in the Statement of Additional Information.
Except in circumstances where segregated accounts are not required by the 1940
Act and the rules adopted thereunder, the Portfolio's Custodian will place cash,
U.S. government securities, or high-grade debt securities into a segregated
account of a Portfolio in an amount equal to the value of such Portfolio's total
assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will be at least equal to the amount of
such Portfolio's commitments with respect to such contracts. See "Investment
Objectives and Policies -- Forward Foreign Currency Exchange Contracts" in the
Statement of Additional Information.

MONEY MARKET INSTRUMENTS. The Portfolios are permitted to invest in money
market instruments, although each Portfolio intends to stay invested in
securities satisfying its primary investment objective to the extent practical.
Each Portfolio may make money market investments pending other investment or
settlement for liquidity, or in adverse market conditions. The money market
investments permitted for the Portfolios include obligations of the U.S.
Government and its agencies and instrumentalities, obligations of foreign
sovereignties, other debt securities, commercial paper including bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit) and repurchase agreements. For more detailed information about these
money market investments, see "Description of Securities and Ratings" in the
Statement of Additional Information.

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The High-Yield Portfolio may not invest more than 15% of its total
assets in illiquid securities, including securities for which there is no
readily available securities market nor more than 10% of its total assets in
securities that are restricted from sale to the public without registration
("Restricted Securities") under the Securities Act of 1933 (the "1933 Act").
Nevertheless, subject to the foregoing limit on illiquid securities, the
Portfolio may invest up to 20% of its total assets in Restricted Securities that
can be offered and sold to qualified institutional buyers under Rule 144A under
that Act ("144A Securities"). The Board of Directors has adopted guidelines and
delegated to the Adviser, subject to the supervision of the Board of Directors,
the daily function of determining and monitoring the liquidity of 144A
securities. Rule 144A securities may become illiquid if qualified institutional
buyers are not interested in acquiring the securities. Investors should note
that investments in excess of 5% of the Portfolio's total assets may be
considered a speculative activity and may involve greater risk and expense to
the Portfolio.

FOREIGN INVESTMENT RISK FACTORS. The Fixed Income and High Yield Portfolios
may invest in U.S. dollar-denominated securities of foreign issuers trading in
U.S. markets and in non-U.S. dollar-denominated obligations of foreign issuers.
The Money Market Portfolio may invest in U.S. dollar-denominated commercial
paper issued by a foreign corporation that is a direct parent or subsidiary of a
U.S. corporation. Investment in obligations of foreign issuers and in foreign
branches of domestic banks involves somewhat different investment risks than
those affecting obligations of U.S. issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers are
not generally subject to uniform accounting, auditing and financial standards
and requirements comparable to those applicable to domestic companies. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the U.S. Dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes, which may decrease the
net return on foreign investments as compared to dividends and interest paid to
the Portfolio by domestic companies. It is not expected that a Portfolio or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. See "Taxes." Additional risks include future
political and economic developments, the possibility that a foreign jurisdiction
might impose or change withholding taxes on

24
<PAGE>
income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Many of the foreign countries described above may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.

Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and since the Portfolios may temporarily hold uninvested
reserves in bank deposits in foreign currencies. Therefore, the value of each
Portfolio's assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Portfolios may incur costs in connection with conversions between
various currencies.

INVESTMENT LIMITATIONS

As a diversified investment company, each Portfolio, except the Global Fixed
Income and Real Yield Portfolios, is subject to the following limitations: (a)
as to 75% of its total assets, a Portfolio may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government and its agencies and instrumentalities, and (b) a Portfolio may not
own more than 10% of the outstanding voting securities of any one issuer.

The Global Fixed Income and Real Yield Portfolios are non-diversified
investment companies under the Investment Company Act of 1940, as amended (the
"1940 Act"), which means the Global Fixed Income and Real Yield Portfolios are
not limited by the 1940 Act in the proportion of their respective total assets
that may be invested in the obligations of a single issuer. Thus, the Global
Fixed Income and Real Yield Portfolios may invest a greater proportion of their
respective total assets in the securities of a smaller number of issuers and, as
a result, will be subject to greater risk with respect to their respective
portfolio securities. The Global Fixed Income and Real Yield Portfolios,
however, intend to comply with the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. See "Taxes."

Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. Each Portfolio
may not (i) enter into repurchase agreements with more than seven days to
maturity if, as a result, more than 15% of the market value of the Portfolio's
total assets would be invested in such repurchase agreements and other
investments for which market quotations are not readily available or which are
otherwise illiquid, except that the limitation is 5% for the Municipal Money
Market Portfolio; (ii) borrow money, except from banks for extraordinary or
emergency purposes, and then only in amounts up to 10% (which includes reverse
repurchase agreements) of the value of the Portfolio's total assets, taken at
cost at the time of borrowing; or purchase securities while borrowings exceed 5%
(which includes reverse repurchase agreements) of its total assets, or mortgage,
pledge or hypothecate any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; (iii) invest in fixed time deposits with a duration of over seven
calendar days; or (iv) invest in fixed time deposits with a duration of from two
business days to seven calendar days if more than 5% of the Portfolio's total
assets would be invested in these

25
<PAGE>
deposits. Furthermore, the Money Market Portfolio may not enter into reverse
repurchase agreements exceeding, in the aggregate, one-third of the market value
of the Portfolio's total assets, less liabilities other than obligations created
by these agreements; and the Municipal Money Market Portfolio may not purchase
private activity bonds if, as a result, more than 5% of the Portfolio's total
assets would be invested in private activity bonds where payment of principal
and interest are the responsibility of companies with fewer than three years of
operating history (including predecessors).

MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Investment
Adviser and Administrator of the Fund and each of its portfolios. The Adviser
provides investment advice and portfolio management services pursuant to an
Investment Advisory Agreement and, subject to the supervision of the Fund's
Board of Directors, makes the portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages the
portfolio's investments. The Adviser is entitled to receive from each Portfolio
an annual investment advisory fee, payable quarterly, equal to the percentage of
average daily net assets of the respective Portfolio set forth in the table
below. However, the Adviser has agreed to a reduction in the fees payable to it
as Adviser, and to reimburse the Portfolios, if necessary, if such fees would
cause the total annual operating expenses of any Portfolio to exceed the maximum
set forth in the table below.

<TABLE>
<CAPTION>
INVESTMENT MAXIMUM TOTAL
ADVISORY OPERATING EXPENSES
PORTFOLIO FEE AFTER FEE WAIVERS
- ------------------------------ ------------- -------------------
<S> <C> <C>
Fixed Income 0.35% 0.45%
Global Fixed Income 0.40% 0.50%
Municipal Bond 0.35% 0.45%
Mortgage-Backed Securities 0.35% 0.45%
High Yield 0.50% 0.75%
Real Yield 0.50% 0.75%
Money Market 0.30% 0.55%
Municipal Money Market 0.30% 0.57%
</TABLE>

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business,
providing a broad range of portfolio management services to customers in the
U.S. and abroad. At December 31, 1994, the Adviser, together with its affiliated
asset management companies, managed investments totaling approximately $48.7
billion, including approximately $35.6 billion under active management and $13.1
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Fund" in
the Statement of Additional Information.

PORTFOLIO MANAGERS. The following persons have primary responsibility for
managing the Portfolios indicated.

FIXED INCOME PORTFOLIO -- WARREN ACKERMAN, III. Warren Ackerman is a
Principal of the Advisor and a Senior Fixed Income Portfolio Manager. Mr.
Ackerman joined the Advisor in December 1993. Prior to joining the Advisor, Mr.
Ackerman spent over 14 years with Bankers Trust Company as a Managing Director
responsible for institutional active fixed income management. Prior to Bankers,
he spent almost seven years as a Vice

26
<PAGE>
President with Irving Trust Company in the Trust Investment Division. Mr.
Ackerman is a graduate of Monmouth College with a BS in Economics. Mr. Ackerman
has had primary responsibility for managing the Portfolio's assets since March
1994.

GLOBAL FIXED INCOME PORTFOLIO -- MICHAEL J. SMITH AND ROBERT M.
SMITH. Michael Smith joined the Adviser as a Fixed Income Manager in 1990. Mr.
Smith became a Vice President of Morgan Stanley in 1992 and has been primarily
responsible for managing the Portfolio's assets since January 1993. He was
previously employed by Gartmore Investment Management where he had day-to-day
responsibility for the management of global and European fixed-income and money
market funds. Prior to his three years at Gartmore, Mr. Smith spent four years
with Legal & General Investment as an analyst and fund manager responsible for
the fixed-income portion of several large segregated funds. Mr. Smith is a
graduate of Exeter University, England. Robert Smith joined the Adviser as Vice
President in June 1994 and has been primarily responsible for managing the
Portfolio's assets since July 1994. Prior to joining the Adviser he spent eight
years as Senior Portfolio Manager -- Fixed Income at the State of Florida
Pension Fund. Mr. Smith's responsibilities included active total-rate-of-return
management of long term portfolios and supervision of other fixed income
managers. A graduate of Florida State University with a BS in Business, Mr.
Smith also received an MBA -- Finance from Florida State and holds a Chartered
Financial Analyst (CFA) designation.

MUNICIPAL BOND PORTFOLIO -- LORI A. COHANE. Lori A. Cohane joined the
Adviser in 1994 as a Vice President and Municipal Bond Portfolio Manager. Prior
to joining the Adviser, Ms. Cohane spent eight years with Salomon Brothers Asset
Management as a Vice President, Portfolio Manager and Senior Credit Analyst of
municipal bond accounts managing portfolios for high net worth individuals,
open- and closed-end bond funds and institutional accounts. Ms. Cohane is a
magna cum laude graduate of the State University of New York at Albany with a
B.S. degree in Finance and Economics. Ms. Cohane has had primary responsibility
for managing the Portfolio's assets since its inception.

MORTGAGE-BACKED SECURITIES PORTFOLIO -- WARREN ACKERMAN, III. Information
about Mr. Ackerman is included under Fixed Income Portfolio above. Mr. Ackerman
has had primary responsibility for managing the Portfolio's assets since its
inception.

HIGH YIELD PORTFOLIO -- ROBERT ANGEVINE. Robert Angevine is a Principal of
the Adviser and the Portfolio Manager for high yield investments. Prior to
joining the Adviser in October 1988, he spent over eight years at Prudential
Insurance where he was responsible for the largest open-end high yield mutual
fund in the country. Mr. Angevine also manages high yield assets for one of the
largest corporate pension funds in the country. His other experience includes
international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received an M.B.A. from Fairleigh Dickinson
University and a B.A. in Economics from Lafayette College. He served two years
as a Lieutenant in the U.S. Army. Mr. Angevine has had primary responsibility
for managing the Portfolio's assets since September, 1992.

REAL YIELD PORTFOLIO -- MICHAEL J. SMITH. Information about Michael J.
Smith is included under the Global Fixed Income Portfolio above. Mr. Smith has
been primarily responsible for managing the Portfolio's assets since its
inception.

MONEY MARKET PORTFOLIO -- GERALD BARTH, ABIGAIL JONES FEDER AND KENNETH R.
HOLLEY. Gerald P. Barth joined the Adviser in 1987 to establish the short to
intermediate-term taxable cash management area and to manage the tax-exempt
municipal bond portfolio. He became a Vice President in 1989 and a Principal in
1991. He has had primary management responsibility for the Investment Fund since
its inception. Prior to joining the

27
<PAGE>
Adviser, Mr. Barth was Director of Investments at Subaru of America for five
years, where he managed both the short and intermediate-term corporate cash
portfolios. He began his career at Arthur Andersen in the audit department and
spent two years in the tax department. He earned a B.S. in Accounting from
LaSalle College and became a Certified Public Accountant in 1977. Abigail Feder
is a Vice President in the Adviser's Fixed Income Group. She is responsible for
managing short-term taxable and tax-exempt portfolios. Ms. Feder joined Morgan
Stanley's Corporate Finance Department in 1985. In 1987 she joined the Adviser
as a Marketing Analyst and was promoted to a Marketing Director in 1988. She
joined the Fixed Income Group as a Portfolio Manager in 1989 and she became a
Vice President in 1992. Ms. Feder holds a BA from Vassar College. Kenneth R.
Holley joined the Adviser as a short-term fixed income portfolio manager in
July, 1993. Prior thereto, he worked for 2 1/2 years as a Finance Officer for
the African Development Bank implementing trading strategies for the bank's $1
billion short to intermediate US dollar portfolio. Prior to joining the ADB, Mr.
Holley spent 1 1/2 years with Ward and Associates Asset Management as a Vice
President responsible for fixed income strategy. Before Ward and Associates he
worked in the fixed income department of Salomon Brothers, Inc. Mr. Holley holds
a BS degree in Engineering from University of Pennsylvania and an MBA from the
Wharton School. Mr. Barth and Ms. Feder have had primary responsibility for
managing the Portfolio's assets since inception. Mr. Holley has shared primary
responsibility for managing the Portfolio's assets since August, 1993.

MUNICIPAL MONEY MARKET PORTFOLIO -- GERALD P. BARTH AND ABIGAIL JONES
FEDER. Information about Mr. Barth and Ms. Feder is included under Money Market
Bond Portfolio above. Mr. Barth and Ms. Feder have shared primary responsibility
for managing the Portfolio's assets since inception.

ADMINISTRATOR. The Adviser also provides the Fund with administrative
services pursuant to an Administration Agreement. The services provided under
the Administration Agreement are subject to the supervision of the Officers and
the Board of Directors of the Fund, and include day-to-day administration of
matters related to the corporate existence of the Fund, maintenance of its
records, preparation of reports, supervision of the Fund's arrangements with its
custodian, and assistance in the preparation of the Fund's registration
statements under Federal and State laws. The Administration Agreement also
provides that the Administrator through its agents will provide the Fund with
dividend disbursing and transfer agent services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals .15% of the average daily net assets of each Portfolio.

Under the U.S. Trust Administration Agreement between the Adviser and United
States Trust Company of New York ("U.S. Trust"), U.S. Trust has agreed to
provide certain administrative services to the Fund. Pursuant to a delegation
clause in the U.S. Trust Administration Agreement, U.S. Trust delegates its
responsibilities to Mutual Funds Service Company ("MFSC"), a subsidiary of U.S.
Trust, that provides certain administrative services to the Fund. The Adviser
supervises and monitors such administrative services provided by MFSC. The
services provided under the Administration Agreement and the U.S. Trust
Administration Agreement are also subject to the supervision of the Board of
Directors of the Fund. The Board of Directors of the Fund has approved the
provision of services described above pursuant to the Administration Agreement
and the U.S. Trust Administration Agreement as being in the best interests of
the Fund. MFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913. For additional information regarding the Administration Agreement or
the U.S. Trust Administration Agreement, see "Management of the Fund" in the
Statement of Additional Information.

28
<PAGE>
DIRECTORS AND OFFICERS. Pursuant to the Fund's Articles of Incorporation,
the Board of Directors decides upon matters of general policy and reviews the
actions of the Fund's Adviser, Administrator and Distributor. The Officers of
the Fund conduct and supervise its daily business operations.

DISTRIBUTOR. Morgan Stanley serves as the exclusive Distributor of the
shares of the Fund. Under its Distribution Agreement with the Fund, Morgan
Stanley sells shares of each Portfolio upon the terms and at the current
offering price described in this Prospectus. Morgan Stanley is not obligated to
sell any certain number of shares of any Portfolio and receives no compensation
for its distribution services.

EXPENSES. Each Portfolio is responsible for payment of certain other fees
and expenses (including legal fees, accountants' fees, custodial fees and
printing and mailing costs) specified in the Administration and Distribution
Agreements.

PURCHASE OF SHARES

Shares of each Portfolio may be purchased without sales commission at the
net asset value per share next determined after receipt of the purchase order
and, in the case of the Money Market and Municipal Money Market Portfolios, at
the price next determined after Federal Funds are available to the Portfolio.
See "Valuation of Shares."

INITIAL INVESTMENTS

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
the Fixed Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield and Real Yield Portfolios; $50,000 minimum for the
Money Market and Municipal Money Market Portfolios; with certain exceptions
for Morgan Stanley employees and select customers, including those who
participate in the Automatic Purchase of Portfolio Shares program described
below) payable to "Morgan Stanley Institutional Fund, Inc. -- [portfolio
name]", to:

Morgan Stanley Institutional Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798

Payment will be accepted only in U.S. dollars, unless prior approval for
payment by other currencies is given by the Fund. The portfolio(s) to be
purchased should be designated on the Account Registration Form. For purchases
by check, the Fund is ordinarily credited with Federal Funds within one business
day. Thus your purchase of shares by check is ordinarily credited to your
account at the net asset value per share of the relevant Portfolio determined on
the next business day after receipt.

2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Fund's bank account. In order to ensure prompt receipt
of your Federal Funds Wire, it is important that you follow these steps:

A. Telephone the Fund (toll free: 1-800-548-7786) and provide us with your
name, address, telephone number, Social Security or Tax Identification
Number, the portfolio(s) selected, the amount being wired, and by which
bank. We will then provide you with a Fund account number. (Investors with
existing accounts should also notify the Fund prior to wiring funds.)

29
<PAGE>
B. Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account (be sure to have your bank include the name of
the portfolio(s) selected and the account number assigned to you):

United States Trust Company of New York
114 West 47th Street
New York, NY 10036
ABA #0210-0131-8
DDA #20-9310-3
Attn: Morgan Stanley Institutional Fund, Inc.
Ref: (portfolio name, your account number, your account name)

Please call before wiring funds: 1-800-548-7786

C. Complete the Account Registration Form and mail it to the address shown
thereon.

Federal Funds purchase orders will be accepted only on a day on which the Fund
and United States Trust Company of New York (the "Custodian Bank") are open
for business. Share purchases of the Money Market Portfolio in Federal Funds
received by 12:00 noon (Eastern Time), and share purchases of the Municipal
Money Market Portfolio in Federal Funds received by 11:00 a.m. (Eastern Time)
will begin to earn income on the day of receipt.Your bank may charge a service
fee for wiring funds.

3) BY BANK WIRE. The same procedure outlined under "By Federal Funds Wire"
above must be followed in purchasing shares by bank wire. However, money
transferred by bank wire may or may not be converted into Federal Funds the
same day, depending on the time the money is received and the bank handling
the wire. Prior to such conversion, an investor's money will not be invested.
For the Money Market and Municipal Money Market Portfolios, if money is not
converted the same day, it will be converted the next business day and shares
will be purchased at the net asset value next determined after such
conversion. Your bank may charge a service fee for wiring funds.

4) AUTOMATIC PURCHASE OF PORTFOLIO SHARES. Free cash balances, (i.e., any cash
that is available on demand at the close of the previous business day) which
are held in certain eligible accounts at Morgan Stanley Asset Management
Inc., Morgan Stanley or any other affiliated investment adviser or broker,
and which are selected at the discretion of the Adviser, will be
automatically invested on the next business day at net asset value in shares
of the Money Market Portfolio or the Municipal Money Market Portfolio. A
shareholder may elect in writing from time to time in which portfolio to
invest. This automatic purchase facility permits certain eligible investment
management and brokerage customers of Morgan Stanley to have their free cash
balances invested in portfolio shares on a daily basis pending other
investments.

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000 for each portfolio, except for automatic reinvestment of dividends and
capital gains distributions for which there are no minimums) by purchasing
shares at net asset value by mailing a check to the Fund (payable to "Morgan
Stanley Institutional Fund, Inc. -- [Portfolio name]") at the above address or
by wiring monies to the Custodian Bank as outlined above. It is very important
that your account name and portfolio name be specified in the letter or wire to
assure proper crediting to your account. In order to ensure that your wire
orders are invested promptly, you are requested to notify one of the Fund's
representatives (toll-free 1-800-548-7786) prior to the wire date.

30
<PAGE>
OTHER PURCHASE INFORMATION

The purchase price of the shares of each portfolio is the net asset value
next determined after the order is received. See "Valuation of Shares." An order
to purchase shares of the Fixed Income, Municipal Bond, Mortgage-Backed
Securities or High Yield Portfolios received prior to the regular close of the
New York Stock Exchange ("NYSE"), which is currently 4:00 p.m. Eastern Time,
will be executed at the price computed on the date of receipt; an order received
after the regular close of the NYSE will be executed at the price computed the
next day the NYSE is open. Orders for the purchase of shares of the Money Market
Portfolio or Municipal Money Market Portfolio become effective on the business
day Federal Funds are received, and the purchase will be effected at the net
asset value next computed after receipt.

In the interest of economy and convenience, and because of the operating
procedures of the Fund, certificates representing shares of the Portfolio(s)
will not be issued. All shares purchased are confirmed to you and credited to
your account on the Fund's books maintained by the Adviser or its agents. You
will have the same rights and ownership with respect to such shares as if
certificates had been issued.

To assure that checks are collected by the Fund, withdrawals of investments
made by check are not presently permitted until payment for the purchase has
been received which may take up to eight business days after the date of
purchase. As a condition of this offering, if a purchase is cancelled due to
nonpayment or because your check does not clear, you will be responsible for any
loss the Fund or its agents incur. If you are already a shareholder, the Fund
may redeem shares from your account(s) to reimburse the Fund or its agents for
any loss. In addition, you may be prohibited or restricted from making future
investments in the Fund.

Investors may also invest in the Fund by purchasing shares through
registered broker-dealers. Broker-dealers who make purchases for their customers
may charge a fee for such services.

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until payment of the purchase has been collected, which
may take up to eight business days after purchase. The Fund will redeem shares
of each Portfolio at its next determined net asset value. On days that both the
NYSE and the Custodian Bank are open for business, the net asset value per share
of the Fixed Income, Municipal Bond, Mortgage-Backed Securities and High Yield
Portfolios is determined at the regular close of trading of the NYSE (currently
4:00 p.m. Eastern Time), and the net asset value per share of the Municipal
Money Market Portfolio is determined at 11:00 a.m. (Eastern Time) and the net
asset value per share of the Money Market Portfolio is determined at 12:00 p.m.
(Eastern Time). Shares of a Portfolio may be redeemed by mail or telephone. No
charge is made for redemption. Any redemption may be more or less than the
purchase price of your shares depending on, among other factors, the market
value of the investment securities held by the Portfolio.

BY MAIL

Each Portfolio will redeem its shares at the net asset value next determined
after your request is received if the request is received in "good order." Your
request should be addressed to Morgan Stanley Institutional Fund, Inc., P.O. Box
2798, Boston, Massachusetts 02208-2798, except that deliveries by overnight
courier should be addressed to Morgan Stanley Institutional Fund, Inc., c/o
Mutual Funds Service Company, 73 Tremont Street, Boston, Massachusetts 02108.

31
<PAGE>
"Good order" means that the request to redeem shares must include the
following documentation:

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

(b) Any required signature guarantees (see "Further Redemption
Information" below); and

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

Shareholders who are uncertain of requirements for redemption should consult
with a Morgan Stanley Institutional Fund representative.

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of Morgan Stanley Institutional Fund's
representatives for further details. In times of drastic market conditions, the
telephone redemption option may be difficult to implement. If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier and will be implemented at the net asset value next determined
after it is received. Redemption requests sent to the Fund through overnight
courier must be sent to Morgan Stanley Institutional Fund, Inc., c/o Mutual
Funds Service Company, 73 Tremont Street, Boston, Massachusetts 01208. The Fund
and the Fund's transfer agent (the "Transfer Agent") will employ reasonable
procedures to confirm that the instructions communicated by telephone are
genuine. These procedures include requiring the investor to provide certain
personal identification information at the time an account is opened and prior
to effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide
additional telecopied written instructions regarding transaction requests.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for following instructions received by telephone that
either of them reasonably believes to be genuine.

To change the name of the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Fund at the address
above. Requests to change the bank or account must be signed by each shareholder
and each signature must be guaranteed.

FURTHER REDEMPTION INFORMATION

Normally the Fund will make payment for all shares redeemed within one
business day of receipt of the request, but in no event will payment be made
more than seven days after receipt of a redemption request in good order.
However, payments to investors redeeming shares which were purchased by check
will not be made until payment for the purchase has been collected, which may
take up to 8 days after the date of purchase. The Fund may suspend the right of
redemption or postpone the date upon which redemptions are effected at times
when the NYSE is closed, or under any emergency circumstances as determined by
the Securities and Exchange Commission (the "Commission").

32
<PAGE>
in whole or in part by a distribution-in-kind of securities held by a Portfolio
in lieu of cash in conformity with applicable rules of the Commission.
Distributions-in-kind will be made in readily marketable securities. Investors
may incur brokerage charges on the sale of Portfolio securities so received in
payment of redemptions.

Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account invested in the Fixed Income,
Municipal Bond, Mortgage-Backed Securities or High Yield Portfolio having a
value of less than $500,000, or in the Money Market or Municipal Money Market
Portfolio having a value of less than $10,000 (the net asset value of which will
be promptly paid to the shareholder). The Fund, however, will not redeem shares
based solely upon market reductions in net asset value. If at any time your
total investment does not equal or exceed the stated minimum value, you may be
notified of this fact and you will be allowed at least 60 days to make an
additional investment before the redemption is processed.

To protect your account, the Fund and its agents from fraud, signature
guarantees are required for certain redemptions to verify the identity of the
person who has authorized a redemption from your account. Please contact the
Fund for further information. See "Redemption of Shares" in the Statement of
Additional Information.

SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

You may exchange shares that you own in each Portfolio for shares of any
other available portfolio(s) of the Fund (except the International Equity
Portfolio). Shares of the Portfolios may be exchanged by mail or telephone.
Before you make an exchange, you should read the prospectus of the portfolio(s)
in which you seek to invest. Because an exchange transaction is treated as a
redemption followed by a purchase, an exchange would be considered a taxable
event. The exchange privilege is only available with respect to portfolios that
are registered for sale in a shareholder's state of residence.

BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name and account number of your current Portfolio, the name of the
portfolio(s) into which you intend to exchange shares, and the signatures of all
registered account holders. Send the exchange request to Morgan Stanley
Institutional Fund, Inc., P.O. Box 2798, Boston, MA 02208-2798.

BY TELEPHONE

When exchanging shares by telephone, have ready the name and account number
of the current Portfolio, the name of the Portfolio into which you intend to
exchange shares, your Social Security number or Tax I.D. number, and your
account address. Requests for telephone exchanges received prior to 4:00 p.m.
(Eastern Time) are processed at the close of business that same day based on the
net asset value of each of the portfolios at the close of business. Requests
received after 4:00 p.m. are processed the next business day based on the net
asset value determined at the close of such day. For additional information
regarding responsibility for the authenticity of telephoned instructions, see
"Redemption of Shares -- By Telephone" above.

TRANSFER OF REGISTRATION

You may transfer the registration of any of your Fund shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.

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<PAGE>
VALUATION OF SHARES

The net asset value per share of each of the Fixed Income, Global Fixed
Income, Municipal Bond, Mortgage-Backed Securities, High Yield and Real Yield
Portfolios (the "Non-Money Portfolios") is determined by dividing the total
market value of the Non-Money Portfolio's investments and other assets, less all
liabilities, by the number of total outstanding shares of the Portfolio. Net
asset value per share of the Non-Money Portfolios is determined as of the
regular close of the NYSE on each day that the NYSE is open for business.
Securities listed on a U.S. securities exchange for which market quotations are
available are valued at the last quoted sale price on the day the valuation is
made. Price information on listed securities is taken from the exchange where
the security is primarily traded. Securities listed on a foreign exchange are
valued at their closing price. Unlisted securities and listed securities not
traded on the valuation date for which market quotations are not readily
available are valued at a price within a range not exceeding the current asked
price nor less than the current bid price. The current bid and asked prices are
determined either based on the bid and asked prices quoted on such valuation
date by two reputable brokers or as provided by a reliable pricing service.

Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily unless collection is in doubt. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices, but take into account institutional size
trading in similar groups of securities and any developments related to the
specific securities. Securities not priced in this manner are valued at the most
recently quoted bid price, or, when securities exchange valuations are used, at
the latest quoted sale price on the day of valuation. If there is no such
reported sale, the latest quoted bid price will be used. Debt securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost, if it approximates market value. In the event that amortized cost does not
approximate market value, market prices as determined above will be used.

The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above-stated procedures are determined in good faith at fair value using
methods determined by the Board of Directors. For purposes of calculating net
asset value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean of the bid price and
asked price for such currencies against the U.S. dollar last quoted by any major
bank.

The net asset value per share of each of the Money Market and Municipal
Money Market Portfolios is determined by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from the total value of the
Portfolio's investments and other assets and dividing the result by the total
number of outstanding shares of the Portfolio. The net asset values per share of
the Municipal Money Market Portfolio and the Money Market Portfolio are
determined at 11:00 a.m. and 12:00 noon (Eastern Time), respectively, on the
days on which the NYSE is open. For the purpose of calculating each Portfolio's
net asset value per share, securities are valued by the "amortized cost" method
of valuation, which does not take into account unrealized gains or losses. This
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of

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the instrument. While this method provides certainty in valuation, it may result
in periods during which the value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if it sold the instrument.

PERFORMANCE INFORMATION

The Fund may from time to time advertise total return of the Fixed Income,
Global Fixed Income, Municipal Bond, Mortgage-Backed Securities, High Yield and
Real Yield Portfolios. In addition, from time to time the Fund may advertise
"yield" for the Global Fixed Income, Municipal Bond, High Yield, Real Yield,
Money Market and Municipal Money Market Portfolios and "effective yield" for the
Money Market and Municipal Money Market Portfolios. In addition to these yield
figures, the Municipal Bond and Municipal Money Market Portfolio may advertise a
tax equivalent yield. THESE FIGURES ARE BASED ON HISTORICAL PERFORMANCE AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in the Portfolio would have earned over a specified period of time
(such as one, five or ten years) assuming that all distributions and dividends
by the Portfolio were reinvested on the reinvestment dates during the period.
Total return does not take into account any federal or state income taxes that
may be payable on dividends and distributions or upon redemption. The "yield" of
the Global Fixed Income, Municipal Bond, High Yield and Real Yield Portfolios
refers to the income generated by an investment in the Portfolio over a
one-month or 30-day period, while the "yield" of the Money Market and Municipal
Money Market Portfolios refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that 30 or seven day period is assumed to be
generated each 30-day period for twelve periods or each week over a 52-week
period, and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned on an investment in
the Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. A "tax equivalent yield" is the "yield" of the Portfolio
increased by an amount based on an assumed rate of tax for a shareholder. For
further information concerning these figures, see "Calculation of Yield and
Total Return" in the Statement of Additional Information. The Fund may also use
comparative performance information in marketing the Portfolios' shares,
including data from Lipper Analytical Services, Inc., Donoghue's Money Fund
Report, other industry publications, business periodicals, rating services and
market indices.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

FIXED INCOME, GLOBAL FIXED INCOME, MUNICIPAL BOND, MORTGAGE-BACKED SECURITIES,
HIGH YIELD AND REAL YIELD PORTFOLIOS

Each of the Portfolios, except the Global Fixed Income and Real Yield
Portfolios, expects to distribute substantially all of its net investment income
in the form of monthly dividends and each of the Global Fixed Income and Real
Yield Portfolios expects to distribute substantially all of its net investment
income in the form of quarterly dividends. Net capital gains of each Portfolio,
if any, will also be distributed annually. Confirmations of the purchases of
shares of the Portfolios through the automatic reinvestment of income dividends
and capital

35
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gains distributions will be provided, pursuant to Rule 10b-10(b) under the
Securities Exchange Act of 1934, as amended, on the next quarterly client
statement following such purchases of shares. Consequently, confirmations of
such purchases will not be provided at the time of completion of such purchases
as might otherwise be required by Rule 10b-10.

Undistributed net investment income is included in a Portfolio's net assets
for the purpose of calculating net asset value per share. Therefore, on the
"ex-dividend" date, the net asset value per share excludes the dividend (I.E.,
is reduced by the per share amount of the dividend). Dividends paid shortly
after the purchase of shares by an investor, although in effect a return of
capital, are taxable to shareholders.

MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS

Net investment income is computed and dividends declared as of 1:00 p.m.
(Eastern time), on each day. Such dividends are payable to Municipal Money
Market Portfolio shareholders of record as of 11:00 a.m. (Eastern time) on that
day and to Money Market Portfolio shareholders of record as of 12:00 noon
(Eastern time) on that day, if the Fund and Custodian Bank are open for
business. This means that shareholders whose purchase orders become effective as
of 12:00 noon (for the Money Market Portfolio) or 11:00 a.m. (for the Municipal
Money Market Portfolio) receive the dividend for that day. Dividends declared
for Saturdays, Sundays and holidays are payable to shareholders of record as of
4:00 p.m. on the last preceding day the Fund and its Custodian Bank were open
for business.

For the purpose of calculating dividends, net income of each Portfolio shall
consist of interest earned, including any discount or premium ratably amortized
to the date of maturity, minus estimated expenses of the Portfolio.

Each Portfolio's daily dividends are accrued throughout the month and are
distributed on the fifteenth calendar day of each month (or next business day if
the fifteenth calendar day falls on a holiday or weekend). Dividends of each
Portfolio are payable in additional shares, except that, upon written notice to
the Fund or by checking off the appropriate box in the Distribution Option
Section on the Account Registration Form, a shareholder may elect to receive
income dividends and any capital gains distributions in cash.

Each shareholder receives a monthly statement summarizing activity in the
account. If at any time a shareholder wishes to withdraw all of the funds in an
account, the proceeds will be sent to the shareholder by wire or check,
according to the shareholder's instructions. If the withdrawal is by wire, a
check in the amount of the income to the shareholder's account through the day
of withdrawal will be mailed to the shareholder on the next business day.
Withdrawals by check will include accrued income through the date of withdrawal.

Net realized short-term capital gains, if any, of the Money Market and
Municipal Money Market Portfolio are to be distributed whenever the Board of
Directors determine that such distributions would be in the best interest of
shareholders, but in any event, at least once a year. The Portfolios do not
expect to realize any long-term capital gains. Should any such gains be
realized, they will be distributed annually.

It is an objective of management to maintain the price per share of the
Money Market and Municipal Money Market Portfolio as computed for the purpose of
sales and redemptions at exactly $1.00. In the event the Board of Directors
determine that a deviation from the $1.00 per share price may exist which may
result in a material dilution or other unfair results to investors or existing
shareholders, they will take corrective action they

36
<PAGE>
regard as necessary and appropriate, including the sale of instruments from a
Portfolio prior to maturity to realize capital gains or losses; shortening
average portfolio maturity; withholding dividends; making a special capital
distribution; or redemptions of shares in kind.

TAXES

GENERAL

The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial, or
administrative action.

No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of a Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.

Each Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other Portfolios. Each Portfolio
intends to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the Code, so that the Portfolio will be relieved
of federal income tax on that part of its net investment income and net capital
gain that is distributed to shareholders.

Each Portfolio distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from a Portfolio's net investment income (other than "exempt-interest
dividends," described below) are taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Such dividends paid by a
Portfolio will generally qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent of the aggregate qualifying dividend
income received by the Portfolio is from U.S. corporations. Each Portfolio will
report annually to its shareholders the amount of dividend income qualifying for
such treatment.

Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares.
[Distributions of net investment income and net capital gain are not eligible
for the corporate dividends-received deduction.] Each Portfolio sends reports
annually to its shareholders of the federal income tax status of all
distributions made during the preceding year.

Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary income and capital gain net income (the excess of
short-term and long-term capital gains over short-term and long-term capital
losses) including any available capital loss carryforwards, prior to the end of
each calendar year to avoid liability for federal excise tax.

Dividends and other distributions declared by a Portfolio in October,
November or December of any year and payable to shareholders of record on a date
in such month will be deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of that year if the distributions are paid by
the Portfolio at any time during the following January.

The sale or redemption of shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the fair market value of the
redemption proceeds exceeds or is less than the Shareholder's adjusted basis in
the redeemed shares. If capital gain distributions have been made with respect
to shares that are sold at a loss after being held for six months or less, then
the loss is treated as a long-term capital loss to the extent of the capital
gain distributions.

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Shareholders are urged to consult with their tax advisors concerning the
application of state and local income taxes to investments in a Portfolio, which
may differ from the federal income tax consequences described above.

THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET PORTFOLIOS

The dividends payable by the Municipal Bond and the Municipal Money Market
Portfolios from net tax-exempt interest from municipal bonds and notes will
qualify as "exempt-interest dividends" if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income. Each of the
Municipal Bond and Municipal Money Market Portfolios intends to invest a
sufficient portion of its assets in municipal bonds and notes to qualify to pay
"exempt interest dividends."

Exempt-interest dividends are excludable from a shareholder's gross income
for regular income tax purposes. However, the receipt of such dividends may have
collateral federal income tax consequences, including alternative minimum tax
consequences. In addition, the receipt of exempt-interest dividends may cause
persons receiving Social Security or Railroad Retirement benefits to be taxable
on a portion of such benefits. See the Statement of Additional Information.
Current federal tax law limits the types of volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Portfolios to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirement for the payment of exempt-interest
dividends.

All or a portion of the interest on indebtedness incurred or continued by an
investor to purchase or carry shares is not deductible for federal income tax
purposes. Furthermore, entities or persons who are "substantial users" (or
persons related to "substantial users") of facilities financed by "private
activity bonds" or "industrial development bonds" should consult their tax
advisors before purchasing shares of the Portfolios. See the Statement of
Additional Information.

The Portfolios will report annually to their shareholders the portion of
dividends that is taxable and the portion that is tax-exempt based on income
received by the Portfolios during the year to which the dividends relate.

The exemption of dividends paid by the Municipal Bond and Municipal Money
Market Portfolio for Federal income tax purposes may not result in similar
exemptions under the laws of a particular state or local taxing authority. Each
of the Municipal Bond and Municipal Money Market Portfolio will report annually
to its shareholders the percentage and source, on a state-by-state basis, of
interest income earned on municipal bonds and municipal notes held by the
Portfolio during the preceding year.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN A PORTFOLIO.

PORTFOLIO TRANSACTIONS

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Portfolios. The Fund has authorized the Adviser to pay higher commissions in
recognition of brokerage services which, in the opinion of the Adviser, are
necessary for the achievement of better execution, provided the Adviser believes
this to be in the best interest of the Fund.

Since shares of the Portfolios are not marketed through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through such firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Fund's portfolios or who act as agents in the purchase of
shares of the Fund's portfolios for their clients.

In purchasing and selling securities for the Portfolios, it is the Fund's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Portfolios, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Portfolios may also be appropriate
for other clients served by the Adviser. If purchase or sale of securities
consistent with the investment policies of a Portfolio and one or more of these
other clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Portfolio and
clients in a manner deemed fair and reasonable by the Adviser. Although there is
no specified formula for allocating such transactions, the various allocation
methods used by the Adviser, and the results of such allocations, are subject to
periodic review by the Fund's Directors.

Subject to the overriding objective of obtaining the best possible execution
of orders, the Adviser may allocate a portion of the Fund's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley. In order
for Morgan Stanley or its affiliates to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by Morgan Stanley
or such affiliates must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the Board
of Directors of the Fund, including a majority of the Board of Directors who are
not "interested persons," as defined in the 1940 Act have adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Morgan Stanley or such affiliates are consistent with the
foregoing standard.

Portfolio securities will not be purchased from or through, or sold to or
through, the Adviser or Morgan Stanley or any "affiliated persons," as defined
in the 1940 Act, of Morgan Stanley when such entities are acting as principals,
except to the extent permitted by law.

Although none of the Portfolios will invest for short-term trading purposes,
investment securities may be sold from time to time without regard to the length
of time they have been held. For each Portfolio, it is anticipated that, under
normal circumstances, the annual portfolio turnover rate will not exceed 100%.
High portfolio turnover involves correspondingly greater transaction costs which
will be borne directly by the respective Portfolio. In addition, high portfolio
turnover may result in more capital gains which would be taxable to the
shareholders of the respective Portfolio. The tables set forth in "Financial
Highlights" present the Portfolios' historical turnover rates.

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<PAGE>
GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Fund was organized as a Maryland corporation on June 16, 1988. The
Articles of Incorporation permit the Fund to issue up to 15,000,000,000 shares
of common stock, with $.001 par value per share. Pursuant to the Fund's Articles
of Incorporation, the Board of Directors may increase the number of shares the
Fund is authorized to issue without the approval of the shareholders of the
Fund. The Board of Directors has the power to designate one or more classes of
shares of common stock and to classify and reclassify any unissued shares with
respect to such classes.

The shares of each Portfolio, when issued, will be fully paid,
non-assessable, fully transferable and redeemable at the option of the holder.
The shares have no preference as to conversion, exchange, dividends, retirement
or other features and have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors can elect 100% of the
Directors if they choose to do so. Persons or organizations owning 25% or more
of the outstanding shares of a Portfolio may be presumed to "control" (as that
term is defined in the 1940 Act) that Portfolio. Under Maryland law, the Fund is
not required to hold an annual meeting of its shareholders unless required to do
so under the 1940 Act.

REPORTS TO SHAREHOLDERS

The Fund will send to its shareholders annual and semi-annual reports; the
financial statements appearing in annual reports are audited by independent
accountants. Monthly unaudited portfolio data is also available from the Fund
upon request.

In addition, Morgan Stanley Asset Management Inc., or its agent, as Transfer
Agent, will send to each shareholder having an account directly with the Fund a
monthly statement showing transactions in the account, the total number of
shares owned, and any dividends or distributions paid.

CUSTODIAN

Domestic securities and cash are held by The United States Trust Company of
New York, New York, as the Fund's domestic custodian. Morgan Stanley Trust
Company, Brooklyn, New York, acts as the Fund's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Board of Directors of the Fund in accordance with regulations of the
Securities and Exchange Commission for the purpose of providing custodial
services for such assets. For more information on the custodians, see "General
Information -- Custody Arrangements" in the Statement of Additional Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

Mutual Funds Service Company, 73 Tremont Street, Boston, Massachusetts
02108-3913, acts as Dividend Disbursing and Transfer Agent for the Fund.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as independent accountants for the Fund and
audits its annual financial statements.

LITIGATION

The Fund is not involved in any litigation.

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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE CORPORATE BOND RATINGS:

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

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

Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.

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

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

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contact over any long period of time may be small.

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

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

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

STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:

AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.

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AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.

A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

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

BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

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

D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

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MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798

NOTE: THIS REGISTRATION FORM SHOULD BE COMPLETED BY THOSE INVESTORS WITH
EXISTING MORGAN STANLEY ACCOUNTS DESIRING TO INVEST
FREE CASH BALANCES AUTOMATICALLY.
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ACCOUNT REGISTRATION FORM
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<TABLE>
<C> <S> <C>
ACCOUNT INFORMATION |If you need assistance in filling out this form for the Morgan Stanley Institutional Fund, please
Fill in where |contact your Morgan Stanley representative or call us toll free 1-(800)-548-7786. Please print all
applicable |items except signature, and mail to the Fund at the address above.
- -----------------------------------------------------------------------------------------------------------------------------------
A) REGISTRATION |
1. INDIVIDUAL |1. ______________________________________________________________________________________________________
2. JOINT TENANTS | First Name Initial Last Name
(RIGHTS OF |2. ______________________________________________________________________________________________________
SURVIVORSHIP | First Name Initial Last Name
PRESUMED UNLESS | ______________________________________________________________________________________________________
TENANCY IN COMMON | First Name Initial Last Name
IS INDICATED) |
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3. CORPORATIONS, |
TRUSTS AND OTHERS |3. ______________________________________________________________________________________________________
Please call the | ______________________________________________________________________________________________________
Fund for additional| ______________________________________________________________________________________________________
documents that may | Type of Registration: / /INCORPORATED / /UNINCORPORATED / /PARTNERSHIP / /UNIFORM GIFT/TRANSFER TO MINOR
be required to set | ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR
up account and to | PERMITTED)
authorize | / /TRUST __________________________ / /OTHER (Specify) ________________________
transactions. |
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B) MAILING ADDRESS |
Please fill in |Street or P.O. Box_______________________________________________________________________________________
completely, |City______________________________________________________________State_______Zip_______________-________
including telephone |Home Telephone No.______-_______-_________________Business Telephone No._______-_______-_________________
number(s). |/ /United States Citizen / /Resident Alien / /Non-Resident Alien: Indicate Country of Residence _________
- -----------------------------------------------------------------------------------------------------------------------------------
C) TAXPAYER |PART 1. Enter your Taxpayer | IMPORTANT TAX INFORMATION
IDENTIFICATION |Identification Number. For most |You (as a payee) are required by law to provide us (as payer)
NUMBER |individual taxpayers, this is |with your correct taxpayer identification number. Accounts that
If the account is in |your Social Security Number. |have a missing or incorrect taxpayer identification number will
more than one name, | TAXPAYER IDENTIFICATION NUMBER |be subject to backup withholding at a 31% rate on interest,
CIRCLE THE NAME OF THE|______-_________________________ |dividends distributions and other payments. If you have not
PERSON WHOSE TAXPAYER | OR |provided us with your correct taxpayer identification number, you
IDENTIFICATION NUMBER | SOCIAL SECURITY NUMBER |may be subject to a $50 penalty imposed by the Internal Revenue
IS PROVIDED IN SECTION|________-_____________-_________ |Service.
A) ABOVE. If no name | |
is circled, the number|PART 2. BACKUP WITHHOLDING |Backup withholding is not an additional tax; the tax liability of
will be considered to |/ / Check this box if you are NOT |persons subject to backup withholding will be reduced by the
be that of the last |subject to Backup Withholding |amount of tax withheld. If withholding results in an overpayment
name listed. For |under the provisions of Section |of taxes, a refund may be obtained.
Custodian account of |3406(a)(1)(C) of the Internal |
a minor (Uniform |Revenue Code. |You may be notified that you are subject to backup withholding
Gifts/Transfers to | |under section 3406(a)(1)(C) of the Internal Revenue Code because
Minors Acts), give the| |you have underreported interest or dividends or you were required
Social Security Number| |to but failed to file a return which would have included a
of the minor. | |reportable interest or dividend payment. IF YOU HAVE NOT BEEN SO
|NOTIFIED, CHECK THE BOX IN PART 2 AT LEFT.
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D) PORTFOLIO SELECTION |
Minimum $500,000 for |
each of Fixed |
Income, Municipal |/ / Fixed Income Portfolio $__________________ / / Municipal Bond Portfolio $____________
Bond, Mortgage-Backed |/ / Global Fixed Income Portfolio $___________ / / High Yield Portfolio $________________
Securities and High |/ / Mortgage-Backed Securities Portfolio $____ / / Real Yield Portfolio $________________
Yield Portfolios. |/ / Money Market Portfolio $__________________ / / Municipal Money Market Portfolio $____
Minimum $50,000 for |
each of Money Market |
and Municipal Money |
Market Portfolios. |
Please indicate |
Portfolio and amount. |
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E) METHOD OF |Payment by:
INVESTMENT |/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND, INC.--PORTFOLIO NAME)
Please indicate | _________________________________-______
portfolio, manner of |/ / Exchange $____________________ From__________________________ Account No.
payment. | Name of Portfolio
|/ / Account previously established by: _________________________________-______
| / / Phone exchange / / Wire on ___________________ Account No. (Check
Date (Previously assigned by the Fund) Digit)
- -----------------------------------------------------------------------------------------------------------------------------------

<PAGE>

F) AUTHORIZATION OF |I/we hereby authorize the Fund and Morgan Stanley Asset Management Inc. to transfer from my/our
AUTOMATIC PURCHASE |account at Morgan Stanley & Co. Inc. all free cash balances (that is, any cash available on demand at
AND REDEMPTION |the close of the previous day), which are held in such account and to invest such cash balances in the
(Available only for |/ / Money Market Portfolio or the / / Municipal Money Market Portfolio (check only one).
Money Market and |
Municipal Money |__________________________________________ ___________________________________-_____
Market Portfolios) |Account Title at Morgan Stanley & Co. Inc. Account Number
- -----------------------------------------------------------------------------------------------------------------------------------
G) DISTRIBUTION |Income dividends and capital gains distributions (if any) to be reinvested in additional shares unless
OPTION |either box below is checked.
|/ /Income dividends to be paid in cash, capital gains distributions (if any) in shares.
|/ /Income dividends and capital gains distributions (if any) to be paid in cash.
- -----------------------------------------------------------------------------------------------------------------------------------
H) TELEPHONE |/ /I/we hereby authorize the Fund and its|
REDEMPTION | agents to honor any telephone requests|_______________________________________________ ___________
Please select at time | to wire redemption proceeds to the |Name of COMMERCIAL Bank (Not Savings Bank) Bank Account No.
of initial | commercial bank indicated at right |
application if you | and/or mail redemption proceeds to the| ____________
wish to redeem | name and address in which my/our fund | Bank ABA No.
shares by telephone. | account is registered if such requests|____________________________________________________________
A SIGNATURE GUARANTEE | are believed to be authentic. | Name(s) in which your BANK Account is Established
IS REQUIRED IF BANK | |____________________________________________________________
ACCOUNT IS NOT |TELEPHONE REQUESTS FOR REDEMPTIONS OR | Bank's Street Address
REGISTERED |EXCHANGES WILL NOT BE HONORED UNLESS THE |____________________________________________________________
IDENTICALLY TO YOUR |BOX IS CHECKED. THE FUND AND THE FUND'S |City State Zip
FUND ACCOUNT. |TRANSFER AGENT WILL EMPLOY REASONABLE |
|PROCEDURES TO CONFIRM THAT INSTRUCTIONS |
TELEPHONE REQUESTS |COMMUNICATED BY TELEPHONE ARE GENUINE. |
FOR REDEMPTIONS OR |THESE PROCEDURES INCLUDE REQUIRING THE |
EXCHANGES WILL NOT |INVESTOR TO PROVIDE CERTAIN PERSONAL |
BE HONORED UNLESS |IDENTIFICATION INFORMATION AT THE TIME AN|
THE BOX AT RIGHT IS |ACCOUNT IS OPENED AND PRIOR TO EFFECTING |
CHECKED. |EACH TRANSACTION REQUESTED BY TELEPHONE. |
|IN ADDITION, ALL TELEPHONE TRANSACTION |
|REQUESTS WILL BE RECORDED AND INVESTORS |
|MAY BE REQUIRED TO PROVIDE ADDITIONAL |
|TELECOPIED WRITTEN INSTRUCTIONS OF |
|TRANSACTION REQUESTS. NEITHER THE FUND |
|NOR THE TRANSFER AGENT WILL BE |
|RESPONSIBLE FOR ANY LOSS, LIABILITY, COST|
|OR EXPENSE FOR FOLLOWING INSTRUCTIONS |
|RECEIVED BY TELEPHONE THAT IT REASONABLY |
|BELIEVES TO BE GENUINE. |
- -----------------------------------------------------------------------------------------------------------------------------------
I) INTERESTED PARTY |___________________________________________________________________________________________________
OPTION | Name
|___________________________________________________________________________________________________
In addition to the |
account statement sent|___________________________________________________________________________________________________
to my/our registered | Address
address, I/we hereby |
authorize the fund |___________________________________________________________________________________________________
to mail duplicate | City State Zip Code
statements to the |
name and address |
provided at right. |
- -----------------------------------------------------------------------------------------------------------------------------------
J) DEALER |_______________________________________ ___________________________________ _______________________
INFORMATION |Representative Name Representative No. Branch No.
- -----------------------------------------------------------------------------------------------------------------------------------
K) SIGNATURE OF |The undersigned certify(ies) that I/we have full authority and legal capacity to purchase and redeem
ALL HOLDERS |shares of the Fund and affirm that I/we have received a current Prospectus of the Morgan Stanley
AND TAXPAYER |Institutional Fund, Inc. and agree to be bound by its terms. Under the penalties of perjury, I/we
CERTIFICATION |certify that the information provided in Section C) above is true, correct and complete.
|
|(X) (X)
SIGN HERE --> |------------------------------------------------ -----------------------------------------------------
|Signature Date Signature Date
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

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

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE FUND OR THE DISTRIBUTOR TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
-----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 9
Investment Objectives and Policies................ 12
Additional Investment Information................. 22
Investment Limitations............................ 25
Management of the Fund............................ 26
Purchase of Shares................................ 29
Redemption of Shares.............................. 31
Shareholder Services.............................. 33
Valuation of Shares............................... 34
Performance Information........................... 35
Dividends and Capital Gains Distributions......... 35
Taxes............................................. 37
Portfolio Transactions............................ 38
General Information............................... 40
Appendix A........................................ 41
Account Registration Form
</TABLE>

PORTFOLIOS OF THE

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

-------------
PROSPECTUS
-------------

Investment Adviser

Morgan Stanley
Asset Management Inc.

Distributor

Morgan Stanley & Co.
Incorporated

MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798

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

<PAGE>

(This page has been left blank intentionally.)

<PAGE>
SUPPLEMENT DATED JUNE 30, 1995
TO PROSPECTUS DATED MAY 1, 1995 OF

MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------

The prospectus dated May 1, 1995 (the "Prospectus") of the Small Cap Value
Equity, Value Equity and Balanced Portfolios of the Morgan Stanley Institutional
Fund, Inc. (the "Fund") is hereby amended and supplemented by adding the
following paragraph to page 20 before the paragraph with the heading "REDEMPTION
OF SHARES":

SMALL CAP VALUE EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO
BALANCED PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-548-7786
----------------

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and non-diversified series
("portfolios"). The Fund currently consists of twenty-seven portfolios offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of the
Portfolios are offered with no sales charge or exchange or redemption fee (with
the exception of one of the Portfolios). This Prospectus pertains to the Small
Cap Value Equity Portfolio, the Value Equity Portfolio and the Balanced
Portfolio (the "Portfolios").

The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued common stocks of small- to medium-sized corporations.

The VALUE EQUITY PORTFOLIO seeks high total return by investing in common
stocks which the Adviser believes to be undervalued relative to the stock market
in general at the time of purchase.

The BALANCED PORTFOLIO seeks high total return while preserving capital by
investing in a combination of undervalued common stocks and fixed income
securities.

The Fund is designed to meet the investment needs of discerning investors
who place a premium on quality and personal service. With Morgan Stanley Asset
Management Inc. as Adviser and Administrator (the "Adviser" and the
"Administrator"), and with Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as Distributor, the Fund makes available to institutional investors and high net
worth individual investors a series of portfolios which benefit from the
investment expertise and commitment to excellence associated with Morgan Stanley
and its Affiliates.

This Prospectus is designed to set forth concisely the information about the
Value Equity Portfolio, the Balanced Portfolio and the Small Cap Value Equity
Portfolio that a prospective investor should know before investing and it should
be retained for future reference. The Fund also offers other Portfolios which
are described in other prospectuses: The Fund currently offers the following
portfolios: (i) GLOBAL AND INTERNATIONAL EQUITY -- Active Country Allocation,
Asian Equity, China Growth, Emerging Markets, European Equity, Global Equity,
Gold, International Equity, International Small Cap, Japanese Equity and Latin
American Portfolios; (ii) U.S. EQUITY -- Aggressive Equity, Emerging Growth,
Equity Growth, Small Cap Value Equity, U.S. Real Estate and Value Equity
Portfolios; (iii) BALANCED -- Balanced Portfolio; (iv) FIXED INCOME -- Emerging
Markets Debt, Fixed Income, Global Fixed Income, High Yield, Mortgage-Backed
Securities, Municipal Bond and Real Yield Portfolios; and (v) MONEY MARKET --
Money Market and Municipal Money Market Portfolios. Additional information about
the Fund is contained in a "Statement of Additional Information", dated May 1,
1995, which is incorporated herein by reference. The Statement of Additional
Information and the Prospectuses pertaining to the other portfolios of the Fund
are available upon request and without charge by writing or calling the Fund at
the address and telephone number set forth above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
<PAGE>
FUND EXPENSES

The following table illustrates all expenses and fees that a shareholder of
each Portfolio will incur.
<TABLE>
<CAPTION>
SMALL CAP VALUE
VALUE EQUITY EQUITY BALANCED
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases........................ None None None
Maximum Sales Load Imposed on Reinvested Dividends............. None None None
Deferred Sales Load............................................ None None None
Redemption Fees................................................ None None None
Exchange Fees.................................................. None None None

SMALL CAP VALUE
VALUE EQUITY EQUITY BALANCED
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------ ------------- ----------- -----------
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
<S> <C> <C> <C>
Investment Advisory Fee (Net of Fee Waivers)................... 0.59%* 0.40%* 0.25%*
Administrative & Shareholder Account Costs..................... 0.15% 0.15% 0.15%
12b-1 Fees..................................................... None None None
Custody Fees................................................... 0.07% 0.04% 0.07%
Other Expenses................................................. 0.19% 0.11% 0.23%
------ ----------- -----------
Total Operating Expenses (Net of Fee Waivers).............. 1.00%* 0.70%* 0.70%*
------ ----------- -----------
------ ----------- -----------
</TABLE>

- --------------
*The Adviser has agreed to a reduction in the fees payable to it as Adviser and
to reimburse each Portfolio, if necessary, if such fees would cause the total
annual operating expenses of the Portfolios to exceed a specified percentage of
their respective average daily net assets. Set forth below are the maximum
total operating expenses after fee waivers and/or reimbursements and total
operating expenses absent such fee waivers and/or reimbursements, each as a
percent of average daily net assets.

<TABLE>
<CAPTION>
MAXIMUM TOTAL OPERATING
EXPENSES AFTER FEE TOTAL OPERATING EXPENSES
PORTFOLIO WAIVERS ABSENT FEE WAIVERS
- ---------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Small Cap Value Equity........................ 1.00% 1.26%
Value Equity.................................. 0.70% 0.80%
Balanced...................................... 0.70% 0.95%
</TABLE>

As a result of these reductions, the Investment Advisory Fees stated above
are lower than the contractual fees stated under "Management of the Fund." For
further information on Fund expenses, see "Management of the Fund."

The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Portfolios will bear directly or
indirectly. The expenses and fees are based on actual figures for the fiscal
year ended December 31, 1994. "Other Expenses" include Directors' fees and
expenses, amortization of organizational costs, filing fees, professional fees,
and costs for reports to shareholders.

2
<PAGE>
The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the Portfolios charge
no redemption fees of any kind. The following example is based on total
operating expenses of the Portfolios after fee waivers.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Value Equity Portfolio................................. $ 10 $ 32 $ 55 $ 122
Value Equity Portfolio........................................... 7 22 39 87
Balanced Portfolio............................................... 7 22 39 87
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The Fund intends to comply with all state laws that restrict investment
company expenses. Currently, the most restrictive state law requires that the
aggregate annual expenses of an investment company shall not exceed two and
one-half percent (2 1/2%) of the first $30 million of average net assets, two
percent (2%) of the next $70 million of average net assets, and one and one-half
percent (1 1/2%) of the remaining net assets of such investment company.

FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for each of the respective
periods presented for the Small Cap Value Equity, Value Equity and Balanced
Portfolios, and are part of the Fund's financial statements which appear in the
Fund's December 31, 1994 Annual Report to Shareholders and which are
incorporated by reference into the Fund's Statement of Additional Information.
The financial highlights for each of the periods presented have been audited by
Price Waterhouse LLP, whose report thereon (which was unqualified) is also
incorporated by reference into the Statement of Additional Information.
Additional performance information is contained in the Annual Report. The Annual
Report and the financial statements therein, along with the Statement of
Additional Information, are available at no cost from the Fund at the address
and telephone number noted on the cover page of this Prospectus. Subsequent to
October 31, 1992 (the Fund's prior fiscal year end) the Fund changed its fiscal
year end to December 31. The following information should be read in conjunction
with the financial statements and notes thereto.

3
<PAGE>
SMALL CAP VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
DECEMBER 17, 1992* TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
--------------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $10.00 $10.14 $11.10
--------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).................................. 0.01 0.24 0.28
Net Realized and Unrealized Gain/(Loss) on Investments..... 0.13 0.90 (0.01)
--------- --------- -------
Total from Investment Operations......................... 0.14 1.14 0.27
--------- --------- -------
DISTRIBUTIONS
Net Investment Income...................................... -- (0.18) (0.27)
Net Realized Gain.......................................... -- -- (0.30)
--------- --------- -------
Total Distributions...................................... -- (.018) (0.57)
--------- --------- -------
NET ASSET VALUE, END OF PERIOD............................... $10.14 $11.10 $10.80
--------- --------- -------
--------- --------- -------
TOTAL RETURN................................................. 1.40% 11.33% 2.53%
--------- --------- -------
--------- --------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........................ $5,974 $26,775 $40,033
Ratio of Expenses to Average Net Assets (1)(2)............... 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets
(1)(2)...................................................... 1.64%** 2.56% 2.67%
Portfolio Turnover Rate...................................... 0% 29% 22%

</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income................ $0.13 $0.06 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets............................ 23.14%** 1.68% 1.26%
Net Investment Income (Loss) to Average Net Assets........ (20.50)%** 1.88% 2.41%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.85%
of the average daily net assets of the Small Cap Value Equity Portfolio. The
Adviser has agreed to waive a portion of this fee and/or reimburse expenses
of the Portfolio to the extent that the total operating expenses of the
Portfolio exceed 1.00% of the average daily net assets of the Portfolio. In
the period ended December 31, 1992 and the years ended December 31, 1993 and
1994, the Adviser waived advisory fees and/or reimbursed expenses totalling
$38,000, $123,000 and $94,000, respectively, for the Small Cap Value Equity
Portfolio.

* Commencement of Operations.

** Annualized.
</TABLE>

4
<PAGE>
VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
JANUARY TWO MONTHS
31, 1990* YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
TO OCTOBER OCTOBER OCTOBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31, 31,
1990 1991 1992 1992 1993 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $10.00 $8.59 $10.24 $10.71 $11.31 $12.63
-------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1)... 0.37 0.46 0.38 0.08 0.37 0.40
Net Realized and Unrealized
Gain/(Loss) on
investments................ (1.45) 1.67 0.48 0.52 1.31 (0.55)
--------- ------ ------ ------ ------- ------
Total from Investment
Operations............... (1.08) 2.13 0.86 0.60 1.68 (0.15)
--------- ------ ------ ------ ------- ------
DISTRIBUTIONS
Net Investment Income....... (0.33) (0.48) (0.39) -- (0.36) (0.40)
Net Realized Gain........... -- -- -- -- -- (0.58)
--------- ------ ------ ------ ------- ------
Total Distributions....... (0.33) (0.48) (0.39) -- (0.36) (0.98)
--------- ------ ------ ------ ------- ------
NET ASSET VALUE, END OF
PERIOD....................... $8.59 $10.24 $10.71 $11.31 $12.63 $11.50
--------- ------ ------ ------ ------- ------
--------- ------ ------ ------ ------- ------
TOTAL RETURN.................. (11.05)% 25.34% 8.51% 5.60% 15.14% (1.29)%
--------- ------ ------ ------ ------- ------
--------- ------ ------ ------ ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).................. $18,178 $16,304 $25,013 $27,541 $54,598 $73,406
Ratio of Expenses to Average
Net Assets (1)(2)............ 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70%
Ratio of Net Investment Income
to Average Net Assets
(1)(2)....................... 5.46%** 4.57% 3.72% 4.41%** 3.23% 3.37%
Portfolio Turnover Rate....... 70% 90% 56% 9% 51% 33%
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary
expense limitation during
the period:
Per share benefit to net
investment income........ $0.01 $0.02 $0.01 $0.01 $0.03 $0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets................... 0.88%** 0.87% 0.84% 1.20%** 0.95% 0.80%
Net Investment Income to
Average Net Assets....... 5.28%** 4.40% 3.58% 3.91%** 2.98% 3.27%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.50%
of the average daily net assets of the Value Equity Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.70% of the average daily net assets of the Portfolio. In the period
ended October 31, 1990, the years ended October 31, 1991 and 1992, the two
months ended December 31, 1992 and the years ended December 31, 1993 and
1994, the Adviser waived advisory fees and/or reimbursed expenses totalling
$26,000, $25,000, $27,000, $24,000, $106,000 and $73,000, respectively, for
the Value Equity Portfolio.

* Commencement of Operations.

** Annualized.

</TABLE>
5
<PAGE>
BALANCED PORTFOLIO

<TABLE>
<CAPTION>
FEBRUARY 20,
1990* YEAR ENDED YEAR ENDED TWO MONTHS ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1990 1991 1992 1992 1993 1994
----------------- ----------- ----------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $10.00 $9.62 $10.61 $11.00 $11.31 $11.13
--------- ------- -------- --------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1)..... 0.40 0.59 0.58 0.10 0.44 0.42
Net Realized and Unrealized
Gain (Loss) on Investments... (0.46) 1.03 0.42 0.21 0.79 (0.64)
--------- ------- -------- --------- -------- -------
Total from Investment
Operations................. (0.06) 1.62 1.00 0.31 1.23 (0.22)
--------- ------- -------- --------- -------- -------
DISTRIBUTIONS
Net Investment Income......... (0.32) (0.63) (0.58) -- (0.41) (0.49)
In Excess of Net Investment
Income....................... -- -- -- -- (0.08) --
Net Realized Gain............. -- -- (0.03) -- (0.06) (1.46)
In Excess of Net Realized
Gain......................... -- -- -- -- (0.86) --
--------- ------- -------- --------- -------- -------
Total Distributions......... (0.32) (0.63) (0.61) -- (1.41) (1.95)
--------- ------- -------- --------- -------- -------
NET ASSET VALUE, END OF
PERIOD......................... $9.62 $10.61 $11.00 $11.31 $11.13 $8.96
--------- ------- -------- --------- -------- -------
--------- ------- -------- --------- -------- -------
TOTAL RETURN.................... (0.63)% 17.31% 9.57% 2.82% 12.09% (2.32)%
--------- ------- -------- --------- -------- -------
--------- ------- -------- --------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).................... $37,444 $51,334 $40,332 $39,984 $29,684 $18,492
Ratio of Expenses to Average Net
Assets (1)(2).................. 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70%
Ratio of Net Investment Income
to Average Net Assets (1)(2)... 6.81%** 5.99% 5.21% 5.29%** 3.88% 4.13%
Portfolio Turnover Rate......... 19% 67% 40% 4% 136% 44%
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary
expense limitation during
the period:
Per share benefit to net
investment income........ $0.01 $0.01 $0.01 $0.01 $0.04 $0.03
Ratios before expense
limitation:
Expenses to Average Net
Assets................... 0.90%** 0.78% 0.79% 1.00%** 1.02% 0.95%
Net Investment Income to
Average Net Assets....... 6.61%** 5.91% 5.12% 4.99%** 3.56% 3.88%

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.50%
of the average daily net assets of the Balanced Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.70% of the average daily net assets of the Portfolio. In the period
ended October 31, 1990, the years ended October 31, 1991 and 1992, the two
months ended December 31, 1992 and the years ended December 31, 1993 and
1994, the Adviser waived advisory fees and/or reimbursed expenses totalling
$38,000, $39,000, $40,000, $20,000, $115,000 and $60,000, respectively, for
the Balanced Portfolio.

* Commencement of Operations.

** Annualized.
</TABLE>

6
<PAGE>
PROSPECTUS SUMMARY

THE FUND

The Fund consists of twenty-seven portfolios, offering institutional
investors and high net worth individual investors a broad range of investment
choices coupled with the advantages of a no-load mutual fund with Morgan Stanley
and its affiliates providing customized services as Adviser, Administrator,
Distributor and, in certain instances, Custodian. Each portfolio has its own
investment objectives and policies designed to meet specific goals. This
Prospectus pertains to the Small Cap Value Equity Portfolio, the Value Equity
Portfolio and the Balanced Portfolio.

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued common stocks of small- to medium-sized
corporations.

-The VALUE EQUITY PORTFOLIO seeks high total return by investing in common
stocks which the Adviser believes to be undervalued relative to the stock
market in general at the time of purchase.

-The BALANCED PORTFOLIO seeks high total return while preserving capital by
investing in a combination of undervalued common stocks and fixed income
securities.

The other portfolios of the Fund are described in other Prospectuses which
may be obtained from the Fund at the address and phone number noted on the cover
page of this Prospectus. The objectives of these other portfolios are listed
below:
GLOBAL AND INTERNATIONAL EQUITY:

-The ASIAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in the common stocks of Asian issuers.

-The CHINA GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in the equity securities of issuers in The People's
Republic of China, Hong Kong and Taiwan.

-The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation by
investing primarily in common stocks of emerging country issuers.

-The EUROPEAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in the common stocks of European issuers.

-The GLOBAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in the common stocks of issuers throughout the world,
including United States issuers.

-The GOLD PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of foreign and domestic issuers engaged in
gold-related activities.

-The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in the common stocks of non-United States issuers.

-The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in the common stocks of non-United States issuers
with equity market capitalizations of less than $500 million.

-The JAPANESE EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Japanese issuers.

7
<PAGE>
-The LATIN AMERICAN PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Latin American issuers and debt
securities issued or guaranteed by Latin American governments or
governmental entities.

US EQUITY:

-The AGGRESSIVE EQUITY PORTFOLIO seeks capital appreciation by investing
primarily in corporate equity and equity-linked securities.

-The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented common stocks of small- to
medium-sized corporations.

-The EQUITY GROWTH PORTFOLIO seeks long-term capital appreciation by
investing in growth-oriented common stocks of medium and large
capitalization companies.

FIXED INCOME:

-The EMERGING MARKETS DEBT PORTFOLIO seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

-The FIXED INCOME PORTFOLIO seeks to produce a high total return consistent
with the preservation of capital by investing in a diversified portfolio of
fixed income securities.

-The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with the preservation of principal through investment
primarily in municipal obligations, the interest on which is exempt from
federal income tax.

-The REAL YIELD PORTFOLIO seeks to produce an attractive real rate of return
while preserving capital by investing in fixed income securities of issuers
throughout the world, other than U.S. issuers.

MONEY MARKET:

INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc., a wholly owned subsidiary of Morgan
Stanley Group Inc., which, together with its affiliated asset management
companies, at December 31, 1994 had approximately $48.7 billion in assets under
management as an investment manager or as a fiduciary adviser, acts as
investment adviser to the Fund and each of its Portfolios. See "Management of
the Fund -- Investment Adviser" and "-- Administrator."

8
<PAGE>
HOW TO INVEST

Shares of each Portfolio are offered directly to investors at net asset
value with no sales commission or 12b-1 charges. Share purchases may be made by
sending investments directly to the Fund. The minimum initial investment is
$500,000 for each Portfolio described in this Prospectus. The minimum for
subsequent investments is $1,000 for each Portfolio (except for automatic
reinvestment of dividends and capital gains distributions for which there are no
minimums). The minimum investment levels may be waived for certain Morgan
Stanley employees and customers at the discretion of the Adviser. See "Purchase
of Shares."

HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of the Portfolio next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. If a shareholder reduces its total investment in shares of any Portfolio
to less than $500,000, the investment may be subject to redemption. See
"Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio may invest
in securities of foreign issuers and forward foreign currency exchange
contracts, which are subject to certain risks not typically associated with U.S.
securities. Because the Small Cap Value Equity Portfolio seeks high long-term
total return by investing primarily in small-to medium sized corporations which
are more vulnerable to financial risks and other risks than larger corporations,
investments may involve a higher degree of risk and price volatility than
investments in the general equity markets. See "Investment Objectives and
Policies" and "Additional Investment Information." In addition, each Portfolio
may invest in repurchase agreements, lend its portfolio securities and purchase
securities on a when-issued basis or delayed delivery basis and invest in
forward foreign currency exchange contracts to hedge currency risk associated
with investments in non-U.S. dollar-denominated securities. The Portfolios may
also invest indirectly in securities through sponsored or unsponsored American
Depositary Receipts. Each Portfolio may invest in short-term or medium-term debt
securities or hold cash or cash equivalents for temporary defensive purposes.
The Portfolios may also invest in stock options, stock futures contracts and
options on stock futures contracts. Each of these investment strategies involves
specific risks which are described under "Investment Objectives and Policies"
and "Additional Investment Information" herein and under "Investment Objectives
and Policies" in the Statement of Additional Information.

9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objectives of each Portfolio are described below, together
with the policies the Fund employs in its efforts to achieve these objectives.
Each Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Fund will attain its objectives. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval.

THE SMALL CAP VALUE EQUITY PORTFOLIO

The Portfolio's investment objective is to provide high total return by
investing in common stocks of small-to medium-sized corporations that the
Adviser believes to be undervalued relative to the stock market in general at
the time of purchase. The Portfolio invests primarily in corporations domiciled
in the U.S. with equity market capitalizations that range generally from $70
million up to $1 billion, but may from time to time invest in similar size
foreign corporations. Under normal circumstances, the Portfolio will invest at
least 65% of the value of its total assets in corporations whose equity market
capitalization is up to $1 billion. The Portfolio may invest up to 35% of the
value of its total assets in corporations which are generally smaller than the
500 largest corporations in the United States. Common stocks for this purpose
include common stocks and equivalents of any class or series, such as securities
convertible into common stock and securities having common stock
characteristics, such as rights and warrants to purchase common stocks, and
similar equity interests, such as trusts or partnership interests. These
investments may or may not carry voting rights.

The Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run.

Companies considered attractive will have the following characteristics:

1. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies;

2. Stock prices will be low relative to the intrinsic value of the
companies' assets;

3. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations; and

4. Stocks will be of high quality, in the Adviser's judgment, as
evaluated by the companies' balance sheets, income statements,
franchises and product competitiveness.

The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features, which, according to the Adviser's
assessment, will allow the stocks to achieve a higher valuation. Value is
achieved and exposure is reduced for the Portfolio when the investment
community's perceptions improve and the stocks approach what the Adviser
believes is fair valuation.

The Adviser takes a long-term approach by placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market fluctuations or to acquire securities for the

10
<PAGE>
purpose of short-term trading. However, the Adviser may take advantage of
short-term opportunities that are consistent with its objective of high total
return. The Portfolio will maintain diversity among industries and does not
expect to invest more than 25% of its total assets in the stocks of issuers in
any one industry.

The Portfolio primarily invests in small- to medium-sized companies
domiciled in the U.S. The portfolio may, on occasion, invest in common stocks of
foreign issuers that trade on a United States exchange or over-the-counter in
the form of American Depositary Receipts or common stocks. See "Additional
Investment Information."

THE VALUE EQUITY PORTFOLIO

The investment objective of the Portfolio is to achieve high total return
(i.e., long-term growth of capital and high current income) by investing in
common stocks that the Adviser believes to be undervalued relative to the stock
market in general at the time of purchase. It seeks superior market cycle total
returns, with an emphasis on strong relative performance in falling markets. The
Portfolio invests primarily in the common stocks of large capitalization
companies mainly domiciled in the U.S. For this purpose common stocks include
common stocks and equivalents, such as securities convertible into common stocks
and securities having common stock characteristics, such as rights and warrants
to purchase common stocks. Under normal circumstances, the Portfolio will invest
at least 65% of the value of its total assets in equity securities.

The Adviser invests with the philosophy that a diversified portfolio of
undervalued equity securities will outperform the market over the long term, as
well as preserve principal in difficult market environments. Companies
considered attractive will have the following characteristics: 1) stocks most
often will have distinctly above average dividend yields, 2) the market prices
of the stocks will be undervalued relative to the normal earning power of the
company, 3) many stocks will sell at close to or below the replacement value of
their assets and 4) most stocks' market prices will have underperformed the
general market due to a lower level of investor expectations regarding the
company outlook. The thrust of this approach is to seek investments where
current investor enthusiasm is low, as reflected in their valuations. Exposure
is reduced when the investment community's perceptions improve and the company
approaches fair valuation.

The Adviser takes a long-term investment approach by placing a strong
emphasis on its ability to determine attractive values and does not try to
determine short-term changes in the general market level. The Portfolio will
maintain diversity among industries by not investing more than 25% of its total
assets in the stocks of issuers in any one industry. The Portfolio may invest up
to 25% of its total assets in the common stocks of foreign issuers, including
American Depositary Receipts. See "Additional Investment Information."

THE BALANCED PORTFOLIO

The investment objective of the Portfolio is to achieve high total return
while preserving capital by investing in a combination of undervalued common
stocks and fixed income securities. The Portfolio seeks strong total returns in
all market conditions, with a special emphasis on minimizing interim declines
during falling equity markets. It primarily invests in large capitalization
equity securities, intermediate-maturity bonds and cash equivalents.

The Adviser uses a valuation-driven balanced portfolio philosophy which
combines separate equity, fixed income and asset allocation strategies. The
equity investment approach is the same one used for the Value Equity Portfolio.
This produces a portfolio of stocks with low price-to-earnings and price-to-book
ratios and high

11
<PAGE>
dividend yields. The fixed income strategy values bonds using historical yield
differentials. Short and intermediate government, corporate and mortgage bonds
are used exclusively to implement the Portfolio's fixed income strategy. The
asset allocation strategy shifts the stock/bond/cash equivalent mix relative to
calculated risk and return levels. All three strategies use historical capital
market behavior to reach conclusions.

The Portfolio will typically maintain between 35% and 65% of its total
assets invested in common stocks, depending upon the Adviser's assessment of
market conditions. In overvalued equity markets, the common stock exposure will
be at the low end of this range. It is expected that equity exposure will
average approximately 55% over time.

Fixed income securities in which the Portfolio may invest include U.S.
Government securities, mortgage-backed securities, corporate bonds, bank
obligations and other short-term money market instruments. The average maturity
of the fixed income securities in the Portfolio will, under normal
circumstances, be approximately five years, although this will vary with
changing market conditions. Up to 25% of the Portfolio's total assets may be
invested in the securities of foreign issuers. See "Additional Investment
Information."

ADDITIONAL INVESTMENT INFORMATION

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. In such transactions,
instruments are bought with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous yield or price at the
time of the transaction. Delivery of and payment for these securities may take
as long as a month or more after the date of the purchase commitment, but will
take place no more than 120 days after the trade date. Each Portfolio will
maintain with the Custodian a separate account with a segregated portfolio of
high-grade debt securities or cash in an amount at least equal to these
commitments. The payment obligation and the interest rates that will be received
are each fixed at the time a Portfolio enters into the commitment and no
interest accrues to the Portfolio until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. It is a
current policy of each Portfolio not to enter into when-issued commitments
exceeding, in the aggregate, 15% of the market value of the Portfolio's total
assets less liabilities other than the obligations created by these commitments.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week,
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The aggregate of certain repurchase
agreements and certain other investments is limited as set forth under
"Investment Limitations."

12
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its securities to
brokers, dealers, domestic and foreign banks or other financial institutions for
the purpose of increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral, or by a letter of credit at least
equal to the market value of the securities loaned plus accrued interest or
income. There may be a risk of delay in recovery of the securities or even loss
of rights in the collateral should the borrower of the securities fail
financially. A Portfolio will not enter into securities loan transactions
exceeding, in the aggregate, 33 1/3% of the market value of the Portfolio's
total assets. Securities lending entails certain risks of delay in recovery or
loss of rights in collateral in the event of the insolvency of the borrower. For
more detailed information about securities lending see "Investment Objectives
and Policies" in the Statement of Additional Information.

DEPOSITARY RECEIPTS. The Portfolios are permitted to invest indirectly in
securities of foreign companies through sponsored or unsponsored American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other
types of Depositary Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"), to the extent
such Depositary Receipts are or become available. Depositary Receipts are not
necessarily denominated in the same currency as the underlying securities. In
addition, the issuers of the securities underlying unsponsored Depositary
Receipts are not obligated to disclose material information in the U.S. and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a U.S.
financial institution which evidence ownership interests in a security or pool
of securities issued by a foreign issuer. GDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
also may be issued by U.S. financial institutions, and evidence ownership
interests in a security or pool of securities issued by either a foreign or a
U.S. corporation. Generally, Depositary Receipts in registered form are designed
for use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the U.S. For purposes of each
Portfolio's investment policies, the Portfolio's investments in Depositary
Receipts will be deemed to be investments in the underlying securities.

STOCK OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In order
to remain fully invested, and to reduce transaction costs, the Portfolios may
utilize appropriate stock futures contracts and options to a limited extent.
Because transaction costs associated with futures and options may be lower than
the costs of investing in stocks directly, it is expected that the use of index
futures and options to facilitate cash flows may reduce the Portfolios' overall
transaction costs. The Portfolios will engage in futures and options
transactions only for hedging purposes.

A Portfolio may enter into futures contracts provided that not more than 5%
of the Portfolio's total assets are required as deposit to secure obligations
under such contracts.

13
<PAGE>
transactions traded on national exchanges and for which there appears to be a
liquid secondary market. For more detailed information about futures
transactions see "Investment Objectives and Policies" in the Statement of
Additional Information.

TEMPORARY INVESTMENTS. During periods in which the Adviser believes changes
in economic, financial or political conditions make it advisable the Portfolios
may reduce their holdings in equity and other securities, for temporary
defensive purposes, and the Portfolios may invest in certain short-term (less
than twelve months to maturity) and medium-term (not greater than five years to
maturity) debt securities or may hold cash. The short-term and medium-term debt
securities in which the Portfolio may invest consist of (a) obligations of the
U.S. or foreign country governments, their respective agencies or
instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign country banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign country
corporations meeting the Portfolio's credit quality standards; and (e)
repurchase agreements with banks and broker-dealers with respect to such
securities. For temporary defensive purposes, the Portfolios intend to invest
only in short-term and medium-term debt securities that the Adviser believes to
be of high quality, i.e., subject to relatively low risk of loss of interest or
principal.

MONEY MARKET INSTRUMENTS. Each Portfolio is permitted to invest in money
market instruments, although the Portfolios intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. Each Portfolio may make money market investments pending other
investment or settlement for liquidity, or in adverse market conditions. The
money market investments permitted for the Portfolios include: obligations of
the United States Government and its agencies and instrumentalities; other debt
securities; commercial paper including bank obligations; certificates of deposit
(including Eurodollar certificates of deposit); and repurchase agreements. For
more detailed information about these money market investments, see "Description
of Securities and Ratings" in the Statement of Additional Information.

FOREIGN INVESTMENT RISK FACTORS. Each Portfolio may invest in securities of
foreign issuers. Investment in obligations of foreign issuers and in foreign
branches of domestic banks involves somewhat different investment risks than
those affecting obligations of U.S. issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers are
not generally subject to uniform accounting,

14
<PAGE>
auditing and financial standards and requirements comparable to those applicable
to U.S. companies. There may also be less government supervision and regulation
of foreign securities exchanges, brokers and listed companies than in the U.S.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes, which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolios by domestic companies. It is not expected that a
Portfolio or its shareholders would be able to claim a credit for U.S. tax
purposes with respect to any such foreign taxes. See "Taxes." Additional risks
include future political and economic developments, the possibility that a
foreign jurisdiction might impose or change withholding taxes on income payable
with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls.

Such investments in securities of foreign issuers are frequently denominated
in foreign currencies, and since the Portfolios may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the value of each Portfolio's
assets as measured in U.S. dollars may be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and the
Portfolios may incur costs in connection with conversions between various
currencies.

INVESTMENT LIMITATIONS

As a diversified investment company, each Portfolio is subject to the
following limitations: (a) as to 75% of its total assets, a Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the United States Government and its agencies and
instrumentalities, and (b) a Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer.

Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. Each Portfolio
may not (i) enter into repurchase agreements with more than seven days to
maturity if, as a result, more than 10% of the market value of the Portfolio's
total assets would be invested in such repurchase agreements and other
investments for which market quotations are not readily available or which are
otherwise illiquid; (ii) borrow money, except from banks for extraordinary or
emergency purposes, and then only in amounts up to 10% of the value of the
Portfolio's total assets, taken at cost at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; (iii) invest in fixed time deposits with a duration of over seven
calendar days; or (iv) invest in fixed time deposits with a duration of from two
business days to seven calendar days if more than 10% of the Portfolio's total
assets would be invested in these deposits.

15
<PAGE>
MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Investment
Adviser and Administrator of the Fund and each of the Portfolios. The Adviser
provides investment advice and portfolio management services, pursuant to an
Investment Advisory Agreement and, subject to the supervision of the Fund's
Board of Directors, makes each of the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages each of the Portfolio's investments. The Adviser is entitled to receive
from each Portfolio an annual investment advisory fee, payable quarterly, equal
to the percentage of average daily net assets set forth in the table below.
However, the Adviser has agreed to a reduction in the fees payable to it and to
reimburse the Portfolios, if necessary, if such fees would cause the total
annual operating expenses of any Portfolio to exceed the respective percentage
of average daily net assets set forth in the table below.

<TABLE>
<CAPTION>
MAXIMUM TOTAL
INVESTMENT OPERATING EXPENSES
PORTFOLIO ADVISORY FEE AFTER FEE WAIVERS
- ------------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
Small Cap Value Equity Portfolio............................. 0.85% 1.00%
Value Equity Portfolio....................................... 0.50% 0.70%
Balanced Portfolio........................................... 0.50% 0.70%
</TABLE>

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. At December 31, 1994, the Adviser, together with its
affiliated asset management companies, managed investments totaling
approximately $48.7 billion, including approximately $35.6 billion under active
management and $13.1 billion as Named Fiduciary or Fiduciary Adviser. See
"Management of the Fund" in the Statement of Additional Information.

PORTFOLIO MANAGERS

Michael A. Crowe, Stephen C. Sexauer and Alford E. Zick, Jr. have primary
responsibility for managing the Balanced Portfolio and the Value Equity
Portfolio; Mr. Crowe has had such responsibility since September, 1992 and Mr.
Sexauer and Mr. Zick have had such responsibility since the Portfolios'
inception in February and January, 1990, respectively. Michael A. Crowe and
Christian K. Stadlinger have had primary responsibility for managing the Small
Cap Value Equity Portfolio and have had such responsibility since its inception
in December, 1992.

MICHAEL A. CROWE. Mr. Crowe is a Managing Director of Morgan Stanley and
Chief Operating Officer of the Adviser's Chicago office, with overall
responsibility for the Adviser's U.S. large-capitalization value equity, U.S.
small-capitalization value equity, and value balanced products. His equity
research responsibilities include the energy, bank, and financial diversified
sectors. Previously, he had been Worldwide Director of Marketing for the
Adviser; prior to that, he was a Portfolio Manager and Senior Business
Development Officer of the Adviser's Chicago office. Before joining Morgan
Stanley in 1986, Mr. Crowe was senior vice president and midwestern regional
manager for Callan Associates, a large, privately-held investment management
consulting firm. At Callan, he served as the consultant to some of the major
public and private pension plans in the U.S. Prior to his tenure at Callan, Mr.
Crowe was a vice president of Continental Illinois National Bank and a member of
the trust investment committee, which set overall investment policy for the
trust department. Mr. Crowe began his financial services career with Kidder
Peabody & Co. and Blyth Eastman Dillon. He received his B.A. and his M.B.A. from
Western Michigan University.

16
<PAGE>
STEPHEN C. SEXAUER. Mr. Sexauer is a Principal of Morgan Stanley and is a
member of the investment management team of the Adviser's Chicago affiliate as
well as Vice President of the Adviser. In addition to portfolio management, his
equity research responsibilities include aerospace, industrials, capital goods,
transportation, and diversified financial companies. Mr. Sexauer joined the firm
in July 1989 after three years as a Vice President at Salomon Brothers.
Previously, he was with Merrill Lynch Economics and Wharton Econometrics. Mr.
Sexauer received a B.S. in Economics from the University of Illinois and an
M.B.A. in Economics and Statistics from the University of Chicago.

CHRISTIAN K. STADLINGER. Mr. Stadlinger is a Vice President of the Adviser
and manages the small-cap value equity product of the Adviser's Chicago
affiliate. He became a member of the Adviser's Chicago large cap value portfolio
management team, specializing in quantitative and fundamental research, upon
completion of his doctoral dissertation at Northwestern University in April
1989. Mr. Stadlinger was the catalyst in the development of the Adviser's
small-cap value product, and he continues to research and develop structured
valuation techniques in the area of small cap investing. Mr. Stadlinger has a
degree in Computer Science and Economics from the University of Vienna, a Ph.D.
in Economics from Northwestern University, and is a Certified Financial Analyst.

ALFORD E. ZICK, JR. Mr. Zick is a Principal of Morgan Stanley and is a
member of the investment management team of the Adviser's Chicago affiliate. In
addition to portfolio management, his equity research responsibilities include
consumer staples, retail and insurance companies. He became a member of the
Adviser's Chicago investment management team in August 1989, after an extensive
career in asset management with Chicago Pacific Corporation, Staley Continental,
Inc., and A.E. STALEY Manufacturing Company. Mr. Zick has a degree in accounting
from the University of Illinois.

ADMINISTRATOR. The Adviser also provides the Fund with administrative
services pursuant to an Administration Agreement. The services provided under
the Administration Agreement are subject to the supervision of the Officers and
the Board of Directors of the Fund and include day-to-day administration of
matters related to the corporate existence of the Fund, maintenance of its
records, preparation of reports, supervision of the Fund's arrangements with its
custodian, and assistance in the preparation of the Fund's registration
statements under federal and state laws. The Administration Agreement also
provides that the Administrator, through its agents, will provide the Fund
dividend disbursing and transfer agent services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which, on an
annual basis equals, 0.15% of the average daily net assets of each Portfolio.

Under the U.S. Trust Administration Agreement between the Adviser and United
States Trust Company of New York ("U.S. Trust"), U.S. Trust has agreed to
provide certain administrative services to the Fund. Pursuant to a delegation
clause in the U.S. Trust Administration Agreement, U.S. Trust delegates its
responsibilities to Mutual Funds Service Company ("MFSC"), a subsidiary of U.S.
Trust that provides certain administrative services to the Fund. The Adviser
supervises and monitors such administrative services provided by MFSC. The
services provided under the Administration Agreement and the U.S. Trust
Administration Agreement are also subject to the supervision of the Board of
Directors of the Fund. The Board of Directors of the Fund has approved the
provision of services described above pursuant to the Administration Agreement
and the U.S. Trust Administration Agreement as being in the best interests of
the Fund. MFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913. For additional information regarding the Administration Agreement or
the U.S. Trust Administration Agreement, see "Management of the Fund" in the
Statement of Additional Information.

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<PAGE>
DIRECTORS AND OFFICERS. Pursuant to the Fund's Articles of Incorporation,
the Board of Directors decides upon matters of general policy and reviews the
actions of the Fund's Adviser, Administrator and Distributor. The Officers of
the Fund conduct and supervise its daily business operations.

PURCHASE OF SHARES

Shares of each Portfolio may be purchased without sales commission, at the
net asset value per share next determined after receipt of the purchase order.
See "Valuation of Shares."

INITIAL INVESTMENTS

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
each Portfolio, with certain exceptions for Morgan Stanley employees and
select customers) payable to "Morgan Stanley Institutional Fund, Inc. --
[portfolio name]," to:

Morgan Stanley Institutional Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798

Payment will be accepted only in U.S. dollars, unless prior approval for payment
by other currencies is given by the Fund. The portfolio(s) to be purchased
should be designated on the Account Registration Form. For purchases by check,
the Fund is ordinarily credited with Federal Funds within one business day.
Thus, your purchase of shares by check is ordinarily credited to your account at
the net asset value per share of the relevant Portfolio determined on the next
business day after receipt.

18
<PAGE>
B. Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account (be sure to have your bank include the name of
the portfolio(s) selected and the account number assigned to you):

Please call before wiring funds: 1-800-548-7786

C. Complete the Account Registration Form and mail it to the address shown
thereon.

Federal Funds purchase orders will be accepted only on a day on which the Fund
and the United States Trust Company of New York (the "Custodian Bank") are
open for business. Your bank may charge a service fee for wiring funds.

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000 for each Portfolio, except for automatic reinvestment of dividends and
capital gains distributions for which there are no minimums) by purchasing
shares at net asset value by mailing a check to the Fund (payable to "Morgan
Stanley Institutional Fund, Inc. -- [portfolio name]") at the above address or
by wiring monies to the Custodian Bank as outlined above. It is very important
that your account name and portfolio name be specified in the letter or wire to
assure proper crediting to your account. In order to help to ensure that your
wire orders are invested promptly, you are requested to notify one of the Fund's
representatives (toll free 1-800-548-7786) prior to sending the wire.

OTHER PURCHASE INFORMATION

The purchase price of the shares of each portfolio is the net asset value
next determined after the order is received. See "Valuation of Shares." An order
received prior to the close of the New York Stock Exchange ("NYSE"), which is
currently 4:00 p.m. Eastern Time, will be executed at the price computed on the
date of receipt; an order received after the close of the NYSE will be executed
at the price computed on the next day the NYSE is open.

In the interest of economy and convenience, and because of the operating
procedures of the Fund, certificates representing shares of the Portfolios will
not be issued. All shares purchased are confirmed to you and credited to your
account on the Fund's books maintained by the Adviser or its agents. You will
have the same rights and ownership with respect to such shares as if
certificates had been issued.

19
<PAGE>
To assure that checks are collected by the Fund, withdrawals of investments
made by check are not presently permitted until payment for the purchase has
been received, which may take up to eight business days after the date of
purchase. As a condition of this offering, if a purchase is cancelled due to
nonpayment or because your check does not clear, you will be responsible for any
loss the Fund or its agents incur. If you are already a shareholder, the Fund
may redeem shares from your account(s) to reimburse the Fund or its agents for
any loss. In addition, you may be prohibited or restricted from making future
investments in the Fund.

Investors may also invest in the Fund by purchasing shares through
registered broker-dealers. Broker-dealers who make purchases for their customers
may charge a fee for such services.

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until payment of the purchase has been collected, which
may take up to eight business days after purchase. The Fund will redeem shares
of each Portfolio at its next determined net asset value. On days that both the
NYSE and the Custodian Bank are open for business, the net asset values per
share of each of the Portfolios is determined at the close of trading of the
NYSE (currently 4:00 p.m. Eastern Time). Shares of each Portfolio may be
redeemed by mail or telephone. No charge is made for redemption. Any redemption
proceeds may be more or less than the purchase price of your shares depending
on, among other factors, the market value of the investment securities held by
the Portfolio.

BY MAIL

Each Portfolio will redeem its shares at the net asset value determined on
the date the request is received, if the request is received in "good order"
before the regular close of the NYSE. Your request should be addressed to Morgan
Stanley Institutional Fund, Inc., P.O. Box 2798, Boston, Massachusetts
02208-2798, except that deliveries by overnight courier should be addressed to
Morgan Stanley Institutional Fund, Inc., c/o Mutual Funds Service Company, 73
Tremont Street, Boston, Massachusetts 02108.

"Good order" means that the request to redeem shares must include the
following documentation:

(b) Any required signature guarantees (see "Further Redemption
Information" below); and

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

Shareholders who are uncertain of requirements for redemption should consult
with a Morgan Stanley Institutional Fund representative.

BY TELEPHONE

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<PAGE>
be difficult to implement. If you experience difficulty in making a telephone
redemption, your request may be made by mail or overnight courier, and will be
implemented at the net asset value next determined after it is received.
Redemption requests sent to the Fund through overnight courier must be sent to
Morgan Stanley Institutional Fund, Inc., c/o Mutual Funds Service Company, 73
Tremont Street, Boston, Massachusetts 02108. The Fund and the Fund's transfer
agent (the "Transfer Agent") will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures include
requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested
by telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions regarding transaction requests. Neither the Fund nor the Transfer
Agent will be responsible for any loss, liability, cost or expense for following
instructions received by telephone that either of them reasonably believes to be
genuine.

FURTHER REDEMPTION INFORMATION

Normally the Fund will make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but in no event
will payment be made more than seven days after receipt of a redemption request
in good order. However, payments to investors redeeming shares which were
purchased by check will not be made until payment for the purchase has been
collected, which may take up to eight days after the date of purchase. The Fund
may suspend the right of redemption or postpone the date upon which redemptions
are effected at times when the NYSE is closed, or under any emergency
circumstances as determined by the Securities and Exchange Commission (the
"Commission").

If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of securities held by a Portfolio in lieu of
cash in conformity with applicable rules of the Commission.
Distributions-in-kind will be made in readily marketable securities. Investors
may incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.

Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account invested in the Portfolios
having a value of less than $500,000 (the net asset value of which will be
promptly paid to the shareholder). The Fund, however, will not redeem shares
based solely upon market reductions in net asset value. If at any time your
total investment does not equal or exceed the stated minimum value, you may be
notified of this fact and you will be allowed at least 60 days to make an
additional investment before the redemption is processed.

21
<PAGE>
SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

You may exchange shares that you own in each Portfolio for shares of any
other available portfolio(s) of the Fund (except for the International Equity
Portfolio). The privilege to exchange shares by telephone is automatic. Shares
of the Portfolios may be exchanged by mail or telephone. Before you make an
exchange, you should read the prospectus of the portfolio(s) in which you seek
to invest. Because an exchange transaction is treated as a redemption followed
by a purchase, an exchange would be considered a taxable event. The exchange
privilege is only available with respect to portfolios that are registered for
sale in a shareholder's state of residence.

BY MAIL

BY TELEPHONE

When exchanging shares by telephone, have ready the name and account number
of the current Portfolio, the name of the portfolio(s) into which you intend to
exchange shares, your Social Security number or Tax I.D. number, and your
account address. Requests for telephone exchanges received prior to 4:00 p.m.
(Eastern Time) are processed at the close of business that same day based on the
net asset value of each of the portfolios at the close of business. Requests
received after 4:00 p.m. are processed the next business day based on the net
asset value determined at the close of business on such day. For additional
information regarding responsibility for the authenticity of telephoned
instructions, see "Redemption of Shares -- By Telephone" above.

TRANSFER OF REGISTRATION

VALUATION OF SHARES

The net asset value per share of each of the Portfolios is determined by
dividing the total market value of the Portfolio's investments and other assets,
less any liabilities, by the total number of outstanding shares of the
Portfolio. 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. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a U.S. securities exchange for which market
quotations are available are valued at the last quoted sale price on the day the
valuation is made. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are not readily available are valued
at a price that is considered to best represent fair value within a range not
exceeding of the current asked price nor less than the current bid price. The
current bid and asked prices are determined based on the bid and asked prices
quoted on such valuation date by reputable brokers.

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<PAGE>
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices, but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recently quoted bid price, or,
when securities exchange valuations are used, at the latest quoted sale price on
the day of valuation. If there is no such reported sale, the latest quoted bid
price will be used. Securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used.

The value of other assets and securities for which no quotations are readily
available (including restricted securities and unlisted foreign securities) and
those securities the prices for which it is inappropriate to determined in
accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be translated into U.S. dollars at the mean
of the bid price and asked price of such currencies against the U.S. dollar last
quoted by any major bank.

PERFORMANCE INFORMATION

The Fund may from time to time advertise total return of the Portfolios.
THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Portfolio
would have earned over a specified period of time (such as one, five or ten
years), assuming that all distributions and dividends by the Portfolio were
reinvested on the reinvestment dates during the period. Total return does not
take into account any federal or state income taxes that may be payable on
dividends and distributions or upon redemption. The Fund may also include
comparative performance information in advertising or marketing the Portfolios'
shares. Such performance information may include data from Lipper Analytical
Services, Inc., other industry publications, business periodicals, rating
services and market indices.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

All income dividends and capital gains distributions will automatically be
reinvested in additional shares at net asset value, except that, upon written
notice to the Fund or by checking off the appropriate box in the Distribution
Option Section on the Account Registration Form, a shareholder may elect to
receive income dividends and capital gains distributions in cash. Each Portfolio
expects to distribute substantially all of its net investment income in the form
of quarterly dividends. Net capital gains, if any, will also be distributed
annually. Confirmations of the purchase of shares of the Portfolio through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases as might otherwise be required by Rule
10b-10.

23
<PAGE>
Undistributed net investment income is included in a Portfolio's net assets
for the purpose of calculating net asset value per share. Therefore, on the
"ex-dividend" date, the net asset value per share excludes the dividend (i.e.,
is reduced by the per share amount of the dividend). Dividends paid shortly
after the purchase of shares by an investor, although in effect a return of
capital, are taxable to shareholders subject to tax.

TAXES

The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial, or
administrative action.

Each Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other portfolios. Each Portfolio
intends to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), so that the Portfolio will be relieved of federal income tax on
that part of its net investment income and net capital gain that is distributed
to shareholders.

Each Portfolio distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from a Portfolio's net investment income are taxable to shareholders
as ordinary income, whether received in cash or in additional shares. Such
dividends paid by a Portfolio will generally qualify for the 70%
dividends-received deduction for corporate shareholders to the extent of the
aggregate qualifying dividend income received by the Portfolio from U.S.
corporations. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gain, regardless of how long shareholders have held their
shares. Each Portfolio sends reports annually to shareholders of the federal
income tax status of all distributions made during the preceding year.

Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary income and capital gain net income (the excess of
short-term and long-term capital gains over short-term and long-term capital
losses), including any available capital loss carry-forwards, prior to the end
of each calendar year to avoid liability for federal excise tax.

The sale or redemption of shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the fair market value of the
redemption proceeds exceeds or is less than the shareholder's adjusted basis in
the redeemed shares. If capital gain distributions have been made with respect
to shares that are sold at a loss after being held for six months or less, then
the loss is treated as a long-term capital loss to the extent of the capital
gain distributions.

24
<PAGE>
Shareholders are urged to consult with their tax advisors concerning the
application of state and local income taxes to investments in a Portfolio, which
may differ from the federal income tax consequences described above.

PORTFOLIO TRANSACTIONS

The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for each of the Fund's Portfolios and directs the Adviser to use its
best efforts to obtain the best available price and most favorable execution
with respect to all transactions for the Portfolios. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage services which, in
the opinion of the Adviser, are necessary for the achievement of better
execution, provided the Adviser believes this to be in the best interest of the
Fund.

Since shares of the Portfolios are not marketed through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through such firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Fund's Portfolios or who act as agents in the purchase of
shares of the Fund's Portfolios for their clients.

In purchasing and selling securities for the Portfolios, it is the Fund's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Portfolios, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by a Portfolio may also be appropriate for
other clients served by the Adviser. If a purchase or sale of securities
consistent with the investment policies of a portfolio and one or more of these
other clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the portfolios and such
other clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Board of Directors.

Subject to the overriding objective of obtaining the best possible execution
of orders, the Adviser may allocate a portion of the Portfolio's brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley. In order
for Morgan Stanley or its affiliates to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by Morgan Stanley
or such affiliates must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the Board
of Directors of the Fund, including a majority of the

25
<PAGE>
Directors who are not "interested persons," as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Morgan Stanley or such affiliates be consistent with the foregoing
standard.

Although none of the Portfolios intend to invest for short-term trading
purposes, investment securities may be sold from time to time without regard to
the length of time they have been held. For each Portfolio, it is anticipated
that, under normal circumstances, the annual portfolio turnover rate will not
exceed 100%. High portfolio turnover involves correspondingly greater
transaction costs which will be borne directly by the respective Portfolio. In
addition, high portfolio turnover may result in more capital gains which would
be taxable to the shareholders of the respective Portfolio. The tables set forth
in "Financial Highlights" present the Portfolios' historical turnover rates.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK
The Fund was organized as a Maryland corporation on June 16, 1988. The
Articles of Incorporation permit the Fund to issue up to 15,000,000,000 shares
of common stock, with $.001 par value per share. Pursuant to the Fund's By-Laws,
the Board of Directors may increase the number of shares the Fund is authorized
to issue without the approval of the shareholders of the Fund. The Board of
Directors has the power to designate one or more classes of shares of common
stock and to classify and reclassify any unissued shares with respect to such
classes.

The shares of each Portfolio, when issued, will be fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
The shares have no preference as to conversion, exchange, dividends, retirement
or other features and have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors can elect 100% of the
Directors if they choose to do so. Persons or organizations owning 25% or more
of the outstanding shares of a Portfolio may be presumed to "control" (as that
term is defined in the 1940 Act) the Portfolio. Under Maryland law, the Fund is
not required to hold an annual meeting of its shareholders unless required to do
so under the 1940 Act.

REPORTS TO SHAREHOLDERS
The transfer agent of the Fund will send to its shareholders annual and
semiannual reports; the financial statements appearing in annual reports are
audited by independent accountants. Monthly unaudited portfolio data are also
available from the Fund upon request.

In addition, Morgan Stanley Asset Management Inc. or its agent, as Transfer
Agent, will send to each shareholder having an account directly with the Fund a
monthly statement showing transactions in the account, the total number of
shares owned, and any dividends or distributions paid.

26
<PAGE>
for foreign assets held outside the United States and employs subcustodians who
were approved by the Board of Directors of the Fund in accordance with
regulations of the Securities and Exchange Commission for the purpose of
providing custodial services for such assets. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.

DIVIDEND DISBURSING AND TRANSFER AGENT
Mutual Funds Service Company, 73 Tremont Street, Boston, Massachusetts
02108-3913, acts as Dividend Disbursing and Transfer Agent for the Fund.

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as independent accountants for the Fund and
audits its annual financial statements.

LITIGATION

The Fund is not involved in any litigation.

27
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<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798

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ACCOUNT REGISTRATION FORM
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<TABLE>
<C> <S> <C>
ACCOUNT INFORMATION |If you need assistance in filling out this form for the Morgan Stanley Institutional Fund, please
Fill in where |contact your Morgan Stanley representative or call us toll free 1-(800)-548-7786. Please print all
applicable |items except signature, and mail to the Fund at the address above.
- -----------------------------------------------------------------------------------------------------------------------------------
A) REGISTRATION |
1. INDIVIDUAL |1. ______________________________________________________________________________________________________
2. JOINT TENANTS | First Name Initial Last Name
(RIGHTS OF |2. ______________________________________________________________________________________________________
SURVIVORSHIP | First Name Initial Last Name
PRESUMED UNLESS | ______________________________________________________________________________________________________
TENANCY IN COMMON | First Name Initial Last Name
IS INDICATED) |
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3. CORPORATIONS, |
TRUSTS AND OTHERS |3. ______________________________________________________________________________________________________
Please call the | ______________________________________________________________________________________________________
Fund for additional| ______________________________________________________________________________________________________
documents that may | Type of Registration: / /INCORPORATED / /UNINCORPORATED / /PARTNERSHIP / /UNIFORM GIFT/TRANSFER TO MINOR
be required to set | ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR
up account and to | PERMITTED)
authorize | / /TRUST __________________________ / /OTHER (Specify) ________________________
transactions. |
- -----------------------------------------------------------------------------------------------------------------------------------
B) MAILING ADDRESS |
Please fill in |Street or P.O. Box_______________________________________________________________________________________
completely, |City______________________________________________________________State_______Zip_______________-________
including telephone |Home Telephone No.______-_______-_________________Business Telephone No._______-_______-_________________
number(s). |/ /United States Citizen / /Resident Alien / /Non-Resident Alien: Indicate Country of Residence _________
- -----------------------------------------------------------------------------------------------------------------------------------
C) TAXPAYER |PART 1. Enter your Taxpayer | IMPORTANT TAX INFORMATION
IDENTIFICATION |Identification Number. For most |You (as a payee) are required by law to provide us (as payer)
NUMBER |individual taxpayers, this is |with your correct Taxpayer Identification Number. Accounts that
If the account is in |your Social Security Number. |have a missing or incorrect Taxpayer Identification Number will
more than one name, | TAXPAYER IDENTIFICATION NUMBER |be subject to backup withholding at a 31% rate on
CIRCLE THE NAME OF THE|______-_________________________ |dividends, distributions and other payments. If you have not
PERSON WHOSE TAXPAYER | OR |provided us with your correct taxpayer identification number, you
IDENTIFICATION NUMBER | SOCIAL SECURITY NUMBER |may be subject to a $50 penalty imposed by the Internal Revenue
IS PROVIDED IN SECTION|________-_____________-_________ |Service.
A) ABOVE. If no name | |
is circled, the number|PART 2. BACKUP WITHHOLDING |Backup withholding is not an additional tax; the tax liability of
will be considered to |/ / Check this box if you are NOT |persons subject to backup withholding will be reduced by the
be that of the last |subject to Backup Withholding |amount of tax withheld. If withholding results in an overpayment
name listed. For |under the provisions of Section |of taxes, a refund may be obtained.
Custodian account of |3406(a)(1)(C) of the Internal |
a minor (Uniform |Revenue Code. |You may be notified that you are subject to backup withholding
Gift/Transfer to | |under Section 3406(a)(1)(C) of the Internal Revenue Code because
Minor Act), give the | |you have underreported interest or dividends or you were required
Social Security Number| |to but failed to file a return which would have included a
of the minor. | |reportable interest or dividend payment. IF YOU HAVE NOT BEEN SO
|NOTIFIED, CHECK THE BOX IN PART 2 AT LEFT.
- -----------------------------------------------------------------------------------------------------------------------------------
D) PORTFOLIO SELECTION |
Minimum $500,000 for |
each portfolio. |
Please indicate |/ / Small Cap Value Equity Portfolio $__________________
portfolio and amount. |/ / Value Equity Portfolio $____________________________
|/ / Balanced Portfolio $________________________________
|
|
|
|
- -----------------------------------------------------------------------------------------------------------------------------------
E) METHOD OF |Payment by:
INVESTMENT |/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND, INC.--PORTFOLIO NAME)
Please indicate | _________________________________-______
manner of |/ / Exchange $____________________ From__________________________ Account No.
payment. | Name of Portfolio
|/ / Account previously established by: _________________________________-______
| / / Phone exchange / / Wire on ___________________ Account No. (Check
Date (Previously assigned by the Fund) Digit)
- -----------------------------------------------------------------------------------------------------------------------------------

<PAGE>

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F) DISTRIBUTION |Income dividends and capital gains distributions (if any) will be reinvested in additional shares unless
OPTION |either box below is checked.
|/ /Income dividends to be paid in cash, capital gains distributions (if any) in shares.
|/ /Income dividends and capital gains distributions (if any) to be paid in cash.
- -----------------------------------------------------------------------------------------------------------------------------------
G) TELEPHONE |/ /I/we hereby authorize the Fund and its|
REDEMPTION | agents to honor any telephone requests|_______________________________________________
Please select at time | to wire redemption proceeds to the |Name of COMMERCIAL Bank (Not Savings Bank)
of initial | commercial bank indicated at right |
application if you | and/or mail redemption proceeds to the| ________________ _____________
wish to redeem | name and address in which my/our fund | Bank Account No. Bank ABA No.
shares by telephone. | account is registered if such requests|____________________________________________________________
A SIGNATURE GUARANTEE | are believed to be authentic. | Name(s) in which your BANK Account is Established
IS REQUIRED IF BANK | |____________________________________________________________
ACCOUNT IS NOT | | Bank's Street Address
REGISTERED | |____________________________________________________________
IDENTICALLY TO YOUR |THE FUND AND THE FUND'S |City State Zip
FUND ACCOUNT. |TRANSFER AGENT WILL EMPLOY REASONABLE |
|PROCEDURES TO CONFIRM THAT INSTRUCTIONS |
TELEPHONE REQUESTS |COMMUNICATED BY TELEPHONE ARE GENUINE. |
FOR REDEMPTIONS |THESE PROCEDURES INCLUDE REQUIRING THE |
WILL NOT BE |INVESTOR TO PROVIDE CERTAIN PERSONAL |
HONORED UNLESS |IDENTIFICATION INFORMATION AT THE TIME AN|
THE BOX IS |ACCOUNT IS OPENED AND PRIOR TO EFFECTING |
CHECKED. |EACH TRANSACTION REQUESTED BY TELEPHONE. |
|IN ADDITION, ALL TELEPHONE TRANSACTION |
|REQUESTS WILL BE RECORDED AND INVESTORS |
|MAY BE REQUIRED TO PROVIDE ADDITIONAL |
|TELECOPYING WRITTEN INSTRUCTIONS OF |
|TRANSACTION REQUESTS. NEITHER THE FUND |
|NOR THE TRANSFER AGENT WILL BE |
|RESPONSIBLE FOR ANY LOSS, LIABILITY, COST|
|OR EXPENSES FOR FOLLOWING INSTRUCTIONS |
|RECEIVED BY TELEPHONE THAT IT REASONABLY |
|BELIEVES TO BE GENUINE. |
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H) INTERESTED PARTY |___________________________________________________________________________________________________
OPTION | Name
|___________________________________________________________________________________________________
In addition to the |
account statement sent|___________________________________________________________________________________________________
to my/our registered | Address
address, I/we hereby |
authorize the fund |___________________________________________________________________________________________________
to mail duplicate | City State Zip Code
statements to the |
name and address |
provided at right. |
- -----------------------------------------------------------------------------------------------------------------------------------
I) DEALER |_______________________________________ ___________________________________ _______________________
INFORMATION |Representative Name Representative No. Branch No.
- -----------------------------------------------------------------------------------------------------------------------------------
J) SIGNATURE OF |The undersigned certify(ies) that I/we have full authority and legal capacity to purchase and redeem
ALL HOLDERS |shares of the Fund and affirm that I/we have received a current Prospectus of the Morgan Stanley
AND TAXPAYER |Institutional Fund, Inc. and agree to be bound by its terms.
CERTIFICATION |
|
|(X) (X)
SIGN HERE --> |------------------------------------------------ -----------------------------------------------------
|Signature Date Signature Date
|------------------------------------------------ -----------------------------------------------------
|Signature Date Signature Date

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

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TABLE OF CONTENTS

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PAGE
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Fund Expenses..................................... 2
Financial Highlights.............................. 3
Prospectus Summary................................ 7
Investment Objectives and Policies................ 10
Additional Investment Information................. 12
Investment Limitations............................ 15
Management of the Fund............................ 16
Purchase of Shares................................ 18
Redemption of Shares.............................. 20
Shareholder Services.............................. 22
Valuation of Shares............................... 22
Performance Information........................... 23
Dividends and Capital Gains Distributions......... 23
Taxes............................................. 24
Portfolio Transactions............................ 25
General Information............................... 26
Account Registration Form
</TABLE>

SMALL CAP VALUE EQUITY
PORTFOLIO
VALUE EQUITY PORTFOLIO
BALANCED PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

-------------
PROSPECTUS
-------------

Investment Adviser
Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
<PAGE>
SUPPLEMENT DATED JUNE 30, 1995
TO PROSPECTUS DATED MAY 1, 1995 OF

MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------

The prospectus dated May 1, 1995 (the "Prospectus") of the Active Country
Allocation Portfolio of the Morgan Stanley Institutional Fund, Inc. (the "Fund")
is hereby amended and supplemented by adding the following paragraph to page 16
before the paragraph with the heading "REDEMPTION OF SHARES":

A PORTFOLIO OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-548-7786
---------------------------------------------

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and non-diversified series
("portfolios"). The Fund currently consists of twenty-seven Portfolios offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of the
Portfolios are offered with no sales charge or exchange or redemption fee (with
the exception of one of the portfolios). This Prospectus pertains to the Active
Country Allocation Portfolio (the "Portfolio").

The ACTIVE COUNTRY ALLOCATION PORTFOLIO seeks long-term capital appreciation
by investing in accordance with country weightings determined by the Adviser in
common stocks of non-U.S. issuers which, in the aggregate, replicate broad
country indices.

The Fund is designed to meet the investment needs of discerning investors
who place a premium on quality and personal service. With Morgan Stanley Asset
Management Inc. as Adviser and Administrator (the "Adviser" and the
"Administrator"), and with Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as Distributor, the Fund makes available to institutional and high net worth
individual investors a series of portfolios which benefit from the investment
expertise and commitment to excellence associated with Morgan Stanley and its
affiliates.

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under the Prospectus Summary Section herein.
The Fund currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Active Country Allocation, Asian Equity, China Growth, Emerging
Markets, European Equity, Global Equity, Gold, International Equity,
International Small Cap, Japanese Equity and Latin American Portfolios; (ii)
U.S. EQUITY -- Aggressive Equity, Emerging Growth, Equity Growth, Small Cap
Value Equity, U.S. Real Estate and Value Equity Portfolios; (iii) BALANCED --
Balanced Portfolio; (iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income,
Global Fixed Income, High Yield, Mortgage-Backed Securities, Municipal Bond and
Real Yield Portfolios; and (v) MONEY MARKET -- Money Market and Municipal Money
Market Portfolios. Additional information about the Fund is contained in a
"Statement of Additional Information," dated May 1, 1995, which is incorporated
herein by reference. The Statement of Additional Information and the
Prospectuses pertaining to the other portfolios of the Fund are available upon
request and without charge by writing or calling the Fund at the address and
telephone number set forth above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
<PAGE>
FUND EXPENSES

The following table illustrates all expenses and fees that a shareholder of
the Active Country Allocation Portfolio will incur:

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases.................................... None
Maximum Sales Load Imposed on Reinvested Dividends......................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Investment Advisory Fee (Net of Fee Waiver)................. 0.45%*
Administrative & Shareholder Account Costs.................. 0.15%
12b-1 Fees.................................................. None
Custody Fees................................................ 0.09%
Other Expenses.............................................. 0.11%
------
Total Operating Expenses (Net of Fee Waivers)........... 0.80%*
------
------
</TABLE>

- --------------
* The Adviser has agreed to a reduction in the fees payable to it as Adviser
and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.80% of its average
daily net assets. Absent fee waivers for the fiscal year ended December 31,
1994, the Portfolio's total operating expenses would have been 1.00% of the
average daily net assets. As a result of this reduction, the Investment
Advisory Fee stated above is lower than the contractual fee stated under
"Management of the Fund." For further information on Fund expenses, see
"Management of the Fund."

The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Portfolio will bear directly or
indirectly. The expenses and fees for the Portfolio are based on actual figures
for the fiscal year ended December 31, 1994. "Other Expenses" include Board of
Directors' fees and expenses, amortization of organizational costs, filing fees,
professional fees and costs for shareholder reports.

The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the Fund charges no
redemption fees of any kind. The following example is based on the total
operating expenses of the Portfolio after fee waivers.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Active Country Allocation Portfolio..... $ 8 $26 $44 $99
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

2
<PAGE>
FINANCIAL HIGHLIGHTS

The following table provides financial highlights for each of the periods
presented, and is part of the Fund's financial statements which appear in the
Fund's December 31, 1994 Annual Report to Shareholders and which are
incorporated by reference into the Fund's Statement of Additional Information.
The Portfolios' financial highlights for each of the periods presented have been
audited by Price Waterhouse LLP, whose unqualified report thereon is also
incorporated by reference into the Statement of Additional Information.
Additional performance information is included in the Annual Report. The Annual
Report and the financial statements therein, along with the Statement of
Additional Information, are available at no cost from the Fund at the address
and telephone number noted on the cover page of this Prospectus. Subsequent to
October 31, 1992 (the Fund's prior fiscal year end) the Fund changed its fiscal
year end to December 31. The following information should be read in conjunction
with the financial statements and notes thereto.

<TABLE>
<CAPTION>
ACTIVE COUNTRY ALLOCATION PORTFOLIO
-----------------------------------------------------------------------------------------
JANUARY 17, 1992* TWO MONTHS ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, 1992 DECEMBER 31, 1992 DECEMBER 31, 1993 DECEMBER 31, 1994
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.00 $ 9.37 $ 9.59 $ 12.21
------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1)... 0.11 0.02 0.13 0.19
Net Realized and Unrealized
Gain/(Loss) on
Investments................ (0.74) 0.20 2.75 (0.25)
------- ------- -------- --------
Total from Investment
Operations............... (0.63) 0.22 2.88 (0.06)
------- ------- -------- --------
DISTRIBUTIONS
Net Investment Income....... -- -- (0.09) (0.14)
In Excess of Net Investment
Income..................... -- -- (0.08) --
Net Realized Gain........... -- -- -- (0.36)
In Excess of Net Realized
Gain....................... -- -- (0.09) --
------- ------- -------- --------
Total Distributions....... -- -- (0.26) (0.50)
------- ------- -------- --------
NET ASSET VALUE, END OF
PERIOD....................... $ 9.37 $ 9.59 $ 12.21 $ 11.65
------- ------- -------- --------
------- ------- -------- --------
TOTAL RETURN.................. (6.30)% 2.35% 30.72% (0.52)%
------- ------- -------- --------
------- ------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).................. $47,534 $50,234 $150,854 $182,977
Ratio of Expenses to Average
Net Assets (1)(2)............ 0.88%** 0.80%** 0.80% 0.80%
Ratio of Net Investment Income
to Average Net Assets
(1)(2)....................... 2.32%** 1.22%** 1.29% 1.43%
Portfolio Turnover Rate....... 62% 2% 53% 51%
</TABLE>

- ------------------
(1) Effect of voluntary expense limitation during the period:

<TABLE>
<S> <C> <C> <C> <C>
Per share benefit to net
investment income..... $ 0.03 $ 0.01 $ 0.05 $ 0.03
Ratios before expense
limitation:
Expenses to Average
Net Assets............ 1.58%** 1.70%** 1.33% 1.00%
Net Investment Income to
Average Net Assets.... 1.62%** 0.32%** 0.76% 1.23%
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 0.65% of the average daily net assets of the Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 0.80% of the average daily net assets of the Portfolio. In the
period ended October 31, 1992, the two months ended December 31, 1992 and
the years ended December 31, 1993 and 1994, the Adviser waived advisory
fees and/or reimbursed expenses totalling $164,000, $72,000, $552,000 and
$367,000, respectively, for the Portfolio.

* Commencement of Operations.

** Annualized.

3
<PAGE>
PROSPECTUS SUMMARY

THE FUND

-
The ACTIVE COUNTRY ALLOCATION PORTFOLIO seeks long-term capital
appreciation by investing in accordance with country weightings determined
by the Adviser in common stocks of non-U.S. issuers which, in the
aggregate, replicate broad country indices.

The other portfolios of the Fund are described in other prospectuses which
may be obtained from the Fund at the address and phone number noted on the cover
page of this Prospectus. The objectives of these other Portfolios are listed
below: