<PAGE>
As filed with the Securities and Exchange Commission on August 1, 1995
File No. 33-23166
811-5624
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT (NO. 33-23166)
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 25
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
--------------
MORGAN STANLEY INSTITUTIONAL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 548-7786
Harold J. Schaaff, Esquire
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas, New York, New York 10020
(Name and Address of Agent for Service)
--------------
COPIES TO:
Warren J. Olsen, Esquire Richard W. Grant, Esquire
Morgan Stanley Asset Management Inc. Morgan, Lewis & Bockius
1221 Avenue of the Americas 2000 One Logan Square
New York, NY 10020 Philadelphia, PA 19103
--------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
/ / ON ________________ PURSUANT TO PARAGRAPH (b)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/ / ON ________________ PURSUANT TO PARAGRAPH (a) OF RULE 485
------------------
Registrant has elected to register an indefinite number of shares pursuant
to Regulation 24f-2 under the Investment Company Act of 1940, as amended.
Registrant filed its Rule 24f-2 notice for the period ended December 31, 1994 on
February 21, 1995.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
CROSS REFERENCE SHEET
PART A - INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
Item Number Location in Prospectus for the Fixed Income, Global Fixed
----------- Income. Municipal Bond, Mortgage Backed Securities, High Yield,
Real Yield, Money Market and Municipal Money Market Portfolios
---------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis-- Fund Expenses (Estimated for Municipal Bond, Real Yield
and Mortgage-Backed Securities Portfolios)
Item 3. Condensed Financial Information -- Financial Highlights (for the
Fixed Income, Global Fixed Income, Municipal Bond, High Yield,
Money Market and Municipal Money Market Portfolios only);
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A Location in Prospectus for the Small Cap Value Equity, Value
Item Number Equity and Balanced Portfolios
----------- ------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights;
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1994 Annual Report to
Shareholders, except for the following Portfolios which were not in
operation at December 31, 1994: Municipal Bond, Mortgage-Backed
Securities, Real Yield, Latin American, China Growth, U.S. Real Estate and
Aggressive Equity Portfolios. Information required by Item 5A for the
aforementioned Portfolios will be contained in the next Report to
Shareholders following commencement of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the Active Country Allocation Portfolio
---------- ------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights;
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for Gold Portfolio
----------- -----------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights;
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1994 Annual Report to
Shareholders, except for the following Portfolios which were not in
operation at December 31, 1994: Municipal Bond, Mortgage-Backed
Securities, Real Yield, Latin American, China Growth, U.S. Real Estate and
Aggressive Equity Portfolios. Information required by Item 5A for the
aforementioned Portfolios will be contained in the next Report to
Shareholders following commencement of operations.
<PAGE>
Form N-1A Location in Prospectus for the Global Equity, International
Item Number Equity, International Small Cap, Asian Equity, European Equity,
Japanese Equity and Latin American Portfolios
------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated for the Latin American
Portfolio)
Item 3. Condensed Financial Information -- Financial Highlights (for the
Global Equity, International Equity, Asian Equity, International
Small Cap, European Equity, Japanese Equity and Latin American
Portfolios only); Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A Location in Prospectus for the Emerging Markets and Emerging
Item Number Markets Debt Portfolios
----------- ------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights;
Performance Information for the Emerging Markets and Emerging
Markets Debt Portfolios
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1994 Annual Report to
Shareholders, except for the following Portfolios which were not in
operation at December 31, 1994: Municipal Bond, Mortgage-Backed
Securities, Real Yield, Latin American, China Growth, U.S. Real Estate,
MicroCap and Aggressive Equity Portfolios. Information required by
Item 5A for the aforementioned Portfolios will be contained in the next
Report to Shareholders following commencement of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the China Growth Portfolio
----------- -----------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A Location in Prospectus for the Equity Growth, Emerging Growth,
Item Number Microcap and Aggressive Equity Portfolios
----------- --------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated for the MicroCap and
Aggressive Equity Portfolios)
Item 3. Condensed Financial Information -- Financial Highlights (for the
Equity Growth, Emerging Growth and Aggressive Equity Portfolios
only); Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1994 Annual Report to
Shareholders, except for the following Portfolios which were not in
operation at December 31, 1994: Municipal Bond, Mortgage-Backed
Securities, Real Yield, Latin American, China Growth, U.S. Real Estate,
MicroCap and Aggressive Equity Portfolios. Information required by
Item 5A for the aforementioned Portfolios will be contained in the next
Report to Shareholders following commencement of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the U.S. Real Estate Portfolio
----------- ---------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Financial Highlights;
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary;
Investment Objective and Policies; Additional Investment
Information; Investment Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the
Fund; Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares;
Redemption of Shares; Shareholder Services; Valuation of Shares;
Dividends and Capital Gains Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of
Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of
Shares; Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1994 Annual Report to
Shareholders, except for the following Portfolios which were not in
operation at December 31, 1994: Municipal Bond, Mortgage-Backed
Securities, Real Yield, Latin American, China Growth, U.S. Real Estate,
MicroCap and Aggressive Equity Portfolios. Information required by
Item 5A for the aforementioned Portfolios will be contained in the next
Report to Shareholders following commencement of operations.
<PAGE>
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A
Item Number Location in Statement of Additional Information
----------- -----------------------------------------------
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- *
Item 13. Investment Objective and Policies -- Investment Objectives and
Policies; Investment Limitations
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management
of the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund
Item 17. Brokerage Allocation -- *
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Net Asset Value; General
Information
Item 20. Tax Status -- Federal Tax Treatment of Forward Currency and
Futures Contracts
Item 21. Underwriters -- *
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
PART C - OTHER INFORMATION
Part C contains the information required by the items contained therein
under the items set forth in the form.
_______________________
* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
The Prospectus for the Fixed Income, Global Fixed Income, Municipal Bond,
Mortgage-Backed Securities, High Yield, Real Yield, Money Market and Municipal
Money Market Portfolios, included as part of Post-Effective Amendment No. 24 to
the Registration Statement on Form N-1A of Morgan Stanley Institutional Fund,
Inc. ( File No. 33-23166) filed with the Securities and Exchange Commission on
March 1, 1995, and in final form under Rule 497(e) on June 30, 1995, is hereby
incorporated by reference as if set forth in full herein.
The Prospectus for the Small Cap Value Equity, Value Equity and Balanced
Portfolios, included as part of Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on March
1, 1995, and in final form under Rule 497(e) on June 30, 1995, is hereby
incorporated by reference as if set forth in full herein.
The Prospectus for the Active Country Allocation Portfolio, included as
part of Post-Effective Amendment No. 24 to the Registration Statement on Form N-
1A of Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with
Securities and Exchange Commission on March 1, 1995, and in final form under
Rule 497(e) on June 30, 1995, is hereby Incorporated by reference as if set
forth in full herein.
The Prospectus for the Gold Portfolio, included as part of Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A of Morgan Stanley
Institutional Fund, Inc. (File No. 33-23166) filed with the Securities and
Exchange Commission on March 1, 1995, and in final form under Rule 497(e) on
June 30, 1995, is hereby incorporated by reference as if set forth in full
herein.
The Prospectus for the Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity and Latin American
Portfolios, included as part of Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on March
1, 1995, and in final form under Rule 497(e) on June 30, 1995, is hereby
incorporated by reference as if set forth in full herein.
The Prospectus for the Emerging Markets and Emerging Markets Debt
Portfolios, included as part of Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on March
1, 1995, and in final form under Rule 497(e) on June 30, 1995, is hereby
incorporated by reference as if set forth in full herein.
<PAGE>
--------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
CHINA GROWTH PORTFOLIO
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 sets forth information
pertaining to the China Growth Portfolio (the "Portfolio").
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 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.
The 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. 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 Portfolio. 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.
INVESTORS SHOULD NOTE THAT THE PORTFOLIO MAY INVEST UP TO 10% OF ITS TOTAL
ASSETS IN RESTRICTED SECURITIES, AND UP TO 25% OF ITS TOTAL ASSETS IN RESTRICTED
SECURITIES THAT ARE RULE 144A SECURITIES. SEE "ADDITIONAL INVESTMENT INFORMATION
-- NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES." INVESTMENTS IN RESTRICTED SECURITIES IN EXCESS OF 5% OF THE
PORTFOLIO'S TOTAL ASSETS MAY BE CONSIDERED A SPECULATIVE ACTIVITY, MAY INVOLVE
GREATER RISK AND MAY INCREASE THE PORTFOLIO'S EXPENSES.
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 China Growth 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
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Investment Advisory Fee (Net of Fee Waiver)................. 0.90%*
Administrative & Shareholder Account Costs.................. 0.15%
12b-1 Fees.................................................. None
Custody Fees................................................ 0.50%
Other Expenses.............................................. 0.20%
---------
Total Operating Expenses (Net of Fee Waiver)............ 1.75%*+
---------
---------
<FN>
--------------
* 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 total
annual operating expenses of the Portfolio to exceed 1.75% of its average
daily net assets. See "Management of the Fund - Investment Adviser." Absent
this fee waiver, the Portfolio's total operating expenses would be estimated
to be 2.10% of its average daily net assets. As a result of these reductions,
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."
+ Estimated.
</TABLE>
The purpose of the foregoing 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
estimates. For purposes of calculating the estimated expenses and fees set forth
above, the table assumes that the average daily net assets of the Portfolio will
be $50,000,000. "Other Expenses" are based on estimated amounts for the current
fiscal year and include Board of Directors' fees and expenses, amortization of
organizational costs, filing fees, professional 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 Portfolio charges
no redemption fees of any kind. The following example is based on total
operating expenses of the Portfolio after fee waivers:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
China Growth Portfolio............................ $ 18 $ 55
</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>
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.
The Adviser has agreed to a reduction in the amounts payable to it, and to
reimburse the 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>
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 and
Distributor. Each portfolio has its own investment objectives and policies
designed to meet its specific goals. This Prospectus pertains to the China
Growth Portfolio.
-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 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 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 the 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 the 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.
4
<PAGE>
-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.
-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 total return by investing
primarily in debt securities of government, government-related and
corporate issuers 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 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 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 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 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 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.
MONEY MARKET:
-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.
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-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.
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 the 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 the Portfolio. The minimum for subsequent investments is $1,000
(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 the 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 Portfolio
to less than $500,000, the investment may be subject to redemption. See
"Redemption of Shares."
RISK FACTORS
The investment policies of the Portfolio entail certain risks and
considerations of which an investor should be aware. The Portfolio will invest
in securities of foreign issuers, including issuers located in The People's
Republic of China, Hong Kong and Taiwan, which are subject to certain risks not
typically associated with domestic securities. Governmental actions in China can
have a significant effect on the economic conditions in China and surrounding
countries. Although the Chinese Government has recently begun to institute
economic reform policies, there can be no assurances that it will continue to
pursue such policies or that such policies will succeed. See "Investment
Objectives and Policies" and "Additional Investment Information." In addition,
the Portfolio may invest in repurchase agreements, lend its portfolio
securities, purchase securities on a when-issued basis and purchase and sell
options and enter into futures transactions and options thereon for hedging
purposes. The Portfolio may also borrow money in an amount up to 33 1/3% of its
total assets, less liabilities and other borrowings. Borrowing money creates
leverage which is a speculative activity. See "Additional Investment Information
-- Borrowing and Other Forms of Leverage." In addition, the Portfolio may enter
in forward foreign currency exchange contracts, currency swaps, currency futures
contracts and options on such futures contracts, as well as options on
currencies to hedge currency risk associated with investment in non-U.S. dollar
denominated securities. The Portfolio may also enter into currency swaps for
non-hedging purposes. 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.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is described below, together with
the policies the Fund employs in its efforts to achieve this objective. The
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 investment objective of the Portfolio is long-term capital appreciation.
The production of any current income is incidental to this objective. The
Portfolio seeks to achieve its objective by investing primarily in the equity
securities of China growth companies. China growth companies consist of
companies that (i) are organized or have their principal place of business or
principal securities trading market in The People's Republic of China
(collectively "China"), Hong Kong or Taiwan (collectively, the "Chinese Economic
Area") or (ii) are engaged in business primarily within the Chinese Economic
Area. The Portfolio's Adviser may treat a company as engaged in business
primarily within the Chinese Economic Area if it reasonably believes that such
company meets the following criteria or, based on announced plans, is likely to
meet such criteria in the foreseeable future: the company derives at least 50%
of its revenue from goods or services sold or produced in, or has at least 50%
of its assets located in, the Chinese Economic Area. The Adviser expects that a
significant portion of the Portfolio's assets invested in China growth companies
located outside of the Chinese Economic Area will be located in Asian countries
such as Singapore, Malaysia, the Philippines, Indonesia, Korea, Vietnam and
Thailand.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in equity securities of China growth companies. Equity securities
are defined as: common and preferred stocks; direct equity interests in trusts,
partnerships, joint ventures and other unincorporated entities or enterprises
("direct investments"); special classes of shares available only to foreign
persons in markets where the ownership of certain classes of equity is
restricted to nationals or residents of the country; American, Global or other
types of Depositary Receipts; investment grade debt securities convertible into
common stock ("convertible debentures"); and common stock purchase warrants.
Direct investments in China growth companies will not exceed 25% of the total
assets of the Portfolio. See "Risk Factors and Special Considerations" for a
discussion of the risks associated with direct investments. The Portfolio may
invest 25% or more of its total assets in the securities of issuers located in
any one country in the Chinese Economic Area.
The Portfolio may invest up to 35% of its total assets in equity securities
of companies other than China growth companies. The Portfolio may also enter
into options on securities and indices, options on currency, futures contracts
and options thereon, forward foreign currency exchange contracts and currency
swaps. See "Additional Investment Information."
The Portfolio may invest under normal circumstances up to 35% of its total
assets, and for temporary defensive purposes up to all of its assets, in high
quality debt securities of foreign and U.S. companies and foreign and U.S.
governments, their respective agencies, instrumentalities, political
subdivisions and authorities, as well as in money market instruments denominated
in U.S. dollars or foreign currency. See "Additional Investment Information."
The market value of the Portfolio's debt securities will change in response to
interest
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rate changes and other factors. During periods of falling interest rates, the
value of the debt securities held by the Portfolio generally rises, and
conversely, during periods of rising interest rates, the value of such
securities generally the Portfolio may invest in investment grade convertible
debentures as indicated above, declines.
As indicated above, the Portfolio may invest in investment-grade convertible
debentures. A debt security is investment grade if it is rated BBB or above by
Standard & Poor's Corporation ("S&P") or Baa or above by Moody's Investors
Service, Inc. ("Moody's") or determined to be of comparable quality by the
Adviser. Debt securities rated BBB by S&P or Baa by Moody's have speculative
characteristics. Economic changes and other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt securities. The Portfolio will promptly dispose of
any convertible debenture which is down rated or determined by the Adviser to be
below investment grade subsequent to acquisition by the Portfolio.
ADDITIONAL INVESTMENT INFORMATION
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines adopted 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 value of repurchase
agreements and certain other investments of the Portfolio is limited as set
forth under "Investment Limitations."
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend 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. The Portfolio will not enter into securities loan transactions
exceeding, in the aggregate 33 1/3%, of the market value of its total assets.
For more detailed information about securities lending, see "Investment
Objectives and Policies" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The 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. The Portfolio will maintain with the Custodian a
separate account with a segregated portfolio of high-grade equity or 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 the 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, among
other factors, the general level
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of interest rates has changed. It is a current policy of the 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.
DEPOSITARY RECEIPTS. The Portfolio is permitted to invest indirectly in
securities of China growth 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 United States. For purposes
of the Portfolio's investment policies, the Portfolio's investments in
Depositary Receipts will be deemed to be investments in the underlying
securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may enter
into futures contracts and options on futures contracts as a hedge against
fluctuations in price of a security it holds or intends to acquire, but not for
speculation or for achieving leverage. The Portfolio may also enter into futures
transactions to remain fully invested and to reduce transaction costs. The
futures contracts may be based on various securities and other securities
indices, foreign currencies and other financial instruments and indices. The
Portfolio may enter into futures contracts and options on futures contracts
provided that not more than 5% of the Portfolio's total assets at the time of
entering into any such contract or option is required as deposit to secure the
Portfolio's obligations under all such contracts and options, in the aggregate,
and provided that not more than 20% of the Portfolio's total assets in the
aggregate are invested in options, futures contracts and options on futures
contracts.
The Portfolio may purchase and write (i.e., sell) call and put options on
futures contracts that are traded on a recognized securities or futures
exchange, including non-U.S. exchanges, to the extent permitted by the U.S.
Commodity Futures Trading Commission ("CFTC"), and enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. The Portfolio will
purchase and write options on futures contracts for purposes identical to those
set forth above for the purchase of a futures contract (purchase of a call
option or sale of a put option) and the sale of a futures contract (purchase of
a put option or sale of a call option), or to close out a long or short position
in a futures contract.
RISKS ASSOCIATED WITH OPTIONS AND FUTURES. The primary risks associated
with the use of options, futures and options on futures are (i) an imperfect
correlation between the change in market value of the stocks held by the
Portfolio or value of the currencies in which the Portfolio's assets are
invested and the prices of futures and options relating to the stocks purchased
or sold by the Portfolio; and (ii) the possible lack of a liquid secondary
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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
the Portfolio's only entering into futures contracts or options transactions for
which the Adviser believes there is a liquid secondary market.
OPTIONS ON SECURITIES AND SECURITIES INDICES. The Portfolio may write
(i.e., sell) covered call options and covered put options and purchase call and
put options on securities and securities indices. The Portfolio may also write
combinations of put and call options on the same security, known as "straddles."
Such transactions can generate additional premium income, but also present
increased risk. The Portfolio may also purchase put and call options on
securities or securities indices in anticipation of changes in the value of its
existing portfolio securities or in the prices of securities that the Portfolio
expects to purchase at a later date. The Portfolio may purchase and sell options
that are traded on U.S. or foreign exchanges or that are traded
over-the-counter.
By selling a covered call option, the Portfolio would become obligated
during the term of the option to deliver the securities underlying the option
should the option holder choose to exercise the option before the option's
termination date. In return for the call it has written, the Portfolio will
receive from the purchaser (or option holder) a premium which is the price of
the option, less a commission charged by a broker. The Portfolio will keep the
premium regardless of whether the option is exercised. By selling a covered put
option, the Portfolio incurs an obligation to buy the security underlying the
option from the purchaser of the put at the option's exercise price at any time
during the option period, at the purchaser's election (certain options written
by the Portfolio will be exercisable by the purchaser only on a specific date).
A call option is "covered" if the Portfolio owns the security underlying the
option it has written or has an absolute or immediate right to acquire the
security by holding a call option on such security, or maintains a sufficient
amount of cash, cash equivalents or liquid securities to purchase the underlying
security. Generally, a put option is "covered" if the Portfolio maintains cash,
U.S. Government securities or other high grade debt obligations equal to the
exercise price of the option, or if the Portfolio holds a put option on the same
underlying security with a similar or higher exercise price.
When the Portfolio writes covered call options, it augments its income by
the premiums received and is thereby hedged to the extent of that amount against
a decline in the price of the underlying securities. The premiums received will
offset a portion of the potential loss incurred by the Portfolio if the
securities underlying the options are ultimately sold by the Portfolio at a
loss. However, during the option period, the Portfolio has, in return for the
premium on the option, given up the opportunity for capital appreciation above
the exercise price should the market price of the underlying security increase,
but has retained the risk of loss should the price of the underlying security
decline.
The Portfolio will write put options to receive the premiums paid by
purchasers (when the Adviser wishes to purchase the security underlying the
option at a price lower than its current market price, in which case the
Portfolio will write the covered put at an exercise price reflecting the lower
purchase price sought) and to close out a long put option position.
The Portfolio may also purchase put or call options on its portfolio
securities and securities indices. When the Portfolio purchases a call option it
acquires the right to buy a designated security at a designated price (the
"exercise price"), and when the Portfolio purchases a put option it acquires the
right to sell a designated security at the exercise price, in each case on or
before a specified date (the "termination date"), which is usually not
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more than nine months from the date the option is issued. The Portfolio may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing. The Portfolio
may purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. If the value of
the underlying security were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the
Portfolio would incur no additional loss. The Portfolio may also purchase put
options to close out written put positions in a manner similar to call option
closing purchase transactions. The Portfolio may not enter into options
transactions if more than 20% of the Portfolio's total assets, in the aggregate,
are invested in options, futures contracts and options on futures contracts.
OPTIONS ON CURRENCIES. The Portfolio may purchase and write (i.e., sell)
put and call options on foreign currencies for the purposes of protecting
against declines in the U.S. dollar value of foreign portfolio securities and
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. The Portfolio may use options
on currency to cross-hedge, which involves writing or purchasing options of one
currency to hedge against changes in exchange rates for a different currency, if
there is a pattern of correlation between the two currencies. As with other
kinds of options transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. The Portfolio could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to
the Portfolio's position, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call or put options on currency for non-hedging purposes when the Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities denominated in that currency do not present attractive investment
opportunities. The Portfolio may not enter into options transactions if more
than 20% of the Portfolio's total assets in the aggregate are invested in
options, futures contracts and options on futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio may enter into
forward foreign currency exchange contracts ("forward contracts") which 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
fluctuations in the value of 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 declared on securities
held by the Portfolio and generally protecting the U.S. dollar value of
securities held by the Portfolio 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 the Portfolio as a result of exchange
rate fluctuation, they will also limit any gains that may otherwise have been
realized. See "Investment Objectives and Policies -- Forward Currency Exchange
Contracts" in the Statement of Additional Information.
CURRENCY SWAPS. The Portfolio may enter into currency swaps for both
hedging and non-hedging purposes. Currency swaps involve the exchange of rights
to make or receive payments in specified currencies. Currency swaps usually
involve the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. The use of currency swaps
is a
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highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
Because currency swaps are individually negotiated, the Portfolio expects to
achieve an acceptable degree of correlation between its portfolio investments
and its currency swap positions. If the Adviser is incorrect in its forecasts of
market values and currency exchange rates, the investment performance of the
Portfolio would be less favorable than it would have been if currency swaps were
not used.
FOREIGN CURRENCY CONSIDERATIONS. The Portfolio's assets will be invested
principally in securities of China growth companies and substantially all of the
income received by the Portfolio will be in foreign currencies including Chinese
renminbi and Hong Kong dollars. However, the Portfolio will compute and
distribute its income in U.S. dollars, and the computation of income will be
made on the date that the income is earned by the Portfolio at the foreign
exchange rate in effect on that date. Therefore, if the value of the relevant
foreign currency falls relative to the U.S. dollar between the earning of the
income and the time at which the Portfolio converts the foreign currency to U.S.
dollars, the Portfolio will be required to borrow money or liquidate securities
in order to make distributions if the Portfolio has insufficient cash in U.S.
dollars to meet distribution requirements. The liquidation of investments, if
required, may have an adverse impact on the Portfolio's performance. In
addition, changes in the exchange rates at which such foreign currencies may be
converted into U.S. dollars will affect the dollar value of securities owned by
the Portfolio and the unrealized appreciation or depreciation of investments.
The Portfolio will conduct its foreign currency exchange transactions either on
a cash basis at the cash rate prevailing in the foreign currency exchange
market, or through entering into forward, futures or options contracts to
purchase or sell foreign currencies.
The Portfolio may seek to protect the value of some portion or all of its
portfolio holdings against currency risks by engaging in hedging transactions.
Currently, there is no market in which the Portfolio may engage in many of these
hedging transactions, including with respect to the renminbi, and there can be
no guarantee that instruments suitable for hedging currency or market or
interest rate shifts will be available at the time when the Portfolio wishes to
use them. The Portfolio is authorized to enter into forward currency exchange
contracts and currency futures contracts and options on such futures contracts,
as well as to enter into currency swaps and to purchase put or call options on
foreign currencies, in U.S. or foreign markets, to the extent available.
DIRECT INVESTMENTS. The Portfolio may invest up to 25% of its total assets
in direct investments in China growth companies. Direct investments include (i)
the private purchase from trusts, partnerships, joint ventures and other
unincorporated entities or enterprises of an equity interest in the enterprise
in the form of shares of common stock or other equity interests; and (ii) the
purchase of such an equity interest in an enterprise from a principal investor
in the enterprise. Certain of the Portfolio's direct investments, particularly
in China, may include investments in smaller, less seasoned companies, or which
may be dependent on a limited management group. In some cases, the Portfolio's
direct investments will fund new operations for an enterprise which itself is
engaged in similar operations or is affiliated with an organization that is
engaged in similar operations. Such direct investments may be made in entities
that are reasonably expected in the foreseeable future to become China growth
companies, either by expanding current operations or establishing significant
operations in the Chinese Economic Area.
RISKS ASSOCIATED WITH DIRECT INVESTMENTS. Direct investments may involve a
higher degree of business and financial risk that can result in substantial
losses. Because of the absence of any public trading market for these
investments, the Portfolio may take longer to liquidate these positions than
would be the case for publicly traded securities. Although these securities may
be resold in privately negotiated transactions, the prices on
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these sales could be less than those originally paid by the Portfolio, or less
than what may be considered their fair value. Furthermore, issuers whose
securities are not publicly traded may not be subject to public disclosure and
other investor protection requirements applicable to publicly traded securities.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Portfolio may be required to
bear the expenses of registration. In addition, in the event the Portfolio sells
unlisted securities, any capital gains realized on such transactions may be
subject to higher rates of taxation than taxes payable on the sale of listed
securities.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The Portfolio may invest in securities that are neither listed on a
stock exchange nor traded over-the-counter, including direct investments
(discussed above). Investing in such unlisted equity securities may involve a
high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio or less than what may be considered the fair value of such securities.
Further, companies whose securities are not publicly traded may not be subject
to the disclosure and other investor protection requirements which might be
applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, the Portfolio may be required to bear the expenses of
registration. As a general matter, the Portfolio may not invest more than 15% of
its total assets in illiquid securities, including securities for which there is
no readily available secondary 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 25% 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 Rule 144A
securities. Rule 144A securities may become illiquid if qualified institutional
buyers are not interested in acquiring the securities.
FOREIGN INVESTMENT RISK FACTORS. Investors should recognize that investing
in China growth companies and other foreign issuers involves certain risks and
special considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. issuers. Investing in securities
issued by foreign companies and governments involves considerations and possible
risks not typically associated with investing in securities issued by the U.S.
Government and U.S. corporations. The values of foreign investments are affected
by changes in currency exchange rates or exchange control regulations,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the U.S. or
abroad) or changed circumstances in dealings between nations and the Portfolio
may incur costs in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the U.S.,
and foreign securities markets may be less liquid, more volatile and subject to
less governmental supervision than in the U.S. Investments in foreign issuers
could be affected by other factors not present in the U.S., including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations.
Transactions in the securities of foreign issuers could be subject to settlement
delays.
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Because the Portfolio normally invests at least 65% of its total assets in
equity securities of China growth companies, its investment performance will be
especially affected by events affecting the Chinese Economic Area. The value and
liquidity of such investments may be affected favorably or unfavorably by
political, economic, fiscal, regulatory or other developments in the Chinese
Economic Area or neighboring regions. The extent of economic development,
political stability and market depth of different countries in the Chinese
Economic Area varies widely. Certain countries in the Chinese Economic Area are
either comparatively underdeveloped or are in the process of becoming developed.
Investments in China growth companies typically involve greater potential for
gain or loss than investments in securities of issuers in developed countries.
In comparison to the U.S. and other developed countries, developing countries
may have relatively unstable governments and economies based on only a few
industries. In light of the Portfolio's investment objective and policies, the
Portfolio will likely be particularly sensitive to changes in China's economy as
the result of a reversal of economic liberalization, political unrest or changes
in China's trading status.
MARKET CHARACTERISTICS. The securities markets in the Chinese Economic Area
and the surrounding region are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by the Portfolio. Similarly, volume and liquidity in
the equity markets in the Chinese Economic Area are less than in the United
States and, at times, price volatility can be greater than in the United States.
A limited number of issuers in the securities markets of the Chinese Economic
Area may represent a disproportionately large percentage of market
capitalization and trading value. The limited liquidity of securities markets in
the Chinese Economic Area may also affect the Portfolio's ability to acquire or
dispose of securities at the price and time it wishes to do so. In addition,
restrictions on foreign investment in equity securities listed on securities
exchanges in the Chinese Economic Area may impair the Portfolio's ability to
diversify its investments among certain industry sectors and may adversely
influence the prices paid by the Portfolio for such securities.
The Chinese Economic Area stock markets are undergoing a period of growth
and change which may result in trading volatility and difficulties in the
settlement and recording of transactions, and in interpreting and applying the
relevant law and regulations. In particular, the securities industry in China is
not well developed. China has no securities laws of nationwide applicability.
The prices at which the Portfolio may acquire investments may be affected by
trading by persons with material non-public information and by securities
transactions by brokers in anticipation of transactions by the Portfolio in
particular securities.
POLITICAL, ECONOMIC AND OTHER FACTORS. The Portfolio will invest in
countries with emerging economies or securities markets. Political and economic
structures in many of such countries may be undergoing significant evolution and
rapid development, and such countries may lack the social, political and
economic stability characteristic of the United States. Certain of such
countries have in the past failed to recognize private property rights and have
at times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of the Portfolio's investments in
those countries and the availability to the Portfolio of additional investments
in those countries.
Economies of the countries in the Chinese Economic Area may differ favorably
or unfavorably from the U.S. economy in such respect as rate of growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As export-driven economies,
the economies of
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countries in the Chinese Economic Area are affected by developments in the
economies of their principal trading partners. Revocation by the United States
of China's "Most Favored Nation" trading status, which the U.S. President and
Congress reconsider annually, would adversely affect the trade and economic
development of China and Hong Kong. In addition, governmental actions in China
can have a significant effect on the economic conditions in the surrounding
countries, which could adversely affect the value and liquidity of the
Portfolio's investments. Although the Chinese Government has recently begun to
institute economic reform policies, there can be no assurances that it will
continue to pursue such policies or, if it does, that such polices will succeed.
INVESTMENT LIMITATIONS
As a non-diversified investment company, the Portfolio is not limited by the
1940 Act in the proportion of its total assets that may be invested in the
obligations of a single issuer. Thus, the Portfolio may invest a greater
proportion of its total assets in the securities of a smaller number of issuers
and, as a result, will be subject to greater risk with respect to its portfolio
securities. However, the Portfolio does intend to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended, for qualification as a regulated investment company. See "Investment
Limitations" in the Statement of Additional Information.
The 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 the Portfolio's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, the
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. The 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; (ii) borrow money, except from banks for extraordinary or
emergency purposes, and then only in amounts up to 10% of the Portfolio's total
assets, less all liabilities and indebtedness other than the borrowing, 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 seven or less calendar days if more than 10% of
the Portfolio's total assets would be invested in these deposits.
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MANAGEMENT OF THE FUND
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") 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 each of the Fund's portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each of the Fund's portfolio's investments. The Adviser is
entitled to receive from the Portfolio an annual investment advisory fee,
payable quarterly, equal to 1.25% of the average daily net assets of the
Portfolio.
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 total
annual operating expenses of the Portfolio to exceed 1.75% of its average daily
net assets.
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. EAN WAH CHIN AND JAMES CHENG. Ms. Chin is a Managing
Director of Morgan Stanley, and is responsible for the Adviser's regional Asia
ex-Japan operations based in Singapore. She has shared primary portfolio
management responsibility for the Portfolio since its inception. Prior to
joining Morgan Stanley in 1986, Ms. Chin spent eight years with the Monetary
Authority of Singapore and the Government of Singapore Investment Corporation,
where she was a portfolio manager for one of the largest portfolios in Asia. Ms.
Chin was an ASEAN scholar educated at the University of Singapore. Mr. Cheng is
a Principal of Morgan Stanley. Mr. Cheng has shared primary portfolio management
responsibility for the Portfolio since its inception. He joined the Adviser in
1988 as a Portfolio Manager for Asian markets and is currently responsible for
investments in Hong Kong, China, Taiwan, and South Korea. Prior to joining
Morgan Stanley, he was affiliated with American Express and with Arthur
Andersen, where he spent three years as an auditor/consultant. Mr. Cheng holds
an M.B.A. from the University of Michigan, Ann Arbor.
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 the 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
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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 interest 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.
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 the 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 the Portfolio and receives no compensation for its
distribution services.
EXPENSES. The Portfolio is responsible for payment of certain other fees
and expenses (including legal fees, accountant's fees, custodial fees, and
printing and mailing costs) specified in the Administration and Distribution
Agreements.
PURCHASE OF SHARES
Shares of the 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
the Portfolio, with certain exceptions for Morgan Stanley employees and
select customers) payable to "Morgan Stanley Institutional Fund, Inc. --
China Growth Portfolio", 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 Portfolio determined on the next
business day after receipt.
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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.)
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 and sign 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. 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.
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, 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. -- China Growth Portfolio") at the above address or by wiring monies
to the Custodian Bank as outlined above. It is very important that your account
name and the portfolio name be specified in the letter or wire to ensure 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.
OTHER PURCHASE INFORMATION
The purchase price of the shares of the Portfolio is the net asset value
next determined after the order is received. See "Valuation of Shares." An order
received prior to the regular close of the New York Stock
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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 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 Portfolio 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 ensure 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 canceled 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.
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.
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 price has been collected,
which may take up to eight business days after purchase. The Fund will redeem
shares of the 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 Portfolio is determined at the regular close of trading of the
NYSE (currently 4:00 p.m. Eastern Time). Shares of the 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.
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BY MAIL
The 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:
(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 Insitutional 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 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 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 eight days after the date of purchase.
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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 the 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 the 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 in the Portfolio 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.
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 the Portfolio for shares of any
other available portfolio of the Fund (except for the International Equity
Portfolio). The privilege to exchange shares by telephone is automatic. Shares
of the Portfolio may be exchanged by mail or telephone. Before you make an
exchange, you should read the Prospectus of the portfolios 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 for shareholders
subject to tax. 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 the Portfolio, the name of the portfolios
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, Massachusetts 02208-2798.
BY TELEPHONE
When exchanging shares by telephone, have ready the name and account number
of the Portfolio, the name of the portfolios 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
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of business. Requests received after 4:00 p.m. (Eastern Time) 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
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.
VALUATION OF SHARES
The net asset value per share of the Portfolio 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 within a
range not exceeding 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 two reputable brokers.
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 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 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 the "total return" of the
Portfolio. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
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<PAGE>
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 Fund may
also include comparative performance information in advertising or marketing the
Portfolio's 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. The Portfolio
expects to distribute substantially all of its net investment income in the form
of annual 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.
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 income 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.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
The Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other portfolios. The 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.
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The Portfolio distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from the Portfolio's net investment income are taxable to shareholders
as ordinary income, whether received in cash or in additional shares. Such
dividends will generally qualify for the 70% dividends-received deduction for
corporations only to the extent of the aggregate qualifying dividend income
received by the Portfolio from U.S. corporations. The 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. The
Portfolio sends reports annually to shareholders of the federal income tax
status of all distributions made during the preceding year.
The 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 the 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.
Shareholders are urged to consult with their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio,
which may differ from the federal income tax consequences described above.
Investment income received by the Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that the Portfolio is liable for foreign income taxes so withheld, the
Portfolio intends to operate so as to meet the requirements of the Code to pass
through to the shareholders credit for foreign income taxes paid. Although the
Portfolio intends to meet Code requirements to pass through credit for such
taxes, there can be no assurance that the Portfolio will be able to do so.
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 THE PORTFOLIO.
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 the Portfolio and directs the Adviser to use its best
24
<PAGE>
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Portfolio. 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 Portfolio 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 their clients.
In purchasing and selling securities for the Portfolio, 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 Portfolio, 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 Portfolio may also be appropriate
for other clients served by the Adviser. If purchase or sale of securities
consistent with the investment policies of the 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
such other clients in a manner deemed fair and reasonable by the Adviser,
subject to the supervision of 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 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 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 the Portfolio will not 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. The Portfolio anticipates that, under normal
circumstances, the annual portfolio turnover rate may 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.
25
<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 the 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 the 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 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
The 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.
26
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC. -- CHINA GROWTH PORTFOLIO
P.O. BOX 2798, BOSTON, MA 02208-2798
ACCOUNT REGISTRATION FORM
If you need assistance in filling out this form for
ACCOUNT INFORMATION the Morgan Stanley Institutional Fund, please
Fill in where applicable contact your Morgan Stanley representative or call
us toll free 1-(800)-548-7786. Please print all
items except signature, and mail to the Fund at the
address above.
A) REGISTRATION
1. INDIVIDUAL
2. JOINT TENANTS (RIGHTS OF SURVIVORSHIP PRESUMED UNLESS TENANCY IN COMMON IS
INDICATED)
1.
--------------------------------------------------------------------------------
First Name Initial Last Name
2.
--------------------------------------------------------------------------------
First Name Initial Last Name
--------------------------------------------------------------------------------
First Name Initial Last Name
3. CORPORATIONS, TRUSTS AND OTHERS Please call the Fund for additional
documents that may be required to set up account and to authorize
transactions.
3.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR (ONLY ONE
ASSOCIATION CUSTODIAN AND MINOR PERMITTED)
</TABLE>
/ / TRUST ________________________ / / OTHER (Specify) ________________________
B) MAILING ADDRESS
Please fill in completely, including telephone number(s).
Street or P.O. Box ____________________________________________________________
City _____________________ State _____________________ Zip __________-__________
Home Telephone No. __________-__________-__________
Business Telephone No. __________-__________-__________
/ / United States Citizen / / Resident Alien / / Non-Resident Alien:
Indicate Country of Residence __________________________________________________
C) TAXPAYER IDENTIFICATION NUMBER
If the account is in more than one name, CIRCLE THE NAME OF THE PERSON WHOSE
TAXPAYER IDENTIFICATION NUMBER IS PROVIDED IN SECTION A) ABOVE. If no name
is circled, the number will be considered to be that of the last name
listed. For Custodian account of a minor (Uniform Gifts/Transfers to Minors
Acts), give the Social Security Number of the minor.
PART 1. Enter your Taxpayer Identification Number. For most individual
taxpayers, this is your Social Security Number.
TAXPAYER IDENTIFICATION NUMBER
------------------------------------------------------------------------
OR
SOCIAL SECURITY NUMBER
------------------------------------------------------------------------
PART 2. BACKUP WITHHOLDING
/ / Check this box if you are NOT subject to Backup Withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your
correct taxpayer identification number. Accounts that have a missing or
incorrect taxpayer identification number will be subject to backup
withholding at a 31% rate on dividends, distributions and other payments. If
you have not provided us with your correct taxpayer identification number,
you may be subject to a $50 penalty imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld.
If withholding results in an overpayment of taxes, a refund may be obtained.
You may be notified that you are subject to backup withholding under Section
3406(a)(1)(C) of the Internal Revenue Code because you have underreported
interest or dividends or you were required to but failed to file a return
which would have included a 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 the China Growth Portfolio. Please indicate amount.
FOR PURCHASE OF $ OF CHINA GROWTH PORTFOLIO
E) METHOD OF INVESTMENT
Please indicate manner of payment.
Payment by:
/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND, INC.-CHINA
GROWTH PORTFOLIO)
/ / Exchange $ From --
Name of Portfolio Account No.
/ / Account previously established by:
/ / Phone exchange / / Wire on --
Date
Account No. (Check Digit)
(Previously assigned by the Fund)
<PAGE>
F) DISTRIBUTION OPTION
Income dividends and capital gains distributions (if any) will be reinvested
in additional shares unless 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 REDEMPTION
Please select at time of initial application if you wish to redeem shares by
telephone. A SIGNATURE GUARANTEE IS REQUIRED IF BANK ACCOUNT IS NOT
REGISTERED IDENTICALLY TO YOUR FUND ACCOUNT. TELEPHONE REQUESTS FOR
REDEMPTIONS WILL NOT BE HONORED UNLESS THE BOX IS CHECKED.
/ / I/we hereby authorize the Fund and its agents to honor any telephone
requests to wire redemption proceeds to the commercial bank indicated at
right and/or mail redemption proceeds to the name and address in which
my/our fund account is registered if such requests are believed to be
authentic.
THE FUND AND THE FUND'S 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 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.
----------------------------------------------------------------------------
Name of COMMERCIAL Bank (Not Savings Bank) Bank Account No.
----------------------------------------------------------------------------
Bank ABA No.
----------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
----------------------------------------------------------------------------
Bank's Street Address
----------------------------------------------------------------------------
City State Zip
H) INTERESTED PARTY OPTION
In addition to the account statement sent to my/our registered address, I/we
hereby authorize the Fund to mail duplicate statements to the name and
address provided at right.
-----------------------------------------------------------------------------
Name
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Address
-----------------------------------------------------------------------------
City State Zip Code
I) DEALER INFORMATION
-----------------------------------------------------------------------------
Representative Name
-----------------------------------------------------------------------------
Representative No.
-----------------------------------------------------------------------------
Branch No.
J) SIGNATURE OF ALL HOLDERS AND TAXPAYER CERTIFICATION
Sign Here
The undersigned certify(ies) that I/we have full authority and legal capacity to
purchase and redeem shares of the Fund and affirm that I/we have received a
current Prospectus of the China Growth Portfolio of the Morgan Stanley
Institutional Fund, Inc. and agree to be bound by its terms. UNDER THE PENALTIES
OF PERJURY, I/WE CERTIFY THAT THE INFORMATION PROVIDED IN SECTION C) ABOVE IS
TRUE, CORRECT AND COMPLETE.
(X) (X)
--------------------------------------- --------------------------------------
Signature Date Signature Date
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVES 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>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses............................................................. 2
Prospectus Summary........................................................ 4
Investment Objective and Policies......................................... 7
Additional Investment Information......................................... 8
Investment Limitations.................................................... 15
Management of the Fund.................................................... 16
Purchase of Shares........................................................ 17
Redemption of Shares...................................................... 19
Shareholder Services...................................................... 21
Valuation of Shares....................................................... 21
Performance Information................................................... 22
Dividends and Capital Gains Distributions................................. 22
Taxes..................................................................... 23
Portfolio Transactions.................................................... 24
General Information....................................................... 25
Account Registration Form
</TABLE>
CHINA GROWTH PORTFOLIO
A PORTFOLIO 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>
-------------------------------------------------------------------------------
P R O S P E C T U S
-------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
EMERGING GROWTH PORTFOLIO
MICROCAP PORTFOLIO
AGGRESSIVE EQUITY 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 Equity
Growth, Emerging Growth, MicroCap and Aggressive Equity Portfolios (each, a
"Portfolio," and collectively, the "Portfolios").
The EQUITY GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of medium and large
capitalization corporations.
The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of small- to
medium-sized corporations.
The MICROCAP PORTFOLIO seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of small corporations.
The AGGRESSIVE EQUITY PORTFOLIO is a non-diversified portfolio that seeks
long-term capital appreciation by investing primarily in corporate equity and
equity-linked 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 Portfolios 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
1
<PAGE>
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, MicroCap, Small Cap Value Equity, Value Equity
and U.S. Real Estate Portfolios; (iii) BALANCED -- Balanced Portfolio; (iv)
FIXED INCOME -- Emerging Markets Debt, Fixed Income, Global Fixed Income, High
Yield, Mortgage-Backed Securities and Municipal Bond 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 _________________, 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 __________, 1995.
2
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Portfolios indicated below will incur:
<TABLE>
<CAPTION>
EQUITY EMERGING AGGRESSIVE
GROWTH GROWTH MICROCAP EQUITY
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases . . . . . . . . . . . . . . None None None None
Maximum Sales Load Imposed on Reinvested Dividends. . . . . . . . . None None None None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . . None None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None None None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None None
EQUITY EMERGING AGGRESSIVE
GROWTH GROWTH MICROCAP EQUITY
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------- --------- --------- --------- ---------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fee (Net of Fee Waivers). . . . . . . . . . . . 0.51%* 0.99%* 1.25%*+ 0.67%*+
Administrative & Shareholder Account Costs. . . . . . . . . . . . . 0.15% 0.15% 0.15%+ 0.15%+
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None+ None
Custody Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.04% 0.03% 0.025%+ 0.03%+
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10% 0.08% 0.075%+ 0.15%+
------ ------ ------ ------
Total Operating Expenses (Net of Fee Waivers). . . . . . . . . 0.80%* 1.25%* 1.50%*+ 1.00%*+
------ ------ ------ ------
------ ------ ------ ------
_______
<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 the
total annual operating expenses as a percentage of average daily net assets
to exceed (i) 0.80% for the Equity Growth Portfolio, (ii) 1.25% for the
Emerging Growth Portfolio, (iii) 1.50% for the MicroCap Portfolio, or (iv)
1.00% for the Aggressive Equity Portfolio. Absent such fee waivers, total
operating expenses as a percentage of each Portfolio's average daily net
assets would have been (i) 0.89% for the Equity Growth Portfolio and (ii)
1.26% for the Emerging Growth Portfolio for the year ended December 31,
1994 and would be estimated to be (iii) _____% of the average daily net
assets of the MicroCap Portfolio and (iv) 1.13% of the average daily net
assets of the Aggressive Equity 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."
+ Estimated.
</TABLE>
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 Equity Growth and Emerging Growth Portfolios are
based on actual figures for the year ended December 31, 1994. The expenses and
fees for the MicroCap and Aggressive Equity Portfolios are based on estimates
that assume that the daily net assets for the first year will be approximately
$______________ and $35,000,000, respectively. "Other Expenses" include Board of
Directors' fees and expenses, amortization of organization 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 Portfolios charge
no redemption fees of any kind. The example is based on total operating expenses
of the Portfolios after fee waivers.
3
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Growth Portfolio . . . . . . . . $8 $26 $44 $99
Emerging Growth Portfolio . . . . . . . $13 $40 $69 $151
MicroCap Portfolio . . . . . . . . . . $___ $___ * *
Aggressive Equity Portfolio . . . . . . $10 $32 * *
<FN>
_______
* Because the MicroCap Portfolio has not yet commenced operations and the
Aggressive Equity Portfolio has recently become operational, the Fund has
not projected expenses beyond the 3-year period shown for either
Portfolio.
</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.
The Adviser has agreed to a reduction in the amounts payable to it, and to
reimburse the Portfolios, if necessary, if in any fiscal year the sum of the
Portfolios' expenses exceeds the limit set by applicable state law.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Equity Growth,
Emerging Growth and Aggressive Equity Portfolios for each of the respective
periods presented. The financial highlights for the period ended December 31,
1994 are part of the Fund's financial statements which appear in the Fund's
December 31, 1994 Annual Report to Shareholders and which are in the Fund's
Statement of Additional Information. The Fund's financial highlights for each
of the periods presented have been audited by Price Waterhouse LLP, whose
unqualified report thereon is also in the Statement of Additional Information.
Additional performance information is contained in the Annual Report. The
Annual Report and the financial statements therein and 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. Financial
Highlights are not available for the MicroCap Portfolio since it was not
operational as of June 30, 1995. Subsequent to October 31, 1992 the Fund
changed its fiscal year end to December 31. The financial statements, including
the financial highlights, for the Aggressive Equity Portfolio from March 8,
1995 to June 30, 1995 are unaudited. The following information should be read
in conjunction with the financial statements and notes thereto.
5
<PAGE>
EQUITY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
TWO MONTHS
ENDED YEAR ENDED YEAR ENDED
APRIL 2, 1991* TO YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
OCTOBER 31, 1991 OCTOBER 31, 1992 1992 1993 1994
----------------- ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . . . $10.00 $10.66 $11.44 $11.88 $12.14
----------------- --------------- ------------ ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1) (2) . . . . . . . . . 0.05 0.16 0.03 0.22 0.17
Net Realized and Unrealized
Gain on Investments . . . . . . . . . . . . . 0.61 0.82 0.41 0.28 0.21
----------------- --------------- ------------ ---------- ----------
Total from Investment
Operations . . . . . . . . . . . . . . . . 0.66 0.98 0.44 0.50 0.38
----------------- --------------- ------------ ---------- -----------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . -- (0.20) -- (0.23) (0.13)
In Excess of Net Investment
Income . . . . . . . . . . . . . . . . . . . -- -- -- (0.01) --
Net Realized Gain . . . . . . . . . . . . . . . -- -- -- -- (0.37)
----------------- --------------- ------------ ---------- -----------
Total Distributions . . . . . . . . . . . . . -- (0.20) -- (0.24) (0.50)
----------------- --------------- ------------ ---------- -----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.66 $11.44 $11.88 $12.14 $12.02
----------------- --------------- ------------ ---------- -----------
----------------- --------------- ------------ ---------- -----------
TOTAL RETURN . . . . . . . . . . . . . . . . . . 6.60% 9.26% 3.85% 4.33% 3.26%
----------------- --------------- ------------ ---------- -----------
----------------- --------------- ------------ ---------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) . . . . . . . . . . . . . . . . . $18,139 $36,558 $45,985 $73,789 $97,259
Ratio of Expenses to Average
Net Assets (1) (2) . . . . . . . . . . . . . 0.80%** 0.80% 0.80%** 0.80% 0.80%
Ratio of Net Investment
Income to Average Net
Assets (1) (2) . . . . . . . . . . . . . . . 2.34%** 1.73% 1.93%** 1.59% 1.44%
Portfolio Turnover Rate . . . . . . . . . . . . 3% 38% 1% 172% 146%
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net
investment income . . . . . . . . . . . . . $0.03 $0.02 $0.01 $0.02 $0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets . . . . . . . . . . . . . . . . . . . 1.37%** 1.01% 1.11%** 0.93% 0.89%
Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 1.77%** 1.52% 1.62%** 1.46% 1.35%
(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 0.60% of the average daily net assets of the Equity Growth Portfolio.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Equity Growth Portfolio to the extent that the total
operating expenses of the Equity Growth Portfolio exceed 0.80% of the
average daily net assets of the Equity Growth Portfolio. In the period
ended October 31, 1991, the year
6
<PAGE>
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 $23,000, $51,000, $22,000, $68,000,
and $83,000, respectively, for the Equity Growth Portfolio.
* Commencement of Operations.
** Annualized.
</TABLE>
7
<PAGE>
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
NOVEMBER 1, TWO MONTHS
1989* TO YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
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 $9.03 $16.18 $14.97 $16.22 $16.22
-------------- ------------- -------------- ------------- --------------- ---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income/(Loss)
(1) . . . . . . . . . . . . 0.08 - (0.09) (0.01) (0.11) (0.09)
Net Realized and Unrealized
Gain/(Loss) on Investments . (1.00) 7.19 (1.12) 1.26 0.11 (0.01)
-------------- -------------- -------------- ------------- --------------- ---------------
Total from Investment
Operations . . . . . . . . (0.92) 7.19 (1.21) 1.25 0.00 (0.10)
-------------- -------------- -------------- ------------- --------------- ---------------
DISTRIBUTIONS
Net Investment Income . . . . (0.05) (0.04) - - - -
-------------- -------------- -------------- ------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $9.03 $16.18 $14.97 $16.22 $16.22 $16.12
-------------- -------------- -------------- ------------- --------------- ---------------
-------------- -------------- -------------- ------------- --------------- ---------------
TOTAL RETURN . . . . . . . . . (9.27)% 79.84% (7.48)% 8.35% 0.00% (0.62)%
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) . . . . . . . . $11,261 $54,364 $80,156 $94,161 $103,621 $117,669
Ratio of Expenses to Average
Net Assets (1) . . . . . . . 1.26%** 1.25% 1.25% 1.25%** 1.25% 1.25%
Ratio of Net Investment
Income/(Loss) to Average Net
Assets (1) . . . . . . . . . 0.64%** 0.00% (0.66)% (0.68)%** (0.77)% (0.61)%
Portfolio Turnover Rate . . . 19% 2% 17% 1% 25% 24%
<FN>
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment income . . $0.01 $0.02 $0.01 $0.00 $0.01 $0.002
Ratios before expense limitation:
Expenses to Average Net
Assets . . . . . . . . . . 1.64%** 1.39% 1.29% 1.36%** 1.31% 1.26%
Net Investment Income (Loss)
to Average Net Assets . . 0.24%** (0.14)% (0.71)% (0.79)%** (0.83)% (0.62)%
</TABLE>
8
<PAGE>
(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 1.00% of the average daily net assets of the Emerging Growth Portfolio.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Emerging Growth Portfolio to the extent that the total
operating expenses of the Emerging Growth Portfolio exceed 1.25% of the
average daily net assets of the Emerging Growth 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
$28,000, $41,000, $31,000, $18,000, $51,000, and $16,000, respectively, for
the Emerging Growth Portfolio.
* Commencement of Operations.
** Annualized.
+ Per share amounts for the year ended October 31, 1991 are based on
average outstanding shares.
9
<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 and
Distributor. Each portfolio has its own investment objectives and policies
designed to meet specific goals. This Prospectus pertains to the Equity Growth,
Emerging Growth, MicroCap and Aggressive Equity Portfolios.
- The EQUITY GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of medium and
large capitalization companies.
- The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of small- to
medium-sized corporations.
- The MICROCAP PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of small
corporations.
- The AGGRESSIVE EQUITY PORTFOLIO is a non-diversified portfolio that
seeks capital appreciation by investing primarily incorporate equity
and equity-linked 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 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 equity securities 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 equity securities of European issuers.
- The GLOBAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities 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.
10
<PAGE>
- The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital
appreciation by investing primarily in equity securities of non-U.S.
issuers.
- The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital
appreciation by investing primarily in equity securities 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 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.
EQUITY AND FIXED INCOME:
- 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 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 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 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 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.
11
<PAGE>
- 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.
MONEY MARKET:
- 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.
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 June 30, 1995 had approximately $_____ 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. Share purchases may be made by
sending investments directly to the Fund. The minimum initial investment is
$500,000 for the Equity Growth Portfolio, $250,000 for the Emerging Growth
Portfolio, $100,000 for the MicroCap Portfolio and $500,000 for the Aggressive
Equity Portfolio. The minimum subsequent investment for each Portfolio is $1,000
(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 in the Equity
Growth Portfolio to less than $500,000, the Emerging Growth Portfolio to less
than $100,000, the MicroCap Portfolio to less than $50,000, or the Aggressive
Equity Portfolio to less than $500,000, the investment may be subject to
redemption. See "Redemption of Shares."
RISK FACTORS
The investment policies of the Portfolios entail certain risks and
considerations of which an investor should be aware. Because the Emerging Growth
and MicroCap Portfolios seek long-term capital appreciation by investing
primarily in small- to medium-sized companies and small companies, respectively,
both of which types of companies are more vulnerable to financial and other
risks than larger, more established companies, investments in these Portfolios
may involve a higher degree of risk and price volatility than the general equity
markets. The Aggressive Equity Portfolio may invest in small- to medium-sized
companies to a lesser extent. The Equity Growth, Emerging Growth, MicroCap and
Aggressive Equity Portfolios may invest in securities of foreign issuers, which
are subject to certain risks not typically associated with domestic securities.
See "Investment Objectives and Policies" and "Additional Investment
Information." In addition, the Portfolios may invest in repurchase agreements,
lend their portfolio securities and may purchase securities on a when-issued
basis. The Equity Growth and Aggressive Equity
12
<PAGE>
Portfolios may invest in covered call options and may also invest in stock
options, stock futures contracts and options on stock futures contracts, and may
invest in forward foreign currency exchange contracts to hedge currency risk
associated with investment in non-U.S. dollar-denominated securities. The
Aggressive Equity Portfolio may invest in convertible debentures and specialty
equity-linked securities, such as PERCS, ELKS or LYONs, of U.S., and to a
limited extent, foreign issuers, which may involve risks in addition to those
associated with equity securities. The Aggressive Equity Portfolio is a
non-diversified portfolio under the Investment Company Act of 1940, as amended
(the "1940 Act") and therefore may invest a greater proportion of its assets in
the securities of a smaller number of issuers and may, as a result, be subject
to greater risk with respect to its portfolio securities. See "Investment
Limitations." See "Additional Investment Information." 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.
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 Portfolios will attain their
objectives. The investment policies described below are not fundamental policies
and may be changed without shareholder approval.
THE EQUITY GROWTH PORTFOLIO
The Portfolio's investment objective is to provide long-term capital
appreciation by investing primarily in growth-oriented equity securities of
medium and large capitalization U.S. corporations and, to a limited extent as
described below, foreign corporations. With respect to the Portfolio,
equity securities include common and preferred stock, convertible
securities, 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 employs a flexible and eclectic investment process in pursuit
of the Portfolio's investment objectives. In selecting stocks for the Portfolio,
the Adviser concentrates on a universe of rapidly growing, high quality
companies and lower, but accelerating, earnings growth situations. The Adviser's
universe of potential investments generally comprises companies with market
capitalizations of $750 million or more. The Portfolio is not restricted to
investments in specific market sectors. The Adviser uses its research
capabilities, analytical resources and judgment to assess economic, industry and
market trends, as well as individual company developments, to select promising
growth investments for the Portfolio. The Adviser concentrates on companies with
strong, communicative managements and clearly defined strategies for growth. In
addition, the Adviser rigorously assesses company developments, including
changes in strategic direction, management focus and current and likely future
earnings results. Valuation is important to the Adviser but is viewed in the
context of prospects for sustainable earnings growth and the potential for
positive earnings surprises vis-a-vis consensus expectations. The Portfolio is
free to invest in any equity security that, in the Adviser's judgment, provides
above average potential for capital appreciation.
In selecting investments for the Portfolio, the Adviser emphasizes
individual security selection. The Portfolio's investments will generally be
diversified by number of issues but concentrated sector positions may result
from the investment process. The Portfolio has a long-term investment
perspective; however, the Adviser may take advantage of short-term opportunities
that are consistent with the Portfolio's objective by selling recently purchased
securities which have increased in value.
The Portfolio may invest up to 25% of its total assets at the time of
purchase in securities of foreign companies. The Portfolio may invest
in securities of foreign issuers directly or in the form of Depository Receipts.
Investors should recognize that investing in foreign companies involves certain
special considerations which are not typically associated with investing in U.S.
companies. See "Additional Investment Information" herein and "Investment
Objectives and Policies -- Forward Foreign Currency Exchange Contracts" in the
Statement of Additional Information.
13
<PAGE>
The Portfolio may invest in convertible securities of domestic and, subject
to the above restrictions, foreign issuers on occasions when, due to market
conditions, it is more advantageous to purchase such securities than to purchase
common stock. Since the Portfolio invests in both common stocks and convertible
securities, the risks of investing in the general equity markets may be tempered
to a degree by the Portfolio's investments in convertible securities which are
often not as volatile as common stock.
Any remaining assets may be invested in securities or obligations,
including derivative securities, that are set forth in "Additional Investment
Information" below.
THE EMERGING GROWTH PORTFOLIO
The Portfolio's investment objective is to provide long-term capital
appreciation by investing primarily in growth-oriented equity securities of
small- to medium-sized domestic corporations and, to a limited extent as
described below, foreign corporations. The production of any current income is
incidental to this objective. Such companies generally have annual gross
revenues ranging from $10 million to $750 million. With respect to the
Portfolio, equity securities include common and preferred stock,
convertible securities, rights and warrants to purchase common stocks,
and any similar equity interest, such as trust or
partnership interests. Such equity securities may not pay dividends or
distributions and may or may not carry voting rights.
The Adviser employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Portfolio is not restricted to investments
in specific market sectors. The Portfolio will invest in small- to medium-sized
companies that are early in their life cycle, but which have the potential, in
the Adviser's judgment, to become major enterprises. The Adviser uses its
judgment and research capabilities to assess economic, industry, market and
company developments to select investments in promising emerging growth
companies that are expected to benefit from new technology or new products or
services. In addition, the Adviser looks for special developments, such as
research discoveries, changes in customer demand, rejuvenated management or
basic changes in the economic environment. These situations are only
illustrative of the types of investments the Portfolio may make. The Portfolio
is free to invest in any common stock which in the Adviser's judgment provides
above-average potential for capital appreciation.
The Portfolio intends to manage its investments actively to accomplish its
investment objective. Since the Portfolio has a long-term investment
perspective, the Adviser does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the Adviser may take advantage of short-term opportunities that are
consistent with its objective.
The Portfolio may invest up to 25% of its total assets at the time of
purchase in securities of foreign companies. The Portfolio may invest in
securities of foreign issuers directly or in the form of Depository Receipts.
See "Additional Investment Information" below. The Portfolio may enter into
forward foreign currency exchange contracts which provide for the purchase or
sale of foreign currencies in connection with the settlement of foreign
securities transactions or to hedge the underlying currency exposure related to
foreign investments. The Portfolio will not enter into these commitments for
speculative purposes. Investors should recognize that investing in foreign
companies involves certain special considerations which are not typically
associated with investing in U.S. companies. See "Additional Investment
Information" herein and "Investment Objectives and Policies -- Forward Currency
Exchange Contracts" in the Statement of Additional Information.
The Portfolio may also invest in convertible securities of domestic and,
subject to the above restrictions, foreign issuers on occasions when, due to
market conditions, it is more advantageous to purchase such securities than to
purchase common stock. The Portfolio will not invest in debt securities that
are not rated at least investment grade by either Standard & Poor's Corporation
or Moody's Investors Service, Inc. Since the Portfolio invests in both common
stocks and convertible securities, the risks of investing in the general equity
markets may be tempered to a degree by the Portfolio's investments in
convertible securities, which are often not as volatile as equity securities.
14
<PAGE>
Any remaining assets may be invested in securities or obligations,
including derivative securities, that are set forth in "Additional Investment
Information" below.
THE MICROCAP PORTFOLIO
The Portfolio's investment objective is to provide long-term capital
appreciation by investing primarily in growth-oriented equity securities of
small domestic corporations and, to a limited extent as described below, foreign
corporations. The production of any current income is incidental to this
objective. Such companies generally have, at time of purchase, annual gross
revenues of $150 million or less or market capitalizations of $250 million or
less. With respect to the Portfolio, equity securities include common and
preferred stock, convertible securities, rights and warrants to purchase
common stocks, and any similar equity interest, such as trust or partnership
interests. Such equity securities may or may not pay dividends or distributions
and may or may not carry voting rights.
The Adviser employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Portfolio is not restricted to investments
in specific market sectors. The Portfolio will invest in equity securities,
including securities purchased in initial public offerings, of small companies
that are early in their life cycle, but which have the potential, in
the Adviser's judgment, to achieve long-term capital appreciation.
The Adviser uses its judgment and research capabilities to assess economic,
industry, market and company developments to select investments in promising
companies that are expected to benefit from new technology or new products or
services. In addition, the Adviser looks for special developments, such as
research discoveries, changes in customer demand, rejuvenated management or
basic changes in the economic environment. These situations are only
illustrative of the types of investments the Portfolio may make. The Portfolio
is free to invest in any equity security which in the Adviser's judgment
provides above-average potential for capital appreciation.
The Portfolio intends to manage its investments actively to accomplish its
investment objective. Since the Portfolio has a long-term investment
perspective, the Adviser does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the Adviser may take advantage of short-term opportunities that are
consistent with its objective.
The Portfolio may invest up to 25% of its total assets at the time of
purchase in securities of foreign companies. The Portfolio may invest in
such securities of foreign issuers directly or in the form of Depository
Receipts. See "Additional Investment Information" below. The Portfolio may
enter into forward foreign currency exchange contracts which provide for the
purchase or sale of foreign currencies in connection with the settlement of
foreign securities transactions or to hedge the underlying currency exposure
related to foreign investments. The Portfolio will not enter into these
commitments for speculative purposes. Investors should recognize that investing
in foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies. See "Additional
Investment Information" herein and "Investment Objectives and Policies --
Forward Currency Exchange Contracts" in the Statement of Additional Information.
The Portfolio may invest in convertible securities of domestic and, subject
to the above restrictions, foreign issuers on occasions when, due to market
conditions, it is more advantageous to purchase such securities than to purchase
common stock. The Portfolio will not invest in debt securities that are not
rated at least investment grade by either Standard & Poor's Corporation or
Moody's Investors Service, Inc. Since the Portfolio invests in both common
stocks and convertible securities, the risks of investing in the general equity
markets may be tempered to a degree by the Portfolio's investments in
convertible securities, which are often not as volatile as equity securities.
See "Additional Investment Information".
Any remaining assets may be invested in securities or obligations,
including derivative securities, that are set forth in "Additional Investment
Information" below.
THE AGGRESSIVE EQUITY PORTFOLIO
The Portfolio's investment objective is to provide capital appreciation by
investing primarily in a non-diversified portfolio of corporate equity and
equity-linked securities. As used herein, equity and equity-linked
15
<PAGE>
securities in common and preferred stock, convertible securities, rights and
warrants to purchase common stocks, options, futures, and specialty securities,
such as ELKS, LYONs, PERCS of U.S., and to a limited extent, as described below,
foreign issuers. The Aggressive Equity Fund is a non-diversified portfolio and
thus can be more heavily weighted in fewer stocks than the Equity Growth
Portfolio, which is a diversified portfolio. See "Additional Investment
Information." Under normal circumstances, the Portfolio will invest at least 65%
of the value of its total assets in equity and equity-linked securities.
The Adviser employs a flexible and eclectic investment process in pursuit
of the Portfolio's investment objective. In selecting securities for the
Portfolio, the Adviser concentrates on a universe of rapidly growing, high
quality companies and lower, but accelerating, earnings growth situations. The
Adviser's universe of potential investments generally comprises companies with
market capitalizations of $500 million or more but smaller market capitalization
securities may be purchased from time to time. The Portfolio is not restricted
to investments in specific market sectors. The Adviser uses its research
capabilities, analytical resources and judgment to assess economic, industry and
market trends, as well as individual company developments, to select promising
investments for the Portfolio. The Adviser concentrates on companies with
strong, communicative managements and clearly defined strategies for growth. In
addition, the Adviser rigorously assesses company developments, including
changes in strategic direction, management focus and current and likely future
earnings results. Valuation is important to the Adviser and is viewed in the
context of prospects for sustainable earnings growth and the potential for
positive earnings surprises vis-a-vis consensus expectations. The Portfolio is
free to invest in any equity or equity-linked security that, in the Adviser's
judgment, provides above average potential for capital appreciation.
The Portfolio may from time to time and consistent with applicable legal
requirements sell securities short that it owns (i.e., "against the box") or
borrows. See "Additional Investment Information".
In selecting investments for the Portfolio, the Adviser emphasizes
individual security selection. Overweighted sector positions and issuer
positions may result from the investment process. See "Investment Limitations."
The Portfolio has a long-term investment perspective; however, the Adviser may
take advantage of short-term opportunities that are consistent with the
Portfolio's objective by selling recently purchased securities which have
increased in value.
The Portfolio may invest in equity and equity-linked securities of domestic
and foreign corporations. However, the Portfolio does not expect to invest more
than 25% of its total assets at the time of purchase in securities of foreign
companies. The Portfolio may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"). Investors should recognize
that investing in foreign companies involves certain special considerations
which are not typically associated with investing in U.S. companies. See
"Additional Investment Information" herein and "Investment Objectives and
Policies -- Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
Any remaining assets may be invested in securities or obligations,
including derivative securities, that are set forth in "Additional Investment
Information" below.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES. The Portfolios
may invest in securities such as convertible securities, preferred stock,
warrants or other securities exchangeable under certain circumstances for shares
of common stock. Convertible securities include any debt securities or preferred
stock which may be converted into common stock or which carry the right to
purchase common stock. Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock, usually of the same
company, at specified prices within a certain period of time and to receive
interest or dividends until the holder elects to exercise the conversion
privilege. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
16
<PAGE>
The Aggressive Equity Portfolio may invest in equity-linked securities,
including, among others, PERCS, ELKS or LYONs, which are securities that are
convertible into or the value of which is based upon the value of, equity
securities upon certain terms and conditions. The amount received by an investor
at maturity of such securities is not fixed but is based on the price of the
underlying common stock. It is impossible to predict whether the price of the
underlying common stock will rise or fall. Trading prices of the underlying
common stock will be influenced by the issuer's operational results, by complex,
interrelated political, economic, financial, or other factors affecting the
capital markets, the stock exchanges on which the underlying common stock is
traded and the market segment of which the issuer is a part. In addition, it is
not possible to predict how equity-linked securities will trade in the secondary
market, which is fairly developed and liquid. The market for such securities may
be shallow, however, and high volume trades may be possible only with
discounting. In addition to the foregoing risks, the return on such securities
depends on the creditworthiness of the issuer of the securities, which may be
the issuer of the underlying securities or a third party investment banker or
other lender. The creditworthiness of such third party issuer of equity-linked
securities may, and often does, exceed the creditworthiness of the issuer of the
underlying securities. The advantage of using equity-linked securities over
traditional equity and debt securities is that the former are income producing
vehicles that may provide a higher income than the dividend income on the
underlying equity securities while allowing some participation in the capital
appreciation of the underlying equity securities. Another advantage of using
equity-linked securities is that they may be used for hedging to reduce the risk
of investing in the generally more volatile underlying equity securities.
The following are three examples of equity-linked securities. The Portfolio
may invest in the securities described below or other similar equity-linked
securities.
PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
are preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, the Portfolio
may be compensated with a substantially higher dividend yield than that on the
underlying common stock. Investors, such as the Portfolio, that seek current
income, find PERCS attractive because a PERCS provides a higher dividend income
than that paid with respect to a company's common stock.
ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt
securities, in that the principal amount received at maturity is not fixed but
is based on the price of the issuer's common stock. ELKS are debt securities
commonly issued in fully registered form for a term of three years under an
indenture trust. At maturity, the holder of ELKS will be entitled to receive a
principal amount equal to the lesser of a cap amount, commonly in the range of
30% to 55% greater than the current price of the issuer's common stock, or the
average closing price per share of the issuer's common stock, subject to
adjustment as a result of certain dilution events, for the 10 trading days
immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to
redemption prior to maturity. ELKS usually bear interest during the three-year
term at a substantially higher rate than the dividend yield on the underlying
common stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, the Portfolio may be
compensated with the higher yield, contingent on how well the underlying common
stock does. Investors, such as the Portfolio, that seek current income, find
ELKS attractive because ELKS provide a higher dividend income than that paid
with respect to a company's common stock.
LYONs. Liquid Yield Option Notes ("LYONs") differ from ordinary debt
securities, in that the amount received prior to maturity is not fixed but is
based on the price of the issuer's common stock. LYONs are zero-coupon notes
that sell at a large discount from face value. For an investment in LYONs, the
Portfolio will not receive any interest payments until the notes mature,
typically in 15 to 20 years, when the notes are redeemed at face, or par, value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of
the same maturity, due in part to the fact that the LYONs are convertible into
common stock of the issuer at any time at the option of the holder of the
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<PAGE>
LYONs. Commonly, the LYONs are redeemable by the issuer at any time after an
initial period or if the issuer's common stock is trading at a specified price
level or better, or, at the option of the holder, upon certain fixed dates. The
redemption price typically is the purchase price of the LYONs plus accrued
original issue discount to the date of redemption, which amounts to the
lower-than-market yield. The Portfolio will receive only the lower-than-market
yield unless the underlying common stock increases in value at a substantial
rate. LYONs are attractive to investors, like the Portfolio, when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
DEPOSITORY RECEIPTS. The Portfolios may invest indirectly in securities of
foreign companies through sponsored or unsponsored American Depository Receipts
("ADRs"), Global Depository Receipts ("GDRs") and other types of Depository
Receipts (which, together with ADRs and GDRs, are hereinafter collectively
referred to as "Depository Receipts"), to the extent such Depository Receipts
are or become available. Depository Receipts are not necessarily denominated in
the same currency as the underlying securities. In addition, the issuers of the
securities underlying unsponsored Depository 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 Depository Receipts. ADRs
are Depository 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 Depository 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,
Depository Receipts in registered form are designed for use in the U.S.
securities market and Depository Receipts in bearer form are designed for use in
securities markets outside the U.S. For purposes of a Portfolio's investment
policies, the Portfolio's investments in Depository Receipts will be deemed to
be investments in the underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Emerging Growth, MicroCap and
Aggressive Equity Portfolios may enter into forward foreign currency exchange
contracts ("forward contracts"), that provide for the purchase or sale of an
amount of a specified foreign 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 non-U.S. dollar denominated securities, locking in
the U.S. dollar value of dividends declared on securities held by the Portfolio
and generally protecting the U.S. dollar value of securities held by the
Portfolio 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 the Portfolio against exchange rate fluctuations, they will also
limit any gains that may otherwise have been realized. Such forward contracts
are derivative securities, in which the Portfolio may invest for hedging
purposes. See "Investment Objectives and Policies -- Forward Currency Exchange
Contracts" in the Statement of Additional Information.
LOANS OF PORTFOLIO SECURITIES. The Portfolios may lend their 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 its total assets.
For more detailed information about securities lending, see "Investment
Objectives and Policies" in the Statement of Additional Information.
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.
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<PAGE>
REPURCHASE AGREEMENTS. The Portfolios 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."
SHORT SALES. The Aggressive Equity Portfolio may from time to time sell
securities short consistent with applicable legal requirements. A short sale is
a transaction in which the Portfolio would sell securities it either owns or has
the right to acquire at no added cost (i.e., "against the box") or does not own
(but has borrowed) in anticipation of a decline in the market price of the
securities. When the Portfolio makes a short sale of borrowed securities, the
proceeds it receives from the sale will be held on behalf of a broker until the
Portfolio replaces the borrowed securities. To deliver the securities to the
buyer, the Portfolio will need to arrange through a broker to borrow the
securities and, in so doing, the Portfolio will become obligated to replace the
securities borrowed at their market price at the time of the replacement,
whatever that price may be. The Portfolio may have to pay a premium to borrow
the securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government securities or other liquid, high grade debt
obligations. In addition, if the short sale is not "against the box", the
Portfolio will place in a segregated account with the Custodian an amount of
cash, U.S. Government securities or other liquid, high grade debt obligations
equal to the difference, if any, between (1) the market value of the securities
sold at the time they were sold short and (2) any cash, U.S. Government
securities or other liquid, high grade debt obligations deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested. The Portfolio will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Portfolio replaces the borrowed security. The Portfolio will
realize a gain if the security declines in price between those dates in an
amount greater than any premium paid in connection with the short sale. This
result is the opposite of what would result from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium, dividends or interest the
Fund may be required to pay in connection with a short sale.
STOCK OPTIONS, FUTURES CONTRACTS AND OPTIONS IN FUTURES CONTRACTS. The Equity
Growth and Aggressive Equity Portfolios may write (i.e., sell) covered call
options on portfolio securities. The Equity Growth and Aggressive Equity
Portfolios may write covered put options on portfolio securities. By selling a
covered call option, the Portfolio would become obligated during the term of the
option to deliver the securities underlying the option should the option holder
choose to exercise the option before the option's termination date. In return
for the call it has written, the Portfolio will receive from the purchaser (or
option holder) a premium which is the price of the option, less a commission
charged by a broker. The Portfolio will keep the premium regardless of whether
the option is exercised. By selling a covered put option, the Portfolio incurs
an obligation to buy the security underlying the option from the purchaser of
the put at the option's exercise price at any time during the option period, at
the purchaser's election (certain options written by the Portfolio will be
exercisable by the purchaser only on a specific date). A call option is
"covered" if the Portfolio owns the security underlying the option it has
written or has an absolute or immediate right to acquire the security by holding
a call option on such security, or maintains a sufficient amount of cash, cash
equivalents or liquid securities to purchase the underlying security.
19
<PAGE>
Generally, a put option is "covered" if the Fund maintains cash, U.S.
Government securities or other high grade debt obligations equal to the exercise
price of the option, or if the Fund holds a put option on the same underlying
security with a similar or higher exercise price.
When the Portfolio writes covered call options, it augments its income by
the premiums received and is thereby hedged to the extent of that amount against
a decline in the price of the underlying securities. The premiums received will
offset a portion of the potential loss incurred by the Portfolio if the
securities underlying the options are ultimately sold by the Portfolio at a
loss. However, during the option period, the Portfolio has, in return for the
premium on the option, given up the opportunity for capital appreciation above
the exercise price should the market price of the underlying security increase,
but has retained the risk of loss should the price of the underlying security
decline.
The Equity Growth and the Aggressive Equity Portfolios may write put
options to receive the premiums paid by purchasers (when the Adviser wishes to
purchase the security underlying the option at a price lower than its current
market price, in which case the Portfolio will write the covered put at an
exercise price reflecting the lower purchase price sought) and to close out a
long put option position.
The Equity Growth and the Aggressive Equity Portfolios may also purchase
put options on their portfolio securities or call options. When the Portfolio
purchases a call option it acquires the right to buy a designated security at a
designated price (the "exercise price"), and when the Portfolio purchases a put
option it acquires the right to sell a designated security at the exercise
price, in each case on or before a specified date (the "termination date"),
which is usually not more than nine months from the date the option is issued.
The Portfolio may purchase call options to close out a covered call position or
to protect against an increase in the price of a security it anticipates
purchasing. The Portfolio may purchase put options on securities which it holds
in its portfolio to protect itself against decline in the value of the security.
If the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Portfolio would incur no additional loss. The Portfolio may also purchase put
options to close out written put positions in a manner similar to call option
closing purchase transactions. There are no other limits on the Portfolio's
ability to purchase call and put options.
The Equity Growth and the Aggressive Equity Portfolios may enter into
futures contracts and options on futures contracts to remain fully invested and
to reduce transaction costs. The Portfolio may also enter into futures
transactions as a hedge against fluctuations in the price of a security it holds
or intends to acquire, but not for speculation or for achieving leverage. The
Portfolio may enter into futures contracts and options on futures contracts
provided that not more than 5% of the Portfolio's total assets at the time of
entering into the contract or option is required as deposit to secure
obligations under such contracts and options, and provided that not more than
20% of the Portfolio's total assets in the aggregate is invested in futures
contracts and options on futures contracts (and in options in the case of the
Equity Growth and the Aggressive Equity Portfolios).
The Equity Growth and the Aggressive Equity Portfolios may purchase and
write call and put options on futures contracts that are traded on any
international exchange, traded over-the-counter or which are synthetic options
or futures or equity swaps, and may enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid) to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the term of the option. The Portfolio will purchase and write
options on futures contracts for identical purposes to those set forth above for
the purchase of a futures contract (purchase of a call option or sale of a put
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or to close out a long or short position in future contracts.
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 United
States or
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<PAGE>
foreign country governments, their respective agencies or instrumentalities; (b)
bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of United States 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 United States 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 (there is currently no
rating system for debt securities to most foreign countries).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolios 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. The 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 the Portfolios not to enter into when-issued commitments
exceeding, in the aggregate, 15% of the Portfolio's net assets other than the
obligations created by these commitments.
RISKS ASSOCIATED WITH FOREIGN INVESTMENT. The Portfolios may invest in U.S.
dollar-denominated securities of foreign issuers trading in U.S. markets and the
Emerging Growth, MicroCap and Aggressive Equity Portfolios may invest in
non-U.S. dollar-denominated securities of foreign issuers. Investment in
securities of foreign issuers and in foreign branches of domestic banks involves
somewhat different investment risks than those affecting securities of U.S.
domestic 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 U.S. companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. 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 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 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.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies and, since the Emerging Growth, MicroCap and Aggressive
Equity Portfolios may also temporarily hold uninvested reserves in bank deposits
in foreign currencies, the value of the Portfolios' assets measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency exchange
rates and in exchange control regulations, and the Portfolios may incur costs in
connection with conversions between various currencies.
RISKS ASSOCIATED WITH OPTIONS AND FUTURES. Options, futures and options on
futures are derivative securities, in which the Equity Growth and Aggressive
Equity Portfolios may invest for hedging purposes, as well as to remain fully
invested and to reduce transaction costs. Investing for the latter two
purposes may be considered speculative. The primary risks associated with the
use of options, 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 an
option or a futures contract and the resulting inability to
21
<PAGE>
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 ycontract
will be minimized by only entering into futures contracts or options
transactions for which there appears to be a liquid secondary market.
RISKS ASSOCIATED WITH SMALL AND MEDIUM-SIZED COMPANIES. Because the Emerging
Growth and MicroCap Portfolios seek long-term capital appreciation by investing
primarily in small- to medium-sized companies and small companies, respectively,
both of which types of companies are more vulnerable to financial and other
risks than larger, more established companies, investments in these Portfolios
may involve a higher degree of risk and price volatility than the general equity
markets. The Aggressive Equity Portfolio may invest in small- to medium-sized
companies to a lesser extent.
INVESTMENT LIMITATIONS
Except for the MicroCap and Aggressive Equity Portfolios, each Portfolio is
a diversified investment company and is therefore subject to the following
fundamental 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 MicroCap and Aggressive Equity Portfolios are non-diversified
portfolios under the 1940 Act, which means that the Portfolios are not limited
by the 1940 Act in the proportion of their assets that may be invested in the
obligations of a single issuer. Thus, the Portfolios may invest a greater
proportion of their assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to their Portfolio
securities. However, the Portfolios intend to comply with diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as regulated investment companies. See "Investment
Limitations" in the Statement of Additional Information.
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; (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 total 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.
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 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
22
<PAGE>
necessary, if such fees would cause the total annual operating expenses of
either Portfolio to exceed the respective percentage of average daily net assets
set forth below.
<TABLE>
<CAPTION>
MAXIMUM TOTAL
INVESTMENT OPERATING EXPENSES
PORTFOLIO ADVISORY FEE AFTER FEE WAIVER
--------- ------------ ------------------
<S> <C> <C>
Equity Growth Portfolio 0.60% 0.80%
Emerging Growth
Portfolio 1.00% 1.25%
MicroCap Portfolio 1.25% 1.50%
Aggressive Equity
Portfolio 0.80% 1.00%
</TABLE>
The fees payable by the Emerging Growth, MicroCap and Aggressive Equity
Portfolios are higher than the advisory fees paid by most investment companies,
but the Adviser believes the fees are comparable to those of investment
companies with similar investment objectives.
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 June 30, 1995, the Adviser, together with its
affiliated asset management companies, managed investments totaling
approximately $____ billion, including approximately $____ billion under active
management and $____ 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.
EQUITY GROWTH PORTFOLIO -- KURT FEUERMAN AND MARGARET K. JOHNSON. Kurt
Feuerman joined Morgan Stanley Asset Management in July 1993 as a Managing
Director in the Institutional Equity Group. Previously Mr. Feuerman was a
Managing Director of Morgan Stanley & Co., Incorporated's Research Department,
where he was responsible for emerging growth stocks, gaming and restaurants.
Before joining Morgan Stanley, Mr. Feuerman was a Managing Director of Drexel
Burnham Lambert, where he had been an equity analyst since 1984. Over the years,
he has been highly ranked in the Institutional Investor All American Research
Poll in four separate categories: packaged food, tobacco, emerging growth and
gaming. Mr. Feuerman earned an M.B.A. from Columbia University in 1982, an M.A.
from Syracuse University in 1980, and a B.A. from McGill University in 1977.
Margaret Johnson is a Vice President of the Adviser and a Portfolio Manager in
the Institutional Equity Group. She joined the Adviser in 1984 and worked as an
Analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became an
Equity Analyst in 1986 and a Portfolio Manager in 1989. Prior to joining Morgan
Stanley, she worked for the New York City PBS affiliate, WNET, Channel 13. She
holds a B.A. degree from Yale College and is a Chartered Financial Analyst. Mr.
Feuerman and Ms. Johnson have had primary responsibility for managing the
Portfolio's assets since July 1993 and April 1991, respectively.
EMERGING GROWTH PORTFOLIO -- DENNIS G. SHERVA. Dennis Sherva is a Managing
Director of Morgan Stanley & Co., Incorporated and head of emerging growth stock
investments at the Adviser. He has had primary responsibility for managing the
Portfolio's assets since November 1989. Prior to joining the Adviser in 1988,
Mr. Sherva was Morgan Stanley's Director of Worldwide Research activities for
five years and maintained direct responsibility for emerging growth stock
strategy and analysis. As an analyst following emerging growth stocks for the
past decade, he was rated number one in the small growth company category six
times by Institutional Investor magazine's All-America Research Team poll.
Before joining Morgan Stanley in 1977, Mr. Sherva had twelve years of industrial
and investment experience. He serves on the Board of Directors of Morgan Stanley
Venture Capital Inc. and Morgan Stanley R&D Ventures, Inc. Mr. Sherva graduated
from the University of Minnesota and received an M.A. from Wayne State
University. He is also a Chartered Financial Analyst.
MICROCAP PORTFOLIO -- DENNIS G. SHERVA. Information about Mr. Sherva is
included under the Emerging Growth Portfolio above.
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AGGRESSIVE EQUITY PORTFOLIO -- KURT FEUERMAN. Information about Mr.
Feuerman is included under the Equity Growth Portfolio above.
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 to 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 the 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 the 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.
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.
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 Equity Growth Portfolio, $250,000 minimum for the Emerging Growth
Portfolio, $100,000 for the MicroCap Portfolio and $500,000 for the
Aggressive Equity 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
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Payment will be accepted only in U.S. dollars, unless prior approval for payment
by other currencies is given by the Fund. 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.)
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. 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. 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 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 be specified in the letter or wire to assure proper crediting to
your account. In order to insure 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.
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"),
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<PAGE>
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.
To ensure 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.
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 within
any 120-day period. For example, exchanging shares of Portfolio A for shares
of Portfolio B, then exchanging shares of Portfolio B for shares of
Portfolio C of the Fund and again exchanging the 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.
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 price has been collected,
which may take up to eight business days after purchase. The Fund will redeem
shares of a 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 each of the Portfolios is determined at the close of trading of the
NYSE (currently 4:00 p.m. Eastern Time). Shares of the Portfolios 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
Portfolios.
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:
(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.
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<PAGE>
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 express mail
must be mailed to the address of the Dividend Disbursing and Transfer Agent
listed under "General Information". 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 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 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 the 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 Equity Growth
Portfolio having a value of less than $500,000, in the Emerging Growth Portfolio
having a value of less than $100,000, in the MicroCap Portfolio having a value
of less than $50,000 and in the Aggressive Equity Portfolio 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 $500,000 in the Equity Growth Portfolio, $100,000 in the
Emerging Growth Portfolio, $50,000 in the MicroCap Portfolio or $500,000 in the
Aggressive Equity Portfolio 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.
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SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange shares that you own in each Portfolio for shares of any
other available Portfolio of the Fund (other than the International Equity
Portfolio). The privilege to exchange shares by telephone is automatic. Shares
of the Portfolios may be exchanged by mail or telephone. The privilege to
exchange shares by telephone is made available without shareholder election.
Before you make an exchange, you should read the prospectus of the new portfolio
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 for shareholders subject to tax. 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 into which you intend to exchange shares, and the signatures of all
registered account holders. Send the exchange request to Morgan Stanley
Institutional Fund, P.O. Box 2798, Boston, Massachusetts 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. (Eastern Time) 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
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.
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 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 in excess 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.
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 sale price, or when securities exchange valuations are used, at
the latest quoted bid 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
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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 translated into U.S. dollars at the mean of the bid
price and asked price of such currencies against the U.S. dollar as quoted by a
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 Portfolio's
shares, including 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 be automatically
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.
The Emerging Growth and the MicroCap Portfolios expect to distribute
substantially all of their net investment income in the form of annual dividends
and the Equity Growth and the Aggressive Equity Portfolios expect to distribute
substantially all of their net investment income in the form of quarterly
dividends. Net capital gains for each Portfolio, if any, will also be
distributed annually. Confirmations of the purchase of shares of each 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.
Undistributed net investment income is included in each 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 income 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.
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. It is each
Portfolio's intent to continue to qualify for the special tax treatment afforded
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<PAGE>
regulated investment companies under the Code, so that the Portfolio will
continue to 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, the excess of net short-term capital gain over net
long-term capital loss) 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 qualifying dividend income received by the
Portfolio 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. 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), 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, redemption, or exchange 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. Any such taxable gain or loss generally will be
treated as long-term capital gain or loss if the shares have been held for more
than one year and otherwise generally will be treated as short-term capital gain
or loss. 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, however, then
the loss is treated as a long-term capital loss to the extent of the capital
gain distributions.
Investment income received by a Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that a Portfolio is liable for foreign income taxes so withheld, 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.
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 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
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the 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.
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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 the purchase or sale of securities
consistent with the investment policies of the Portfolios 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 those 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 the Equity Growth, Emerging Growth
and MicroCap Portfolios, it is anticipated that, under normal circumstances, the
annual portfolio turnover rate will not exceed 100%. However, the annual
portfolio turnover rate of the Equity Growth Portfolio for the fiscal year ended
December 31, 1994 was 146%. For the Aggressive Equity Portfolio, the annual
portfolio turnover rate is expected to 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 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.
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The shares of the Portfolios, 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
defined in the 1940 Act) such 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 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 the annual financial statements of each Portfolio.
LITIGATION
The Fund is not involved in any litigation.
___________________ ___________________
___________________ ___________________
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.
32
<PAGE>
___________
TABLE OF CONTENTS
Page
----
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . 5
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . 10
Investment Objectives and Policies . . . . . . . . . . . . . . 13
Additional Investment Information . . . . . . . . . . . . . . . 16
Investment Limitations . . . . . . . . . . . . . . . . . . . . 22
Management of the Fund . . . . . . . . . . . . . . . . . . . . 22
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . 24
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . 26
Shareholder Services . . . . . . . . . . . . . . . . . . . . . 28
Valuation of Shares . . . . . . . . . . . . . . . . . . . . . . 28
Performance Information . . . . . . . . . . . . . . . . . . . . 29
Dividends and Capital Gains Distributions . . . . . . . . . . . 29
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 31
General Information . . . . . . . . . . . . . . . . . . . . . . 32
Account Registration Form
EQUITY GROWTH PORTFOLIO
EMERGING GROWTH PORTFOLIO
MICROCAP PORTFOLIO
AGGRESSIVE EQUITY 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
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798
33
<PAGE>
___________________ ___________________
___________________ ___________________
34
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. Box 2798, Boston, MA 02208-2798
35
<PAGE>
ACCOUNT REGISTRATION FORM
ACCOUNT INFORMATION
Fill in where applicableIf you need assistance in filling out this form for the
Morgan Stanley Institutional Fund, please contact your Morgan Stanley
representative or call us toll free 1-(800)-548-7786. Please print all items
except signature, and mail to the Fund at the address above.
A) REGISTRATION
1. INDIVIDUAL
2. JOINT TENANTS (RIGHTS OF SURVIVORSHIP PRESUMED UNLESS TENANCY IN COMMON IS
INDICATED)
1.
First Name Initial Last Name
2.
First Name Initial Last Name
First Name Initial Last Name
3.CORPORATIONS, TRUSTS AND OTHERS
Please call the Fund for additional documents that may be required to set up
account and to authorize transactions.
3.
Type of Registration: / / INCORPORATED / / UNINCORPORATED
ASSOCIATION
/ / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
(ONLY ONE CUSTODIAN AND MINOR PERMITTED)
/ / TRUST / / OTHER (Specify)
-- --
B) MAILING ADDRESS
Please fill in completely,
including telephone
number(s).
Street or P.O. Box
City State
Zip --
Home Telephone No. Business Telephone No.
-- -- -- --
/ / United States Citizen / / Resident Alien / / Non-Resident Alien: Indicate
Country of Residence
--
36
<PAGE>
C) TAXPAYER IDENTIFICATION NUMBER
If the account is in more than one name, circle the name of the person whose
Taxpayer Identification Number is provided in Section A) above. If no name is
circled, the number will be considered to be that of the last name listed. For
Custodian account of a minor (Uniform Gifts/Transfers to Minors Acts), give the
Social Security Number of the minor.
PART 1. Enter your Taxpayer Identification Number. For most individual
taxpayers, this is your Social Security Number.
TAXPAYER IDENTIFICATION NUMBER __________ OR SOCIAL SECURITY NUMBER ___________
PART 2. BACKUP WITHHOLDING
/ / Check this box if you are NOT subject to Backup Withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your
correct Taxpayer Identification Number. Accounts that have a missing or
incorrect Taxpayer Identification Number will be subject to backup withholding
at a 31% rate on the dividends, distributions and other payments. If you have
not provided us with your correct taxpayer identification number, you may be
subject to a $50 penalty imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
You may be notified that you are subject to backup withholding under Section
3406(a)(1)(C) of the Internal Revenue Code because you have underreported
interest or dividends or you were required to but failed to file a return which
would have included a 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 the Equity Growth Portfolio.
Minimum $250,000 for the Emerging Growth Portfolio.
Minimum $100,000 for the MicroCap Portfolio.
Minimum $500,000 for the Aggressive Equity Portfolio.
Please indicate amount.
/ / Equity Growth Portfolio $
--------
/ / Emerging Growth Portfolio $
--------
/ / MicroCap Portfolio $
---------
/ / Aggressive Equity Portfolio $
--------
37
<PAGE>
E) METHOD OF
INVESTMENT
Please indicate manner of payment.
Payment by:
/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)
/ / Exchange $ From --
---------- - ---------- -
Name of Portfolio Account No.
/ / Account previously established by: / /
Phone exchange / / Wire on --
----------- -
Date Account No. (Check
(Previously assigned by the
Fund) Digit)
38
<PAGE>
F) DISTRIBUTION OPTION
Income dividends and capital gains distributions (if any) will be reinvested in
additional shares unless 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 REDEMPTION
Please select at time of initial application if you wish to redeem shares by
telephone. A SIGNATURE GUARANTEE IS REQUIRED IF BANK ACCOUNT IS NOT REGISTERED
IDENTICALLY TO YOUR FUND ACCOUNT.
TELEPHONE REQUESTS FOR REDEMPTIONS WILL NOT BE HONORED UNLESS THE BOX IS
CHECKED. / /
I/we hereby authorize the Fund and its agents to honor any telephone requests
to wire redemption proceeds to the commercial bank indicated at right and/or
mail redemption proceeds to the name and address in which my/our fund account
is registered if such requests are believed to be authentic.
THE FUND AND THE FUND'S 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 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.
---------------- -
Name of COMMERCIAL Bank (Not Savings Bank) Bank Account No.
-
Bank ABA No.
-
Name(s) in which your BANK Account is Established
-
Bank's Street Address
-
City State Zip
39
<PAGE>
H) INTERESTED PARTY OPTION
In addition to the account statement sent to my/our registered address, I/we
hereby authorize the fund to mail duplicate statements to the name and address
provided at right.
-
Name
-
-
Address
-
City State Zip Code
I) DEALER INFORMATION
---------------- - ----------------
Representative Name Representative No. Branch No.
J) SIGNATURE OF ALL HOLDERS AND TAXPAYER CERTIFICATION
Sign Here ,
The undersigned certify that I/we have full authority and legal capacity to
purchase and redeem shares of the Fund and affirm that I/we have received a
current Prospectus of the Morgan Stanley Institutional Fund, Inc. and agree to
be bound by its terms. Under the penalties of perjury, I/we certify that the
information provided in Section C) above is true, correct and complete.
(X) Signature Date (X) Signature Date
---- ----
MORGAN STANLEY INSTITUTIONAL FUND, INC. P.O. Box 2798, Boston, MA 02208-2798
ACCOUNT REGISTRATION FORM ACCOUNT INFORMATION Fill in where applicable If you
need assistance in filling out this form for the Morgan Stanley Institutional
Fund, please contact your Morgan Stanley representative or call us toll free
1-(800)-548-7786. Please print all items except signature, and mail to the Fund
at the address above. A) REGISTRATION 1. Individual 2. Joint Tenants (Rights of
survivorship presumed unless tenancy in common is indicated) 1. First Name
Initial Last Name 2. First Name Initial Last Name First Name Initial Last Name
3. Corporations, Trusts and others Please call the Fund for additional documents
that may be required to set up account and to authorize transactions 3. Type of
Registration: o Incorporated o Unincorporated Association o Partnership o
Uniform Gift/Transfer to Minor (only one Custodian and Minor permitted) o Trust
o Other (Specify) B) MAILING ADDRESS Please fill in completely, including
telephone number(s). Street or P.O. Box City State Zip -- Home Telephone No.
Business Telephone No. _ -- _ -- o United States Citizen o Resident Alien o
Non-Resident Alien: Indicate Country of Residence C) TAXPAYER IDENTIFICATION
NUMBER If the account is in more than one name, circle the name of the person
whose Taxpayer Identification Number is provided in Section A) above. If no name
is circled, the number will be considered to be that of the last name listed.
For Custodian account of a minor (Uniform Gift/Transfer to Minor Act), give the
Social Security Number of the minor. Part 1. Enter your Taxpayer Identification
Number. For most individual taxpayers, this is your Social Security Number.
Taxpayer Identification Number OR Social Security Number Part 2. BACKUP
WITHHOLDING o Check this box if you are NOT subject to Backup Withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. IMPORTANT
TAX INFORMATION You (as a payee) are required by law to provide us (as payer)
with your correct Taxpayer Identification Number. Accounts that have a missing
or incorrect Taxpayer Identification Number will be subject to backup
withholding at a 31% rate on dividends, distributions and other payments. If you
have not provided us with your correct taxpayer identification number, you may
be subject to a $50 penalty imposed by the Internal Revenue Service. Backup
withholding is not an additional tax; the tax liability of persons subject to
backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained. You may be
notified that you are subject to backup withholding under Section 3406(a)(1)(C)
of the Internal Revenue Code because you have underreported interest or
dividends or you were required to but failed to file a return which would have
included a reportable interest or dividend payment.IF YOU HAVE NOT BEEN SO
NOTIFIED, CHECK
40
<PAGE>
THE BOX IN PART 2 AT LEFT. _ _ -- D) PORTFOLIO SELECTION Minimum $500,000 for
the Equity Growth Portfolio. Minimum $250,000 for the Emerging Growth Portfolio.
Minimum $500,000 for the Aggressive Equity Portfolio. Please indicate Portfolio
and amount. o Equity Growth Portfolio $ o Emerging Growth Portfolio $ o
Aggressive Equity Portfolio $ E) METHOD OF INVESTMENT Please indicate manner of
payment. Payment by: o Check (make check payable to Morgan Stanley Institutional
Fund, Inc._Portfolio name) o Exchange $From _ Name of Portfolio Account No. o
Account previously established by: o Phone exchange o Wire on _ Date Account No.
(Check (Previously assigned by the Fund) Digit) F) DISTRIBUTION OPTION Income
dividends and capital gains distributions (if any) will be reinvested in
additional shares unless either box below is checked. o Income dividends to be
paid in cash, capital gains distributions (if any) in shares. o Income dividends
and capital gains distributions (if any) to be paid in cash. G) TELEPHONE
REDEMPTION OPTION Please select at time of initial application if you wish to
redeem shares by telephone. A signature guarantee is required if bank account is
not registered identically to your Fund Account. Telephone requests for
redemptions will not be honored unless the box is checked. o I/we hereby
authorize the Fund and its agents to honor any telephone requests to wire
redemption proceeds to the commercial bank indicated at right and/or mail
redemption proceeds to the name and address in which my/our fund account is
registered if such requests are believed to be authentic. The Fund and the
Fund's 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 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.
Name of Commercial Bank (Not Savings Bank) Bank Account No. Bank ABA No. Name(s)
in which your Bank Account is Established Bank's Street Address City State Zip
H) INTERESTED PARTY OPTION In addition to the account statement sent to my/our
registered address, I/we hereby authorize the fund to mail duplicate statements
to the name and address provided at right. Name Address City State Zip Code I)
DEALER INFORMATION Representative Name Representative No. Branch No. J)
SIGNATURE OF ALL HOLDERS AND TAXPAYER CERTIFICATION Sign Here , The undersigned
certify(ies) that I/we have full authority and legal capacity to purchase and
redeem shares of the Fund and affirm that I/we have received a current
Prospectus of the Morgan Stanley Institutional Fund, Inc. and agree to be bound
by its terms.Under the penalties of perjury, I/we certify that the information
provided in Section C) above is true, correct and complete. (X) Signature Date
(X) Signature Date (X) Signature Date (X) Signature Date
41
<PAGE>
The Prospectus for the U.S. Real Estate Portfolio, included as part of
Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A of
Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on November 18, 1994, and in final form
under Rule 497(e) on June 30, 1995, is hereby incorporated by reference as if
set forth in full herein.
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
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 the International Small Cap Portfolio). This Statement of
Additional Information addresses information of the Fund applicable to each of
the twenty-seven Portfolios.
This Statement is not a prospectus but should be read in conjunction with
the several Prospectuses of the Fund's Portfolios. To obtain any of the
Prospectuses, please call the Morgan Stanley Institutional Fund, Inc. Services
Group at 1-800-548-7786.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Special Tax Considerations Relating to Municipal Bond and Municipal Money Market Portfolios . . . . . . . . . . . . . 14
Special Tax Considerations Relating to Foreign Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Determining Maturities of Certain Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Net Asset Value for Money Market Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Description of Securities and Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995, AS AMENDED ON
___________, 1995, AND RELATING TO:
Prospectus for the U.S. Real Estate Portfolio, dated February 10, 1995
Prospectus for the Fixed Income Portfolio, Global Fixed Income Portfolio,
Municipal Bond Portfolio, Mortgage-Backed Securities Portfolio, High Yield
Portfolio, Real Yield Portfolio, Money Market Portfolio and Municipal Money
Market Portfolio, dated May 1, 1995
Prospectus for the Equity Growth Portfolio, Emerging Growth Portfolio,
MicroCap Portfolio and Aggressive Equity Portfolio, dated ______, 1995
Prospectus for the Small Cap Value Equity Portfolio, Value Equity Portfolio
and Balanced Portfolio, dated May 1, 1995
Prospectus for the Global Equity Portfolio, International Equity Portfolio,
International Small Cap Portfolio, Asian Equity Portfolio, European Equity
Portfolio, Japanese Equity Portfolio and Latin American Portfolio, dated
May 1, 1995
Prospectus for the Emerging Markets Portfolio and Emerging Markets Debt
Portfolio, dated May 1, 1995
Prospectus for the Active Country Allocation Portfolio, dated May 1, 1995
Prospectus for the Gold Portfolio, dated May 1, 1995
Prospectus for the China Growth Portfolio, dated May 1, 1995.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectuses:
SECURITIES LENDING
Each Portfolio may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Portfolio attempts to increase its net investment income through
the receipt of interest on the loan. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Portfolio. Each Portfolio may lend its investment securities
to qualified brokers, dealers, domestic and foreign banks or other financial
institutions, so long as the terms, structure and the aggregate amount of such
loans are not inconsistent with the Investment Company Act of 1940, as amended
(the "1940 Act"), or the Rules and Regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Portfolio at any
time, and (d) the Portfolio receive reasonable interest on the loan (which may
include the Portfolio investing any cash collateral in interest bearing
short-term investments), any distributions on the loaned securities and any
increase in their market value. 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. However, loans will only be made to borrowers
deemed by the Advisor to be of good standing and when, in the judgment of the
Advisor, the consideration which can be earned currently from such securities
loans justifies the attendant risk. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Board of Directors of the Fund.
At the present time, the staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Board of Directors. In addition, voting
rights may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the International Equity, Global
Equity, European Equity, Japanese Equity, Asian Equity, Latin American, Global
Fixed Income, Active Country Allocation, International Small Cap, China Growth,
Emerging Markets, Emerging Markets Debt and Gold Portfolios and, to the extent
they invest in securities denominated in foreign currencies, those of the
Emerging Growth, Aggressive Equity, Value Equity, Balanced, Small Cap Value
Equity, Fixed Income and High Yield Portfolios may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Portfolios may incur costs in connection with conversions
between various currencies. The Portfolios will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for such trades. The Gold Portfolio may also enter into
precious metals forward contracts. See "Precious Metals Forward and Futures
Contracts and Options" below.
The Portfolios may enter into forward foreign currency exchange contracts
in several circumstances. When a Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract
for a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
2
<PAGE>
Additionally, when any of these Portfolios anticipates that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Portfolio's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. None of the Portfolios intend to enter
into such forward contracts to protect the value of portfolio securities on a
continuous basis.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Portfolio will thereby be served. Except under circumstances where a
segregated account is not required under the 1940 Act or the rules adopted
thereunder, the Fund'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 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 equal to the amount of such Portfolio's commitments with
respect to such contracts.
The Portfolios generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, a Portfolio
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for a Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that such Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If a Portfolio retains the portfolio security and engages in an offsetting
transaction, such Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Portfolio entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, such Portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, such Portfolio would suffer a loss to the extent that
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Portfolios are not required to enter into such transactions with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
CURRENCY SWAPS
The China Growth Portfolio may enter into currency swaps for hedging
purposes and non-hedging purposes. Inasmuch as swaps are entered into for good
faith hedging purposes and are offset by a segregated account as described
below, the Portfolio believes that swaps do not constitute senior securities as
defined in the 1940 Act and, accordingly, will not treat them as being subject
to the Portfolio's borrowing restrictions. An amount of cash or liquid high
grade debt securities (i.e., securities rated in one of the top three ratings
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"), or, if unrated, deemed by the Adviser to be of comparable
credit quality) having an aggregate net asset value at least equal to the gross
payments which the Portfolio is obligated to make under the currency swap will
be maintained in a segregated account by the Fund's Custodian. The Portfolio
will not enter into any currency swap unless the credit quality of the unsecured
senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by the Adviser. If there is a default by the
other party to such a transaction, the Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents
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utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the interbank market.
FUTURES CONTRACTS
The Equity Growth, Aggressive Equity, Value Equity, Balanced, Small Cap
Value Equity, Active Country Allocation, Gold, Latin American, U.S. Real Estate,
Emerging Markets, Emerging Markets Debt and China Growth Portfolios may
enter into futures contracts and options on futures contracts for the purpose of
remaining fully invested and reducing transactions costs. The Fixed Income,
Municipal Bond, Mortgage-Backed Securities, High Yield, Money Market, Municipal
Money Market, Active County Allocation, Equity Growth, Aggressive Equity Gold,
Latin American, U.S. Real Estate and China Growth Portfolios may also enter
into futures contracts for hedging purposes. No Portfolio will enter into
futures contracts or options thereon for speculative purposes. The Gold
Portfolio may also enter into futures contracts and options thereon on precious
metals. See "Precious Metals Forward and Futures Contracts and Options" below.
The China Growth and Latin American Portfolios may also enter into futures and
options thereon on stock and other securities indices and currencies. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts, which are standardized as to maturity date
and underlying financial instrument, are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Futures contracts on securities indices or other indices do not require the
physical delivery of securities, but merely provide for profits and losses
resulting from changes in the market value of a contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures position is simply closed out. Changes in the
market value of a particular futures contract reflect changes in the level of
the index on which the futures contract is based.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The
Portfolios expect to earn interest income on their margin deposits. With
respect to each long position in a futures contract or option thereon, the
underlying commodity value of such contract will always be covered by cash and
cash equivalents set aside plus accrued profits held at the futures commission
merchant.
The Portfolios may purchase and write call and put options on futures
contracts which are traded on a U.S. Exchange (and in the case of the China
Growth and Latin American Portfolios, on any recognized securities or futures
exchange to the extent permitted by the CFTC) and enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the futures
contract at the time of exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract.
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The Portfolios will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Portfolios intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Portfolios require that all
futures transactions constitute bona fide hedging transactions except that a
Portfolio may engage in futures transactions that do not constitute bona fide
hedging to the extent that not more than 5% of the liquidation value of a
Portfolio's total assets are required as margin deposits or premiums for such
transactions. The Portfolios will only sell futures contracts to protect
securities owned against declines in price or purchase contracts to protect
against an increase in the price of securities intended for purchase. As
evidence of this hedging interest, the Portfolios expect that approximately 75%
of their futures contracts will be "completed"; that is, equivalent amounts of
related securities will have been purchased or are being purchased by the
Portfolios upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolios' exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Portfolios will incur commission expenses in both opening and closing
out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. None of the Portfolios will enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, none of the Portfolios will
enter into futures contracts to the extent that its outstanding obligations to
purchase securities under futures contracts and options on futures contracts
(and in the case of the Active County Allocation, Equity Growth, Gold, Latin
American and China Growth Portfolios, under options, futures contracts and
options on futures contracts) would exceed 20% of its respective total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contracts at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, the Portfolios would continue to be required to make daily cash
payments to maintain their required margin. In such situations, if a Portfolio
has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, a Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Portfolio's ability
to effectively hedge.
The Portfolios will minimize the risk that they will be unable to close out
a futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
Portfolios engage in futures strategies only for hedging purposes, the Adviser
does not believe that the Portfolios are subject to the risks of loss frequently
associated with futures transactions. A Portfolio would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying security or currency and sold it after the decline.
Utilization of futures transactions by the Portfolios does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that
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a Portfolio could both lose money on futures contracts and also experience a
decline in value of its portfolio securities. There is also the risk of loss by
a Portfolio of margin deposits in the event of bankruptcy of a broker with whom
the Portfolio has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
PRECIOUS METALS FORWARD AND FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Gold Portfolio may enter into futures contacts on precious ("precious
metals futures") metals as a hedge against changes in the prices of precious
metals held or intended to be acquired by the Portfolio, but not for speculation
or for achieving leverage. The Portfolio's hedging activities may include
purchases of futures contracts as an offset against the effect of anticipated
increases in the price of a precious metal which the Portfolio intends to
acquire ("anticipatory hedge") or sales of futures contracts as an offset
against the effect of anticipated declines in the price of precious metal which
the Portfolio owns ("hedge against an existing position").
The Portfolio will enter into precious metals forward contracts which are
similar to precious metals futures contracts, in that they provide for the
purchase or sale of precious metals at an agreed price with delivery to take
place at an agreed future time. However, unlike futures contracts, forward
contracts are negotiated contracts which are primarily used in the dealer
market. Unlike the futures contract market, which is regulated by the CFTC and
by the regulations of the commodity exchanges, the forward contract market is
unregulated. The Portfolio will use forward contracts for the same hedging
purposes as those applicable to futures contracts, as described above. When the
Portfolio enters into a forward contract it will establish with the custodian a
segregated account consisting of cash, cash equivalents or bullion equal to the
market value of the forward contract purchased.
Precious metals futures and forward contract prices can be volatile and are
influenced principally by changes in spot market prices, which in turn are
affected by a variety of political and economic factors. In addition,
expectations of changing market conditions may at times influence the prices of
such futures and forward contracts, and changes in the cost of holding physical
precious metals, including storage, insurance and interest expense, will also
affect the relationship between spot and futures or forward prices. While the
correlation between changes in prices of futures and forward contracts and
prices of the precious metals being hedged by such contracts has historically
been very strong, the correlation may at times be imperfect and even a well
conceived hedge may be unsuccessful to some degree because of market behavior or
unexpected precious metals price trends. To the extent that interest rates move
in a direction opposite to that anticipated, the Portfolio may realize a loss on
a futures transaction not offset by an increase in the value of portfolio
securities. Moreover there is a possibility of a lack of a liquid secondary
market for closing out a futures position or futures option. The success of any
hedging technique depends upon the Adviser's and Sub-Adviser's accuracy in
predicting the direction of a market. If these predictions are incorrect, the
Portfolio may realize a loss.
The Portfolio may also purchase (buy) and write (sell) covered call or put
options on precious metals futures contracts. Such options would be purchased
solely for hedging purposes similar to those applicable to the purchase and sale
of futures contracts. Call options might be purchased to hedge against an
increase in the price of precious metals the Portfolio intends to acquire, and
put options may be purchased to hedge against a decline in the price of precious
metals owned by the Portfolio. As is the case with futures contracts, options
on precious metals futures may facilitate the Portfolio's acquisition of
precious metals or permit the Portfolio to defer disposition of precious metals
for tax or other purposes. The Portfolio may not purchase options on precious
metals and precious metals futures contracts if the premiums paid for all such
options, together with margin deposits on precious metals future contracts,
would exceed 5% of the Portfolio's total assets at the time of option is
purchased.
One of the risks which may arise in employing futures contracts to protect
against the price volatility of the Portfolio's assets is that the price of
precious metals subject of futures contracts (and thereby the futures contracts
prices) may correlate imperfectly with the prices of such assets. A correlation
may also be distorted by the fact that the futures market is dominated by short-
term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
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OPTIONS TRANSACTIONS
GENERAL INFORMATION. As stated in the applicable Prospectus, the Active County
Allocation, Emerging Markets, Emerging Markets Debt, Equity Growth, Aggressive
Equity, Gold, Small Cap Value Equity, Value Equity, Balanced, Latin American,
U.S. Real Estate and China Growth Portfolios may purchase and sell options on
equity securities and the China Growth and Latin American Portfolios also may
purchase and sell options on securities indices. Additional information with
respect to option transactions is set forth below. Call and put options on
equity securities are listed on various U.S. and foreign securities exchanges
("listed options") and are written in over-the-counter transaction ("OTC
Options").
Listed options are issued or guaranteed by the exchange on which they trade
or by a clearing corporation, such as Options Clearing Corporation ("OCC") in
the United States. Ownership of a listed call option gives the fund the right
to buy from the clearing corporation or exchange, the underlying security
covered by the option at the state exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. The writer (seller) of the option would then
have the obligation to sell to the clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its the current market price. Ownership of
listed put option would give the Portfolio the right to sell the underlying
security or currency to the clearing corporation or exchange at the state
exercise price. Upon notice of exercise of the put option, the writer of the
option would have the obligation to purchase the underlying security from the
clearing corporation or exchange at the exercise price.
OTC options are purchased from or sold (written) to dealers of financial
institutions which have entered into direct agreements with the Portfolio. With
OTC options, such variables as expiration date exercise price and premium will
be agreed upon between the Portfolio and the transactions dealer, without the
intermediate of a third party such as a clearing corporation or exchange. If
the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that
option, the Portfolio would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. Each of the Portfolios may write (i.e., sell) covered
call options on portfolio securities. By doing so, the Portfolio would become
obligated during the terms of the option to deliver the securities underlying
the option should the option holder choose to exercise the option before the
option's termination date. In return for the call it has written, the Portfolio
will receive from the purchaser (or option holder) a premium which is the price
of the option, less a commission charged by a broker. The Portfolio will keep
the premium regardless of whether the option is exercised. A call option is
"covered" if the Portfolio owns the security underlying the option it has
written or has an absolute or immediate right to acquire the security by holding
a call option on such security, or maintains a sufficient amount of cash, cash
equivalents or liquid securities to purchase the underlying security. When the
Portfolio writes covered call options, it augments its income by the premiums
receive and is thereby hedged to the extent of that amount against a decline in
the price of the underlying securities and the premiums received will offset a
portion of the potential loss incurred by the Portfolio if the securities
underlying the options are ultimately sold by the Portfolio at a loss. However,
during the option period, the Portfolio has, in return for the premium on the
option, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
The size of premiums will fluctuate with varying market conditions.
COVERED PUT WRITING. Each of the Portfolios may write covered put options on
portfolio securities. By doing so, the Portfolio incurs an obligation to buy
the security underlying the option from the purchaser of the put at the option's
exercise price at any time during the option period, at the purchaser's election
(certain listed and OTC options written by the Portfolio will be exercisable by
the purchaser only on a specific date). Generally, a put option is "covered" if
the Portfolio maintains cash, U.S. Government securities or other high grade
debt obligations equal to the exercise price of the option or if the Portfolio
holds a put option on the same underlying security with a similar or higher
exercise price.
Each of the Portfolios will write put options to receive the premiums paid
by purchasers; when the Adviser (and also the Sub-Adviser with respect to the
Gold Portfolio) wishes to purchase the security underlying the option at a price
lower than its current market price, in which case it will write the covered put
at an exercise price reflecting the lower purchase price sought; and to close
out long put option position.
PURCHASE OF PUT AND CALL OPTIONS. The Portfolios may purchase listed or OTC put
or call options on its portfolio securities in amounts exceeding no more than 5%
of its total assets. When the Portfolio purchases a call option it acquires the
right to sell a designated security at a designated price (the "exercise
price"), and when the Portfolio purchases a put option it acquires the right to
purchase
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a designated security at the exercise price, in each case on or before a
specified date (the "termination date"), usually not more than nine months from
the date the option is issued.
The Portfolio may purchase call options to close out a covered call
position or to protect against an increase in the price of a security it
anticipates purchasing. The Portfolio may purchase put options on securities
which it holds in its portfolio only to protect itself against a decline in the
value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Portfolio would incur no additional loss. The
Portfolio may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions.
The amount the Portfolio pays to purchase an option is called a "premium",
and the risk assumed by the Portfolio when it purchases an option is the loss of
this premium. Because the price of an option tends to move with that of its
underlying security, if the Portfolio is to make a profit, the price of the
underlying security must change and the change must be sufficient to cover the
premium and commissions paid. A price change in the security underlying the
option does not assure a profit since prices in the options market may not
always reflect such a change.
OPTIONS ON SECURITIES INDICES. The China Growth and Latin American Portfolios
may purchase and write put and call options on securities indices and enter into
a related closing transactions in order to hedge against the risk of market
price fluctuations or to increase income to the Portfolio.
Call and put options on indices are similar to options on securities except
that, rather than the right to purchase or sell particular securities at a
specified price, options on an index give the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the underlying
index is greater than (or less than, in the case of puts) the exercise price of
the option. This amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars
multiplied by a specified number. Thus, unlike options on individual
securities, all settlements are in cash, and gain or loss depends on price
movements in the particular market represented by the index generally (or in a
particular industry or segment of the market) rather than the price movements in
individual securities.
All options written on indices must be covered. When the Portfolio writes
an option on an index, it will establish a segregated account containing cash,
U.S. government securities or other high quality liquid debt securities with its
custodian in an amount at least equal to the market value of the option and will
maintain the account while the option is open or will otherwise cover the
transaction.
The Portfolio may choose to terminate an option position by entering into a
closing transaction. The ability of the Portfolio to enter into closing
transactions depends upon the existence of a liquid secondary market for such
transactions.
OPTIONS ON CURRENCIES. The China Growth and Latin American Portfolios may
purchase and write put and call options on foreign currencies (traded on U.S.
and foreign exchanges or over-the-counter markets) to manage the Portfolio's
exposure to changes in dollar exchange rates. Call options on foreign currency
written by the Portfolio will be "covered," which means that the Portfolio will
own an equal amount of the underlying foreign currency. With respect to put
options on foreign currency written by the Portfolio, the Portfolio will
establish a segregated account with the Fund's Custodian consisting of cash,
U.S. government securities or other high quality liquid debt securities in an
amount equal to the amount the Portfolio would be required to pay upon exercise
of the put.
SPECIAL RISKS ASSOCIATED WITH FORWARD CONTRACTS, FOREIGN CURRENCY FUTURES
CONTRACTS AND OPTIONS THEREON AND OPTIONS ON FOREIGN CURRENCIES.
Transactions in forward contracts, as well as futures and options on
foreign currencies, are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Portfolios permitted to engage in such hedging
transactions. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors applicable
to the countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying forward contracts, futures contracts and options. As a
result, the available information on which a Portfolio's trading systems will be
based may not be as complete as the comparable data on which such Portfolio
makes investment and trading decisions in connection with securities and other
transactions. Moreover, because the foreign currency market
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is a global, twenty-four hour market, events could occur on that market which
will not be reflected in the forward, futures or options markets until the
following day, thereby preventing a Portfolio from responding to such events in
a timely manner.
Settlements of over-the-counter forward contracts or of the exercise of
foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires parties to such contracts to accept
or make delivery of such currencies in conformity with any United States or
foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the Commission. In an over-the-counter trading environment, many of
the protections associated with transactions on exchanges will not be available.
For example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, an option writer could lose amounts substantially in excess of its
initial investment due to the margin and collateral requirements associated with
such option positions. Similarly, there is no limit on the amount of potential
losses on forward contracts to which a Portfolio is a party.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with such Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and a Portfolio may be unable to close
out options purchased or written, or forward contracts entered into, until their
exercise, expiration or maturity. This in turn could limit a Portfolio's
ability to realize profits or to reduce losses on open positions and could
result in greater losses.
Furthermore, over-the-counter transactions are not backed by the guarantee
of an exchange's clearing corporation. A Portfolio will therefore be subject to
the risk of default by, or the bankruptcy of, the financial institution serving
as its counterparty. One or more of such institutions also may decide to
discontinue its role as market-maker in a particular currency, thereby
restricting a Portfolio's ability to enter into desired hedging transactions. A
Portfolio will enter into over-the-counter transactions only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
Over-the-counter options on foreign currencies, like exchange-traded
commodity futures contracts and commodity option contracts, are within the
exclusive regulatory jurisdiction of the CFTC. The CFTC currently permits the
trading of such options, but only subject to a number of conditions regarding
the commercial purpose of the purchaser of such options. The China Growth and
Latin American Portfolios are not able to determine at this time whether or to
what extent the CFTC may impose additional restrictions on the trading of over-
the-counter options on foreign currencies at some point in the future, or the
effect that any restrictions may have on the hedging strategies to be
implemented by the Portfolio. Forward contracts and currency swaps are not
presently subject to regulation by the CFTC, although the CFTC may in the future
assert or be granted authority to regulate such instruments. In such event, a
Portfolio's ability to utilize forward contracts and currency swaps in the
manner set forth above and in the Prospectus could be restricted.
Options on foreign currencies traded on a national securities exchange are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency options positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting a Portfolio to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on
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the OCC or its clearing member, impose special procedures for exercise and
settlement, such as technical changes in the mechanics of delivery of currency,
the fixing of dollar settlement prices or prohibitions on exercise.
EMERGING COUNTRY EQUITY AND DEBT SECURITIES
GENERAL. Each of the Emerging Markets and Emerging Markets Debt Portfolio's
definition of emerging country equity or debt securities includes securities of
companies that may have characteristics and business relationships common to
companies in a country or countries other than an emerging country. As a result,
the value of the securities of such companies may reflect economic and market
forces applicable to other countries, as well as to an emerging country. Morgan
Stanley Asset Management Inc. (the "Adviser") believes, however, that investment
in such companies will be appropriate because the Portfolio will invest only in
those companies which, in its view, have sufficiently strong exposure to
economic and market forces in an emerging country such that their value will
tend to reflect developments in such emerging country to a greater extent than
developments in another country or countries. For example, the Portfolio may
invest in companies organized and located in countries other than an emerging
country, including companies having their entire production facilities outside
of an emerging country, when securities of such companies meet one or more
elements of the Portfolio's definition of an emerging country equity or debt
security and so long as the Adviser believes at the time of investment that the
value of the company's securities will reflect principally conditions in such
emerging country.
The Emerging Markets Debt Portfolio is subject to no restrictions on the
maturities of the emerging country debt securities it holds; those maturities
may range from overnight to 30 years. The value of debt securities held by the
Portfolio generally will vary inversely to changes in prevailing interest rates.
The Portfolio's investments in fixed-rated debt securities with longer terms to
maturity are subject to greater volatility than the Portfolio's investments in
shorter-term obligations. Debt obligations acquired at a discount are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which are not subject to such
discount.
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, the Portfolio may have
limited legal recourse against the issuer and/or guarantor. Remedies must, in
some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country. In addition,
no assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign government debt obligations in
the event of default under their commercial bank loan agreements.
BRADY BONDS. The Emerging Markets Debt Portfolio may invest in certain debt
obligations customarily referred to as "Brady Bonds," which are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market. The Portfolio may
purchase Brady Bonds either in the primary or secondary markets. The price and
yield of Brady Bonds purchased in the secondary market will reflect the market
conditions at the time of purchase, regardless of the stated face amount and the
stated interest rate. With respect to Brady Bonds with no or limited
collateralization, the Portfolio will rely for payment of interest and principal
primarily on the willingness and ability of the issuing government to make
payment in accordance with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain
Brady Bonds are entitled to "value recovery payments" in certain circumstances,
which in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts
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constitute the "residual risk"). In the event of a default with respect to
collateralized Brady Bonds as a result of which the payment obligations of the
issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held to the scheduled maturity of the defaulted Brady Bonds by the
collateral agent, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds should be viewed as speculative.
Brady Plan debt restructuring totalling approximately $73 billion have been
implemented to date in Argentina, Bulgaria, Costa Rica, Ecuador, Mexico,
Nigeria, the Philippines, Uruguay and Venezuela, with the largest proportion of
Brady Bonds having been issued to date by Mexico and Venezuela. Brazil and
Poland have announced plans to issue Brady Bonds aggregating approximately $52
billion, based on current estimates. There can be no assurance that the
circumstances regarding the issuance of Brady Bonds by these countries will not
change.
STRUCTURED SECURITIES. The Emerging Markets Debt Portfolio may also invest a
portion of its assets in interests in entities organized and operated solely for
the purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured Securities to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because Structured
Securities of the type in which the Portfolio anticipates it will invest
typically involve no credit enhancement, their credit risk generally will be
equivalent to that of the underlying instruments. The Portfolio is permitted to
invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated
Structured Securities typically have higher yields and present greater risks
than unsubordinated Structured Securities. Certain issuers of Structured
Securities may be deemed to be "investment companies" as defined in the 1940
Act. As a result, the Portfolio's investment in these Structured Securities
may be limited by restrictions contained in the 1940 Act. Structured Securities
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Emerging Markets Debt Portfolio may
also invest in fixed and floating rate loans ("Loans") arranged through private
negotiations between an issuer of sovereign debt obligations and one or more
financial institutions ("Lenders"). The Portfolio's investments in Loans are
expected in most instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans ("Assignments")
from third parties. The Portfolio's investment in Participations typically will
result in the Portfolio having a contractual relationship only with the Lender
and not with the borrower. The Portfolio will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Portfolio generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the Loan, nor any rights of
set-off against the borrower, and the Portfolio may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, the Portfolio may be subject to the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Portfolio may be treated
as a general creditor of the Lender and may not benefit from any set-off between
the Lender and the borrower. Certain Participations may be structured in a
manner designed to avoid purchasers of Participations being subject to the
credit risk of the Lender with respect to the Participation, but even under such
a structure, in the event of the Lender's insolvency, the Lender's servicing of
the Participation may be delayed and the assignability of the Participation
impaired. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is determined by the
Adviser to be creditworthy.
When the Portfolio purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Portfolio as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain sovereign debt
obligations is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Portfolio may acquire an interest
in a loan is through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations because to do so it
will have to assign such securities to a third party. Because there is no
liquid market for such securities, the Portfolio anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse
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impact on the value of such securities and the Portfolio's ability to dispose of
particular Assignments or Participations when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to these securities for purposes
of valuing the Portfolio's securities and calculating its net asset value.
SHORT SALES
The Emerging Markets Debt, Latin American and Aggressive Equity Portfolios
may from time to time sell securities short without limitation but consistent
with applicable legal requirements, although initially the Portfolio does not
intend to sell securities short. A short sale is a transaction in which the
Portfolio would sell securities it owns or has the right to acquire at no added
cost (i.e., "against the box") or does not own (but has borrowed) in
anticipation of a decline in the market price of the securities. When the
Portfolio makes a short sale of borrowed securities, the proceeds it receives
from the sale will be held on behalf of a broker until the Portfolio replaces
the borrowed securities. To deliver the securities to the buyer, the Portfolio
will need to arrange through a broker to borrow the securities and, in so doing,
the Portfolio will become obligated to replace the securities borrowed at their
market price at the time of replacement, whatever that price may be. The
Portfolio may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government Securities or other liquid, high grade debt
obligations. In addition, if the short sale is not "against the box," the
Portfolio will place in a segregated account with its custodian, or designated
sub-custodian, an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government Securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Portfolio will maintain the segregated account daily at a level
so that (1) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (2) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
PORTFOLIO TURNOVER
The portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the Portfolio for the year, excluding U.S. Government securities and securities
with maturities of one year or less. The portfolio turnover rate for a year is
calculated by dividing the lesser of sales or the average monthly value of the
Portfolio's portfolio purchases of portfolio securities during that year by
securities, excluding money market instruments. The rate of portfolio turnover
will not be a limiting factor when the Portfolio deems it appropriate to
purchase or sell securities for the Portfolio. However, the U.S. federal tax
requirement that the Portfolio derive less than 30% of its gross income from the
sale or disposition of securities held less than three months may limit the
Portfolio's ability to dispose of its securities. See "Taxes."
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
The investment objective of the Active Country Allocation Portfolio is to
provide long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of non-U.S. issuers. The
Adviser determines country allocations for the Portfolio on an ongoing basis
within policy ranges dictated by each country's market capitalization and
liquidity. The Portfolio will invest in industrialized countries throughout the
world that comprise the Morgan Stanley Capital International EAFE (Europe,
Australia and the Far East) Index. The EAFE Index is one of seven International
Indices, twenty National Indices and thirty-eight International Industry Indices
making up the Morgan Stanley Capital International Indices.
The Morgan Stanley Capital International EAFE Index is based on the share
prices of 1066 companies listed on the stock exchanges of Europe, Australia, New
Zealand and the Far East. "Europe" includes Austria, Belgium, Denmark, Finland,
France,
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Germany, Italy, The Netherlands, Norway, Spain, Sweden, Switzerland and the
United Kingdom. "Far East" includes Japan, Hong Kong and Singapore/Malaysia.
TAXES
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio within the Fund is generally treated as a separate
corporation for federal income tax purposes, and thus the provisions of the Code
generally will be applied to each Portfolio separately, rather than to the Fund
as a whole.
Each Portfolio intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, each Portfolio must, among other things, (a) derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; (b) derive
less than 30% of its gross income each taxable year from the sale or other
disposition of the following items if held less than three months (A) stock or
securities, (B) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), and (C) foreign currencies
(or options, futures, or forward contracts on foreign currencies) that are not
directly related to the Portfolio's principal business of investing in stocks or
securities (or options or futures with respect to stock or securities) (the
"short-short test") and (c) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio's taxable year, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash and cash items,
United States Government securities, securities of other RICs, and other
securities, with such other securities limited, in respect to any one issuer, to
an amount not greater than 5% of the value of the Portfolio's total assets or
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities (other than
United States Government securities or securities of other RICs) of any one
issuer or two or more issuers which the Portfolio controls and which are engaged
in the same, similar, or related trades or business. For purposes of the 90% of
gross income requirement described above, foreign currency gains which are not
directly related to a Portfolio's principal business of investing in stock or
securities (or options or futures with respect to stock or securities) may be
excluded from income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, a Portfolio must distribute at least 90% of its net investment income
(which generally includes dividends, taxable interest, and the excess of net
short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax-exempt interest income, if any, to
shareholders. If a Portfolio meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
If a Portfolio fails to qualify as a RIC for any year, all of its income
will be subject to tax at corporate rates, and its distributions (including
capital gains distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Portfolio's current and accumulated earnings
and profits, and will be eligible for the corporate dividends received deduction
for corporate shareholders.
Each Portfolio will decide whether to distribute or to retain all or part
of any net capital gains (the excess of net long-term capital gains over net
short-term capital losses) in any year for reinvestment. If any such gains are
retained, the Portfolio will pay federal income tax thereon, and, if the
portfolio makes an election, the shareholders will include such undistributed
gains in their income, will increase their basis in Portfolio shares by 65% of
the amount included in their income and will be able to claim their share of the
tax paid by the Portfolio as a refundable credit against their federal income
tax liability.
A gain or loss realized by a shareholder on the sale or exchange of shares
of a Portfolio held as a capital asset will be capital gain or loss, and such
gain or loss will be long-term if the holding period for the shares exceeds one
year, and otherwise will be short-
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term. Any loss realized on a sale or exchange of shares of a Portfolio will be
disallowed to the extent the shares disposed of are replaced within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of. Any loss realized by a shareholder on the disposition of shares held 6
months or less is treated as a long-term capital loss to the extent of any
distributions of net long-term capital gains received by the shareholder with
respect to such shares or any inclusion of undistributed capital gain with
respect to such shares.
Each Portfolio will generally be subject to a nondeductible 4% federal
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
Each Portfolio is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions, and
redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Portfolio, that the
Social Security or Taxpayer Identification Number provided is correct and that
the shareholder is exempt from backup withholding or is not currently subject to
backup withholding.
For certain transactions, each Portfolio is required for federal income tax
purposes to recognize as gain or loss its net unrealized gains and losses on
forward currency and futures contracts as of the end of each taxable year, as
well as those actually realized during the year. In most cases, any such gain
or loss recognized with respect to a regulated futures contract is considered to
be 60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Realized gain or loss
attributable to a foreign currency forward contract is treated as 100% ordinary
income. Furthermore, foreign currency futures contracts which are intended to
hedge against a change in the value of securities held by a Portfolio may affect
the holding period of such securities and, consequently, the nature of the gain
or loss on such securities upon disposition.
As discussed above, in order for each Portfolio to continue to qualify for
federal income tax treatment as a RIC, at least 90% of its gross income for a
taxable year must be derived from certain qualifying income, including
dividends, interest, income derived from loans of securities, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
related income, including gains from options, futures and forward contracts,
derived with respect to its business of investing in stock, securities or
currencies. Any net gain realized from the closing out of futures contracts
will therefore generally be qualifying income for purposes of the 90%
requirement. Qualification as a RIC also requires that less than 30% of a
Portfolio's gross income be derived from the sale or other disposition of stock,
securities, options, futures or forward contracts (including certain foreign
currencies not directly related to the Fund's business of investing in stock or
securities) held less than three months. In order to avoid realizing excessive
gains on futures contracts held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so.
Short sales engaged in by a Portfolio may reduce the holding property held
by a Portfolio which is substantially identical to the property sold short.
This rule may make it more difficult for the Portfolio to satisfy the short-
short test. This rule may also have the effect of converting capital gains
recognized by the Portfolio from long-term to short-term as well as converting
capital losses recognized by the Portfolio from short-term to long-term.
SPECIAL TAX CONSIDERATIONS RELATING TO
MUNICIPAL BOND AND
MUNICIPAL MONEY MARKET PORTFOLIOS
Each of the Municipal Bond Portfolio and the Municipal Money Market
Portfolio will qualify to pay "exempt interest dividends" to its shareholders
provided that, at the close of each quarter of its taxable year at least 50% of
the value of its total assets consists of obligations the interest on which is
exempt from federal income tax. Current federal tax law limits the types and
volume of bonds qualifying for federal income tax exemption of interest, which
may have an effect on the ability of these Portfolios to purchase sufficient
amounts of tax-exempt securities to satisfy this requirement. Any loss on the
sale or exchange of shares of the Municipal Bond Portfolio or the Municipal
Money Market Portfolio held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the selling shareholder with
respect to such shares.
As noted in the Prospectus for the Municipal Bond Portfolio and the
Municipal Money Market Portfolio, exempt-interest dividends are excludable from
a shareholder's gross income for regular Federal income tax purposes. Exempt-
interest dividends may
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nevertheless be subject to the alternative minimum tax (the "Alternative Minimum
Tax") imposed by Section 55 of the Code or the environmental tax (the
"Environmental Tax") imposed by Section 59A of the Code. The Alternative
Minimum Tax is imposed at the rate of up to 28% in the case of non-corporate
taxpayers and at the rate of 20% in the case of corporate taxpayers, to the
extent it exceeds the taxpayer's regular tax liability. The Environmental Tax
is imposed at the rate of 0.12% and applies only to corporate taxpayers. The
Alternative Minimum Tax and the Environmental Tax may be affected by the receipt
of exempt-interest dividends in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference and therefore potentially
subject to the Alternative Minimum Tax and the Environmental Tax. The
Portfolios intend, when possible, to avoid investing in private activity bonds.
Second, in the case of exempt-interest dividends received by corporate
shareholders, all exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they are derived from private
activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
The percentage of income that constitutes "exempt-interest dividends" will
be determined for each year for the Municipal Bond Portfolio and the Municipal
Money Market Portfolio and will be applied uniformly to all dividends declared
with respect to the Portfolios during that year. This percentage may differ
from the actual percentage for any particular day.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the Municipal Bond Portfolio or the Municipal Money Market
Portfolio will not be deductible for federal income tax purposes. The deduction
otherwise allowable to property and casualty insurance companies for "losses
incurred" will be reduced by an amount equal to a portion of exempt-interest
dividends received or accrued during any taxable year. Foreign corporations
engaged in a trade or business in the United States will be subject to a "branch
profits tax" on their "dividend equivalent amount" for the taxable year, which
will include exempt-interest dividends. Certain Subchapter S corporations may
also be subject to taxes on their "passive investment income," which could
include exempt-interest dividends. Up to 85% of the Social Security benefits or
railroad retirement benefits received by an individual during any taxable year
will be included in the gross income of such individual if the individual's
"modified adjusted gross income" (which includes exempt-interest dividends) plus
one-half of the Social Security benefits or railroad retirement benefits
received by such individual during that taxable year exceeds the base amount
described in Section 86 of the Code.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
shares of the Municipal Bond Portfolio or the Municipal Money Market Portfolio.
"Substantial user" is defined generally for these purposes as including a "non-
exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.
Issuers of bonds purchased by the Municipal Bond Portfolio (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date thereof
if such representations are determined to have been inaccurate or if the issuer
of such bonds (or the beneficiary of such bonds) fails to comply with such
covenants.
SPECIAL TAX CONSIDERATIONS RELATING TO FOREIGN INVESTMENTS
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time a Portfolio accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Portfolio actually collects
such receivables or pays such liabilities are treated as ordinary income or
ordinary loss to the Portfolio. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss
to the Portfolio. These gains or losses increase or decrease the amount of a
Portfolio's net investment income available to be distributed to its
shareholders as ordinary income.
It is expected that each Portfolio will be subject to foreign withholding
taxes with respect to its dividend and interest income from foreign countries,
and a Portfolio may be subject to foreign income taxes with respect to other
income. So long as more than 50% in value of a Portfolio's total assets at the
close of the taxable year consists of stock or securities of foreign
corporations, the Portfolio may elect to treat certain foreign income taxes
imposed on it for United States federal income tax purposes as paid directly by
its shareholders. A Portfolio will make such an election only if it deems it to
be in the best interest of its shareholders and will
15
<PAGE>
notify shareholders in writing each year if it makes an election and of the
amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If a Portfolio makes the election, shareholders will be required
to include in income their proportionate shares of the amount of foreign income
taxes treated as imposed on the Portfolio and will be entitled to claim either a
credit (subject to the limitations discussed below) or, if they itemize
deductions, a deduction, for their shares of the foreign income taxes in
computing their federal income tax liability.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to a number of complex limitations regarding the
availability and utilization of the credit. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by a Portfolio.
Shareholders are urged to consult their tax advisors regarding the application
of these rules to their particular circumstances.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation, or foreign a
partnership ("Foreign Shareholder") depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Portfolio is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of net
investment income plus the excess of net short-term capital gains over net
long-term capital losses will be subject to U.S. withholding tax at the rate of
30% (or such lower treaty rate as may be applicable) upon the gross amount of
the dividend. Furthermore, Foreign Shareholders will generally be exempt from
U.S. federal income tax on gains realized on the sale of shares of the
Portfolio, distributions of net long-term capital gains, and amounts retained by
the Fund which are designated as undistributed capital gains.
If the income from the Portfolio is effectively connected with a U.S. trade
or business carried on by a Foreign Shareholder, then distributions from the
Portfolio and any gains realized upon the sale of shares of the Portfolio, will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
The Portfolio may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in a Portfolio, including the potential application of the provisions
of the Foreign Investment in Real Estate Property Tax Act of 1980, as amended.
PURCHASE OF SHARES
The purchase price of shares of each Portfolio of the Fund is the net asset
value next determined after the order is received. For each Portfolio of the
Fund other then the Money Market or Municipal Market Portfolios, an order
received prior to the regular close of the New York Stock Exchange (the "NYSE")
will be executed at the price computed on the date of receipt; and an order
received after the regular close of the NYSE will be executed at the price
computed on the next day the NYSE is open. Shares of the Money Market and
Municipal Money Market Portfolios may be purchased at the net asset value per
share at the price next determined after Federal Funds are available to such
Portfolios. Shares of the Fund may be purchased on any day the NYSE is open.
The NYSE will be closed on the following days: Labor Day, September 4, 1995;
Thanksgiving Day, November 23, 1995; Christmas Day, December 25, 1995; New
Year's Day, January 1, 1996; Presidents' Day, February 19, 1996; and Good
Friday, April 5, 1996; Memorial Day, May 27, 1996; Independence Day, July 4,
1996.
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Portfolio's shares. The
International Equity Portfolio is currently limiting investments in the
16
<PAGE>
Portfolio to: (i) reinvested dividends and distributions by existing
shareholders of the Portfolio; (ii) additional investments by existing
shareholders of the Portfolio; (iii) investments by employees of Morgan Stanley;
and (iv) investors who were in the process of becoming shareholders of the
Portfolio at the time the Portfolio limited further investments.
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the Commission, (ii) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for a Portfolio to dispose of securities owned
by it, or fairly to determine the value of its assets, and (iii) for such other
periods as the Commission may permit.
No charge is made by any Portfolio for redemptions except for the 1%
transaction fee assessed upon redemption of the International Small Cap
Portfolio. Any redemption may be more or less than the shareholder's cost
depending on the market value of the securities held by the Portfolio.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and
(2) share transfer requests.
A guarantor must be a bank, a trust company, a member firm of a domestic
stock exchange, or a foreign branch of any of the foregoing. Notaries public
are not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the Shareholder Services section set forth in the
Fund's Prospectuses:
EXCHANGE PRIVILEGE
Shares of each Portfolio of the Fund may be exchanged for shares of any
other Portfolio (except the International Equity Portfolio). Exchange requests
should be sent to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798.
Any such exchange will be based on the respective net asset values of the
shares involved. There is no sales commission or charge of any kind. Before
making an exchange, a shareholder should consider the investment objectives of
the Portfolio to be purchased.
Exchange requests may be made either by mail or telephone. Telephone
exchanges will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts will be identical. Requests for exchanges
received prior to 10:00 am. (Eastern Time) for the Municipal Money Market
Portfolio, 11:00 a.m. (Eastern Time) for the Money Market Portfolio, and 4:00
p.m. (Eastern Time) for the remaining Portfolios will be processed as of the
close of business on the same day. Requests received after these times will be
processed on the next business day. Exchanges may be subject to limitations as
to amounts or frequency, and to other restrictions established by the Board of
Directors to assure that such exchanges do not disadvantage the Fund and its
shareholders.
For federal income tax purposes an exchange between Portfolios is a taxable
event for shareholders subject to tax, and, accordingly, a gain or loss may be
realized. The exchange privilege may be modified or terminated at any time.
17
<PAGE>
TRANSFER OF SHARES
Shareholders may transfer shares of the Fund's Portfolios to another person
by making a written request to the Fund. The request should clearly identify
the account and number of shares to be transferred, and include the signature of
all registered owners and all stock certificates, if any, which are subject to
the transfer. The signature on the letter of request, the stock certificate or
any stock power must be guaranteed in the same manner as described under
"Redemption of Shares." As in the case of redemptions, the written request must
be received in good order before any transfer can be made.
INVESTMENT LIMITATIONS
Each current Portfolio has adopted the following restrictions which are
fundamental policies and may not be changed without the approval of the lesser
of: (1) at least 67% of the voting securities of the Portfolio present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Portfolio. Each Portfolio of the Fund will
not:
(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling options or futures contracts or from
investing in securities or other instruments backed by physical commodities),
and except that the Gold Portfolio may invest in gold bullion in accordance with
its investment objectives and policies;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies that deal in real estate and may purchase and sell
securities that are secured by interests in real estate;
(3) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;
(4) except with respect to the Global Fixed Income, Emerging Markets,
Emerging Markets Debt, China Growth, Latin American, Aggressive Equity, U.S.
Real Estate Portfolios (i) purchase more than 10% of any class of the
outstanding voting securities of any issuer and (ii) purchase securities of an
issuer (except obligations of the U.S. Government and its agencies and
instrumentalities) if as a result, with respect to 75% of its total assets, more
than 5% of the Portfolio's total assets, at market value, would be invested in
the securities of such issuer;
(5) issue senior securities and will not borrow, except from banks and as
a temporary measure for extraordinary or emergency purposes and then, in no
event, in excess of 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings);
(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities;
(7) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the Portfolio's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or (in the case of the Money Market Portfolio or the
Municipal Money Market Portfolio) instruments issued by U.S. Banks, except that
the Latin American Portfolio may invest more than 25% of its total assets in
companies involved in the telecommunications industry or financial services
industry, and except that the U.S. Real Estate Portfolio may invest more than
25% of its total assets in the U.S. real estate industry, respectively, as
provided in their respective prospectuses; and
(8) write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
In addition, each current Portfolio of the Fund has adopted non-fundamental
investment limitations as stated below and in their respective prospectuses.
Such limitations may be changed without shareholder approval. Each current
Portfolio of the Fund will not:
(1) purchase on margin or sell short, except (i) that the Emerging Markets
Debt, Latin American and Aggressive Equity Portfolios may from time to time sell
securities short without limitation but consistent with applicable legal
requirements as stated in
18
<PAGE>
its prospectus, (ii) that each of the Active Country Allocation, Equity Growth,
Gold, China Growth and Aggressive Equity Portfolios may enter into option
transactions to the extent that not more than 5% of the Portfolio's total assets
are required as deposits to secure obligations under options and not more than
20% of its total assets are invested in options, futures contracts and options
on futures contracts at any time, and (iii) as specified above in Fundamental
Restriction No. (1);
(2) purchase or retain securities of an issuer if those Officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(3) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(6) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(7) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Portfolio's net assets (taken at market value) would be invested in
warrants, valued at the lower of cost or market. Included within this amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be warrants
that are not listed on a recognized stock exchange;
(8) except for the U.S. Real Estate Portfolio, invest in real estate
limited partnership interests, and the U.S. Real Estate Portfolio may not invest
in such interests that are not publicly traded;
(9) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the respective prospectuses) that are publicly distributed, and
(ii) by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are not inconsistent with the 1940
Act or the Rules and Regulations or interpretations of the Commission
thereunder;
(10) invest in oil, gas or other mineral leases; and
(11) purchase puts, calls, straddles, spreads and any combination thereof
if for any reason thereof the value of its aggregate investment in such classes
of securities will exceed 5% of their respective total assets, except that each
of the Active Country Allocation, Equity Growth, Gold, China Growth and
Aggressive Equity Portfolios may enter into option transactions to the extent
that not more than 5% of the Portfolio's total assets are required as deposits
to secure obligations under options and not more than 20% of its total assets
are invested in options, futures contracts and options on futures contracts at
any time.
The Balanced, Fixed Income and Value Equity Portfolios will only issue
shares for securities or assets other than cash in a bona fide reorganization,
statutory merger, or in other acquisitions of portfolio securities (except for
municipal debt securities issued by state political subdivisions or their
agencies or instrumentalities) which (i) meet their respective investment
objectives; (ii) are acquired for investment and not for resale.
Each of the Global Fixed Income, Emerging Markets, Emerging Markets Debt,
China Growth, Latin American, Aggressive Equity and U.S. Real Estate Portfolios
will diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the market value of the Portfolio's total assets is
represented by cash (including cash items and receivables), U.S. Government
securities, and other securities, with such other securities limited, in respect
of any one issuer, for purposes of this calculation to an amount not greater
than 5% of the value of the Portfolio's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities).
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future Portfolios of the Fund may adopt
different limitations.
19
<PAGE>
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a
Government Obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be deemed to have
a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand;
(d) an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. Directors and officers of the
Fund are also directors and officers of some or all of the other investment
companies managed, administered, advised or distributed by Morgan Stanley Asset
Management Inc. or its affiliates. The other Directors have no affiliation with
the Fund's adviser, distributor or administrative services provider. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth
below:
20
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
<S> <C> <C>
Barton M. Biggs Chairman and Chairman and Director of Morgan Stanley Asset
1221 Avenue of the Director Management Inc. and Morgan Stanley Asset
Americas Management Limited; Managing Director of Morgan
New York, NY 10020 Stanley & Co., Inc.; Director of Morgan Stanley
Group Inc.; Member of International Advisory
Counsel of the Thailand Fund; Chairman and
Director of The Brazilian Investment Fund,
Inc., The Latin American Discovery Fund, Inc.,
The Malaysia Fund, Inc., Morgan Stanley Africa
Investment Fund, Inc., Morgan Stanley Asia-
Pacific Fund, Inc., Morgan Stanley Emerging
Markets Debt Fund, Inc., Morgan Stanley
Emerging Markets Fund, Inc., Morgan Stanley
Fund Inc., Morgan Stanley Global Opportunity
Bond Fund, Inc., Morgan Stanley High Yield
Fund, Inc., Morgan Stanley India Investment
Fund, Inc., Morgan Stanley Institutional Fund,
Inc., The Pakistan Investment Fund, Inc., The
PCS Cash Fund, Inc., The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
Warren J. Olsen Director and President Principal of Morgan Stanley & Co., Inc.; Vice
1221 Avenue of the President of Morgan Stanley Asset management
Americas Inc.; President and Director of The Brazilian
New York, NY 10020 Investment Fund, Inc., The Latin American
Discovery Fund, Inc., The Malaysia Fund, Inc.,
Morgan Stanley Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific Fund, Inc., Morgan
Stanley Emerging Markets Debt Fund, Inc.,
Morgan Stanley Emerging Markets Fund, Inc.,
Morgan Stanley Fund, Inc., Morgan Stanley
Global Opportunity Bond Fund, Inc., Morgan
Stanley High Yield Fund, Inc., Morgan Stanley
India Investment Fund, Inc., Morgan Stanley
Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc., and The Turkish Investment
Fund, Inc.
John D. Barrett, II Director Chairman and Director of Barrett Associates,
521 Fifth Avenue Inc. (Investment counseling); Director of the
New York, NY 10135 Ashforth Company (real estate); Director of the
Morgan Stanley Fund, Inc., Morgan Stanley
Institutional Fund, Inc. and PCS Cash Fund,
Inc.
21
<PAGE>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
Gerard E. Jones Director Partner in Richards & O'Neil L.L.P. (law firm);
43 Arch Street Director of the Morgan Stanley Fund, Inc.,
Greenwich, CT 06830 Morgan Stanley Institutional Fund, Inc. and PCS
Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive Officer of Rand
8255 North Central McNally (Publication); Director of Allendale
Park Avenue Insurance Co., Mercury Finance (consumer
Skokie, IL 60076 finance); Zenith Electronics, Hubbell, Inc.
(industrial electronics); Director of the
Morgan Stanley Fund, Inc., Morgan Stanley
Institutional Fund, Inc. and PCS Cash Fund,
Inc.; Director of the Morgan Stanley Fund,
Inc., Morgan Stanley Institutional Fund, Inc.
and PCS Cash Fund, Inc.
Samuel T. Reeves Director Chairman of the Board and CEO, Pinacle L.L.C.
8211 North (investment firm); Director, Pacific Gas and
Fresno Street Electric and PG&E Enterprises (utilities);
Fresno, CA 93720 Director of the Morgan Stanley Fund, Inc.,
Morgan Stanley Institutional Fund, Inc. and PCS
Cash Fund, Inc.
Fergus Reid Director Chairman and Chief Executive Officer of
85 Charles Colman Blvd LumeLite Corporation (injection molding firm);
Pawling, NY 12564 Trustee and Director of Vista Mutual Fund
Group; Director of the Morgan Stanley Fund,
Inc., Morgan Stanley Institutional Fund, Inc.
and PCS Cash Fund, Inc.
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law firm); Previously
2800 North Central Avenue associated with Copple, Chamberlin & Boehm,
Phoenix, AZ 85004 P.C. and Rake, Copple, Downey & Black, P.C.
(law firms); Director of the Morgan Stanley
Fund, Inc., Morgan Stanley Institutional Fund,
Inc. and PCS Cash Fund, Inc.
22
<PAGE>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
Frederick B. Whittemore Director Advisory Director of Morgan Stanley & Co.,
1251 Avenue of the Inc.; Vice-Chairman and Director of The
Americas, 30th Flr. Brazilian Investment Fund, Inc., The Latin
New York, NY 10020 American Discovery Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley Africa Investment
Fund, Inc., Morgan Stanley Asia-Pacific Fund,
Inc., Morgan Stanley Emerging Markets Debt
Fund, Inc., Morgan Stanley Emerging Markets
Fund, Inc., Morgan Stanley Fund, Inc., Morgan
Stanley Global Opportunity Bond Fund, Inc.,
Morgan Stanley High Yield Fund,Inc., Morgan
Stanley India Investment Fund, Inc., Morgan
Stanley Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc. and The Turkish Investment
Fund, Inc.
James W. Grisham Vice President Principal of Morgan Stanley & Co., Inc.; Vice
1221 Avenue of the President of Morgan Stanley Asset Management
Americas Inc.; Vice President of The Brazilian
New York, NY 10020 Investment Fund, Inc., The Latin American
Discovery Fund, Inc., The Malaysia Fund, Inc.,
Morgan Stanley Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific Fund, Inc., Morgan
Stanley Emerging Markets Debt Fund, Inc.,
Morgan Stanley Emerging Markets Fund, Inc.,
Morgan Stanley Fund, Inc., Morgan Stanley
Global Opportunity Bond Fund, Inc., Morgan
Stanley High Yield Fund, Inc., Morgan Stanley
India Investment Fund, Inc., Morgan Stanley
Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc. and The Turkish Investment
Fund, Inc.
23
<PAGE>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
Harold J. Schaaff, Jr. Vice President Principal of Morgan Stanley & Co.; General
1221 Avenue of the Counsel and Secretary of Morgan Stanley Asset
Americas Management Inc.; Vice President of The
New York, NY 10020 Brazilian Investment Fund, Inc., The Latin
American Discovery Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley Africa Investment
Fund, Inc., Morgan Stanley Asia-Pacific Fund,
Inc., Morgan Stanley Emerging Markets Debt
Fund, Inc., Morgan Stanley Emerging Markets
Fund, Inc., Morgan Stanley Fund, Inc., Morgan
Stanley Global Opportunity Bond Fund, Inc.,
Morgan Stanley High Yield Fund, Inc., Morgan
Stanley India Investment Fund, Inc., Morgan
Stanley Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc. and The Turkish Investment
Fund, Inc.
Joseph P. Stadler Vice President Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Previously with Price
Americas Waterhouse (accounting); Vice President of The
New York, NY 10020 Brazilian Investment Fund, Inc., The Latin
American Discovery Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley Africa Investment
Fund, Inc., Morgan Stanley Asia-Pacific Fund,
Inc., Morgan Stanley Emerging Markets Debt
Fund, Inc., Morgan Stanley Emerging Markets
Fund, Inc., Morgan Stanley Fund, Inc., Morgan
Stanley Global Opportunity Bond Fund, Inc.,
Morgan Stanley High Yield Fund, Inc., Morgan
Stanley India Investment Fund, Inc., Morgan
Stanley Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc. and The Turkish Investment
Fund, Inc.
24
<PAGE>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
Valerie Y. Lewis Secretary Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Previously with Citicorp
Americas (banking); Secretary of The Brazilian
New York, NY 10020 Investment Fund, Inc., The Latin American
Discovery Fund, Inc., The Malaysia Fund, Inc.,
Morgan Stanley Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific Fund, Inc., Morgan
Stanley Emerging Markets Debt Fund, Inc.,
Morgan Stanley Emerging Markets Fund, Inc.,
Morgan Stanley Fund, Inc., Morgan Stanley
Global Opportunity Bond Fund, Inc., Morgan
Stanley High Yield Fund, Inc., Morgan Stanley
India Investment Fund, Inc., Morgan Stanley
Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The PCS Cash Fund, Inc.,
The Thai Fund, Inc. and The Turkish Investment
Fund, Inc.
Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
73 Tremont Street Counsel of Mutual Funds Service Company;
Boston, MA 02108-3913 Previously, Senior Vice President, Secretary
and General Counsel, Leland, O'Brien, Rubenstein
Associates, Inc. (an investment adviser).
James R. Rooney Treasurer Assistant Vice President, Mutual Funds Service
73 Tremont Street Company; Manager of Fund Administration;
Boston, MA 02108-3913 Officer various investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously with Scudder, Stevens & Clark, Inc.
(Investment); Treasurer of The Brazilian
Investment Fund, Inc., The Latin American
Discovery Fund, Inc., The Malaysia Fund, Inc.,
Morgan Stanley Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific Fund, Inc., Morgan
Stanley Emerging Markets Debt Fund, Inc.,
Morgan Stanley Emerging Markets Fund, Inc.,
Morgan Stanley Fund, Inc., Morgan Stanley
Global Opportunity Bond Fund, Inc., Morgan
Stanley High Yield Fund, Inc., Morgan Stanley
India Investment Fund, Inc., Morgan Stanley
Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
25
<PAGE>
Principal Occupation During
Name and Address Position with Fund Past Five Years
---------------- ------------------ ----------------------------
Joanna Haigney Assistant Treasurer Supervisor of Fund Administration and
Compliance, Mutual Funds Service Company;
Previously with Coopers & Lybrand L.L.P.;
Assistant Treasurer of The Brazilian Investment
Fund, Inc., The Latin American Discovery Fund,
Inc., The Malaysia Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc., Morgan Stanley
Asia-Pacific Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund, Inc., Morgan
Stanley Emerging Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan Stanley Global
Opportunity Bond Fund, Inc., Morgan Stanley
High Yield Fund, Inc., Morgan Stanley India
Investment Fund, Inc., Morgan Stanley
Institutional Fund, Inc., The Pakistan
Investment Fund, Inc., The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
<FN>
_______
* "Interested Person" within the meaning of the 1940 Act.
</TABLE>
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director who is not also an officer or affiliated person
and in addition, Mr. Whittemore, an Interested Person, an annual fee, plus
travel and other expenses incurred in attending Board meetings. For the fiscal
year December 31, 1994, the Fund paid approximately $83,000 in Directors' fees
and expenses. Directors who are also officers or affiliated persons receive no
remuneration for their services as Directors. The Fund's officers and employees
are paid by the Adviser or its agents. As of February 1, 1995, to Fund
management's knowledge, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of each Portfolio of the
Fund. The following table shows aggregate compensation paid to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, in the fiscal
year ended December 31, 1994.
26
<PAGE>
COMPENSATION TABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
PERSON, COMPENSATION RETIREMENT ANNUAL COMPENSATION
POSITION FROM BENEFITS ACCRUED BENEFITS FROM REGISTRANT
REGISTRANT AS PART OF FUND UPON AND FUND COMPLEX
EXPENSES RETIREMENT PAID TO DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick B. Whittemore,* $15,750 $ $ $67,800
Director and Chairman of
the Board
John P. Britton,** 16,500 27,550
Director
George R. Bunn, Jr.,** 18,350 29,400
Director
A. Macdonald Caputo,** N/A N/A
Director
Gerard E. Jones,* 15,750 85,584.11
Director
Peter E. deSvastich,** 15,750 40,058
Director
Warren J. Olsen,* N/A N/A
Director and President
<FN>
_______________
* As of June 28, 1995, the following persons were elected Directors of the
Fund: Barton M. Biggs, John D. Barrett II, Gerard E. Jones, Andrew McNally
IV, Warren J. Olsen, Samuel T. Reeves, Fergus Reid, Frederick O. Robertshaw
and Frederick B. Whittemore.
** Resigned effective June 28, 1995.
</TABLE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
Morgan Stanley Asset Management Inc. ("MSAM" or the "Adviser") is a
wholly-owned subsidiary of Morgan Stanley Group Inc. The principal offices of
Morgan Stanley Group Inc. are located at 1221 Avenue of the Americas, New York,
NY 10020. As compensation for advisory services for the year ended October 31,
1992, the two months ended December 31, 1992, the fiscal years ended December
31, 1993 and December 31, 1994, the Adviser earned fees of approximately
$8,312,000, $1,725,000, $17,539,000 and $34,338,000, respectively, and from
such fees voluntarily waived fees of $962,000, $600,000, $3,037,000 and
$2,640,000, respectively. For the year ended October 31, 1992, the two months
ended December 31, 1992, the fiscal years ended December 31, 1993 and December
31, 1994, the Fund paid brokerage commissions of approximately $3,477,000,
$370,000, $5,827,000 and $7,287,293, respectively. For the year ended
October 31, 1992, the two months ended December 31, 1992, the fiscal years ended
December 31, 1993 and December 31, 1994, the Fund paid in the aggregate $66,600,
$4,000, $797,000 and $796,000, respectively, as brokerage commissions to Morgan
Stanley & Co. Incorporated, an affiliated broker-dealer, which represented 2%,
1%, 13% and 11% of the total amount of brokerage commissions paid in each
respective period. For the year ended October 31, 1992, the two months ended
December 31, 1992 and the fiscal years ended December 31, 1993 and December 31,
1994, the Fund paid administrative fees to MSAM of approximately $2,624,000,
$542,000, $4,662,000 and $4,458,000, respectively.
The Sub-Adviser, Sun Valley Gold Company, with principal offices at 620 Sun
Valley Road, Sun Valley, Idaho, serves as the investment sub-adviser of the Gold
Portfolio, pursuant to a sub-advisory agreement among the Fund, the Adviser and
the Sub-Adviser (the "Sub-Advisory Agreement"). The Adviser and the Sub-Adviser
have entered into an indemnification agreement under
27
<PAGE>
which, generally, the Sub-Adviser has agreed to indemnify the Adviser and the
Fund for claims or losses in connection with any failure by the Sub-Adviser to
comply with its obligations under the Sub-Advisory Agreement or related
agreements or any act or omission that amounts to negligence, misfeasance or bad
faith, and the Adviser has agreed to indemnify the Sub-Adviser for claims or
losses in connection with any failure by the Adviser to comply with its
obligations under the Sub-Advisory Agreement or related agreements. For the
year ended December 31, 1994, the Fund paid $8,000 as brokerage commissions to
Sun Valley.
Pursuant to the MSAM Administration Agreement between the Adviser and the
Fund, the Adviser provides Administrative 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 1% of the average daily net assets of each
Portfolio.
Under the Agreement between the Adviser and United States Trust Company of
New York ("U.S. Trust"), Mutual Funds Service Company ("MFSC"), a U.S. Trust
subsidiary, provides certain administrative services to the Fund. MFSC provides
operational and administrative services to investment companies with
approximately $60 billion in assets and having approximately 223,133 shareholder
accounts as of June 30, 1995. MFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Adviser and, as described below,
impose additional, more onerous, restrictions on the Fund's investment
personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of June 30, 1995 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
ACTIVE COUNTRY ALLOCATION PORTFOLIO: The trustees of Columbia University in the
City of New York, 475 Riverside Drive, Suite 401, New York, NY 10115, owned 16%
of such Portfolio's total outstanding shares.
Oglebay Norton Company, 1100 Superior Avenue, Cleveland, OH 44114-2598, owned
12% of such Portfolio's total outstanding shares.
City of New York Deferred Compensation Plan, 40 Rector Street, 3rd Floor, New
York, NY 10006, owned 10% of such Portfolio's total outstanding shares.
The Finn Foundation, Northern Trust Co., Master Trust Dept., P.O. Box 92984,
Chicago, IL 60675, owned 8% of such Portfolio's total outstanding shares.
Strafe & Co., F/A/O In: Thomson Consumer Electronics, 235 West Schrock Road,
Westerville, OH 43081, owned 7% of such Portfolio's total outstanding shares.
28
<PAGE>
Sahara Enterprises, Inc., 3 First National Plaza, Suite 2000, Chicago, IL 60602-
4260, owned 6% of such Portfolio's total outstanding shares.
BALANCED PORTFOLIO: The American Roentgen Ray Society, 1891 Preston White
Drive, Reston, VA 22091-5431, owned 21% of such Portfolio's total outstanding
shares.
EMERGING GROWTH PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 16% of such
Portfolio's total outstanding shares.
Allendale Mutual Insurance Co., P.O. Box 7500, Johnston, RI 02919-0750, owned 6%
of such Portfolio's total outstanding shares.
Claude Worthington Benedum Foundation, 1400 Benedum Trees Building, Pittsburgh,
PA 15222, owned 5% of such Portfolio's total outstanding shares.
EMERGING MARKETS DEBT PORTFOLIO: Northwestern University, 633 Clark Street,
Evanston, IL 60208-1122, owned 12% of such Portfolio's total outstanding shares.
Swarthmore College, 500 College Avenue, Swarthmore, PA 19081-1110, owned 7% of
such Portfolio's total outstanding shares.
FIXED INCOME PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 22% of such
Portfolio's total outstanding shares.
Brooks School, c/o Mr. Frank Marino, North Andover, MA 01845, owned 5% of such
Portfolio's total outstanding shares.
GLOBAL FIXED INCOME PORTFOLIO: Northern Trust Company as Custodian FBO The Lund
Foundation, P.O. Box 92956, Chicago, IL 60675, owned 12% of such Portfolio's
total outstanding shares.
Farm Credit Bank Retirement Plan, Columbia District American Industries Trust
Company Trustee, 5700 NW Central Drive, 4th Floor, Houston, TX 77092, owned 9%
of such Portfolio's total outstanding shares.
The Northern Trust Customer FBO Resort Condominiums International, P.O. Box
92956, Chicago, IL 60675-2956, owned 7% of such Portfolio's total outstanding
shares.
Divtex and Co., FBO Pritchard Hubble and Herr, c/o Texas Commerce Bank, P.O. Box
951405, Dallas, TX 75395-1405, owned 6% of such Portfolio's total outstanding
shares.
HIGH YIELD PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley Profit
Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 25% of such
Portfolio's total outstanding shares.
Valassis Enterprises - Equity, c/o Franklin Enterprises, 520 Lake Cook Road,
Suite 380, Deerfield, IL 60015, owned 21% of such Portfolio's total outstanding
shares.
INTERNATIONAL SMALL CAP PORTFOLIO: The Short Brothers Pension Fund, P.O. Box
241, Airport Road, Belfast, N. Ireland, owned 11% of such portfolio's total
outstanding shares.
The Casey Family Program, 1300 Dexter Avenue, Suite 400, Seattle, WA 98109-3547,
owned 8% of such Portfolio's total outstanding shares.
MUNICIPAL BOND PORTFOLIO: Kevin W. Smith, 570 Arvida Parkway, Coral Gables, FL
33156, owned 11% of such Portfolio's total outstanding shares.
Daniel J. McDonald and Maria J. McDonald, 850 Old Dominion Drive, McLean, VA
22102, owned 10% of such Portfolio's total outstanding shares.
29
<PAGE>
James A. Rutherford, c/o Wingset Inc., 15 S. High Street, P.O. Box 166, New
Albany, OH 43054-0166, owned 6% of such Portfolio's total outstanding shares.
Cushman Trust, c/o Cambrian Services, 358 Fifth Avenue, New York, NY 10001,
owned 5% of such Portfolio's total outstanding shares.
Arnold E. Bellowe & Jill I. Bellowe, Rev Tr Dtd 12/26/94, 915 Park Lane,
Montecito, CA 93108-1421, owned 5% of such Portfolio's total outstanding shares.
SMALL CAP VALUE EQUITY PORTFOLIO: Morgan Stanley & Co. Pension Fund, c/o U.S.
Trust Company of New York, 770 Broadway Street, New York, NY 10003, owned 12% of
such Portfolio's total outstanding shares.
NET ASSET VALUE FOR MONEY MARKET PORTFOLIOS
The Money Market Portfolio and the Municipal Money Market Portfolio seek to
maintain a stable net asset value per share of $1.00. These Portfolios use the
amortized cost method of valuing their securities, which does not take into
account unrealized gains or losses. The use of amortized cost and the
maintenance of each Portfolio's per share net asset value at $1.00 is based on
the Portfolio's election to operate under the provisions of Rule 2a-7 under the
1940 Act. As a condition of operating under that Rule, each of the Money Market
Portfolios must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days or
less, and invest only in securities which are of "eligible quality" as
determined in accordance with regulations of the Commission.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and each
Portfolio's investment objectives, to stabilize the net asset value per share as
computed for the purposes of sales and redemptions at $1.00. These procedures
include periodic review, as the Directors deem appropriate and at such intervals
as are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value. In such review, investments for
which market quotations are readily available are valued at the most recent bid
price or quoted yield available for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by the Directors.
In the event of a deviation of over 1/2 of 1% between a Portfolio's net
asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will also take such action
as they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise from
differences between the two. Such action may include redemption in kind,
selling instruments prior to maturity to realize capital gains or losses or to
shorten the average maturity, withholding dividends, paying distributions from
capital or capital gains or utilizing a net asset value per share as determined
by using available market quotations.
There are various methods of valuing the assets and of paying dividends and
distributions from a money market fund. Each of the Money Market and Municipal
Money Market Portfolios values its assets at amortized cost while also
monitoring the available market bid price, or yield equivalents. Since
dividends from net investment income will be declared daily and paid monthly,
the net asset value per share of each Portfolio will ordinarily remain at $1.00,
but each Portfolio's daily dividends will vary in amount. Net realized gains,
if any, will normally be declared and paid monthly.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the Portfolios' past performance.
Performance quotations by investment companies are subject to rules adopted
by the Commission, which require the use of standardized performance quotations.
In the case of total return, non-standardized performance quotations may be
furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the Commission. Current
30
<PAGE>
yield and average annual compounded total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the
Commission. An explanation of those and other methods used by the Fund to
compute or express performance follows.
TOTAL RETURN
From time to time the Portfolios may advertise total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Portfolio) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10-year period (or
over the life of the Portfolio) and the deduction of all applicable Fund
expenses on an annual basis.
The average annual compounded rates of return (unless otherwise noted) for
the Fund's Portfolios for the one year and five year periods ended December 31,
1994 and for the period from inception through December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Name of Portfolio Since Date
and Date of Inception One Year Five Year of Inception
--------------------- -------- --------- ------------
<S> <C> <C> <C>
International Equity
August 4, 1989. . . . . . . . 12.39% 10.42% 10.64%
Emerging Growth
November 1, 1989. . . . . . . (0.62) 8.89 9.86
Value Equity
January 31, 1990. . . . . . . (1.29) 7.87
Balanced
February 28, 1990 . . . . . . (2.32) 7.79
Equity Growth
April 2, 1991 . . . . . . . . 3.26 7.31
Global Fixed Income
May 1, 1991 . . . . . . . . . (6.08) 6.29
Fixed Income
May 15, 1991. . . . . . . . . (3.10) 6.68
Asian Equity
July 1, 1991. . . . . . . . . (15.81) 26.50
Active Country Allocation
January 17, 1992. . . . . . . (0.52) 7.76
Global Equity
July 15, 1992 . . . . . . . . 6.95 18.02
Emerging Markets
September 25, 1992. . . . . . (9.63) 26.95
High Yield
September 28, 1992. . . . . . (4.18) 7.70
International Small Cap
December 15, 1992 . . . . . . 5.25 23.66
31
<PAGE>
Name of Portfolio Since Date
and Date of Inception One Year Five Year of Inception
--------------------- -------- --------- ------------
Small Cap Value Equity
December 17, 1992 . . . . . . 2.53 7.44
European Equity
April 2, 1993 . . . . . . . . 10.88 22.78
Emerging Markets Debt
February 1, 1994. . . . . . . (14.10)* N/A
Gold
February 1, 1994. . . . . . . (8.49)* N/A
Japanese Equity
April 25, 1994. . . . . . . . (1.70)* N/A
<FN>
_______
* Total return since inception.
</TABLE>
These figures were calculated according to the following
n
formula: P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-,
or 10-year periods (or fractional portion thereof).
CALCULATION OF YIELD FOR NON-MONEY MARKET PORTFOLIOS
From time to time certain of the Fund's Portfolios may advertise yield.
Current yield reflects the income per share earned by a Portfolio's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
The respective yields for certain of the Fund's Portfolios for the 30-day
period ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME 30-DAY YIELD
-------------- ------------
<S> <C>
Emerging Markets Debt. . . . . . . 10.53%
Fixed Income . . . . . . . . . . . 7.36%
Global Fixed Income. . . . . . . . 7.48%
32
<PAGE>
High Yield . . . . . . . . . . . . 11.25%
</TABLE>
These figures were obtained using the following formula:
6
Yield = 2[( a - b + 1 ) - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the
period.
CALCULATION OF YIELD FOR MONEY MARKET PORTFOLIOS
The current yield of the Money Market and Municipal Money Market Portfolios
is calculated daily on a base period return for a hypothetical account having a
beginning balance of one share for a particular period of time (generally 7
days). The return is determined by dividing the net change (exclusive of any
capital changes in such account) by its average net asset value for the period,
and then multiplying it by 365/7 to determine the annualized current yield. The
calculation of net change reflects the value of additional shares purchased with
the dividends by the Portfolio, including dividends on both the original share
and on such additional shares. The yields of the Money Market and Municipal
Money Market Portfolios for the 7-day period ended December 31, 1994 were 5.24%
and 3.75%, respectively. An effective yield, which reflects the effects of
compounding and represents an annualization of the current yield with all
dividends reinvested, may also be calculated for each Portfolio by dividing the
base period return by 7, adding 1 to the quotient, raising the sum to the 365th
power, and subtracting 1 from the result. The effective yields of the Money
Market Portfolios and the Municipal Money Market Portfolio for the 7-day period
ended December 31, 1994 were 5.37% and 3.82%, respectively.
The yield of a Portfolio will fluctuate. The annualization of a week's
dividend is not a representation by the Portfolio as to what an investment in
the Portfolio will actually yield in the future. Actual yields will depend on
such variables as investment quality, average maturity, the type of instruments
the Portfolio invests in, changes in interest rates on instruments, changes in
the expenses of the Fund and other factors. Yields are one basis investors may
use to analyze the Portfolios of the Fund, and other investment vehicles;
however, yields of other investment vehicles may not be comparable because of
the factors set forth in the preceding sentence, differences in the time periods
compared, and differences in the methods used in valuing portfolio instruments,
computing net asset value and calculating yield.
TAXABLE EQUIVALENT YIELD FOR THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET
PORTFOLIO
It is easy to calculate your own taxable equivalent yield if you know your
tax bracket. The formula is:
Tax Free Yield
---------------------
1 - Your Tax Bracket = Your Taxable Equivalent Yield
For example, if you are in the 28% tax bracket and can earn a tax-free
yield of 7.5%, the taxable equivalent yield would be 10.42%.
The table below indicates the advantages of investments in Municipal Bonds
for certain investors. Tax-exempt rates of interest payable on a Municipal Bond
(shown at the top of each column) are equivalent to the taxable yields set forth
opposite the respective income tax levels, based on income tax rates effective
for the tax year 1994 under the Internal Revenue Code. There can, of course, be
no guarantee that the Municipal Bond Portfolio or Municipal Money Market
Portfolio will achieve a specific yield. Also, it is possible that some portion
of the Portfolio's dividends may be subject to Federal income taxes. A
substantial portion, if not all, of such dividends may be subject to state and
local taxes.
33
<PAGE>
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<CAPTION>
SAMPLE LEVEL OF TAXABLE EQUIVALENT RATES
TAXABLE INCOME BASED ON TAX-EXEMPT YIELD OF:
-------------- -----------------------------
FEDERAL
INCOME
JOINT SINGLE TAX
RETURN RETURN BRACKET 3% 4% 5% 6% 7% 8% 9% 10% 11%
------ ------ ------- -- -- -- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-39,000 $0-23,350 15.0% 3.5% 4.7% 5.9% 7.1% 8.2% 9.4% 10.6% 11.8% 12.9%
39,000- 94,250 23,350-56,550 28.0 4.2 5.6 6.9 8.3 9.7 11.1 12.5 13.9 15.3
94,250-143,600 56,550-117,950 31.0 4.3 5.8 7.2 8.7 10.1 11.6 13.0 14.5 15.9
143,600-256,500 117,950-256,500 36.0 4.7 6.3 7.8 9.4 10.9 12.5 14.1 15.6 17.2
over 256,500 over 256,500 39.6 5.0 6.6 8.3 9.9 11.6 13.2 14.9 16.6 18.2
</TABLE>
The taxable equivalent yield for the Municipal Money Market Portfolio for the
seven days ended December 31, 1994, assuming a Federal income tax rate of 39.6%
(maximum rate) was 6.21%. The taxable equivalent effective yield for the seven
days ended December 31, 1994, assuming the same tax rate, was 6.32%. The
Municipal Bond Portfolio was not operational as of December 31, 1994.
COMPARISONS
To help investors better evaluate how an investment in a Portfolio of
Morgan Stanley Institutional Fund, Inc. might satisfy their investment
objective, advertisements regarding the Fund may discuss various measures of
Fund performance as reported by various financial publications. Advertisements
may also compare performance (as calculated above) to performance as reported by
other investments, indices and averages. The following publications may
be used:
(a) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. -- analyzes price, current yield, risk, total
return and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
(b) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest,
Financial Times, Global Investor, Investor's Daily, Lipper
Analytical Services, Inc., Morningstar, Inc., New York Times,
Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund
performance over specified time periods.
(c) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and
Bloomberg L.P.
(d) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed
Income Fund Performance Analysis -- measures total return and
average current yield for the mutual fund industry. Ranks
individual mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
(e) Mutual Fund Source Book, published by Morningstar, Inc. --
analyzes price, yield, risk and total return for equity funds.
(f) Stocks, Bonds, Bills and Inflation, published by Hobson
Associates -- historical measure of yield, price and total return
for common and small company stock, long-term government bonds,
U.S. Treasury bills and inflation.
(g) Savings and Loan Historical Interest Rates -- as published in the
U.S. Savings & Loan League Fact Book.
34
<PAGE>
The following indices and averages may also be used:
(a) Composite Indices -- 70% Standard & Poor's 500 Stock Index and
30% NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock
Index and 65% Salomon Brothers High Grade Bond Index; and 65%
Standard & Poor's 500 Stock Index and 35% Salomon Brothers High
Grade Bond Index.
(b) Consumer Price Index (or cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of
change, over time, in the price of goods and services in major
expenditure groups.
(c) Donoghue's Money Fund Average -- an average of all major
money market fund yields, published weekly for 7 and 30-day
yields.
(d) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company
stocks and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
(e) First Boston High Yield Index -- generally includes over 180
issues with an average maturity range of seven to ten years with
a minimum capitalization of $100 million. All issues are
individually trader-priced monthly.
(f) First Boston Upper/Middle Tier High Yield Index -- an unmanaged
index of bonds rated B to BBB.
(g) Goldman Sachs 100 Convertible Bond Index -- currently includes 67
bonds and 33 preferred. The original list of names was generated
by screening for convertible issues of 100 million or greater in
market capitalization. The index is priced monthly.
(h) IFC Global Total Return Composite Index -- an unmanaged index
of common stocks and includes 18 developing countries in Latin
America, East and South Asia, Europe, the Middle East and Africa
(net of dividends reinvested).
(i) Indata Balanced-Median Index -- an unmanaged index and includes
an asset allocation of 5% cash, 42% bonds and 53% equity based on
$55.5 billion in assets among 553 Portfolios for the year ended
December 31, 1994. (assumes dividends reinvested).
(j) Indata Equity-Median Stock Index -- an unmanaged index which
includes an average asset allocation of 5% cash and 95% equity
based on $303.7 billion in assets among 1,017 portfolios for the
year ended December 31, 1994.
(k) J.P. Morgan Emerging Markets Bond Index -- a market-weighted
index composed of all Brady bonds outstanding and includes
Argentina, Brazil, Mexico, Nigeria, the Philippines and
Venezuela.
(l) J.P. Morgan Traded Global Bond Index -- an unmanaged index of
securities and includes Australia, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, The Netherlands, Spain, Sweden,
United Kingdom and the United States.
(m) Lehman Brothers Aggregate Bond Index -- an unmanaged index made
up of the Government/Corporate Index, the Mortgage Backed
Securities Index and the Asset-Backed Securities Index.
(n) Lehman Brothers LONG-TERM Treasury Bond -- composed of all
bonds covered by the Lehman Brothers Treasury Bond Index with
maturities of 10 years or greater.
(o) Morgan Stanley Capital International Combined Far East Free ex
Japan Index -- a market-capitalization weighted index comprising
stocks in Hong Kong, Indonesia, Korea, Malaysia, Philippines,
Singapore and Thailand. Korea is included in the MSCI Combined
Far East Free ex Japan Index at 20% of its market
capitalization.
(p) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900
securities on the stock exchanges of countries in Europe,
Australia and the Far East.
(q) Morgan Stanley Capital International Europe Index -- an
unmanaged index of common stocks and includes 14 countries
throughout Europe.
35
<PAGE>
(r) Morgan Stanley Capital International Japan Index -- an
unmanaged index of common stocks.
(s) Morgan Stanley Capital International World Index -- an
arithmetic, market value-weighted average of the performance of
over 1,470 securities listed on the stock exchanges of countries
in Europe, Australia, the Far East, Canada and the United States.
(t) NASDAQ Industrial Index -- composed of more than 3,000
industrial issues. It is a value-weighted index calculated on
price change only and does not include income.
(u) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation
and finance company stocks listed on the New York Stock Exchange.
(v) Philadelphia Gold and Silver Index -- an unmanaged index
comprised of seven leading companies involved in the mining of
gold and silver.
(w) Russell 2500 Index -- comprised of the bottom 500 stocks is in
the Russell 1000 Index which represents the universe of stocks
from which most active money managers typically select; and all
the stocks in the Russell 2000 Index. The largest security in
the index has a market capitalization of approximately 1.3
billion.
(x) Salomon Brothers GNMA Index -- includes pools of mortgages
originated by private lenders and guaranteed by the mortgage
pools of the Government National Association.
(y) Salomon Brothers High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated AA or AAA.
It is value-weighted, total return index, including approximately
800 issues with maturities of 12 years or greater.
(z) Salomon Brothers Broad Investment Grade Bond -- is a
market-weighted index that contains approximately 4700
individually priced investment grade corporate bonds rated BBB or
better, U.S. Treasury/agency issues and mortgage pass-through
securities.
(aa) Standard & Poor's 500 Stock Index or its component indices --
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(bb) Wilshire 5000 Equity Index or its component indices -- represents
the return on the market value of all common equity securities
for which daily pricing is available. Comparisons of performance
assume reinvestment of dividends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Portfolios, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its futures. In addition, there can be no
assurance that the Fund will continue this performance as compared to such other
averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Articles of Incorporation, as supplemented, permit the Directors
to issue 17,000,000,000 shares of common stock, par value $.001 per share, from
an unlimited number of classes ("Portfolios") of shares. Currently the Fund
consists of shares of twenty-seven Portfolios (the China Growth, Mortgage-Backed
Securities and MicroCap Portfolios are not currently offering shares).
The shares of each Portfolio of the Fund are fully paid and nonassessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Portfolio of the Fund have no pre-emptive
rights. The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors
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can elect 100% of the Directors if they choose to do so. A shareholder is
entitled to one vote for each full share held (and a fractional vote for each
fractional share held), then standing in his name on the books of the Fund.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each Portfolio's
net investment income, if any. The Fund may also distribute any net realized
capital gains in the amount and at the times that will avoid both income
(including taxable gains) taxes on it and the imposition of the federal excise
tax on income and capital gains (see discussion under "Taxes" in this Statement
of Additional Information). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or capital gains distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares of a
Portfolio by an investor may have the effect of reducing the per share net asset
value of that Portfolio by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes for shareholders subject to tax as set
forth herein and in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and capital gains distributions are automatically
received in additional shares of that Portfolio of the Fund at net asset value
(as of the business day following the record date). This automatic reinvestment
of dividends and distributions will remain in effect until the Fund is notified
by the shareholder in writing at least three days prior to the record date that
either the Income Option (income dividends in cash and capital gains
distributions in additional shares at net asset value) or the Cash Option (both
income dividends and capital gains distributions in cash) has been elected.
CUSTODY ARRANGEMENTS
United States Trust Company of New York serves as the Fund's domestic
custodian. United States Trust Company of New York is not affiliated with
Morgan Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn, NY,
acts as the Fund's custodian for foreign assets held outside the United States
and employs subcustodians who were approved by the Directors of the Fund in
accordance with Rule 17f-5 adopted by the Commission under the 1940 Act. Morgan
Stanley Trust Company is an affiliate of Morgan Stanley & Co. Incorporated. In
the selection of foreign subcustodians, the Directors consider a number of
factors, including, but not limited to, the reliability and financial stability
of the institution, the ability of the institution to provide efficiently the
custodial services required for the Fund, and the reputation of the institution
in the particular country or region.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
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
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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.
EXCERPTS FROM STANDARD & POOR'S CORPORATION (S&P") DESCRIPTION OF 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. 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.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows:
MIG-1 -- best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established broad-based access to the
market for refinancing, or both; MIG-2 -- high quality with margins of
protection ample although not so large as in the preceding group; MIG-3 -
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the proceeding grades.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-2 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is very strong.
II. DESCRIPTION OF U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government.
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Associates, are, in effect, backed by
the full faith and credit of the United States through provisions in their
charters that they may make "indefinite and unlimited" drawings on the Treasury,
if needed to service debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institution in
meeting its debt obligations. However, the U.S. Treasury has no lawful
obligation to assume the financial liabilities of these agencies or others.
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Finally, other agencies and instrumentalities, such as the Farm Credit System
and the Federal Home Loan Mortgage Corporation, are federally chartered
institutions under Government supervision, but their debt securities are backed
only by the creditworthiness of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency organized
under Federal charter with Government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Immediate Credit
Banks, and the Federal National Mortgage Association.
III. DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds generally include debt obligations issued by states and
their political subdivisions, and duly constituted authorities and corporations,
to obtain funds to construct, repair or improve various public facilities such
as airports, bridges, highways, hospitals, housing, schools, streets and water
and sewer works. Municipal Bonds may also be issued to refinance outstanding
obligations as well as to obtain funds for general operating expenses and for
loans to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Municipal Bond Portfolio and the Municipal Money
Market Portfolio may also invest in tax-exempt industrial development bonds,
short-term municipal obligations, project notes, demand notes and tax-exempt
commercial paper in accordance with the Portfolio's investment objectives and
policies.
Industrial revenue bonds (i.e., private activity bonds) in most cases are
revenue bonds and generally do not have the pledge of the credit of the issuer.
The payment of the principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities financed by the
bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. Short-term
municipal obligations issued by states, cities, municipalities or municipal
agencies include Tax Anticipation Notes, Revenue Anticipation Notes, Bond
Anticipation Notes, Construction Loan Notes and Short-Term Discount Notes.
Project Notes are instruments guaranteed by the Department of Housing and Urban
Development but issued by a state or local housing agency. While the issuing
agency has the primary obligation on such Project notes, they are also secured
by the full faith and credit of the United States.
Note obligations with demand or put options may have a stated maturity in
excess of one year, but allow any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay in its discretion the
outstanding principal of the notes plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as a bank's prime rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. The demand notes in which the
Municipal Money Market Portfolio will invest are payable on not more than one
year's notice.
The yields of Municipal Bonds depend on, among other things, general money
market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's and S&P represent their opinions of the quality
of the Municipal Bonds. It should be emphasized that such ratings are general
and are not absolute standards of quality. Consequently, Municipal Bonds with
the same maturity, coupon and rating may have different yields, while Municipal
Bonds of the same maturity and coupon, but with different ratings, may have the
same yield. It will be the responsibility of the Adviser to appraise
independently the fundamental quality of the bonds held by the Municipal Bond
Portfolio and the Municipal Money Market Portfolio.
Municipal Bonds are sometimes purchased on a "when issued" basis meaning
the buyer has committed to purchasing certain specified securities at an
agreed-upon price when they are issued. The period between commitment date and
issuance date can be a month or more. It is possible that the securities will
never be issued and the commitment canceled.
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From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of either the Municipal
Bond portfolio or the Municipal Money Market Portfolio to achieve its investment
objective. In that event, the Fund's Directors and officers would reevaluate
its investment objective and policies and consider recommending to its
shareholders changes in such objective and policies.
Similarly, from time to time proposals have been introduced before State
and local legislatures to restrict or eliminate the State and local income tax
exemption (to the extent such an exemption applies, which may not apply in all
cases) for interest on Municipal Bonds. Similar proposals may be introduced in
the future. If any such proposal were enacted, it might restrict or eliminate
the ability of either of the Municipal Bond Portfolio or the Municipal Money
Market Portfolio to achieve its investment objective. In that event, the Fund's
Directors and officers would reevaluate the Portfolio's investment objective and
policies and consider recommending to its shareholders changes in such objective
and policies.
IV. DESCRIPTION OF MORTGAGE-BACKED SECURITIES
"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. Mortgage-backed securities include collateralized mortgage
obligations ("CMOs"), pass-through securities issued or guaranteed by agencies
or instrumentalities of the U.S. government or by private sector entities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. government or by private originators
or investors in mortgage loans. They are backed by Mortgage Pass-Through
Securities (discussed below) or whole loans (all such assets, the "Mortgage
Assets") and are evidenced by a series of bonds or certificates issued in
multiple classes or "tranches." The principal and interest on the underlying
Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways.
CMOs may be issued by agencies or instrumentalities of the U.S. government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity having
the credit status of a governmental agency or instrumentality are generally
structured with one or more types of credit enhancement as described below. An
issuer of CMOs may elect to be treated, for federal income tax purposes, as a
Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of CMOs issued
after 1991 must elect to be treated as a REMIC or it will be taxable as a
corporation under rules regarding taxable mortgage pools.
In a CMO, a series of bonds or certificates are issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued with a
specific fixed or floating coupon rate and has a stated maturity or final
scheduled distribution date. Principal prepayments on the underlying Mortgage
Assets may cause the CMOs to be retired substantially earlier than their stated
maturities or final scheduled distribution dates. Interest is paid or accrues
on CMOs on a monthly, quarterly or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
CMO in many ways. The general goal in allocating cash flows on Mortgage Assets
to the various classes of a CMO is to create certain tranches on which the
expected cash flows have a higher degree of predictability than the underlying
Mortgage Assets. As a general matter, the more predictable the cash flow is on
a particular CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on Assets.
As part of the process of creating more predictable cash flows on certain
tranches of a CMO, one or more tranches generally must be created that absorb
most of the changes in the cash flows on the underlying Mortgage Assets. The
yields on these tranches are generally higher than prevailing market yields on
Mortgage-Backed Securities with similar average lives. Because of the
uncertainty of the cash flows on these tranches, the market prices of and yields
on these tranches are more volatile.
Included within the category of CMOs are PAC Bonds. PAC Bonds are a type
of CMO tranche or series designed to provide relatively predictable payments of
principal provided that, among other things, the actual prepayment experience on
the underlying mortgage loans falls within a predefined range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the predefined range or if deviations from other assumptions occur,
principal payments on the PAC Bond may be earlier or later than predicted. The
magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risks of prepayment than are other types of
mortgage-backed securities.
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MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities in
which the Mortgage-Backed Securities Portfolio may invest include pass-through
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government or by private sector entities. Mortgage pass-through securities
issued or guaranteed by private sector 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 described below. FNMA
and FHLMC obligations are not backed by the full faith and credit of the U.S.
government as GNMA certificates are, but FNMA and FHLMC securities are supported
by the instrumentalities' right to borrow from the United States Treasury. Each
of GNMA, GNMA and FHLMC guarantees timely distributions of interest to
certificate holders. Each of GNMA and FNMA also guarantees timely distributions
of scheduled principal. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issued Mortgage-Backed Securities (FHLMC Gold Pcs) which also guarantee timely
payment of monthly principal reductions. REFCORP obligations are backed, as to
principal payments, by zero coupon U.S. Treasury bonds, and as to interest
payment, ultimately by the U.S. Treasury. Obligations issued by such U.S.
governmental agencies and instrumentalities are described more fully below.
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act, or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the
Department of Veterans Affairs under the Servicemen's Readjustment Act of 1944,
as amended ("VA Loans"), or by pools of other eligible mortgage loans. The
Housing Act provides that the full faith and credit of the United States
government is pledged to the payment of all amounts that may be required to be
paid under any guaranty. In order to meet its obligations under such guaranty,
Ginnie Mae is authorized to borrow from the United States Treasury with no
limitations as to amount.
Each Ginnie Mae Certificate will represent a pro rata interest in one or
more of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multi-family residential
properties under construction; (vi) mortgage loans on completed multi-family
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodical changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except as
otherwise specified above, will be fully-amortizing loans secured by first liens
on one- to four-family housing units.
FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed
by the full faith and credit of the United States government.
Each Fannie Mae Certificate will represent a pro rata interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.
FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations
solely of Freddie Mac and are not backed by the full faith and credit of the
U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
The mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
CREDIT ENHANCEMENT. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failure by obligors on underlying assets to make payments,
such securities may contain
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elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection generally
refers to the provision of advances, typically by the entity administering the
pool of assets, to ensure that the pass-through of payments due on the
underlying pool occurs in a timely fashion. Protection against losses resulting
from ultimate default enhances the likelihood of ultimate payment of the
obligations on at least a portion of the assets in the pool. Such protection
may be provided through guarantees, insurance policies or letters of credit
obtained by the issuer or sponsor from third parties (referred to herein as
"third party credit support), through various means of structuring the
transaction or through a combination of such approaches. The Mortgage-Backed
Securities Portfolio will not pay any additional fees for such credit support,
although the existence of credit support may increase the price the Portfolio
pays for a security.
The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with defaults on the underlying assets being borne first
by the holders of the most subordinated class), creation of "reserve funds"
(where cash or investments, sometimes funded from a portion of the payments on
the underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each security is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.
V. FOREIGN INVESTMENTS
The Active Country Allocation, International Equity, International Fixed
Income, Global Equity, Global Fixed Income, Asian Equity, European Equity,
Japanese Equity, International Small Cap, Latin American and China Growth
Portfolios will invest, and the Emerging Growth, Emerging Markets, Emerging
Markets Debt, Value Equity, Equity Growth, Balanced, Small Cap Value Equity,
Fixed Income, High Yield and Gold Portfolios may invest, in securities of
foreign issuers. Investors should recognize that investing in such foreign
securities involves certain special considerations which are not typically
associated with investing in U.S. issuers. For a description of the effect on
the Portfolios of currency exchange rate fluctuation, see "Investment Objectives
and Policies -- Forward Foreign Currency Exchange Contracts" above. As foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards and may have policies that are not comparable to those of
domestic issuers, there may be less information available about certain foreign
companies than about domestic issuers. Securities of some foreign issuers are
generally less liquid and more volatile than securities of comparable domestic
issuers. There is generally less government supervision and regulation of stock
exchanges, brokers and listed issuers than in the U.S. In addition, with
respect to certain foreign countries, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries. Foreign
securities not listed on a recognized domestic or foreign exchange are regarded
as not readily marketable and therefore such investments will be limited to 15%
of a Portfolio's net asset value at the time of purchase.
Although the Portfolios will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the International Equity, Global Equity, European Equity, Japanese Equity, Asian
Equity, Global Fixed Income, International Fixed Income, International Small
Cap, Latin American and China Growth Portfolios, 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. However, these foreign
withholding taxes may not have a significant impact on such Portfolios, because
each Portfolio's investment objective is to seek long-term capital appreciation
and any dividend or interest income should be considered incidental.
42
<PAGE>
FINANCIAL STATEMENTS
The following are (i) the audited Financial Statements for the fiscal year
ended December 31, 1994 and the Report of Price Waterhouse LLP, independent
accountants, dated February 17, 1995 relating to the financial statements and
financial highlights of each of the Portfolios except for the Municipal Bond,
Mortgage-Backed Securities, China Growth, U.S. Real Estate, Latin American,
MicroCap and Aggressive Equity Portfolios, which had not commenced operation
as of December 31, 1994, and except for the Real Yield Portfolio, which
ceased offering shares and terminated its operations as of August 26, 1994;
and (ii) the unaudited financial statements for the six-month period ended
June 30, 1995 relating to the financial statements and financial highlights
of each of the Portfolios except for the Mortgage-Backed Securities, China
Growth and MicroCap Portfolios, which had not commenced operation as of
June 30, 1995, and except for the Real Yield Portfolio, which ceased offering
shares and terminated its operations as of August 26, 1994.
43
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
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THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (100.6%)
AUSTRALIA (4.8%)
57,000 Amcor Ltd............................................... $ 412
26,012 Ampolex Ltd............................................. 70
44,844 Australian National Industries Ltd...................... 50
92,700 Boral Ltd. (Bon Shares Plan)............................ 245
17,700 Brambles Industries Ltd................................. 169
124,092 Broken Hill Proprietary Co., Ltd........................ 1,884
49,628 Burns, Philip & Co., Ltd................................ 117
22,755 Coca-Cola Amatil Ltd.................................... 145
98,755 Coles Myer Ltd.......................................... 335
45,900 CRA Ltd................................................. 634
72,121 CSR Ltd................................................. 249
252,500 Fosters Brewing Corp.................................... 219
58,404 General Property Trust.................................. 103
100,693 Goodman Fielder Ltd..................................... 89
31,900 ICI Australia Ltd....................................... 268
19,738 Lend Lease Corp., Ltd................................... 244
116,100 MIM Holdings Ltd........................................ 194
101,569 National Australia Bank Ltd............................. 815
23,500 Newcrest Mining Ltd..................................... 105
145,152 News Corp., Ltd......................................... 569
62,650 North Broken Hill Peko Ltd.............................. 165
87,801 Pacific Dunlop Ltd...................................... 234
69,500 Pioneer International Ltd............................... 172
+22,000 Renison Goldfields Consolidated Ltd..................... 84
49,338 Santos Ltd.............................................. 133
56,460 Southcorp Holdings Ltd.................................. 127
+34,300 TNT Ltd................................................. 59
74,700 Western Mining Corp. Holdings Ltd....................... 433
17,057 Westfield Trust......................................... 9
6,098 Westfield Trust (New)................................... 10
142,972 Westpac Banking Corp.................................... 481
---------
8,823
---------
BELGIUM (7.7%)
9,600 AG Financiere et de Reassurance du Groupe............... 813
600 Bekaert S.A............................................. 425
15,100 Delhaize Freres et Cie, 'Le Lion', S.A.................. 613
16,250 Electrabel S.A.......................................... 2,892
4,650 Generale de Banque S.A.................................. 1,184
211 Generale de Banque S.A. (New)........................... 53
6,600 Gevaert Photo-Producten S.A............................. 310
1,836 Glaverbel S.A........................................... 245
7,100 Groupe Bruxelles Lambert S.A............................ 839
4,200 Kredietbank S.A......................................... 881
650 Kredietbank S.A. (Participating Certificates)........... 135
6,940 Petrofina S.A........................................... 2,053
4,175 Reunies Electrobel & Tractebel S.A...................... 1,261
4,200 Royale Belge............................................ 659
2,500 Solvay et Cie S.A....................................... 1,191
+7,800 Union Miniere S.A....................................... 606
---------
14,160
---------
FRANCE (12.1%)
2,343 Accor S.A............................................... 255
13,269 Alcatel Alsthom......................................... $ 1,134
13,942 AXA S.A................................................. 646
18,952 Banque Nationale de Paris............................... 872
1,400 BIC Corp................................................ 176
2,640 Bouygues................................................ 253
6,700 B.S.N. S.A.............................................. 940
2,250 Carrefour Supermarche S.A............................... 932
500 Chargeurs S.A........................................... 109
2,050 Cie Bancaire S.A........................................ 198
7,388 Cie de Saint Gobain..................................... 850
16,100 Cie de Suez S.A......................................... 739
10,302 Cie Financiere de Paribas, Class A...................... 685
9,846 Cie Generale des Eaux................................... 957
22,305 Elf Aquitaine........................................... 1,571
8,700 Elf Sanofi.............................................. 401
2,750 Eridania Beghin-Say S.A................................. 362
6,796 Etablissements Economiques du Casino.................... 192
4,900 Havas S.A............................................... 383
7,929 Lafarge Coppee S.A...................................... 565
6,933 L'Air Liquide........................................... 927
270 Legrand................................................. 328
5,600 L'Oreal................................................. 1,143
7,190 LVMH Moet Hennessy Louis Vuitton........................ 1,136
6,342 Lyonnaise des Eaux Demez................................ 557
+9,700 Michelin CGDE, Class B.................................. 353
5,010 Pernod-Ricard........................................... 293
1,700 Pinault-Printemps S.A................................... 302
1,800 Promodes................................................ 335
+4,300 PSA Peugeot Citroen S.A................................. 590
25,100 Rhone-Poulenc S.A., Class A............................. 583
450 SAGEM................................................... 224
900 Saint Louis S.A......................................... 232
4,750 Schneider S.A........................................... 315
2,450 Simco S.A............................................... 211
400 Societe Eurafrance S.A.................................. 123
8,226 Societe Generale........................................ 865
+12,300 Thomson CSF............................................. 368
18,124 Total S.A., Class B..................................... 1,053
---------
22,158
---------
HONG KONG (2.5%)
22,000 Applied International Holdings.......................... 3
26,513 Bank of East Asia....................................... 106
105,000 Cathay Pacific Airways Ltd.............................. 153
75,000 Cheung Kong Holdings Ltd................................ 305
71,500 China Light & Power Co., Ltd............................ 305
54,000 Chinese Estates Holdings................................ 43
27,000 Dickson Concepts International Ltd...................... 18
42,000 Hang Lung Development Co................................ 60
65,980 Hang Seng Bank Ltd...................................... 473
6,800 Hong Kong Aircraft Engineering Co. Ltd.................. 23
66,480 Hong Kong & China Gas Co. Ltd........................... 107
43,000 Hong Kong & Shanghai Hotel.............................. 50
378,000 Hong Kong Telecommunications Ltd........................ 721
152,775 Hopewell Holdings Ltd................................... 126
123,000 Hutchison Whampoa Ltd................................... 497
35,000 Hysan Development Ltd................................... 69
14,000 Johnson Electric Holdings Ltd........................... 32
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ACTIVE COUNTRY ALLOCATION PORTFOLIO
44
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
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THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT).
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
HONG KONG (CONT.)
20,000 Miramar Hotel & Investment Ltd.......................... 43
51,993 New World Development Co., Ltd.......................... 139
39,400 Shangri-La Asia Ltd..................................... 56
56,000 Shun Tak Holdings Ltd................................... 40
64,000 South China Morning Post................................ 37
38,000 Stelux Holdings Ltd..................................... 11
77,500 Sun Hung Kai Properties Ltd............................. 463
55,000 Swire Pacific Ltd., Class A............................. 342
15,000 Television Broadcasting Ltd............................. 60
74,000 Wharf Holdings Ltd...................................... 250
5,300 Wing Lung Bank Ltd...................................... 38
---------
4,570
---------
INDONESIA (3.2%)
218,000 Bank Dagang Nasional (Foreign)......................... 365
1,248,000 Barito Pacific Timber (Foreign)........................ 1,973
353,000 Gadjah Tunggal (Foreign)............................... 482
401,000 Hanajaya Mandala Sampoerna............................. 1,970
344,000 Jakarta International Hotel & Development.............. 446
37,000 Matahari Putra Prima................................... 69
+34,000 Panbrothers Tex (Foreign).............................. 17
187,000 Sinar Mas Agro......................................... 238
123,000 United Tractors (Foreign).............................. 263
---------
5,823
---------
ITALY (7.7%)
+100,000 Alitalia S.p.A......................................... 62
116,520 Assicurazioni Generali S.p.A........................... 2,742
266,000 Banca Commerciale Italiana............................. 570
+50,000 Banca Nazionaia Deli................................... 89
87,000 Banco Ambrosiano Ven................................... 231
29,000 Benetton Group S.p.A................................... 339
+14,000 Cartiere Burgo......................................... 93
+26,000 Cogefar................................................ 26
338,000 Credito Italiano....................................... 349
99,000 Edison S.p.A........................................... 434
+8,000 Falck Italian.......................................... 18
+368,000 Fiat S.p.A............................................. 1,367
110,000 Fiat S.p.A. Di Risp (NCS).............................. 245
37,500 Fidis Italian.......................................... 82
+40,000 Gilardini.............................................. 96
109,500 Istituto Bancario San Paolo............................ 642
13,500 Italcementi............................................ 47
30,500 Italcementi Di Risp.................................... 214
109,000 Italgas................................................ 300
73,500 Mediobanca S.p.A....................................... 598
+780,000 Montedison S.p.A....................................... 588
+135,000 Montedison S.p.A. Di Risp (NCS)........................ 86
+185,000 Olivetti S.A........................................... 236
188,500 Parmalat Finanziaria S.p.A............................. 198
+240,000 Pirelli S.p.A.......................................... 320
40,400 R.A.S. S.p.A........................................... 411
15,600 R.A.S. S.p.A. Di Risp (NCS)............................ 94
24,000 Rinascente............................................. 135
2,700 Risanamento Di Napoli.................................. 40
+7,000 Saffa.................................................. 21
19,000 SAI.................................................... $ 214
+65,000 Saipan................................................. 119
15,000 Sasib.................................................. 75
35,500 Sirti S.p.A............................................ 230
59,000 SME Meridonale......................................... 145
+95,000 SNIA BPO S.p.A......................................... 108
810,000 Telecom Italia S.p.A................................... 2,109
235,000 Telecom Italia S.p.A. Di Risp (NCS).................... 469
---------
14,142
---------
JAPAN (30.5%)
32,000 Ajinomoto Co........................................... 411
16,000 Aoki Corp.............................................. 70
2,000 Aoyama Trading Co...................................... 46
64,000 Asahi Bank Ltd......................................... 745
16,000 Asahi Breweries Ltd.................................... 177
48,000 Asahi Chemical Industry Co., Ltd....................... 368
48,000 Asahi Glass Co......................................... 593
48,000 Bank of Tokyo.......................................... 742
32,000 Bank of Yokohama....................................... 271
11,000 Banyu Pharmaceutical................................... 113
16,000 Bridgestone Co......................................... 251
51,000 Canon, Inc............................................. 865
30,000 Casio Computer Co...................................... 380
32,000 Chiba Bank............................................. 292
6,000 Chiyoda Corp........................................... 81
16,000 Chugai Pharmaceutical Ltd.............................. 169
34,000 Citizen Watch Co....................................... 263
16,000 Cosmo Oil Co., Ltd..................................... 120
74,000 Dai-Ichi Kangyo Bank................................... 1,397
16,000 Daikin Industries Ltd.................................. 142
32,000 Dai Nippon Printing Co., Ltd........................... 546
+7,000 Daishowa Paper Manufacturing Co., Ltd.................. 49
16,000 Daiwa Housing Industry Co.............................. 227
32,000 Daiwa Securities Co., Ltd.............................. 463
11,000 Ebara.................................................. 186
9,300 Fanuc Co............................................... 438
73,000 Fuji Bank.............................................. 1,613
26,000 Fuji Photo Film Ltd.................................... 603
103,000 Fujitsu Ltd............................................ 1,044
26,000 Furukawa Electric Co................................... 169
32,000 Hankyu Corp............................................ 187
16,000 Hazama Corp............................................ 69
138,000 Hitachi Ltd............................................ 1,370
47,000 Honda Motor Co......................................... 835
55,000 Industrial Bank of Japan............................... 1,629
12,000 Ito Yokado Ltd......................................... 642
+64,000 Japan Airlines Co...................................... 452
40,000 Japan Energy Corp...................................... 158
16,000 Jusco Co., Ltd......................................... 357
32,000 Kajima Corp............................................ 274
11,100 Kansai Electric Power Co............................... 267
32,000 Kao Corp............................................... 363
+82,000 Kawasaki Steel Corp.................................... 343
48,000 Kinki Nippon Railway................................... 397
32,000 Kirin Brewery Co., Ltd................................. 357
+96,000 Kobe Steel Ltd......................................... 300
82,000 Komatsu Ltd............................................ 741
The accompanying notes are an integral part of the financial statements.
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45
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
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THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT).
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VALUE
SHARES (000)
------------------------------------------------------------------------------
JAPAN (CONT.)
48,000 Kubota Corp............................................ $ 344
32,000 Kumagai Gumi Co........................................ 166
7,000 Kyocera Corp........................................... 519
16,000 Kyowa Hakko Kogyo...................................... 158
12,000 Kyushu Matsushita Electric............................. 294
17,000 Makita Corp............................................ 307
48,000 Marubeni Corp.......................................... 265
16,000 Marui Co............................................... 292
72,000 Matsushita Electric Industries Ltd..................... 1,186
45,000 Mitsubishi Corp........................................ 592
58,000 Mitsubishi Electric Co................................. 412
48,000 Mitsubishi Estate Co., Ltd............................. 516
128,000 Mitsubishi Heavy Industries Ltd........................ 977
48,400 Mitsubishi Chemical Corp............................... 266
38,000 Mitsubishi Materials Corp.............................. 202
31,000 Mitsubishi Trust and Banking Co........................ 464
48,000 Mitsui & Co............................................ 410
32,000 Mitsukoshi Ltd......................................... 337
3,000 Mochida Pharmaceutical................................. 61
20,100 Murata Manufacturing Co., Ltd.......................... 777
86,000 NEC Corp............................................... 984
32,000 New Oji Paper Co., Ltd................................. 337
16,000 NGK Insulators......................................... 164
16,000 Nippon Denso Co., Ltd.................................. 337
32,000 Nippon Express Co., Ltd................................ 321
16,000 Nippon Fire & Marine Insurance Co...................... 111
16,000 Nippon Meat Packers, Inc............................... 210
48,000 Nippon Oil Co.......................................... 320
32,000 Nippon Paper Industries Co............................. 235
178,000 Nippon Steel Co........................................ 670
48,000 Nippon Yusen........................................... 315
63,000 Nissan Motor Co........................................ 521
+94,000 NKK Corp............................................... 260
48,000 Nomura Securities Co................................... 998
32,000 Obayashi Corp.......................................... 205
32,000 Odakyu Electric Railway Co............................. 235
30,000 Olympus Optical Co., Ltd............................... 328
96,000 Osaka Gas Co........................................... 386
16,000 Penta-Ocean Construction............................... 88
15,000 Pioneer Electric Corp.................................. 362
80,000 Sakura Bank............................................ 1,076
16,000 Sankyo Co., Ltd........................................ 398
48,000 Sanyo Electric Co., Ltd................................ 276
4,000 Secom Co., Ltd......................................... 249
3,800 Sega Enterprises....................................... 219
18,000 Sekisui Chemical Co.................................... 179
16,000 Sekisui House Co., Ltd................................. 178
9,000 Seven-Eleven Japan..................................... 724
61,000 Sharp Corp............................................. 1,103
16,000 Shin - Etsu Chemical Co................................ 318
23,000 Shinizu Corp........................................... 227
15,000 Shiseido Co............................................ 178
32,000 Shizuoka Bank.......................................... 395
+32,000 Showa Denko............................................ 112
15,000 Sony Corp.............................................. 851
80,000 Sumitomo Bank.......................................... 1,526
+64,000 Sumitomo Chemical Co................................... 366
32,000 Sumitomo Corp.......................................... 328
22,000 Sumitomo Electric Ind.................................. 314
7,000 Sumitomo Forestry Co................................... 112
+112,000 Sumitomo Metal Ind..................................... 363
32,000 Taisei Corp., Ltd...................................... 199
32,000 Takeda Chemical Ind.................................... 389
7,000 TDK Corp............................................... 339
32,000 Teijin Ltd............................................. 169
32,000 Tobu Railway Co........................................ 187
50,000 Tokai Bank............................................. 602
48,000 Tokio Marine & Fire Insurance Co....................... 588
7,000 Tokyo Dome Corp........................................ 128
35,300 Tokyo Electric Power Co................................ 985
5,000 Tokyo Electron Ltd..................................... 156
96,000 Tokyo Gas Co........................................... 416
32,000 Tokyo Corp............................................. 212
22,000 Toppan Printing Co., Ltd............................... 307
48,000 Toray Industries Inc................................... 349
73,000 Toshiba Corp........................................... 530
16,000 Toto Ltd............................................... 262
32,000 Toyobo Co.............................................. 128
9,000 Toyoda Automatic Loom Works............................ 185
74,000 Toyota Motor Corp...................................... 1,560
+32,000 Ube Industries Ltd..................................... 124
32,000 Yamaichi Securities Co................................. 242
16,000 Yamanouchi Pharmaceutical Co........................... 329
+8,000 Yamazaki Baking Co..................................... 161
32,000 Yasuda Trust & Banking Co.............................. 255
---------
55,801
---------
MEXICO (3.7%)
+15,600 Aerovias de Mexico S.A. CPO............................ 2
17,700 Apasco S.A., Class A................................... 90
54,800 Cemex.................................................. 288
14,100 Cemex CPO ADR.......................................... 71
152,000 Cifra S.A. de C.V., Class B............................ 308
100,800 Cifra S.A. de C.V., Class C............................ 192
65,940 Controladoro Commercial Mexicana, Class B.............. 56
13,100 Empresas ICA Sociedad Controladora S.A. de C.V......... 216
58,000 Empresas la Moderna S.A., Class ACP.................... 251
71,650 FEMSA, Class B......................................... 187
11,300 FEMSA, Class L......................................... 27
115,200 Grupo Carso S.A., Class A1............................. 853
5,100 Grupo de Modelo S.A., Class C.......................... 95
32,900 Grupo Financiero Banamex Accival, Class B.............. 93
58,200 Grupo Financiero Banamex Accival, Class C.............. 168
48,800 Grupo Financiero Bancomer, Class B..................... 23
164,700 Grupo Financiero Bancomer, Class C..................... 97
4,900 Grupo Financiero Banorte, Class C...................... 12
24,300 Grupo Financiero Serfin, Class BCP..................... 46
+140,900 Grupo Gigante S.A., Class B............................ 47
21,900 Grupo Industrial Alfa S.A., Class A.................... 207
52,200 Grupo Industrial Maseca, Class B2...................... 57
+21,500 Grupo Sidek S.A., Class B.............................. 47
+44,082 Grupo Situr S.A. de C.V., Class BCP.................... 90
28,363 Grupo Televisa S.A. CPO................................ 457
+18,200 Grupo Tribasa S.A. CPO................................. 160
14,559 Kimberly Clark de Mexico, Series A..................... 170
The accompanying notes are an integral part of the financial statements.
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ACTIVE COUNTRY ALLOCATION PORTFOLIO
46
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
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THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT).
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
MEXICO (CONT.)
1,002,700 Telefonos de Mexico S.A., Class L...................... $ 2,076
18,500 Tolmex S.A., Class B2.................................. 156
37,800 Vitro S.A.............................................. 176
---------
6,718
---------
NETHERLANDS (3.6%)
12,300 ABN Amro Holdings N.V.................................. 428
3,100 Akzo Nobel N.V......................................... 358
26,200 Elsevier N.V........................................... 273
1,550 Heineken N.V........................................... 234
11,000 Internationale Nederlanden Groep N.V................... 520
+3,300 KLM Royal Dutch Airlines N.V........................... 81
4,900 Koninklijke Ahold N.V.................................. 152
4,100 Koninklijke KNP BT N.V................................. 117
1,200 Koninklijke Nederlandsche Hoogovens N.V................ 55
19,800 Koninklijke PTT Nederland N.V.......................... 668
+950 Nedlloyd Groep N.V..................................... 31
13,300 Philips Electronics N.V................................ 394
21,300 Royal Dutch Petroleum Co............................... 2,320
1,150 Stork N.V.............................................. 30
6,400 Unilever N.V........................................... 752
2,800 Wolters Kluwer N.V..................................... 207
---------
6,620
---------
NEW ZEALAND (2.2%)
793,636 Brierly Investments Ltd................................ 574
494,164 Carter Holt Harvey Ltd................................. 1,012
14,200 Ceramco Corp., Ltd..................................... 31
30,902 Fisher & Paykel Industries Ltd......................... 90
119,400 Fletcher Challenge Ltd................................. 280
29,800 Fletcher Challenge Ltd. (Forestry Shares).............. 36
40,200 Lion Nathan Ltd........................................ 77
552,500 Telecom Corp. of New Zealand Ltd....................... 1,804
8,100 Wilson & Horton Ltd.................................... 46
---------
3,950
---------
PORTUGAL (2.0%)
45,200 Banco Chemical S.A. (Registered)....................... 469
75,000 Banco Commercial Portugues (Registered)................ 981
25,000 Banco Portugues de Investimento (New).................. 374
5,100 Companhia Portuguesa Radio Marconi S.A................. 174
5,500 Companhia Portuguesa Radio Marconi S.A. (Registered)... 188
+4,900 Corticeira Amorim S.A.................................. 82
9,000 Jeronimo Martins....................................... 385
18,300 Lisnave-Estaleiros Navais de Lisboa S.A................ 90
6,200 Mota e Companhia S.A................................... 127
27,000 Sonae Investmentos..................................... 621
6,600 UNICER-Uniao Cervejeira S.A............................ 91
---------
3,582
---------
SPAIN (7.9%)
2,420 Acerinox S.A........................................... $ 253
23,900 Argentaria S.A......................................... 847
40,777 Autopistas Concesionaria............................... 315
46,700 Banco Bilbao Vizcaya S.A............................... 1,159
30,400 Banco Central Hispano Americano S.A.................... 728
30,100 Banco de Santander S.A................................. 1,153
2,100 Carburos Metalicos S.A................................. 76
4,100 Corporacion Financiera Alba............................ 174
14,800 Dragados y Construccion S.A............................ 208
11,100 Ebro Agricolas S.A..................................... 122
51,200 Empresa Nacional de Electricdad S.A.................... 2,085
+20,200 Ercros S.A............................................. 19
3,625 FASA Renault S.A....................................... 121
3,000 Fomento Construction Contractas S.A.................... 294
7,400 Gas Natural SDG S.A.................................... 636
585 Gines Navarro Construction............................. 8
174,300 Iberdrola S.A.......................................... 1,075
850 Inmobilaria Metropolitana Vasco Central S.A............ 27
5,300 Mapfre S.A............................................. 221
272 Mapfre S.A. (New)...................................... 10
2,200 Portland Valderrivas S.A............................... 162
62,100 Repsol S.A............................................. 1,684
7,400 Tabacalera S.A., Class A............................... 197
183,300 Telefonica Nacional de Espana S.A...................... 2,165
60,700 Union Electrica Fenosa S.A............................. 253
+8,100 Uralita S.A............................................ 79
10,223 Vallehermoso S.A....................................... 177
5,750 Viscofan Envolturas Celulosicas S.A.................... 87
1,650 Zardoya Otis S.A....................................... 172
---------
14,507
---------
THAILAND (2.9%)
7,200 Asia Credit Co., Ltd. (Foreign)........................ 60
103,200 Bangkok Bank Ltd. (Foreign)............................ 1,102
2,050 Bangkok Insurance Co., Ltd. (Foreign).................. 36
61,900 Bangkok Land Co., Ltd. (Foreign)....................... 154
40,500 Bank of Ayudhya Ltd. (Foreign)......................... 166
4,800 Banpu Public Co. Ltd. (Foreign)........................ 105
12,300 Charoen Pokphand Feedmill Co., Ltd. (Foreign).......... 83
+6,100 CMIC Finance & Securities Co., Ltd. (Foreign).......... 59
6,100 Dhana Siam Finance & Securities Co., Ltd. (Foreign).... 43
13,100 Finance One Co., Ltd. (Foreign)........................ 204
54,000 Industrial Finance Corp. of Thailand (Foreign)......... 115
15,500 Land & House Co., Ltd. (Foreign)....................... 277
6,400 National Finance & Securities Co., Ltd. (Foreign)...... 35
+7,700 Nava Finance & Securities Co., Ltd. (Foreign).......... 54
25,000 Phatra Thanakit Co., Ltd. (Foreign).................... 193
14,200 Shinawatra Computer Co., Ltd. (Foreign)................ 310
12,000 Siam Cement Co., Ltd. (Foreign)........................ 719
12,000 Siam City Cement Co., Ltd. (Foreign)................... 205
31,500 Siam Commercial Bank (Foreign)......................... 288
31,600 Tanayong Co. Ltd. (Foreign)............................ 72
82,300 Thai Farmers Bank, Ltd. (Foreign)...................... 669
+23,750 TPI Polene Co., Ltd. (Foreign)......................... 212
17,500 Wattachak Co., Ltd. (Foreign).......................... 35
---------
5,196
---------
The accompanying notes are an integral part of the financial statements.
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47
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
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THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT).
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VALUE
SHARES (000)
------------------------------------------------------------------------------
UNITED KINGDOM (9.8%)
48,300 Abbey National plc..................................... $ 326
35,000 Argyll Group plc....................................... 147
33,900 Arjo Wiggins Appleton plc.............................. 126
13,700 Associated British Foods plc........................... 121
51,981 Barclays plc........................................... 497
25,300 Bass plc............................................... 204
83,916 BAT Industries plc..................................... 567
16,100 BICC plc............................................... 91
30,232 Blue Circle Industries plc............................. 134
15,300 BOC Group plc.......................................... 169
29,700 Boots Co. plc.......................................... 234
13,600 Bowater plc............................................ 93
20,400 BPB Industries plc..................................... 94
16,006 British Aerospace plc.................................. 107
27,700 British Airways plc.................................... 155
135,500 British Gas plc........................................ 666
161,384 British Petroleum Co. plc.............................. 1,076
82,200 British Steel plc...................................... 198
163,400 British Telecommunications plc......................... 966
100,400 BTR plc................................................ 462
6,881 Burmah Castrol plc..................................... 88
60,200 Cable & Wireless plc................................... 355
28,990 Cadbury Schweppes plc.................................. 196
18,600 Caradon plc............................................ 73
20,400 Coats Viyella plc...................................... 60
12,518 Commercial Union plc................................... 100
11,900 Courtaulds plc......................................... 86
8,500 De La Rue Co. plc...................................... 125
14,400 Eastern Electricity plc................................ 175
29,900 Forte plc.............................................. 112
16,600 General Accident plc................................... 131
90,700 General Electric plc................................... 391
12,700 GKN plc................................................ 117
66,700 Glaxo Holdings plc..................................... 692
65,252 Grand Metropolitan plc................................. 416
28,900 Great Universal Stores plc............................. 245
39,184 Guardian Royal Exchange plc............................ 102
49,200 Guinness plc........................................... 347
145,124 Hanson plc............................................. 525
29,634 Harrisons & Crossfields plc............................ 65
56,666 HSBC Holdings plc...................................... 616
20,400 Imperial Chemical Industries plc....................... 239
40,616 Ladbroke Group plc..................................... 109
17,800 Land Securities plc.................................... 166
+25,358 Lasmo plc.............................................. 58
33,280 Lloyds Bank plc........................................ 288
20,887 Lonrho plc............................................. 50
82,200 Marks and Spencer plc.................................. 512
13,600 MEPC plc............................................... 81
36,400 National Power plc..................................... 279
15,300 North West Water Group plc............................. 130
24,600 Peninsular & Oriental Steam Navigation Co.............. 235
33,900 Pilkington plc......................................... 88
61,089 Prudential Corp. plc................................... 302
12,700 Rank Organization plc.................................. 83
19,025 Redland plc............................................ 137
22,400 Reed International plc................................. 280
44,600 Reuters Holdings plc................................... 327
7,600 RMC Group plc.......................................... 111
25,400 Royal Bank of Scotland Group plc....................... 156
21,400 Royal Insurance Holdings plc........................... 94
34,700 RTZ Corp. plc.......................................... 450
47,762 Sainsbury (J) plc...................................... 308
21,300 Scottish Power plc..................................... 117
44,100 Sears plc.............................................. 76
19,700 Sedgwick Group plc..................................... 46
10,200 Slough Estates plc..................................... 38
36,900 SmithKline Beecham plc, Class A........................ 262
9,100 Southern Electricity plc............................... 115
32,504 Tarmac plc............................................. 61
17,134 Taylor Woodrow plc..................................... 34
45,483 Tesco plc.............................................. 177
16,362 Thames Water plc....................................... 124
14,442 THORN EMI plc.......................................... 234
11,918 TI Group plc........................................... 71
30,500 Trafalgar House plc.................................... 36
18,200 Unilever plc........................................... 330
29,700 Vodafone Group plc..................................... 99
17,400 Zeneca Group plc....................................... 240
---------
17,993
---------
TOTAL COMMON STOCKS (Cost $178,920)............................... 184,043
---------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.1%)
72,576 News Corp., Ltd........................................ 250
ITALY (0.2%)
+140,000 Fiat S.p.A............................................. 322
---------
NETHERLANDS (0.0%)
453 Koninklijke KNP BT N.V................................. 2
---------
TOTAL PREFERRED STOCKS (Cost $658)................................ 574
---------
NO. OF
RIGHTS
---------
RIGHTS (0.3%)
PORTUGAL (0.0%)
+6,600 UNICER-Uniao Cervejeira S.A............................ 91
---------
SPAIN (0.2%)
**+30,100 Banco de Santander..................................... 324
---------
THAILAND (0.1%)
**+18,300 Dhana Siam Finance & Securities Co., Ltd., expiring 3/02/95.... 114
+19,200 National Finance & Securities Co., Ltd., expiring 1/95......... 86
---------
200
---------
TOTAL RIGHTS (Cost $286)............................................. 615
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ACTIVE COUNTRY ALLOCATION PORTFOLIO
48
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------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT).
------------------------------------------------------------------------------
NO. OF VALUE
WARRANTS (000)
------------------------------------------------------------------------------
WARRANTS (0.0%)
BELGIUM (0.0%)
+347 Petrofina S.A., expiring 6/03/97........................ $ 7
---------
HONG KONG (0.0%)
+4,400 Applied International Holdings, expiring 12/30/99....... --
---------
ITALY (0.0%)
+24,000 Credito Italiano, expiring 12/31/97..................... --
---------
TOTAL WARRANTS (Cost $0)........................................... 7
---------
NO. OF
UNITS
---------
UNITS (0.2%)
UNITED KINGDOM (0.1%)
35,700 SmithKline Beecham plc................................... 236
---------
AUSTRALIA (0.1%)
66,443 Westfield Trust.......................................... 116
---------
TOTAL UNITS (Cost $343)............................................. 352
---------
TOTAL FOREIGN SECURITIES (101.4%) (Cost $180,207)................... 185,591
---------
FACE
AMOUNT
(000)
------------
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT (1.3%)
$ 2,351 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at $2,352, collateralized
by $2,440 United States Treasury Notes, 3.875%, due
3/31/95, valued at $2,430 (Cost $2,351).................... 2,351
---------
FOREIGN CURRENCY (1.2%)
A$ 203 Australian Dollar................................... 157
BF 12,207 Belgian Franc....................................... 384
L 191 British Pound....................................... 300
DM 3 Deutsche Mark....................................... 2
FF 12 French Franc........................................ 2
HK$ 1,007 Hong Kong Dollar.................................... 130
IN 3,936 Indonesian Rupiah................................... 2
Y 48,747 Japanese Yen........................................ 490
MP 7 Mexican Peso........................................ 1
NG 403 Netherlands Guilder................................. 232
NZ$ 402 New Zealand Dollar.................................. 257
PE 134 Portuguese Escudo................................... 1
SP 37,165 Spanish Peseta...................................... 282
TB 622 Thai Baht........................................... 25
---------
TOTAL FOREIGN CURRENCY (Cost $2,258).............................. 2,265
---------
TOTAL INVESTMENTS (103.9%) (Cost $184,816)........................ 190,207
---------
OTHER ASSETS (0.4%)
Receivable for Portfolio Shares Sold.................... $ 318
Dividends Receivable.................................... 249
Foreign Withholding Tax Reclaim Receivable.............. 204
Interest Receivable..................................... 1
Other................................................... 19 791
-----
LIABILITIES (-4.3%$)
Payable for Investments Purchased...........................(6,653)
Net Unrealized Loss on Forward Foreign Currency Contracts... (597)
Payable for Portfolio Shares Redeemed....................... (318)
Investment Advisory Fees Payable............................ (243)
Bank Overdraft.............................................. (97)
Custodian Fees Payable...................................... (32)
Administrative Fees Payable................................. (29)
Directors' Fees & Expenses.................................. (1)
Other Liabilities........................................... (51) $(8,021)
------ ---------
NET ASSETS (100%)............................................. $ 182,977
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 15,711,763 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................ $11.65
-----------
-----------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31,
1994, the portfolio is obligated to deliver or is to receive foreign
currency in exchange for US dollars as indicated below:
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------------- --------- ----------- --------------- --------- ------------
$ 16 $ 16 1/03/95 IL 26,814 $ 16 $ --
$ 6 6 1/04/95 IL 9,510 6 --
$ 6,476 6,476 1/31/95 IL 10,707,379 6,593 117
$ 12,000 12,000 4/28/95 Y 1,183,560 12,070 70
FF 107,060 20,014 4/28/95 $ 20,000 20,000 (14)
Y 6,518,185 66,476 4/28/95 $ 65,000 65,000 (1,476)
SP 1,894,800 14,294 4/28/95 $ 15,000 15,000 706
--------- --------- ------
$ 119,282 $ 118,685 $ (597)
--------- --------- ------
--------- --------- ------
------------------------------------------------------------------------------
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
NCS -- Non Convertible Shares
FF -- French Franc
IL -- Italian Lira
Y -- Japanese Yen
SP -- Spanish Peseta
----------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
-----------------------------------------------------------------------------
Capital Equipment..................................... $ 17,260 9.4%
Consumer Goods........................................ 33,843 18.5
Energy................................................ 26,505 14.5
Finance............................................... 48,295 26.4
Gold Mines............................................ 105 0.1
Materials............................................. 23,609 12.9
Multi-Industry........................................ 6,832 3.7
Services.............................................. 29,142 15.9
--------- -----
$ 185,591 101.4%
--------- -----
--------- -----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ACTIVE COUNTRY ALLOCATION PORTFOLIO
49
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (94.1%)
AUSTRALIA (0.0%)
+75,000 Odin Mining & Investment Co., Ltd.... $ 22
---------
CHINA (2.0%)
890,400 China Merchants Shekou Port Services,
Class B............................ 489
4,351,000 Maanshan Iron & Steel Co., Class H... 917
200,000 Shanghai Diesel Engine Co., Ltd.,
Class B............................ 160
265,000 Shanghai Erfanji Co., Ltd., Class
B.................................. 53
313,235 Shanghai Jin Jiang Tower Ltd., Class
B.................................. 163
1,601,600 Shanghai Jinqiao, Class B............ 1,121
590,900 Shanghai Phoenix Bicycle Ltd., Class
B.................................. 304
500,000 Shanghai Refrigerator Compressor,
Class B............................ 173
638,000 Shanghai Tyre & Rubber Co., Class
B.................................. 242
120,000 Shanghai Yaohua Pilkington Glass,
Class B............................ 118
180,400 Shenzhen Chiwan Wharf Holdings, Class
B.................................. 70
4,965,000 Yizheng Chemical Fibre Co., Class
H.................................. 1,845
---------
5,655
---------
HONG KONG (23.2%)
1,837,000 Cheung Kong Holdings Ltd............. 7,479
580,000 China Light & Power Co., Ltd......... 2,474
1,758,500 Citic Pacific Ltd.................... 4,239
4,200,000 C.P. Pokphand Co., Ltd............... 982
9,312,000 Guangdong Investments Ltd............ 4,603
610,000 Harbin Power Equipment Co............ 205
860,500 Hong Kong Electric Holdings Ltd...... 2,352
538,000 Hong Kong & Shanghai Bank
Holdings plc....................... 5,806
5,414,000 Hong Kong Telecommunications Ltd..... 10,321
1,523,000 Hopewell Holdings Ltd................ 1,260
1,842,000 Hutchison Whampoa Ltd................ 7,451
1,735,000 New World Development Co., Ltd....... 4,630
51,000 Shandong Huaneng Power Co., Ltd.
ADR................................ 491
200,000 Sum Cheong International............. 111
612,100 Sun Hung Kai Properties Ltd.......... 3,655
661,560 Swire Pacific Ltd., Class A.......... 4,121
1,026,000 Varitronix International Ltd......... 1,459
2,160,000 Wai Kee Holdings Ltd................. 502
607,000 Wharf Holdings Ltd................... 2,048
---------
64,189
---------
INDIA (1.2%)
38,000 Grasim Industries Ltd. GDR........... 912
51,000 Hindaico Industries Ltd. GDR......... 1,721
34,000 SIV Industries Ltd. GDR.............. 612
---------
3,245
---------
INDONESIA (6.8%)
600,000 Asiana Imi Industries (Foreign)...... 573
378,000 Bank International Indonesia
(Foreign).......................... 1,204
450,000 Barito Pacific Timber (Foreign)...... 711
310,913 Charoen Pokphand (Foreign)........... 1,273
517,500 Duta Pertiwi PT (Foreign)............ $ 747
125,000 Indocement Tunggal (Foreign)......... 512
700,000 Indosat PT (Foreign)................. 2,508
513,000 Jembo Cable Co. (Foreign)............ 817
351,600 Kalbe Farma (Foreign)................ 1,448
210,000 Keramika Indonesia Association
(Foreign).......................... 272
377,750 Modern Photo Film Co. (Foreign)...... 1,598
500,000 Ometraco (Foreign)................... 785
267,000 Polysindo Eka Perkasa (Foreign)...... 504
458,400 Sona Topas Tourism (Foreign)......... 1,481
208,000 Sorini Corp. (Foreign)............... 852
85,000 Suba Indah (Foreign)................. 77
184,200 Tempo Scan Pacific (Foreign)......... 884
**1,250,000 Ultra Jaya Milk (Foreign)............ 1,183
644,800 United Tractors (Foreign)............ 1,379
---------
18,808
---------
KOREA (1.7%)
44,900 Korea Electric Power (Foreign)....... 1,549
+81,200 Pohang Iron & Steel Co., Ltd. ADR.... 2,375
14,267 Samsung Electronics Co. GDR.......... 699
---------
4,623
---------
MALAYSIA (22.3%)
696,000 Bandar Raya Developments Bhd......... 1,177
761,500 Genting Bhd.......................... 6,531
+480,000 Granite Industries Bhd............... 1,015
600,000 Land & General Holdings Bhd.......... 2,491
714,000 Magnum Corp. Bhd..................... 1,281
1,642,500 Malayan Banking Bhd.................. 9,906
655,316 Malaysian International Shipping
(Foreign).......................... 1,873
+1,347,000 Malaysian Resources Corp. Bhd........ 2,490
667,333 Mulpha International Bhd............. 852
1,000,000 Renong Bhd........................... 1,238
1,144,000 Resorts World Bhd.................... 6,720
650,000 Sime Darby Bhd....................... 1,489
1,161,000 Tanjong plc.......................... 3,455
810,000 Tan & Tan Development Bhd............ 1,085
+373,000 Technology Resources Industries
Bhd................................ 1,191
1,203,000 Telekom Malaysia Bhd................. 8,150
1,236,000 Tenaga Nasional Bhd.................. 4,889
500,000 Time Engineering Bhd................. 1,243
967,757 United Engineers Ltd. (Malaysia)..... 4,775
---------
61,851
---------
PAKISTAN (0.4%)
7,300 Pakistan Telecommunications GDR...... 989
---------
PHILIPPINES (5.4%)
1,421,000 Aboitiz Equity Ventures.............. 332
708,000 Ayala Corp., Class B................. 1,161
1,148,500 Ayala Land Inc., Class B............. 1,789
+366,600 International Container Terminal
Services, Class B.................. 293
2,579,000 JG Summit Holding, Class B........... 951
133,300 Manila Electric Co., Class B......... 1,830
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
50
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT).
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
PHILIPPINES (CONT.)
2,194,400 Petron Corp.......................... $ 1,933
18,125 Philippine Long Distance Telephone
Co., ADR........................... 999
15,430 Philippine Long Distance Telephone
Co., Class B....................... 860
82,540 Philippine National Bank, Class B.... 1,167
244,000 San Miguel Corp., Class B............ 1,280
3,860,000 SM Prime Holdings, Inc., Class B..... 1,266
1,381,500 Universal Robina..................... 991
---------
14,852
---------
SINGAPORE (15.7%)
252,000 British-American Tobacco Co.......... 1,193
875,080 City Developments Ltd................ 4,893
400,000 DBS Land Ltd......................... 1,191
572,500 Development Bank of Singapore Ltd.
(Foreign).......................... 5,892
248,800 Fraser & Neave Ltd................... 2,578
800,000 IPC Corp............................. 546
93,750 Jurong Engineering Ltd............... 643
738,000 Keppel Corp., Ltd.................... 6,279
717,166 Oversea-Chinese Banking Corp.
(Foreign).......................... 7,381
32,000 Resources Development Corp., Ltd..... 126
183,000 Sembawang Shipyards Corp............. 1,369
146,000 Singapore Airlines Ltd. (Foreign).... 1,342
169,500 Singapore Press Holdings (Foreign)... 3,082
1,949,000 Singapore Technologies Industrial
Corp............................... 2,340
532,000 Straits Steamship Land Ltd........... 1,825
500,000 Straits Trading Co., Ltd............. 1,194
155,000 United Overseas Bank Ltd............. 1,637
---------
43,511
---------
TAIWAN (0.6%)
140,000 Hocheng Group Corp................... 674
170,000 Taiwan Semiconductor Mfg. Co......... 1,009
---------
1,683
---------
THAILAND (14.8%)
60,000 Advanced Information Services Co.
(Foreign).......................... 832
760,000 Bangkok Bank Ltd..................... 6,236
194,500 Bangkok Bank Ltd. (Foreign).......... 2,076
27,000 Banpu Public Co., Ltd................ 591
50,000 Charoen Pokphand Feedmill Co., Ltd.
(Foreign).......................... 313
290,300 Finance One Co., Ltd. (Foreign)...... 4,510
5,500 International Engineering Co.,
Ltd................................ 46
214,700 International Engineering Co., Ltd.
(Foreign).......................... 1,881
98,200 Land & House Co., Ltd. (Foreign)..... 1,752
324,000 MDX Co., Ltd......................... 897
13,000 MDX Co., Ltd. (Foreign).............. 44
**45,200 National Finance & Securities Co.,
Ltd. (Foreign)..................... 247
185,800 Phatra Thanakit Co., Ltd.
(Foreign).......................... 1,436
116,600 Shinawatra Computer Co., Ltd
(Foreign).......................... 2,545
28,500 Siam Cement Co., Ltd................. 1,626
33,000 Siam Cement Co., Ltd. (Foreign)...... 1,977
105,500 Siam Commercial Bank................. $ 857
221,300 Siam Commercial Bank (Foreign)....... 2,027
79,400 Singer Thailand Ltd.................. 677
158,100 Somprasong Land Co., Ltd.
(Foreign).......................... 608
291,300 Telecomasia Corp. (Foreign).......... 1,120
834,570 Thai Farmers Bank Ltd................ 5,751
118,570 Thai Farmers Bank, Ltd. (Foreign).... 963
586,000 Thai Petrochemical Co., Ltd.......... 1,284
+375,000 Wongpaitoon Footwear Co., Ltd.
(Foreign).......................... 844
---------
41,140
---------
TOTAL COMMON STOCKS (Cost $225,998).............. 260,568
---------
NO. OF
RIGHTS
----------
RIGHTS (0.7%)
INDONESIA (0.0%)
**+69,333 Sorini Corp., expiring 1/18/95....... --
---------
THAILAND (0.7%)
**+336,000 National Finance & Securities Co.,
Ltd., expiring 1/95................ 1,459
**+135,600 National Finance & Securities Co.,
Ltd., (Foreign) expiring 1/95...... 605
---------
2,064
---------
TOTAL RIGHTS (Cost $1,578)....................... 2,064
---------
NO. OF
WARRANTS
----------
WARRANTS (0.2%)
HONG KONG (0.0%)
+432,000 Wai Kee Holdings Ltd., expiring
12/31/96........................... 7
---------
THAILAND (0.2%)
+66,050 Finance One Co., Ltd., expiring
3/15/99............................ 553
---------
TOTAL WARRANTS (Cost $0).........................
560
---------
FACE
AMOUNT
(000)
------------
CONVERTIBLE DEBENTURES (0.4%)
KOREA (0.4%)
$ 1,700 Daewoo Corp., 0.00%, 12/31/04
(Cost $1,732)...................... 1,207
---------
TOTAL FOREIGN SECURITIES (95.4%) (Cost $229,308)...
264,399
---------
SHORT-TERM INVESTMENTS (3.3%)
GOVERNMENT AND AGENCY OBLIGATIONS (1.8%)
UNITED STATES (1.8%)
5,000 Federal Farm Credit Bank Discount
Note, 5.95%, 1/03/95 (Cost
$4,998)............................ 4,997
---------
REPURCHASE AGREEMENT (1.5%)
4,031 U.S. Trust, 5.50%, dated 12/30/94,
due 1/03/95, to be repurchased at
$4,033, collateralized by $4,180
United States Treasury Notes
3.875%, due 3/31/95, valued at
$4,163 (Cost $4,031)............... 4,031
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $9,029)......... 9,028
TOTAL FOREIGN & US SECURITIES (98.7%) (Cost
$238,337).......................................... 273,427
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
51
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT).
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------
FOREIGN CURRENCY (1.5%)
HK$ 466 Hong Kong Dollar..................... $ 60
IN 4,470,122 Indonesian Rupiah.................... 2,034
KW 24 Korean Won........................... --
MA 52 Malaysian Ringgit.................... 20
S$ 132 Singapore Dollar..................... 91
T$ 36,963 Taiwan Dollar........................ 1,406
TB 11,953 Thai Baht............................ 476
---------
TOTAL FOREIGN CURRENCY (Cost $4,099)............... 4,087
---------
TOTAL INVESTMENTS (100.2%) (Cost $242,436)......... 277,514
---------
OTHER ASSETS (0.3%)
Receivable for Portfolio Shares Sold.... $ 563
Dividends Receivable.................... 337
Foreign Withholding Tax Reclaim
Receivable............................. 10
Interest Receivable..................... 1
Other................................... 27 938
--------- ---------
LIABILITIES (-0.5%)
Payable for Portfolio Shares Redeemed... (801)
Investment Advisory Fees Payable........ (418)
Custodian Fees Payable.................. (224)
Administrative Fees Payable............. (38)
Unrealized Loss on Forward Foreign
Currency Contract...................... (3)
Directors' Fees & Expenses.............. (1)
Other Liabilities....................... (61) (1,546)
--------- ---------
NET ASSETS (100%).................................. $ 276,906
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 12,854,374 outstanding $.001 par
value shares (authorized 500,000,000 shares)....... $21.54
---------
---------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at
December 31, 1994, the Portfolio is obligated to deliver
foreign currency in exchange for US dollars as indicated
below:
IN
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
------------- --------- ----------- ---------- --------- --------------
IN 4,449,489 $ 2,025 1/03/95 $ 2,022 $ 2,022 $ (3)
--------- --------- ----------
--------- --------- ----------
------------------------------------------------------------
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
IN -- Indonesian Rupiah
Interest rates disclosed for U.S. Government & Agency Discount Notes represent
effective yields.
------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF NET
INDUSTRY (000) ASSETS
---------------------------------------------------------------
Capital Equipment.................. $ 20,043 7.2%
Consumer Goods..................... 18,064 6.5
Energy............................. 16,314 5.9
Finance............................ 102,218 36.9
Materials.......................... 20,392 7.4
Multi-Industry..................... 21,962 7.9
Services........................... 65,406 23.6
--------- -----
$ 264,399 95.4%
--------- -----
--------- -----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
52
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[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (80.3%)
ARGENTINA (4.8%)
+6 Acindar Industrial S.A............. $ --
+987,398 Alpargatas S.A..................... 681
81,501 Banco de Galicia y Buenos Aires.... 326
368,143 Banco de Galicia y Buenos Aires
ADR.............................. 6,350
185,816 Banco del Sud Argentina............ 1,412
135,400 Banco Frances ADS.................. 2,894
+193,932 Banesto Banco Shaw S.A............. 620
57,642 Capex S.A., Class A................ 481
119,200 Capex S.A. ADR..................... 1,788
13,000 Central Costanera ADR.............. 345
8,000 Central Puerto S.A................. 40
45,330 Central Puerto S.A. ADR............ 1,281
484,827 CIADEA (Renault) S.A............... 4,242
757,100 Cia Naviera Perez Companc, Class
B................................ 3,119
42,200 Inversiones y Representacion S.A.
GDR.............................. 1,129
89,537 Massalin Particulares.............. 1,030
392,235 Quilmes Industrial S.A............. 9,021
3,804,600 Siderca............................ 2,815
317,450 YPF S.A. ADR....................... 6,785
---------
44,359
---------
BRAZIL (6.0%)
18,483,200 Banco Nacional S.A................. 487
111,995,000 Cia Energetica de Minas Gerais
ADR.............................. 2,716
3,635,480 Cia Energetica de Sao Paulo........ 4,721
46,678 Cia Energetica de Sao Paulo, Class
B................................ 61
+58,807,000 Cia Paulista de Forca E Luz........ 5,207
132,425,000 Cia Siderurgica Nacional........... 4,510
34,000 Cigarros Souza Cruz................ 281
3,800,000 Eletrobras......................... 1,341
9,012,000 Light Servicos de Eletricidade
S.A.............................. 3,256
9,400,000 Rhodia-Ster ADS.................... 135
197,453,000 Telecomunicacoes Brasileiras....... 8,509
462,564,000 Telecomunicacoes Brasileiras ADR... 20,700
5,175,000 Telecomunicacoes de Sao Paulo...... 849
+251,300,000 Usinas Siderurgicas de Minas Gerais
ADR.............................. 3,330
---------
56,103
---------
CHILE (0.3%)
129,810 Banco Osorno y La Union ADR........ 1,396
48,875 Sociedad Quimica y Minera de Chile
S.A. ADR......................... 1,423
---------
2,819
---------
CHINA (1.5%)
750,000 Beiren Printing Machine, Class H... 208
3,008,400 China Merchants Shekou Port
Services, Class B................ 1,652
11,144,000 Maanshan Iron & Steel Co., Class
H................................ 2,348
1,862,000 Shanghai Diesel Engine Co., Ltd.,
Class B.......................... 1,490
803,000 Shanghai Erfanji Co., Ltd., Class
B................................ 161
500,000 Shanghai Industries Sewing Machine,
Class B.......................... 200
949,975 Shanghai Jin Jiang Tower Ltd.,
Class B.......................... 494
3,618,680 Shanghai Jinqiao, Class B.......... 2,533
1,200,000 Shanghai Lujiazui Finance & Trade
Development Co................... $ 972
+1,062,750 Shanghai Outer Gaoqiao Free Zone,
Class B.......................... 627
14,550 Shanghai Petrochemical Co. ADR..... 418
903,800 Shanghai Phoenix Bicycle Ltd.,
Class B.......................... 465
962,000 Shanghai Refrigerator Compressor,
Class B.......................... 332
450,000 Shanghai Shangling Electric, Class
B................................ 387
986,000 Shanghai Tyre & Rubber Co., Class
B................................ 375
354,000 Shanghai Yaohua Pilkington Glass,
Class B.......................... 347
1,874,400 Shenzhen Chiwan Wharf Holdings,
Class B.......................... 727
---------
13,736
---------
COLOMBIA (1.2%)
171,300,000 Banco de Colombia.................. 8,858
78,070 Cementos Paz Del Rio ADR........... 1,561
23,700 Gran Cadena Almacanae Co. ADS...... 385
---------
10,804
---------
GREECE (1.4%)
298,380 Aegek.............................. 5,592
83,700 Ergo Bank S.A...................... 3,449
115,520 Hellenic Bottling Co. S.A.......... 4,090
---------
13,131
---------
HONG KONG (6.2%)
1,123,000 Cheung Kong Holdings Ltd........... 4,572
1,981,000 Citic Pacific Ltd.................. 4,774
11,254,000 C.P. Pokphand Co., Ltd............. 2,632
65,800 Great Wall Electric Ltd. ADR....... 288
9,008,000 Guangdong Investments Ltd.......... 4,453
528,000 Hang Seng Bank Ltd................. 3,787
2,220,000 Harbin Power Equipment Co.......... 746
1,966,000 Hong Kong Telecommunications
Ltd.............................. 3,748
5,230,000 Hopewell Holdings Ltd.............. 4,326
1,715,000 Hutchison Whampoa Ltd.............. 6,938
1,789,000 New World Development Co., Ltd..... 4,775
160,000 Shandong Huaneng Power Co. Ltd.
ADR.............................. 1,540
566,000 Sun Hung Kai Properties Ltd........ 3,380
857,000 Swire Pacific Ltd., Class A........ 5,339
2,004,000 Varitronix International Ltd....... 2,849
2,700,000 Wai Kee Holdings Ltd............... 628
912,000 Wharf Holdings Ltd................. 3,076
---------
57,851
---------
HUNGARY (0.3%)
65,000 Egis............................... 1,379
102,500 Gedeon Richter Ltd................. 1,589
---------
2,968
---------
INDIA (12.6%)
230,000 American Dry Fruits................ 449
120 Andhra Valley Power Supply, Class
B................................ 4
100,000 AP Rayon, Class B.................. 239
100,000 Aruna Sugars & Enterprises, Class
B................................ 239
88,000 Bajaj Auto Ltd., Class A........... 1,992
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
53
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT).
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
INDIA (CONT.)
987,500 Balaji Foods & Feeds............... $ 866
15,000 Ballapur Industries Ltd., Class
B................................ 122
20,000 Baroda Rayon Corp.................. 427
269,334 Bharat Forge Co., Ltd., Class A.... 1,545
3,300,000 Bharat Heavy Electricals........... 18,410
12,800 Bharat Petroleum Corp., Ltd........ 157
250,000 Bharat Pipes & Fittings Ltd., Class
B................................ 249
100,000 BPL Ltd............................ 733
27,400 Cable Corp. of India Ltd........... 157
195,000 Carrier Aircon Ltd., Class B....... 870
90,000 Cosmo Films Ltd.................... 474
25,000 Crompton Greaves................... 143
77,000 DCM Shriram Industries Ltd......... 388
38,800 Delta Industries Ltd............... 167
185,000 Essab India Ltd.................... 619
2,700 Fabworth (India) Ltd............... 3
57,166 Flex Industries Ltd................ 460
5,000 Fuller............................. 133
371,800 Garware Plastics & Polyester,
Class A.......................... 3,556
314,500 Geekay Exim Ltd.................... 2,306
475,000 Godrej Soaps Ltd................... 2,953
47,500 Hero Honda, Class B................ 470
120,200 Hindustan Petroleum Corp........... 1,422
105,280 Housing Development Finance
Corp............................. 8,558
@*+78,000 India Magnum Fund, Class A
(acquired 11/25/92-3/01/94, Cost
$3,782).......................... 4,524
@+55,194 India Magnum Fund, Class B......... 3,284
644,650 India Organic Chemical Ltd......... 1,516
5,600 Indian Rayon & Industries Ltd.,
Class A.......................... 109
46,000 Indian Seamless Metal Tubes, Class
B................................ 280
40,000 Indian Seamless Steel & Alloys..... 38
60,000 Indo Gulf Fertilizer & Chemical,
Class A.......................... 179
380,800 Indo Rama Synthetic, Class B....... 1,275
100,000 Infosys Technology Ltd............. 1,498
160,200 ITC Argotech, Class B.............. 1,328
2,850 ITW Signode Ltd., Class B.......... 27
134,400 Jai Parabolic Springs Ltd.......... 321
237,600 JK Synthetics Ltd.................. 311
200,000 Kirloskar Oil Engine, Class B...... 893
1,200 Lakme Ltd., Class B................ 14
145,000 Laser Lamp......................... 139
150,000 Lekshima Precision................. 550
770,000 Mahanagar Telephone Nigam.......... 4,787
81,334 Mahavir Spinning Mills Ltd......... 713
22,300 Mahindra Ugine Steel, Class B...... 34
700,000 Maikaal Fibres..................... 669
200,000 Mardia Chemicals Ltd............... 1,148
20 Motor Industries Co., Ltd., Class
A................................ 4
73,650 MRF Ltd., Class B.................. 5,459
24,000 Mukand Iron & Steel Works, Class
A................................ 245
21,606 Nahar Spinning Mills Ltd., Class
B................................ 689
72,000 Nath Pulp & Paper Mills Ltd........ 166
25,000 OM Sindoori Hotels Ltd............. 57
500,000 Orkay Industries Ltd............... 446
250,000 Patheja Forgings & Auto, Class B... 1,016
401,000 PCS Data Products Ltd., Class B.... $ 352
67,500 Pentafour Products Ltd., Class B... 108
254,200 Philips India, Ltd................. 2,836
275,000 Polar Latex........................ 351
232,700 Priyadarshini Cement Ltd., Class
B................................ 289
7,000 Pudumjee........................... 118
350,000 PVD Plastic Mouldings Inds. Ltd.,
Class B.......................... 446
50,000 Rallis Ltd......................... 510
6,450 Ranbaxy Laboratories Ltd., Class
B................................ 137
10,200 Raymond Synthetics Ltd., Class B... 7
3,770 Reliance Industries Ltd. GDS....... 74
73,581 Reliance Industries Ltd. GDS
(New)............................ 1,692
265,400 Reliance Industries Ltd., Class
A................................ 2,887
100,000 Rossel Industries Ltd.............. 351
100,000 Saurashtra Cement & Chemicals,
Class B.......................... 335
535,000 SCICI Ltd., Class B................ 1,620
50,000 Secals Ltd......................... 151
30,000 Shanti Gears Ltd., Class B......... 191
108,000 Sharp Industries Ltd............... 189
360,000 Shipping Corp. of India............ 689
57,860 Shree Vindhya Paper Mills.......... 304
13,200 S.K.F. Bearings Ltd................ 1,452
45,000 Sri Venkatesa Mills Ltd............ 222
1,008,500 State Bank of India................ 7,266
34,000 Sundaram Finance, Class B.......... 470
1,000,000 Super Forgings & Steels............ 1,913
233,300 Tata Engineering & Loco, Class A... 3,868
3,935 Tata Hydro Electric Power.......... 141
2,620 Tata Power Co., Ltd................ 117
100 Teneja Aerospace Aviation.......... --
450,000 Tilagarli Steel.................... 932
1,600 T.P.I. India Ltd................... 3
10,000 T.V.S. Suzuki...................... 67
205,000 Uniworth International Ltd., Class
B................................ 258
783,000 Uttam Galva Steels Ltd., Class B... 1,030
16,604 Videocon International Ltd., Class
A................................ 82
81,600 Videsh Sanchar Nigam Ltd........... 2,406
710,040 VXL Ltd............................ 1,245
34,500 Vysya Bank......................... 2,420
---------
117,359
---------
INDONESIA (5.4%)
26,400 Astra International................ 50
72,000 Astra International (Foreign)...... 96
1,373,000 Bank Bali (Foreign)................ 3,873
1,673,000 Barito Pacific Timber (Foreign).... 2,645
1,662,049 Charoen Pokphand (Foreign)......... 6,805
***200,000 Citra Marga Nusaphala (Foreign).... 237
612,500 Duta Pertiwi PT (Foreign).......... 885
1,046,000 Indocement Tunggal (Foreign)....... 4,283
1,200,000 Indosat PT (Foreign)............... 4,299
1,308,600 Jembo Cable Co. (Foreign).......... 2,084
1,398,200 Kalbe Farma (Foreign).............. 5,757
468,000 Keramika Indonesia Association
(Foreign)........................ 607
925,500 Modern Photo Film Co. (Foreign).... 3,916
534,000 Polysindo Eka Perkasa (Foreign).... 1,008
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
54
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT).
------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------
INDONESIA (CONT.)
693,200 Sona Topas Tourism (Foreign)....... $ 2,239
973,500 Sorini Corp. (Foreign)............. 3,986
150,000 Suba Indah (Foreign)............... 137
584,000 Tempo Scan Pacific (Foreign)....... 2,803
2,109,000 United Tractors (Foreign).......... 4,510
---------
50,220
---------
ISRAEL (1.5%)
40,166 Elbit Ltd.......................... 2,733
1,300 First International Bank........... 153
413,335 Israel Land Development............ 1,460
16,800 Koor Industries Ltd................ 1,286
146,500 Osem Investment Ltd................ 937
+137,336 PEC Israel Economic Corp........... 3,880
54,397 Scitex Ltd......................... 904
152,948 Super Sol Ltd., Class B............ 2,605
---------
13,958
---------
MALAYSIA (0.2%)
835,000 Bandar Raya Development Bhd........ 1,413
---------
MEXICO (10.4%)
359,112 Apasco S.A., Class A............... 1,790
3,031,850 Banacci, Class B................... 8,959
438,912 Banacci, Class L................... 1,270
676,890 Cemex CPO ADR...................... 6,681
12,500 Desc Sociedad de Fomento Industrial
S.A. de C.V...................... 295
3,370 FEMSA ADR.......................... 83
694,000 FEMSA, Class B..................... 1,777
21,500 Grupo Carso, S.A., Class A1........ 158
+609,355 Grupo Carso ADR.................... 8,836
801,000 Grupo Financiero Banamex Accival,
Class C.......................... 2,367
670,603 Grupo Financiero Bancomer ADR...... 7,544
3,973,500 Grupo Financiero Bancomer, Class B. 1,909
2,336,000 Grupo Financiero Bancomer, Class C. 1,268
1,868,000 Grupo Financiero Bancrecer, Class
B................................ 1,577
69,380 Grupo Financiero GBM Atlantico ADR. 520
1,248,360 Grupo Financiero Probursa, Class B. 289
3,873,060 Grupo Financiero Probursa, Class C. 1,868
120,800 Grupo Financiero Serfin S.A. ADR... 906
2,254,000 Grupo Herdez, Class A.............. 1,087
55,000 Grupo Iusacell S.A. ADR, Class D... 880
5,000 Grupo Iusacell S.A. ADR, Class L... 93
+182,571 Grupo Mexicano Desarrollo ADR,
Class B.......................... 1,392
42,960 Grupo Mexicano Desarrollo, Class L. 381
+52,600 Grupo Sidek S.A. ADR............... 460
+1,451,800 Grupo Sidek S.A., Class A.......... 3,181
+987,000 Grupo Sidek S.A., Class B.......... 2,182
55,344 Grupo Sidek S.A., Class L.......... 145
180,600 Grupo Televisa S.A. ADR............ 5,734
435,952 Grupo Tribasa S.A. ADR............. 7,248
68,060 Hylsamex S.A. ADR.................. 1,149
310,400 Interceramica, Class C............. 1,030
+30,600 Interceramica ADR.................. 627
82,600 Panamerican Beverages, Inc., Class
A................................ 2,612
385,425 Telefonos de Mexico S.A. ADR, Class
L................................ $ 15,802
547,000 Tolmex S.A., Class B2.............. 4,618
---------
96,718
---------
MOROCCO (0.9%)
41,100 Ona Group.......................... 1,673
146,300 Sni Maroc.......................... 6,726
---------
8,399
---------
PAKISTAN (2.8%)
78,120 Adamjee Insurance Co., Ltd......... 472
1,040,900 Bank of Punjub..................... 1,861
825,814 Cherat Cement Ltd.................. 2,926
13,126 Crescent Investment Bank........... 22
247,600 Crescent Textile Mills Ltd......... 241
275,000 Dewan Salman Fibre................. 1,251
380,100 D.G. Khan Cement Ltd............... 766
3,017,900 Fauji Fertilizer Co., Ltd.......... 8,043
475,860 Imperial Chemical Industries....... 3,743
595,725 Muslim Commercial Bank Ltd......... 1,384
679,297 Nishat Mills Ltd................... 1,231
13,090 Pakistan Telecommunications........ 1,723
13,900 Pakistan Telecommunications GDR.... 1,883
97,850 Philips Electrical................. 636
298,000 Zahur Textile Mills................ 61
---------
26,243
---------
PERU (0.8%)
169,394 Banco de Credito del Peru.......... 375
323,646 Cementos Norte Pacasmayo, Class
T................................ 1,252
***497,000 Cementos Yura...................... 3,109
12,325 Cerveceria Backus y Johnson, Class
C................................ 250
+396,386 Nacional de Cerveza, Class T....... 301
+428,659 Southern Peru Copper, Class T...... 2,389
---------
7,676
---------
PHILIPPINES (3.2%)
3,133,250 Ayala Land Inc., Class B........... 4,880
7,772,250 JG Summit Holding, Class B......... 2,867
306,465 Manila Electric Co., Class B....... 4,207
1,000,000 Negros Navigation Co., Inc......... 481
6,800,000 Petron Corp........................ 5,992
47,490 Philippine Long Distance Telephone
Co. ADR.......................... 2,618
2,000 Philippine Long Distance Telephone
Co., Class B..................... 111
226,858 Philippine National Bank, Class
B................................ 3,208
8,472,500 SM Prime Holdings, Inc., Class B... 2,778
419,500 San Miguel Corp., Class B.......... 2,201
---------
29,343
---------
POLAND (0.8%)
***33,400 Eastbridge......................... 2,245
13,762 Elektrim........................... 647
2,028,000 International UNP Holdings......... 1,229
186,870 Mostostal Exports, Class A......... 1,216
15,000 Okocim............................. 423
8,925 Wedel S.A.......................... 608
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
55
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
-------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT).
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
POLAND (CONT.)
15,735 Zwyeic............................. $ 1,089
---------
7,457
---------
PORTUGAL (0.1%)
13,800 Jeronimo Martins................... 591
@8,990 Portuguese Investment Fund......... 598
---------
1,189
---------
RUSSIA (0.8%)
***313,000 Russian Telecom Development
Corp............................. 3,130
***400,000 SFMT Inc........................... 4,000
---------
7,130
---------
SOUTH AFRICA (2.5%)
44,000 Anglo American Industrial
Corporation Ltd.................. 2,269
700,000 Bidvest Group Ltd.................. 2,836
1,223,150 Gencor Ltd......................... 4,386
796,900 Liberty Life Strategic
Investments...................... 2,495
131,300 Randcoal Ltd....................... 887
929,146 Sasol Ltd.......................... 7,701
311,500 Trans Natal Coal Corp., Ltd........ 2,372
---------
22,946
---------
SRI LANKA (0.1%)
19,575 Aitken Spence & Co., Ltd........... 117
113,000 Distillers Corp. S.A. Ltd.......... 21
81,200 John Keells Holdings Ltd........... 442
---------
580
---------
TAIWAN (3.4%)
2,196,600 Hocheng Group Corp................. 10,570
1,696,000 Taiwan Semiconductor Mfg. Co....... 10,065
2,223,891 United Micro Electronics Corp.,
Ltd.............................. 10,617
---------
31,252
---------
THAILAND (7.9%)
293,250 Advanced Information Services Co.
(Foreign)........................ 4,065
1,720,600 Bangkok Bank Ltd................... 14,119
419,500 Bangkok Bank Ltd. (Foreign)........ 4,478
862,600 Finance One Co., Ltd. (Foreign).... 13,400
315,560 International Engineering Co.,
Ltd.............................. 2,665
427,240 International Engineering Co., Ltd.
(Foreign)........................ 3,744
144,400 Land & House Co., Ltd. (Foreign)... 2,577
598,300 MDX Co., Ltd....................... 1,656
234,635 Phatra Thanakit Co., Ltd........... 1,813
546,265 Phatra Thanakit Co., Ltd.
(Foreign)........................ 4,221
85,000 SeaFresh Industry Co., Ltd.
(Foreign)........................ 542
141,800 Shinawatra Computer Co., Ltd
(Foreign)........................ 3,095
94,300 Siam Cement Co., Ltd............... 5,379
15,000 Siam Commercial Bank (Foreign)..... 138
1,671,000 Thai Farmers Bank Ltd.............. 11,515
---------
73,407
---------
TURKEY (4.7%)
2,095,000 Borusan............................ $ 1,516
13,001,600 Ege Biracilik Ve Malt Sanayii...... 8,231
+2,514,000 Ege Seramik Sanayii Ve Ticaret
A.S.............................. 877
6,776,000 Koc Yatirim Ve Sanayii Mamulleri... 5,253
812,000 Migros Turk TAS.................... 1,553
13,510,000 Sarkuysan.......................... 7,855
3,551,000 Tat Konserue....................... 4,863
9,401,000 Tofas Turk Otomobil Fabrikasi...... 8,016
120,000 Tofas Turk Otomobil Fabrikasa ADR,
Class E.......................... 494
1,302,075 Turkas Petroculuk A.S.............. 328
1,085,600 Turkiye Garanti Bankasi ADR........ 2,719
24,085,000 Yapi Ve Kredi Bankasi A.S.......... 2,085
---------
43,790
---------
UNITED KINGDOM (0.2%)
900,924 Lonrho plc......................... 2,145
---------
ZIMBABWE (0.3%)
1,980,000 Trans Zambezi Industries Ltd....... 2,574
---------
TOTAL COMMON STOCKS (Cost $725,564)..............
745,570
---------
PREFERRED STOCKS (13.4%)
BRAZIL (13.4%)
1,059,142,183 Banco Bradesco..................... 9,003
323,910,000 Banco do Brasil.................... 6,386
18,800,000 Banco do Estado Sao Paulo.......... 269
31,814,000 Banco Itau......................... 8,902
304,098,880 Banco Nacional S.A................. 7,719
20,516,870 Bombril............................ 569
21,189,000 Brasmotor.......................... 8,581
62,724,850 Centrais Eletricas Brasileiras,
Class B.......................... 21,772
17,440,160 Cia Acos Especiais Itabira......... 1,483
13,825,000 Cia Cervejaria Brahma.............. 4,552
26,422,494 Cia Energetica de Minas Gerais..... 2,402
1,410,000 Cia Energetica de Sao Paulo........ 1,923
54,149 Cia Energetica de Sao Paulo, Class
B................................ 83
245,160,000 Cia Energetica de Sao Paulo ADR.... 3,248
+6,800,000 Cia Paulista de Forca E Luz........ 466
+904,000 Cia Siderurgica Paulista, Class
B................................ 2,631
37,930,101 Lojas Americanas S.A............... 1,120
+105,758 Lojas Americanas (Bonus)........... 15
104,153,333 Petrobras.......................... 13,156
77,529,000 Petrobras Distribuidora............ 4,165
12,500 Sadia Concordia.................... 17
158,099,175 Telecomunicacoes Brasileiras....... 7,074
162,600 Telecomunicacoes de Sao Paulo...... 73
44,998,215 Telecomunicacoes de Sao Paulo...... 6,402
5,521,151,000 Usinas Siderurgicas de Minas
Gerais........................... 7,496
26,163,000 Vale Do Rio Doce................... 5,004
---------
TOTAL PREFERRED STOCKS (Cost $85,280)............
124,511
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
56
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT).
------------------------------------------------------------------------------
NO. OF VALUE
RIGHTS (000)
------------------------------------------------------------
RIGHTS (0.0%)
INDIA (0.0%)
**+7,142 Indian Seamless Metal Tubes........ $ 9
**+2,500 Pentafour Products Ltd., Class B... --
---------
9
---------
INDONESIA (0.0%)
**+229,500 Sorini Corp., expiring 1/18/95..... --
---------
PAKISTAN (0.0%)
**+6,398 Crescent Investment Bank, expiring
1/30/95.......................... 7
**+92,643 Muslim Commercial Bank Ltd......... 95
---------
102
---------
TOTAL RIGHTS (Cost $12).......................... 111
---------
NO. OF
WARRANTS
------------
WARRANTS (0.1%)
HONG KONG (0.0%)
+540,000 Wai Kee Holdings Ltd., expiring
12/31/96......................... 9
---------
INDIA (0.0%)
**+33,571 Bharat Forge Co., Ltd., expiring
1995............................. --
**+27,383 Flex Industries Ltd................ --
---------
--
---------
POLAND (0.0%)
**+1,014,000 International UNP Holdings,
expiring 12/31/95................ --
---------
THAILAND (0.1%)
+138,660 Finance One Co., Ltd., expiring
3/15/99.......................... 1,160
---------
TOTAL WARRANTS (Cost $0)......................... 1,169
---------
NO. OF
UNITS
------------
UNITS (0.6%)
HUNGARY (0.5%)
42,000 Mol Magyar Olay-ES................. 4,715
---------
MEXICO (0.1%)
302,800 Interceramica...................... 974
---------
TOTAL UNITS (Cost $5,789)........................ 5,689
---------
SHARES
------------
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
37,300,000 Cia Paulista de Forca E Luz, strike
price BRL 70, expiring 10/16/95
(Cost $0)........................ 388
---------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.8%)
COLOMBIA (0.4%)
$ 4,115 Banco de Colombia 5.20%, 2/01/99... $ 4,017
---------
INDIA (0.3%)
IR ***25 Bharat Pipes & Fittings Ltd.,
Series A, Zero Coupon,
12/31/99......................... 80
***25 Bharat Pipes & Fittings Ltd.,
Series B, Zero Coupon,
12/31/99......................... 80
336 DCM Shriram Industries Ltd., Zero
Coupon, 3/01/00.................. 641
***15 Indian Seamless 10.00%, 10/12/99... 60
***134 Jai Parabolic Ltd., Series A, Zero
Coupon, 4/01/95.................. 300
***134 Jai Parabolic Ltd., Series B, Zero
Coupon, 4/01/95.................. 300
1,467 Mahavir Spinning Mills Ltd., Series
A, Zero Coupon, 12/31/99......... 51
783 Uttam Galva Steels, Zero Coupon,
12/01/10......................... 874
---------
2,386
---------
THAILAND (0.1%)
TB 880 Banpu Public Co., Ltd. 3.50%,
8/25/04.......................... 1,034
---------
TOTAL CONVERTIBLE DEBENTURES (Cost $7,543)....... 7,437
---------
NON-CONVERTIBLE DEBENTURES (0.5%)
INDIA (0.5%)
IR ***34 Bharat Forge Co., Ltd., 14.50%,
1/01/01.......................... 54
341 DCM Shriram Industries Ltd.,
16.50%, 3/01/00.................. 542
4,470 Garware Plastics & Polyester,
16.00%, 1/01/01.................. 138
8 Mahavir Spinning Mills Ltd., Series
B, Zero Coupon, 12/31/99......... 28
500 Raymond Wollen Mills, 16.00%,
12/31/99......................... 1,546
70 Saurashtra Cement & Chemicals, Zero
Coupon, 12/31/99................. 2,165
***173 VST Tillers Tractors, Zero Coupon,
1/01/96.......................... 612
---------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $5,641)... 5,085
---------
LOAN AGREEMENTS (3.6%)
ECUADOR (0.4%)
$#~##5,950 Republic of Ecuador Extension and
Refinancing Agreement (Floating
Rate) (Participation: Merrill
Lynch, Chemical Bank)............ 2,736
#~##1,200 Republic of Ecuador New Money
(Floating Rate) (Participation:
Merrill Lynch)................... 552
---------
3,288
---------
PANAMA (1.1%)
$ ++19,400 Republic of Panama Unrestructured
Loans (Floating Rate)............ 10,427
---------
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
57
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT).
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
RUSSIA (2.1%)
CHF ++1,910 Bank for Foreign Economic Affairs
(Floating Rate).................. $ 380
$ ++25,657 Bank for Foreign Economic Affairs
(Floating Rate).................. 7,055
++9,293 Bank for Foreign Economic Affairs,
Series A (Floating Rate)......... 2,556
++32,090 Bank for Foreign Economic Affairs,
Series B (Floating Rate)......... 8,825
++1,000 Bank for Foreign Economic Affairs,
Series C (Floating Rate)......... 275
++1,913 Bank for Foreign Economic Affairs,
Series E (Floating Rate)......... 526
---------
19,617
---------
TOTAL LOAN AGREEMENTS (Cost $41,762)............. 33,332
---------
TOTAL FOREIGN & US SECURITIES (99.3%) (Cost
$871,591)........................................ 923,292
---------
FOREIGN CURRENCY (2.3%)
APS 106 Argentine Peso..................... 106
BLR 134 Brazilian Real..................... 158
CP 220,527 Colombian Peso..................... 265
DM 759 Deutsche Mark...................... 490
HK$ 2,874 Hong Kong Dollar................... 371
IR 336,780 Indian Rupee....................... 10,736
IN 65,248 Indonesian Rupiah.................. 30
MD 639 Moroccan Dhiram.................... 72
PR 173,193 Pakistani Rupee.................... 5,629
PS 1 Peruvian Sol....................... 1
PZ 54,496 Polish Zloty....................... 2
AR 86 South African Commercial Rand...... 24
SA 107 South African Financial Rand....... 26
SL 32 Sri Lankan Rupee................... 1
T$ 63,654 Taiwan Dollar...................... 2,421
TL 15,301,470 Turkish Lira....................... 395
---------
TOTAL FOREIGN CURRENCY (Cost $20,728)............ 20,727
---------
TOTAL INVESTMENTS (101.6%) (Cost $892,319)....... 944,019
---------
OTHER ASSETS (1.5%)
Receivable for Investments Sold....... $ 8,771
Receivable for Portfolio Shares 4,365
Sold.................................
Dividends Receivable.................. 944
Interest Receivable................... 102
Foreign Withholding Tax Reclaim 16
Receivable...........................
Other................................. 90 $ 14,288
---------
LIABILITIES (-3.1%)
Bank Overdraft........................ (11,323)
Payable for Investments Purchased..... (6,689)
Deferred India Taxes.................. (4,779)
Investment Advisory Fees Payable...... (3,224)
Payable for India Taxes............... (1,159)
Payable for Portfolio Shares (598)
Redeemed.............................
Custodian Fees Payable................ (540)
Administrative Fees Payable........... (128)
Sub-Administrative Fees Payable....... (14)
Directors' Fees & Expenses............ (1)
Other Liabilities..................... (214) (28,669)
--------- ---------
NET ASSETS (100%).................................. $ 929,638
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 57,016,212 outstanding $.001 par
value shares (authorized 500,000,000 shares)..... $16.30
---------
---------
--------------------------------------------------------------
+ -- Non-income producing securities
++ -- Non-income producing securities -- in default
* -- Restricted as to public resale. Total value of restricted securities
at December 31, 1994 was $4,524 or 0.5% of net assets.
** -- Security is valued at fair value -- See Note A-1
*** -- Security is valued at cost -- See Note A-1
@ -- The fund is advised by an affiliate
~ -- The security is currently making partial interest payments.
# -- Participation interests were acquired through the financial
institutions listed parenthetically. All other loan agreements are
assignments. See Note A-7.
## -- Under restructuring at December 31, 1994.
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
NCS -- Non Convertible Shares
TB -- Thai Baht
CHF -- Swiss Franc
IR -- Indian Rupee
TL -- Turkish Lira
Floating Rate Securities. Interest rate changes on these instruments are based
on changes in a designated base rate.
SUMMARY OF FOREIGN & US SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
----------------------------------------------------------------
Capital Equipment..................... $ 63,803 6.9%
Consumer Goods........................ 127,015 13.7
Energy................................ 114,476 12.3
Finance............................... 241,236 25.9
Loan Agreements....................... 33,332 3.6
Materials............................. 142,231 15.3
Multi-Industry........................ 74,544 8.0
Services.............................. 126,655 13.6
--------- ---
$ 923,292 99.3%
--------- ---
--------- ---
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
58
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
COMMON STOCKS (93.9%)
BELGIUM (4.7%)
+3,400 Arbed, S.A.............................. $ 510
11,000 Delhaize Freres et Cie, 'Le Lion',
S.A................................... 447
8,300 G.I.B. Holdings, Ltd.................... 327
55 G.I.B. Holdings, Ltd. (New)............. 2
---------
1,286
---------
DENMARK (1.2%)
+8,500 Unidanmark A/S, Class A (Registered).... 327
---------
FINLAND (4.3%)
22,000 Amer-Yhtymae Oy, Class A................ 381
17,500 Huhtamaki Oy, Series 1.................. 580
+40,600 Kansallis-Osake Pankki.................. 48
17,000 Pohjola Insurance Co., Ltd., Class B.... 185
---------
1,194
---------
FRANCE (12.6%)
600 Bongrain S.A............................ 317
3,000 Cie de Saint Gobain..................... 345
+7,300 Credit Lyonnais CDI..................... 604
6,800 Elf Aquitaine........................... 479
2,400 Eridania Beghin-Say S.A................. 316
2,700 Precision Mecaniques Labinal S.A........ 344
+3,805 Legris Industries S.A................... 234
+18,000 Thomson CSF............................. 539
5,400 Total S.A., Class B..................... 314
---------
3,492
---------
GERMANY (11.7%)
3,100 BASF AG................................. 631
1,760 Bayer AG................................ 408
8,000 Bremer Vulkan Verbund AG................ 492
1,500 Commerzbank AG.......................... 316
575 Karstadt AG............................. 210
1,200 Mannesmann AG........................... 325
+1,500 Varta AG................................ 281
1,700 Veba AG................................. 589
---------
3,252
---------
ITALY (6.0%)
5,000 Editoriale L'Expresso S.p.A............. 13
+162,637 Impregilo S.p.A......................... 163
20,305 Safilo S.p.A............................ 127
191,500 Stet Di Risp (NCS)...................... 454
205,500 Telecom Italia S.p.A.................... 535
10,000 Telecom Italia S.p.A. Di Risp (NCS)..... 20
100,000 Unicem Di Risp (NCS).................... 339
---------
1,651
---------
NETHERLANDS (10.8%)
16,000 ABN Amro Holdings N.V................... 556
2,000 Akzo Nobel N.V.......................... 231
2,200 Hollandsche Beton Groep N.V............. 340
12,500 Internationale Nederlanden Groep N.V.... 591
6,000 Koninklijke Bijenkorf Beheer N.V........ 339
10,000 Koninklijke Van Ommeren N.V............. 263
2,350 Oce-Van Der Grinten N.V................. $ 105
18,500 Philips Electronics N.V................. 548
---------
2,973
---------
NORWAY (3.2%)
+100,000 Den Norske Bank A/S, Class A Free....... 268
16,000 Hafslund Nycomed, Class B............... 336
28,000 Saga Petroleum A/S, Class B............. 290
---------
894
---------
PORTUGAL (0.5%)
+@1,905 Portuguese Investment Fund.............. 127
---------
SPAIN (6.2%)
+11,100 Asturiana de Zinc S.A................... 121
9,520 Banco Espana de Credito S.A............. 67
4,760 Banco Espana de Credito S.A. (New)...... 32
7,615 Bodegas y Bebidas S.A................... 208
+7,870 Grupo Duro Felguera S.A................. 37
90,000 Iberdrola S.A........................... 555
28,000 Sevillana de Electricidad S.A........... 132
47,000 Telefonica Nacional de Espana S.A....... 555
---------
1,707
---------
SWEDEN (1.9%)
+48,000 Skandinaviska Enskilda Banken, Class
A..................................... 274
+16,000 S.K.F. AB, Class B...................... 264
---------
538
---------
SWITZERLAND (14.6%)
650 Alusuisse-Lonza Holdings Ltd.
(Registered).......................... 325
+200 Ascom Holdings AG (Bearer).............. 212
300 Bobst AG (Bearer)....................... 346
900 Ciba Geigy AG (Bearer).................. 538
115 Ciba Geigy AG (Registered).............. 69
500 Forbo Holdings AG (Registered).......... 420
700 Hero AG (Bearer)........................ 340
500 Holderbank Glarus AG (Bearer)........... 379
750 Magazine Globus (Participating
Certificates)......................... 449
700 Moevenpick Holding AG (Participating
Certificates)......................... 265
470 Schweizerische Industrie-Gesellschaft
Holdings (Registered)................. 431
+450 SwissAir (Registered)................... 265
---------
4,039
---------
UNITED KINGDOM (16.2%)
130,500 Asprey plc.............................. 284
75,000 Associated British Foods plc............ 663
+249,990 Automated Security Holdings plc......... 254
20,000 Bass plc................................ 161
200,000 BET plc................................. 318
152,550 Christian Salvesen plc.................. 650
37,400 Hillsdown Holdings plc.................. 105
118,856 John Mowlem & Co. plc................... 188
70,000 Kwik Save Group plc..................... 603
24,895 McAlpine (Alfred) plc................... 67
41,875 Nurdin & Peacock plc.................... 107
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
59
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO (CONT).
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
UNITED KINGDOM (CONT.)
30,000 Reckitt & Colman plc.................... $ 276
37,401 Rolls-Royce plc......................... 105
120,795 Royal Insurance Holdings plc............ 528
95,165 Sketchley plc........................... 139
+253,775 Wembley plc............................. 20
---------
4,468
---------
TOTAL COMMON STOCKS (Cost $26,082)................. 25,948
---------
PREFERRED STOCKS (5.3%)
GERMANY (5.3%)
1,400 RWE AG.................................. 316
2,500 Spar Handels AG......................... 525
2,800 Volkswagen AG........................... 615
---------
TOTAL PREFERRED STOCKS (Cost $1,518)............... 1,456
---------
CUMULATIVE UNSECURED LOAN STOCK (0.7%)
UNITED KINGDOM (0.7%)
36,000 Reckitt & Colman plc (Cost $186)........ 191
---------
NO. OF
RIGHTS
---------
RIGHTS (0.0%)
SPAIN (0.0%)
**7,615 Bodegas y Bebidas, expiring 1/24/95
(Cost $0)............................. 1
---------
TOTAL FOREIGN SECURITIES (99.9%) (Cost $27,786).... 27,596
---------
FACE
AMOUNT
(000)
------------
FOREIGN CURRENCY (0.8%)
L 142 British Pound......................... 223
IL 20,882 Italian Lira.......................... 13
NG 1 Netherlands Guilder................... --
---------
TOTAL FOREIGN CURRENCY (Cost $236).................. 236
---------
TOTAL INVESTMENTS (100.7%) (Cost $28,022)........... 27,832
---------
OTHER ASSETS (1.8%)
Receivable for Investments Sold........ $ 450
Dividends Receivable................... 40
Foreign Withholding Tax Reclaim
Receivable............................ 15
Other.................................. 1 506
---------
LIABILITIES (-2.5%)
Bank Overdraft......................... (505)
Payable for Portfolio Shares Redeemed.. (114)
Investment Advisory Fees Payable....... (19)
Payable for Investments Purchased...... (14)
Net Unrealized Loss on Forward Foreign
Currency Contracts................... (9)
Custodian Fees Payable................. (8)
Filing and Registration Fees Payable... (5)
Administrative Fees Payable............ (5)
Directors' Fees & Expenses............. (1)
Other Liabilities...................... (24) $ (704)
--------- --------
NET ASSETS (100%)........................ $ 27,634
--------
--------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,981,678 outstanding $.001 par value shares
(authorized 500,000,000 shares).............................. $13.94
------
------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December
31, 1994, the Portfolio is obligated to deliver foreign currency in
exchange for US dollars as indicated below:
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
------------ ----------- ----------- ----------- ----------- ------------
L 142 $ 223 1/04/95 $ 222 $ 222 $ (1)
DM 400 261 8/09/95 $ 253 253 (8)
----- ----- --
$ 484 $ 475 $ (9)
----- ----- --
----- ----- --
------------------------------------------------------------
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
@ -- The fund is advised by an affiliate.
NCS -- Non Convertible Shares
L -- British Pound
DM -- Deutsche Mark
------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF NET
INDUSTRY (000) ASSETS
------------------------------------------------------------------
Capital Equipment..................... $ 4,788 17.3%
Consumer Goods........................ 5,560 20.1
Energy................................ 2,120 7.7
Finance............................... 4,216 15.3
Materials............................. 4,892 17.7
Multi-Industry........................ 544 2.0
Services.............................. 5,476 19.8
--------- ---
$ 27,596 99.9%
--------- ---
--------- ---
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
60
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
COMMON STOCKS (99.6%)
AUSTRALIA (0.9%)
+400,000 McPhersons Ltd.......................... $ 68
190,488 Westpac Banking Corp.................... 641
---------
709
---------
BELGIUM (2.0%)
38,000 Delhaize Freres et Cie 'Le Lion' S.A.... 1,543
---------
CANADA (0.7%)
+200,000 Canadian Pioneer Energy................. 456
70,000 Northern Reef Exploration Ltd........... 130
---------
586
---------
DENMARK (0.1%)
+1,200 Unidanmark A/S, Class A (Registered).... 46
---------
FRANCE (5.5%)
1,050 Bongrain S.A............................ 555
+12,000 Credit Lyonnais CDI..................... 994
18,573 Elf Aquitaine........................... 1,308
+5,500 Legris Industries S.A................... 339
7,200 Precision Mecaniques Labinal S.A........ 917
6,000 Sediver S.A............................. 247
---------
4,360
---------
GERMANY (8.0%)
4,700 BASF AG................................. 957
5,372 Bayer AG................................ 1,245
18,000 Bremer Vulkan Verbund AG................ 1,106
1,000 Karstadt AG............................. 365
2,212 Mannesmann AG........................... 600
2,764 Sinn AG................................. 593
+3,825 Varta AG................................ 716
1,910 Veba AG................................. 662
260 Volkswagen AG........................... 71
---------
6,315
---------
HONG KONG (0.9%)
220,000 Jardine Strategic Holdings, Inc......... 722
---------
IRELAND (2.8%)
710,680 Anglo Irish Bank Corp. plc.............. 604
73,900 Arnotts plc............................. 257
470,000 Avonmore Foods plc, Class A............. 894
230,000 Green Property plc...................... 473
---------
2,228
---------
ITALY (3.2%)
500,000 Stet Di Risp (NCS)...................... 1,186
36,240 Stet-Societa Finanziaria Telefonica..... 107
620,000 Telecom Italia S.p.A. Di Risp (NCS)..... 1,237
---------
2,530
---------
JAPAN (9.8%)
80,000 Fuji Photo Film Ltd..................... 1,855
24,000 Hitachi Ltd............................. 238
110,000 Kao Corp................................ 1,248
800 Murata Manufacturing Co., Ltd........... 31
130,000 Nichido Fire & Marine Insurance Co...... 1,126
18,000 Sony Corp............................... 1,021
30,000 Stanley Electric Co..................... 227
72,100 Sumitomo Rubber Industries.............. 700
5,000 TDK Corp................................ 243
30,000 Toyo Seikan Kaisha Ltd.................. 1,000
---------
7,689
---------
NETHERLANDS (8.2%)
46,222 ABN Amro Holdings N.V................... 1,607
2,050 Hollandsche Beton Groep N.V............. 317
31,393 Internationale Nederlanden Groep N.V.... 1,484
30,000 Koninklijke Van Ommern N.V.............. 788
+15,160 Nedlloyd Groep N.V...................... 497
15,500 Oce-Van Der Grinten N.V................. 694
37,690 Philips Electronics N.V................. 1,117
---------
6,504
---------
SPAIN (1.7%)
112,300 Telefonica Nacional de Espana S.A....... 1,328
---------
SWEDEN (1.4%)
+188,000 Skandinaviska Enskilda Banken, Class
A..................................... 1,075
---------
SWITZERLAND (5.5%)
+450 Ascom Holdings AG (Bearer).............. 478
500 Bobst AG (Bearer)....................... 577
1,200 Ciba-Geigy AG (Registered).............. 716
700 Forbo Holdings AG (Registered).......... 588
250 Grands Magasins Jelmoli (Bearer)........ 140
450 Grands Magasins Jelmoli (Registered).... 46
780 Holderbank Sin Glarus (Bearer).......... 591
195 Kuoni Riesebuero AG (Participating
Certificates)......................... 252
600 Magazine Globus (Participating
Certificates)......................... 359
70 Nestle S.A. (Registered)................ 67
600 Schweizerische Industrie-Gesellschaft
Holdings (Registered)................. 550
---------
4,364
---------
UNITED KINGDOM (12.7%)
700,000 ASDA Group plc.......................... 740
101,443 Barclays plc............................ 970
165,000 Bass plc................................ 1,330
265,000 Christian Salvesen plc.................. 1,129
200,000 Forte plc............................... 752
196,000 Hillsdown Holdings plc.................. 550
219,726 John Mowlem & Co. plc................... 348
80,000 Kwik Save Group plc..................... 689
180,000 Matthew (Bernard) plc................... 322
49,900 McAlpine (Alfred) plc................... 134
+653,333 Pentos plc.............................. 148
93,333 Perry Group plc......................... 235
257,157 Pilkington plc.......................... 669
60,674 Rolls-Royce plc......................... 171
130,000 Tate & Lyle plc......................... 861
52,000 Unilever plc............................ 943
+260,200 Wembley plc............................. 20
---------
10,011
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
61
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO (CONT).
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
UNITED STATES (36.2%)
+89,000 Addington Resources, Inc................ $ 868
10,500 Aluminum Company of America............. 910
30,000 American Pacific Corp................... 210
43,800 American Premier Underwriters, Inc...... 1,133
17,050 AMR Corp................................ 908
59,975 Aviall, Inc............................. 457
50,500 Beazer Homes USA, Inc................... 587
7,900 Boise Cascade Corp...................... 211
23,000 Brooklyn Bancorp, Inc................... 696
+150,000 Cadiz Land Co., Inc..................... 778
48,100 Comsat Corp............................. 896
+44,500 Cray Research, Inc...................... 701
+60,000 Data General Corp....................... 600
+110,000 Egghead, Inc............................ 1,292
48,100 Enhance Financial Services Group,
Inc................................... 823
24,000 Gap, Inc................................ 732
+110,000 GenRad, Inc............................. 591
16,000 Georgia Pacific Corp.................... 1,144
31,200 GFC Financial Corp...................... 991
+20,100 Hartmarx Corp........................... 118
50,000 Johnstown America Industries, Inc....... 819
+31,000 Kaiser Steel Resources, Inc............. 194
31,500 Mellon Bank Corp........................ 965
+65,000 Mercer International, Inc............... 886
42,500 Midlantic Corp.......................... 1,126
21,600 MMI Cos., Inc........................... 343
20,600 National Gypsum Co...................... 839
+20,000 Pacific Bank N.A. (New)................. 255
15,000 Paco Pharmaceutical Services, Inc....... 131
20,000 Philip Morris Cos., Inc................. 1,150
12,000 Prime Retail, Inc....................... 159
+32,000 Rohr, Inc............................... 332
35,000 Ryder Systems, Inc...................... 770
52,000 Sierra Tucson Cos., Inc................. 149
25,000 Sun Co., Inc............................ 719
+20,000 Sun Microsystems, Inc................... 710
+25,000 Team, Inc............................... 47
13,100 Tecumseh Products Co., Class A.......... 589
+98,400 Unionfed Financial Corp. (New).......... 43
29,200 US Shoe Corp............................ 548
+20,000 UST Corp................................ 205
55,000 Waban, Inc.............................. 976
+270,000 WorldCorp, Inc.......................... 1,958
---------
28,559
---------
TOTAL COMMON STOCKS (Cost $77,013)................. 78,569
---------
CONVERTIBLE PREFERRED SECURITIES (0.0%)
HONG KONG (0.0%)
21,000 Jardine Strategic Holdings, Inc. IDR,
7.50%, 5/07/97........................ 26
---------
NETHERLANDS (0.0%)
293 ABN Amro Holdings N.V................... 1
---------
TOTAL CONVERTIBLE PREFERRED SECURITIES (Cost $23).. 27
---------
NO. OF VALUE
WARRANTS (000)
------------------------------------------------------------
WARRANTS (0.0%)
NETHERLANDS (0.0%)
3,024 Internationale Nederlanden Groep N.V.
expiring 3/15/01.................... $ 6
---------
SWITZERLAND (0.0%)
500 Forbo Holdings (Registered), expiring
11/1/95............................. 1
1,250 Grands Magasins Jelmoli (Bearer),
expiring 3/29/96.................... 2
450 Grands Magasins Jelmoli (Registered),
expiring 3/29/96.................... 1
---------
4
---------
TOTAL WARRANTS (Cost $2)............................ 10
---------
TOTAL FOREIGN & US SECURITIES (99.6%) (Cost $77,038). 78,606
---------
FACE
AMOUNT
(000)
------------
SHORT-TERM INVESTMENT (2.5%)
REPURCHASE AGREEMENT (2.5%)
$ 2,008 U.S. Trust 5.50% dated 12/30/94, due
1/03/95 to be repurchased at $2,009,
collateralized by $2,085 United
States Treasury Notes, 3.875%, due
3/31/95, valued at $2,077 (Cost
$2,008)............................. 2,008
---------
FOREIGN CURRENCY (0.1%)
BF 401 Belgian Franc......................... 13
L 15 British Pound......................... 23
Y 1,138 Japanese Yen.......................... 11
---------
TOTAL FOREIGN CURRENCY (Cost $47)................... 47
---------
TOTAL INVESTMENTS (102.2%) (Cost $79,093)........... 80,661
---------
OTHER ASSETS (0.3%)
Cash.................................... $ 3
Dividends Receivable.................... 167
Foreign Withholding Tax Reclaim
Receivable............................. 35
Other................................... 6 211
---------
LIABILITIES (-2.5%)
Payable for Investments Purchased....... (1,751)
Investment Advisory Fees Payable........ (115)
Administrative Fees Payable............. (10)
Custodian Fees Payable.................. (8)
Unrealized Loss on Forward Foreign
Currency Contract...................... (2)
Directors' Fees & Expenses.............. (1)
Other Liabilities....................... (50) (1,937)
--------- ---------
NET ASSETS (100%)......................... $ 78,935
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 5,889,277 outstanding $.001 par value
shares (authorized 500,000,000 shares)............. $13.40
------
------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
62
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO (CONT).
------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at
December 31, 1994, the Portfolio is to receive foreign
currency in exchange for US dollars as indicated below:
IN
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
----------- ----- ----------- ---------- ----- ---------------
$136 $ 136 1/03/95 A$ 173 $ 134 $ (2)
----- ----- --
----- ----- --
------------------------------------------------------------
+ -- Non-income producing securities
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
A$ -- Australian Dollar
------------------------------------------------------------
SUMMARY OF FOREIGN & US SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
------------------------------------------------------------
Capital Equipment..................... $ 15,004 19.0%
Consumer Goods........................ 11,592 14.7
Energy................................ 4,143 5.2
Finance............................... 18,120 23.0
Materials............................. 7,258 9.2
Multi-Industry........................ 4,601 5.8
Services.............................. 17,888 22.7
--------- -----
$ 78,606 99.6%
--------- -----
--------- -----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
63
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE GOLD PORTFOLIO
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
COMMON STOCKS (91.0%)
AUSTRALIA (15.9%)
200,000 Acacia Resources Ltd.................... $ 365
500,000 Central Norseman Gold Corporation
Ltd................................... 310
+418,000 Delta Gold N.L.......................... 914
462,100 Gold Mines of Kalgoorlie Ltd............ 358
390,000 Great Central Mines N.L................. 832
25,000 Great Central Mines N.L. ADR............ 150
321,000 Newcrest Mining Ltd..................... 1,431
+500,000 Wiluna Mines Ltd........................ 446
---------
4,806
---------
CANADA (41.3%)
98,047 American Barrick Resources Corp......... 2,182
230,400 Bema Gold Corp.......................... 411
+25,000 BGR Precious Metals, Inc., Class A...... 250
100,000 Bolivar Goldfields Ltd.................. 168
60,000 Cambior, Inc............................ 690
+500,000 Campbell Resources, Inc................. 267
+105,800 Dakota Mining Corp...................... 145
102,500 Echo Bay Mines Ltd...................... 1,090
126,700 Goldcorp., Inc., Class A................ 711
131,300 Hemlo Gold Mines, Inc................... 1,329
45,500 Kinross Gold Corp....................... 235
351,500 Miramar Mining.......................... 1,504
56,946 Placer Dome, Inc........................ 1,239
+80,600 Prime Resource Group, Inc............... 582
367,814 Royal Oak Mines, Inc.................... 1,195
+75,000 TVX Gold, Inc........................... 508
---------
12,506
---------
UNITED STATES (33.8%)
+86,200 Amax Gold, Inc.......................... 517
52,314 Battle Mountain Gold Co................. 575
125,000 Freeport McMoran, Inc................... 2,219
2,266 Freeport McMoran Copper & Gold, Inc.,
Class A............................... 49
97,400 Gold Reserve Corp....................... 823
+45,950 Helca Mining Co......................... 465
72,700 Homestake Mining Co..................... 1,245
63,800 Newmont Gold Co......................... 2,273
10,000 Newmont Mining Corp..................... 360
+35,985 Pegasus Gold, Inc....................... 409
100,000 Santa Fe Pacific Gold Corp.............. 1,288
---------
10,223
---------
TOTAL COMMON STOCKS (Cost $30,257)................. 27,535
---------
NO. OF
WARRANTS
---------
WARRANTS (0.1%)
UNITED STATES (0.1%)
25,000 Gold Reserve Corp., expiring 3/15/95
(Cost $0)........................... 18
---------
FACE VALUE
AMOUNT (000)
------------------------------------------------------------
CONVERTIBLE BONDS (1.9%)
CANADA (1.3%)
+++**$400 Bema Gold Corp. 7.50%, 9/28/99.......... $ 404
---------
UNITED STATES (0.6%)
250 Canyon Resources 6.00%, 6/01/98......... 177
---------
TOTAL CONVERTIBLE BONDS (Cost $686)................ 581
---------
TOTAL FOREIGN & US SECURITIES (93.0%) (Cost
$30,943)........................................... 28,134
---------
SHORT-TERM INVESTMENT (8.4%)
REPURCHASE AGREEMENT (8.4%)
2,540 U.S. Trust 5.50%, dated 12/30/94, due
1/03/95 to be repurchased at $2,541,
collateralized by $2,640 United States
Treasury Notes, 3.875%, due 3/31/95,
valued at $2,629 (Cost $2,540)........ 2,540
---------
TOTAL INVESTMENTS (101.4%) (Cost $33,483).......... 30,674
---------
OTHER ASSETS (0.1%)
Interest Receivable...................... $ 10
Other.................................... 1 11
--------
LIABILITIES (-1.5%)
Payable for Investments Purchased........ (317)
Payable for Portfolio Shares Redeemed.... (40)
Investment Sub-Advisory Fees Payable..... (29)
Investment Advisory Fees Payable......... (14)
Administrative Fees Payable.............. (4)
Custodian Fees Payable................... (3)
Directors' Fees & Expenses............... (1)
Other Liabilities........................ (34) (442)
--------- --------
NET ASSETS (100%)......................... $ 30,243
--------
--------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 3,313,487 outstanding $.001 par value
shares (authorized 500,000,000 shares)......... . $9.13
------------------------------------------------------------
+ -- Non-income producing securities
+++ -- Security is subject to delayed delivery -- See Note A-6
** -- Security is valued at fair value -- See Note A-1
ADR -- American Depositary Receipt
------------------------------------------------------------
SUMMARY OF FOREIGN & US SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
-----------------------------------------------------------------
Gold Mines............................. $ 28,134 93.0%
--------- ---
--------- ---
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GOLD PORTFOLIO
64
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
----------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
----------------------------------------------------------
VALUE
SHARES (000)
----------------------------------------------------------
COMMON STOCKS (88.3%)
AUSTRALIA (4.0%)
3,000,000 Brambles Industries Ltd........... $ 28,664
3,000,000 CSR Ltd........................... 10,354
+1,500,000 McPhersons Ltd.................... 256
3,934,882 Westpac Banking Corp.............. 13,244
---------
52,518
---------
BELGIUM (1.7%)
+63,700 Arbed S.A......................... 9,552
155,500 Delhaize Freres et Cie, 'Le Lion',
S.A............................. 6,316
160,000 G.I.B. Holdings, Ltd.............. 6,317
2,156 G.I.B. Holdings, Ltd. (New)....... 84
---------
22,269
---------
CANADA (0.4%)
+273,000 Cominco Ltd....................... 4,842
---------
DENMARK (1.1%)
236,000 Danisco........................... 8,422
+140,000 Unidanmark A/S, Class A
(Registered).................... 5,387
---------
13,809
---------
FINLAND (1.5%)
350,000 Huhtamaki Oy, Series 1............ 11,603
+361,000 Kansallis-Osake Pankki............ 422
721,000 Pohjola Insurance Co., Ltd., Class
B............................... 7,856
---------
19,881
---------
FRANCE (5.6%)
7,200 Bongrain S.A...................... 3,804
111,560 Cie de Saint Gobain............... 12,834
+148,000 Credit Lyonnais CDI............... 12,256
186,724 Elf Aquitaine..................... 13,150
25,800 Salomon S.A., Series A............ 10,320
+242,500 Thomson CSF....................... 7,260
224,170 Total S.A., Class B............... 13,028
---------
72,652
---------
GERMANY (10.3%)
110,000 BASF AG........................... 22,392
105,000 Bayer AG.......................... 24,337
105,000 Bremer Vulkan Verbund AG.......... 6,453
46,200 Commerzbank AG.................... 9,739
16,700 Hoechst AG........................ 3,520
55,000 Karstadt AG....................... 20,063
73,125 Mannesmann AG..................... 19,828
+17,030 Varta AG.......................... 3,189
75,000 Veba AG........................... 25,993
---------
135,514
---------
HONG KONG (1.9%)
90,600 China Light & Power Co. Ltd....... 427
7,300,000 Jardine Strategic Holdings,
Inc............................. 23,964
---------
24,391
---------
ITALY (3.3%)
2,910,000 Olivetti Di Risp (NCS)............ $ 2,781
2,568,000 SME Meridonale.................... 6,329
9,000,000 Stet Di Risp (NCS)................ 21,348
4,720,000 Telecom Italia S.p.A.............. 12,287
---------
42,745
---------
JAPAN (18.4%)
470,000 Aisin Seiki Co., Ltd.............. 6,559
800,000 Canon, Inc........................ 13,574
1,259,000 Daibiru Corp...................... 13,272
2,700 East Japan Railway Co............. 13,500
1,650,000 Fuji Photo Film, Ltd.............. 38,268
1,700,000 Hitachi Ltd....................... 16,880
1,180,000 Kao Corp.......................... 13,388
600,000 Kirin Brewery Co., Ltd............ 6,687
1,440,000 Matsushita Electric Industries
Ltd............................. 23,711
81,400 Murata Manufacturing Co., Ltd..... 3,146
2,302,000 Nichido Fire & Marine Insurance
Co.............................. 19,946
660 Nippon Telegraph & Telephone
Corp............................ 5,838
290,000 Sony Corp......................... 16,451
672,000 Stanley Electric Co............... 5,074
1,946,700 Sumitomo Rubber Industries........ 18,900
165,000 TDK Corp.......................... 8,002
500,000 Toyo Seikan Kaisha................ 16,667
---------
239,863
---------
NETHERLANDS (11.8%)
769,281 ABN Amro Holdings N.V............. 26,739
112,500 Akzo Nobel N.V.................... 12,996
79,082 Hollandsche Beton Groep N.V....... 12,227
629,362 Internationale Nederlanden Groep
N.V............................. 29,748
247,500 Koninklijke Bijenkorf Beheer
N.V............................. 13,981
+153,050 Nedlloyd Groep N.V................ 5,020
256,600 Oce-Van Der Grinten N.V........... 11,493
1,122,000 Philips Electronics N.V........... 33,244
61,200 Randstad Holdings N.V............. 3,313
8,915 Unilever N.V...................... 1,043
30,500 Unilever N.V. (Certificate)....... 3,585
---------
153,389
---------
NEW ZEALAND (0.5%)
2,098,671 Fisher & Paykel Industries Ltd.... 6,113
392,500 Smith City Group Ltd.............. --
---------
6,113
---------
NORWAY (1.4%)
+2,265,000 Den Norske Bank A/S, Class A
Free............................ 6,065
600,000 Hafslund Nycomed, Class B......... 12,605
---------
18,670
---------
SINGAPORE (0.3%)
3,265,000 Neptune Orient Lines Ltd.
(Foreign)....................... 4,480
---------
SPAIN (2.8%)
404,600 Banco Espana de Credito S.A....... 2,843
202,300 Banco Espana de Credito S.A.
(New)........................... 1,422
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
65
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
----------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
----------------------------------------------------------
VALUE
SHARES (000)
----------------------------------------------------------
SPAIN (CONT.)
+297,500 Grupo Duro Felguera S.A........... $ 1,379
889,500 Iberdrola SA...................... 5,487
294,000 Sevillana de Electricidad S.A..... 1,389
2,000,000 Telefonica Nacional de Espana
S.A............................. 23,628
---------
36,148
---------
SWEDEN (2.1%)
+2,251,800 Skandinaviska Enskilda Banken,
Class A......................... 12,879
+473,000 S.K.F. AB, Class B................ 7,798
401,200 Svenska Cellulosa AB, Class B..... 6,290
---------
26,967
---------
SWITZERLAND (7.9%)
29,583 Alusuisse-Lonza Holdings Ltd.
(Registered).................... 14,808
2,605 Ascom Holdings AG (Bearer)........ 2,767
25,000 Ciba-Geigy AG (Registered)........ 14,922
8,000 Forbo Holdings AG (Registered).... 6,725
1,650 Grands Magasins Jelmoli
(Bearer)........................ 921
19,585 Grands Magasins Jelmoli
(Registered).................... 2,006
33,210 Holderbank Glarus (Bearer)........ 25,152
27,740 Moevenpick Holding AG
(Participating Certificates).... 10,494
7,620 Nestle S.A. (Registered).......... 7,262
31,500 SwissAir (Registered)............. 18,536
---------
103,593
---------
UNITED KINGDOM (13.3%)
8,103,000 ASDA Group plc.................... 8,568
1,065,000 Associated British Foods plc...... 9,409
+1,360,104 Automated Security Holdings plc... 1,385
2,028,870 Barclays plc...................... 19,403
1,820,000 Bass plc.......................... 14,668
1,236,785 BOC Group plc..................... 13,639
786,436 British Aerospace plc............. 5,267
1,992,000 Christian Salvesen plc............ 8,488
2,748,221 Forte plc......................... 10,332
1,675,000 Grand Metropolitan plc............ 10,679
3,440,000 Hillsdown Holdings plc............ 9,646
4,841,985 John Mowlem & Co. plc............. 7,661
229,723 Kleinwort Benson plc.............. 1,990
1,100,000 Kwik Save Group plc............... 9,477
943,000 McAlpine (Alfred) plc............. 2,526
1,871,543 Pilkington plc.................... 4,867
290,500 Reckitt & Colman plc.............. 2,671
2,074,588 Rolls-Royce plc................... 5,834
3,345,205 Royal Insurance Holdings plc...... 14,620
755,000 Unilever plc...................... 13,696
---------
174,826
---------
TOTAL COMMON STOCKS (Cost $932,804)............ 1,152,670
---------
PREFERRED STOCKS (4.2%)
GERMANY (4.2%)
32,750 Fag Kugelficsher AG............... $ 4,757
100,000 RWE AG............................ 22,597
29,525 Spar Handels AG................... 6,195
100,000 Volkswagen AG..................... 21,983
---------
TOTAL PREFERRED STOCKS (Cost $47,077).......... 55,532
---------
CONVERTIBLE PREFERRED SECURITIES (0.3%)
HONG KONG (0.3%)
1,863,000 Jardine Strategic Holdings, Inc.
IDR, 7.50%, 5/07/97............. 2,268
---------
NETHERLANDS (0.0%)
1,506 ABN Amro Holdings N.V............. 6
2,196 International Nederlanden Groep
N.V............................. 9
---------
15
---------
TOTAL CONVERTIBLE PREFERRED SECURITIES (Cost
$1,923)........................................ 2,283
---------
CUMULATIVE UNSECURED LOAN STOCK (0.4%)
UNITED KINGDOM (0.4%)
863,500 Reckitt & Colman plc (Cost
$4,717)......................... 4,586
---------
NO. OF
RIGHTS
-----------
RIGHTS (0.0%)
FINLAND (0.0%)
361,000 Kansallis-Osake Pankki (Cost
$0)............................. 179
---------
NO. OF
WARRANTS
-----------
WARRANTS (0.0%)
SWITZERLAND (0.0%)
120 Ciba-Geigy AG, expiring 6/06/95... --
7,280 Forbo Holding AG (Registered),
expiring 11/01/95............... 18
---------
TOTAL WARRANTS (Cost $1).......................
18
---------
TOTAL FOREIGN SECURITIES (93.2%) (Cost
$986,522)...................................... 1,215,268
---------
FACE
AMOUNT
(000)
------------
SHORT-TERM INVESTMENTS (7.1%)
US GOVERNMENT AND AGENCY OBLIGATIONS (3.4%)
$ 20,000 US Treasury Bill, 1/19/95.......... 19,950
25,000 Federal Farm Credit Bank, Discount
Note, 5.95%, 1/03/95............. 24,985
---------
44,935
---------
REPURCHASE AGREEMENT (3.7%)
47,996 Goldman Sachs, 5.30%, dated
12/30/94, due 1/03/95, to be
repurchased at $48,010,
collateralized by $48,530 United
States Treasury Notes, 7.875%,
due 11/15/99, valued at
$49,074.......................... 47,996
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $92,938)...... 92,931
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
66
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
FOREIGN CURRENCY (0.2%)
A$ 2 Australian Dollar................ $ 2
L 359 British Pound.................... 562
C$ 1,156 Canadian Dollar.................. 824
DK 2,156 Danish Krone..................... 355
DM 591 Deutsche Mark.................... 382
Y 110,270 Japanese Yen..................... 1,107
NG 18 Netherlands Guilder.............. 11
NZ$ 1 New Zealand Dollar............... --
-------
TOTAL FOREIGN CURRENCY (Cost $3,219).............. 3,243
---------
TOTAL INVESTMENTS (100.5%)
(Cost $1,082,679)............................... 1,311,442
---------
OTHER ASSETS (0.5%)
Cash.................................. $ 17
Dividends Receivable.................. 2,529
Receivable for Investments Sold....... 1,695
Receivable for Portfolio Shares
Sold................................. 1,458
Foreign Withholding Tax Reclaim
Receivable........................... 1,095
Interest Receivable................... 14
Other................................. 125 6,933
---------
LIABILITIES (-1.0%)
Payable for Investments Purchased..... (7,437)
Net Unrealized Loss on Forward Foreign
Currency Contracts................... (2,962)
Investment Advisory Fees Payable...... (2,434)
Payable for Portfolio Shares
Redeemed............................. (334)
Administrative Fees Payable........... (170)
Custodian Fees Payable................ (85)
Directors' Fees & Expenses............ (1)
Other Liabilities..................... (182) (13,605)
--------- ---------
NET ASSETS (100%).................................. $1,304,770
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 85,070,714 outstanding $.001 par
value shares (authorized 500,000,000 shares)..... $15.34
---------
---------
------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open
at December 31, 1994, the Portfolio is obligated to deliver
or is to receive foreign currency in exchange for US dollars
or foreign currency as indicated below:
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------------- --------- ----------- ----------- --------- -------------
C$ 1,156 $ 824 1/03/95 $ 823 $ 823 $ (1)
$ 663 663 1/03/95 Y 66,214 664 1
DM 590 381 1/03/95 $ 381 381 --
$ 454 454 1/03/95 SK 3,389 456 2
L 3,407 5,333 1/18/95 $ 5,000 5,000 (333)
C$ 80,352 57,254 3/01/95 Y 5,750,000 58,170 916
Y 5,750,000 58,170 3/01/95 C$ 75,648 53,902 (4,268)
SP 4,100,000 30,860 6/01/95 $ 31,079 31,079 219
DM 40,000 26,096 8/09/95 $ 25,252 25,252 (844)
Y 6,115,000 63,832 9/27/95 $ 64,627 64,627 795
CHF 66,500 52,128 11/14/95 $ 52,749 52,749 621
FF 206,000 38,811 11/20/95 $ 38,741 38,741 (70)
--------- --------- -------------
$ 334,806 $ 331,844 $ (2,962)
--------- --------- -------------
--------- --------- -------------
------------------------------------------------------------
+ -- Non-income producing securities
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
L -- British Pound
C$ -- Canadian Dollar
DM -- Deutsche Mark
FF -- French Franc
SP -- Spanish Peseta
SK -- Swedish Krona
CHF -- Swiss Franc
Y -- Japanese Yen
The interest rate disclosed for the Federal Farm Credit Bank Discount Note
represents effective yield.
------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
----------------------------------------------------------------
Capital Equipment................. $ 232,575 17.8%
Consumer Goods.................... 242,951 18.6
Energy............................ 59,475 4.6
Finance........................... 224,292 17.2
Materials......................... 214,019 16.4
Multi-Industry.................... 41,254 3.2
Services.......................... 200,702 15.4
--------- ---
$1,215,268 93.2%
--------- ---
--------- ---
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
67
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------
COMMON STOCKS (96.0%)
AUSTRALIA (10.7%)
990,079 Bains Harding Ltd.................... $ 560
2,430,385 BRL Hardy Ltd........................ 2,903
140,833 BRL Hardy Ltd. (New)................. 57
2,106,000 Burswood Property Trust.............. 2,156
2,351,732 Country Road Ltd..................... 2,152
+3,099,000 McPhersons Ltd....................... 529
1,096,000 Palmer Tube Mills Ltd................ 867
5,138,265 Parbury Ltd.......................... 2,590
1,249,957 S.E.A.S. Sapfor Ltd.................. 4,120
1,527,800 Solution 6 Holdings Ltd.............. 1,126
---------
17,060
---------
DENMARK (1.2%)
53,900 SYD-Sonderjylland Holdings........... 1,861
---------
FINLAND (2.5%)
85,500 Amer-Yhtymae Oy, Class A............. 1,480
180,000 Hartwall Oy, Class A................. 2,547
---------
4,027
---------
FRANCE (9.3%)
29,400 Dauphin O.T.A........................ 1,763
5,400 De Dietrich et Compagnie............. 2,893
4,980 Galeries Layfayette.................. 2,137
+39,000 Legris Industries S.A................ 2,400
24,500 Precision Mecaniques Labinal S.A..... 3,121
61,700 Sediver S.A.......................... 2,543
---------
14,857
---------
GERMANY (6.5%)
11,345 Duerr Beteiligungs AG................ 4,285
10,688 Sinn AG.............................. 2,291
+15,880 Varta AG............................. 2,973
2,210 Vossloh AG........................... 799
---------
10,348
---------
HONG KONG (1.0%)
5,200,000 Pico Far East Holdings Ltd........... 564
5,000,000 Tungtex Holdings Co., Ltd............ 582
1,218,000 Vitasoy International Holdings
Ltd................................ 421
---------
1,567
---------
IRELAND (3.2%)
1,042,003 Anglo Irish Bank Corp. plc (Irish
Pound Shares)...................... 886
275,110 Arnotts plc.......................... 957
990,000 Avonmore Foods plc, Class A.......... 1,882
687,000 Green Property plc................... 1,413
---------
5,138
---------
ITALY (1.7%)
34,200 Pininfarina S.p.A.................... 367
30,000 Safilo S.p.A......................... 187
444,000 Unicem Di Risp (NCS)................. 1,507
30,000 Vincenzo Zucchi S.p.A................ 161
212,500 Vincenzo Zucchi S.p.A. (NCS)......... $ 577
---------
2,799
---------
JAPAN (11.5%)
15,000 Daikin Manufacturing Ltd............. 316
231,000 Foster Electric Co., Ltd............. 1,749
707,000 Japan Oil Transportation............. 4,848
213,000 Japan Vilene Co., Ltd................ 1,495
99,000 Kansei Corp.......................... 937
87,000 Nifco, Inc........................... 1,328
179,000 Toc Co............................... 3,594
442,000 Tokai Senko K.K...................... 2,751
170,000 Toyoda Gosei Co...................... 1,417
---------
18,435
---------
NETHERLANDS (9.7%)
15,700 Ahrend Groep N.V..................... 1,645
11,790 Holdingsmij de Telegraaf N.V......... 1,359
23,000 Hollandsche Beton Groep N.V.......... 3,553
28,885 Industriemij Welna N.V............... 783
36,200 Konin Nijverdal-Ten Carte N.V........ 1,649
124,600 Koninklijke Van Ommeren N.V.......... 3,275
8,450 Polynorm N.V......................... 830
44,400 Randstad Holdings N.V................ 2,403
---------
15,497
---------
NEW ZEALAND (2.5%)
645,592 Fisher & Paykel Industries Ltd....... 1,881
359,600 Wilson & Horton Ltd.................. 2,060
---------
3,941
---------
NORWAY (2.0%)
9,100 Adelsten, Class B.................... 1,548
228,020 Oceanor.............................. 641
14,350 Simrad A/S Nokio, Class A............ 159
90,000 Simrad A/S Nokio, Class B............ 906
---------
3,254
---------
SPAIN (4.1%)
+65,500 Asturiana del Zinc S.A............... 712
61,693 Bodegas y Bebidas S.A................ 1,687
73,300 Gas y Electricidad S.A............... 3,108
25,545 Prosegur Comp Securidad S.A.......... 485
40,285 Viscofan Envolturas Celulosicas
S.A................................ 612
---------
6,604
---------
SWITZERLAND (14.1%)
3,385 Bobst AG (Bearer).................... 3,906
7,060 Elco Looser Holding AG
(Registered)....................... 2,698
885 Grands Magasins Jelmoli (Bearer)..... 494
3,800 Hero AG.............................. 1,844
995 Kuoni Riesebuero AG (Participating
Certificates)...................... 1,285
5,424 Magazine Globus (Participating
Certificates)...................... 3,245
5,850 Porst Holding AG (Bearer)............ 975
590 Schweizerische Industrie-Gesellschaft
Holdings (Bearer).................. 1,118
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
68
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
SWITZERLAND (CONT.)
4,140 Schweizerische Industrie-Gesellschaft
Holdings (Registered).............. $ 3,797
+4,775 Zellweger Uster AG (Bearer).......... 3,284
---------
22,646
---------
UNITED KINGDOM (16.0%)
3,500,000 Anglo Irish Bank Corp. plc (British
Pound Shares)...................... 2,961
392,000 Asprey plc........................... 854
+1,449,216 Blagden Industries plc............... 2,338
212,000 Bluebird Toys plc.................... 760
447,000 Burtonwood Brewery plc............... 1,232
3,790,000 Casket plc........................... 1,544
214,300 Church & Co. plc..................... 1,611
162,120 Davis Service Group plc.............. 610
+3,045,850 Donelon Tyson plc.................... 573
952,000 GEI International plc................ 1,148
212,000 Hadleigh Industries Group plc........ 442
390,000 Hornby Group plc..................... 819
877,294 John Mowlem & Co. plc................ 1,388
206,335 Mallett plc.......................... 272
854,805 Matthew (Bernard) plc................ 1,527
98,000 Moss Bros. Group plc................. 520
32,000 Nurdin & Peacock plc................. 82
117,905 Partridge Fine Arts plc.............. 144
+2,659,393 Pentos plc........................... 604
345,526 Perry Group plc...................... 871
3,120,000 Shandwick plc........................ 1,979
691,000 Sketchley plc........................ 1,007
1,370,000 The 600 Group plc.................... 1,717
418,735 Waterman Partnership Holdings plc.... 354
+1,497,300 Wembley plc.......................... 117
804,695 YRM plc.............................. 214
---------
25,688
---------
TOTAL COMMON STOCKS (Cost $155,094).............. 153,722
---------
PREFERRED STOCKS (1.7%)
GERMANY (1.7%)
1,385 Jil Sander AG........................ 791
7,745 Shaerf AG............................ 1,925
---------
TOTAL PREFERRED STOCKS (Cost $2,710)............. 2,716
---------
NO. OF
RIGHTS
----------
RIGHTS (0.0%)
SPAIN (0.0%)
**61,693 Bodegas y Bebidas S.A., expiring
1/24/95 (Cost $0).................. 7
---------
NO. OF
WARRANTS
----------
WARRANTS (0.0%)
HONG KONG (0.0%)
452,000 Pico Far East Holdings Ltd, expiring
4/30/96 (Cost $0).................. 6
---------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.2%)
ITALY (0.2%)
IL 518,000 Mediobanca S.p.A. 5.50%, 1/01/00
(Cost $328)........................ $ 275
---------
TOTAL FOREIGN SECURITIES (97.9%) (Cost
$158,132)........................................ 156,726
---------
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT (2.3%)
$ 3,725 U.S. Trust 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at
$3,727, collateralized by $3,875
United States Treasury Notes,
3.875%, due 4/30/95, valued at
$3,845 (Cost $3,725)............... 3,725
---------
FOREIGN CURRENCY (0.2%)
L 140 British Pound........................ 220
Y 3 Japanese Yen......................... --
CHF 85 Swiss Franc.......................... 65
---------
TOTAL FOREIGN CURRENCY (Cost $285)............... 285
---------
TOTAL INVESTMENTS (100.4%) (Cost $162,142)....... 160,736
---------
OTHER ASSETS (0.2%)
Dividends Receivable................... $ 156
Foreign Withholding Tax Reclaim
Receivable............................ 109
Interest Receivable.................... 9
Receivable for Portfolio Shares Sold... 3
Other.................................. 13 290
------
LIABILITIES (-0.6%)
Investment Advisory Fees Payable....... (302)
Payable for Investments Purchased..... (285)
Net Unrealized Loss on Forward Foreign
Currency Contracts................... (139)
Bank Overdraft........................ (86)
Custodian Fees Payable................ (21)
Administrative Fees Payable........... (20)
Directors' Fees & Expenses............ (1)
Other Liabilities..................... (71) (925)
------- ---------
NET ASSETS (100%)....................... $ 160,101
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 10,566,294 outstanding $.001 par
value shares (authorized 500,000,000 shares)...... $15.15
---------
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
69
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at
December 31, 1994, the Portfolio is obligated to deliver or
is to receive foreign currency in exchange for US dollars or
foreign currency as indicated below:
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------------ --------- ----------- --------- --------- -------------
Y 400,000 $ 4,047 3/01/95 C$ 5,262 $ 3,750 $ (297)
C$ 5,590 3,983 3/01/95 Y400,000 4,047 64
Y 725,000 7,568 9/27/95 $ 7,662 7,662 94
--------- --------- -----
$ 15,598 $ 15,459 $ (139)
--------- --------- -----
--------- --------- -----
------------------------------------------------------------
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
NCS -- Non Convertible Shares
C$ -- Canadian Dollar
IL -- Italian Lira
Y -- Japanese Yen
------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
----------------------------------------------------------------------
Capital Equipment........................... $ 41,203 25.7%
Consumer Goods.............................. 32,010 20.0
Energy...................................... 3,819 2.4
Finance..................................... 13,368 8.4
Materials................................... 20,684 12.9
Multi-Industry.............................. 3,094 1.9
Services.................................... 42,548 26.6
--------- -----
$ 156,726 97.9%
--------- -----
--------- -----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
70
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
--------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
--------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------
COMMON STOCKS (97.6%)
CAPITAL EQUIPMENT (19.9%)
80,000 Amada Co., Ltd......................... $ 1,004
40,000 Daifuku................................ 675
91,000 Daikin Industries Ltd.................. 808
31,000 Fuji Machine Manufacturing Co.......... 1,021
100,000 Kyudenko Co., Ltd...................... 1,255
100,000 Matsui Construction.................... 859
120,000 Mitsubishi Heavy Industries Ltd........ 916
56,000 Nifco, Inc............................. 855
80,000 Ricoh Co., Ltd......................... 795
100,000 Taisei Corp., Ltd...................... 620
111,000 Teijin Seiki Co., Ltd.................. 641
100,000 Tsubakimoto Chain...................... 542
---------
9,991
---------
CONSUMER GOODS (16.5%)
40,000 Aoyama Trading Co...................... 912
35,000 Fuji Photo Film Ltd.................... 812
15,000 Ito Yokado Co., Ltd.................... 803
100,000 Japan Vilene Co., Ltd.................. 702
20,000 Nintendo Corp. Ltd..................... 1,082
150,000 Nissan Motor Co........................ 1,239
25,000 Sankyo Co., Ltd........................ 622
130,000 Suzuki Motor Co., Ltd.................. 1,527
30,000 Yamanouchi Pharmaceutical Co........... 617
---------
8,316
---------
ELECTRICAL & ELECTRONICS (24.7%)
44,000 CMK.................................... 826
170,000 Hitachi Ltd............................ 1,688
12,000 Kyocera Corp........................... 890
100,000 Matsushita Electric Industries Ltd..... 1,647
80,000 Mitsumi Electric Co., Ltd.............. 1,124
100,000 NEC Corp............................... 1,145
34,000 Nitto Denko Corp....................... 539
16,000 Sony Corp.............................. 908
120,000 Stanley Electric Co.................... 906
27,000 TDK Corp............................... 1,309
200,000 Toshiba Corp........................... 1,452
---------
12,434
---------
FINANCE (13.5%)
85,000 Daiwa Securities Co., Ltd.............. 1,229
48,000 Keihanshin Real Estate................. 429
80,000 Mitsubishi Estate Co., Ltd............. 859
85,000 Nichido Fire & Marine Insurance........ 736
60,000 Nomura Securities Co................... 1,247
64,000 Sumitomo Corporation's Leasing......... 598
95,000 Sumitomo Marine & Fire Insurance....... 820
150,000 Sumitomo Realty & Development.......... 889
---------
6,807
---------
MATERIALS (9.5%)
50,000 Asahi Tec Corp......................... 470
120,000 Kaneka Corp............................ 898
100,000 Kansei Corp............................ 947
100,000 Okura Industrial Co., Ltd.............. 813
98,000 Sekisui Chemical Co.................... 974
20,000 Toyo Seikan Kaisha..................... 667
---------
4,769
---------
MULTI-INDUSTRY (1.7%)
14,000 FamilyMart............................. 864
---------
SERVICES (11.8%)
50,000 Dai Nippon Printing Co., Ltd........... $ 853
60,000 Inabata & Co........................... 491
85,000 Nippon Konpo Unyu Soko................. 777
47,000 Nishio Rent All Co..................... 1,175
26,000 Sangetsu Co., Ltd...................... 783
16,000 Secom Co., Ltd......................... 996
130,000 Tokyu Corp............................. 861
---------
5,936
---------
TOTAL COMMON STOCKS (Cost $49,593)................. 49,117
---------
FACE
AMOUNT
(000)
------------
SHORT-TERM INVESTMENTS (2.2%)
REPURCHASE AGREEMENT (1.6%)
$ 829 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at $830,
collateralized by $865 United States
Treasury Notes, 3.875%, due,
3/31/95, valued at $861............. 829
---------
TIME DEPOSIT (0.6%)
Y 28,842 Sanwa Bank 2.25%, 1/04/95............. 290
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,119).......... 1,119
---------
FOREIGN CURRENCY (0.2%)
Y 11,560 Japanese Yen (Cost $116).............. 116
---------
TOTAL INVESTMENTS (100%) (Cost $50,828)............. 50,352
---------
OTHER ASSETS (0.6%)
Unrealized Gain on Forward Foreign
Currency Contract...................... $ 261
Dividends Receivable.................... 14
Other................................... 5 280
---------
LIABILITIES (-0.6%)
Payable for Portfolio Shares Redeemed... (163)
Investment Advisory Fees Payable........ (76)
Administrative Fees Payable............. (7)
Custodian Fees Payable.................. (6)
Directors' Fees & Expenses Payable...... (1)
Other Liabilities....................... (47) (300)
--------- ---------
NET ASSETS (100%)....................................
$ 50,332
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 5,120,660 outstanding $.001 par value
shares (authorized 500,000,000 shares)............. $9.83
-----
-----
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at
December 31, 1994, the portfolio is obligated to deliver
foreign currency in exchange for US dollars as indicated
below:
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
------------- --------- ----------- ------------ --------- ---------------
Y 1,795,000 $ 18,363 5/22/95 $ 18,624 $ 18,624 $ 261
--------- ------------ --------- -----
--------- ------------ --------- -----
------------------------------------------------------------
Y -- Japanese Yen
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
71
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (95.6%)
CAPITAL GOODS/CONSTRUCTION (0.9%)
ELECTRICAL EQUIPMENT (0.3%)
10,000 Molex, Inc., Class A.................. $ 310
---------
ENVIRONMENTAL CONTROLS (0.6%)
+48,000 Western Waste Industries.............. 720
---------
TOTAL CAPITAL GOODS/CONSTRUCTION............... 1,030
---------
CONSUMER CYCLICAL (22.9%)
AUTOMOTIVE (1.6%)
60,000 Pep Boys-Manny, Moe & Jack............ 1,860
---------
BROADCAST-RADIO & TELEVISION (1.3%)
44,700 Lee Enterprises, Inc.................. 1,542
---------
FOOD SERVICE & LODGING (8.1%)
+100,000 Bertucci's, Inc....................... 1,100
+59,700 Brinker International, Inc............ 1,082
+80,000 Cheesecake Factory, Inc............... 1,220
90,000 Cracker Barrel Old Country Store, Inc. 1,642
48,700 Hospitality Franchise Systems, Inc.... 1,291
+75,000 ShoLodge, Inc......................... 1,594
+80,000 Sonic Corp............................ 1,620
---------
9,549
---------
GAMING & LODGING (0.0%)
4,740 National Gaming Corp.................. 57
---------
PUBLISHING (1.3%)
+29,700 Scholastic Corp....................... 1,507
---------
RETAIL - GENERAL (10.6%)
+70,000 Bed, Bath & Beyond, Inc............... 2,100
80,000 Central Tractor Farm & Country, Inc... 1,160
+70,000 Dress Barn, Inc....................... 744
+70,000 General Nutrition Cos., Inc........... 2,030
65,000 Heilig Meyers Co...................... 1,641
+40,000 Kohl's Corp........................... 1,590
+80,000 Lechters, Inc......................... 1,340
+80,000 Sunglass Hut International, Inc....... 1,840
---------
12,445
---------
TOTAL CONSUMER CYCLICAL........................ 26,960
---------
CONSUMER STAPLES (26.4%)
DRUGS (6.2%)
+60,000 Alza Corp. (Delaware), Class A........ 1,080
50,000 Forest Laboratories, Inc.............. 2,331
+5,400 Genzyme Corp. - Tissue Repair......... 20
+40,000 Genzyme Corp. - General Division...... 1,240
+80,000 Immucor, Inc.......................... 400
+50,000 Scherer (R.P.) Corp................... 2,269
---------
7,340
---------
HEALTH CARE SUPPLIES & SERVICES (20.2%)
50,000 Arrow International, Inc.............. 1,687
41,600 Ballard Medical Products.............. 442
+100,000 Biomet, Inc........................... 1,375
+50,000 Coastal Healthcare Group, Inc......... $ 1,369
+80,000 Haemonetics Corp...................... 1,380
+47,400 Health Management, Inc................ 847
+65,000 Health Management Systems, Inc........ 2,112
+60,000 Healthsource, Inc..................... 2,453
+55,000 HEALTHSOUTH Rehabilitation Corp....... 2,035
+50,000 IDEXX Laboratories, Inc............... 1,800
+75,000 Mariner Health Group, Inc............. 1,622
+50,000 Physician Corp. of America............ 1,025
+60,000 Quantum Health Resources, Inc......... 1,710
+65,000 Vencor, Inc........................... 1,812
+75,000 Vivra, Inc............................ 2,100
---------
23,769
---------
TOTAL CONSUMER STAPLES......................... 31,109
---------
FINANCE (7.4%)
BANKING (1.1%)
45,000 State Street Boston Corp.............. 1,282
---------
FINANCIAL SERVICES (3.8%)
100,000 CashAmerica Investments, Inc.......... 988
35,000 First Financial Management Corp....... 2,157
75,000 SEI Corp.............................. 1,256
---------
4,401
---------
INSURANCE (2.5%)
50,000 Mutual Risk Management Ltd............ 1,313
50,000 NAC Re Corp........................... 1,675
---------
2,988
---------
TOTAL FINANCE.................................. 8,671
---------
MATERIALS (3.7%)
MISCELLANEOUS MATERIALS & COMMODITIES (3.7%)
+85,000 Viking Office Products, Inc........... 2,593
90,000 X-Rite, Inc........................... 1,778
---------
TOTAL MATERIALS................................ 4,371
---------
SERVICES (9.4%)
PROFESSIONAL SERVICES (9.4%)
60,000 Cintas Corp........................... 2,100
+90,000 CUC International, Inc................ 3,015
110,000 G & K Services, Inc., Class A......... 1,829
+50,000 Medaphis Corp......................... 2,300
50,000 Premier Industrial Corp............... 1,181
+46,800 Vallen Corp........................... 643
---------
TOTAL SERVICES................................. 11,068
---------
TECHNOLOGY (24.9%)
ELECTRONICS (11.3%)
+39,200 Electroglas, Inc...................... 1,308
46,200 Fusion Systems Corp................... 1,213
+24,600 Level One Communications, Inc......... 369
60,000 Linear Technology, Inc................ 2,955
+62,000 Maxim Integrated Products, Inc........ 2,170
40,000 Sensormatic Electronics............... 1,440
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
72
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO (CONT.)
------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------
ELECTRONICS (CONT.)
+65,000 Xilinx, Inc........................... $ 3,835
---------
13,290
---------
OFFICE EQUIPMENT (13.0%)
+70,000 BISYS Group, Inc...................... 1,549
+55,000 Compuware Corp........................ 1,966
+60,000 Concord EFS Corp...................... 1,485
+60,000 EMC Corp.............................. 1,298
+90,000 Informix Corp......................... 2,891
+50,000 Progress Software Corp................ 1,888
+50,000 SPS Transaction Services, Inc......... 1,312
+55,000 SunGard Data Systems, Inc............. 2,090
+20,000 Wall Data, Inc........................ 795
---------
15,274
---------
TELECOMMUNICATIONS (0.6%)
+40,000 Mobile Telecommunications Technologies
Corp................................ 780
---------
TOTAL TECHNOLOGY............................... 29,344
---------
TOTAL COMMON STOCKS (Cost $87,557)........... 112,553
---------
FACE
AMOUNT
(000)
---------
SHORT-TERM INVESTMENT (3.9%)
REPURCHASE AGREEMENT (3.9%)
$4,566 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at
$4,569, collateralized by $4,735
United States Treasury Notes 3.875%,
due 3/31/95-4/30/95, valued at
$4,712 (Cost $4,566)................ 4,566
---------
TOTAL INVESTMENTS (99.5%) (Cost $92,123)......... 117,119
---------
VALUE
(000)
-------------------------------------------------------------
OTHER ASSETS (1.6%)
Cash................................... $ 1
Receivable for Portfolio Shares Sold... 1,784
Dividends Receivable................... 32
Interest Receivable.................... 1
Other.................................. 10 $ 1,828
---------
LIABILITIES (-1.1%)
Payable for Portfolio Shares
Redeemed.............................. (914)
Investment Advisory Fees Payable....... (289)
Payable for Investments Purchased...... (26)
Administrative Fees Payable............ (15)
Custodian Fees Payable................. (6)
Directors' Fees & Expenses............. (1)
Other Liabilities...................... (27) (1,278)
--------- ---------
NET ASSETS (100%)................................... $ 117,669
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 7,301,095 outstanding $.001 par
value shares (authorized 500,000,000 shares)...... $16.12
---------
---------
------------------------------------------------------------
+ -- Non-income producing securities
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
73
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
-------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
COMMON STOCKS (88.2%)
CAPITAL GOODS/CONSTRUCTION (13.5%)
AEROSPACE & DEFENSE (10.4%)
17,700 General Dynamics Corp................. $ 770
28,600 General Motors Corp., Class H......... 998
22,100 Loral Corp............................ 837
21,900 McDonnell Douglas Corp................ 3,110
37,600 Rockwell International Corp........... 1,344
49,500 United Technologies Corp.............. 3,112
---------
10,171
---------
BUILDING & CONSTRUCTION (0.7%)
+34,700 USG Corp.............................. 677
---------
ELECTRICAL EQUIPMENT (1.6%)
30,000 General Electric Co................... 1,530
---------
MACHINERY (0.8%)
13,500 Caterpillar, Inc...................... 744
---------
TOTAL CAPITAL GOODS/CONSTRUCTION.................. 13,122
---------
CONSUMER-CYCLICAL (20.8%)
AUTOMOTIVE (4.5%)
42,800 Chrysler Corp......................... 2,097
39,500 Ford Motor Co......................... 1,106
34,200 Goodyear Tire & Rubber Co............. 1,150
---------
4,353
---------
BROADCAST-RADIO & TELEVISION (3.6%)
6,400 Capital Cities ABC, Inc............... 546
6,940 CBS, Inc.............................. 384
70,500 New World Communications.............. 828
31,700 Turner Broadcasting System, Inc.,
Class B............................. 519
+3,104 Viacom, Inc., Class A................. 129
+25,918 Viacom, Inc., Class B................. 1,053
---------
3,459
---------
FOOD SERVICE & LODGING (3.4%)
+41,150 Boston Chicken, Inc................... 715
65,100 Cracker Barrel Old Country Store,
Inc................................. 1,204
54,000 Hospitality Franchise Systems, Inc.... 1,431
---------
3,350
---------
GAMING & LODGING (1.4%)
+29,250 Mirage Resorts, Inc................... 600
4,950 National Gaming Corp.................. 59
+22,600 Promus Cos., Inc...................... 701
---------
1,360
---------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.8%)
17,700 Duracell International, Inc........... 768
---------
LEISURE RELATED (1.2%)
24,600 Eastman Kodak Co...................... 1,175
---------
PUBLISHING (1.5%)
12,100 Gannett Co., Inc...................... 644
22,600 Time Warner, Inc...................... 794
---------
1,438
---------
RETAIL-GENERAL (4.4%)
+50,800 Autozone, Inc......................... $ 1,232
+43,100 General Nutrition Cos., Inc........... 1,250
23,400 Home Depot, Inc....................... 1,076
20,800 Lowe's Cos., Inc...................... 723
---------
4,281
---------
TOTAL CONSUMER-CYCLICAL........................... 20,184
---------
CONSUMER-STAPLES (16.9%)
BEVERAGES & TOBACCO (8.1%)
45,500 Coca Cola Co.......................... 2,343
34,400 PepsiCo, Inc.......................... 1,247
46,400 Philip Morris Cos., Inc............... 2,668
+115,400 RJR Nabisco Holdings Corp............. 635
36,450 UST, Inc.............................. 1,011
---------
7,904
---------
DRUGS (3.5%)
21,700 Merck & Co., Inc...................... 828
17,750 Pfizer, Inc........................... 1,371
15,800 Schering-Plough Corp.................. 1,169
---------
3,368
---------
FOOD (1.9%)
10,500 Kellogg Co............................ 610
32,500 Ralcorp Holdings, Inc................. 723
9,900 Wrigley (Wm.) Jr. Co.................. 489
---------
1,822
---------
HEALTH CARE SUPPLIES & SERVICES (2.8%)
29,400 Columbia/HCA Healthcare Corp.......... 1,073
+6,800 Foundation Health Corp................ 211
+33,900 Humana, Inc........................... 767
15,900 United Healthcare Corp................ 717
---------
2,768
---------
PERSONAL CARE PRODUCTS (0.6%)
8,100 Gillette Co........................... 606
---------
TOTAL CONSUMER-STAPLES............................ 16,468
---------
DIVERSIFIED (2.0%)
57,000 AlliedSignal, Inc..................... 1,938
---------
ENERGY (4.1%)
COAL, GAS, & OIL (4.1%)
10,400 Exxon Corp............................ 632
13,900 Mobil Corp............................ 1,171
12,400 Royal Dutch Petroleum Co.............. 1,333
9,900 Tenneco, Inc.......................... 421
18,900 Williams Cos., Inc.................... 475
---------
TOTAL ENERGY...................................... 4,032
---------
FINANCE (18.1%)
BANKING (7.4%)
18,800 Citicorp.............................. 778
9,500 First Interstate Bancorp.............. 642
26,300 Morgan (J.P.) & Co., Inc.............. 1,473
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
74
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
-------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO (CONT.)
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
BANKING (CONT.)
29,800 Wells Fargo & Co...................... $ 4,321
---------
7,214
---------
FINANCIAL SERVICES (10.7%)
18,300 Dean Witter Discover & Co............. 620
68,400 Federal Home Loan Mortgage Corp....... 3,454
42,100 Federal National Mortgage
Association......................... 3,068
15,600 Franklin Resources, Inc............... 556
10,350 Loews Corp............................ 899
8,800 Salomon, Inc.......................... 330
25,900 Student Loan Marketing Association.... 842
19,400 Travelers, Inc........................ 631
---------
10,400
---------
TOTAL FINANCE..................................... 17,614
---------
MATERIALS (2.4%)
BUILDING MATERIALS & COMPONENTS (0.6%)
+13,800 Applied Material, Inc................. 583
---------
CHEMICALS (1.8%)
11,600 Hercules, Inc......................... 1,338
5,900 Monsanto Co........................... 416
---------
1,754
---------
TOTAL MATERIALS................................... 2,337
---------
SERVICES (1.0%)
PROFESSIONAL SERVICES (1.0%)
+27,800 CUC International, Inc................ 931
---------
TECHNOLOGY (9.4%)
COMPUTERS (2.1%)
+13,350 Cabletron Systems, Inc................ 621
+13,800 Compaq Computer Corp.................. 545
11,200 International Business Machines Corp.. 823
---------
1,989
---------
ELECTRONICS (4.6%)
15,850 Intel Corp............................ 1,012
8,800 Linear Technology, Inc................ 436
10,700 Motorola, Inc......................... 619
67,700 Watkins-Johnson Co.................... 2,014
+6,400 Xilinx, Inc........................... 379
---------
4,460
---------
SOFTWARE SERVICES (0.4%)
+9,600 Oracle System Corp.................... 424
---------
TELECOMMUNICATIONS (2.3%)
+15,900 Airtouch Communications............... 463
27,200 American Telephone & Telegraph Corp... 1,367
11,100 Telefonos de Mexico S.A. ADR, Class L. 455
---------
2,285
---------
TOTAL TECHNOLOGY................................ $ 9,158
---------
TOTAL COMMON STOCKS (Cost $84,907)................ 85,784
---------
NO. OF
RIGHTS
----------
RIGHTS (0.1%)
BROADCAST-RADIO & TELEVISION (0.1%)
+38,800 Viacom, Inc., expiring 7/07/95 (Cost
$168)............................... 44
---------
FACE
AMOUNT
(000)
----------
SHORT-TERM INVESTMENTS
US GOVERNMENT AND AGENCY OBLIGATIONS (12.4%)
$ 4,500 Federal Farm Credit Bank
Discount Note 5.95%, 1/03/95........... 4,497
7,600 Federal Home Loan Bank
Discount Note 5.75%, 1/03/95........... 7,600
---------
TOTAL US GOVERNMENT AND AGENCY OBLIGATIONS (Cost
$12,096)......................................... 12,097
---------
TOTAL INVESTMENTS (100.7%) (Cost $97,171)............ 97,925
---------
OTHER ASSETS (2.1%)
Cash.................................... $ 45
Receivable for Investments Sold......... 1,080
Receivable for Portfolio Shares Sold.... 705
Dividends Receivable.................... 168
Other................................... 8 2,006
---------
LIABILITIES (-2.8%)
Payable for Investments Purchased....... (2,512)
Investment Advisory Fees Payable........ (108)
Administrative Fees Payable............. (13)
Custodian Fees Payable.................. (9)
Payable for Portfolio Shares Redeemed... (1)
Directors' Fees & Expenses.............. (1)
Other Liabilities....................... (28) (2,672)
--------- ---------
NET ASSETS (100%).................................... $ 97,259
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 8,089,923 outstanding $.001 par value
shares (authorized 500,000,000 shares)............. $12.02
------
------
------------------------------------------------------------
+ -- Non-income producing securities
ADR -- American Depositary Receipt
Interest rates disclosed for US Government and Agency Obligations represent
effective yields.
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
75
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-------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
COMMON STOCKS (96.7%)
AEROSPACE (3.4%)
32,900 AAR Corp.............................. $ 440
18,000 Thiokol Corp.......................... 502
85,300 United Industrial Corp................ 416
---------
1,358
---------
BANKING (9.0%)
13,300 BB&T Financial Corp................... 372
15,000 Deposit Guaranty Corp................. 452
16,950 First Security Corp. (Delaware)....... 386
13,700 Fourth Financial Corp................. 425
11,400 Mercantile Bancorp.................... 356
16,000 Onbancorp, Inc........................ 372
16,000 Standard Federal Bank................. 382
22,110 Summit Bancorp., Inc.................. 428
15,200 Union Bank of San Francisco........... 407
---------
3,580
---------
BUILDING (3.3%)
14,300 Ameron, Inc. (Delaware)............... 416
29,800 Gilbert Associates, Inc., Class A..... 425
24,500 Pratt & Lambert, Inc.................. 459
---------
1,300
---------
CAPITAL GOODS (3.2%)
20,803 Binks Manufacturing Co................ 385
19,800 Cascade Corp.......................... 470
19,500 Starret (L.S.) Co., Class A........... 436
---------
1,291
---------
CHEMICALS (4.4%)
29,920 Aceto Corp............................ 419
20,600 Dexter Corp........................... 448
24,100 Learonal, Inc......................... 443
23,800 Quaker Chemical Corp.................. 446
---------
1,756
---------
COMMUNICATIONS (1.1%)
23,600 Comsat Corp........................... 440
---------
COMPUTERS (0.8%)
24,400 Gerber Scientific, Inc................ 317
---------
CONSUMER-DURABLES (3.2%)
18,000 Arvin Industries, Inc................. 419
23,298 Knape & Vogt Manufacturing Co......... 454
31,300 Oneida Ltd............................ 407
---------
1,280
---------
CONSUMER-RETAIL (5.8%)
25,300 CPI Corp.............................. 452
58,500 Deb Shops, Inc........................ 175
18,800 Edison Brothers Stores, Inc........... 348
21,700 Guilford Mills, Inc................... 483
12,800 Springs Industries, Inc., Class A..... 474
34,500 Venture Stores, Inc................... 401
---------
2,333
---------
CONSUMER-STAPLES (5.8%)
19,300 American Maize Products Co., Class A.. $ 490
13,802 Block Drug Co., Inc., Class A......... 525
25,700 Coors (Adolph), Inc., Class B......... 430
25,900 International Multifoods Corp......... 476
25,300 Nash Finch Co......................... 417
---------
2,338
---------
ENERGY (2.2%)
17,000 Diamond Shamrock, Inc................. 440
17,300 Ultramar Corp......................... 441
---------
881
---------
FINANCIAL-DIVERSIFIED (2.2%)
10,100 GATX Corp............................. 445
13,300 GFC Financial Corp.................... 422
---------
867
---------
HEALTH CARE (6.6%)
15,500 Beckman Instruments, Inc.............. 432
22,600 Bergen Brunswig Corp., Class A........ 472
31,500 Bindley Western Industries............ 488
18,700 Diagnostic Products Corp.............. 491
53,200 Hooper Holmes, Inc.................... 339
63,700 Kinetic Concepts, Inc................. 438
---------
2,660
---------
INDUSTRIAL (6.6%)
15,200 American Filtrona Corp................ 410
11,400 Barnes Group, Inc..................... 433
33,700 GenCorp, Inc.......................... 400
44,500 Kaman Corp., Class A.................. 490
32,900 Zero Corp. (Delaware)................. 461
24,300 Zurn Industries, Inc.................. 437
---------
2,631
---------
INSURANCE (5.1%)
14,200 Argonaut Group, Inc................... 401
25,000 Enhance Financial Services Group, Inc. 428
15,500 Provident Life & Accident Co. of
America, Class B.................... 337
16,900 Selective Insurance Group, Inc........ 427
13,300 USLife Corp........................... 464
---------
2,057
---------
METALS (2.1%)
7,700 Carpenter Technology Corp............. 431
11,400 Cleveland-Cliffs Iron Co.............. 422
---------
853
---------
PAPER & PACKAGING (3.5%)
15,500 Ball Corp............................. 488
11,400 Potlatch Corp......................... 425
27,300 Sealright Co., Inc.................... 498
---------
1,411
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
76
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------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO (CONT.)
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
SERVICES (10.8%)
20,500 ABM Industries, Inc................... $ 477
16,600 Angelica Corp......................... 459
2,100 Bowne & Co............................ 36
25,700 Cross (A.T.) Co., Class A............. 350
27,800 Gibson Greetings, Inc................. 410
40,000 Handleman Co.......................... 455
16,200 National Service Industries, Inc...... 415
23,900 New England Business Services, Inc.... 448
51,400 Piccadilly Cafeterias, Inc............ 411
29,500 Russ Berrie & Co., Inc................ 406
16,100 Wallace Computer Services, Inc........ 467
---------
4,334
---------
TECHNOLOGY (6.9%)
88,200 American Software, Inc................ 265
11,500 Avnet, Inc............................ 426
5,600 CTS Corp.............................. 155
21,800 Cubic Corp............................ 387
15,900 Joslyn Corp........................... 403
17,100 Kuhlman Corp.......................... 207
18,000 MTS Systems Corp...................... 396
33,500 National Computer Systems, Inc........ 519
---------
2,758
---------
TRANSPORTATION (2.4%)
20,800 Overseas Shipholding Group, Inc....... 478
19,800 Yellow Corp........................... 473
---------
951
---------
UTILITIES (8.3%)
17,700 Central Hudson Gas & Electric......... 469
35,000 Central Maine Power Co................ 481
10,100 Commonwealth Energy Systems Cos....... 368
15,000 Eastern Enterprises................... 394
22,900 Oneok, Inc............................ 412
13,700 Orange & Rockland Utilities, Inc...... 445
10,900 SJW Corp.............................. 352
28,500 Washington Water Power Co............. 388
---------
3,309
---------
TOTAL COMMON STOCKS (Cost $39,631)................ 38,705
---------
SHORT-TERM INVESTMENT (3.1%)
REPURCHASE AGREEMENT (3.1%)
$1,239 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at $1,240,
collateralized by $1,295 United States
Treasury Notes, 3.875%, due 4/30/95,
valued at $1,285 (Cost $1,239)....... $ 1,239
---------
TOTAL INVESTMENTS (99.8%) (Cost $40,870).......... 39,944
---------
OTHER ASSETS (1.6%)
Receivable for Investments Sold........ $ 521
Dividends Receivable................... 111
Other.................................. 4 636
---------
LIABILITIES (-1.4%)
Payable for Investments Purchased...... (456)
Investment Advisory Fees Payable....... (50)
Custodian Fees Payable................. (6)
Administrative Fees Payable............ (6)
Directors' Fees & Expenses Payable..... (1)
Other Liabilities...................... (28) (547)
--------- ---------
NET ASSETS (100%).................................. $ 40,033
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,706,877 outstanding $.001 par
value shares (authorized 500,000,000 shares)..... $10.80
---------
---------
-------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
77
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Institutional Fund, Inc.
-------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
COMMON STOCKS (96.8%)
AEROSPACE (2.3%)
27,100 United Technologies Corp.............. $ 1,704
---------
BANKING (9.7%)
28,650 BankAmerica Corp...................... 1,132
20,200 Bankers Trust (New York) Corp......... 1,118
29,200 Boatmens Bancshares, Inc.............. 792
48,100 Chemical Banking Corp................. 1,726
37,650 Mellon Bank Corp...................... 1,153
21,700 Morgan (J.P.) & Co., Inc.............. 1,215
---------
7,136
---------
CAPITAL GOODS (1.9%)
21,300 Deere & Co............................ 1,411
---------
CHEMICALS (4.0%)
31,775 Eastman Chemical Co................... 1,605
19,100 Monsanto Co........................... 1,346
---------
2,951
---------
COMMUNICATIONS (7.1%)
36,500 NYNEX Corp............................ 1,341
33,100 SBC Communications, Inc............... 1,336
49,800 Sprint Corp........................... 1,376
31,800 U.S. West, Inc........................ 1,133
---------
5,186
---------
CONSUMER-DURABLES (4.7%)
53,900 Ford Motor Co......................... 1,509
46,300 General Motors Corp................... 1,956
---------
3,465
---------
CONSUMER-RETAIL (4.6%)
79,000 Kmart Corp............................ 1,027
26,500 V.F. Corp............................. 1,289
72,000 Woolworth Corp........................ 1,080
---------
3,396
---------
CONSUMER-SERVICE & GROWTH (5.9%)
50,400 Deluxe Corp........................... 1,336
34,800 Eastman Kodak Co...................... 1,662
71,500 Ogden Corp............................ 1,340
---------
4,338
---------
CONSUMER-STAPLES (10.1%)
39,000 American Brands, Inc.................. 1,462
28,200 Anheuser Busch Cos., Inc.............. 1,435
27,200 CPC International, Inc................ 1,448
61,400 Fleming Cos., Inc..................... 1,428
44,600 Heinz (H.J.) Co....................... 1,639
---------
7,412
---------
ENERGY (7.9%)
38,300 Ashland Oil, Inc...................... 1,321
18,350 Mobil Corp............................ 1,546
13,050 Royal Dutch Petroleum Co.............. 1,403
25,550 Texaco, Inc........................... 1,530
---------
5,800
---------
FINANCIAL-DIVERSIFIED (1.8%)
40,650 Student Loan Marketing Association.... $ 1,321
---------
HEALTH CARE (12.4%)
38,500 Bausch & Lomb, Inc.................... 1,304
64,700 Baxter International, Inc............. 1,828
24,200 Becton Dickinson & Co................. 1,162
24,700 Bristol-Myers Squibb Co............... 1,430
45,200 Merck & Co., Inc...................... 1,723
54,800 Upjohn Co............................. 1,685
---------
9,132
---------
INDUSTRIAL (3.8%)
70,400 Hanson plc ADR........................ 1,267
42,700 Rockwell International Corp........... 1,527
---------
2,794
---------
INSURANCE (5.7%)
48,800 American General Corp................. 1,378
38,500 Aon Corp.............................. 1,232
35,300 St. Paul Cos., Inc.................... 1,580
---------
4,190
---------
METALS (1.7%)
19,800 Phelps Dodge Corp..................... 1,225
---------
TECHNOLOGY (3.7%)
40,200 Harris Corp........................... 1,709
13,200 International Business Machines Corp.. 970
---------
2,679
---------
TRANSPORTATION (2.2%)
34,000 Burlington Northern, Inc.............. 1,636
---------
UTILITIES (7.3%)
68,600 General Public Utilities Corp......... 1,801
60,600 Northern Indiana Public Service Co.... 1,803
53,900 Texas Utilities Co.................... 1,725
---------
5,329
---------
TOTAL COMMON STOCKS (Cost $73,400)................ 71,105
---------
NO. OF
WARRANTS
----------
WARRANTS (0.0%)
BANKING (0.0%)
23 Chase Manhattan Corp., expiring
6/30/96 (Cost $0)................... --
---------
FACE
AMOUNT
(000)
----------
SHORT-TERM INVESTMENT (1.8%)
REPURCHASE AGREEMENT (1.8%)
$1,306 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at
$1,307, collateralized by $1,370
United States Treasury Notes,
3.875%, due 4/30/95, valued at
$1,360 (Cost $1,306)................ 1,306
---------
TOTAL INVESTMENTS (98.6%) (Cost $74,706).......... 72,411
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
78
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------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO (CONT.)
------------------------------------------------------------------------------
VALUE
(000)
------------------------------------------------------------------------------
OTHER ASSETS (1.5%)
Receivable for Portfolio Shares Sold................ $ 796
Dividends Receivable................................ 321
Other............................................... 7 $ 1,124
-------
LIABILITIES (-0.1%)
Investment Advisory Fees Payable.................... (73)
Administrative Fees Payable......................... (10)
Custodian Fees Payable.............................. (5)
Payable for Portfolio Shares Redeemed............... (1)
Directors' Fees & Expenses Payable.................. (1)
Other Liabilities................................... (39) (129)
------- -------
NET ASSETS (100%)............................................... $73,406
-------
-------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,382,908 outstanding $.001 par value
shares (authorized 500,000,000 shares)........................ $11.50
------
------
------------------------------------------------
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
79
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
------------------------------------------------------------------------------
VALUE
SHARES (000)
------------------------------------------------------------------------------
COMMON STOCKS (49.5%)
AEROSPACE (1.1%)
3,100 United Technologies Corp................. $ 195
---------
BANKING (5.1%)
3,900 BankAmerica Corp......................... 154
2,900 Bankers Trust (New York) Corp............ 160
3,400 Boatmens Bancshares, Inc................. 92
6,400 Chemical Banking Corp.................... 230
5,100 Mellon Bank Corp......................... 156
2,800 Morgan (J.P.) & Co., Inc................. 157
---------
949
---------
CAPITAL GOODS (1.1%)
3,000 Deere & Co............................... 198
---------
CHEMICALS (2.0%)
3,425 Eastman Chemical Co...................... 173
2,700 Monsanto Co.............................. 190
---------
363
---------
COMMUNICATIONS (3.8%)
4,600 NYNEX Corp............................... 169
4,500 SBC Communications, Inc.................. 182
7,100 Sprint Corp.............................. 196
4,400 U.S. West, Inc........................... 157
---------
704
---------
CONSUMER-DURABLES (2.4%)
6,900 Ford Motor Co............................ 193
6,100 General Motors Corp...................... 258
---------
451
---------
CONSUMER-RETAIL (2.6%)
11,600 Kmart Corp............................... 151
3,600 V.F. Corp................................ 175
10,400 Woolworth Corp........................... 156
---------
482
---------
CONSUMER-SERVICE & GROWTH (3.0%)
6,900 Deluxe Corp.............................. 183
3,900 Eastman Kodak Co......................... 186
9,400 Ogden Corp............................... 176
---------
545
---------
CONSUMER-STAPLES (5.3%)
7,100 American Brands, Inc..................... 266
3,600 Anheuser Busch Cos., Inc................. 183
3,300 CPC International, Inc................... 176
8,600 Fleming Cos., Inc........................ 200
4,000 Heinz (H.J.) Co.......................... 147
---------
972
---------
ENERGY (3.5%)
5,200 Ashland Oil, Inc......................... 179
1,650 Mobil Corp............................... 139
1,550 Royal Dutch Petroleum Co................. 167
2,700 Texaco, Inc.............................. 162
---------
647
---------
FINANCIAL-DIVERSIFIED (1.0%)
5,700 Student Loan Marketing Association....... $ 185
---------
HEALTH CARE (5.8%)
5,600 Bausch & Lomb, Inc....................... 190
6,500 Baxter International, Inc................ 184
3,200 Becton Dickinson & Co.................... 153
2,700 Bristol-Myers Squibb Co.................. 156
5,800 Merck & Co., Inc......................... 221
5,400 Upjohn Co................................ 166
---------
1,070
---------
INDUSTRIAL (2.2%)
11,100 Hanson plc ADR........................... 200
5,900 Rockwell International Corp.............. 211
---------
411
---------
INSURANCE (3.0%)
7,900 American General Corp.................... 223
4,950 Aon Corp................................. 159
4,000 St. Paul Cos., Inc....................... 179
---------
561
---------
METALS (0.9%)
2,600 Phelps Dodge Corp........................ 161
---------
TECHNOLOGY (1.7%)
5,800 Harris Corp.............................. 247
1,050 International Business Machines Corp..... 77
---------
324
---------
TRANSPORTATION (1.2%)
4,800 Burlington Northern, Inc................. 231
---------
UTILITIES (3.8%)
9,100 General Public Utilities Corp............ 239
8,000 Northern Indiana Public Service Co....... 238
7,150 Texas Utilities Co....................... 229
---------
706
---------
TOTAL COMMON STOCKS (Cost $9,057).................... 9,155
---------
FACE
AMOUNT
(000)
----------
FIXED INCOME SECURITIES (44.2%)
US TREASURY NOTES (44.2%)
$ 4,300 8.25%, 7/15/98........................... 4,353
4,243 5.50%, 4/15/00........................... 3,817
---------
TOTAL FIXED INCOME SECURITIES (Cost $8,764).......... 8,170
---------
SHORT-TERM INVESTMENT (2.5%)
REPURCHASE AGREEMENT (2.5%)
466 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at $466,
collateralized by $490 United States
Treasury Notes, 3.875%, due 3/31/95,
valued at $488 (Cost $466)............. 466
---------
TOTAL INVESTMENTS (96.2%) (Cost $18,287)............. 17,791
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
BALANCED PORTFOLIO
80
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE BALANCED PORTFOLIO (CONT.)
------------------------------------------------------------------------------
VALUE
(000)
------------------------------------------------------------------------------
OTHER ASSETS (4.0%)
Cash...................................... $ 1
Receivable for Investments Sold........... 469
Interest Receivable....................... 214
Dividends Receivable...................... 49
Other..................................... 1 $ 734
--------
LIABILITIES (-0.2%)
Custodian Fees Payable.................... (4)
Administrative Fees Payable............... (3)
Investment Advisory Fees Payable.......... (2)
Directors' Fees & Expenses Payable........ (1)
Other Liabilities......................... (23) (33)
-------- --------
NET ASSETS (100%)...................................... $ 18,492
--------
--------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,064,203 outstanding $.001 par value
shares (authorized 500,000,000 shares)............... $8.96
-----
-----
------------------------------------------------------------
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
BALANCED PORTFOLIO
81
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
DEBT INSTRUMENTS (100.0%)
ALGERIA (1.3%)
LOAN AGREEMENTS (1.3%)
$ 5,788 Algeria Refinanced Loan
Agreements, Tranche A, (Floating
Rate) 7.875%, 12/31/00.......... $ 1,896
---------
ARGENTINA (26.3%)
BONDS (26.3%)
$ 2,000 Banco Rio de la Plata S.A. 8.75%,
12/15/03........................ 1,400
500 Republic of Argentina (Floating
Rate) 6.50%, 3/31/05............ 319
4,500 Republic of Argentina Local
Markets Trust 13.375%,
8/15/01......................... 3,803
24,750 Republic of Argentina Par Bonds,
Series L 4.25%, 3/31/23......... 10,488
29,250 Republic of Argentina Series L
"Euro" (Floating Rate) 6.50%,
3/31/05......................... 18,665
3,000 Republic of Argentina BOCON PIK
Pre2 (Floating Rate) 4/01/07.... 1,665
2,000 Telefonica de Argentina (Yankee
Bond) 11.875%, 11/01/04......... 1,810
---------
38,150
---------
BRAZIL (26.7%)
BONDS (26.7%)
$ 3,215 Cia Brasil Projectos 12.50%,
12/22/97........................ 3,135
9,700 Federative Republic of Brazil New
Money Bond (Floating Rate)
6.75%, 4/15/09.................. 5,990
12,700 Federative Republic of Brazil Debt
Conversion Bonds Series L
(Floating Rate) 6.75%,
4/15/12......................... 7,604
2,000 Federative Republic of Brazil Par
Bond, Series YL3 4.00%,
4/15/24......................... 811
1,960 Federative Republic of Brazil IDU
"Euro" (Floating Rate) 6.063%,
1/01/01......................... 1,642
3,545 Federative Republic of Brazil
Series C (Floating Rate) 8.00%,
4/15/14......................... 1,699
17,860 Federative Republic of Brazil
Series C "Euro" 8.00%,
4/15/14......................... 8,562
22,750 Federative Republic of Brazil Par
Bond Series Y 4.00%, 4/15/24.... 9,228
---------
38,671
---------
BULGARIA (3.9%)
BONDS (3.9%)
$ 4,500 Bulgaria Discount Series A "Euro"
(Floating Rate) 6.063%,
7/28/24......................... 2,098
2,290 Bulgaria Discount Series A
(Floating Rate) 6.063%,
7/28/24......................... 1,068
762 Bulgaria Discount Series B
(Floating Rate) 6.563%,
7/28/24......................... 355
1,914 Bulgaria Front Loaded Interest
Reduction Bond Series A "Euro"
(Floating Rate) 2.00%,
7/28/12......................... 421
$ 2,086 Reduction Bond Series A
(Floating Rate) 2.00%,
7/28/12......................... $ 459
2,983 Bulgaria Interest Arrears Bonds
(Floating Rate) 6.063%,
7/28/11......................... 1,260
---------
5,661
---------
ECUADOR (3.3%)
LOAN AGREEMENTS (3.3%)
$ #~##4,500 Republic of Ecuador Consolidated
Loan (Floating Rate)
(Participation: Merrill Lynch,
Salomon Brothers)............... 2,071
#~##2,800 Republic of Ecuador Extension and
Refinancing Agreement (Floating
Rate) (Participation: JP Morgan,
U.S. West Master Trust)......... 1,288
#~##2,260 Republic of Ecuador Multi Year
Refinancing Agreement (Floating
Rate) (Participation: Swiss Bank).. 1,040
#~##3,000 Republic of Ecuador New Money
Credit Agreement (Floating Rate)
(Participation: Chemical Bank,
Salomon Brothers)................. 1,380
--------
5,779
--------
LESS PORTION OF INVESTMENTS SOLD
+++3,140 Republic of Ecuador Par Bond
3.25%, 12/19/49 (When-Issued)... (944)
--------
4,835
--------
MEXICO (4.4%)
LOAN AGREEMENTS (4.4%)
$ 5,000 United Mexican States Old New
Money Loans (Floating Rate)
7.4125-7.625%, 3/20/05.......... 3,649
--------
3,664 United Mexican States Multi-Year
Refinancing Agreement 6.625%,
12/31/06........................ 2,675
--------
6,324
--------
MOROCCO (6.2%)
LOAN AGREEMENTS (6.2%)
$ #13,500 Morocco Restructuring and
Consolidating Agreement Tranche
A (Floating Rate) 1/01/09
(Participation: JP Morgan,
Goldman Sachs, Salomon
Brothers)....................... 8,952
---------
PANAMA (7.7%)
LOAN AGREEMENTS (4.2%)
$ ++7,500 Republic of Panama Refinanced Loan
Agreement (Floating Rate)....... 4,031
d*++3,800 Republic of Panama Unrestructured
Loans (Floating Rate)........... 2,043
---------
6,074
---------
BONDS (3.5%)
6,120 Republic of Panama (Floating Rate)
7.125%, 5/10/02................. 5,018
---------
11,092
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
82
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
POLAND (6.7%)
BONDS (6.7%)
$ 10,500 Republic of Poland PDI "Euro"
Bonds (Floating Rate) 3.25%,
10/27/14..................... $ 4,712
10,487 Republic of Poland Interest Arrears
PDI Bonds 3.25%, 10/27/14....... 4,706
500 Republic of Poland Registered
Discount "Euro" Bonds (Floating
Rate) 6.813%, 10/27/24.......... 360
---------
RUSSIA (4.9%)
LOAN AGREEMENTS (4.9%)
$ ++25,500 Bank for Foreign Economic
Affairs (Floating Rate)... 7,108
---------
TRINIDAD & TOBAGO (0.2%)
LOAN AGREEMENTS (0.2%)
Y 27,000 Trinidad & Tobago Loans, Tranche
A (Floating Rate) 7.1425%, 9/30/00... 225
---------
VENEZUELA (8.4%)
BONDS (8.4%)
$ 3,250 Republic of Venezuela Front
Loaded Interest Reduction
Bond Series A (Floating Rate)
7.00%, 3/31/07... 1,499
5,000 Republic of Venezuela Front
Loaded Interest Reduction Bond
Series B (Floating Rate) 7.00%,
3/31/07... 2,306
18,500 Republic of Venezuela Debt Conversion
Bond Series DL (Floating Rate)
7.688%, 12/18/07... 8,406
--------
12,211
--------
TOTAL DEBT INSTRUMENTS (Cost $154,477)........... 144,903
--------
NO. OF
WARRANTS
-----------
WARRANTS (0.0%)
POLAND (0.0%)
+17 Morgan Grenfell Eastern Europe,
expiring 2/21/95... 1
---------
VENEZUELA (0.0%)
+11 Venezuela Par Bond, expiring 3/01/95.. 1
**+36,480 Venezuela Oil, expiring 3/01/95... --
---------
1
---------
TOTAL WARRANTS (Cost $147)......................... 2
---------
FACE
AMOUNT
(000)
--------
SHORT-TERM INVESTMENTS (1.6%)
US GOVERNMENT AND AGENCY OBLIGATIONS (1.6%)
$ 2,300 Treasury Bills 1/19/95
(Cost $2,295)... 2,295
FOREIGN CURRENCY (0.0%)
CHF 43 Swiss Franc (Cost $34)........ 33
----------
TOTAL INVESTMENTS (101.6%) (Cost $156,953)... 147,233
----------
VALUE
(000)
------------------------------------------------------------
OTHER ASSETS (16.7%)
Cash.................................. $ 922
Receivable for Investments Sold....... 20,209
Interest Receivable................... 2,998
Due from Broker for Premium on Written
Options.............................. 105
Other................................. 12 $ 24,246
---------
LIABILITIES (-18.3%)
Payable for Investments Purchased..... (21,333)
Securities Sold Short................. (4,594)
Investment Advisory Fees Payable...... (365)
Custodian Fees Payable................ (118)
Administrative Fees Payable........... (19)
Written Options Outstanding, at
Value................................ (8)
Directors' Fees & Expenses............ (1)
Other Liabilities..................... (92) (26,530)
--------- ----------
NET ASSETS (100%).................................. $ 144,949
----------
----------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 16,881,216 outstanding $.001 par
value shares (authorized 500,000,000 shares)..... $8.59
----------
----------
------------------------------------------------------------
+ -- Non-income producing securities
++ -- Non-income producing securities -- in default
+++ -- Security is subject to delayed delivery -- See Note
A-6
** -- Security is valued at fair value -- See Note A-1
d -- Terms of loan agreement not final at December 31,
1994.
# -- Participation interests were acquired through the
financial institutions listed parenthetically. All
other loan agreements are assignments. See Note A-7.
## -- Under restructuring at December 31, 1994.
~ -- This security is making partial interest payments.
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
Y -- Japanese Yen
------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
SECURITIES SOLD SHORT (NOTE A-8)
MEXICO
BONDS
$ 6,250 United Mexican States Discount
Bonds, Series D (Variable Rate)
7.25%, 12/31/19 (Proceeds
$4,945)......................... 4,594
---------
WRITTEN CALL OPTIONS (NOTE A-9)
VENEZUELA
CALL OPTIONS
15,000 Republic of Venezuela Debt
Conversion Bond 7.688%,
12/18/07, strike price $51.50,
expiring 1/09/95 (Proceeds
$105)........................... 8
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
83
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
FIXED INCOME SECURITIES (91.1%)
US GOVERNMENT AND AGENCY OBLIGATIONS (58.7%)
US Treasury Bonds
$ 14,000 8.125%, 8/15/19................... $ 14,186
---------
US Treasury Notes
25,000 4.625%, 2/29/96................... 24,238
8,000 7.50%, 10/31/99................... 7,885
8,000 7.25%, 8/15/04.................... 7,679
---------
39,802
---------
Federal Home Loan Mortgage Corporation
145 8.00%, 12/01/02 (15 Yr. Dwarf).... 141
19 13.00%, 9/01/10................... 22
---------
163
---------
Federal National Mortgage Association
89 8.50%, 12/01/06................... 89
---------
Government National Mortgage Association
212 8.00%, 3/15/04.................... 211
32 14.00%, 6/15/11................... 37
9 11.00%, 12/15/15.................. 10
45 10.50%, 1/15/16................... 48
124 10.00%, 5/15/19-11/15/20.......... 130
27,608 6.00%, 1/15/24-2/15/24............ 23,027
39,157 7.00%, 5/15/24-6/15/24............ 35,143
+++10,000 7.50%, 11/22/24................... 9,978
---------
68,584
---------
TOTAL US GOVERNMENT AND AGENCY OBLIGATIONS....... 122,824
---------
FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS (6.3%)
10,000 Quebec Province 7.50%, 7/15/23.... 8,462
5,000 Hydro Quebec 8.05%, 7/07/24....... 4,807
---------
TOTAL FOREIGN GOVERNMENT AND AGENCY
OBLIGATIONS...................................... 13,269
---------
CORPORATE BONDS AND NOTES (25.5%)
FINANCE (18.6%)
5,000 Abbey National plc 8.20%,
10/15/04........................ 4,881
7,500 American Re 10.875%, 9/15/04...... 7,934
10,000 Ford Motor Credit Co. 5.625%,
3/03/97......................... 9,472
10,000 General Motors Acceptance Corp.
7.375%, 6/22/00................. 9,436
5,000 Goldman Sachs 7.80%, 7/15/02...... 4,744
2,800 Traveler's, Inc. 6.125%,
6/15/00......................... 2,514
---------
38,981
---------
METALS (4.5%)
10,000 USX Corp. 9.125%, 1/15/13......... 9,540
---------
UTILITIES (2.4%)
5,000 Central Maine Power 7.98%,
10/04/96........................ 4,985
---------
TOTAL CORPORATE BONDS AND NOTES.................. 53,506
---------
ASSET BACKED SECURITIES (0.6%)
33 Case Equipment Loan Trust, 92-A
5.40%, 6/15/98.................. 33
$ 255 Collateralized Mortgage Obligation
Trust, 39-Y, 8.65%, 3/01/03...... $ 255
37 Federal Home Loan Mortgage Corp.,
REMIC 16-B 10.00%, 10/15/19...... 37
Federal National Mortgage Association
REMIC:
25 92-59F 6.37%, 8/25/06.......... 25
175 88-17B 9.40%, 10/25/17......... 178
100 Ford Credit Auto Loan Master Trust,
92-1A 6.875%, 1/15/99............. 98
27 General Motors Acceptance Corp.
Trust, 92-DA 5.55%, 5/15/97....... 27
228 Goldman Sachs Trust 2, E-3 8.95%,
8/01/02........................... 229
84 Goldman Sachs Trust 3, C-4 8.00%,
7/07/15........................... 83
217 Ryland Acceptance Corp. 4 REMIC, 80-A,
9.40%, 2/01/16.................... 219
--------
TOTAL ASSET BACKED SECURITIES...................... 1,184
--------
TOTAL FIXED INCOME SECURITIES (Cost $195,665)...... 190,783
--------
SHORT-TERM INVESTMENTS (11.9%)
US GOVERNMENT AND AGENCY OBLIGATIONS (11.9%)
Federal Farm Credit Bank
14,800 Discount Note, 5.95%, 1/03/95....... 14,790
Federal National Mortgage Association
10,045 Discount Note, 5.74%, 1/23/95....... 10,013
--------
TOTAL SHORT-TERM INVESTMENTS (Cost $24,805)........ 24,803
--------
TOTAL INVESTMENTS (103.0%) (Cost $220,470)......... 215,586
--------
OTHER ASSETS (2.3%)
Cash.................................. $ 27
Interest Receivable................... 3,517
Receivable for Portfolio Shares
Sold................................. 1,219
Net Unrealized Gain on Forward Foreign
Currency Contracts................... 44
Receivable for Investments Sold....... 4
Other................................. 23 4,834
---------
LIABILITIES (-5.3%)
Payable for Investments Purchased..... (10,036)
Payable for Portfolio Shares
Redeemed............................. (873)
Investment Advisory Fees Payable...... (106)
Administrative Fees Payable........... (36)
Custodian Fees Payable................ (9)
Directors' Fees & Expenses............ (1)
Other Liabilities..................... (28) (11,089)
--------- ---------
NET ASSETS (100%).................................. $ 209,331
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 21,312,756 outstanding $.001
par value shares (authorized 500,000,000
shares)....................................... $9.82
-----
-----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
84
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open
at December 31, 1994, the Portfolio is obligated to deliver
or is to receive foreign currency in exchange for US dollars
as indicated below:
IN
CURRENCY TO EXCHANGE NET UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------------ --------- ----------- ---------- --------- ---------------
$ 5,230 $ 5,230 2/27/95 DM 8,074 $ 5,222 $ (8)
$ 3,075 3,075 2/27/95 DM 4,750 3,072 (3)
DM 12,824 8,294 2/27/95 $ 8,349 8,349 55
--------- --------- ---
$ 16,599 $ 16,643 $ 44
--------- --------- ---
--------- --------- ---
------------------------------------------------------------
+++ -- Security is subject to delayed delivery -- See Note A-6
DM -- Deutsche Mark
REMIC -- Real Estate Mortgage Investment Conduit
Interest rates disclosed for US Government & Agency Discount Notes represent
effective yields.
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
85
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
FIXED INCOME SECURITIES (87.0%)
AUSTRALIAN DOLLAR (2.7%)
GOVERNMENT BONDS (2.7%)
A$ 4,600 Government of Australia 10.00%,
10/15/02........................... $ 3,559
---------
BRITISH POUND (2.9%)
GOVERNMENT BONDS (2.9%)
L 2,500 United Kingdom Treasury Bond 8.00%,
6/10/03............................ 3,733
---------
CANADIAN DOLLAR (10.7%)
EUROBONDS (8.1%)
C$ 7,000 British Columbia Province 7.75%,
6/16/03............................ 4,536
6,750 Kingdom of Norway 8.375%, 1/27/03.... 4,503
2,500 Export-Import Bank of Japan 7.75%,
10/08/02........................... 1,615
---------
10,654
---------
GOVERNMENT BONDS (2.6%)
5,200 Government of Canada 7.50%,
12/01/03........................... 3,344
---------
13,998
---------
DANISH KRONE (7.6%)
GOVERNMENT BONDS (7.6%)
DK 69,500 Kingdom of Denmark 7.00%, 12/15/04... 9,909
---------
DEUTSCHE MARK (12.4%)
EUROBONDS (7.4%)
DM 12,000 LKB Baden-Wurttemberg 6.50%,
9/15/08............................ 6,740
5,500 Republic of Austria 6.50%, 1/10/24... 2,912
---------
9,652
---------
GOVERNMENT BONDS (5.0%)
8,500 Deutscheland Republic 6.25%,
1/04/24............................ 4,432
3,500 Treuhandanstalt 6.75%, 5/13/04....... 2,125
---------
6,557
---------
16,209
---------
FINNISH MARKKA (1.9%)
GOVERNMENT BONDS (1.9%)
FM 12,000 Finnish Government 9.50%, 3/15/04.... 2,477
---------
FRENCH FRANC (5.1%)
GOVERNMENT BONDS (5.1%)
FF 17,800 France O.A.T. 8.50%, 12/26/12........ 3,347
25,000 France O.A.T. 6.00%, 10/25/25........ 3,366
---------
6,713
---------
ITALIAN LIRA (3.8%)
GOVERNMENT BONDS (3.8%)
IL9,100,000 Republic of Italy Treasury Bond
8.50%, 8/01/99..................... 4,945
---------
JAPANESE YEN (4.7%)
EUROBONDS (4.7%)
Y 255,000 European Investment Bank 6.625%,
3/15/00............................ 2,845
Y 320,000 International Bank for Reconstruction
& Development 5.25%, 3/20/02....... $ 3,355
---------
6,200
---------
NETHERLANDS GUILDER (6.0%)
GOVERNMENT BONDS (6.0%)
NG 14,400 Government of Netherlands 7.50%,
1/15/23............................ 7,807
---------
NEW ZEALAND DOLLAR (3.2%)
GOVERNMENT BONDS (3.2%)
NZ$ 6,800 New Zealand Government 8.00%,
4/15/04............................ 4,222
---------
SPANISH PESETA (3.4%)
GOVERNMENT BONDS (3.4%)
SP 615,000 Spanish Government 10.90%, 8/30/03... 4,433
---------
UNITED STATES DOLLAR (22.6%)
EUROBONDS (2.0%)
$ 2,700 Republic of Italy 6.875%, 9/27/23.... 2,120
500 Statens Bostads 8.50%, 5/30/97....... 552
---------
2,672
---------
US GOVERNMENT AND AGENCY OBLIGATIONS (18.3%)
US Treasury Bonds
500 12.75%, 11/15/10..................... 671
3,800 8.125%, 8/15/19...................... 3,849
1,600 8.00%, 11/15/21...................... 1,581
US Treasury Notes
5,900 7.875%, 2/15/96...................... 5,926
2,900 7.625%, 4/30/96...................... 2,905
400 5.875%, 5/31/96...................... 391
675 7.25%, 5/15/04....................... 648
US Treasury STRIPS
1,600 2/15/98, Principal Only.............. 1,259
1,352 5/15/03, Principal Only.............. 707
Government National Mortgage
Association
+++6,014 ARM 7.50%, 1/15/25................. 5,997
---------
23,934
---------
CORPORATE BONDS AND NOTES (1.5%)
2,000 Salomon, Inc., 6.32%, 2/05/97........ 1,909
---------
YANKEE BONDS (0.8%)
1,000 Hydro Quebec 8.05%, 7/07/24.......... 961
---------
29,476
---------
TOTAL FIXED INCOME SECURITIES (Cost $120,157)..... 113,681
---------
SHORT-TERM INVESTMENTS (14.4%)
DEUTSCHE MARK (5.0%)
TIME DEPOSIT (5.0%)
DM 10,101 Bank of Austria 5.125%, 1/06/95...... 6,522
---------
BRITISH POUND (2.8%)
TIME DEPOSIT (2.8%)
L 2,365 Bank of Austria 5.25%, 1/03/95....... 3,704
---------
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
86
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------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
UNITED STATES DOLLAR (6.6%)
US GOVERNMENT AND AGENCY OBLIGATIONS (3.7%)
$ 4,835 US Treasury Bill 1/19/95.............. $ 4,823
---------
REPURCHASE AGREEMENT (2.9%)
3,778 U.S. Trust, 5.50%, dated 12/30/94,
due 1/03/95, to be repurchased at
$3,780, collateralized by $3,935
United States Treasury Notes 3.875%,
due 4/30/95, 3,778 valued at $3,905... 3,778
---------
8,601
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $18,775)......... 18,827
---------
FOREIGN CURRENCY (0.0%)
DK 2 Danish Krone.......................... 1
IL 2 Italian Lira.......................... --
---------
TOTAL FOREIGN CURRENCY (Cost $1)................... 1
---------
TOTAL INVESTMENTS (101.4%) (Cost $138,933).......... 132,509
---------
OTHER ASSETS (4.0%)
Cash................................... $ 1,916
Interest Receivable.................... 3,323
Other.................................. 12 5,251
---------
LIABILITIES (-5.4%)
Payable for Investments Purchased...... (6,657)
Net Unrealized Loss on Forward Foreign
Currency Contracts.................... (285)
Investment Advisory Fees Payable....... (77)
Custodian Fees Payable................. (14)
Administrative Fees Payable............ (19)
Directors' Fees & Expenses............. (1)
Other Liabilities...................... (32) (7,085)
--------- ---------
NET ASSETS (100%)................................... $ 130,675
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 12,703,651 outstanding $.001 par
value shares (authorized 500,000,000 shares)...... $10.29
---------
---------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at
December 31, 1994, the Portfolio is obligated to deliver or
is to receive foreign currency in exchange for US dollars or
foreign currency as indicated below:
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------------- --------- ----------- --------------- --------- -------------
NG 13,000 $ 7,500 1/13/95 $ 7,519 $ 7,519 $ 19
DM 10,000 6,465 2/17/95 $ 6,376 6,376 (89)
SP 280,000 2,121 2/21/95 IL 3,455,620 2,125 4
DK 40,000 6,584 3/07/95 $ 6,493 6,493 (91)
A$ 4,643 3,585 3/20/95 NZ$ 5,642 3,580 (5)
SP 290,000 2,183 6/01/95 $ 2,186 2,186 3
DM 10,000 6,504 6/06/95 $ 6,378 6,378 (126)
--------- --------- -----
$ 34,942 $ 34,657 $ (285)
--------- --------- -----
--------- --------- -----
------------------------------------------------------------
+++ -- Security is subject to delayed delivery -- See Note A-6
-- Stripped securities represent the splitting of cash flows into
several classes which vary by the proportion of principal and interest
paid. Holders are entitled to the portion of the payments on the
certificate representing interest only or principal only.
A$ -- Australian Dollar
DK -- Danish Krone
DM -- Deutsche Mark
IL -- Italian Lira
NG -- Netherlands Guilder
NZ$ -- New Zealand Dollar
SP -- Spanish Peseta
------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITES BY INDUSTRY CLASSIFICATION (UNAUDITED)
VALUE PERCENT OF NET
INDUSTRY (000) ASSETS
-----------------------------------------------------------------
Energy............................. $ 961 0.8%
Finance............................ 17,016 13.0
Foreign Government and Agency
Obligations....................... 71,770 54.9
US Government and Agency
Obligations.................... 23,934 18.3
--------- -----
$ 113,681 87.0%
--------- -----
--------- -----
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
87
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
CORPORATE BONDS AND NOTES (84.2%)
AEROSPACE & DEFENSE (1.5%)
$ 1,500 Tracor, Inc., 10.875%, 8/15/01.......... $ 1,444
---------
BROADCAST-RADIO & TELEVISION (10.6%)
2,250 Ackerley Communications, Inc., Series B,
10.75%, 10/01/03...................... 2,124
500 ACT III Broadcasting, Inc., 9.625%,
12/15/03.............................. 454
2,500 American Telecasting, 0.00% to 6/15/99,
12.50% to 6/15/04..................... 1,075
4,250 Bell Cablemedia plc (Yankee Bond), 0.00%
to 7/15/99, 11.95% to 7/15/04......... 2,263
1,000 Cablevision Systems Corp., 9.875%,
2/15/13............................... 905
1,250 Comcast Corp., 9.50%, 1/15/08........... 1,128
1,000 Continental Cablevision, Inc., 9.50%,
8/01/13............................... 912
600 Helicon Group, Series B, 9.00% to
11/01/96, 11.00% to 11/01/03.......... 513
400 Heritage Media, 11.00%, 10/01/02........ 392
500 Katz Corp., 12.75%, 11/15/02............ 526
225 SpectraVision, Inc., (Floating Rate),
11.65%, 12/01/02...................... 34
---------
10,326
---------
BUILDING MATERIALS & COMPONENTS (4.8%)
725 American Standard, 9.25%, 12/01/16...... 663
600 Hillsborough Holdings/Walter
Participating Notes, 7.50%,
12/31/50.............................. 966
2,000 Tarkett International, 9.00%, 3/01/02... 1,858
850 USG Corp., 8.75%, 3/01/17............... 723
++750 Walter Industries Corp., 17.00%,
1/01/96............................... 457
---------
4,667
---------
CHEMICALS (5.1%)
600 Arcadian Partners L.P., Series B,
10.75%, 5/01/05....................... 581
1,000 General Chemical, 9.25%, 8/15/03........ 930
1,000 Plastic Specialties & Technologies,
Inc., 11.25%, 12/01/03................ 875
2,000 Rexene Corp., 11.75%, 12/01/04.......... 2,040
500 Sherritt, Inc., 10.50%, 3/31/14......... 497
---------
4,923
---------
COAL, GAS & OIL (4.5%)
1,300 Clark R&M Holdings, Zero Coupon,
2/15/00............................... 715
++474 Columbia Gas Systems, Inc., Employee
Thrift Plan Obligation, 9.875%,
11/30/01.............................. 512
500 Deeptech International, 12.00%,
12/15/00.............................. 477
500 Ferrell Gas L.P., Series A, 10.00%,
8/01/01............................... 492
2,000 Freeport-McMoRan Resources, 8.75%,
2/15/04............................... 1,755
101 Mesa Capital Corp., Secured Notes, 0.00%
to 6/30/95, 12.75% to 6/30/98......... 87
500 Triton Energy, Zero Coupon, 11/01/97.... 367
---------
4,405
---------
COMPUTERS (0.2%)
200 Unisys Corp., 13.50%, 7/01/97........... 214
---------
DIVERSIFIED (0.9%)
1,000 Sequa Corp., 9.375%, 12/15/03........... $ 848
---------
ELECTRICAL EQUIPMENT (2.0%)
1,500 Pricellular Wire, 0.00% to 11/15/97,
14.00% to 11/15/01.................... 990
1,000 Protection One Alarm, Inc., 12.00%,
11/01/03.............................. 950
---------
1,940
---------
ELECTRONICS (7.3%)
400 ADT Operations, 9.25%, 8/01/03.......... 370
250 Bell & Howell Co., Series B, 10.75%,
10/01/02.............................. 238
4,500 Bell & Howell Co., Series B, 0.00% to
3/01/00, 11.50% to 3/01/05............ 2,194
1,500 Imax Corp., 7.00% to 3/01/97, 10.00% to
3/01/01............................... 1,239
1,500 International Semi-Tech (Yankee Bond),
0.00% to 8/15/00, 11.50% to 8/15/03... 673
2,750 Viacom International, 8.00%, 7/07/06.... 2,358
---------
7,072
---------
ENTERTAINMENT & LEISURE (0.9%)
800 ACT III Theatres, 11.875%, 2/01/03...... 828
---------
FINANCIAL SERVICES (4.2%)
500 Delaware Management Holding, 10.25%,
3/15/04............................... 524
800 GPA Delaware, Inc., 8.75%, 12/15/98..... 615
1,209 GPA Equipment Trust Participating
Certificates (Floating Rate), 9.125%,
12/02/96.............................. 1,103
550 GPA Investments, 6.40%, 11/19/98........ 330
1,189 Tiphook Finance Corp., 8.00%, 3/15/00... 832
886 Tiphook Finance Corp., 10.75%,
11/01/02.............................. 665
---------
4,069
---------
FOOD (1.8%)
750 Americold Corp. 1st Mortgage Bond,
Series B, 11.50%, 3/01/05............. 685
1,150 Pilgrim's Pride Corp., 10.875%,
8/01/03............................... 1,107
---------
1,792
---------
FOOD SERVICE & LODGING (2.8%)
600 Flagstar Corp., 10.75%, 9/15/01......... 558
500 Flagstar Corp., 11.25%, 11/01/04........ 412
400 La Quinta Inns, Inc., 9.25%, 5/15/03.... 379
1,300 Motels of America, 12.00%, 4/15/04...... 1,339
---------
2,688
---------
FOREST PRODUCTS & PAPER (4.6%)
2,000 Doman Industries Ltd., 8.75%, 3/15/04... 1,755
1,750 Stone Consolidated, Senior Secured
Notes, 10.25%, 12/15/00............... 1,706
1,000 S.D. Warren Co., 12.00%, 12/15/04....... 1,025
---------
4,486
---------
GAMING & LODGING (1.9%)
1,250 Casino Magic Finance Corp., 11.50%,
10/15/01.............................. 784
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
GAMING & LODGING (CONT.)
$ 300 GNF Corp. (Bally), 10.625%, 4/01/03..... $ 198
275 Louisiana Casino Cruises, 11.50%,
12/01/98.............................. 226
800 Trump Plaza 1st Mortgage Notes, 10.875%,
6/15/01............................... 608
---------
1,816
---------
HEALTH CARE SUPPLIES & SERVICES (1.5%)
1,000 American Medical International, Series
B, 9.50%, 4/15/06..................... 986
625 Eyecare Centers of America, 12.00%,
10/01/03.............................. 505
---------
1,491
---------
HOSPITAL MANAGEMENT (1.8%)
500 Charter Medical Corp., 11.25%,
4/15/04............................... 501
150 Healthtrust, Inc., 10.75%, 5/01/02...... 160
1,000 Healthtrust, Inc., 10.25%, 4/15/04...... 1,065
---------
1,726
---------
INSURANCE (1.8%)
500 Nacolah Holding Corp., 9.50%,
12/01/03.............................. 459
1,500 Reliance Group Holdings, 9.75%,
11/15/03.............................. 1,320
---------
1,779
---------
METALS (2.9%)
500 Armco, Inc., 9.375%, 11/01/00........... 453
1,000 Sheffield Steel Corp. 1st Mortgage
Notes, 12.00%, 11/01/01............... 942
1,000 Venture Holdings, 9.75%, 4/01/04........ 881
500 Wolverine Tube, 10.125%, 9/01/02........ 507
---------
2,783
---------
PACKAGING & CONTAINER (3.1%)
1,000 Crown Packaging Holdings, 0.00% to
11/01/00, 12.25% to 11/01/03.......... 471
500 Owens-Illinois, Inc., 10.50%, 6/15/02... 486
500 Owens-Illinois, Inc., 9.75%, 8/15/04.... 473
750 Stone Container Corp., 11.875%,
12/01/98.............................. 775
600 Stone Container Corp., 9.875%,
2/01/01............................... 567
250 Stone Container Corp. 1st Mortgage Note,
10.75%, 10/01/02...................... 250
---------
3,022
---------
PERSONAL CARE PRODUCTS (0.2%)
250 Playtex Family Products, 9.00%,
12/15/03.............................. 219
---------
PROFESSIONAL SERVICES (0.3%)
300 Card Establishment Services, 10.00%,
10/01/03.............................. 312
---------
PUBLISHING (2.1%)
1,000 Marvel III Holdings, Inc., Series B,
9.125%, 2/15/98....................... 871
1,900 Marvel Parent Holdings, Zero Coupon,
4/15/98............................... 1,178
---------
2,049
---------
RETAIL-GENERAL (3.1%)
+++1,000 Federated Department Stores, 11.29%,
6/30/02 (When-Issued)................. 1,009
$ 625 Penn Traffic Co., 9.625%, 4/15/05........ $ 544
2,175 Southland Corp., 5.00%, 12/15/03......... 1,468
---------
3,021
---------
TELECOMMUNICATIONS (4.9%)
500 Allnet Communication Services, 9.00%,
5/15/03................................ 479
4,000 Dial Call Communications, 0.00% to
4/15/99, 12.25% to 4/15/04............. 1,280
450 Horizon Cellular Telephone, 0.00% to
10/01/97, 11.375% to 10/01/00.......... 318
1,000 MFS Communications, 0.00% to 1/15/99,
9.375% to 1/15/04...................... 593
1,500 Nextel Communications, 0.00% to 2/15/99,
9.75% to 8/15/04....................... 525
250 Paging Network, Inc., 8.875%, 2/01/06.... 197
1,500 Telefonica de Argentina (Yankee Bond),
11.875%, 11/01/04...................... 1,354
---------
4,746
---------
TEXTILES & APPAREL (4.0%)
300 ACME Boot Co., Inc., 11.50%, 12/15/00.... 120
839 JPS Textile Group, 10.85%, 6/01/99....... 516
1,000 PT Polysindo Eka Perkasa (Yankee Bond),
13.00%, 6/15/01........................ 975
2,500 Westpoint Stevens, Inc., 9.375%,
12/15/05............................... 2,250
---------
3,861
---------
TRANSPORTATION (2.8%)
++393 America West Airlines, 6.00%, 3/31/97.... 358
2,000 Moran Transportation Co., 11.75%,
7/15/04................................ 1,945
500 Sabreliner Corp., Series A, 12.50%,
4/15/03................................ 450
---------
2,753
---------
UTILITIES (2.6%)
650 AES Corp., 9.75%, 6/15/00................ 622
1,478 Beaver Valley Funding Corp. (Lease
Obligation Bond), 9.00%, 6/01/17....... 1,049
900 First PV Funding Corp., (Lease Obligation
Bond) 10.15%, 1/15/16.................. 846
---------
2,517
---------
TOTAL CORPORATE BONDS AND NOTES (Cost $89,387)....... 81,797
---------
FOREIGN GOVERNMENT (1.0%)
BOND (1.0%)
1,500 Republic of Argentina, Series L,
(Floating Rate), 6.50%, 3/31/05 (Cost
$1,048)................................ 956
---------
SHARES
------
COMMON STOCKS (0.1%)
BROADCAST-RADIO & TELEVISION (0.0%)
+16,443 SpectraVision, Inc., Class B............. 4
---------
FINANCIAL SERVICES (0.0%)
729 Duff & Phelps Corp....................... 6
243 Duff & Phelps Credit Rating Co........... 2
+1,268 WestFed Holdings, Inc., Class B.......... --
---------
8
---------
FOOD SERVICE & LODGING (0.1%)
+1,300 Motels of America, Inc................... 112
---------
The accompanying notes are an integral part of the financial statements.
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HIGH YIELD PORTFOLIO
89
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-----------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
-----------------------------------------------------------------
THE HIGH YIELD PORTFOLIO (CONT.)
-----------------------------------------------------------------
VALUE
SHARES (000)
-----------------------------------------------------------------
GAMING & LODGING (0.0%)
+500 Trump Taj Mahal, Class A................. $ 5
---------
MACHINERY (0.0%)
+25 Bucyrus-Erie............................. --
---------
TEXTILES & APPAREL (0.0%)
+3,100 ACME Boot Co............................. 3
---------
TOTAL COMMON STOCKS (Cost $232)....................... 132
---------
PREFERRED STOCKS (1.0%)
COAL, GAS & OIL (0.9%)
50,000 Maxus Energy Corp. 10.00%................ 913
---------
FINANCIAL SERVICES (0.0%)
+3,239 WestFed Holdings, Inc., Series A......... --
---------
TEXTILES & APPAREL (0.1%)
400 ACME Boot Co., Series B, 12.50%,
12/15/03............................... 40
---------
TOTAL PREFERRED STOCKS (Cost $1,704).................. 953
---------
NO. OF
RIGHTS
-----------
RIGHTS (0.0%)
BROADCAST-RADIO & TELEVISION (0.0%)
+35,000 SpectraVision, Inc., expiring 10/08/97
(Cost $133)............................ 4
---------
NO. OF
WARRANTS
-----------
WARRANTS (0.2%)
AEROSPACE & DEFENSE (0.0%)
+*500 Sabreliner Corp., expiring 4/15/03
(acquired 6/21/93, cost $10)........... 5
---------
BROADCAST-RADIO & TELEVISION (0.0%)
+12,500 American Telecasting, expiring 6/23/99... 25
---------
ELECTRICAL EQUIPMENT (0.1%)
+28,000 Protection One Alarm, Inc., expiring
11/01/03............................... 105
---------
GAMING & LODGING (0.0%)
+1,250 Capital Gaming International, Inc.,
expiring 2/01/99....................... --
+2,700 Casino Magic Corp., expiring 10/14/96.... --
+825 Louisiana Casino Cruises, expiring
12/01/98............................... 13
---------
13
---------
HEALTH CARE SUPPLIES & SERVICES (0.0%)
+625 Eye Care Centers of America, expiring
10/01/03............................... 3
---------
INSURANCE (0.0%)
+500 Horace Mann Educators Corp., expiring
8/15/99................................ 7
---------
METALS (0.0%)
+5,000 Sheffield Steel Corp., expiring
11/01/01............................... 15
---------
PACKAGING & CONTAINER (0.1%)
+1,000 Crown Packaging Holdings, expiring
11/01/03............................... 40
---------
TELECOMMUNICATIONS (0.0%)
+4,000 Dial Page, Inc., expiring 4/25/99........ --
---------
TOTAL WARRANTS (Cost $214)............................ 213
---------
NO. OF
UNITS VALUE
(000) (000)
------------------------------------------------------------
UNITS (7.0%)
AUTOMOTIVE (1.0%)
1,000 Petro PSC Properties L.P., 12.50%,
6/01/02................................ $ 960
---------
GAMING & LODGING (3.7%)
1,750 Casino America, 11.50%, 11/15/01......... 1,470
500 Santa Fe Hotel, Inc., 11.00%, 12/15/00... 436
2,564 Trump Taj Mahal Funding, Inc., PIK,
11.35%, 11/15/99....................... 1,705
---------
3,611
---------
METALS (1.0%)
1,000 Sheffield Steel Corp., 12.00%,
11/01/01............................... 965
---------
TRANSPORTATION (1.3%)
2,208 Maritime Group, 13.50%, 2/15/97.......... 1,281
---------
TOTAL UNITS (Cost $8,807)............................. 6,817
---------
FACE
AMOUNT
(000)
-----------
SHORT-TERM INVESTMENT (5.7%)
REPURCHASE AGREEMENT (5.7%)
$5,587 U.S. Trust, 5.50%, dated 12/30/94, due
1/03/95, to be repurchased at $5,590,
collateralized by $5,810 United States
Treasury Notes, 3.875%, due 4/30/95,
valued at $5,765 (Cost $5,587)......... 5,587
---------
TOTAL INVESTMENTS (99.2%) (Cost $107,112)............. 96,459
---------
OTHER ASSETS (4.0%)
Interest Receivable..................... $ 1,647
Receivable for Investments Sold......... 1,469
Receivable for Portfolio Shares Sold.... 789
Other................................... 11 3,916
---------
LIABILITIES (-3.2%)
Payable for Investments Purchased....... (2,782)
Payable for Portfolio Shares Redeemed... (193)
Investment Advisory Fees Payable........ (120)
Administrative Fees Payable............. (14)
Custodian Fees Payable.................. (4)
Directors' Fees & Expenses.............. (1)
Other Liabilities....................... (38) (3,152)
--------- ---------
NET ASSETS (100.0%).................................. $ 97,223
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 10,180,900 outstanding $.001 par
value shares (authorized 500,000,000 shares)....... $9.55
-----
-----
------------------------------------------------------------
+ -- Non-income producing securities
++ -- Non-income producing securities - in default
+++ -- Security is subject to delayed delivery -- See Note A-6.
* -- Restricted as to public resale. Total value of restricted securities held
at December 31, 1994 was $5 or 0.0% of net assets (Total Cost $10).
PIK -- Payment-In-Kind. Income may be received in additional securities or cash
at the discretion of the issuer.
Floating Rate Security. The interest rate changes on these instruments are based
on changes in a designated base rate. The rates shown are those in effect on
December 31, 1994.
At December 31, 1994 approximately 92% of the Portfolio's net assets consisted
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher rated securities.
The accompanying notes are an integral part of the financial statements.
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HIGH YIELD PORTFOLIO
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------
MONEY MARKET INSTRUMENTS (81.6%)
US GOVERNMENT & AGENCY OBLIGATIONS (72.9%)
US GOVERNMENT OBLIGATIONS (11.4%)
US Treasury Bills
$ 50,000 3/09/95............................... $ 49,537
30,000 5/04/95............................... 29,499
-----------
79,036
-----------
AGENCY DISCOUNT NOTES (32.7%)
Federal Farm Credit Bank
10,000 5.60%, 1/24/95........................ 9,964
Federal Home Loan Bank
22,410 5.60%, 1/03/95........................ 22,403
14,270 6.06%, 2/27/95........................ 14,133
Federal Home Loan Mortgage Corp.
20,000 5.75%, 1/05/95........................ 19,987
20,000 5.80%, 1/18/95........................ 19,945
27,555 5.80%, 1/30/95........................ 27,426
Federal National Mortgage Association
10,000 5.80%, 1/04/95........................ 9,995
30,000 5.86%, 1/13/95........................ 29,942
30,000 5.35%, 1/20/95........................ 29,915
10,000 5.60%, 2/17/95........................ 9,927
Tennessee Valley Authority
32,000 5.80%, 1/30/95........................ 31,851
-----------
225,488
-----------
AGENCY FLOATING RATE NOTES (28.8%)
Federal National Mortgage Association
25,000 5.54%, 10/16/95....................... 24,996
65,000 5.79%, 9/02/97........................ 65,000
25,000 6.53%, 6/02/99........................ 25,000
13,000 6.53%, 7/26/99........................ 12,937
25,000 6.53%, 9/22/99........................ 25,000
Student Loan Marketing Association
46,000 6.07%, 10/30/97....................... 46,075
-----------
199,008
-----------
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS (Cost
$503,532)........................................ 503,532
-----------
COMMERCIAL PAPER (3.6%)
FINANCE (3.6%)
15,000 Commerzbank AG (New York) 6.00%,
1/30/95............................. 14,928
10,000 Societe Generale 5.55%, 1/04/95....... 9,995
-----------
TOTAL COMMERCIAL PAPER (Cost $24,923)............ 24,923
-----------
CORPORATE FLOATING RATE NOTES (5.1%)
FINANCE (5.1%)
$ 10,000 Bank of New York Co., Inc. 5.64%,
6/07/95............................. $ 9,998
25,000 Merrill Lynch 5.69%, 7/12/95.......... 25,000
-----------
TOTAL CORPORATE FLOATING RATE NOTES
(Cost $34,998).................................. 34,998
-----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $563,453)... 563,453
-----------
VALUE
(000)
-----------
SHORT TERM INVESTMENT (18.4%)
REPURCHASE AGREEMENT (18.4%)
127,002 Goldman Sachs 5.50%, dated 12/30/94,
due 1/03/95, to be repurchased at
$127,080, collateralized by $133,200
United States Treasury Notes 7.625%,
due 11/15/22, valued at $129,954
(Cost $127,002)..................... 127,002
-----------
TOTAL INVESTMENTS (100.0%) (Cost $690,455)....... 690,455
-----------
OTHER ASSETS (0.4%)
Cash................................... $ 1
Interest Receivable.................... 2,368
Other.................................. 77 2,446
---------
LIABILITIES (-0.4%)
Distributions Payable.................. (1,639)
Investment Advisory Fees Payable....... (530)
Administrative Fees Payable............ (101)
Custodian Fees Payable................. (50)
Directors' Fees & Expenses Payable..... (1)
Other Liabilities...................... (77) (2,398)
--------- ---------
NET ASSETS (100%)................................... $ 690,503
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 690,597,424 outstanding $.001 par
value shares (authorized 1,000,000,000 shares).... $1.00
---------
---------
------------------------------------------------------------
Floating Rate Notes. The interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown were those in effect at
December 31, 1994.
Maturity dates disclosed for Floating Rate Instruments are the ultimate maturity
dates. The effective maturity dates for such securities are the next interest
reset dates.
Interest rates disclosed for Commercial Paper and Agency Discount Notes
represent effective yields.
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
91
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (98.4%)
FIXED RATE INSTRUMENTS (50.6%)
NOTES (2.7%)
$ 1,000 Harris County, Texas, 9.25%, 8/01/14,
Prerefunded 2/01/95 at 103........... $ 1,035
3,000 Illinois State Certificates, 4.75%,
6/15/95.............................. 3,009
500 Triborough Bridge & Tunnel Authority,
New York, Convention Center Project,
Series 85D, 9.00%, 7/01/95........... 523
5,000 Wisconsin State 4.50%, 6/15/95......... 4,998
-----------
9,565
-----------
PUT OPTION BONDS (0.4%)
1,500 Putnam County, Florida, Development
Authority, Pollution Control Revenue,
Seminole Electric, 3.75%, 3/15/14
(Putable on 3/15/95)................. 1,500
-----------
TAX & REVENUE ANTICIPATION NOTES (6.5%)
6,450 Colorado State General Fund, 4.50%,
6/27/95, TRANS....................... 6,464
3,000 Idaho State, 4.50%, 6/29/95, TANS...... 3,004
1,015 Los Angeles County, California, 4.50%,
6/30/95, TRANS....................... 1,017
8,810 Maine State, 4.50%, 6/30/95, TANS...... 8,825
4,000 Texas State, 5.00%, 8/31/95, TRANS..... 4,005
-----------
23,315
-----------
COMMERCIAL PAPER (41.0%)
3,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light
Series 90C, 3.55%, 2/23/95........... 3,000
1,100 Brazos River, Texas, Harbor &
Navigation District, Series 90,
3.40%, 1/19/95....................... 1,100
2,500 Burke County, Georgia, Development
Authority, Oglethorpe, Series 92A,
3.80%, 2/13/95....................... 2,500
4,600 Burlington, Kansas, Kansas City Power &
Light Co., 3.50%, 1/18/95............ 4,600
3,500 City of Austin, Texas, Series A, 3.55%,
2/16/95.............................. 3,500
4,530 City of Dallas, Texas, Series A, 4.20%,
3/13/95.............................. 4,530
1,200 Connecticut State Health & Education
Facilities Authority, Yale
University, Series N, 3.75%,
3/10/95.............................. 1,200
1,000 Converse County, Wyoming, Pacificorp
Series 88, 3.80%, 3/10/95............ 1,000
3,500 East Baton Rouge Parish, Louisiana,
3.45%, 1/25/95....................... 3,500
4,500 Emery County, Utah, Pacificorp Series
91, 3.55%, 2/23/95................... 4,500
1,000 Florida Municipal Power, Series A,
3.50%, 1/12/95....................... 1,000
2,525 Gainesville, Florida, 3.60%, 2/27/95... 2,525
2,000 Illinois Development Finance Authority,
Series 94A, 3.60%, 3/08/95........... 2,000
1,000 Illinois Health Facilities Authority,
Series 89A, 3.85%, 2/24/95........... 1,000
4,400 Intermountain Power Agency, Utah,
Series E, 3.70%, 3/09/95............. 4,400
3,100 Intermountain Power Agency, Utah,
Series E, 4.00%, 3/16/95............. 3,100
700 Intermountain Power Agency, Utah,
Series F2, 4.00%, 2/28/95............ 700
1,500 Intermountain Power Agency, Utah,
Series 85F, 4.00%, 2/28/95........... 1,500
7,700 Jacksonville, Florida, Electric
Authority, 3.80%, 3/08/95............ 7,700
3,600 Jasper County, Indiana, Series 88B,
3.60%, 1/18/95....................... 3,600
2,000 Jasper County, Indiana, Series 88C,
3.55%, 2/16/95....................... 2,000
1,100 Lehigh County, Pennsylvania, General
Purpose Authority, Series A, 3.60%,
2/27/95.............................. 1,100
3,000 Maricopa County, Arizona, So. Cal. Ed.,
Series 85C, 3.60%, 2/07/95........... 3,000
6,600 Massachusetts Health & Education
Facilities Authority, Harvard
University, 3.50%, 1/18/95........... 6,600
1,500 Michigan State Strategic Fund, Dow
Chemical Series, 3.85%, 2/24/95...... 1,500
2,520 Montgomery, Alabama, Industrial
Development Board, General Electric
Series, 3.80%, 1/11/95............... 2,520
3,500 Montgomery, Alabama, Industrial
Development Board, General Electric
Series, 3.50%, 2/17/95............... 3,500
1,000 Mount Vernon, Indiana, General Electric
Series 89A, 3.80%, 2/21/95........... 1,000
3,000 Mount Vernon, Indiana, General Electric
Series 89A, 3.75%, 2/21/95........... 3,000
3,685 Municipal Electric Authority of
Georgia, Series 1, 3.70%, 1/11/95.... 3,685
3,500 Municipal Electric Authority of
Georgia, Series 2, 3.60%, 1/19/95.... 3,500
2,300 Municipal Electric Authority of
Georgia, Series 3, 3.70%, 1/11/95.... 2,300
1,000 North Carolina Eastern Municipal Power,
3.65%, 2/07/95....................... 1,000
3,025 North Carolina Eastern Municipal Power,
3.60%, 2/09/95....................... 3,025
300 Northeastern Pennsylvania Hospital
Authority, Series B, 3.50%,
2/17/95.............................. 300
3,290 Omaha, Nebraska, Public Power District,
3.75%, 2/21/95....................... 3,290
1,000 Petersburg, Indiana, Indiana Power &
Light, Series 91, 3.50%, 2/22/95..... 1,000
The accompanying notes are an integral part of the financial statements.
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MUNICIPAL MONEY MARKET PORTFOLIO
92
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STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE MUNICPAL MONEY MARKET PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------
COMMERCIAL PAPER (CONT.)
$2,000 Petersburg, Indiana, Indiana Power &
Light, Series 91, 4.20%, 3/14/95 $2,000
2,200 Platte River Authority, Colorado,
4.00%, 1/26/95......................... 2,200
1,000 Port of Corpus Christi, Texas, Union
Pacific Series, 3.65%, 2/13/95......... 1,000
1,500 Rochester, Minnesota, Health Facilities,
Mayo Clinic, Series C, 3.90%, 2/28/95.. 1,500
1,500 Rochester, Minnesota, Health Facilities,
Mayo Clinic, Series F, 3.65%, 2/07/95.. 1,500
1,065 Rochester, Minnesota, Health Facilities,
Mayo Clinic, Series E, 3.90%, 2/28/95.. 1,065
2,000 Salt River, Arizona, 3.50%, 1/12/95...... 2,000
4,000 Salt River, Arizona, 3.60%, 1/13/95...... 4,000
2,000 Salt River, Arizona, 3.55%, 2/23/95...... 2,000
2,000 Sunshine State, Florida, Government
Finance Authority, Series 86,
3.55%, 2/27/95......................... 2,000
2,000 Texas Municipal Power Agency,
3.85%, 2/24/95......................... 2,000
6,600 Texas Municipal Power Agency,
3.80%, 3/06/95......................... 6,600
5,000 Trimble County, Kentucky, Louisville
Gas & Electric Series, 3.85%, 2/15/95.. 5,000
1,000 Trimble County, Kentucky, Louisville
Gas & Electric Series, 3.50%, 2/22/95.. 1,000
5,500 University of Minnesota, Series A,
3.65%, 3/09/95......................... 5,500
2,000 University of North Carolina at Chapel
Hill, School of Medicine,
3.65%, 2/09/95......................... 2,000
1,100 University of North Carolina at Chapel
Hill, 3.80%, 3/10/95................... 1,100
3,000 University of Texas, Series A,
3.70%, 3/07/95......................... 3,000
2,500 Vanderbilt University, Tennessee,
Series 89A, 3.60%, 2/24/95............. 2,500
----------
147,240
----------
TOTAL FIXED RATE INSTRUMENTS.......................... 181,620
----------
VARIABLE/FLOATING RATE INSTRUMENTS (47.8%)
DAILY VARIABLE RATE BONDS (29.9%)
400 California Pollution Control Financing
Authority, Southern Edison,
Series 87D, 5.00%, 2/28/08............. 400
4,000 Chattanooga-Hamilton County, Tennessee,
Hospital Authority Revenue, Erlanger
Medical Center, 5.95%, 10/01/17........ 4,000
4,600 District of Columbia, Series 92A-6,
5.40%, 10/01/07........................ 4,600
2,400 Farmington, New Mexico, Pollution
Control Revenue Bonds, Series A,
5.85%, 5/01/24......................... 2,400
5,000 Hapeville, Georgia, Industrial
Development Authority, Series 85,
6.05%, 11/01/15........................ 5,000
$4,200 Harris County, Texas, Health Facilities
Development Corp., Methodist Hospital,
5.85%, 12/01/25........................ $4,200
1,400 Harris County, Texas, Health Facilities
Development Corp., St. Luke's
Episcopal, Series B, 5.85%, 2/15/16.... 1,400
4,200 Harris County, Texas, Health Facilities
Development Corp., St. Luke's
Episcopal, Series D, 5.85%, 2/15/16.... 4,200
2,200 Jackson County, Mississippi, Pollution
Control Revenue, Chevron Project,
Series 93, 5.20%, 6/01/23.............. 2,200
8,100 Jackson County, Mississippi, Port
Facility, Chevron Project, Series 93,
5.20%, 6/01/23......................... 8,100
1,930 Joliet, Illinois, Regional Port District,
Industrial Revenue, 6.05%, 7/15/03..... 1,930
900 Kansas City, Kansas, Industrial
Development Authority, PQ Corp.,
6.05%, 8/01/15......................... 900
1,900 Lake Charles, Louisiana, Harbor &
Terminal District Port Facilities,
Series 84, 5.30%, 11/01/11............. 1,900
1,500 Lincoln County, Wyoming, Pollution
Control Revenue, Exxon Project
Series 84A, 6.00%, 11/01/14............ 1,500
2,820 Louisiana Public Facilities Authority,
Industrial Development, Kenner Hotel
Series, 6.05%, 12/01/15................ 2,820
4,500 Maricopa County, Arizona, Pollution
Control Revenue, Series B,
5.20%, 5/01/29......................... 4,500
1,500 Massachusetts Health & Education
Facilities Authority, Series B,
5.20%, 7/01/05......................... 1,500
2,600 Massachusetts Health & Education
Facilities Authority, Series C,
5.20%, 7/01/05......................... 2,600
6,700 Michigan State Strategic Fund, Consumers
Power Series 88A, 5.25%, 4/15/18....... 6,700
1,570 Missouri State Health & Educational
Facilities Authority Revenue,
Washington University, Series 89A
5.95%, 3/01/17......................... 1,570
3,300 New York City, New York, Water Finance
Authority, Water and Sewer System
Revenue, Series 92C, 6.00%, 6/15/22.... 3,300
3,600 New York City, New York, Water Finance
Authority, Water and Sewer System
Revenue, Series 94C, 6.00%, 6/15/23.... 3,600
5,900 New York State Energy Research &
Development Authority, Pollution
Control Revenue, Niagara Mohawk Power,
Series A, 5.00%, 7/01/15............... 5,900
2,700 Nueces River Authority, Texas, Pollution
Control Revenue, Series 85,
6.05%, 12/01/99........................ 2,700
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
93
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------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE MUNICPAL MONEY MARKET PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------
DAILY VARIABLE RATE BONDS (CONT.)
$2,480 Peninsula Ports Authority, Virginia,
Coal Revenue, 5.30%, 7/01/16........... $ 2,480
4,000 Phoenix, Arizona, Series 1,
5.85%, 6/01/18......................... 4,000
3,800 Platte County, Wyoming, Pollution Control
Revenue, Series A, 6.05%, 7/01/14...... 3,800
900 Platte County, Wyoming, Pollution Control
Revenue, Series B, 6.05%, 7/01/14...... 900
1,600 Port of Saint Helens, Oregon, Pollution
Control Revenue, Portand General
Electric Co., Series B,
5.30%, 6/01/10......................... 1,600
1,400 Saint Charles Parish, Louisiana,
Pollution Control Revenue, Shell Oil
Project, 5.20%, 10/01/22............... 1,400
4,800 Southwest, Texas, Higher Education
Authority Revenue, Southern Methodist
University Series 85, 5.30%, 7/01/15... 4,800
4,000 Sublette County, Wyoming, Pollution
Control Revenue, Exxon Project,
5.20%, 11/01/14........................ 4,000
6,700 Valdez, Alaska, Marine Terminal
Authority, Exxon. Series 85,
5.20%, 10/01/25........................ 6,700
----------
107,600
----------
WEEKLY VARIABLE RATE BONDS (17.9%)
1,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light
Series 90A, 5.65%, 8/01/20............. 1,000
1,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light
Series 90B, 5.65%, 8/01/09............. 1,000
1,000 Brunswick & Glynn County, Georgia,
Development Authority, Series 85,
5.00%, 12/01/15........................ 1,000
7,000 Burke County, Georgia, Development
Authority, Oglethorpe, Series 93A,
4.95%, 1/01/16......................... 7,000
7,900 Charlotte, North Carolina, Airport,
Series 93A, 4.95%, 7/01/16............. 7,900
2,500 City of Columbia, Missouri, Special
Revenue Bonds, Series 88A,
5.00%, 6/01/08......................... 2,500
1,500 City of Columbia, Missouri, Water &
Electric Revenue Bonds, Series 85B,
5.00%, 12/01/15........................ 1,500
300 City of Forsyth, Montana, Pollution
Control Revenue, Series B,
5.65%, 6/01/13......................... 300
700 City of Forsyth, Montana, Pollution
Control Revenue, Series D,
5.65%, 6/01/13......................... 700
2,600 City of Midlothian, Texas, Industrial
Development Corp., Pollution Control
Revenue, Box-Crow Cement Co. Project,
5.40%, 12/01/09........................ 2,600
7,900 Clark County, Nevada, Airport Revenue
Bonds, Series 93A, 4.95%, 7/01/12...... 7,900
$ 1,530 Clear Creek County, Colorado, Revenue
Bonds, Colorado Finance Pool Program,
5.00%, 6/01/98......................... $ 1,530
600 Colorado Student Obligation Bond
Authority, Student Loan Revenue,
Series 91C1, 4.90%, 8/01/00............ 600
7,300 Dade County, Florida, Water & Sewer
Revenue Bonds, 4.95%, 10/05/22......... 7,300
1,200 Delaware County, Pennsylvania, Industrial
Development Authority, Scott Paper
Series D, 5.65%, 12/01/18.............. 1,200
500 Delaware County, Pennsylvania, Industrial
Development Authority, Scott Paper
Series E, 5.65%, 12/01/18.............. 500
1,000 Emmaus, Pennsylvania, General Authority,
Series D5, 5.65%, 3/01/24.............. 1,000
2,500 Emmaus, Pennsylvania, General Authority,
Series E5, 5.65%, 3/01/24.............. 2,500
300 Illinois Development Finance Authority,
A.E. Staley Manufacturing Series 85,
4.90%, 12/01/05........................ 300
1,000 Lehigh County, Pennsylvania, Allegheny
Electric Cooperative, 5.40%, 12/01/15.. 1,000
600 Louisiana Public Facilities Authority,
Hospital Revenue, Series 85,
5.50%, 12/01/00........................ 600
1,000 Massachusetts Health & Education
Facilities Authority, Series G-1,
4.50%, 1/01/19......................... 1,000
1,100 Mobile, Alabama, Industrial Development
Board, Scott Paper Series A,
5.65%, 12/01/19........................ 1,100
1,500 Mobile, Alabama, Industrial Development
Board, Scott Paper Series B,
5.65%, 12/01/19........................ 1,500
3,900 Nueces County, Texas, Health Facilities,
Driscoll Childrens' Foundation,
5.55%, 7/01/15......................... 3,900
1,500 Person County, North Carolina, Carolina
Power& Light, 5.55%, 11/01/19.......... 1,500
235 Pinellas County, Florida, Health
Facilities, Bayfront Medical Center,
Series 89, 4.95%, 6/01/98.............. 235
540 Polk County, Iowa, Hospital Equipment &
Improvement Authority,
5.50%, 12/01/05........................ 540
800 Port Development Corporation Marine
Terminal, Texas, Series 89,
4.95%, 1/15/14......................... 800
1,500 Port of Corpus Christi, Texas, Marine
Terminal, R.J. Reynolds Metals Series,
5.40%, 9/01/14......................... 1,500
650 Putnam County, Florida, Development
Authority, Seminole Electric
Series 84H1, 5.55%, 3/15/14............ 650
1,000 Rapides Parish, Louisiana, Central
Louisiana Electric Series,
5.40%, 7/01/18......................... 1,000
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
94
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
------------------------------------------------------------------------------
THE MUNICPAL MONEY MARKET PORTFOLIO (CONT.)
------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------
WEEKLY VARIABLE RATE BONDS (CONT.)
$ 700 Sheboygan, Wisconsin, Wisconsin Power &
Light Series , 5.40%, 8/01/14.......... $ 700
----------
64,355
----------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS.............. 171,955
----------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $353,575).......... 353,575
----------
TAXABLE INSTRUMENTS (1.2%)
US GOVERNMENT & AGENCY OBLIGATIONS (1.2%)
Federal Farm Credit Bank
2,045 Discount Note, 5.75%, 1/20/95............ 2,039
Federal Home Loan Bank
700 Discount Note, 5.77%, 1/17/95............ 698
1,550 Discount Note, 5.96%, 2/06/95............ 1,541
----------
TOTAL TAXABLE INSTRUMENTS (Cost $4,278)............... 4,278
----------
TOTAL INVESTMENTS (99.6%) (Cost $357,853)............. 357,853
----------
VALUE
(000)
---------------------------------------------------------------------
OTHER ASSETS (0.7%)
Cash......................................... $ 97
Interest Receivable.......................... 2,485
Other........................................ 34 $ 2,616
------
LIABILITIES (-0.3%)
Distributions Payable........................ (613)
Investment Advisory Fees Payable............. (252)
Administrative Fees Payable.................. (66)
Custodian Fees Payable....................... (27)
Director's Fees & Expenses................... (1)
Other Liabilities............................ (66) (1,025)
------ --------
NET ASSETS (100%)......................................... $359,444
--------
--------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 359,426,006 outstanding $.001
par value shares (authorized 1,000,000,000
shares)...................................... $1.00
-----
-----
--------------------------------------------------------------------------------
TANS -- Tax Anticipation Notes
TRANS -- Tax & Revenue Anticipation Notes
Variable/Floating Rate Instruments. The interest rate changes on these
instruments are based on changes in a designated base rate. These instruments
are payable on demand and are secured by a letter of credit or other support
agreements.
Maturity dates disclosed for Variable/Floating Rate Instruments are the
ultimate maturity dates. The effective maturity dates for such securities are
the next interest reset dates which are seven days or less.
Interest rates disclosed for US Government & Agency Obligations represent
effective yields.
At December31, 1994, approximately 15% of the net assets were invested in
Texas municipal securities. Economic changes affecting the state and certain
of its public bodies and municipalities may affect the ability of issuers to
pay the required principal and interest payments of the municipal securities.
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
95
<PAGE>
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE
COUNTRY ASIAN EMERGING EUROPEAN GLOBAL
ALLOCATION EQUITY MARKETS EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994 1994
(000) (000) (000) (000) (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,271 $ 3,652 $ 10,163 $ 301 $ 955
Interest 312 801 3,744 82 97
Less Foreign Taxes Withheld (454) (348) (719) (42) (87)
------------ ------------ ------------- ------------ ------------
Total Income 4,129 4,105 13,188 341 965
------------ ------------ ------------- ------------ ------------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,202 2,168 11,082 146 414
Less: Fees Waived (367) (535) -- (112) (126)
------------ ------------ ------------- ------------ ------------
Investment Advisory Fees -- Net 835 1,633 11,082 34 288
Administrative Fees 346 433 1,388 45 90
Sub - Administrative Fees -- -- 158 -- --
Custodian Fees 168 519 1,752 45 43
Filing and Registration Fees 31 31 123 21 35
Insurance 8 9 24 -- 1
Directors' Fees and Expenses 4 4 4 4 4
Legal Fees 16 14 40 1 2
Audit Fees 31 35 59 24 32
Shareholder Reports 35 27 82 7 19
Brazilian Tax Expense -- -- 632 -- --
Other Expenses 3 3 146 1 1
------------ ------------ ------------- ------------ ------------
Total Expenses 1,477 2,708 15,490 182 515
------------ ------------ ------------- ------------ ------------
NET INVESTMENT INCOME (LOSS) 2,652 1,397 (2,302) 159 450
------------ ------------ ------------- ------------ ------------
NET REALIZED GAIN (LOSS):
Investments Sold 12,714 32,350 68,650 2,757 1,568
Foreign Currency Transactions (4,567) 498 (1,826) (151) (75)
------------ ------------ ------------- ------------ ------------
Total Net Realized Gain 8,147 32,848 66,824 2,606 1,493
------------ ------------ ------------- ------------ ------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (12,455) (80,975) (168,042) (1,886) (1,816)
------------ ------------ ------------- ------------ ------------
TOTAL NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) (4,308) (48,127) (101,218) 720 (323)
------------ ------------ ------------- ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (1,656) $ (46,730) $ (103,520) $ 879 $ 127
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
96
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------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPANESE
GOLD INTERNATIONAL INTERNATIONAL EQUITY
PORTFOLIO EQUITY SMALL CAP PORTFOLIO
FEBRUARY 1, PORTFOLIO PORTFOLIO APRIL 25,
1994* TO YEAR ENDED YEAR ENDED 1994* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 199 $ 25,000 $ 2,775 $ 161
Interest 118 3,310 336 138
Less Foreign Taxes Withheld (2) (2,929) (321) (24)
------------ ------------ ------------- ------------
Total Income 315 25,381 2,790 275
------------ ------------ ------------- ------------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 114 9,581 1,139 244
Basic Fees -- Sub Adviser 76 -- -- --
Less: Fees Waived -- Adviser (55) (344) (174) (80)
Fees Waived -- Sub Adviser (36) -- -- --
------------ ------------ ------------- ------------
Investment Advisory Fees -- Net 99 9,237 965 164
Administrative Fees 32 1,888 192 50
Custodian Fees 12 496 114 22
Filing and Registration Fees 26 88 51 26
Insurance -- 51 3 1
Directors' Fees and Expenses 4 4 4 3
Legal Fees 4 56 5 6
Audit Fees 25 46 28 27
Shareholder Reports 34 85 14 7
Other Expenses 2 24 1 --
------------ ------------ ------------- ------------
Total Expenses 238 11,975 1,377 306
------------ ------------ ------------- ------------
NET INVESTMENT INCOME (LOSS) 77 13,406 1,413 (31)
------------ ------------ ------------- ------------
NET REALIZED GAIN (LOSS):
Investments Sold 974 70,494 (1,638) 4
Foreign Currency Transactions (3) (5,962) (704) (531)
------------ ------------ ------------- ------------
Total Net Realized Gain (Loss) 971 64,532 (2,342) (527)
------------ ------------ ------------- ------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (2,809) 46,399 (5,180) (215)
------------ ------------ ------------- ------------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (1,838) 110,931 (7,522) (742)
------------ ------------ ------------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ (1,761) $ 124,337 $ (6,109) $ (773)
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
<FN>
---------------
*Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
97
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------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING EQUITY SMALL CAP VALUE
GROWTH GROWTH VALUE EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994 1994
(000) (000) (000) (000) (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 300 $ 1,566 $ 1,221 $ 2,785 $ 467
Interest 411 445 85 84 688
------ ------------ ------------- ------------ ------------
Total Income 711 2,011 1,306 2,869 1,155
------ ------------ ------------- ------------ ------------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,110 538 302 352 120
Less: Fees Waived (16) (83) (94) (73) (60)
------ ------------ ------------- ------------ ------------
Investment Advisory Fees -- Net 1,094 455 208 279 60
Administrative Fees 179 147 67 115 43
Custodian Fees 28 35 25 29 16
Filing and Registration Fees 22 25 18 24 16
Insurance 5 3 2 3 2
Directors' Fees and Expenses 4 4 4 4 4
Legal Fees 6 5 2 3 2
Audit Fees 17 17 17 17 17
Shareholder Reports 21 25 11 17 6
Other Expenses 8 2 1 2 2
------ ------------ ------------- ------------ ------------
Total Expenses 1,384 718 355 493 168
------ ------------ ------------- ------------ ------------
NET INVESTMENT INCOME (LOSS) (673) 1,293 951 2,376 987
------ ------------ ------------- ------------ ------------
NET REALIZED GAIN:
Investments Sold 1,331 3,710 1,484 2,378 496
------ ------------ ------------- ------------ ------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (891) (2,690) (1,598) (6,089) (1,998)
------ ------------ ------------- ------------ ------------
TOTAL NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) 440 1,020 (114) (3,711) (1,502)
------ ------------ ------------- ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (233) $ 2,313 $ 837 $ (1,335) $ (515)
------ ------------ ------------- ------------ ------------
------ ------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
98
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------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
MARKETS GLOBAL MUNICIPAL
DEBT FIXED FIXED HIGH MONEY MONEY
PORTFOLIO INCOME INCOME YIELD MARKET MARKET
FEBRUARY 1, PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1994* TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994 1994 1994
(000) (000) (000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ -- $ -- $ -- $ 171 $ -- $ --
Interest 9,786 13,397 10,192 9,914 30,383 9,915
Less Foreign Taxes Withheld -- -- (168) -- -- --
------------ ------------ ------------- ------------ ------------ ------
Total Income 9,786 13,397 10,024 10,085 30,383 9,915
------------ ------------ ------------- ------------ ------------ ------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 853 758 586 496 2,127 1,006
Less: Fees Waived -- (276) (238) (7) -- --
------------ ------------ ------------- ------------ ------------ ------
Investment Advisory Fees -- Net 853 482 348 489 2,127 1,006
Administrative Fees 135 372 234 169 1,111 534
Custodian Fees 139 48 71 23 73 62
Filing and Registration Fees 63 17 14 29 43 49
Insurance 2 12 7 2 26 11
Directors' Fees and Expenses 4 4 4 4 4 4
Legal Fees 6 11 8 5 42 19
Audit Fees 42 17 24 22 18 16
Shareholder Reports 13 7 17 -- 34 18
Other Expenses 18 6 6 1 25 10
------------ ------------ ------------- ------------ ------------ ------
Total Expenses 1,275 976 733 744 3,503 1,729
------------ ------------ ------------- ------------ ------------ ------
NET INVESTMENT INCOME 8,511 12,421 9,291 9,341 26,880 8,186
------------ ------------ ------------- ------------ ------------ ------
NET REALIZED GAIN (LOSS):
Investments Sold (2,514) (14,132) (5,933) (1,581) (26) (6)
Foreign Currency Transactions (189) (747) (3,142) -- -- --
Securities Sold Short 187 -- -- -- -- --
------------ ------------ ------------- ------------ ------------ ------
Total Net Realized Loss (2,516) (14,879) (9,075) (1,581) (26) (6)
------------ ------------ ------------- ------------ ------------ ------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (9,457) (5,219) (10,682) (12,785) -- --
------------ ------------ ------------- ------------ ------------ ------
TOTAL NET REALIZED LOSS AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) (11,973) (20,098) (19,757) (14,366) (26) (6)
------------ ------------ ------------- ------------ ------------ ------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ (3,462) $ (7,677) $ (10,466) $ (5,025) $ 26,854 $ 8,180
------------ ------------ ------------- ------------ ------------ ------
------------ ------------ ------------- ------------ ------------ ------
<FN>
---------------
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
99
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Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,356 $ 2,652
Net Realized Gain 4,501 8,147
Change in Unrealized Appreciation (Depreciation) 19,159 (12,455)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 25,016 (1,656)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (644) (1,773)
In Excess of Net Investment Income (585) --
Net Realized Gain -- (4,419)
In Excess of Net Realized Gain (472) --
------------ ------------
Total Distributions (1,701) (6,192)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 109,834 169,994
Distributions Reinvested 1,360 5,395
Redeemed (33,889) (135,418)
------------ ------------
Net Increase from Capital Share Transactions 77,305 39,971
------------ ------------
Total Increase in Net Assets 100,620 32,123
NET ASSETS:
Beginning of Period 50,234 150,854
------------ ------------
End of Period (2) $ 150,854 $ 182,977
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 9,943 14,259
Shares Issued on Distributions Reinvested 137 458
Shares Redeemed (2,968) (11,357)
------------ ------------
Net Increase in Capital Shares Outstanding 7,112 3,360
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 128,911 $ 168,882
Undistributed Net Investment Income 660 1,418
Accumulated Net Realized Gain 4,140 7,989
Unrealized Appreciation 17,143 4,688
------------ ------------
$ 150,854 $ 182,977
------------ ------------
------------ ------------
</TABLE>
-------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,046 $ 1,397
Net Realized Gain 5,788 32,848
Change in Unrealized Appreciation (Depreciation) 111,553 (80,975)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 118,387 (46,730)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (42) (972)
In Excess of Net Investment Income (422) --
Net Realized Gain (593) (5,840)
In Excess of Net Realized Gain (631) --
------------ ------------
Total Distributions (1,688) (6,812)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 177,134 213,200
Distributions Reinvested 1,532 6,036
Redeemed (50,207) (175,924)
------------ ------------
Net Increase from Capital Share Transactions 128,459 43,312
------------ ------------
Total Increase (Decrease) in Net Assets 245,158 (10,230)
NET ASSETS:
Beginning of Period 41,978 287,136
------------ ------------
End of Period (2) $ 287,136 $ 276,906
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 10,206 9,345
Shares Issued on Distributions Reinvested 102 233
Shares Redeemed (2,549) (7,685)
------------ ------------
Net Increase in Capital Shares Outstanding 7,759 1,893
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 164,282 $ 207,594
Undistributed Net Investment Income 940 1,886
Accumulated Net Realized Gain 5,863 32,350
Unrealized Appreciation 116,051 35,076
------------ ------------
$ 287,136 $ 276,906
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
100
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------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (194) $ (2,302)
Net Realized Gain (Net of India tax of $1,159 on net realized gains for the Year Ended
December 31, 1994.) 37,580 66,824
Change in Unrealized Appreciation (Depreciation) 212,433 (168,042)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 249,819 (103,520)
------------ ------------
DISTRIBUTIONS:
Net Realized Gain -- (37,393)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 430,127 579,390
Distributions Reinvested -- 35,730
Redeemed (18,813) (279,921)
------------ ------------
Net Increase from Capital Share Transactions 411,314 335,199
------------ ------------
Total Increase in Net Assets 661,133 194,286
NET ASSETS:
Beginning of Period 74,219 735,352
------------ ------------
End of Period (2) $ 735,352 $ 929,638
------------ ------------
------------ ------------
<FN>
-----------------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 32,725 32,685
Shares Issued on Distributions Reinvested -- 1,974
Shares Redeemed (1,289) (16,342)
------------ ------------
Net Increase in Capital Shares Outstanding 31,436 18,317
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 483,068 $ 818,267
Accumulated Net Investment Loss -- (785)
Accumulated Net Realized Gain 37,339 65,253
Unrealized Appreciation (Net of India tax of $4,779 on unrealized appreciation on
investments at December 31, 1994.) 214,945 46,903
------------ ------------
$ 735,352 $ 929,638
------------ ------------
------------ ------------
</TABLE>
------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, 1993* TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 75 $ 159
Net Realized Gain 260 2,606
Change in Unrealized Appreciation (Depreciation) 1,687 (1,886)
------- ------------
Net Increase in Net Assets Resulting from Operations 2,022 879
------- ------------
DISTRIBUTIONS:
Net Investment Income -- (87)
Net Realized Gain -- (251)
------- ------------
Total Distributions -- (338)
------- ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 12,366 39,425
Distributions Reinvested -- 337
Redeemed (1,707) (25,350)
------- ------------
Net Increase from Capital Share Transactions 10,659 14,412
------- ------------
Total Increase in Net Assets 12,681 14,953
NET ASSETS:
Beginning of Period -- 12,681
------- ------------
End of Period (2) $ 12,681 $ 27,634
------- ------------
------- ------------
<FN>
-----------------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,122 2,791
Shares Issued on Distributions Reinvested -- 27
Shares Redeemed (140) (1,818)
------- ------------
Net Increase in Capital Shares Outstanding 982 1,000
------- ------------
------- ------------
(2) Net Assets were comprised of:
Paid in Capital $ 10,659 $ 25,071
Undistributed Net Investment Income 84 31
Accumulated Net Realized Gain 251 2,731
Unrealized Appreciation (Depreciation) 1,687 (199)
------- ------------
$ 12,681 $ 27,634
------- ------------
------- ------------
-----------------
* Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
101
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 128 $ 450
Net Realized Gain 1,796 1,493
Change in Unrealized Appreciation (Depreciation) 3,624 (1,816)
------------ ------------
Net Increase in Net Assets Resulting from Operations 5,548 127
------------ ------------
DISTRIBUTIONS:
Net Investment Income (36) (170)
In Excess of Net Investment Income (40) --
Net Realized Gain (111) (1,756)
------------ ------------
Total Distributions (187) (1,926)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 3,441 72,166
Distributions Reinvested 188 1,926
Redeemed (811) (13,276)
------------ ------------
Net Increase from Capital Share Transactions 2,818 60,816
------------ ------------
Total Increase in Net Assets 8,179 59,017
NET ASSETS:
Beginning of Period 11,739 19,918
------------ ------------
End of Period (2) $ 19,918 $ 78,935
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 281 5,281
Shares Issued on Distributions Reinvested 17 154
Shares Redeemed (66) (982)
------------ ------------
Net Increase in Capital Shares Outstanding 232 4,453
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 14,619 $ 75,435
Undistributed Net Investment Income 168 373
Accumulated Net Realized Gain 1,756 1,568
Unrealized Appreciation 3,375 1,559
------------ ------------
$ 19,918 $ 78,935
------------ ------------
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
THE GOLD PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1994* TO
DECEMBER 31, 1994
(000)
--------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 77
Net Realized Gain 971
Change in Unrealized Depreciation (2,809)
--------
Net Decrease in Net Assets Resulting from Operations (1,761)
--------
DISTRIBUTIONS:
Net Investment Income (38)
--------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 40,892
Distributions Reinvested 32
Redeemed (8,882)
--------
Net Increase from Capital Share Transactions 32,042
--------
Total Increase in Net Assets 30,243
NET ASSETS:
Beginning of Period --
--------
End of Period (2) $ 30,243
--------
--------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 4,264
Shares Issued on Distributions Reinvested 3
Shares Redeemed (954)
--------
Net Increase in Capital Shares Outstanding 3,313
--------
--------
(2) Net Assets were comprised of:
Paid in Capital $ 32,042
Undistributed Net Investment Income 36
Accumulated Net Realized Gain 974
Unrealized Depreciation (2,809)
--------
$ 30,243
--------
--------
--------------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
102
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,833 $ 13,406
Net Realized Gain 27,684 64,532
Change in Unrealized Appreciation (Depreciation) 221,419 46,399
------------ ------------
Net Increase in Net Assets Resulting from Operations 257,936 124,337
------------ ------------
DISTRIBUTIONS:
Net Investment Income (571) (11,956)
In Excess of Net Investment Income (6,863) --
Net Realized Gain (15,370) (18,019)
------------ ------------
Total Distributions (22,804) (29,975)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 251,210 330,843
Distributions Reinvested 19,481 25,762
Redeemed (69,505) (93,242)
------------ ------------
Net Increase from Capital Share Transactions 201,186 263,363
------------ ------------
Total Increase in Net Assets 436,318 357,725
NET ASSETS:
Beginning of Period 510,727 947,045
------------ ------------
End of Period (2) $ 947,045 $ 1,304,770
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 20,089 22,148
Shares Issued on Distributions Reinvested 1,763 1,872
Shares Redeemed (5,819) (6,156)
------------ ------------
Net Increase in Capital Shares Outstanding 16,033 17,864
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 737,361 $ 1,001,514
Undistributed Net Investment Income 11,557 7,083
Accumulated Net Realized Gain 18,688 70,335
Unrealized Appreciation 179,439 225,838
------------ ------------
$ 947,045 $ 1,304,770
------------ ------------
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 142 $ 1,413
Net Realized Gain (Loss) 775 (2,342)
Change in Unrealized Appreciation (Depreciation) 3,647 (5,180)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 4,564 (6,109)
------------ ------------
------------ ------------
DISTRIBUTIONS:
Net Investment Income (4) (96)
In Excess of Net Investment Income (35) --
Net Realized Gain -- (794)
------------ ------------
Total Distributions (39) (890)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 45,462 132,287
Distributions Reinvested 34 763
Redeemed (1,011) (18,784)
------------ ------------
Net Increase from Capital Share Transactions 44,485 114,266
------------ ------------
Total Increase in Net Assets 49,010 107,267
NET ASSETS:
Beginning of Period 3,824 52,834
------------ ------------
End of Period (2) $ 52,834 $ 160,101
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,336 8,068
Shares Issued on Distributions Reinvested 3 52
Shares Redeemed (108) (1,164)
------------ ------------
Net Increase in Capital Shares Outstanding 3,231 6,956
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 48,311 $ 162,928
Undistributed Net Investment Income 90 703
Accumulated Net Realized Gain (Loss) 794 (1,989)
Unrealized Appreciation (Depreciation) 3,639 (1,541)
------------ ------------
$ 52,834 $ 160,101
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
103
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 25, 1994* TO
DECEMBER 31, 1994
(000)
--------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (31)
Net Realized Loss (527)
Change in Unrealized Depreciation (215)
--------
Net Decrease in Net Assets Resulting from Operations (773)
--------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 69,015
Redeemed (17,910)
--------
Net Increase from Capital Share Transactions 51,105
--------
Total Increase in Net Assets 50,332
NET ASSETS:
Beginning of Period --
--------
End of Period (2) $ 50,332
--------
--------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 6,910
Shares Redeemed (1,789)
--------
Net Increase in Capital Shares Outstanding 5,121
--------
--------
(2) Net Assets were comprised of:
Paid in Capital $ 50,808
Accumulated Net Investment Loss (261)
Unrealized Depreciation (215)
--------
$ 50,332
--------
--------
-----------------
*Commencement of operations.
</TABLE>
------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (703) $ (673)
Net Realized Gain (Loss) (8,842) 1,331
Change in Unrealized Appreciation (Depreciation) 11,279 (891)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 1,734 (233)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 50,836 85,970
Redeemed (43,110) (71,689)
------------ ------------
Net Increase from Capital Share Transactions 7,726 14,281
------------ ------------
Total Increase in Net Assets 9,460 14,048
NET ASSETS:
Beginning of Period 94,161 103,621
------------ ------------
End of Period (2) $ 103,621 $ 117,669
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,441 5,433
Shares Redeemed (2,856) (4,522)
------------ ------------
Net Increase in Capital Shares Outstanding 585 911
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 89,990 $ 103,598
Accumulated Net Realized Loss (12,256) (10,925)
Unrealized Appreciation 25,887 24,996
------------ ------------
$ 103,621 $ 117,669
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
104
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 864 $ 1,293
Net Realized Gain 2,813 3,710
Change in Unrealized Appreciation (Depreciation) (190) (2,690)
------------ ------------
Net Increase in Net Assets Resulting from Operations 3,487 2,313
------------ ------------
DISTRIBUTIONS:
Net Investment Income (864) (952)
In Excess of Net Investment Income (47) --
Net Realized Gain -- (2,220)
------------ ------------
Total Distributions (911) (3,172)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 69,561 47,456
Distributions Reinvested 880 3,096
Redeemed (45,213) (26,223)
------------ ------------
Net Increase from Capital Share Transactions 25,228 24,329
------------ ------------
Total Increase in Net Assets 27,804 23,470
NET ASSETS:
Beginning of Period 45,985 73,789
------------ ------------
End of Period (2) $ 73,789 $ 97,259
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 6,049 3,964
Shares Issued on Distributions Reinvested 76 267
Shares Redeemed (3,918) (2,218)
------------ ------------
Net Increase in Capital Shares Outstanding 2,207 2,013
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 68,255 $ 92,584
Undistributed Net Investment Income 120 461
Accumulated Net Realized Gain 1,969 3,459
Unrealized Appreciation 3,445 755
------------ ------------
$ 73,789 $ 97,259
------------ ------------
------------ ------------
</TABLE>
------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 467 $ 951
Net Realized Gain 720 1,484
Change in Unrealized Appreciation (Depreciation) 603 (1,598)
------------ ------------
Net Increase in Net Assets Resulting from Operations 1,790 837
------------ ------------
DISTRIBUTIONS:
Net Investment Income (309) (831)
Net Realized Gain -- (720)
------------ ------------
Total Distributions (309) (1,551)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 26,738 25,447
Distributions Reinvested 301 1,464
Redeemed (7,719) (12,939)
------------ ------------
Net Increase from Capital Share Transactions 19,320 13,972
------------ ------------
Total Increase in Net Assets 20,801 13,258
NET ASSETS:
Beginning of Period 5,974 26,775
------------ ------------
End of Period (2) $ 26,775 $ 40,033
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,513 2,358
Shares Issued on Distributions Reinvested 28 137
Shares Redeemed (718) (1,200)
------------ ------------
Net Increase in Capital Shares Outstanding 1,823 1,295
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 25,222 $ 39,194
Undistributed Net Investment Income 161 281
Accumulated Net Realized Gain 720 1,484
Unrealized Appreciation (Depreciation) 672 (926)
------------ ------------
$ 26,775 $ 40,033
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
105
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,381 $ 2,376
Net Realized Gain 2,718 2,378
Change in Unrealized Appreciation (Depreciation) 1,999 (6,089)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 6,098 (1,335)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (1,169) (2,189)
Net Realized Gain -- (2,504)
------------ ------------
Total Distributions (1,169) (4,693)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 44,906 45,372
Distributions Reinvested 1,049 4,395
Redeemed (23,827) (24,931)
------------ ------------
Net Increase from Capital Share Transactions 22,128 24,836
------------ ------------
Total Increase in Net Assets 27,057 18,808
NET ASSETS:
Beginning of Period 27,541 54,598
------------ ------------
End of Period (2) $ 54,598 $ 73,406
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,767 3,798
Shares Issued on Distributions Reinvested 89 372
Shares Redeemed (1,969) (2,109)
------------ ------------
Net Increase in Capital Shares Outstanding 1,887 2,061
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 47,884 $ 72,751
Undistributed Net Investment Income 442 643
Accumulated Net Realized Gain 2,478 2,307
Unrealized Appreciation (Depreciation) 3,794 (2,295)
------------ ------------
$ 54,598 $ 73,406
------------ ------------
------------ ------------
</TABLE>
------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,390 $ 987
Net Realized Gain 3,879 496
Change in Unrealized (Depreciation) (1,029) (1,998)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 4,240 (515)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (1,390) (1,257)
In Excess of Net Investment Income (258) --
Net Realized Gain (201) (3,880)
In Excess of Net Realized Gain (3,044) --
------------ ------------
Total Distributions (4,893) (5,137)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 3,110 4,396
Distributions Reinvested 4,366 4,725
Redeemed (17,033) (14,661)
------------ ------------
Net Decrease from Capital Share Transactions (9,557) (5,540)
------------ ------------
Total Decrease in Net Assets (10,210) (11,192)
NET ASSETS:
Beginning of Period 39,894 29,684
------------ ------------
End of Period (2) $ 29,684 $ 18,492
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 290 470
Shares Issued on Distributions Reinvested 420 502
Shares Redeemed (1,571) (1,574)
------------ ------------
Net Decrease in Capital Shares Outstanding (861) (602)
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 23,819 $ 18,279
Undistributed Net Investment Income 505 214
Accumulated Net Realized Gain 3,858 495
Unrealized Appreciation (Depreciation) 1,502 (496)
------------ ------------
$ 29,684 $ 18,492
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
106
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1994* TO
DECEMBER 31,
1994
(000)
--------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,511
Net Realized Loss (2,516)
Change in Unrealized Depreciation (9,457)
--------
Net Decrease in Net Assets Resulting from Operations (3,462)
--------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 190,661
Redeemed (42,250)
--------
Net Increase from Capital Share Transactions 148,411
--------
Total Increase in Net Assets 144,949
NET ASSETS:
Beginning of Period --
--------
End of Period (2) $ 144,949
--------
--------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 21,753
Shares Redeemed (4,872)
--------
Net Increase in Capital Shares Outstanding 16,881
--------
--------
(2) Net Assets were comprised of:
Paid in Capital $ 148,411
Undistributed Net Investment Income 8,322
Accumulated Net Realized Loss (2,327)
Unrealized Depreciation (9,457)
--------
$ 144,949
--------
--------
-----------------
*Commencement of operations.
</TABLE>
------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSSETS
OPERATIONS:
Net Investment Income $ 10,095 $ 12,421
Net Realized Gain (Loss) 8,090 (14,879)
Change in Unrealized Appreciation (Depreciation) (2,112) (5,219)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 16,073 (7,677)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (10,095) (11,181)
In Excess of Net Investment Income (146) --
Net Realized Gain (3,669) (8,092)
In Excess of Net Realized Gain -- (22)
------------ ------------
Total Distributions (13,910) (19,295)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 135,882 91,618
Distributions Reinvested 12,353 16,756
Redeemed (63,940) (112,739)
------------ ------------
Net Increase (Decrease) from Capital Share Transactions 84,295 (4,365)
------------ ------------
Total Increase (Decrease) in Net Assets 86,458 (31,337)
NET ASSETS:
Beginning of Period 154,210 240,668
------------ ------------
End of Period (2) $ 240,668 $ 209,331
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 12,327 9,049
Shares Issued on Distributions Reinvested 1,135 1,625
Shares Redeemed (5,784) (11,150)
------------ ------------
Net Increase (Decrease) in Capital Shares Outstanding 7,678 (476)
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 231,416 $ 227,051
Undistributed Net Investment Income 781 1,274
Accumulated Net Realized Gain (Loss) 8,092 (14,154)
Unrealized Appreciation (Depreciation) 379 (4,840)
------------ ------------
$ 240,668 $ 209,331
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
107
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,832 $ 9,291
Net Realized Gain (Loss) 4,506 (9,075)
Change in Unrealized Appreciation (Depreciation) 5,277 (10,682)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 17,615 (10,466)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (7,831) (5,595)
In Excess of Net Investment Income (2,164) --
Net Realized Gain (1,320) (4,564)
------------ ------------
Total Distributions (11,315) (10,159)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 113,012 96,510
Distributions Reinvested 9,424 9,111
Redeemed (49,165) (126,789)
------------ ------------
Net Increase (Decrease) from Capital Share Transactions 73,271 (21,168)
------------ ------------
Total Increase (Decrease) in Net Assets 79,571 (41,793)
NET ASSETS:
Beginning of Period 92,897 172,468
------------ ------------
End of Period (2) $ 172,468 $ 130,675
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 9,941 8,912
Shares Issued on Distributions Reinvested 869 833
Shares Redeemed (4,300) (11,801)
------------ ------------
Net Increase (Decrease) in Capital Shares Outstanding 6,510 (2,056)
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 162,825 $ 141,657
Undistributed Net Investment Income 1,060 1,613
Accumulated Net Realized Gain (Loss) 4,563 (5,933)
Unrealized Appreciation (Depreciation) 4,020 (6,662)
------------ ------------
$ 172,468 $ 130,675
------------ ------------
------------ ------------
</TABLE>
------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,465 $ 9,341
Net Realized Gain (Loss) 1,550 (1,581)
Change in Unrealized Appreciation (Depreciation) 2,151 (12,785)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 7,166 (5,025)
------------ ------------
DISTRIBUTIONS:
Net Investment Income (3,128) (9,097)
Net Realized Gain -- (1,413)
------------ ------------
Total Distributions (3,128) (10,510)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 56,684 72,764
Distributions Reinvested 3,050 8,869
Redeemed (9,466) (43,375)
------------ ------------
Net Increase from Capital Share Transactions 50,268 38,258
------------ ------------
Total Increase in Net Assets 54,306 22,723
NET ASSETS:
Beginning of Period 20,194 74,500
------------ ------------
End of Period (2) $ 74,500 $ 97,223
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 5,224 6,882
Shares Issued on Distributions Reinvested 286 858
Shares Redeemed (863) (4,235)
------------ ------------
Net Increase in Capital Shares Outstanding 4,647 3,505
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 70,468 $ 108,726
Undistributed Net Investment Income 487 731
Accumulated Net Realized Gain (Loss) 1,413 (1,581)
Unrealized Appreciation (Depreciation) 2,132 (10,653)
------------ ------------
$ 74,500 $ 97,223
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
108
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 18,116 $ 26,880
Net Realized Gain (Loss) 16 (26)
------------ ------------
Net Increase in Net Assets Resulting from Operations 18,132 26,854
------------ ------------
DISTRIBUTIONS:
Net Investment Income (18,116) (26,888)
In Excess of Net Investment Income (35) --
------------ ------------
Total Distributions (18,151) (26,888)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 4,443,610 4,547,025
Distributions Reinvested 16,202 24,451
Redeemed (4,401,802) (4,538,102)
------------ ------------
Net Increase from Capital Share Transactions 58,010 33,374
------------ ------------
Total Increase in Net Assets 57,991 33,340
NET ASSETS:
Beginning of Period 599,172 657,163
------------ ------------
End of Period (2) $ 657,163 $ 690,503
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 4,443,610 4,547,025
Shares Issued on Distributions Reinvested 16,202 24,451
Shares Redeemed (4,401,802) (4,538,102)
------------ ------------
Net Increase in Capital Shares Outstanding 58,010 33,374
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 657,221 $ 690,595
Undistributed Net Investment Income 8 --
Accumulated Net Realized Loss (66) (92)
------------ ------------
$ 657,163 $ 690,503
------------ ------------
------------ ------------
</TABLE>
------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSSETS
OPERATIONS:
Net Investment Income $ 4,402 $ 8,186
Net Realized Loss (2) (6)
------------ ------------
Net Increase in Net Assets Resulting from Operations 4,400 8,180
------------ ------------
DISTRIBUTIONS:
Net Investment Income (4,402) (8,186)
In Excess of Net Realized Gain (27) --
------------ ------------
Total Distributions (4,429) (8,186)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 1,780,153 2,267,352
Distributions Reinvested 3,955 7,587
Redeemed (1,726,421) (2,182,013)
------------ ------------
Net Increase from Capital Share Transactions 57,687 92,926
------------ ------------
Total Increase in Net Assets 57,658 92,920
NET ASSETS:
Beginning of Period 208,866 266,524
------------ ------------
End of Period (2) $ 266,524 $ 359,444
------------ ------------
------------ ------------
<FN>
--------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,780,153 2,267,352
Shares Issued on Distributions Reinvested 3,955 7,587
Shares Redeemed (1,726,421) (2,182,013)
------------ ------------
Net Increase in Capital Shares Outstanding 57,687 92,926
------------ ------------
------------ ------------
(2) Net Assets were comprised of:
Paid in Capital $ 266,524 $ 359,452
Accumulated Net Realized Loss -- (8)
------------ ------------
$ 266,524 $ 359,444
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
109
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM TWO MONTHS
JANUARY 17, ENDED YEAR ENDED
1992* TO DECEMBER YEAR ENDED DECEMBER
OCTOBER 31, 31, DECEMBER 31,
1992 1992 31, 1993 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 (.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) 0.88%** 0.80%** 0.80% 0.80%
Ratio of Net Investment Income to Average Net Assets (1) 2.32%** 1.22%** 1.29% 1.43%
Portfolio Turnover Rate %62 % 2 %53 %51
<FN>
-----------------
(1) Effect of voluntary expense limitation during the
period:
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%
*Commencement of operations.
**Annualized
</TABLE>
------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1991* TO YEAR ENDED TWO MONTHS ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.67 $ 13.63 $ 13.11 $ 26.20
---------------- ----------- ---------------- ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.03 0.14 0.01 0.10 0.11
Net Realized and Unrealized Gain (Loss) on
Investments (0.36) 3.86 (0.53) 13.38 (4.15)
---------------- ----------- ---------------- ------------ ------------
Total from Investment Operations (0.33) 4.00 (0.52) 13.48 (4.04)
---------------- ----------- ---------------- ------------ ------------
DISTRIBUTIONS
Net Investment Income -- (0.04) -- (0.01) (0.09)
In Excess of Net Investment Income -- -- -- (0.13) --
Net Realized Gain -- -- -- (0.12) (0.53)
In Excess of Net Realized Gain -- -- -- (0.13) --
---------------- ----------- ---------------- ------------ ------------
Total Distributions -- (0.04) -- (0.39) (0.62)
---------------- ----------- ---------------- ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.67 $ 13.63 $ 13.11 $ 26.20 $ 21.54
---------------- ----------- ---------------- ------------ ------------
---------------- ----------- ---------------- ------------ ------------
TOTAL RETURN (3.30)% 41.50% (3.82)% 105.71% (15.81)%
---------------- ----------- ---------------- ------------ ------------
---------------- ----------- ---------------- ------------ ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $10,719 $41,017 $41,978 $287,136 $276,906
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1) 1.13%** 1.53% 0.61%** 0.83% 0.52%
Portfolio Turnover Rate 2% 33% 10% 18% 47%
<FN>
-----------------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.02 $ 0.06 $ 0.02 $ 0.05 $ 0.04
Ratios before expense limitation:
Expenses to Average Net Assets 2.52%** 1.63% 2.02%** 1.38% 1.20%
Net Investment Income (Loss) to Average Net
Assets (0.39 %** 0.90% (0.41 %** 0.45% 0.32%
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
110
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER TWO MONTHS
25, 1992* ENDED YEAR ENDED YEAR ENDED
TO OCTOBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31,
1992 1992 1993 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.11 $ 10.22 $ 19.00
----------- ----- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (1) -- -- (0.01) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments 0.11 0.11 8.79 (2.56)
----------- ----- ----------- -----------
Total from Investment Operations 0.11 0.11 8.78 (2.60)
----------- ----- ----------- -----------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.10)
----------- ----- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 10.22 $ 19.00 $ 16.30
----------- ----- ----------- -----------
----------- ----- ----------- -----------
TOTAL RETURN 1.10% 1.09% 85.91% (9.63)%
----------- ----- ----------- -----------
----------- ----- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $28,806 $74,219 $735,352 $929,638
Ratio of Expenses to Average Net Assets (1) 1.75%** 1.75%** 1.75% 1.75%
Ratio of Net Investment Loss to Average Net Assets (1) (0.53)%** (0.33)%** (0.06)% (0.26)%
Portfolio Turnover Rate 0% 2% 52% 32%
<FN>
---------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.02 $ 0.00 $ 0.01 N/A
Ratios before expense limitation:
Expenses to Average Net Assets 4.82%** 2.48%** 1.79% N/A
Net Investment Loss to Average Net Assets (3.60)%** (1.06)%** (0.10)% N/A
*Commencement of operations.
**Annualized.
</TABLE>
------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, 1993* YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1993 1994
--------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 12.91
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.08 0.08
Net Realized and Unrealized Gain on Investments 2.83 1.29
------- -------
Total from Investment Operations 2.91 1.37
------- -------
DISTRIBUTIONS
Net Investment Income -- (0.09)
Net Realized Gain -- (0.25)
------- -------
Total Distributions -- (0.34)
------- -------
NET ASSET VALUE, END OF PERIOD $ 12.91 $ 13.94
------- -------
------- -------
TOTAL RETURN 29.10% 10.88%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $12,681 $27,634
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00%
Ratio of Net Investment Income to Average Net Assets (1) 1.23%** 0.87%
Portfolio Turnover Rate 15% 79%
<FN>
---------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.09 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets 2.43%** 1.62%
Net Investment Income (Loss) to Average Net Assets (0.21)%** 0.25%
*Commencement of operations.
**Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
111
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15, 1992* TWO MONTHS 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 $ 9.35 $ 9.75 $ 13.87
------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.02 0.01 0.08 0.08
Net Realized and Unrealized Gain (Loss) on Investments (0.67) 0.39 4.18 0.79
------ ----- ------ ------
Total from Investment Operations (0.65) 0.40 4.26 0.87
------ ----- ------ ------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) (0.12)
In Excess of Net Investment Income -- -- (0.03) --
Net Realized Gain -- -- (0.09) (1.22)
------ ----- ------ ------
Total Distributions -- -- (0.14) (1.34)
------ ----- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.35 $ 9.75 $ 13.87 $ 13.40
------ ----- ------ ------
------ ----- ------ ------
TOTAL RETURN (6.50)% 4.28% 44.24% 6.95%
------ ----- ------ ------
------ ----- ------ ------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $11,257 $11,739 $19,918 $78,935
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets (1) 1.00%** 0.69%** 0.84% 0.87%
Portfolio Turnover Rate 10% 5% 42% 12%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.08 $ 0.02 $ 0.01 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 5.22%** 2.49%** 1.66% 1.24%
Net Investment Income (Loss) to Average Net Assets (3.22)%** (0.80)%** 0.18% 0.63%
</TABLE>
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE GOLD PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1,
1994*
TO DECEMBER
31,
1994
----------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.03
Net Realized and Unrealized Loss on Investments (0.88)
------
Total from Investment Operations (0.85)
------
DISTRIBUTIONS
Net Investment Income (0.02)
------
NET ASSET VALUE, END OF PERIOD $ 9.13
------
------
TOTAL RETURN (8.49)%
------
------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $30,243
Ratio of Expenses to Average Net Assets (1) 1.25%**
Ratio of Net Investment Income to Average Net Assets (1) 0.41%**
Portfolio Turnover Rate 56%
</TABLE>
---------------
<TABLE>
<S> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.04
Ratios before expense limitation:
Expenses to Average Net Assets 1.72%**
Net Investment Loss to Average Net Assets (0.06)%**
</TABLE>
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
112
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
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 $ 9.72 $ 10.05 $ 10.52 $ 9.83 $ 9.98 $ 14.09
------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.19 0.12 0.12 0.01 0.15 0.16
Net Realized and Unrealized Gain (Loss) on
Investments 0.20 0.58 (0.59) 0.14 4.36 1.54
------ ------ ------ ----- ------ ------
Total from Investment Operations 0.39 0.70 (0.47) 0.15 4.51 1.70
------ ------ ------ ----- ------ ------
DISTRIBUTIONS
Net Investment Income (0.06) (0.15) (0.17) -- (0.01) (0.18)
In Excess of Net Investment Income -- -- -- -- (0.13) --
Net Realized Gain -- (0.08) (0.05) -- (0.26) (0.27)
------ ------ ------ ----- ------ ------
Total Distributions (0.06) (0.23) (0.22) -- (0.40) (0.45)
------ ------ ------ ----- ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.05 $ 10.52 $ 9.83 $ 9.98 $ 14.09 $ 15.34
------ ------ ------ ----- ------ ------
------ ------ ------ ----- ------ ------
TOTAL RETURN 3.99% 7.17% (4.56)% 1.53% 46.50% 12.39%
------ ------ ------ ----- ------ ------
------ ------ ------ ----- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $110,716 $283,776 $486,836 $510,727 $947,045 $1,304,770
Ratio of Expenses to Average Net Assets (1) 1.03% 1.00% 1.00% 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1) 3.51% 2.27% 1.46% 0.68%** 1.25% 1.12%
Portfolio Turnover Rate 38% 22% 12% 5% 23% 16%
</TABLE>
---------------
<TABLE>
<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 $ 0.00 $ 0.00 $ 0.01 $ 0.004
Ratios before expense limitation:
Expenses to Average Net Assets 1.24% 1.09% 1.02% 1.14%** 1.06% 1.03%
Net Investment Income to Average Net
Assets 3.30% 2.18% 1.44% 0.54%** 1.19% 1.09%
</TABLE>
**Annualized
--------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 15,
1992*
TO DECEMBER YEAR ENDED YEAR ENDED
31, DECEMBER 31, DECEMBER 31,
1992 1993+ 1994
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.09 $ 14.64
------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.01 0.09 0.14
Net Realized and Unrealized Gain on Investments (2) 0.08 4.48 0.62
------ ------------ ------------
Total from Investment Operations 0.09 4.57 0.76
------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- 0.00 (0.03)
In Excess of Net Investment Income -- (0.02) --
Net Realized Gain -- -- (0.22)
------ ------------ ------------
Total Distributions -- (0.02) (0.25)
------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 14.64 $ 15.15
------ ------------ ------------
------ ------------ ------------
TOTAL RETURN 0.90% 45.34% 5.25%
------ ------------ ------------
------ ------------ ------------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,824 $52,834 $160,101
Ratio of Expenses to Average Net Assets (1) 1.15%** 1.15% 1.15%
Ratio of Net Investment Income to Average Net Assets (1) 1.37%** 0.66% 1.18%
Portfolio Turnover Rate 0% 14% 8%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.16 $ 0.10 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 21.67%** 1.86% 1.29%
Net Investment Income (Loss) to Average Net Assets (19.15)%** (0.05)% 1.04%
</TABLE>
(2) Reflects a 1% transaction fee on purchases and redemptions of capital
shares.
+Per share amounts for the year ended December 31, 1993 are based on average
outstanding shares.
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
113
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
S Morgan Stanley
Institutional Fund, Inc.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 25, 1994*
TO DECEMBER 31,
1994
---------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (1) (0.01)
Net Realized and Unrealized Loss on Investments (0.16)
------
Total from Investment Operations (0.17)
------
NET ASSET VALUE, END OF PERIOD $ 9.83
------
------
TOTAL RETURN (1.70)%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $50,332
Ratio of Expenses to Average Net Assets (1) 1.00%**
Ratio of Net Investment Loss to Average Net Assets (1) (0.10)%**
Portfolio Turnover Rate 1%
</TABLE>
---------------
<TABLE>
<S> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.27%**
Net Investment Loss to Average Net Assets (0.37)%**
</TABLE>
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1989* 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 $ 9.03 $ 16.18 $ 14.97 $ 16.22 $ 16.22
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (1) 0.08 -- (0.09) (0.01) (0.11) (0.09)
Net Realized and
Unrealized Gain (Loss) on
Investments (1.00) 7.19 (1.12) 1.26 0.11 (0.01)
------ ------ ------ ------ ------ ------
Total from Investment
Operations (0.92) 7.19 (1.21) 1.25 0.00 (0.10)
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.05) (0.04) -- -- -- --
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.03 $ 16.18 $ 14.97 $ 16.22 $ 16.22 $ 16.12
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (9.27)% 79.84% (7.48)% 8.35% 0.00% (0.62)%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $11,261 $54,364 $80,156 $94,161 $103,621 $117,669
Ratio of Expenses to Average
Net Assets (1) 1.26%** 1.25% 1.25% 1.25%** 1.25% 1.25%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1) 0.64%** 0.00% (0.66)% (0.68)%** (0.77)% (0.61)%
Portfolio Turnover Rate 19% 2% 17% 1% 25% 24%
</TABLE>
---------------
<TABLE>
<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 $ 0.00 $ 0.01 $ 0.002
Ratios before expense
limitation:
Expenses to Average
Net Assets 1.64% 1.39% 1.29% 1.36%** 1.31% 1.26%
Net Investment Income
(Loss) to
Average Net Assets 0.24% (0.14)% (0.71)% (0.79)%** (0.83)% (0.62)%
</TABLE>
+Per share amounts for the year ended October 31, 1991 are based on average
outstanding shares.
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
114
<PAGE>
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Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, 1991* YEAR ENDED TWO MONTHS ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.66 $11.44 $11.88 $12.14
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.05 0.16 0.03 0.22 0.17
Net Realized and Unrealized Gain on Investments 0.61 0.82 0.41 0.28 0.21
------- ------- ------- ------- -------
Total from Investment Operations 0.66 0.98 0.44 0.50 0.38
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.20) -- (0.23) (0.13)
In Excess of Net Investment Income -- -- -- (0.01) --
Net Realized Gain -- -- -- -- (0.37)
------- ------- ------- ------- -------
Total Distributions -- (0.20) -- (0.24) (0.50)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.66 $11.44 $11.88 $12.14 $12.02
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 6.60% 9.26% 3.85% 4.33% 3.26%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 18,139 $ 36,558 $ 45,985 $ 73,789 $ 97,259
Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80%** 0.80% 0.80%
Ratio of Net Investment Income to Average Net
Assets (1) 2.34%** 1.73% 1.93%** 1.59% 1.44%
Portfolio Turnover Rate 3% 38% 1% 172% 146%
</TABLE>
-----------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.03 $ 0.02 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.37%** 1.01% 1.11%** 0.93% 0.89%
Net Investment Income to Average Net Assets 1.77%** 1.52% 1.62%** 1.46% 1.35%
</TABLE>
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17, 1992* YEAR ENDED YEAR ENDED
TO 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 -- (0.18) (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) 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets (1) 1.64%** 2.56% 2.67%
Portfolio Turnover Rate 0% 29% 22%
</TABLE>
-----------------
<TABLE>
<S> <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%
</TABLE>
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
115
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Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 31, 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 $ 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) 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70%
Ratio of Net Investment
Income to Average Net Assets
(1) 5.46%** 4.57% 3.72% 4.41%** 3.23% 3.37%
Portfolio Turnover Rate 70% 90% 56% 9% 51% 33%
</TABLE>
-----------------
<TABLE>
<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%
</TABLE>
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
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) 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70%
Ratio of Net
Investment
Income to
Average Net
Assets (1) 6.81%** 5.99% 5.21% 5.29%** 3.88% 4.13%
Portfolio
Turnover Rate 19% 67% 40% 4% 136% 44%
</TABLE>
-----------------
<TABLE>
<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%
</TABLE>
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
116
<PAGE>
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Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1994*
TO DECEMBER 31,
1994
--------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.50
Net Realized and Unrealized Loss on Investments (1.91)
------
Total from Investment Operations (1.41)
------
NET ASSET VALUE, END OF PERIOD $ 8.59
------
------
TOTAL RETURN (14.10)%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $144,949
Ratio of Expenses to Average Net Assets 1.49%**
Ratio of Net Investment Income to Average Net Assets 9.97%**
Portfolio Turnover Rate 273%
</TABLE>
---------------
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 15, 1991* YEAR ENDED TWO MONTHS ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 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) 0.45%** 0.45% 0.45%** 0.45% 0.45%
Ratio of Net Investment Income to Average Net
Assets (1) 7.29%** 6.59% 5.56%** 4.97% 5.73%
Portfolio Turnover Rate 48% 105% 15% 240% 388%
</TABLE>
---------------
<TABLE>
<S> <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 $ 0.02 $ 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%
</TABLE>
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
117
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1991* YEAR ENDED TWO MONTHS ENDED YEAR ENDED YEAR ENDED
TO OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 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) 0.50%** 0.50% 0.50%** 0.50% 0.50%
Ratio of Net Investment Income to Average Net
Assets (1) 7.24%** 6.92% 6.99%** 5.99% 6.34%
Portfolio Turnover Rate 20% 144% 9% 108% 171%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
(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%
</TABLE>
*Commencement of operations.
**Annualized
--------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 28, 1992* TWO MONTHS 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) 0.75%** 0.75%** 0.75% 0.75%
Ratio of Net Investment Income to Average Net
Assets (1) 9.89%** 8.96%** 8.70% 9.42%
Portfolio Turnover Rate 9% 24% 104% 74%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.01 $ 0.01 $ 0.02 $ 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%
</TABLE>
*Commencement of operations.
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
118
<PAGE>
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Institutional Fund, Inc.
------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- ------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.079 0.062 0.039 0.005 0.027 0.040
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income (0.079) (0.062) (0.039) (0.005) (0.027) (0.040)
In Excess of Net Investment
Income -- -- -- -- (0.000) --
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (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
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
TOTAL RETURN 8.16% 6.37% 3.77% 0.50% 2.76% 3.84%
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $516,182 $607,087 $612,968 $599,172 $657,163 $690,503
Ratio of Expenses to Average Net
Assets (1) 0.55% 0.53% 0.52% 0.55%** 0.53% 0.49%
Ratio of Net Investment Income to
Average Net Assets (1) 7.87% 6.11% 3.74% 3.11%** 2.71% 3.77%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation
during the period:
Per share benefit to net
investment
income $ 0.000 N/A N/A $ 0.000 $ 0.000 N/A
Ratios before expense
limitation:
Expenses to Average Net Assets 0.58% N/A N/A 0.59%** 0.54% N/A
Net Investment Income to
Average
Net Assets 7.85% N/A N/A 3.07%** 2.70% N/A
</TABLE>
**Annualized
--------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- ------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.054 0.043 0.026 0.004 0.019 0.020
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income (0.054) (0.043) (0.026) (0.004) (0.019) (0.020)
In Excess of Net Investment
Income -- -- -- -- (0.000) --
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (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
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
TOTAL RETURN 5.51% 4.35% 2.74% 0.37% 1.91% 2.44%
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $102,195 $166,953 $206,691 $208,866 $266,524 $359,444
Ratio of Expenses to Average Net
Assets (1) 0.51% 0.56% 0.55% 0.57%** 0.54% 0.51%
Ratio of Net Investment Income to
Average Net Assets (1) 5.38% 4.18% 2.66% 2.31%** 1.89% 2.42%
</TABLE>
---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation
during the period:
Per share benefit to net
investment
income $ 0.001 N/A N/A $ 0.000 $ 0.000 N/A
Ratios before expense
limitation:
Expenses to Average Net Assets 0.63% N/A N/A 0.67%** 0.56% N/A
Net Investment Income to
Average
Net Assets 5.26% N/A N/A 2.21%** 1.87% N/A
</TABLE>
**Annualized
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
119
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
------------------------------------------------------------------------------
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as an open-end investment company. As of
December 31, 1994 the Fund was comprised of 20 separate active, diversified
and non-diversified portfolios (each referred to as the "Portfolio"). During
the year ended December 31, 1994, the Fund commenced operations of the Gold
and Emerging Markets Debt Portfolios on February 1, 1994, and the Japanese
Equity Portfolio on April 25, 1994, respectively. Additionally, effective
August 19, 1994, the Fund ceased offering shares of the Real Yield Portfolio.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of the
financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price.
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 readily available are valued at the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Debt securities purchased with remaining maturities of
60 days or less are valued at amortized cost, if it approximates market
value. Money market and municipal money market securities are stated at
amortized cost, which approximates market value. All other securities and
assets for which market values are not readily available, including
restricted securities, are valued at fair value as determined in good faith
by the Board of Directors, although the actual calculations may be done by
others.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable and tax-exempt income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
Each Portfolio may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income or gains earned or
repatriated. The Portfolio accrues such taxes when the related income is
earned. For investments in Indian securities a capital gains tax is accrued
based on the relative amounts of net realized gains and net unrealized
appreciation of such securities. Effective January 1, 1994 the Brazilian
Government announced a 0.25% tax on banking transaction debits (withdrawals).
This tax was subsequently repealed on January 1, 1995. The Brazilian
government also assesses a 1% tax on all settlements of foreign currency used
to purchase listed equity securities.
Paid in capital, undistributed net investment income (loss) and accumulated
gain (loss) are adjusted for permanent book tax differences.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counter-party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and
records of the Fund are maintained in United States dollars. Foreign currency
amounts are translated into US dollars at the mean of the bid and asked
prices of such currencies against US dollars last quoted by a major US or
foreign bank. Although the net assets of the Fund are presented at the
foreign exchange rates and market values at the close of the period, the Fund
does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances. However, pursuant to US Federal income tax regulations, gains and
losses from certain foreign currency transactions are treated as ordinary
income for US Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of
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DECEMBER 31, 1994
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foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and certain currency related amounts of realized gains or
losses from the sale of foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of US dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities
markets and the possibility of political or economic instability.
5. FORWARD FOREIGN CURRENCY CONTRACTS: Each Portfolio, except the Money
Market Portfolio and Municipal Money Market Portfolio, may enter into forward
currency contracts to attempt to protect securities and related receivables
and payables against changes in future foreign exchange rates. A forward
currency contract is an agreement between two parties to buy or sell currency
at a set price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value
is recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the time
it was closed. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts
and is generally limited to the amount of the unrealized gain on the
contracts (if any) at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the US
dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery for securities which have been purchased or sold on a
forward commitment basis can take place a month or more (not to exceed 120
days) after the date of the transaction. Additionally, certain portfolios may
purchase securities on a when-issued or delayed-delivery basis. Securities
purchased on a when-issued or delayed delivery basis are purchased for
delivery beyond the normal settlement date at a stated price and yield, and
no income accrues to the Portfolio on such securities prior to delivery. When
the Portfolio enters into a purchase transaction on a when-issued or delayed
delivery basis, it establishes a segregated account in which it maintains
liquid assets in an amount at least equal in value to the Portfolio's
commitments to purchase such securities. Purchasing securities on a forward
commitment or when-issued or delayed-delivery basis may involve a risk that
the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time
of delivery.
At December 31, 1994, the Republic of Ecuador was in the process of
restructuring its loans under its Brady Plan debt restructuring. As a result,
the Emerging Markets Debt Portfolio has recorded the value of the underlying
loan participations based on the amount of Brady Bonds the Adviser has
estimated the Portfolio will receive and the market value of such Brady Bonds
trading on a "when-issued" basis at December 31, 1994. A portion of the
"when-issued" Brady Bonds expected to be received as a result of the
restructuring have been sold on a delayed delivery basis and are noted on the
portfolio of investments.
7. LOAN AGREEMENTS: The Emerging Markets, Emerging Markets Debt and High
Yield Portfolios may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between an issuer of sovereign debt
obligations and one or more financial institutions ("Lenders") deemed to be
creditworthy by the investment adviser. The Portfolio's investments in Loans
may be in the form of participations in Loans ("Participations") or
assignments of all or a portion of Loans ("Assignments") from third parties.
The Portfolio's investment in Participations typically results in the
Portfolio having a contractual relationship with only the Lender and not with
the borrower. The Portfolio has the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling
the Participation and only upon receipt by the Lender of the payments from
the borrower. The Portfolio generally has no right to enforce compliance by
the borrower with the terms of the loan agreement. As a result, the Portfolio
may be subject to the credit risk of both the borrower and the Lender that is
selling the Participation. When the Portfolio purchases Assignments from
Lenders, it acquires direct rights against the borrower on the Loan. Because
Assignments are arranged through private negotiations between potential
assignees and potential assignors, the rights and obligations acquired by the
Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
8. SHORT SALES: The Emerging Markets Debt Portfolio may sell securities
short. A short sale is a transaction in which the Portfolio sells securities
it does not own,
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DECEMBER 31, 1994
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but has borrowed, in anticipation of a decline in the market
price of the securities. The Portfolio is obligated to replace the borrowed
securities at the market price at the time of replacement. The Portfolio may
have to pay a premium to borrow the securities as well as pay any dividends
or interest payable on the securities until they are replaced. The
Portfolio's obligation to replace the securities borrowed in connection with
a short sale will generally be secured by collateral deposited with the
broker that consists of cash, U.S. government securities or other liquid,
high grade debt obligations. In addition, the Portfolio will place in a
segregated account with its Custodian an amount of cash, U.S. government
securities or other liquid high grade debt obligations equal to the
difference, if any, between (1) the market value of the securities sold at
the time they were sold short and (2) any cash, U.S. government securities or
other liquid high grade debt obligations deposited as collateral with the
broker in connection with the short sale (not including the proceeds of the
short sale). Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that
could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases cannot exceed the total
amount invested.
9. PURCHASED AND WRITTEN OPTIONS: The Active Country Allocation, Gold, Equity
Growth and Emerging Markets Debt Portfolios may write covered call options.
Premiums are received and are recorded as liabilities, and subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are canceled in closing purchase
transactions are offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. By writing a call option,
each Portfolio foregoes in exchange for the premium the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security increase. Possible losses from written options may be
unlimited.
The Active Country Allocation, Gold, and Equity Growth Portfolios may also
purchase call options on their portfolio securities. Each portfolio may
purchase call options to close out covered call positions or to protect
against an increase in the price of the security it anticipates purchasing.
Possible losses from purchased options cannot exceed the total amount
invested.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses on
the sale of investment securities are those of specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis except where collection is in doubt.
Discounts and premiums on securities purchased (other than mortgage-backed
securities) are amortized according to the effective yield method over their
respective lives. Most expenses of the Fund can be directly attributed to a
particular Portfolio. Expenses which cannot be directly attributed are
apportioned among the Portfolios based upon relative net assets. Dividends
from the Money Market and the Municipal Money Market Portfolios are accrued
daily and are distributed on or about the 15th of each month. Distributions
from the remaining Portfolios are recorded on the ex-date.
Income distributions and capital gain distributions are determined in
accordance with tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities, foreign currency transactions, net
operating losses, deferral of wash sales and post October losses and
realization of gains and losses on certain investments including forward
foreign currency contracts, options and futures contracts.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
emerging countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in emerging countries to prevent, among
other concerns, violation of foreign investment limitations. As a result, an
additional class of shares (identified as "Foreign" in the Statement of Net
Assets) may be created and offered for investment. The "local" and "foreign"
shares' market values may differ.
A transaction fee of one percent is charged on subscriptions and redemptions
of capital shares of the International Small Cap Portfolio. Such fees are
paid to or retained by the Portfolio and included in paid in capital. During
the year ended December 31, 1994, such transaction fees totaled approximately
$1,463,000.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Fund with
investment advisory services at a fee calculated at the annual rates of
average daily net assets indicated below. MSAM has agreed to reduce fees
payable to it and to reimburse the Portfolios, if
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DECEMBER 31, 1994
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necessary, if the annual operating expenses, expressed as a percentage of
average daily net assets, exceed the maximum ratios indicated below:
MAXIMUM
ADVISORY EXPENSE
PORTFOLIO FEE RATIO
----------- ------------
Active Country Allocation............ .65% .80%
Asian Equity......................... .80 1.00
Emerging Markets..................... 1.25 1.75
European Equity...................... .80 1.00
Global Equity........................ .80 1.00
Gold................................. 1.00 1.25
International Equity................. .80 1.00
International Small Cap.............. .95 1.15
Japanese Equity...................... .80 1.00
Emerging Growth...................... 1.00 1.25
Equity Growth........................ .60 .80
Small Cap Value Equity............... .85 1.00
Value Equity......................... .50 .70
Balanced............................. .50 .70
Emerging Markets Debt................ 1.00 1.75
Fixed Income......................... .35 .45
Global Fixed Income.................. .40 .50
High Yield........................... .50 .75
Money Market......................... .30 .55
Municipal Money Market............... .30 .57
Sun Valley Gold Company is the sub-adviser ("Sub-Adviser") of the Gold
Portfolio. The Sub-Adviser is entitled to receive from MSAM an annual
sub-advisory fee in an amount equal to .40% of the average daily net assets
of the Portfolio. The Sub-Adviser has agreed to a proportionate reduction in
its fees if the Adviser is required to waive its fees or to reimburse the
Portfolio.
C. MSAM also provides the Fund with administrative services pursuant to an
administrative agreement, for a monthly fee which on an annual basis equals
0.15% of the average daily net assets of each Portfolio plus reimbursement of
out-of-pocket expenses. Under an agreement between MSAM and The United States
Trust Company of New York ("US Trust"), Mutual Funds Service Company
("MFSC"), a wholly owned subsidiary of US Trust, provides certain
administrative services to the Fund. For such services, MSAM pays US Trust a
portion of the fee MSAM receives from the Fund.
D. Morgan Stanley Trust Company ("MSTC") acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian
agreement. Custodian fees are computed and payable monthly based on
securities held, investment purchases and sales activity, an account
maintenance fee, plus reimbursement for certain out-of-pocket expenses. MSTC
and the Adviser are wholly owned subsidiaries of Morgan Stanley Group, Inc.
Effective March 22, 1994, US Trust replaced Morgan Guaranty Trust Company as
custodian for the Fund's assets held inside the United States.
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Morgan Stanley
Institutional Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1994
------------------------------------------------------------------------------
During the year ended December 31, 1994, the following Portfolios incurred
custody fees and had amounts payable to MSTC at December 31, 1994 totaling:
MSTC CUSTODY
FEES FEES PAYABLE TO
INCURRED MSTC
(000) (000)
--------------- -----------------
Active Country
Allocation............. $ 162 $ 30
Asian Equity............ 495 221
Emerging Markets........ 1,741 536
European Equity......... 40 7
Global Equity........... 35 6
Gold.................... 3 1
International Equity.... 484 81
International Small
Cap.................... 106 19
Japanese Equity......... 17 4
Emerging Markets Debt... 131 115
Global Fixed Income..... 60 10
E. During the year ended December 31, 1994, purchases and sales of investment
securities other than long-term US Government securities and short-term
investments were:
(000)
----------------------
PORTFOLIO PURCHASES SALES
----------- ---------
Active Country Allocation............ $ 127,784 $ 90,248
Asian Equity......................... 155,981 117,321
Emerging Markets..................... 610,738 265,585
European Equity...................... 27,766 13,398
Global Equity........................ 64,979 5,746
Gold................................. 41,035 11,058
International Equity................. 373,602 180,373
International Small Cap.............. 120,630 9,130
Japanese Equity...................... 50,134 545
Emerging Growth...................... 35,945 24,123
Equity Growth........................ 133,517 116,543
Small Cap Value Equity............... 20,127 7,265
Value Equity......................... 44,425 22,714
Balanced............................. 4,258 8,196
Emerging Markets Debt................ 368,381 247,457
Fixed Income......................... 185,167 185,079
Global Fixed Income.................. 147,827 174,818
High Yield........................... 98,022 66,421
Purchases and sales during the year ended December 31, 1994 of long-term US
Government securities occurred only in the Balanced, Fixed Income and Global
Fixed Income Portfolios and amounted to:
(000)
----------------------
PORTFOLIO PURCHASES SALES
----------- ---------
Balanced...................... $ 5,922 $ 11,056
Fixed Income.................. 565,162 569,388
Global Fixed Income........... 82,393 88,979
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DECEMBER 31, 1994
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During the year ended December 31, 1994, the following Portfolios incurred
brokerage commissions to Morgan Stanley & Co., Incorporated, an affiliated
broker/dealer, of approximately:
(000)
---------------
BROKERAGE
PORTFOLIO COMMISSION
---------------
Active Country Allocation......................... $ 87
Asian Equity...................................... 397
Emerging Markets.................................. 115
Global Equity..................................... 13
Gold.............................................. 15
Japanese Equity................................... 165
Equity Growth..................................... 4
During the year ended December 31, 1994, the Gold Portfolio incurred
brokerage commissions to Sun Valley Gold Company, an affiliated
broker/dealer, of approximately $8,425.
F. At December 31, 1994, cost and unrealized appreciation (depreciation) for
Federal income tax purposes of the investments of each Portfolio were:
(000) NET
------------------------------- APPREC.
PORTFOLIO COST APPREC. DEPREC. (DEPREC.)
--------- --------- --------- -----------
Active Country Allocation.. $ 182,640 $ 13,080 $ (7,778) $ 5,302
Asian Equity............... 238,789 48,446 (13,808) 34,638
Emerging Markets........... 873,136 163,816 (113,660) 50,156
European Equity............ 27,838 1,033 (1,275) (242)
Global Equity.............. 79,046 6,324 (4,756) 1,568
Gold....................... 33,540 135 (3,001) (2,866)
International Equity....... 1,079,618 252,688 (24,107) 228,581
International Small Cap.... 161,857 11,311 (12,717) (1,406)
Japanese Equity............ 50,712 1,638 (2,114) (476)
Emerging Growth............ 92,186 29,775 (4,842) 24,933
Equity Growth.............. 97,708 4,522 (4,305) 217
Small Cap Value Equity..... 40,872 2,377 (3,305) (928)
Value Equity............... 74,832 3,430 (5,851) (2,421)
Balanced................... 18,309 747 (1,265) (518)
Emerging Markets Debt...... 158,715 1,820 (13,335) (11,515)
Fixed Income............... 220,486 390 (5,290) (4,900)
Global Fixed Income........ 139,143 660 (7,295) (6,635)
High Yield................. 107,112 768 (11,421) (10,653)
Money Market............... 690,455 -- -- --
Municipal Money Market..... 357,853 -- -- --
At December 31, 1994, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulation, through the indicated expiration dates:
EXPIRATION DATE
DECEMBER 31,
(000)
------------------------------------------
PORTFOLIO 1998 1999 2000 2001 2002 TOTAL
------------------------- ------- ------- -------- ------- ------- -------
International Small Cap.. $ -- $ -- $ -- $ -- $ 1,764 $ 1,764
Emerging Growth.......... 441 360 1,838 7,476 746 10,861
Emerging Markets Debt.... -- -- -- -- 531 531
Fixed Income............. -- -- -- -- 13,870 13,870
High Yield............... -- -- -- -- 497 497
Global Fixed............. -- -- -- -- 5,293 5,293
Money Market............. -- 66 -- -- 26 92
Municipal Money Market... -- -- -- 1 7 8
To the extent that capital loss carryovers are used to offset any future net
capital gains realized during the carryover period as provided by Federal
income tax regulations, no capital gains tax liability will be incurred by a
Portfolio for gains realized and not distributed. It is unlikely that the
gains so offset would be distributed to shareholders because such
distributions may be taxable to Portfolio shareholders as ordinary income.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1994 to December 31, 1994
the Portfolio's incurred and elected to defer to January 1, 1995 for Federal
income tax purposes net capital and net currency losses of approximately:
CAPITAL CURRENCY
LOSSES LOSSES
PORTFOLIO (000) (000)
----------------------------- ----------- -----------
Emerging Markets............. $ -- $ 393
Global Equity................ -- 5
Gold......................... -- 1
European Equity.............. -- 4
International Small Cap...... 225 --
Balanced..................... 12 --
Emerging Markets Debt........ -- 7
Fixed Income................. 269 --
Global Fixed Income.......... 429 897
High Yield................... 1,084 --
G. During the year ended December 31, 1994, the written options outstanding
at December 31, 1993 for the Equity Growth Portfolio expired unexercised and
the Portfolio realized a gain of $101,000.
At December 31, 1994, the Emerging Markets Debt Portfolio had 15 written
covered call option contracts outstanding with a premium of $105,000.
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DECEMBER 31, 1994
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H. OTHER. At December 31, 1994, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency.
Changes in currency exchange rates will affect the US dollar value of and
investment income from such securities.
During the year ended December 31, 1994, the International Small Cap
Portfolio realized gains from in-kind redemptions of approximately $350,000.
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Morgan Stanley
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1994
------------------------------------------------------------------------------
Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of December 31, 1994:
Argentine Peso......................... 1.00005 = $1.00
Australian Dollar...................... 1.28941 = 1.00
Belgian Franc.......................... 31.81000 = 1.00
Brazilian Real......................... 0.84700 = 1.00
British Pound.......................... 0.63837 = 1.00
Canadian Dollar........................ 1.40245 = 1.00
Colombian Peso......................... 831.60000 = 1.00
Danish Krone........................... 6.08100 = 1.00
Deutsche Mark.......................... 1.54890 = 1.00
Finnish Markka......................... 4.73565 = 1.00
French Franc........................... 5.33750 = 1.00
Hong Kong Dollar....................... 7.73750 = 1.00
Indian Rupee........................... 31.36875 = 1.00
Indonesian Rupiah...................... 2,198.00000 = 1.00
Irish Punts............................ 0.64687 = 1.00
Italian Lira........................... 1,621.00000 = 1.00
Japanese Yen........................... 99.60000 = 1.00
Korean Won............................. 788.50000 = 1.00
Malaysian Ringgit...................... 2.55350 = 1.00
Mexican Peso........................... 4.97500 = 1.00
Moroccan Dhiram........................ 8.91795 = 1.00
Netherlands Guilder.................... 1.73480 = 1.00
New Zealand Dollar..................... 1.56213 = 1.00
Norwegian Krone........................ 6.75950 = 1.00
Pakistani Rupee........................ 30.76920 = 1.00
Peruvian Sol........................... 2.18400 = 1.00
Polish Zloty........................... 23,200.00000 = 1.00
Portuguese Escudo...................... 159.05000 = 1.00
Singapore Dollar....................... 1.45750 = 1.00
South African Commercial Rand.......... 3.54000 = 1.00
South African Financial Rand........... 4.07200 = 1.00
Spanish Peseta......................... 131.62500 = 1.00
Sri Lankan Rupee....................... 49.62000 = 1.00
Swedish Krona.......................... 7.43080 = 1.00
Swiss Franc............................ 1.30850 = 1.00
Taiwan Dollar.......................... 26.28800 = 1.00
Thai Baht.............................. 25.10500 = 1.00
Turkish Lira........................... 38,700.00000 = 1.00
During December 1994, the Board of Directors of the Fund declared dividends
and capital gain distributions payable on January 6, 1995 to shareholders of
record on December 30, 1994 as follows:
NET SHORT-TERM LONG-TERM
INVESTMENT REALIZED REALIZED
PORTFOLIO INCOME GAINS GAINS
-------------------------------- ------------- ------------ -------------
Active Country Allocation....... $ -- $ -- $ 0.44
Asian Equity.................... 0.15 1.03 1.23
Emerging Markets................ -- 0.44 0.48
European Equity................. -- 1.09 0.14
Global Equity................... 0.06 0.09 0.10
Gold............................ 0.01 0.24 --
International Equity............ -- 0.09 0.71
International Small Cap......... 0.03 -- --
Equity Growth................... 0.06 0.39 0.03
Small Cap Value Equity.......... 0.08 0.20 0.13
Value Equity.................... 0.10 0.10 0.28
Balanced........................ 0.10 -- 0.26
Emerging Markets Debt........... 0.48 -- --
Fixed Income.................... 0.06 -- --
Global Fixed Income............. 0.19 -- --
High Yield...................... 0.10 -- --
I. SUBSEQUENT EVENT. On January 18, 1995 the Fund commenced operations of the
Latin American and Municipal Bond Portfolios.
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REPORT OF INDEPENDENT ACCOUNTANTS
------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Institutional Fund, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of the Active Country Allocation Portfolio, Asian Equity Portfolio, Emerging
Markets Portfolio, European Equity Portfolio, Global Equity Portfolio, Gold
Portfolio, International Equity Portfolio, International Small Cap Portfolio,
Japanese Equity Portfolio, Emerging Growth Portfolio, Equity Growth
Portfolio, Small Cap Value Equity Portfolio, Value Equity Portfolio, Balanced
Portfolio, Emerging Markets Debt Portfolio, Fixed Income Portfolio, Global
Fixed Income Portfolio, High Yield Portfolio, Money Market Portfolio and
Municipal Money Market Portfolio (constituting the Morgan Stanley
Institutional Fund, Inc., hereafter referred to as the "Fund") at December
31, 1994, and the results of each of their operations, the changes in each of
their net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994, by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1995
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MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
-------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
-------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
COMMON STOCK (91.8%)
CAPITAL GOODS/CONSTRUCTION (14.3%)
AEROSPACE & DEFENSE (14.3%)
+7,200 Litton Industries, Inc. $ 266
15,800 Lockheed Martin Corp. 997
9,200 McDonnell Douglas Corp. 706
8,200 United Technologies Corp. 641
--------------
TOTAL CAPITAL GOODS/CONSTRUCTION 2,610
--------------
CONSUMER CYCLICAL (9.2%)
FOOD SERVICE & LODGING (1.7%)
8,900 Hospitality Franchise Systems, Inc. 308
--------------
LEISURE RELATED (1.4%)
4,300 Eastman Kodak Co. 261
--------------
PUBLISHING (1.6%)
5,300 Gannett Co., Inc. 288
--------------
RETAIL - GENERAL (4.5%)
+6,500 Autozone, Inc. 163
+12,300 General Nutrition Cos., Inc. 432
5,500 Home Depot, Inc. 223
--------------
818
--------------
TOTAL CONSUMER CYCLICAL 1,675
--------------
CONSUMER STAPLES (32.7%)
BEVERAGES & TOBACCO (24.8%)
8,400 Coca Cola Co. 536
4,200 PepsiCo, Inc. 192
51,000 Philip Morris Cos., Inc. 3,793
--------------
4,521
--------------
FOOD (2.1%)
5,400 Kellogg Co. 385
--------------
HEALTH CARE SUPPLIES & SERVICES (5.8%)
5,200 American Home Products Corp. 402
6,300 Columbia/HCA Healthcare Corp. 272
9,400 United Healthcare Corp. 389
--------------
1,063
--------------
TOTAL CONSUMER STAPLES 5,969
--------------
ENERGY (0.5%)
COAL, GAS, & OIL (0.5%)
3,900 Occidental Petroleum Corp. 89
--------------
FINANCE (23.6%)
BANKING (5.2%)
9,900 Citicorp 573
13,900 H.F. Ahmanson & Co. 306
300 Wells Fargo & Co. 54
--------------
933
--------------
The accompanying notes are an integral part of the financial statements.
127
<PAGE>
VALUE
SHARES (000)
-------------------------------------------------------------
FINANCIAL SERVICES (10.8%)
16,700 American Express Co. $ 586
7,600 Federal Home Loan Mortgage Corp. 522
5,000 Federal National Mortgage Association 472
8,800 Franklin Resources, Inc. 392
--------------
1,972
--------------
INSURANCE (7.6%)
15,400 Ace, Ltd. 447
15,500 Exel Ltd. 806
5,400 PartnerRe Holdings, Ltd. 141
--------------
1,394
--------------
TOTAL FINANCE 4,299
--------------
MATERIALS (2.9%)
FOREST PRODUCTS & PAPER (2.9%)
6,700 Champion International Corp. 349
+8,400 Stone Container Corp. 179
--------------
TOTAL MATERIALS 528
--------------
TECHNOLOGY (8.6%)
COMPUTERS (5.3%)
7,300 International Business Machines Corp. 701
+3,000 Microsoft, Inc. 271
--------------
972
--------------
ELECTRONICS (3.3%)
+2,000 Applied Material, Inc. 173
3,000 Intel Corp. 190
1,800 Texas Instruments, Inc. 241
--------------
604
--------------
TOTAL TECHNOLOGY 1,576
--------------
TOTAL COMMON STOCK (Cost $15,576) 16,746
--------------
--------------------------------------------------------------
PURCHASED OPTION (0.0%)
CONSUMER STAPLES (0.0%)
BEVERAGES & TOBACCO (0.0%)
+20,000 Philip Morris Cos., Inc. (Cost $8) 4
--------------
FACE
AMOUNT
(000)
--------
SHORT - TERM INVESTMENTS (6.2%)
US GOVERNMENT OBLIGATION (2.7%)
$ 500 U.S. Treasury Bill, 8/17/95 497
--------------
REPURCHASE AGREEMENT (3.5%)
642 U.S. Trust, 5.90%, dated 6/30/95, due
7/3/95, to be repurchased at $642,
collateralized by $675 United States
Treasury Bills, due 7/27/95, valued
at $672 (Cost $642) 642
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,138) 1,139
--------------
TOTAL INVESTMENTS (98.0%) (Cost $16,722) 17,889
--------------
The accompanying notes are an integral part of the financial statements.
128
<PAGE>
OTHER ASSETS (5.2%)
Receivable for Investments Sold $829
Receivable for Portfolio Shares
Sold 63
Dividends Receivable 37
Expense Reimbursement Receivable 17 $946
--------
LIABILITIES (-3.2%)
Payable for Investments Purchased (531)
Written Options at Market Value (22)
Custodian Fees Payable (2)
Administrative Fees Payable (2)
Directors' Fees & Expenses (1)
Other Liabilities (22) (580)
-------- ---------
NET ASSETS (100%) $18,255
---------
---------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 1,546,129 outstanding
$.001 par value shares (authorized
500,000,000 shares) $11.81
OPEN WRITTEN COVERED CALL OPTIONS:
The following is a schedule of open written covered call
options which comprise the balance outstanding at
June 30, 1995
NO. OF EXERCISE EXPIRATION VALUE
DESCRIPTION CONTRACTS PRICE DATE (000)
----------------------------------------------------------------
McDonnell Douglas Corp. 40 $125 7/31/95 $12
Coca Cola Co. 15 88 8/30/95 3
Coca Cola Co. 37 88 8/30/95 7
--------
$22
________________________________________________________________
+ - Non-income producing securities.
The accompanying notes are an integral part of the financial statements.
129
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
----------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
----------------------------------------------------------
AGGRESSIVE
EQUITY
PORTFOLIO
MARCH 8,
1995* TO
JUNE 30,
1995
(000)
----------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 79
Interest 36
----------------
Total Income 115
----------------
EXPENSES:
Investment Advisory Fees:
Basic Fees - Adviser 29
Less: Fees Waived (29)
----------------
Investment Advisory Service Fees - Net -
Administrative Fees: 6
Custodian Fees 5
Filing and Registration Fees 15
Directors' Fees and Expenses 2
Legal Fees 11
Audit Fees 8
Shareholder Reports 7
Other Expenses 1
Expenses Reimbursed by Adviser (18)
----------------
Total Expenses 37
----------------
NET INVESTMENT INCOME 78
----------------
NET REALIZED GAIN (LOSS):
Investments Sold 716
Written Options (3)
Securities Sold Short (2)
----------------
Total Net Realized Gain 711
----------------
CHANGE IN UNREALIZED APPRECIATION 1,154
----------------
TOTAL NET REALIZED GAIN AND CHANGE
IN UNREALIZED APPRECIATION 1,865
----------------
Net Increase in Net Assets Resulting
from Operations $ 1,943
----------------
----------------
_______________
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
130
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
--------------------------------------------------------
PERIOD FROM
MARCH 8, 1995*
TO JUNE 30 1995
(UNAUDITED)
(000)
--------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 78
Net Realized Gain 711
Change in Unrealized Appreciation 1,154
----------
Net Increase in Net Assets Resulting
from Operations 1,943
----------
DISTRIBUTIONS:
Net Investment Income (16)
----------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 16,751
Distributions Reinvested 15
Redeemed (438)
----------
Net Increase from Capital Share Transactions 16,328
----------
Total Increase in Net Assets 18,255
NET ASSETS:
Beginning of Period -
----------
End of Period (2) $ 18,255
----------
----------
____________________________________________________________
(1) Capital Share Transactions:
Shares Subscribed 1,584
Shares Issued on Distributions Reinvested 1
Shares Redeemed (39)
----------
Net Increase in Capital Shares Outstanding 1,546
----------
----------
(2) Net Assets were Comprised of:
Paid in Capital $ 16,328
Undistributed Net Investment Income 62
Accumulated Net Realized Gain 711
Unrealized Appreciation 1,154
----------
$ 18,255
----------
----------
_________________
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
131
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
-------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
-------------------------------------------------------------
PERIOD FROM
MARCH 8, 1995* TO
JUNE 30, 1995
(UNAUDITED)
-------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06
Net Realized and Unrealized Gain on
Investments 1.77
-------------
Total from Investment Operations 1.83
-------------
DISTRIBUTIONS
Net Investment Income (0.02)
-------------
NET ASSET VALUE, END OF PERIOD $11.81
-------------
-------------
TOTAL RETURN
18.3%
-------------
-------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $18,255
Ratio of Expenses to Average Net Assets (1) 1.00%**
Ratio of Net Investment Income to Average
Net Assets (1) 2.10%**
Portfolio Turnover Rate 80%
__________________________
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income $0.04
Ratios before expense limitation:
Expenses to Average Net Assets 2.26%**
Net Investment Income to Average Net Assets 0.83%**
__________________________
* Commencement of operations.
** Annualized.
The accompanying notes are an integral part of the financial statements.
132
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1995
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company which offers redeemable shares of twenty-four diversified
and non-diversified investment portfolios. These notes pertain only to the
unaudited financial statements dated June 30, 1995 for one such investment
portfolio, the Aggressive Equity Portfolio (the "Portfolio").
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Portfolio in the preparation of the
financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price.
Unlisted securities and listed securities not traded on the valuation date
for which market quotations are readily available are valued at the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which are based primarily on institutional size trading in similar groups of
securities. Securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. Money
market securities are stated at amortized cost, which approximates market
value. All other securities and assets for which market values are not
readily available, including restricted securities, are valued at fair value
as determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. INCOME TAXES: It is the Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as a custodian for the Portfolio takes possession of the
underlying securities, the value of which is at least equal to the principal
amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral or proceeds may be subject to legal proceedings.
133
<PAGE>
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and
records of the Portfolio are maintained in United States dollars. Foreign
currency amounts are translated into U.S. dollars at the bid prices of such
currencies against U.S. dollars last quoted by a major U.S. or foreign bank.
Although the net assets of the Portfolio are presented at the foreign
exchange rates and market values at the close of the period, the Portfolio
does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of the securities held at period end.
Similarly the Portfolio does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances. However, pursuant to U.S. Federal income tax regulations, gains
and losses from certain foreign currency transactions are treated as ordinary
income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, the difference
between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amount actually
received or paid, and certain currency related amounts of realized gains or
losses from the sale of foreign denominated debt securities.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the possibly
lower level of governmental supervision and regulation of foreign securities
markets and the possibility of political or economic instability.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolio may enter into
forward foreign currency contracts to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily using the forward rate and the change in
market value is recorded by the Portfolio as unrealized gain or loss. The
Portfolio records realized gains or losses when the contract is closed equal
to the difference between the value of the contract at the time it was opened
and the value at the time it was closed. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of their contracts and is generally limited to the amount of the
unrealized gain on the contracts (if any) at the date of default. Risks may
arise from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery
134
<PAGE>
for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Portfolio may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery beyond
the normal settlement date at a stated price and yield, and no income accrues
to the Portfolio on such securities prior to delivery. When the Portfolio
enters into a purchase transaction on a when-issued or delayed delivery
basis, it establishes a segregated account in which it maintains liquid
assets in an amount at least equal in value to the Portfolio's commitments to
purchase such securities. Purchasing securities on a forward commitment or
when-issued or delayed delivery basis may involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase
price, in which case there could be an unrealized loss at the time of
delivery.
7. PURCHASED AND WRITTEN OPTIONS: The Portfolio may write covered call
options. Premiums are received and are recorded as liabilities, and
subsequently adjusted to the current value of the options written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or canceled in
closing purchase transactions are offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. By writing a call
option, the Portfolio foregoes in exchange for the premium the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase. Possible losses from written options may be
unlimited.
The Portfolio may also purchase call options on it's portfolio securities.
The Portfolio may purchase call options to close out covered call positions
or to protect against an increase in the price of the security it anticipates
purchasing. Possible losses from purchased options cannot exceed the total
amount invested.
8. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis except where collection is in doubt.
Discounts and premiums on securities purchased are amortized according to the
effective yield method over their respective lives. Distributions are
recorded on the ex-distribution date. Most expenses of the Fund can be
directly attributed to a particular Portfolio. Expenses which cannot be
directly attributed are apportioned among the Portfolios based upon relative
net assets.
Income distributions and capital gain distributions are determined in
accordance with tax regulations which may differ from generally accepted
accounting principles.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Portfolio with
investment advisory services at a fee calculated at the annual rate of
average daily net assets indicated below. MSAM has agreed to reduce fees
payable to it and to reimburse the
135
<PAGE>
Portfolio, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratio indicated
below.
MAXIMUM
ADVISORY EXPENSE
FEE RATIO
-------- ---------
Aggressive Equity Portfolio .......................... 0.80% 1.00%
C. MSAM also provides the Portfolio with administrative services pursuant to
an Administrative Agreement for a monthly fee which on an annual basis equals
0.15% of the average daily net assets of each Portfolio plus reimbursement of
out-of-pocket expenses. Under an agreement between MSAM and U.S. Trust
Company of New York ("U.S. Trust"), Mutual Funds Service Company ("MFSC"), a
subsidiary of U.S. Trust, provides certain administrative services to the
Fund. For such services, MSAM pays U.S. Trust a portion of the fee MSAM
receives from the Fund.
D. CUSTODIANS: Morgan Stanley Trust Company ("MSTC") acts as custodian for
the Portfolio's assets held outside the United States in accordance with a
Custodian Agreement. U.S. Trust acts as custodian for the Fund's domestic
assets in accordance with a Custodian Agreement. Custodian fees are computed
and payable monthly based on investment purchases and sales activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket
expenses. MSTC and MSAM are wholly-owned subsidiaries of Morgan Stanley
Group, Inc.
E. PURCHASES AND SALES: During the period March 8, 1995 through June 30,
1995, purchases and sales of investment securities other than U.S. Government
securities and short-term investments were:
PURCHASES SALES
--------- ------
(000) (000)
$24,134 $9,273
F. At June 30, 1995, the Portfolio's cost for Federal income tax purposes was
$16,722,000. Net unrealized appreciation for Federal income tax purposes
aggregated $1,167,000 of which $1,222,000 related to appreciated securities
and $55,000 related to depreciated securities.
136
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
-------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
-------------------------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------
COMMON STOCKS (59.3%)
ARGENTINA (8.6%)
2,150 Banco del Sud Argentina, Class B $ 13
+133,372 Banco del Suquia, Class B 193
+3,500 Buenos Aires Embotelladora ADR 88
32,970 Capex S.A. ADR 507
25,000 CIADEA (Renault) S.A. 121
14,424 Quilmes Industrial S.A. 281
-------
1,203
-------
BRAZIL (19.0%)
22,850,000 Cia Acos Especiais Itabira 148
1,584 Cia Energetica de Minas Gerias ADR 31
7,422 Cia Energetica de Minas Gerias GDR 145
3,637,000 Cia Energetica de Sao Paulo 119
1,446,000 Cia Paulista de Forca E Luz 72
9,580,000 Cia Siderurgica Nacional 219
1,440,000 Eletrobras 375
+30,700 Eletrobras ADR 415
20,000 Rhodia-Ster GDR 280
375,000 Servicos de Eletricdade 118
11,400 Telecomunicacoes Brasileiras ADR 376
1,604,500 Telecomunicacoes de Sao Paulo 204
13,420 Usinas Siderurgicas de Minas Gerias ADR 149
-------
2,651
-------
CHILE (2.7%)
9,310 Empresa Nacional de electridad S.A. ADR 247
6,350 Maderas y Sinteticos S.A. ADR 119
-------
366
-------
MEXICO (26.5%)
10,950 ALFA S.A. de C.V., Class A 133
+72,000 Apasco S.A. 286
198,880 Banacci, Class B 305
34,829 Banacci, Class L 53
38,970 Cemex CPO ADR 265
17,060 Empresas ICA S.A. ADR 175
186,000 FEMSA, Class B 434
+5,000 Grupo Carso S.A. ADR 55
67,970 Grupo Financiero Bancomer ADR 408
+33,831 Grupo Financiero Bancomer, Class L 9
91,500 Grupo Financiero Banorte, Class C 119
+11,770 Grupo Mexicano Desarrollo ADR, Class B 46
+47,750 Grupo Sidek S.A., Class B 43
6,450 Grupo Simec S.A. ADR, Class B 64
+1,350 Grupo Tribasa S.A. ADR 11
15,800 Hylsamex S.A. ADR 288
The accompanying notes are an integral part of the financial statements.
137
<PAGE>
9,615 Panamerican Beverages, Inc., Class A $ 288
10,620 Telefonos de Mexico S.A. ADR, Class L 313
102,400 Tolmex S.A., Class B2 400
-------
3,695
-------
PERU (2.5%)
44,200 Banco de Credito del Peru 77
158,600 Telefonica del Peru S.A., Class B 271
-------
348
-------
TOTAL COMMON STOCKS (Cost $8,044) 8,263
-------
PREFERRED STOCKS (31.7%)
BRAZIL (31.7%)
61,870,000 Banco Bradesco 524
3,550,000 Banco Nacional S.A. 69
14,770,000 Banco do Brasil 177
4,820,000 Banco do Estado Sao Paulo 27
1,158,173 Brahma 380
360,000 Brasmotor 67
+230,000 Centrais Eletricas de Santa Catarina,
Class B 186
6,600 Cia Energetica de Sao Paulo ADR 75
1,540,000 Cia Energetica de Sao Paulo 61
5,760,000 Cia Paulista de Forca E Luz 189
4,000,000 Continental 2001 87
550,000 Coteminas 173
169,000 Dixie Laleka S.A. 132
583,000 Eletrobras 155
1,590,400 Itaubanco 484
99,000 Multibras S.A. 82
4,550,000 Petrobras 386
58,300,000 Refrigeracao Parana 113
8,650,000 Lojas Renner 147
6,232,000 Telecomunicacoes Brasileiras 205
3,149,000 Telecomunicacoes de Sao Paulo 390
1,142,000 Vale Do Rio Doce 173
320,000 WEG S.A. 146
-------
TOTAL PREFERRED STOCKS (Cost $4,560) 4,428
-------
FACE
AMOUNT
----------------------
CONVERTIBLE DEBENTURES
COLOMBIA (2.3%)
$ 430 Banco de Columbia 5.20%, 2/01/99
(Cost $389) 327
-------
NO. OF
RIGHTS
------
RIGHTS (0.0%)
BRAZIL
+1,117,250 Banco Bradesco (Cost $0) 1
-------
The accompanying notes are an integral part of the financial statements.
138
<PAGE>
FACE VALUE
AMOUNT (000)
---------------- -------
SHORT - TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 613 U.S. Trust 5.90% dated 6/30/95,
due 7/03/95 to be repurchased at
$613, collateralized by $645
United States Treasury Bills,
due 7/27/95, valued at $642
(Cost $613) $ 613
-------
FOREIGN CURRENCY (2.3%)
APS 33 Argentine Peso 33
BLR 62 Brazilian Real 67
MP 1,400 Mexican New Peso 224
PS 3 Peruvian Sol 1
-------
TOTAL FOREIGN CURRENCY (Cost $327) 325
-------
TOTAL INVESTMENTS (100%) (Cost $13,933) 13,957
-------
OTHER ASSETS (4.1%)
Cash $ 1
Receivable for Portfolio Shares
Sold 355
Receivable for Investments Sold 161
Dividends Receivable 18
Interest Receivable 10
Expense Reimbursement
Receivable 23 568
--------
LIABILITIES (-4.1%)
Payable for Investments Purchased (510)
Custodian Fees Payable (22)
Administrative Fees Payable (2)
Sub-Administrative Fees Payable (2)
Directors' Fees & Expenses (2)
Other Liabilties (34) (572)
-------- -------
NET ASSETS (100%) $13,953
-------
-------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 1,586,250 outstanding $.001
par value shares (authorized 500,000,000
shares) $8.80
-------
-------
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at
June 30, 1995, the Portfolio is obligated to receive foreign currency
in exchange for US dollars as indicated below:
IN
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
---------- ----- ---------- -------- ----- ----------
US$ 8 $ 8 7/3/95 BLR 7 $ 8 -
----- ----- ----------
___________________________________________________________________________
+ - Non-income producing securities.
ADR - American Depositary Receipt.
ADS - American Depositary Shares.
GDR - Global Depositary Receipt.
The accompanying notes are an integral part of the financial statements.
139
<PAGE>
___________________________________________________________________________
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
-------------------------------------------------------------------
Capital Equipment $ 558 4.0%
Consumer Goods 2,339 16.8
Energy 3,227 23.1
Finance 2,668 19.1
Materials 2,564 18.4
Multi-Industry 175 1.2
Services 1,488 10.7
------- ----
$13,019 93.3%
------- ----
------- ----
The accompanying notes are an integral part of the financial statements.
140
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------------------------------
LATIN
AMERICAN
PORTFOLIO
JANUARY 18,
1995* TO
JUNE 30,
1995
(000)
----------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 132
Interest 33
Less Foreign Taxes Withheld (12)
-------------
Total Income 153
-------------
EXPENSES:
Investment Advisory Fees:
Basic Fees - Adviser 57
Less: Fees Waived (57)
-------------
Investment Advisory Service Fees - Net -
Administrative Fees 10
Sub-Administrative Fees 4
Custodian Fees 39
Filing and Registration Fees 21
Directors' Fees and Expenses 2
Audit Fees 19
Brazilian Tax Expense 45
Other Expenses 8
Expenses Reimbursed by Adviser (16)
-------------
Total Expenses 132
-------------
NET INVESTMENT INCOME 21
-------------
NET REALIZED LOSS:
Investments Sold (747)
Foreign Currency Transactions (7)
-------------
Total Net Realized Loss (754)
-------------
CHANGE IN UNREALIZED APPRECIATION 24
-------------
TOTAL NET REALIZED LOSS AND CHANGE
IN UNREALIZED APPRECIATION (730)
-------------
Net Decrease in Net Assets Resulting
from Operations $ (709)
-------------
-------------
______________________________
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
_______________________________________________________________________________
141
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
-------------------------------------------------------------------------------
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30 1995
(UNAUDITED)
(000)
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 21
Net Realized Loss (754)
Change in Unrealized Appreciation 24
---------
Net Decrease in Net Assets Resulting from
Operations (709)
---------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 17,894
Distributions Reinvested -
Redeemed (3,232)
---------
Net Increase from Capital Share Transactions 14,662
---------
Total Increase in Net Assets 13,953
NET ASSETS:
Beginning of Period -
---------
End of Period (2) $ 13,953
---------
---------
________________________________________________________________
(1) Capital Share Transactions:
Shares Subscribed 1,956
Shares Issued on Distributions Reinvested -
Shares Redeemed (370)
---------
Net Increase in Capital Shares Outstanding 1,586
---------
---------
(2) Net Assets were Comprised of:
Paid in Capital $ 14,662
Undistributed Net Investment Income 21
Accumulated Net Realized Loss (754)
Unrealized Appreciation 24
---------
$ 13,953
---------
---------
_________________
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
142
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS :
-------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
-------------------------------------------------------------------------------
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30, 1995
(UNAUDITED)
-------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.01
Net Realized and Unrealized Loss on Investment (1.21)
--------
Total from Investment Operations (1.20)
--------
NET ASSET VALUE, END OF PERIOD $8.80
--------
--------
TOTAL RETURN (12.00)%
--------
--------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $13,953
Ratio of Expenses to Average Net Assets (1) 2.54%**+
Ratio of Net Investment Income to Average Net Assets (1) 0.40%**
Portfolio Turnover Rate 62%
__________________________
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.05
Ratios before expense limitation:
Expenses to Average Net Assets 3.95 %**
Net Investment Loss to Average Net Assets (1.00)%**
__________________________
* Commencement of operations.
** Annualized.
+ The ratio of expenses to average net assets includes Brazilian tax expense.
Without the effect of the Brazilian tax expense, the ratio of expenses to
average net assets would have been 1.68%**.
The accompanying notes are an integral part of the financial statements.
143
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1995
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company which offers redeemable shares of twenty-four diversified
and non-diversified investment portfolios. These notes pertain only to the
unaudited financial statements dated June 30, 1995 for one such investment
portfolio, the Latin American Portfolio (the "Portfolio").
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Portfolio in the preparation of the
financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price.
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 readily available are valued at the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which are based primarily on institutional size trading in similar groups of
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. Money market and municipal
money market securities are stated at amortized cost, which approximates
market value. All other securities and assets for which market values are
not readily available, including restricted securities, are valued at fair
value as determined in good faith by the Board of Directors, although the
actual calculations may be done by others.
2. INCOME TAXES: It is the Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
The Portfolio may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income earned or
repatriated. The Portfolio accrues such taxes when the related income is
earned.
The Brazilian government assesses a 1% tax on all settlements of foreign
currency used to purchase listed equity securities.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as a custodian for the Portfolio takes possession of the
underlying securities, the value of
144
<PAGE>
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. In the event of default on
the obligation to repurchase, the Portfolio has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by counter-party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and
records of the Portfolio are maintained in United States dollars. Foreign
currency amounts are translated into U.S. dollars at the mean of the bid and
asked prices of such currencies against U.S. dollars last quoted by a major
U.S. or foreign bank. Although the net assets of the Portfolio are presented
at the foreign exchange rates and market values at the close of the period,
the Portfolio does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of the securities held
at period end. Similarly the Portfolio does not isolate the effect of
changes in foreign exchange rates from the fluctuations arising from changes
in the market prices of securities sold during the period. Accordingly,
realized and unrealized foreign currency gains (losses) are included in the
reported net realized and unrealized gains (losses) on investment
transactions and balances. However, pursuant to U.S. Federal income tax
regulations, gains and losses from certain foreign currency transactions are
treated as ordinary income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, the difference
between the amount of investment income and foreign withholding taxes
recorded on the Portfolio's books and the U.S. dollar equivalent amount
actually received or paid, and certain currency related amounts of realized
gains or losses from the sale of foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Portfolio may enter into forward
foreign currency contracts to attempt to protect securities and related
receivables and payables against changes in future foreign exchange rates. A
forward currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value
is recorded by the Portfolio as unrealized gain or loss. The Portfolio
records realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it
145
<PAGE>
was opened and the value at the time it was closed. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and is generally limited to the amount
of the unrealized gain on the contracts (if any) at the date of default.
Risks may arise from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery for securities which have been purchased or sold on a
forward commitment basis can take place a month or more (not to exceed 120
days) after the date of the transaction. Additionally, the Portfolio may
purchase securities on a when-issued or delayed delivery basis. Securities
purchased on a when-issued or delayed delivery basis are purchased for
delivery beyond the normal settlement date at a stated price and yield, and
no income accrues to the Portfolio on such securities prior to delivery.
When the Portfolio enters into a purchase transaction on a when-issued or
delayed delivery basis, it establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the
Portfolio's commitments to purchase such securities. Purchasing securities
on a forward commitment or when-issued or delayed delivery basis may involve
a risk that the market price at the time of delivery may be lower than the
agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. SHORT SALES: The Portfolio may sell securities short. A short sale is a
transaction in which the Portfolio sells securities it does not own, but has
borrowed, in anticipation of a decline in the price of the securities. The
Portfolio is obligated to replace the borrowed securities at the market price
at the time of replacement. The Portfolio may have to pay a premium to
borrow the securities as well as pay any dividends or interest payable on the
securities until they are replaced. The Portfolio's obligation to replace
the securities borrowed in connection with a short sale will generally be
secured by collateral deposited with the broker that consists of cash, U.S.
government securities or other liquid, high grade debt obligations. In
addition, the Portfolio will place in a segregated account with its Custodian
an amount of cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (1) the market value of
the securities sold at the time they were sold short and (2) ant cash, U.S.
government securities or other liquid high grade debt obligations deposited
as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by the Portfolio
involve certain risks and special considerations. Possible losses from short
sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses
from purchases cannot exceed the total amount invested.
8. PURCHASED AND WRITTEN OPTIONS: The Portfolio may write covered call
options. Premiums are received and are recorded as liabilities, and
subsequently adjusted to the current value of the options written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or canceled in
closing purchase transactions are offset against the proceeds or amount paid
on the transaction
146
<PAGE>
to determine the realized gain or loss. By writing a call option, the
Portfolio foregoes in exchange for the premium the opportunity for capital
appreciation above the exercise price should the market price of the
underlying security increase. Possible losses from written options may be
unlimited.
The Portfolio may also purchase call options on It's portfolio securities.
The Portfolio may purchase call options to close out covered call positions
or to protect against an increase in the price of the security it anticipates
purchasing. Possible losses from purchased options cannot exceed the total
amount invested.
9. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is
in doubt. Discounts and premiums on securities purchased are amortized
according to the effective yield method over their respective lives.
Distributions are recorded on the ex-distribution date. Most expenses of the
Fund can be directly attributed to a particular Portfolio. Expenses which
cannot be directly attributed are apportioned among the Portfolios based upon
relative net assets.
Income distributions and capital gain distributions are determined in
accordance with tax regulations which may differ from generally accepted
accounting principles.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
emerging countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in emerging countries to prevent, among
other concerns, violation of foreign investment limitations. As a result, an
additional class of shares (identified as "Foreign" in the Portfolio
Valuation) may be created and offered for investment. The "local" and
"foreign" shares' market values may vary.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Portfolio with
investment advisory services at a fee calculated at the annual rate of
average daily net assets indicated below. MSAM has agreed to reduce fees
payable to it and to reimburse the Portfolio, if necessary, if the annual
operating expenses, expressed as a percentage of average daily net assets,
exceed the maximum ratio indicated below.
Maximum
Advisory Expense
Fee Ratio
-------- -------
Latin American Portfolio . . . . . . . . . . . 1.10% 1.70%
147
<PAGE>
C. MSAM also provides the Portfolio with administrative services pursuant to
an Administrative Agreement for a monthly fee which on an annual basis equals
0.15% of the average daily net assets of each Portfolio plus reimbursement of
out-of-pocket expenses. Under an agreement between MSAM and U.S. Trust
Company of New York ("U.S. Trust"), Mutual Funds Service Company ("MFSC"), a
subsidiary of U.S. Trust, provides certain administrative services to the
Portfolio. For such services, MSAM pays U.S. Trust a portion of the fee MSAM
receives from the Portfolio.
Bice Chileconsult Agente de Valores S.A. (the "Chilean Administrator") acts
as the Portfolios' legal representative in Chile pursuant to an
administrative agreement (the "Chilean Administrative Agreement"). The
Chilean Administrator provides various services to the Portfolio for a
monthly fee which on an annual basis is equal to the greater of 0.125% of the
Portfolios' average weekly net assets invested in Chile or $20,000.
Unibanco-Uniao (the "Brazilian Administrator") provides the Portfolio with
administrative services pursuant to an Administrative Agreement (the
"Brazilian Administration Agreement") for a monthly fee which on an annual
basis equals 0.125% of the Portfolio's average weekly net assets invested in
Brazil.
D. Morgan Stanley Trust Company ("MSTC") acts as custodian for the
Portfolio's assets held outside the United States in accordance with a
Custodian Agreement. U.S. Trust acts as custodian for the Portfolio's
domestic assets in accordance with a Custodian Agreement. Custodian fees are
computed and payable monthly based on securities held, investment purchases
and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses. MSTC and MSAM are wholly-owned subsidiaries
of Morgan Stanley Group, Inc..
During the period January 18, 1995 through June 30, 1995 the Portfolio
incurred custody fees and had amounts payable to MSTC at June 30, 1995 of:
MSTC
Custody Fees Fees Payable to
Incurred MSTC
-------- ----
(000) (000)
$36 $21
E. During the period January 18, 1995 through June 30, 1995, purchases and
sales of investment securities other than U.S. Government securities and
short-term investments were:
Purchases Sales
--------- -----
(000) (000)
$20,744 $6,992
148
<PAGE>
F. At June 30, 1995, the Portfolio's cost for Federal income tax purposes
was $13,606,000. Net unrealized appreciation for Federal income tax purposes
aggregated $26,000 of which $1,004,000 related to appreciated securities and
$978,000 related to depreciated securities.
149
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
--------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
--------------------------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (99.2%)
DAILY VARIABLE RATE BONDS (11.2%)
$900 Hapeville, Georgia, Industrial
Development Authority, Series 85,
4.35%, 11/01/15 $ 900
1,500 Jackson County, Mississippi, Port
Facility, Chevron Project, Series 93,
4.20%, 6/01/23 1,500
500 Lincoln County, Wyoming, Pollution
Control Revenue, Exxon Project Series 84A,
4.25%, 11/01/14 500
300 New York City, New York, Water Finance
Authority, Water and Sewer System Revenue,
Series 94C, 4.25%, 6/15/22 300
1,000 Platte County, Wyoming, Pollution
Control Revenue, Series A, 4.35%,
7/01/14 1,000
700 Valdez, Alaska, Marine Terminal
Authority, Exxon, Series 85, 4.20%,
10/01/25 700
----------
TOTAL DAILY VARIABLE RATE BONDS 4,900
----------
FIXED RATE INSTRUMENTS (88.0%)
1,000 Columbus, Ohio, General Obligation
Bonds, 5.80%, 1/01/00 1,053
1,000 Connecticut State Special Obligation,
Tax Revenue Bonds, Transportation,
6.50%, 7/01/09, Prerefunded 7/01/99 at 102 1,090
1,000 De Kalb County, Georgia, General
Obligation Bonds, 7.30%, 1/01/00,
Prerefunded 1/01/97 at 102 1,066
1,000 De Kalb County, Georgia, Water & Sewer
Revenue Bonds 7.00%, 10/01/06 1,068
1,000 Georgia State, General Obligation Bonds,
Series E, 6.75%, 12/01/02 1,129
500 Hawaii State, General Obligation Bonds,
Series BS, 6.70%, 9/01/97 527
1,000 Hawaii State, General Obligation Bonds,
Series CJ, 6.20%, 1/01/12 1,022
1,000 Howard County, Maryland, Consolidated
Public Improvement General Obligation
Bonds, Series A, 7.20%, 8/01/03,
Prerefunded 8/01/96 at 102 1,054
1,500 Intermountain Power Agency, Utah, Power
Supply Revenue Bonds, Series D, 8.38%,
7/01/12 1,636
1,000 Kentucky State Housing Corp. Revenue
Bonds, Series A, 6.00%, 7/01/10 1,012
1,155 Maryland State Department of
Transportation, Construction Revenue Bonds,
Second Issue, 6.80%, 11/01/05,
Prerefunded 11/01/99 at 102 1,278
1,000 Massachusetts State, Consolidated Loan,
Series A, 7.50%, 3/01/03, Prerefunded
3/01/00 at 102 1,133
500 Massachusetts State Consolidated Loan,
Series A, 7.63%, 6/01/08,
Prerefunded 6/01/01 at 102 582
1,625 Michigan State Housing Development
Authority Revenue Bonds, Series A, 6.75%,
12/01/14 1,698
1,500 Minnesota State General Obligation
Bonds, 7.00%, 8/01/99,
Prerefunded 8/01/96 at 100 1,550
1,400 Mississippi State General Obligation
Bonds, 6.00%, 2/01/09 1,440
1,000 Mobile Alabama, Water & Sewer Revenue
Bonds, Series B, 7.25%, 1/01/06 1,036
1,475 Montana State General Obligation Bonds,
Long Range Building Program, Series C,
6.00%, 8/01/13 1,498
The accompanying notes are an integral part of the financial statements.
150
<PAGE>
$1,500 Municipal Assistance Corp. for City of
New York, New York, Refunding
Revenue Bonds, Series 56, 7.90%,
7/01/98, Prerefunded 7/01/96 at 102 $ 1,589
1,000 New Castle County, Delaware, General
Obligation Bonds, 6.25%, 10/15/01 1,078
1,500 North Little Rock, Arkansas, Electric
Revenue Refunding Bonds, Murray Lock & Dam
Hydro, 7.40%, 7/01/15, Prerefunded 7/01/96
at 102 1,581
500 Ohio State General Obligation Bonds,
6.20%, 8/01/12 521
1,000 Ohio State Housing Finance Agency,
Residential Mortgage Revenue Bonds,
Series A-1, 6.20%, 9/01/14 1,011
1,000 Pennsylvania State Higher Educational
Facilities Authority, Colleges & Universities
Revenue Bonds, 6.50%, 9/01/02 1,095
1,000 Reedy Creek Improvement District,
Florida, District Florida Utility
Revenue Bonds, Series 91-1, 6.50%,
10/01/16, Prerefunded 10/01/01 at 101 1,108
1,000 Redmond, Washington, General Obligation 1,038
Bonds, 5.75%, 12/01/05
1,400 Rhode Island Depositors Economic
Protection Corp., Special Obligation Revenue
Bonds, Series A, 7.25%, 8/01/21,
Prerefunded 8/01/96 at 102 1,477
1,350 San Antonio, Texas General Obligation
Bonds, 6.50%, 8/01/14 1,408
1,000 Tulsa, Oklahoma, General Obligation
Bonds, 6.38%, 2/01/02 1,084
1,000 Virginia Beach, Virginia General
Obligation Bonds, 6.00%, 9/01/10 1,022
500 Virginia State Housing Development
Authority, Commonwealth Mortgage Revenue
Bonds, Series B, 6.60%, 1/01/12 519
1,000 Virginia State Housing Development
Authority, Commonwealth Mortgage Revenue
Bonds, Series B, 6.65%, 1/01/13 1,038
1,500 Washington State General Obligation
Bonds, Series 86-D, 8.00%, 9/01/09,
Prerefunded 9/01/96 at 100 1,571
500 Washington Suburban Sanitary District,
General Obligation Revenue Bonds, 6.50%,
11/01/05, Prerefunded 11/01/01 at 102 555
----------
TOTAL FIXED RATE INSTRUMENTS 38,567
----------
TOTAL TAX-EXEMPT INSTRUMENTS (99.2%)
(Cost $42,728) 43,467
----------
TOTAL INVESTMENTS (99.2%) (Cost $42,728) 43,467
----------
OTHER ASSETS (2.2%)
Cash $44
Interest Receivable 928 972
-----------
LIABILITIES (-1.4%)
Payable for Investments
Purchased (562)
Administrative Fees Payable (5)
Investment Advisory Fees Payable (4)
Custodian Fees Payable (2)
Directors Fees and Expense
Payable (2)
Other Liabilities (34) (609)
----------- ----------
NET ASSETS (100%) $43,830
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 4,723,159 outstanding
$.001 par value shares (authorized
500,000,000 shares) $10.26
----------
----------
------------------------------------------------------------
Variable/Floating Rate Instruments. The interest rate
changes on these instruments are
based upon a designated base rate. These instruments
are payable on demand and are
secured by a letter of credit or other support
agreements. Maturity dates disclosed for
Variable/Floating Rate Instruments are the ultimate
maturity dates. The effective maturity
dates for such securities are the next interest reset
dates which are seven days or less.
The accompanying notes are an integral part of the financial statements.
151
<PAGE>
Prerefunded Bonds. Outstanding bonds have been
refunded to the first call date
(prerefunded date) by the issuance of new bonds.
Principal and interest are paid from
monies escrowed in U.S. Treasury securities.
Prerefunded bonds are generally re-rated
AAA due to the U.S. Treasury escrow.
The accompanying notes are an integral part of the financial statements.
152
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
MUNICIPAL
BOND
PORTFOLIO
JANUARY 18,
1995* TO
JUNE 30,
1995
(000)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 990
--------------
Total Income 990
--------------
EXPENSES:
Investment Advisory Fees:
Basic Fees - Adviser 69
Less: Fees Waived (62)
--------------
Investment Advisory Service Fees - Net 7
Administrative Fees: 32
Custodian Fees 5
Filing and Registration Fees 20
Directors' Fees and Expenses 2
Legal Fees 1
Audit Fees 10
Shareholder Reports 11
Other Expenses 1
--------------
Total Expenses 89
--------------
NET INVESTMENT INCOME 901
--------------
NET REALIZED GAIN:
Investments Sold 178
--------------
Total Net Realized Gain 178
--------------
CHANGE IN UNREALIZED APPRECIATION 739
--------------
TOTAL NET REALIZED GAIN AND CHANGE
IN UNREALIZED APPRECIATION 917
--------------
Net Increase in Net Assets Resulting
from Operations $ 1,818
--------------
--------------
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
153
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
--------------------------------------------------------------------------------
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30 1995
(UNAUDITED)
(000)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 901
Net Realized Gain 178
Change in Unrealized Appreciation 739
----------
Net Increase in Net Assets Resulting from
Operations 1,818
----------
DISTRIBUTIONS:
Net Investment Income (705)
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 55,060
Distributions Reinvested 672
Redeemed (13,015)
----------
Net Increase from Capital Share
Transactions 42,717
----------
Total Increase in Net Assets 43,830
NET ASSETS:
Beginning of Period --
----------
End of Period (2) $ 43,830
----------
----------
________________________________________________________
(1) Capital Share Transactions:
Shares Subscribed 5,480
Shares Issued on Distributions Reinvested 66
Shares Redeemed (1,273)
----------
Net Increase in Capital Shares Outstanding 4,273
----------
----------
(2) Net Assets were Comprised of:
Paid in Capital $ 42,717
Undistributed Net Investment Income 196
Accumulated Net Realized Gain 178
Unrealized Appreciation 739
----------
$ 43,830
----------
----------
--------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
154
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS :
--------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
--------------------------------------------------------------------------------
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30, 1995
(UNAUDITED)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.21
Net Realized and Unrealized Gain on Invest 0.21
-------------
Total from Investment Operations 0.42
-------------
DISTRIBUTIONS
Net Investment Income (0.16)
-------------
NET ASSET VALUE, END OF PERIOD $10.26
-------------
-------------
TOTAL RETURN 4.2%
-------------
-------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $43,830
Ratio of Expenses to Average Net Assets (1) 0.45%**
Ratio of Net Investment Income to Average Net Assets (1) 4.55%**
Portfolio Turnover Rate 124%
-------------------
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.76%**
Net Investment Income (Loss) to Average Net Assets 4.24%**
----------------
* Commencement of operations.
** Annualized.
155
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company which offers redeemable shares of twenty-four diversified
and non-diversified investment portfolios. These Notes pertain only to the
unaudited financial statements dated June 30, 1995 for one such investment
portfolio, the Municipal Bond Portfolio (the "Portfolio").
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Portfolio in the preparation of the
financial statements.
1. SECURITY VALUATION: Bonds and other fixed income securities are valued
according to the broadest and most representative market. In addition, bonds
and other fixed income securities may be valued on the basis of prices
provided by a pricing service which are based primarily on institutional size
trading in similar groups of 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.
Municipal money market securities are stated at amortized cost, which
approximates market value. All other securities and assets for which market
values are not readily available, including restricted securities, are valued
at fair value as determined in good faith by the Board of Directors, although
the actual calculations may be done by others.
2. INCOME TAXES: It is the Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
The Portfolio may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income earned or
repatriated. The Portfolio accrues such taxes when the related income is
earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as a custodian for the Portfolio takes possession of the
underlying securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
156
<PAGE>
4. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery for securities which have been purchased or sold on a
forward commitment basis can take place a month or more (not to exceed 120
days) after the date of transaction. Additionally, the Portfolio may
purchase securities on a when-issued or delayed delivery basis. Securities
purchased on a when-issued or delayed delivery basis are purchased for
delivery beyond the normal settlement date at a stated price and yield, and
no income accrues to the Portfolio on such securities prior to delivery date.
When the Portfolio enters into a purchase transaction on a when-issued or
delayed delivery basis, it establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the
Portfolio's commitments to purchase such securities. Purchasing securities
on a forward commitment or when-issued or delayed delivery basis may involve
a risk that the market price at the time of delivery may be lower than the
agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is
in doubt. Discounts and premiums on securities purchased are amortized
according to the effective yield method over their respective lives.
Distributions are recorded on the ex-distribution date. Most expenses of the
Fund can be directly attributed to a particular Portfolio. Expenses which
cannot be directly attributed are apportioned among the Portfolios based upon
relative net assets.
Income distributions and capital gain distributions are determined in
accordance with tax regulations which may differ from generally accepted
accounting principles.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Portfolio with
investment advisory services at a fee calculated at the annual rate of
average daily net assets indicated below. MSAM has agreed to reduce fees
payable to it and to reimburse the Portfolio, if necessary, if the annual
operating expenses, expressed as a percentage of average daily net assets,
exceed the maximum ratio indicated below.
Advisory Maximum Expense
Fee Ratio
-------- ---------------
Municipal Bond Portfolio 0.35% 0.45%
C. MSAM also provides the Portfolio with administrative services pursuant to
an Administrative Agreement for a monthly fee which on an annual basis equals
0.15% of the average daily net assets of each Portfolio plus reimbursement of
out-of-pocket expenses.
157
<PAGE>
Under an agreement between MSAM and U.S. Trust Company of New York ("U.S.
Trust"), Mutual Funds Service Company ("MFSC"), a subsidiary of U.S. Trust,
provides certain administrative services to the Fund. For such services,
MSAM pays U.S. Trust a portion of the fee MSAM receives from the Fund. MSAM
is a wholly-owned subsidiary of Morgan Stanley Group, Inc..
D. U.S. Trust acts as custodian for the Portfolio's assets in accordance
with a Custodian Agreement. Custodian fees are computed and payable monthly
based on securities held, investment purchases and sales activity, an account
maintenance fee, plus reimbursement for certain out-of-pocket expenses.
E. During the period January 18, 1995 through June 30, 1995, purchases and
sales of investment securities other than U.S. Government securities and
short-term investments were:
Purchases Sales
--------- ------
(000) (000)
$99,205 $56,492
F. At June 30, 1995, the Portfolio's cost for Federal income tax purposes
was $42,728,000. Net realized appreciation for Federal income tax purposes
aggregated $739,000 of which $763,000 related to appreciated securities and
$24,000 related to depreciated securities.
158
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
-------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
--------------------------------------------------------------------------
VALUE
SHARES (000)
--------------------------------------------------------------------------
COMMON STOCKS (97.1%)
APARTMENT (28.4%)
44,200 Associated Estates Realty Corp. $ 934
45,700 Avalon Properties, Inc. 908
82,600 Bay Apartment Communities, Inc. 1,611
66,500 Equity Residential Properties Trust 1,854
56,600 Evans Withycombe Residential, Inc. 1,153
53,100 Home Properties of New York, Inc. 936
63,400 Irvine Apartment Communities, Inc. 1,094
60,000 Walden Residential Properties, Inc. 1,102
76,000 Wellsford Residential Property Trust 1,729
-----------
11,321
-----------
LODGING/LEISURE (4.7%)
+98,600 Host Marriot Corp. 1,048
+36,000 Starwood Lodging Trust 846
-----------
1,894
-----------
MANUFACTURED HOME (7.7%)
66,500 Atlantic Gulf Communities Corp. 432
20,000 Chateau Properties, Inc. 418
60,300 ROC Communities, Inc. 1,334
36,200 Sun Communities, Inc. 905
-----------
3,089
-----------
OFFICE (9.9%)
64,400 Beacon Properties Corp. 1,280
44,400 Cali Realty Corp. 860
73,100 Carr Realty Corp. 1,261
+64,900 Koger Equity, Inc. 568
-----------
3,969
-----------
OFFICE AND INDUSTRIAL (16.0%)
75,700 Bedford Property Investors, Inc. 435
60,100 Duke Realty Investments, Inc. 1,698
7,500 First Industrial Realty Trust, Inc. 154
71,400 Liberty Property Trust 1,401
31,500 Reckson Associates Realty Corp. 764
86,400 Spieker Properties, Inc. 1,933
-----------
6,385
-----------
SELF STORAGE (4.2%)
102,00 Storage Equities, Inc. 1,670
-----------
SHOPPING CENTER (26.2%)
FACTORY OUTLET CENTER (1.4%)
20,800 Chelsea GCA Realty, Inc. 561
-----------
REGIONAL MALL (19.8%)
98,200 Alexander Haagen Properties, Inc. 1,129
50,000 CBL & Associates Properties, Inc. 994
99,700 Crown American Realty Trust 1,259
93,400 DeBartolo Realty Corp. 1,366
76,200 Glimcher Realty Trust 1,581
The accompanying notes are an integral part of the financial statements.
159
<PAGE>
79,500 Macerich Co. $ 1,560
-----------
7,889
-----------
STRIP CENTER (5.0%)
29,800 Developers Diversified Realty Corp. 857
37,900 Price REIT, Inc., Series B 1,132
-----------
1,989
-----------
TOTAL SHOPPING CENTER 10,439
-----------
TOTAL COMMON STOCKS (Cost $37,467) 38,767
-----------
FACE
AMOUNT
(000)
--------
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$1,749 U.S. Trust, 5.90%, dated 6/30/95,
due 7/03/95, to be repurchased at $1,750,
collateralized by $1,820 United States
Treasury Bills, due 7/27/95, valued at
$1,813 (Cost $1,749) 1,749
-----------
TOTAL INVESTMENTS (101.5%) (Cost $39,216) 40,516
-----------
OTHER ASSETS (4.1%)
Receivable for Portfolio Shares Sold $1,000
Receivable for Investments Sold 347
Dividends Receivable 285
Other 1 1,633
-----------
LIABILITIES (-5.6%)
Payable for Investments Purchased (2,185)
Investment Advisory Fees Payable (11)
Administrative Fees Payable (4)
Custodian Fees Payable (3)
Directors' Fees & Expenses (1)
Other Liabilities (25) (2,229)
----------- -----------
NET ASSETS (100%) $39,920
-----------
-----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 3,684,831 outstanding $.001
par value shares (authorized 500,000,000
shares) $10.83
-----------
-----------
_______________________________________________________________________________
+ - Non-income producing securities.
The accompanying notes are an integral part of the financial statements.
160
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------------------------------
U.S. REAL
ESTATE
PORTFOLIO
FEBRUARY 24,
1995* TO
JUNE 30,
1995
(000)
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 742
Interest 59
------------
Total Income 801
------------
EXPENSES:
Investment Advisory Fees:
Basic Fees - Adviser 68
Less: Fees Waived (58)
------------
Investment Advisory Fees - Net 10
Administrative Fees: 13
Custodian Fees 9
Filing and Registration Fees 23
Directors' Fees and Expenses 2
Legal Fees 11
Audit Fees 8
Shareholder Reports 9
Other Expenses 1
------------
Total Expenses 86
------------
NET INVESTMENT INCOME 715
------------
NET REALIZED GAIN:
Investments Sold 310
------------
CHANGE IN UNREALIZED APPRECIATION 1,300
------------
TOTAL NET REALIZED GAIN AND CHANGE
IN UNREALIZED APPRECIATION 1,610
------------
Net Increase in Net Assets Resulting
from Operations $ 2,325
------------
------------
_____________
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
161
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
--------------------------------------------------------------------------------
PERIOD FROM
FEBRUARY 24, 1995*
TO JUNE 30 1995
(UNAUDITED)
(000)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 715
Net Realized Gain 310
Change in Unrealized Appreciation 1,300
---------
Net Increase in Net Assets Resulting from Operations 2,325
---------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 39,627
Distributions Reinvested -
Redeemed (2,032)
---------
Net Increase from Capital Share Transactions 37,595
---------
Total Increase in Net Assets 39,920
NET ASSETS:
Beginning of Period -
---------
End of Period (2) $ 39,920
---------
---------
_______________________________________________________________________________
(1) Capital Share Transactions:
Shares Subscribed 3,882
Shares Issued on Distributions Reinvested -
Shares Redeemed (197)
---------
Net Increase in Capital Shares Outstanding 3,685
---------
---------
(2) Net Assets were Comprised of:
Paid in Capital $ 37,595
Undistributed Net Investment Income 715
Accumulated Net Realized Gain 310
Unrealized Appreciation 1,300
---------
$ 39,920
---------
---------
_________________
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
162
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS :
-------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
-------------------------------------------------------------------------------
PERIOD FROM
FEBRUARY 24, 1995*
TO JUNE 30, 1995
(UNAUDITED)
-------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.19
Net Realized and Unrealized Gain on Investments 0.64
----------
Total from Investment Operations 0.83
----------
NET ASSET VALUE, END OF PERIOD $10.83
----------
----------
TOTAL RETURN 8.3%
----------
----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $39,920
Ratio of Expenses to Average Net Assets (1) 0.97%**
Ratio of Net Investment Income to Average Net Assets (1) 8.08%**
Portfolio Turnover Rate 41%
_________________________
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.63 %**
Net Investment Income to Average Net Assets 7.42 %**
_________________________
* Commencement of operations.
** Annualized.
The accompanying notes are an integral part of the financial statements.
163
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company which offers redeemable shares of twenty-four diversified
and non-diversified investment portfolios. These Notes pertain only to the
unaudited financial statements dated June 30, 1995 for one such investment
portfolio, the U.S. Real Estate Portfolio (the "Portfolio").
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Portfolio in the preparation of the
financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price.
Unlisted securities and listed securities not traded on the valuation date
for which market quotations are readily available are valued at the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which are based primarily on institutional size trading in similar groups of
securities. Securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. Money
market securities are stated at amortized cost, which approximates market
value. All other securities and assets for which market values are not
readily available, including restricted securities, are valued at fair value
as determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. INCOME TAXES: It is the Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as a custodian for the Portfolio takes possession of the
underlying securities, the value of which is at least equal to the principal
amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral or proceeds may be subject to legal proceedings.
164
<PAGE>
4. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery for securities which have been purchased or sold on a
forward commitment basis can take place a month or more (not to exceed 120
days) after the date of the transaction. Additionally, the Portfolio may
purchase securities on a when-issued or delayed-delivery basis. Securities
purchased on a when-issued or delayed delivery basis are purchased for
delivery beyond the normal settlement date at a stated price and yield, and
no income accrues to the Portfolio on such securities prior to delivery. When
the Portfolio enters into a purchase transaction on a when-issued or delayed
delivery basis, it establishes a segregated account in which it maintains
liquid assets in an amount at least equal in value to the Portfolio's
commitments to purchase such securities. Purchasing securities on a forward
commitment or when-issued or delayed-delivery basis may involve a risk that
the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time
of delivery.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is
in doubt. Discounts and premiums on securities purchased (other than
mortgage-backed securities) are amortized according to the effective yield
method over their respective lives. Distributions are recorded on the
ex-distribution date. Most expenses of the Fund can be directly attributed to
a particular Portfolio. Expenses which cannot be directly attributed are
apportioned among the Portfolios based upon relative net assets.
Income distributions and capital gain distributions are determined in
accordance with tax regulations which may differ from generally accepted
accounting principles.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Portfolio
with investment advisory services at a fee calculated at the annual rate of
average daily net assets indicated below. MSAM has agreed to reduce fees
payable to it and to reimburse the Portfolio, if necessary, if the annual
operating expenses, expressed as a percentage of average daily net assets,
exceed the maximum ratio indicated below.
Maximum
Advisory Expense
Fee Ratio
-------- -------
U.S. Real Estate Portfolio . . . . . . . . 0.80% 1.00%
C. MSAM also provides the Portfolio with administrative services pursuant
to an Administrative Agreement for a monthly fee which on an annual basis
equals 0.15% of the average daily net assets of each Portfolio plus
reimbursement of out-of-pocket expenses.
165
<PAGE>
Under an agreement between MSAM and U.S. Trust Company of New York ("U.S.
Trust"), Mutual Funds Service Company ("MFSC"), a subsidiary of U.S. Trust,
provides certain administrative services to the Portfolio. For such
services, MSAM pays U.S. Trust a portion of the fee MSAM receives from the
Portfolio. MSAM is a wholly-owned subsidiary of Morgan Stanley Group, Inc.
D. CUSTODIANS: U.S. Trust acts as custodian for the Portfolio's assets in
accordance with a Custodian Agreement. Custodian fees are computed and
payable monthly based on investment purchases and sales activity, an account
maintenance fee, plus reimbursement for certain out-of-pocket expenses.
E. PURCHASES AND SALES: During the period February 24, 1995 through June
30, 1995, purchases and sales of investment securities other than U.S.
Government securities and short-term investments were:
Purchases Sales
--------- -----
(000) (000)
$48,607 $11,450
F. At June 30, 1995, the Portfolio's cost for Federal income tax purposes
was $39,216,000. Net realized appreciation for Federal income tax purposes
aggregated $1,300,000 of which $1,373,000 related to appreciated securities
and $73,000 related to depreciated securities.
166
<PAGE>
The unaudited financial statements for the six-month period ended
June 30, 1995 relating to the financial statements and financial highlights
of each of the Portfolios except (i) the Aggressive Equity, Latin American,
Municipal Bond and U.S. Real Estate Portfolios, which are filed herein;
(ii) the Mortgage-Backed Securities, China Growth and MicroCap Portfolios,
which had not commenced operation as of June 30, 1995; and (iii) the Real
Yield Portfolio, which ceased offering shares and terminated its operations
as of August 26, 1994, will be filed pursuant to Rule 485(b).
167
<PAGE>
PART C
Morgan Stanley Institutional Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(A) FINANCIAL STATEMENTS
The Registrant's audited financial statements for the Money Market,
Municipal Money Market, Emerging Growth, Equity Growth, Value Equity,
Small Cap Value Equity, Balanced, Active Country Allocation, Global
Equity, International Equity, International Small Cap, European
Equity, Asian Equity, Emerging Markets, Gold, Japanese Equity,
Emerging Markets Debt, Fixed Income, Global Fixed Income, and High
Yield Portfolios, respectively, for the fiscal year ended December 31,
1994, including Price Waterhouse LLP's report thereon are included in
Part B (the Statement of Additional Information). The following
financial statements are included in Part B:
1. Report of Independent Accountants
2. Statements of Net Assets at December 31, 1994
3. Statements of Operations for the period ended December 31,
1994
4. Statements of Changes in Net Assets for the respective
periods presented ended in the two year period ended
December 31, 1994
5. Financial Highlights for the respective periods presented
ended in the five year period ended December 31, 1994
6. Notes to Financial Statements
The Fund's Municipal Bond, Mortgage-Backed Securities, Latin American,
China Growth, U.S. Real Estate, MicroCap, Aggressive Equity and Real
Yield Portfolios were not operational as of December 31, 1994, and,
currently, the Real Yield Portfolio is not offering shares.
Accordingly, no audited financial statements have been filed for
these Portfolios.
Registrant's unaudited financial statements for the Municipal Bond,
Latin American, Aggressive Equity and U.S. Real Estate Portfolios for
the six-month period ended June 30, 1995 are included in Part B.
These include the following:
1. Statement of Net Assets at June 30, 1995 (unaudited)
2. Statement of Operations for the periods ended June 30, 1995
(unaudited)
3. Statement of Change in Net Assets (unaudited)
4. Financial Highlights for the respective periods from
commencement of operations through June 30, 1995 (unaudited)
5. Notes to Financial Statements
Registrant's unaudited financial statements for the Money Market,
Municipal Money Market, Emerging Growth, Equity Growth, Value Equity,
Small Cap Value Equity, Balanced, Active Country Allocation, Global
Equity, International Equity, International Small Cap, European
Equity, Asian Equity, Emerging Markets, Gold, Japanese Equity,
Emerging Markets Debt, Fixed Income, Global Fixed Income and High
Yield Portfolios for the six-month period ended June 30, 1995 will be
filed by amendment.
The Fund's Mortgage-Backed Securities, China Growth and MicroCap
Portfolios were not operational as of June 30, 1995. Accordingly,
no unaudited financial statements were filed for these portfolios.
<PAGE>
(B) EXHIBITS
1 Form of Amended and Restated Articles of Incorporation, filed
herewith.
2 Amended and Restated By-laws, filed herewith.
3 Not Applicable.
4 Registrant's Form of Specimen Security was previously filed and is
incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc., filed herewith.
(b) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding Registrant's
Equity, Balanced and Fixed Income Portfolios), filed herewith.
(c) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Global
Equity, Global Fixed Income, European Equity and Equity Growth
Portfolios), filed herewith.
(d) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Asian Equity
Portfolio), filed herewith.
(e) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Active
Country Allocation Portfolio), filed herewith.
(f) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Emerging
Markets, High Yield and International Small Cap Portfolios),
filed herewith.
(g) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Small Cap
Value Equity Portfolio), filed herewith.
(h) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Real Yield,
Emerging Markets Debt, Mortgage-Backed Securities Municipal Bond
and Japanese Equity Portfolio), filed herewith.
(i) Sub-Advisory Agreement among Registrant, Morgan Stanley Asset
Management Inc. and Sun Valley Gold Company (with respect to the
Gold Portfolio), filed herewith.
(j) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the China Growth
Portfolio), filed herewith.
(k) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Latin
American Portfolio), filed herewith.
(l) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Contrarian
Portfolio), filed herewith.
(m) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Aggressive
Equity and U.S. Real Estate Portfolios), filed herewith.
(n) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management, Inc. (adding the MicroCap
Portfolio), filed herewith.
C-2
<PAGE>
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated, filed herewith.
8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New York
dated March 10, 1994, filed herewith.
(b) Registrant's Custody Agreement (International), dated July 31,
1989, as amended on ____________, 1995, filed herewith.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement"),
filed herewith.
(b) U.S. Trust Administration Agreement, filed herewith.
10 Opinion of Counsel, filed herewith.
11 Consent of Independent Accountants, filed herewith.
13 Purchase Agreement, filed herewith.
16 Schedule of Computation of Performance Information, filed herewith.
24 Powers of Attorney, filed herewith.
27 (a) Financial Data Schedules, with respect to the Municipal Bond,
Latin American, Aggressive Equity and U.S. Real Estate
Portfolios, for the respective periods ended June 30, 1995,
filed herewith.
(b) Financial Data Schedules for the fiscal year ended December 31,
1994 and for the six-month period ended June 30, 1995 for
Registrant's other operating Portfolios, to be filed by
amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (ON JUNE 30, 1995)
Active Country Allocation Portfolio. . . . . 172
Asian Equity Portfolio . . . . . . . . . . . 839
Balanced Portfolio . . . . . . . . . . . . . 114
Emerging Growth Portfolio. . . . . . . . . . 679
Emerging Markets Portfolio . . . . . . . . . 1,144
Equity Growth Portfolio. . . . . . . . . . . 506
Fixed Income Portfolio . . . . . . . . . . . 332
Global Equity Portfolio. . . . . . . . . . . 054
Global Fixed Income Portfolio. . . . . . . . 134
High Yield Portfolio . . . . . . . . . . . . 396
International Equity Portfolio . . . . . . . 420
International Small Cap Portfolio. . . . . . 168
Money Market Portfolio . . . . . . . . . . . 468
Municipal Money Market Portfolio . . . . . . 324
Small Cap Value Equity Portfolio . . . . . . 416
Value Equity Portfolio . . . . . . . . . . . 456
C-3
<PAGE>
European Equity Portfolio. . . . . . . . . . 423
Municipal Bond Portfolio . . . . . . . . . . 094
Mortgage-Backed Securities Portfolio . . . . 0
Japanese Equity Portfolio. . . . . . . . . . 371
Latin American Portfolio . . . . . . . . . . 318
Real Yield Portfolio . . . . . . . . . . . . 0
Emerging Markets Debt Portfolio. . . . . . . 579
Gold Portfolio . . . . . . . . . . . . . . . 390
China Growth Portfolio . . . . . . . . . . . 0
U.S. Real Estate Portfolio . . . . . . . . . 378
Aggressive Equity Portfolio. . . . . . . . . 085
MicroCap Portfolio . . . . . . . . . . . . . 0
ITEM 27. INDEMNIFICATION
Reference is made to Article TEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS WITH INVESTMENT ADVISER
Reference is made to the caption "The Investment Adviser" in the
Prospectus constituting Part A of this Registration Statement and "Investment
Advisory Services" in Part B of Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset Management
Inc. ("MSAM"). The information as to any other business, profession, vocation,
or employment of substantial nature engaged in by the Chairman, President and
Directors during the past two fiscal years, is incorporated by reference to
Schedules A and D of Form ADV filed by MSAM pursuant to the Advisers Act (SEC
File No. 801-15757).
Barton M. Biggs, Chairman and Director
Peter A. Nadosy, President, Director and Managing Director
James M. Allwin, Chief Operating Officer and Managing Director
F. Dominic Caldecott, Managing Director (MSAM) - UK
A. Macdonald Caputo, Managing Director
Ean Wah Chin, Managing Director (MSAM) - Singapore
Garry B. Crowder, Managing Director
Michael A. Crowe, Managing Director
Madhav Dhar, Vice President and Managing Director
Kurt A. Feuerman, Managing Director
Gordon S. Gray, Vice President, Managing Director and Director
Gary D. Latainer, Managing Director
Dennis G. Sherva, Vice President, Managing Director and Director
Richard G. Woolworth, Jr., Vice President and Managing Director
Richard B. Fisher, Director
Donald H. McAllister, Director
Robert E. Angevine, Vice President and Principal
Gerald P. Barth, Vice President and Principal
S. Nicoll Benjamin, Jr., Vice President
C-4
<PAGE>
Josephine M. Glass, Vice President
Richard S. Brody, Vice President
Terence P. Carmichael, Vice President and Principal
Ean Wah Chin, Vice President
Mary T. Coughlin, Vice President
Eileen F. Cresham, Vice President and Principal
Garry B. Crowder, Vice President
Michael A. Crowe, Vice President
Pierre J. deVegh, Vice President
Abigail J. Feder, Vice President
Robert P. Follert, Vice President
George W. Gardner, Vice President
Geoffrey C. Getman, Vice President
James W. Grisham, Vice President and Principal
Perry E. Hall, II, Vice President and Principal
Bruce S. Ives, Vice President and Principal
Paul J. Jackson, Vice President
Margaret A. Kinsley, Vice President and Principal
John D. Knox, Vice President
Christopher A. H. Lewis, Vice President
Marianne J. Lippmann, Vice President and Principal
Gary J. Mangino, Vice President and Principal
Winslow M. Marston, Vice President
Walter Maynard, Jr., Vice President and Principal
Amr M. Nosseir, Vice President
Warren J. Olsen, Vice President and Principal
Anthony J. Pesce, Vice President
Christopher G. Petrow, Vice President and Principal
Robin H. Prince, Vice President
Gail H. Reeke, Vice President and Principal
Thomas A. Rorro, Vice President
Bruce R. Sandberg, Vice President and Principal
Vinod R. Sethi, Vice President and Principal
Steven C. Sexauer, Vice President and Principal
Kim I. Spellman, Vice President
Joseph P. Stadler, Vice President
Kenneth E. Tanaka, Vice President
Susan I. Tuomi, Vice President
Philip W. Warner, Vice President and Principal
Philip W. Winters, Vice President and Principal
Alford E. Zick, Jr., Vice President and Principal
Marshall T. Bassett, Vice President
Jeffrey G. Boudy, Vice President
L. Kenneth Brooks, Vice President
Andrew C. Brown, Vice President (MSAM) - UK
Frances Campion, Vice President (MSAM) - UK
Carl Kuo-Wei Chien, Vice President (MSAM) - Hong Kong
Lori A. Cohane, Vice President
James Colmenares, Vice President
Kate Cornish-Bowden, Vice President (MSAM) - UK
Bertrand Le PanDe Ligny, Vice President (MSAM) - UK
Christine H. du Bois, Vice President
Raye L. Dube, Vice President
Maureen A. Grover, Vice President
Kenneth R. Holley, Vice President
Nan B. Levy, Vice President
Valerie Y. Lewis, Vice President
C-5
<PAGE>
Gordon W. Loery, Vice President
Yvonne Longley, Vice President (MSAM) - UK
Jeffrey Margolis, Vice President
Paula J. Morgan, Vice President (MSAM) - UK
Clare K. Mutone, Vice President
Martin O. Pearce, Vice President (MSAM) - UK
Alexander A. Pena, Vice President
David J. Polansky, Vice President
Denise Saber, Vice President (MSAM) - UK
Michael James Smith, Vice President (MSAM) - UK
Christian K. Stadlinger, Vice President
Catherine Steinhardt, Vice President
Kunihiko Sugio, Vice President (MSAM) - Tokyo
Joseph Y.S. Tern, Vice President (MSAM) - Singapore
Ann D. Thivierge, Vice President
Richard Boon Hwee Toh, Vice President (MSAM) - Singapore
K.N. Vaidyanathan, Vice President (MSAM) - Bombay
Kevin V. Wasp, Vice President
Warren Ackerman, III, Principal
John R. Alkire, Principal (MSAM) - Tokyo
Francine J. Bovich, Principal
Stuart J.M. Breslow, Principal
Arthur Certosimo, Principal
James K.K. Cheno, Principal (MSAM) - Singapore
Stephen C. Cordy, Principal
Jacqueline A. Day, Principal (MSAM) - UK
Paul B. Ghaffari, Principal
Marianne, Laing Hay, Principal (MSAM) - UK
Kathryn Jonas Kasanoff, Principal
Debra A.F. Kushma, Principal
M. Paul Martin, Principal
Robert L. Meyer, Principal
Margaret P. Naylor, Principal (MSAM) - UK
Russell C. Platt, Principal
Christine T. Reilly, Principal
Robert A. Sargent, Principal (MSAM) - UK
Harold J. Schaaff, Jr., Secretary, Principal and General Counsel
Kiat Seng Seah, Principal (MSAM) - Singapore
Robert M. Smith, Principal
Charles B. Hintz, Treasurer
Madeline Diaz, Assistant Secretary
Madeline D. Barkhorn, Assistant Secretary
Charlene R. Herzer, Assistant Secretary
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity Fund;
The Brazilian Investment Fund, Inc.; certain portfolios of The Enterprise Group
of Funds, Inc.; Fountain Square International Equity Fund; General American
Capital Co.; The Latin American Discovery Fund, Inc., certain portfolios of The
Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa Investment
Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley Emerging
Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.; all funds
of the Morgan Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund,
Inc.; The Morgan Stanley High Yield Fund, Inc.; Morgan Stanley India Investment
Fund, Inc.; The Pakistan Investment Fund, Inc.; PCS Cash Fund, Inc.; SEI
Institutional Managed Trust - Balanced Portfolio; The Thai Fund, Inc. and The
Turkish Investment Fund, Inc.
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<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for
Morgan Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc., and PCS Cash
Fund, Inc. The information required by this Item 29 with respect to each
Director and officer of MS&Co. is incorporated by reference to Schedule A of
Form BD filed by MS&Co. pursuant to the Securities and Exchange Act of 1934 (SEC
File No. 8-15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of the Registrant; Registrant's
Transfer Agent, Mutual Funds Service Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798; MSAM; MS&Co.; and the Registrant's custodian banks,
including sub-custodians.
ITEM 31. MANAGEMENT SERVICES
The Registrant has entered into a Service Agreement with US Trust
Company of New York which is being filed as Exhibit No. 9(b) to this
Post-Effective Amendment No. 25 to the Fund's Registration Statement and is
incorporated herein by reference.
ITEM 32. UNDERTAKINGS
1. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the Investment
Company Act of 1940 inform the Board of Directors of his or their desire to
communicate with other Shareholders of the Fund, the Directors will inform such
Shareholder(s) as to the approximate number of Shareholders of record and the
approximate costs of mailing or afford said Shareholders access to a list of
Shareholders.
2. Registrant hereby undertakes to file a post-effective
amendment containing reasonably current financial statements, which need not be
certified, for MicroCap Portfolio within four to six months of the effective
date of Post-Effective Amendment No. 25 or the commencement of operations,
whichever is later.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on July 28, 1995.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ WARREN J. OLSEN Director, President July 28, 1995
--------------------- (Principal Executive
Warren J. Olsen Officer)
*/S/ BARTON M. BIGGS Director (Chairman) July 28, 1995
--------------------
Barton M. Biggs
*/S/ FERGUS REID Director July 28, 1995
----------------
Fergus Reid
*/S/ FREDERICK O. ROBERTSHAW Director July 28, 1995
----------------------------
Frederick O. Robertshaw
*/S/ ANDREW MCNALLY IV Director July 28, 1995
----------------------
Andrew McNally IV
*/S/ JOHN D. BARRETT II Director July 28, 1995
-----------------------
John D. Barrett II
*/S/ GERARD E. JONES Director July 28, 1995
--------------------
Gerard E. Jones
*/S/ SAMUEL T. REEVES Director July 28, 1995
---------------------
Samuel T. Reeves
*/S/ FREDERICK B. WHITTEMORE Director July 28, 1995
----------------------------
Frederick B. Whittemore
*/S/ JAMES R. ROONEY Treasurer July 28, 1995
-------------------- (Principal
James R. Rooney Accounting
Officer)
*By: /S/ WARREN J. OLSEN
------------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description
EX-99.B 1 Form of Amended and Restated Articles of Incorporation,
filed herewith.
EX-99.B 2 Amended and Restated By-laws, filed herewith.
4 Registrant's Form of Specimen Security was previously filed
and is incorporated herein by reference.
EX-99.B 5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc., filed herewith.
EX-99.B 5 (b) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Equity, Balanced and Fixed Income Portfolios),
filed herewith.
EX-99.B 5 (c) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Global Equity, Global Fixed Income, European Equity and
Equity Growth Portfolios), filed herewith.
EX-99.B 5 (d) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Asian Equity Portfolio), filed herewith.
EX-99.B 5 (e) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Active Country Allocation Portfolio), filed herewith.
EX-99.B 5 (f) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Emerging Markets, High Yield and International Small Cap
Portfolios), filed herewith.
EX-99.B 5 (g) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Small Cap Value Equity Portfolio), filed herewith.
EX-99.B 5 (h) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Real Yield, Emerging Markets Debt, Mortgage-Backed
Securities, Municipal Bond and Japanese Equity Portfolios),
filed herewith.
EX-99.B 5 (i) Sub-Advisory Agreement among Registrant, Morgan Stanley
Asset Management Inc. and Sun Valley Gold Company (with
respect to the Gold Portfolio), filed herewith.
EX-99.B 5 (j) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the China Growth Portfolio), filed herewith.
1
<PAGE>
EX-99.B 5 (k) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Latin American Portfolio), filed herewith.
EX-99.B 5 (l) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Contrarian Portfolio), filed herewith.
EX-99.B 5 (m) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Aggressive Equity and U.S. Real Estate Portfolios),
filed herewith.
EX-99.B 5 (n) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management, Inc. (adding
the MicroCap Portfolio), filed herewith.
EX-99.B 6 Distribution Agreement between Registrant and Morgan Stanley
& Co. Incorporated, filed herewith.
EX-99.B 8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New
York dated March 10, 1994, filed herewith.
EX-99.B 8 (b) Registrant's Custody Agreement (International), dated July
31, 1989, as amended on _____________, 1995, filed herewith.
EX-99.B 9 (a) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. (the "MSAM Administration
Agreement"), filed herewith.
EX-99.B 9 (b) U.S. Trust Administration Agreement, filed herewith.
EX-99.B 10 Opinion of Counsel, filed herewith.
EX-99.B 11 Consent of Independent Accountants, filed herewith.
EX-99.B 13 Purchase Agreement, filed herewith.
EX-99.B 16 Schedule of Computation of Performance Information, filed
herewith.
EX-99.B 24 Powers of Attorney, filed herewith.
EX-99.B 27 (a) Financial Data Schedules, with respect to the Municipal
Bond, Latin American, Aggressive Equity and U.S. Real
Estate Portfolios, for the respective periods ended
June 30, 1995, filed herewith.
(b) Financial Data Schedules for the fiscal year ended
December 31, 1994 and for the six-month period ended
June 30, 1995 for Registrant's other operating portfolios,
to be filed by amendment.
2
<PAGE>
Exhibit 1
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
Morgan Stanley Institutional Fund, Inc., a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation that:
FIRST: The Corporation desires to amend and restate its charter as currently in
effect. The amendment and restatement of the Charter of the Corporation was
approved by a majority of the entire Board of Directors of the Corporation at a
meeting duly convened and held on June 28, 1995.
SECOND: The Charter of the Corporation is hereby amended and restated in full
as follows: striking out Articles First through Thirteenth and inserting in
lieu thereof the following:
"FIRST: I, THE UNDERSIGNED, Paul F. Gallagher, whose post office address
is 1300 Morns Drive, Wayne, Pennsylvania 19482, being at least twenty-one years
of age, do under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, associate myself as incorporator with
the intention of forming a corporation (hereinafter called the "Corporation").
"SECOND: The name of the Corporation is Morgan Stanley Institutional Fund,
Inc.
"THIRD: The purpose for which the Corporation is formed is to act as an
open-end management investment company under the Federal Investment Company Act
of 1940 as then in effect and the Rules and Regulations from time to time
promulgated and effective thereunder (referred to herein collectively as the
"Investment Company Act of 1940") and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
"FOURTH: The post office address of the principal office of the
Corporation in this State is 100 Light Street, Baltimore, Maryland 21202. The
name of the resident agent in this State is James E. Baker, Esq., a citizen of
this State who resides in this State, and the post office address of the
resident agent is CSC-Lawyers Incorporating Service Company, 100 Light St., 6th
Fl., Baltimore, Maryland, 21202.
"FIFTH: 1. The total number of shares of stock which the Corporation
shall have authority to issue is seventeen billion
<PAGE>
(17,000,000,000) shares of stock, with a par value of one-tenth of one cent
($.001) per share, to be known and designated as Common Stock, such shares of
Common Stock having an aggregate par value of seventeen million dollars
($17,000,000). The Board of Directors shall have power and authority to
increase or decrease, from time to time, the aggregate number of shares of
stock, or of any class of stock, which the Corporation shall have the authority
to issue.
"2. Subject to the provisions of these Articles of Incorporation, the
Board of Directors shall have the power to issue shares of Common Stock of the
Corporation from time to time, at prices not less than the net asset value or
par value thereof, whichever is greater, for such consideration as may be fixed
from time to time pursuant to the direction of the Board of Directors. All
stock shall be issued on a nonassessable basis.
"3. Pursuant to Section 2-105 of the Maryland General Corporation Law, the
Board of Directors of the Corporation shall have the power to designate one or
more classes of shares of Common Stock, to fix the number of shares in any such
class and to classify or reclassify any unissued shares with respect to such
class. Any such class (subject to any applicable rule, regulation or order of
the Securities and Exchange Commission or other applicable law or regulation)
shall have such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms and conditions
of redemption and other characteristics as the Board may determine in the
absence of contrary determination set forth herein. The aforesaid power shall
include the power to create, by classifying or reclassifying unissued shares in
the aforesaid manner, one or more classes in addition to those initially
designated as named below. Subject to such aforesaid power, the Board of
Directors has designated twenty-eight classes of shares of Common Stock of the
Corporation. The names of such classes and the number of shares of Common Stock
classified and allocated to these classes are as follows:
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
------------- -----------------------
1. Money Market Portfolio. . . . . . . . . . . . .1,500,000,000
2. Municipal Money Market Portfolio. . . . . . . .1,500,000,000
3. Emerging Growth Portfolio . . . . . . . . . . . .500,000,000
4. International Equity Portfolio. . . . . . . . . .500,000,000
5. Value Equity Portfolio. . . . . . . . . . . . . .500,000,000
6. Fixed Income Portfolio. . . . . . . . . . . . . .500,000,000
7. Balanced Portfolio. . . . . . . . . . . . . . . .500,000,000
8. Global Equity Portfolio . . . . . . . . . . . . .500,000,000
9. Global Fixed Income Portfolio . . . . . . . . . .500,000,000
-2-
<PAGE>
10. European Equity Portfolio . . . . . . . . . . . .500,000,000
11. Equity Growth Portfolio . . . . . . . . . . . . .500,000,000
12. Asian Equity Portfolio. . . . . . . . . . . . . .500,000,000
13. Active Country Allocation Portfolio . . . . . . .500,000,000
14. International Small Cap Portfolio . . . . . . . .500,000,000
15. High Yield Portfolio. . . . . . . . . . . . . . .500,000,000
16. Emerging Markets Portfolio. . . . . . . . . . . .500,000,000
17. Small Cap Value Equity Portfolio. . . . . . . . .500,000,000
18. Emerging Markets Debt Portfolio . . . . . . . . .500,000,000
19. Mortgage-Backed Securities Portfolio. . . . . . .500,000,000
20. Municipal Bond Portfolio. . . . . . . . . . . . .500,000,000
21. Japanese Equity Portfolio . . . . . . . . . . . .500,000,000
22. Gold Portfolio. . . . . . . . . . . . . . . . . .500,000,000
23. China Growth Portfolio. . . . . . . . . . . . . .500,000,000
24. Latin American Portfolio. . . . . . . . . . . . .500,000,000
25. Aggressive Equity Portfolio . . . . . . . . . . .500,000,000
26. U.S. Real Estate Portfolio. . . . . . . . . . . .500,000,000
27. MicroCap Portfolio. . . . . . . . . . . . . . . .500,000,000
28. International Magnum Portfolio. . . . . . . . . .500,000,000
"4. Each share of a class shall have equal rights with each other share of
that class with respect to the assets of the Corporation pertaining to that
class. The dividends payable to the holders of any class (subject to any
applicable rule, regulation or order of the Securities and Exchange Commission
or any other applicable law or regulation) shall be determined by the Board and
need not be individually declared, but may be declared and paid in accordance
with a formula adopted by the Board (whether or not the amount of dividend or
distribution so declared can be calculated at the time of such declaration).
"5. The holder of each share of stock of the Corporation shall be entitled
to one vote for each full share, and a fractional vote for each fractional share
of stock, irrespective of the class, then standing in his or her name in the
books of the Corporation. On any matter submitted to a vote of stockholders,
all shares of the Corporation then issued and outstanding and entitled to vote,
irrespective of the class, shall be voted in the aggregate and not by class
except (1) when otherwise expressly provided by the Maryland General Corporation
Law, or (2) when required by the Investment Company Act of 1940, as amended,
shares shall be voted by individual class; and (3) when the matter does not
affect any interest of a particular class, then only stockholders of such other
class or classes whose interests may be affected shall be entitled to vote
hereon. Holders of shares of stock of the Corporation shall not be entitled to
cumulative voting in the election of Directors or on any other matter.
"6. All consideration received by the Corporation for the issue or sale of
stock of each class, together with all income,
-3-
<PAGE>
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall belong
to the class of shares of stock with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled upon the books of account of the
Corporation. Such assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof
and any assets derived from any reinvestment of such proceeds, in whatever form
the same may be, and herein referred to as "assets belonging to" such class.
"7. The Board of Directors may from time to time declare and pay dividends
or distributions, in stock, property or in cash, on any or all classes of stock
and to the stockholders of records as of such date as the Board of Directors may
determine; provided, such dividends or distributions on shares of any class of
stock shall be paid only out of earnings, surplus, or other lawfully available
assets belonging to such class. Subject to the foregoing proviso, the amount of
any dividends or distributions and the payment thereof shall be wholly in the
discretion of the Board of Directors.
"8. In the event of the liquidation or dissolution of the Corporation,
stockholders of each class shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to stockholders, but other
than general assets, the assets belonging to such class, and the assets so
distributable to the stockholders of any class shall be distributed among such
stockholders in proportion to the number of shares of such class held by them
and recorded on the books of the Corporation. In the event that there are any
general assets not belonging to any particular class of stock and available for
distribution, such distribution shall be made to the holders of stock of all
classes in proportion to the net asset value of the respective class determined
as hereinafter provided.
"9. The assets belonging to any class of stock shall be charged with the
liabilities in respect to such class, and shall also be charged with its share
of the general liabilities of the Corporation, in proportion to the net asset
value of the respective class determined as hereinafter provided. The
determination of the Board of Directors shall be conclusive as to the amount of
liabilities, including accrued expenses and reserves, as to the allocation of
the same as to a given class, and as to whether the same or general assets of
the Corporation are allocable to one or more classes.
-4-
<PAGE>
"10. The Board of Directors may provide for a holder of any class of stock
of the Corporation, who surrenders his certificate in good form for transfer to
the Corporation or, if the shares in question are not represented by
certificates, who delivers to the Corporation a written request in good order
signed by the shareholder, to convert the shares in question on such basis as
the Board may provide, into shares of stock of any other class of the
Corporation.
"11. Subject to subsection 12 below, the net asset value per share of the
Corporation's Common Stock shall be determined by adding the value of all
securities, cash and other assets of the Corporation pertaining to that class,
subtracting the liabilities applicable to that class, allocating any general
assets and general liabilities to that class, and dividing the net result by the
number of shares of that class outstanding. Subject to subsection 12 below, the
value of the securities, cash and other assets, and the amount and nature of
liabilities, and the allocation thereof to any particular class, shall be
determined pursuant to the direction of, or determined pursuant to procedures or
methods prescribed by or approved by the Board of Directors in its sole
discretion and shall be so determined at the time or times prescribed or
approved by the Board of Directors in its sole discretion.
"12. The net asset value per share of a class of the Corporation's Common
Stock for the purpose of issue redemptions or repurchase of a share, shall be
determined in accordance with the Investment Company Act of 1940 and any other
applicable Federal securities law or rule or regulation.
"13. All shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the stockholder, in the sense used in the
General Corporation Law of the State of Maryland. Each holder of a share, upon
request to the Corporation accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer, shall be entitled to
require the Corporation to redeem all or any part of the shares standing in the
name of such holder on the books of the Corporation at a redemption price per
share equal to the net asset value per share determined in accordance with this
Article.
"14. Notwithstanding subsection 13 above (or any other provision of these
Articles of Incorporation), the Board of Directors of the Corporation may
suspend the right of the holders of shares to require the Corporation to redeem
such shares (or may suspend any voluntary purchase of such shares pursuant to
the provisions of these Articles of Incorporation) during any national financial
emergency.
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<PAGE>
"For the purpose of these Articles of Incorporation, a "national financial
emergency" is defined as the whole or any part of any period (i) during which
the New York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Corporation of securities owned by such class is not reasonably
practicable or it is not reasonably practicable for the Corporation fairly to
determine the value of the net assets of such class, or (iv) during any other
period when the Securities and Exchange Commission (or any succeeding
governmental authority) may for the protection of security holders of the
Corporation by order permit suspension of the right of redemption or
postponement of the date of payment on redemption; provided that applicable
rules and regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) shall govern as to whether the conditions
under which (a) trading shall be deemed to be restricted, and (b) an emergency
shall be deemed to exist.
"15. The Board of Directors may by resolution from time to time authorize
the repurchase by the Corporation, either directly or through an agent, of
shares upon such terms and conditions and for such consideration as the Board of
Directors shall deem advisable, out of funds legally available therefor, at
prices per share not in excess of the net asset value per share determined in
accordance with this Article and to take all other steps deemed necessary or
advisable in connection therewith.
"16. Except as otherwise permitted by the Investment Company Act of 1940,
payment of the redemption or repurchase price of shares surrendered to the
Corporation for redemption pursuant to the provisions of subsection 13 or 18 of
this Article or for repurchase by the Corporation pursuant to the provisions of
subsection 15 of this Article shall be made by the Corporation within seven days
after surrender of such shares to the Corporation for such purpose. Any such
payment may be made in whole or in part in portfolio securities or in cash, as
the Board of Directors shall deem advisable, and no stockholder shall have the
right, other than as determined by the Board of Directors, to have his shares
redeemed or repurchased in portfolio securities.
"17. In the absence of any specifications as to the purposes for which
shares are redeemed or repurchased by the Corporation, all shares so redeemed or
repurchased shall be deemed to be acquired for retirement in the sense
contemplated by the General Corporation Law of the State of Maryland. Shares
retired by redemption or repurchase shall thereafter have the status of
authorized but unissued shares.
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<PAGE>
"18. All shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the Corporation. The Board of Directors may by
resolution from time to time authorize the Corporation to require the redemption
of all or any part of any outstanding shares, without the vote or consent of
stockholders (including through the establishment of uniform standards with
respect to the minimum net asset value of a stockholder account) upon the
sending of written notice thereof to each stockholder any of whose shares are so
redeemed and upon such terms and conditions as the Board of Directors shall deem
advisable, out of funds legally available therefore, at net asset value per
share determined in accordance with the provisions of this Article and to take
all other steps deemed necessary or advisable in connection therewith. The
Board of Directors may authorize the closing of those accounts not meeting the
specified minimum standards of net asset value by redeeming all of the shares in
such accounts.
"19. The holders of shares of Common Stock or other securities of the
Corporation shall have no preemptive rights to subscribe to new or additional
shares of its Common Stock or other securities.
"SIXTH: The number of directors of the Corporation shall be seven (7)
provided, however, that the number of Directors may be increased or decreased in
accordance with the By-Laws so long as the number is never less than three. The
names of the current directors who shall act until the next annual meeting or
until their successors are duly chosen and qualify are: Frederick B. Whittemore,
John P. Britton, George R. Bunn, Jr., A. Macdonald Caputo, Gerard E. Jones,
Warren J. Olsen and Peter E. de Svastich.
"SEVENTH: 1. A director or officer of the Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director or officer, except to the extent such exemption
from liability or limitation thereof is not permitted by law (including the
Investment Company Act of 1940) as currently in effect or as the same may
hereafter be amended.
"No amendment, modification or repeal of this Section 1 shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
"2. The Corporation shall indemnify to the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be amended, any person made or threatened to be made a party
to any action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or interstate is or was a director or officer of
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<PAGE>
the Corporation or serves or served at the request of the Corporation any other
enterprise as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be amended, expenses incurred by any such person in defending
any such action, suit or proceeding shall be paid or reimbursed by the
Corporation promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation. The rights provided to any
person by this Section 2 shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon it in serving or continuing to
serve as a director or officer as provided above. No amendment of this Section
2 shall impair the rights of any person arising at any time with respect to
events occurring prior to such amendment. For purposes of this Section 2, the
term "Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of the Corporation" shall include service as a
director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to any employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation. The provisions of this Section 2 shall be in
addition to the other provisions of this Article.
"3. Nothing in this Article protects or purports to protect, any director
or officer against any liability to the Corporation or its security holders to
which he or she would otherwise be subject by reason of willful malfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
"4. Each section or portion thereof of this Article shall be deemed
severable from the remainder, and the invalidity of any such section or portion
shall not affect the validity of the remainder of this Article.
"EIGHTH: The Board of Directors shall have the management and control of
the property, business and affairs of the Corporation and is hereby vested with
all the powers possessed by the Corporation itself so far as is not inconsistent
with law or these Articles of Incorporation. In furtherance and without
limitation
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<PAGE>
of the foregoing provisions, it is expressly declared that, subject to these
Articles of Incorporation, the Board of Directors shall have power:
"1. To make, alter, amend or repeal from time to time the By-laws of the
Corporation except as such power may otherwise be limited in the By-laws.
"2. To authorize the repurchase of shares in the open market or otherwise,
at prices not in excess of the net asset value of such shares determined in
accordance with Article FIFTH hereof, provided the Corporation has assets
legally available for such purpose, and to pay for such shares in cash,
securities or other assets then held or owned by the Corporation.
"3. To fix an offering price for the shares of any class which shall yield
to the Corporation not less than the par value thereof, at which price the
shares of the Common Stock of the Corporation shall be offered for sale, and to
determine from time to time thereafter the offering price which shall yield to
the Corporation not less than the par value thereof from sales of the shares of
its Common Stock.
"4. From time to time to determine whether and to what extent and at what
times and places and under what conditions and regulations the books and
accounts of the Corporation, or any of them other than the stock ledger, shall
be open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
conferred by law or authorized by resolution of the Board of Directors or of the
stockholders.
"5. In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized to
exercise all such powers and do all acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of Maryland law, of
these Articles of Incorporation, and of the By-Laws of the Corporation.
"NINTH: The books of the Corporation may be kept (subject to any
provisions contained in applicable statutes) outside the State of Maryland as
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation. Election of directors need not
be by ballot unless the By-Laws of the Corporation shall so provide.
"TENTH: The Corporation reserves the right from time to time to amend,
alter, or repeal any of the provisions of these Articles of Incorporation
(including any amendment that changes the terms of any of the outstanding shares
by classification, reclassification
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or otherwise), and any contract rights, as expressly set forth in these Articles
of Incorporation, of any outstanding shares, and to add or insert any other
provisions that may, under the statutes of the State of Maryland at the time in
force, be lawfully contained in articles of incorporation, and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article TENTH.
"ELEVENTH: (1) The presence in person or by proxy of the holders of record
of one-third of the shares issued and outstanding and entitled to vote thereat
shall constitute a quorum for the transaction of any business at all meetings of
the stockholders except as otherwise provided by law or in these Articles of
Incorporation.
"(2) On any given matter, the presence in any meeting, in person or by
proxy, of holders of record of less than one-third of the shares issued and
outstanding and entitled to vote thereat shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
record of the number of shares required for action in respect of such other
matter or matters.
"Notwithstanding any provision of Maryland law requiring more than a
majority vote of the Common Stock, or any class thereof, in connection with any
corporation action (including, but not limited to, the amendment of these
Articles of Incorporation), unless otherwise provided in these Articles of
Incorporation the Corporation may take or authorize such action upon the
favorable vote of the holders of a majority of the outstanding shares of Common
Stock entitled to vote thereon.
"TWELFTH: All persons who shall acquire shares in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
"THIRTEENTH: The duration of the Corporation shall be perpetual."
"The term "Articles of Incorporation" as used herein and in the By-laws of
the Corporation shall be deemed to mean these Articles of Incorporation as from
time to time amended and restated.
THIRD: The provisions set forth in these Articles of Amendment and Restatement
include all provisions of the charter of the Corporation currently in effect.
The charter of the Corporation is amended and restated by these Articles of
Amendment and Restatement.
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<PAGE>
IN WITNESS WHEREOF, these Articles of Amendment and Restatement have been
executed on behalf of MORGAN STANLEY INSTITUTIONAL FUND, INC. by its officers.
Its President acknowledges the same to be the act of the Corporation and states
that, to the best of his
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<PAGE>
knowledge, information and belief, the matters and facts set forth therein with
respect to approval are true in all material respects under penalties of
perjury.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By
----------------------------
Warren J. Olsen
President
Attest:
By
----------------------------
Valerie Y. Lewis
Secretary
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<PAGE>
The undersigned, President of MORGAN STANLEY INSTITUTIONAL FUND, INC., who
executed on behalf of said corporation the foregoing Articles of Amendment and
Restatement of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles of Amendment
and Restatement to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
--------------------------
Warren J. Olsen
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<PAGE>
Exhibit 2
AMENDED AND RESTATED
BY-LAWS OF
MORGAN STANLEY INSTITUTIONAL FUND, INC.
(as of December 1994, as further amended February 24, 1995)
ARTICLE I
Fiscal Year and Offices
Section 1. FISCAL YEAR. Unless otherwise provided by resolution of the Board
of Directors the fiscal year of the Corporation shall begin on January 1 and end
on the last day of December.
Section 2. REGISTERED OFFICE. The registered office of the Corporation in
Maryland shall be located at 100 Light Street, Baltimore, Maryland 21202, and
the name and address of its Resident Agent is CSC-Lawyers Incorporating Service
Company, James E. Baker, Esq., 100 Light St., 6th Fl., Baltimore, Maryland,
21202.
Section 3. OTHER OFFICES. The Corporation shall also have a place of
business in New York, New York, and the Corporation shall have the power to open
additional offices for the conduct of its business, either within or outside the
States of Maryland, New York and Massachusetts, at such places as the Board of
Directors may from time to time designate.
ARTICLE II
Meetings of Stockholders
Section 1. PLACE OF MEETING. Meetings of the Stockholders for the election
of Directors shall be held in such place as the Board of Directors may by
resolution establish. In the absence of any specific resolution, Annual
Meetings of Stockholders shall be held at the corporation's principal office in
New York, New York. Meetings of Stockholders for any other purpose may be held
at such place and time as shall be fixed by resolution of the Board of Directors
and stated in the notice of the Meeting, or in a duly executed waiver of notice
thereof.
Section 2. ANNUAL MEETINGS. An annual meeting of the shareholders of the
Corporation shall not be required to be held in any year in which shareholders
are not required to elect directors under the Investment Company Act of 1940, as
amended (the "1940 Act") even if the Corporation is holding a meeting of the
shareholders for a purpose other than the election of directors. If the
Corporation is required by the 1940 Act to hold a meeting to elect directors,
the meeting shall be designated as the Annual Meeting of shareholders for that
year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of April in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may properly be brought before the Annual Meeting.
Section 3. SPECIAL MEETINGS. Special Meetings of the Stockholders may be
called at any time by the Chairman of the Board or the President, or by a
majority of the Board of Directors, and shall be called by the Chairman of the
Board, President or Secretary upon written request of the holders of shares
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting provided that (a) such request shall state
<PAGE>
the purposes of such meeting and the matters proposed to be acted on, and (b)
the Stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such Stockholders. No Special Meeting
need be called to consider any matter which is substantially the same as a
matter voted on at any meeting of the Stockholders held during the preceding
twelve months.
Section 4. NOTICE. Not less than ten nor more than ninety days before the
date of every Annual or Special Stockholders' Meeting, the Secretary shall cause
to be mailed to each Stockholder entitled to vote at such meeting at his (her)
address (as it appears on the records of the Corporation at the time of mailing)
written notice stating the time and place of the meeting and, in the case of a
Special Meeting of Stockholders shall be limited to the purposes stated in the
notice. Notice of any Stockholders' meeting need not be given to any
Stockholder who shall sign a written waiver of such notice whether before or
after the time of such meeting, or to any Stockholder who shall attend such
meeting in person or by proxy. Notice of adjournment of a Stockholders' meeting
to another time or place need not be given, if such time and place are announced
at the meeting.
Section 5. RECORD DATE FOR MEETINGS. The Board of Directors may fix in
advance a date not more than ninety days, nor less than ten days, prior to the
date of any Annual or Special Meeting of the Stockholders as a record date for
the determination of the Stockholders entitled to receive notice of, and to vote
at any meeting and any adjournment thereof; and in such case such Stockholders
and only such Stockholders as shall be Stockholders of record on the date so
fixed shall be entitled to receive notice of and to vote at such meeting and any
adjournment thereof, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
Section 6. QUORUM. At any meeting of Stockholders, the presence in person or
by proxy of the holders of a majority of all the votes entitled to be cast at
the meeting shall constitute a quorum for the transaction of business at the
meeting, except that where any provision of law or the Articles of Incorporation
require that the holders of any class of shares shall vote as a class, then a
majority of the aggregate number of shares of that class at the time outstanding
shall be necessary to constitute a quorum for the transaction of such business.
If, however, such quorum shall not be present or represented at any meeting of
the Stockholders, any officer entitled to preside at, or act as Secretary of,
such meeting, shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. VOTING. Each Stockholder shall have one vote for each full share
and a fractional vote for each fractional share of stock having voting power
held by such Stockholder on the record date set pursuant to Section 5 on each
matter submitted to a vote at a meeting of Stockholders. Such vote may be made
in person or by proxy. If no record date has been fixed for the determination of
Stockholders, the record date for the determination of Stockholders entitled to
notice of or to vote at a meeting of Stockholders shall be at the close of
business (i) on the day on which notice of the meeting is mailed or (ii) on the
day 30 days before the meeting, whichever is the closer date to the meeting. At
all meetings of the Stockholders, a quorum being present, all matters shall be
decided by majority vote of the shares of stock entitled to vote held by
Stockholders present in person or by proxy, unless the question is one which by
express provision of the laws of the State of Maryland, the Investment Company
Act of 1940, as from time to time amended, or the Articles of Incorporation, a
different vote is required, in which case such express provision shall control
the decision of such question. At all meetings of Stockholders, unless the
voting is conducted by inspectors, all questions relating to the qualification
of voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the Chairman of the meeting.
Section 8. VOTING - PROXIES. The right to vote by proxy shall exist only if
the instrument authorizing such proxy to act shall have been executed in writing
by the Stockholder himself or by his attorney thereunto duly
<PAGE>
authorized in writing. No proxy shall be voted on after eleven months from its
date unless it provides for a longer period. Each proxy shall be in writing
subscribed by the Stockholder or his duly authorized attorney and shall be
dated, but need not be sealed, witnessed or acknowledged. Proxies shall be
delivered to the Secretary of the Corporation or person acting as Secretary of
the meeting before being voted. A proxy with respect to stock held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Corporation received a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Stockholder shall be deemed valid unless challenged at or
prior to its exercise.
Section 9. INSPECTORS. At any election of Directors, the Board of Directors
prior thereto may, or, if they have not so acted, the Chairman of the meeting
may appoint one or more inspectors of election who shall first subscribe an oath
of affirmation to execute faithfully the duties of inspectors at such election
with strict impartiality and according to the best of their ability, and shall
after the election make a certificate of the result of the vote taken. No
candidate for the office of Director shall be appointed such inspector.
Section 10. STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be the duty of
the Secretary or Assistant Secretary of the Corporation to cause an original or
duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a Stockholder of
record of the Corporation for more than six months next preceding such request,
who owns or own in the aggregate 5% or more of the outstanding capital stock of
the Corporation, may submit a written request to any officer of the Corporation.
Within 20 days after such a request, there shall be prepared and filed at the
Corporation's principal office a list containing the names and addresses of all
Stockholders of the Corporation and the number of shares of each class held by
each Stockholder, certified as correct by an officer of the Corporation, by its
stock transfer agent, or by its registrar.
Section 11. ACTION WITHOUT MEETING. Any action to be taken by Stockholders
may be taken without a meeting if all Stockholders entitled to vote on the
matter consent to the action in writing, and the written consents are filed with
the records of the meetings of Stockholders. Such consent shall be treated for
all purposes as a vote at a meeting.
ARTICLE III
Directors
Section 1. GENERAL POWERS. The business of the Corporation shall be under
the direction of its Board of Directors, which may exercise all powers of the
Corporation, except such as are by statute, or the Articles of Incorporation, or
by these By-Laws conferred upon or reserved to the Stockholders. All acts done
by any meeting of the Directors or by any person acting as a Director, so long
as his successor shall not have been duly elected or appointed, shall,
notwithstanding that it be afterwards discovered that there was some defect in
the election of the Directors or of such person acting as aforesaid or that they
or any of them were disqualified, be as valid as if the Directors or such other
person, as the case may be, had been duly elected and were or was qualified to
be Directors or a Director of the Corporation.
Section 2. NUMBER AND TERM OF OFFICE. The number of Directors which shall
constitute the whole Board shall be determined from time to time by the Board of
Directors, but shall not be fewer than three, nor more than fifteen. Each
Director elected shall hold office until his successor is elected and qualified,
or until his death or until he shall have resigned, or until December 31 of the
year in which he shall have reached seventy-three years of age, or until he
shall have been removed as hereinafter provided in these By-Laws or as otherwise
provided by Statute or the Articles of Incorporation. Directors need not be
Stockholders.
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Section 3. ELECTION. The Directors shall be elected from time to time, which
need not be annually, by the vote of a majority of the shares present in person
or by proxy at the Annual Meeting of the Stockholders, except that any vacancy
in the Board of Directors may be filled by a majority vote of the Board of
Directors, although less than a quorum, if immediately after filling any such
vacancy at least two-thirds of the directors then holding office shall have been
elected to such office by the shareholders. A newly created directorship may be
filled only by a vote of the entire Board of Directors. However, if at any time
less than a majority of the Directors then holding office were elected by
Stockholders, a Stockholders Meeting shall be called as soon as possible, and in
any event within sixty days, for the purpose of electing an entire new Board of
Directors.
Section 4. REMOVAL OF DIRECTORS. At any Stockholders Meeting, provided a
quorum is present, any Director may be removed (either with or without cause) by
the vote of the holders of a majority of the shares present or represented by
proxy at the meeting, and at the same meeting a duly qualified person may be
elected in the stead of such Director that was removed by a majority of the
votes validly cast.
Section 5. PLACE OF MEETING. Meetings of the Board of Directors, regular or
special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine.
Section 6. QUORUM. At all meetings of the Board of Directors a majority of
the entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the Directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors unless
the concurrence of a greater proportion is required for such action by the laws
of Maryland, the Investment Company Act of 1940, these By-Laws or the Articles
of Incorporation. If a quorum shall not be present at any meeting of Directors,
the Directors present thereat may by a majority vote adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum shall be present.
Section 7. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors provided that notice of any change in the
time or place of such meetings shall be sent promptly to each Director not
present at the meeting at which such change was made in the manner provided for
notice of special meetings. Members of the Board of Directors or any committee
designated thereby may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
Section 8. SPECIAL MEETINGS. Special Meetings of the Board of Directors may
be called by the Chairman of the Board or the President on one day's notice to
each Director; Special Meetings shall be called by the Chairman of the Board,
President or Secretary in like manner and on like notice on the written request
of two Directors.
Section 9. INFORMAL ACTIONS. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed in one or more
counterparts by all members of the Board or of such committee, as the case may
be, and such written consent is filed with the minutes of proceedings of the
Board or committee.
Section 10. COMMITTEES. The Board of Directors may by resolution passed by a
majority of the entire Board appoint from among its members an Executive
Committee and other committees composed of two or more Directors, and may
delegate to such committees, in the intervals between meetings of the Board of
Directors, any or all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, except the powers to declare
dividends or distributions on stock, to issue stock or to recommend to
Stockholders any action requiring Stockholder approval.
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<PAGE>
Section 11. ACTION OF COMMITTEES. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
Directors. The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committee shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or alteration. In the absence of any member of such
committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member, amend the By-Law, or approve any merger or
share exchange which does not require stockholder approval.
Section 12. COMPENSATION. Any Director, whether or not he is a salaried
officer or employee of the Corporation, may be compensated for his services as
Director or as a member of a committee of Directors, or as Chairman of the Board
or chairman of a committee by fixed periodic payments or by fees for attendance
at meetings or by both, and in addition may be reimbursed for transportation and
other expenses, all in such manner and amounts as the Board of Directors may
from time to time determine.
ARTICLE IV
Notices
Section 1. FORM. Notices to Stockholders shall be in writing and delivered
personally or mailed to the Stockholders at their addresses appearing on the
books of the Corporation. Notices to Directors shall be oral or by telephone or
telegram or in writing delivered personally or mailed to the Directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
Directors need not state the purpose of a Regular or Special Meeting.
Section 2. WAIVER. Whenever any notice of the time, place or purpose of any
meeting of Stockholders, Directors or a committee is required to be given under
the provisions of Maryland law or under the provisions of the Articles of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the meeting of Stockholders in person or by proxy, or at the meeting of
Directors of committee in person, shall be deemed equivalent to the giving of
such notice to such persons.
ARTICLE V
Officers
Section 1. EXECUTIVE OFFICERS. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, who shall be a
Director, a Secretary and a Treasurer. The Board of Directors may, from time to
time, elect or appoint a Controller, one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. The Board of Directors, at its
discretion, may also appoint a Director as Chairman of the Board who shall
perform and execute such executive and administrative duties and powers as the
Board of Directors shall from time to time prescribe. The same person may hold
two or more offices, except that no person shall be both President and Secretary
and no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law, the Articles of
Incorporation or these By-Laws to be executed, acknowledged or verified by two
or more officers.
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Section 2. ELECTION. The Board of Directors shall choose a President, a
Secretary and a Treasurer at its first meeting and thereafter at the next
meeting following a Stockholders' Meeting at which Directors were elected.
Section 3. OTHER OFFICERS. The Board of Directors from time to time may
appoint such other officers and agents as it shall deem advisable, who shall
hold their offices for such terms and shall exercise powers and perform such
duties as shall be determined from time to time by the Board. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4. COMPENSATION. The salaries or other compensation of all officers
and agents of the Corporation shall be fixed by the Board of Directors, except
that the Board of Directors may delegate to any person or group of persons the
power to fix the salary or other compensation of any subordinate officers or
agents appointed pursuant to Section 3 of this Article V.
Section 5. TENURE. The officers of the Corporation shall serve for one year
and until their successors are chosen and qualify. Any officer or agent may be
removed by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the corporation will be served
thereby. In addition, any officer or agent appointed pursuant to Section 3 may
be removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Board of Directors. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors, unless pursuant to Section
3 the power of appointment has been conferred by the Board of Directors on any
other officer.
Section 6. PRESIDENT. The President, unless the Chairman has been so
designated, shall be the Chief Executive Officer of the Corporation; he (she)
shall preside at all meetings of the Stockholders and Directors, and shall see
that all orders and resolutions of the Board are carried into effect. The
President, unless the Chairman has been so designated, shall also be the chief
administrative officer of the Corporation and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
Section 7. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall be
chosen, shall preside at all meetings of the Board of Directors and
Stockholders, and shall perform and execute such executive duties and
administrative powers as the Board of Directors shall from time to time
prescribe.
Section 8. VICE-PRESIDENT. The Vice-Presidents, in order of their seniority,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties as the
Board of Directors or the Chief Executive Officer may from time to time
prescribe.
Section 9. SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the Stockholders and record all the proceedings
thereof and shall perform like duties for any Committee when required. He (she)
shall give, or cause to be given, notice of meetings of the Stockholders and of
the Board of Directors, shall have charge of the records of the Corporation,
including the stock books, and shall perform such other duties as may be
prescribed by the Board of Directors or Chief Executive Officer, under whose
supervision he (she) shall be. He (she) shall keep in safe custody the seal of
the Corporation and, when authorized by the Board of Directors, shall affix and
attest the same to any instrument requiring it. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his (her) signature.
Section 10. ASSISTANT SECRETARIES. The Assistant Secretaries in order of
their seniority, shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe.
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Section 11. TREASURER. The Treasurer, unless another officer has been so
designated, shall be the Chief Financial Officer and the principal accounting
officer of the Corporation. He (she) shall have general charge of the finances
and books of account of the Corporation. Except as otherwise provided by the
Board of Directors, he (she) shall have general supervision of the funds and
property of the Corporation and of the performance by the custodian of its
duties with respect thereto. He (she) shall render to the Board of Directors,
whenever directed by the Board, an account of the financial condition of the
Corporation and of all his (her) transactions as Treasurer; and as soon as
possible after the close of each financial year he (she) shall make and submit
to the Board of Directors a like report for such financial year. He (she) shall
cause to be prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year, which shall be submitted at the Annual Meeting of
Stockholders and filed within twenty days thereafter at the principal office of
the Corporation in the State of Maryland. He (she) shall perform all the acts
incidental to the office of Treasurer, subject to the control of the Board of
Directors.
Section 12. CONTROLLER. The Controller shall be under the direct supervision
of the Chief Financial Officer of the Corporation. He (she) shall maintain
adequate records of all assets, liabilities and transactions of the Corporation,
establish and maintain internal accounting control and, in cooperation with the
independent public accountants selected by the Board of Directors shall
supervise internal auditing. He (she) shall have such further powers and duties
as may be conferred upon him (her) from time to time by the President or the
Board of Directors.
Section 13. ASSISTANT TREASURERS. The Assistant Treasurers, in the order of
their seniority, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors may from time to time prescribe.
Section 14. SURETY BONDS. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the federal Investment Company Act of 1940, as amended, and the
rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his (her)
duties of the Corporation, including responsibility for negligence and for the
accounting of any Corporation's property, funds or securities that may come into
his (her) hands.
ARTICLE VI
Investment Restrictions
Section 1. TRADING IN SECURITIES. Neither the investment adviser or any
officer or director thereof, nor any officer or director of the Corporation
shall take a long or short position in the securities issued by the Corporation,
except as permitted by applicable laws and regulations; PROVIDED, that the
foregoing shall not prevent the purchase from the Corporation of shares issued
by it by the officers or directors of the Corporation or of the investment
adviser or by the investment adviser at the price available to the public at the
moment of such purchase.
In any case where an officer or director of the Corporation or of the
investment adviser or a member of an advisory or portfolio committee of the
Corporation is also an officer or director of another corporation and the
purchase or sale of shares issued by that other corporation is under
consideration, the officer or director or committee member concerned will
abstain from participating in any decision made on behalf of the Corporation to
purchase or sell any securities issued by the other corporation.
Section 2. LOANS TO AFFILIATES. The Corporation shall not lend assets of the
Corporation to any officer or director of the Corporation, or to any partner,
officer, director or stockholder of, or person who has a material,
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financial interest in, the investment adviser of the Corporation, or the
distributor of the Corporation, or to the investment adviser of the Corporation
or to the distributor of the corporation.
Section 3. CONFLICT OF INTEREST TRANSACTIONS. The Corporation shall not
permit any officer or director, or any officer or director of the investment
adviser or distributor of the Corporation to deal for or on behalf of the
Corporation with himself as principal or agent, or with any partnership,
association or corporation in which he has a material, financial interest;
provided that the foregoing provisions shall not prevent (a) officers or
directors of the Corporation from buying, holding or selling shares in the
Corporation, or from being partners, officers or directors of or otherwise
financially interested in the investment adviser, sponsor, manager or
distributor of the Corporation; (b) purchases or sales of securities or other
property by the Corporation from or to an affiliated person or to the investment
adviser or distributor of the Corporation if such transaction is exempt from the
applicable provisions of the Investment Company Act of 1940; (c) purchases of
investments owned by the Corporation through a security dealer who is, or one or
more of whose partners, stockholders, officers or director is, an officer or
director of the Corporation, if such transactions are handled in the capacity of
brokers only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian who is, or has a partner, stockholder,
officer or director, who is an officer or director of the Corporation, if only
customary fees are charged for services to the Corporation; (e) sharing
statistical, research, legal and management expenses with a firm of which an
officer or directors of the Corporation is an officer or director or otherwise
financially interested; (f) purchase for the portfolio of the Corporation of
securities issued by an issuer having an officer, director or securities holder
who is an officer or director of the Corporation or of any investment adviser of
the Corporation, unless the retention of such securities in the portfolio of the
Corporation would be a violation of these By-Laws or the Articles of
Incorporation of the Corporation.
Section 4. CALIFORNIA PROHIBITED INVESTMENTS. For only so long as required
pursuant to California law or regulations, any of the Corporation's Portfolios
shall be prohibited from engaging in the following investment practices or
activities:
(a) Acquisition or retention of securities of an open-end investment company;
and
(b) Except as provided in subsections (1) and (2) of Rule 260.140 of the
California Code of Regulations, Title 10, Chapter 3, engaging in short sales
(other than sales against the box) or margin purchases, in writing, buying or
selling puts and calls on securities, stock index futures, options on stock
index futures, financial futures contracts or options thereon.
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ARTICLE VII
Stock
Section 1. CERTIFICATES. Each Stockholder shall be entitled to a certificate
or certificates in form approved by the Board of Directors which shall certify
the class and the number of shares owned by him in the Corporation. Each
certificate shall be signed by the President or a Vice-President and counter-
signed by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer.
Section 2. SIGNATURE. Where a certificate is signed (1) by a transfer agent
or an assistant transfer agent or (2) by a transfer clerk acting on behalf of
the Corporation and a registrar, the signature of any such President, Vice-
President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may
be a facsimile. In case any officer who has signed any certificate ceases to be
an officer of the Corporation before the certificate is issued, the certificate
may nevertheless be issued by the Corporation with the same effect as if the
officer had not ceased to be such officer as of the date of its issue.
Section 3. RECORDING AND TRANSFER WITHOUT CERTIFICATES. Notwithstanding the
foregoing provisions of this Article VII, the Corporation shall have full power
to participate in any program approved by the Board of Directors providing for
the recording and transfer of ownership of shares of the Corporation's stock by
electronic or other means without the issuance of certificates.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or destroyed, or
upon other satisfactory evidence of such theft, loss or destruction. When
authorizing such issuance of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such stolen, lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and to give the Corporation a bond with sufficient surety,
to the Corporation to indemnify it against any loss or claim that may be made by
reason of the issuance of a new certificate.
Section 5. TRANSFER OF CAPITAL STOCK. Transfers of shares of the stock of
the Corporation shall be made on the books of the Corporation by the holder of
record thereof (in person or by his attorney thereunto duly authorized by a
power of attorney duly executed in writing and filed with the Secretary of the
Corporation) (i) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (ii) as
otherwise prescribed by the Board of Directors. Every certificate exchanged,
surrendered for redemption or otherwise returned to the Corporation shall be
marked "Canceled" with the date of cancellation.
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such shares or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the General Laws of the State of Maryland.
Section 7. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may, from
time to time, appoint or remove transfer agents and or registrars of transfers
of shares of stock of the Corporation, and it may appoint the same person as
both transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of stock thereafter issued shall be
countersigned by one of such transfer agents or by one of
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such registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 8. STOCK LEDGER. The Corporation shall maintain an original stock
ledger containing the names and addresses of all Stockholders and the number and
class of shares held by each Stockholder. Such stock ledger may be in written
form or any other form capable of being converted into written form within a
reasonable time for visual inspection.
ARTICLE VIII
General Provisions
Section 1. RIGHTS IN SECURITIES. The Board of Directors, on behalf of the
Corporation, shall have the authority to exercise all of the rights of the
Corporation as owner of any securities which might be exercised by any
individual owing such securities in his own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to consent to the
reorganization, merger or consolidation of any issuer or to consent to the sale,
lease or mortgage of all or substantially all of the property and assets of any
issuer; and to exchange any of the shares of stock of any issuer for the shares
of stock issued therefor upon any such reorganization, merger, consolidation,
sale lease or mortgage. The Board of Directors shall have the right to
authorize any officer of the investment adviser to execute proxies and the right
to delegate the authority granted by this Section 1 to any officer of the
corporation.
Section 2. CUSTODIANSHIP.
(a) The Corporation shall place and at all times maintain in the custody of a
custodian (including any sub-custodian for the custodian) all funds, securities
and similar investments owned by the Corporation. Subject to the approval of
the Board of Directors the custodian may enter into arrangements with securities
depositories, as long as such arrangements comply with the provisions of the
Investment Company Act of 1940 and the rules and regulations promulgated
thereunder. The custodian (and any sub-custodian) shall be a bank having no
less than $2,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Board of Directors, which shall fix its
remuneration.
(b) Upon termination of a custodian agreement or inability of the custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian. But in the event that no successor custodian can be found who has
the required qualifications and is willing to serve, the Board of Directors
shall call as promptly as possible a Special Meeting of the Stockholders to
determine whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall deliver and
pay over all property of the Corporation held by it as specified in such vote.
(c) The following provisions shall apply to the employment of a custodian and
to any contract entered into with the custodian so employed:
The Board of Directors shall cause to be delivered to the custodian all
securities owned by the Corporation or to which it may become entitled, and
shall order the same to be delivered by the custodian only in completion of a
sale, exchange, transfer, pledge, or other disposition thereof, all as the
Board of Directors may generally or from time to time require or approve or to
a successor custodian; and the Board of Directors shall cause all funds owned
by the Corporation or to which it may become entitled to be paid to the
custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired,
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or in payment of expenses, including management compensation, and liabilities
of the Corporation, including distributions to shareholders or proper payments
to borrowers of securities representing partial return of collateral, or to a
successor custodian.
Section 3. REPORTS. Not less often than semi-annually, the Corporation shall
transmit to the Stockholders a report of the operations of the Corporation,
based at least annually upon an audit by independent public accountants, which
report shall clearly set forth, in addition to the information customarily
furnished in a balance sheet and profit and loss statement, a statement of all
amounts paid to security dealers, legal counsel, transfer agent, disbursing
agent, registrar or custodian or trustee, where such payments are made to a
firm, corporation, bank or trust company, having a partner, officer or director
who is also an officer or director of the Corporation. A copy, or copies, of
all reports submitted to the Stockholders of the Corporation shall also be sent,
as required, to the regulatory agencies of the United States and of the states
in which the securities of the Corporation are registered and sold.
Section 4. SEAL. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 5. EXECUTION OF INSTRUMENTS. All deeds, documents, transfers,
contracts, agreements and other instruments requiring execution by the
Corporation shall be signed by the Chairman or the President or a Vice President
and by the Treasurer or Secretary or an Assistant Treasurer or an Assistant
Secretary, or as the Board of Directors may otherwise, from time to time,
authorize. Any such authorization may be general or confined to specific
instances. Except as otherwise authorized by the Board of Directors, all
requisitions or orders for the assignment of securities standing in the name of
the custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by the Chairman or the
President or a Vice-President and by the Secretary, Treasurer or an Assistant
Treasurer.
ARTICLE IX
Amendments
The By-Laws of the Corporation may be altered, amended or repealed either by
the affirmative vote of a majority of the stock issued and outstanding and
entitled to vote in respect thereof and represented in person or by proxy at any
annual or special meeting of the Stockholders, or by the Board of Directors at
any regular or special meeting of the Board of Directors.
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Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of October, 1988 by and between Morgan Stanley
Institutional Fund, Inc., a Maryland corporation (the "Fund") and Morgan Stanley
Asset Management Inc., a Delaware corporation (the "Adviser").
1. DUTIES OF ADVISER. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund's Money Market Portfolio, Municipal Money Market
Portfolio and Emerging Growth Portfolio and such other Portfolios as may be
offered by the Fund, for the period and on such terms set forth in this
Agreement. The Fund employs the Adviser to manage the investment and
reinvestment of the assets of the Fund's Portfolios, to continuously review,
supervise and administer the investment program of each of the Portfolios, to
determine in its discretion the securities to be purchased or sold and the
portion of each such Portfolio's assets to be held uninvested, to provide the
Fund with records concerning the Adviser's activities which the Fund is required
to maintain, and to render regular reports to the Fund's officer and Board of
Directors concerning the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the officers and the Board of Directors of the Fund, and in
compliance with the objectives, policies and limitations set forth in the Fund's
prospectus and applicable laws and regulations. The Adviser accepts such
employment and agrees to render the services and to provide, at its own expense,
the office space, furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of securities for
each of the Fund's Portfolios and is directed to use its best efforts to obtain
the best available price and most favorable execution, except as prescribed
herein. Unless and until otherwise directed by the Board of Directors of the
Fund, the Adviser may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund. The execution of such transactions shall not be deemed to represent
an unlawful act or breach of any duty created by this Agreement or otherwise.
The Adviser will promptly communicate to the officers and Directors of the Fund
such information relating to portfolio transactions as they may reasonably
request.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Section 1 of this Agreement, the Fund shall pay to the
Adviser at the end of each of the Fund's fiscal quarters, an advisory fee
calculated by applying a quarterly rate, based on the following annual
percentage rates, to each Portfolio's average daily net assets for the quarter:
The Money Market Portfolio 0.30%
The Municipal Money Market Portfolio 0.30%
The Emerging Growth Portfolio 1.00%
In the event of termination of this Agreement, the fee provided in this
Section shall be computed on the basis of the period ending on the last business
day on which this Agreement is in effect subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter as a percentage of the total number of
days in such quarter.
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4. OTHER SERVICES. At the request of the Fund, the Adviser in its
discretion may make available to the Fund office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel and
services shall be provided for or rendered by the Adviser and billed tot he Fund
at the Adviser's cost.
5. REPORTS. The Fund and the Advisor agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs as each may reasonably request.
6. STATUS OF ADVISER. The services of the Adviser to the Fund are not to
be deemed exclusive, and the Adviser shall be free to render similar services to
others.
7. LIABILITY OF ADVISER. In the absence of (i) wilful misfeasance, bad
faith or gross negligence on the part of the Adviser in performance of its
obligations and duties hereunder, (ii) reckless disregard by the Adviser of its
obligations and duties hereunder, or (iii) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the Investment Company Act of 1940 ("1940
Act"), the Adviser shall not be subject to any liability whatsoever to the Fund,
or to any shareholder of the Fund, for any error or judgment, mistake of law or
any other act or omission in the course of, or connected with, rendering
services hereunder including, without limitation, for any losses that may be
sustained in connection with the purchase, holding, redemption or sale of any
security on behalf of any Portfolio of the Fund.
8. PERMISSABLE INTERESTS. Subject to and in accordance with the Articles
of Incorporation of the Fund and the Articles of Incorporation of the Adviser,
Directors, officers, agents and shareholders of the Fund are or may be
interested in the Adviser (or any successor thereof) as Directors, officers,
agents, shareholders or otherwise; Directors, officers, agents and shareholders
of the Adviser are or may be interested in the Fund as Directors, officers,
shareholder or otherwise; and the Adviser (or any successor) is or may be
interested in the Fund as a shareholder or otherwise; and that the effect of any
such interrelationships shall be governed by said Articles of Incorporation and
the provisions of the 1940 Act.
9. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall continue until the earlier of September 30, 1990 or the
date of the first annual or special meeting of the shareholders of the Fund and,
if approved by a majority of the outstanding voting securities of each Portfolio
of the Fund, thereafter shall continue for periods of one year so long as such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board of Directors of the fund who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of each Portfolio for the Fund; PROVIDED HOWEVER,
that if the holders of any Portfolio fail to approve the Agreement as provided
herein, the Adviser may continue to serve in such capacity in the manner and to
the extent permitted by the 1940 Act and Rules thereunder. This Agreement may
be terminated by any Portfolio of the Fund at any time, without the payment of
any penalty, by vote of a majority of the entire Board of Directors of the fund
or by vote of a majority of the outstanding voting securities of the Portfolio
on 60 days' written notice to the Adviser. This Agreement may be terminated by
the Adviser at any time, without the payment of any penalty, upon 90 days'
written notice to the Fund. This agreement will automatically and immediately
terminate in the event of its assignment, PROVIDED that an assignment to a
corporate successor to all of substantially all of the Adviser's business or to
a wholly-owned subsidiary of such corporate successor which does not result in a
change of actual control of the Adviser's business shall not be deemed to be an
assignment for the purposes of this Agreement. Any notice under this Agreement
shall be given in writing, addressed and delivered or mailed postpaid, to the
other party at any office of such party and shall be deemed given when received
by the addressee.
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As used in this Section 9, the terms "assignment", "interested persons",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act.
10. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (b) by vote of a
majority of the outstanding voting securities of each Portfolio of the Fund.
11. USE OF NAME. The Fund agrees that if this Agreement is terminated and
the Adviser shall no longer be the adviser to the Fund, the Fund will, within a
reasonable period of time, change its name to delete reference to "Morgan
Stanley".
12. SEVERABILITY. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
13. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of New York, PROVIDED, HOWEVER, that nothing herein shall
be construed as being inconsistent with the 1940 Act.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first written above.
MORGAN STANLEY ASSET MORGAN STANLEY INSTITUTIONAL
MANAGEMENT INC. FUND, INC.
By: By:
----------------------------- ---------------------------
Stephen Brent Wells Stephen Brent Wells
Principal and General Counsel President and Director
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Exhibit 5(b)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
WHEREAS, the Agreement sets forth the rights and obligations of the
parties with respect to the Management of Portfolios of the Fund, and
WHEREAS, new Portfolios, the Value Equity Portfolio, the Fixed Income
Portfolio and the Balanced Portfolio (the "Additional Portfolios") have been
created.
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be .50% with
respect to the Value Equity Portfolio and .50% with respect to the Balanced
Portfolio. With respect to the Fixed Income Portfolio the percentage rate in
Paragraph 3 of the Agreement will be .50% on the first $10 million, .375% on the
next $10 million, .25% on the next $30 million and .125% on the excess above $50
million.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By: /s/ Peter A. Nadosy
----------------------
DIRECTOR AND PRESIDENT
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
By: /s/ Warren J. Olsen
----------------------
PRESIDENT
Dated: October 12, 1989
A-7
<PAGE>
Exhibit 5(c)
FORM TO BE EXECUTED
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated
October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund") and
Morgan Stanley Asset Management Inc. (the "Adviser").
WHEREAS, the Agreement sets forth the rights and obligations of the
parties with respect to the management of Portfolios of the Fund, and
WHEREAS, new Portfolios, the Global Equity Portfolio, the European
Equity and the Global Fixed Income Portfolio and the Equity Growth Portfolio
(the "Additional Portfolios") have been created.
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 0.80% with
respect to the Global Equity Portfolio, 0.80% with respect to the European
Equity Portfolio, 0.80% with respect to the Global Fixed Income Portfolio, and
0.60% with respect to the Equity Growth Portfolio.
MORGAN STANLEY ASSET
MANAGEMENT, INC.
By:
---------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
By:
---------------------------
President
Dated:
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
AMENDMENT dated , 19 to the supplement dated November 12,
1990 to the Investment Advisory Agreement (the "Agreement") dated as of October
1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund") and Morgan
Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligations of the parties with respect
to the management of the Portfolios of the Fund. The Agreement was supplemented
on November 12, 1990 to effect the addition of certain portfolios including the
Global Fixed Income Portfolio (the "Additional Portfolio") to the Agreement.
AGREEMENTS
Now therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 0.40% with
respect to the Additional Portfolio.
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of
, 19 .
MORGAN STANLEY ASSET
MANAGEMENT INC.
/s/ Peter A. Nadosy
----------------------
DIRECTOR AND PRESIDENT
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
/s/ Warren J. Olsen
----------------------
PRESIDENT
A-10
<PAGE>
Exhibit 5(d)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT, dated as of March __,
1991, between Morgan Stanley Institutional Fund, Inc. (the "Fund") and Morgan
Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligations of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the Asian Equity Portfolio (the "Additional Portfolio").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 0.80% with
respect to the Asian Equity Portfolio.
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this
Agreement as of March __, 1991.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
-------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
By:
-------------------------
President
<PAGE>
Exhibit 5(e)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as of
June 13, 1991 between Morgan Stanley Institutional Fund, Inc. (the "Fund") and
Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligations of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the Active Country Allocation Portfolio (the "Additional
Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 0.65% with
respect to the Active Country Allocation Portfolio.
This agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of June 13, 1991.
MORGAN STANLEY ASSET
MANAGEMENT INC.
----------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
----------------------------------
Vice President
<PAGE>
Exhibit 5(f)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Emerging Markets Portfolio
High Yield Portfolio
International Small Cap Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as of
October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund") and
Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created three
additional portfolios: the Emerging Markets Portfolio, the High Yield Portfolio
and the International Small Cap Portfolio (the "Additional Portfolios").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Additional Portfolios:
the Emerging Markets Portfolio: 1.25%
the High Yield Portfolio: .50%
the International Small Cap Portfolio: .95%
This agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of June, 1992.
MORGAN STANLEY ASSET MANAGEMENT INC.
---------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL FUND, INC.
---------------------------------
President
<PAGE>
Exhibit 5(g)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
SMALL CAP VALUE EQUITY PORTFOLIO
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as of
October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund") and
Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement, dated as
of October 1, 1988 (the "Agreement") between the Fund and the Adviser. The
Agreement sets forth the rights and obligations of the parties with respect to
the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the Small Cap Value Equity Portfolio (the "Additional
Portfolio").
AGREEMENTS
Now therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be .85% with respect to
the Additional Portfolio.
This Agreement may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of October 15, 1992.
MORGAN STANLEY ASSET
MANAGEMENT INC.
-----------------------------
Director and President
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-----------------------------
President
<PAGE>
Exhibit 5(h)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Municipal Bond Portfolio
Mortgage-Backed Securities Portfolio
Japanese Equity Portfolio
Real Yield Portfolio
Emerging Markets Debt Portfolio
Gold Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created six
additional portfolios: the Municipal Bond Portfolio, the Mortgage-Backed
Securities Portfolio, the Japanese Equity Portfolio, the Real Yield Portfolio,
the Emerging Markets Debt Portfolio and the Gold Portfolio (the "Additional
Portfolios").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
each of the Additional Portfolios will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
Municipal Bond 0.35%
Mortgage-Backed Securities 0.35%
Japanese Equity 0.80%
Real Yield 0.50%
Emerging Markets Debt 1.00%
Gold 1.00%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an
<PAGE>
original, but all such counterparts shall together constitute but one and the
same instrument.
The parties listed below have executed this Agreement as of November
12, 1993.
MORGAN STANLEY ASSET
MANAGEMENT INC.
-------------------------
Director and President
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
-------------------------
Vice President
<PAGE>
Exhibit 5(i)
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 12th day of November, 1993 by and
among MORGAN STANLEY INSTITUTIONAL FUND, INC., a Maryland corporation (the
"Fund"), MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware corporation (the
"Adviser"), and SUN VALLEY GOLD COMPANY, a _________________________ corporation
(the "Sub-Adviser").
WHEREAS, the Adviser is the investment advisor to the Fund, which is
an open-end, management investment company with diversified and non-diversified
series, registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund and the Adviser wish to retain the Sub-Adviser for
purposes of rendering advisory services to the Gold Portfolio, a diversified
series of the Fund (the "Portfolio"), and the Adviser in connection with the
Adviser's responsibilities to the Fund on the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT OF SUB-ADVISER. The Fund hereby appoints the Sub-
Adviser to act as the Portfolio's Sub-Adviser under the supervision of the
Fund's Board of Directors and the Adviser, and the Sub-Adviser hereby accepts
such appointment, all subject to the terms and conditions contained herein.
2. DUTIES OF SUB-ADVISER. In carrying out its obligations under
Section 1 hereof and under the supervision of the Fund's Board of Directors and
the Adviser, the Sub-Adviser shall:
(a) provide the Portfolio with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of
Directors;
(b) determine which issuers and securities shall be represented
in the Portfolio's portfolio in accordance with the Portfolio's investment
objective and policies and regularly report thereon to the Fund's Board of
Directors;
(c) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers for the Portfolio's
portfolio in accordance with the
<PAGE>
Portfolio's investment objective and policies and regularly report thereon
to the Fund's Board of Directors;
(d) take, on behalf of the Portfolio, all actions which appear
to the Portfolio necessary to carry into effect such purchase and sale
programs as aforesaid, including the placing of orders for the purchase and
sale of securities of the Portfolio; and
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Portfolio, and whether concerning the individual issuers whose securities
are included in the Portfolio's portfolio or the activities in which they
engage, or with respect to securities which the Adviser considers desirable
for inclusion in the Portfolio's portfolio.
3. BROKER-DEALER RELATIONSHIPS. In circumstances when the Sub-
Adviser is responsible for decisions to buy and sell securities for the
Portfolio, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Adviser's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Adviser shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Portfolio's portfolio transaction activities. In selecting
a broker-dealer to execute each particular transaction, the Sub-Adviser will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Portfolio
on a continuing basis. Accordingly, the price to the Fund in any transaction
may be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-Adviser shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Portfolio to pay a broker-dealer that provides
brokerage and research services to the Sub-Adviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such
-2-
<PAGE>
broker-dealer, viewed in terms of either that particular transaction or the Sub-
Adviser's overall responsibilities with respect to the Portfolio. The Sub-
Adviser is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such broker-dealers who also provide research or statistical
material or other services to the Portfolio or the Sub-Adviser. Such allocation
shall be in such amounts and proportions as the Sub-Adviser shall determine and
the Sub-Adviser will report on said allocation regularly to the Board of
Directors of the Fund, indicating the brokers to whom such allocations have been
made and the basis therefor.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Sub-Adviser may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Portfolio. Subject to the policies established by the
Board of Directors and the supervision of the Adviser, and in compliance with
applicable law, the Adviser may direct Morgan Stanley & Co. Incorporated
("Morgan Stanley") to execute portfolio transactions for the Portfolio on an
agency basis. The commissions paid to Morgan Stanley must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Portfolio or one or more other accounts of
the Sub-Adviser is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Sub-Adviser. Morgan Stanley and the Sub-Adviser may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Sub-Adviser or Morgan Stanley in any
transaction in which the Sub-Adviser or Morgan Stanley acts as a principal with
respect to any part of the Portfolio's order. If Morgan Stanley is
participating in an underwriting or selling group, the Portfolio may not buy
portfolio securities from the group except in accordance with policies
established by the Board of Directors in compliance with rules of the Securities
and Exchange Commission.
4. CONTROL BY FUND'S BOARD OF DIRECTORS. Any recommendations
concerning the Portfolio's investment program proposed by the Sub-Adviser to the
Fund and the Adviser pursuant to this Agreement, as well as any other activities
undertaken by
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<PAGE>
the Sub-Adviser on behalf of the Portfolio pursuant hereto, shall at all times
be subject to any applicable directives of the Board of Directors of the Fund.
5. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement on Form N-1A of
the Fund under the Securities Act of 1933 and the 1940 Act;
(c) the provisions of the Fund's Articles of Incorporation, as
amended from time to time;
(d) the provisions of the Fund's Bylaws, as amended from time to
time; and
(e) any other applicable provisions of federal and state law.
6. EXPENSES. The expenses connected with the Portfolio shall be
allocable among the Portfolio, the Sub-Adviser and the Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without
cost to the Portfolio, a trading function in order to carry out its
obligations under Section 2 hereof to place orders for the purchase and
sale of portfolio securities for the Fund.
(b) The Portfolio assumes and shall pay or cause to be paid all
other expenses of the Portfolio, including, without limitation the
Portfolio's allocable portion of the following: payments to the Adviser
with respect to the Portfolio under the Investment Advisory Agreement
between the Fund and the Adviser; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commission chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
Federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all
costs and expenses in connection with the registration
-4-
<PAGE>
and maintenance of registration of the Fund and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees
and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of
any advisory board or committee; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in shares or
in cash; charges and expenses of any outside service used for pricing of
the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not "interested persons" (as defined
in the 1940 Act) of the Fund and of independent certified public
accountants, in connection with any matter relating to the Fund; membership
dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers
and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
7. COMPENSATION. For the services to be rendered hereunder by the
Sub-Adviser, the Adviser shall pay to the Sub-Adviser monthly compensation equal
to the sum of 0.40% of the Portfolio's average daily net assets. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily and the amounts of the daily accruals paid monthly. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculations of the fees as set forth above. Subject to the provisions of
Section 9 hereof, payment of the Sub-Adviser's compensation for the preceding
month shall be made as promptly as possible after completion of the computations
contemplated in Section 9 hereof.
8. ADDITIONAL RESPONSIBILITIES. The Sub-Adviser may, but shall not
be under any duty to, perform services on behalf of the Portfolio which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Portfolio and the Sub-Adviser's
charges in rendering such services will be billed monthly to the Portfolio,
subject to examination by the Fund's independent
-5-
<PAGE>
certified public accountants. Payment or assumption by the Sub-Adviser of any
Portfolio expense that the Sub-Adviser is not required to pay or assume under
this Agreement shall not relieve the Sub-Adviser of any of its obligations to
the Portfolio nor obligate the Sub-Adviser to pay or assume any similar
Portfolio expenses on any subsequent occasions.
9. EXPENSE LIMITATION. If, for any fiscal year of the Portfolio,
the amount of the fee which the Adviser would otherwise receive from the
Portfolio pursuant to the Investment Advisory Agreement between the Fund and the
Adviser is reduced pursuant to the expense limitation provisions of the
Investment Advisory Agreement, the fee which the Sub-Adviser would otherwise
receive from the Adviser pursuant to Section 7 of this Agreement shall also be
reduced proportionately, and, if such amount should exceed such monthly fee, the
Sub-Adviser agrees to repay the Adviser such amount of its fee previously
received with respect to such fiscal year as may be required to make up the
deficiency no later than the last day of the following month. In no event will
the Sub-Adviser be required to reimburse the Adviser for any amount in excess of
the fee it receives pursuant to this Agreement during the fiscal year of the
Portfolio in which the reimbursement is required.
10. TERM. This Agreement shall become effective at 12:01 a.m. on the
date hereof and shall remain in force and effect, subject to Section 12 hereof,
for two years from the date hereof.
11. RENEWAL. Following the expiration of its initial two-year term,
this Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually: (a) either
(i) by the Fund's Board of Directors or (ii) by the vote of a majority of the
outstanding voting securities of the Portfolio (as defined in Section 2(a)(42)
of the 1940 Act); and (b) by the affirmative vote of a majority of the Directors
who are not parties to this Agreement or "interested persons" of a party to this
Agreement (other than as Directors of the Fund) by votes cast in person at a
meeting specifically called for such purpose.
12. TERMINATION. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Adviser and the Sub-Adviser. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Adviser on sixty (60) days'
written notice to the Fund and the Adviser. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
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<PAGE>
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
13. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser
and the Portfolio are not to be deemed to be exclusive, and the Sub-Adviser
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Adviser may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or partners of the Sub-Adviser to the extent permitted by law; and that
the partners of the Sub-Advisory are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
14. LIABILITY OF SUB-ADVISER. In the performance of its duties
hereunder, the Sub-Adviser shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
SubAdviser shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of the Sub-
Adviser or its officers, directors or employees, or reckless disregard by the
Sub-Adviser of its duties under this Agreement.
15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties hereto, it is agreed that the address of the
Sub-Adviser shall be P.O. Box 2759, Sun Valley, Idaho 83340, and of the Adviser
and of the Fund for this purpose shall be 1221 Avenue of the Americas, New York,
New York 10020.
16. QUESTIONS AND INTERPRETATION. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States Courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant to
said Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the
-7-
<PAGE>
provisions of this Agreement shall be interpreted in accordance with the laws of
New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the day and year first
above written.
Attest: MORGAN STANLEY INSTITUTIONAL FUND, INC.
By:
------------------- ----------------------------------
Title:
Attest: MORGAN STANLEY ASSET MANAGEMENT INC.
By:
------------------- ----------------------------------
Title:
Attest: SUN VALLEY GOLD COMPANY
By:
------------------- ----------------------------------
Title:
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<PAGE>
Exhibit 5(j)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
China Growth Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the China Growth Portfolio (the "Additional Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolio will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
China Growth 1.25%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the 2nd
day of February, 1994.
MORGAN STANLEY ASSET
MANAGEMENT INC.
------------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
-----------------------------------
Vice President
<PAGE>
Exhibit 5(k)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Latin American Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligations of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the Latin American Portfolio (the "Additional
Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolio will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
Latin American Portfolio 1.10%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the __ day
of _______, 1994.
MORGAN STANLEY ASSET
MANAGEMENT INC.
------------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
-----------------------------------
Vice President
<PAGE>
Exhibit 5(l)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Contrarian Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created one
additional portfolio: the Contrarian Portfolio (the "Additional Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolio will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
Contrarian Portfolio 0.60%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the __ day
of _______________, 1994.
MORGAN STANLEY ASSET
MANAGEMENT INC.
------------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
------------------------------------
Vice President
<PAGE>
Exhibit 5(m)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Aggressive Equity Portfolio
U.S. Real Estate Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Advisor.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created two
additional portfolios: the Aggressive Equity and U.S. Real Estate Portfolios
(the "Additional Portfolios").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolios will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
Aggressive Equity Portfolio 0.80%
U.S. Real Estate Portfolio ____%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the __ day
of _______________, 1995.
MORGAN STANLEY ASSET
MANAGEMENT INC.
-----------------------------------
Director and President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
-----------------------------------
Vice President
<PAGE>
Exhibit 5(n)
ANNEX __
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
MicroCap Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Advisor.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created an
additional portfolio: the MicroCap Portfolio (the "Additional Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolio will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
MicroCap Portfolio ____%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the __ day
of _______________, 1995.
MORGAN STANLEY ASSET
MANAGEMENT INC.
-----------------------------------
Vice President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
-----------------------------------
Director and President
<PAGE>
Exhibit 6
DISTRIBUTION AGREEMENT
AGREEMENT made this 1st day of October, 1988, between MORGAN STANLEY
INSTITUTIONAL FUND, INC., a Maryland Corporation (the "Fund"), and MORGAN
STANLEY & CO. INCORPORATED, a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a diversified open-end management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously and to appoint a principal underwriter for the purpose of
facilitating such offers and sales;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Fund's shares of
beneficial interest ("Shares"), to commence after the effectiveness of its
initial registration statement filed pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR.
The Fund hereby appoints the Distributor its exclusive underwriter in connection
with the offering and sale of the Shares on the terms set forth in this
Agreement and the Distributor hereby accepts such appointment and agrees to act
hereunder.
Section 2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) The Distributor agrees to sell, as agent for the Fund, from time
to time during the term of this Agreement, Shares upon the terms described in
the Prospectus. As used in this Agreement, the term "Prospectus" shall mean the
prospectus included as part of the Fund's Registration Statement, as such
prospectus may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement most recently
filed from time to time by the Fund with the Securities and Exchange Commission
and effective under the 1933 Act and the 1940 Act, as such Registration
Statement is amended by any amendments thereto at the time in effect.
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<PAGE>
(b) Upon commencement of the Fund's operations, the Distributor will
hold itself available to receive orders, satisfactory to the Distributor, for
the purchase of Shares and will accept such orders on behalf of the Fund and
will transmit such orders as are so accepted to the Fund's transfer and
shareholder servicing agent as promptly as practicable. The Distributor shall
promptly forward to the Fund's Custodian funds received in respect of purchases
of shares in accordance with the instructions of the Fund's Administrator.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Prospectus.
(c) The offering price of the Shares shall be the net asset value
(determined as set forth in the Prospectus) per Share next determined following
receipt of an order. The Fund shall furnish the Distributor, with all possible
promptness, an advice of each computation of net asset value.
(d) The Distributor shall not be obligated to sell any certain number
of Shares and nothing herein contained shall prevent the Distributor from
entering into like distribution arrangements with other investment companies.
Section 3. DUTIES OF THE FUND.
(a) The Fund agrees to sell its Shares so long as it has Shares
available for sale and to cause the Fund's transfer and shareholder servicing
agent to record on its books the ownership of (or deliver certificates, if any,
for) such Shares registered in such names and amounts as the Distributor has
requested in writing or other means of data transmission, as promptly as
practicable after receipt by the Fund of the net asset value thereof and written
request of the Distributor therefor.
(b) The Fund shall keep the Distributor fully informed with regard to
its affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares of the Fund, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent accountants and such
reasonable number of copies of its most current Prospectus and annual and
interim reports as the Distributor may request and shall cooperate fully in the
efforts of the Distributor to sell and arrange for the sale of the Shares and in
the performance of the Distributor under this Agreement.
(c) The Fund shall take, from time to time, such steps, including
payment of the related filing fee, as may be necessary to register its Shares
under the 1933 Act to the end
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<PAGE>
that there will be available for sale such number of Shares as the Distributor
may be expected to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
may be no untrue statement of a material fact in a Registration Statement or
Prospectus, or necessary in order that there may be no omission to state a
material fact in the Registration Statement or Prospectus which omission would
make the statements therein misleading.
(d) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Shares for sale under the
securities laws of such states as the Distributor and the Fund may approve, and,
if necessary or appropriate in connection therewith, to qualify and maintain the
qualification of the Fund as a broker or dealer in such states; provided that
the Fund shall not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any state, to
change the terms of the offering of the Shares in any state from the terms set
forth in its Registration Statement and Prospectus, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of the Shares. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualifications.
Section 4. EXPENSES.
(a) The Fund shall bear all costs and expenses of the continuous
offering of the Shares in connection with: (i) fees and disbursements of its
counsel and independent accountants, (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required to be filed by and
under the federal and state securities laws, (iii) the preparation and mailing
of annual and interim reports, prospectuses and proxy materials to shareholders
and (iv) the qualifications of Shares for sale and of the Fund as a broker or
dealer under the securities laws of such states or other jurisdictions as shall
be selected by the Fund and the Distributor pursuant to Section 3(d) hereof and
the cost and expenses payable to each such state for continuing qualification
therein.
(b) The Distributor shall bear (i) the costs and expenses of
preparing, printing and distributing any materials not prepared by the Fund and
other materials used by the Distributor in connection with its offering of the
Shares for sale to the public, including the additional cost of printing copies,
at printer's over-run cost, of the Prospectus and of annual and interim reports
to shareholders other than copies
-3-
<PAGE>
thereof required for distribution to shareholders or for filing with any federal
and state securities authorities, (ii) any expenses of advertising incurred by
the Distributor in connection with such offering and (iii) the expenses of
registration or qualification of the Distributor as a dealer or broker under
federal or state laws and the expenses of continuing such registration or
qualification.
Section 5. INDEMNIFICATION. The Fund agrees to indemnify, defend and
hold the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement, to the extent that it might
require indemnity of any person who is also an officer or Director of the fund
or who controls the Fund within the meaning of Section 15 of the 1933 Act, shall
not inure to the benefit of such officer, Director or controlling person unless
a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Fund or to its security holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement.
The Fund's agreement to indemnify the Distributor, its officers and directors
and any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or
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<PAGE>
proceedings against it or any of its officers or Directors in connection with
the issue and sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Fund, its
Directors and officers and any person who controls the Fund, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its Directors or
officers or any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Fund for use in the preparation of the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in such information or a fact
necessary to make such information not misleading, it being understood that the
Fund will rely upon the information provided by the Distributor for use in the
preparation of the Registration Statement and Prospectus. The Distributor's
agreement to indemnify the Fund, its Directors and officers, and any such
controlling person as aforesaid is expressly conditioned upon the Distributor's
being promptly notified of any action brought against the Fund, its Directors or
officers or any such controlling person, such notification to be given to the
Distributor at its principal business office.
Section 6. COMPLIANCE WITH SECURITIES LAWS. The Fund represents that
it is registered as a diversified open-end management investment company under
the 1940 Act, and agrees that it will comply with the provisions of the 1940 Act
and of the rules and regulations thereunder. The Fund and the Distributor each
agree to comply with the applicable terms and provisions of the 1940 Act, the
1933 Act and, subject to the provisions of Section 3(d), applicable state "Blue
Sky" laws. The Distributor agrees to comply with the applicable terms and
provisions of the Securities Exchange Act of 1934.
Section 7. TERM OF AGREEMENT; TERMINATION. This Agreement shall
commence on the date first set forth above. This Agreement shall continue in
effect for a period more than two years from the date hereof only so long as
such continuance is specifically approved at least annually in conformity with
the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its
assignment (as defined by the 1940 Act). In
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<PAGE>
addition, this Agreement may be terminated by either party at any time, without
penalty, on not more than sixty days' nor less than thirty days' written notice
to the other party.
Section 8. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Distributor at Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas, 21st Floor, New York, N.Y. 10020, Attention:
Warren J. Olsen, or (2) to the Fund at Morgan Stanley Institutional Fund, Inc.,
1300 Morris Drive, P.O. Box #1102, Valley Forge, PA 19482, Attention: Secretary.
Section 9. The Directors have authorized the execution of this
Agreement in their capacity as Directors and not individually and the
Distributor agrees that neither the shareholders nor the Directors nor any
officer, employee, representative or agent of the Fund shall be personally
liable upon, nor shall resort be had to their private property for the
satisfaction of, obligations given, executed or delivered on behalf of or by the
Fund, that the shareholders, Directors, officers, employees, representatives and
agents of the Fund shall not be personally liable hereunder, and that it shall
look solely to the property of the Fund for the satisfaction of any claim
hereunder.
Section 10. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MORGAN STANLEY & CO. INCORPORATED
By
-----------------------------------
Peter A. Nadosy
Managing Director
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
By
-----------------------------------
Warren J. Olsen
Secretary
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<PAGE>
Exhibit 8(a)
MUTUAL FUND CUSTODY AGREEMENT
MORGAN STANLEY INSTITUTIONAL FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
March 10, 1994
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MORGAN STANLEY INSTITUTIONAL FUND, INC.
TABLE OF CONTENTS
SECTION/PARAGRAPH PAGE
----------------- ----
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registration of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 6
7. Receipt of Securities 7
8. Use of Securities Depository or the Book-Entry System 8
9. Instructions Consistent with the Articles, etc. 9
10. Transactions Not Requiring Written Instructions 10
11. Transactions Requiring Written Instructions 16
12. Purchase of Securities 17
13. Sales of Securities 18
14. Authorized Shares 18
15. Records 18
16. Cooperation with Accountants 19
17. Confidentiality 19
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<PAGE>
18. Equipment Failures 20
19. Right to Receive Advice 20
20. Compliance with Governmental Rules and Regulations 21
21. Compensation 21
22. Indemnification 21
23. Responsibility of U.S. Trust 23
24. Collection 24
25. Duration and Termination 24
26. Notices 25
27. Further Actions 26
28. Amendments 26
29. Miscellaneous 26
Signatures 27
Attachment A -- Fees
Attachment B -- Authorized Persons
Attachment C -- Investment Funds of the Fund
-ii-
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
THIS AGREEMENT is made as of March , 1994, by and between Morgan
Stanley Institutional Fund, Inc., a Maryland corporation (the "Fund"), and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank trust
company ("U.S. Trust").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian and U.S. Trust is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints U.S. Trust to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. U.S. Trust accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 21 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to U.S.
Trust such copies, properly certified or authenticated, of contracts, documents
and other related information that U.S. Trust may request or requires to
discharge its duties properly. Such documents may include but are not limited
to the following:
<PAGE>
(a) Resolutions of the Fund's Directors authorizing the
appointment of U.S. Trust as Custodian of the portfolio securities, cash
and other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and
containing the signatures of the Fund's officers and/or the persons
authorized to sign Written Instructions, as hereinafter defined, on behalf
of the Fund;
(c) The Fund's Articles of Incorporation filed with the
Department of Assessments of the State of Maryland and all amendments
thereto (such Articles of Incorporation, as currently in effect and as they
shall from time to time be amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws,
as currently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(e) Resolutions of the Fund's Directors and/or the Fund's
stockholders approving the Investment Advisory Agreement between the Fund
and the Fund's investment adviser (the "Advisory Agreement");
(f) The Advisory Agreement;
(g) The Fund's current Registration Statement on Form N-1A under
the 1940 Act and the Securities Act of 1933, as amended ("the 1933 Act") as
filed with the Securities and Exchange Commission (the "SEC"); and
(h) The Fund's most recent prospectus including all amendments
and supplements thereto (the "Prospectus").
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<PAGE>
The Fund will furnish U.S. Trust from time to time with copies of all
amendments of or supplements to the foregoing, if any. The Fund will also
furnish U.S. Trust with a copy of the opinion of counsel for the Fund with
respect to the validity of the shares of common stock, par value $.001 per share
(the "Shares"), of the Fund and the status of such Shares under the 1933 Act as
registered with the SEC, and under any other applicable federal law or
regulation.
3. DEFINITIONS.
(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Vice-President, Treasurer
and any other person, whether or not any such person is an officer or
employee of the Fund, duly authorized by the Directors of the Fund to give
Written Instructions on behalf of the Fund and listed on Attachment B
hereto which may be amended from time to time.
(b) "BOOK-ENTRY SYSTEM". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system
for United States and federal agency securities, its successor or
successors and its nominee or nominees.
(c) "PROPERTY". The term "Property", as used in this Agreement,
means:
(i) any and all securities, cash, and other property of the
Fund which the Fund may from time to time deposit, or cause to be
deposited, with U.S. Trust or which U.S. Trust may from time to time
hold for the Fund;
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<PAGE>
(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such securities or
other property; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by U.S. Trust from time to time from or on
behalf of the Fund.
(d) "SECURITIES DEPOSITORY". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its
nominee or nominees; and shall also mean any other registered clearing
agency, its successor or successors, specifically identified in a certified
copy of a resolution of the Fund's Directors approving deposits by U.S.
Trust therein.
(e) "WRITTEN INSTRUCTIONS". Means instructions
(i) delivered by mail, tested telegram, cable, telex,
facsimile sending device, and received by U.S. Trust, signed by two
Authorized Persons or by persons reasonably believed by U.S. Trust to
be Authorized Persons; or
(ii) transmitted electronically through the U.S. Trust Asset
Management System or any similar electronic instruction system
acceptable to U.S. Trust.
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Fund will deliver
or cause to be delivered to U.S. Trust all Property owned by it, including cash
received for the
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<PAGE>
issuance of its Shares, at any time during the period of this Agreement, except
for securities and monies to be delivered to any subcustodian appointed pursuant
to Paragraph 7 hereof. U.S. Trust will not be responsible for such securities
and such monies until actually received by U.S. Trust or by any subcustodian.
All securities delivered to U.S. Trust or to any such subcustodian (other than
in bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name of U.S. Trust or any nominee of U.S. Trust
(with or without indication of fiduciary status) or in the name of any
subcustodian or any nominee of such subcustodian appointed pursuant to Paragraph
7 hereof or shall be properly endorsed and in form for transfer satisfactory to
U.S. Trust.
5. VOTING RIGHTS. With respect to all securities, however
registered, it is understood that the voting and other rights and powers shall
be exercised by the Fund. U.S. Trust's only duty shall be to mail to the Fund
any documents received, including proxy statements and offering circulars, with
any proxies for securities registered in a nominee name executed by such
nominee. Where warrants, options, tenders or other securities have fixed
expiration dates, the Fund understands that in order for U.S. Trust to act, U.S.
Trust must receive the Fund's instructions at its offices in New York City,
addressed as U.S. Trust may from time to time request, by no later than noon
(New York City time) at least one business day prior to the last scheduled date
to act with respect thereto (or such earlier date or time as permits the Fund a
reasonable period of time in which to respond after U.S. Trust notifies the Fund
of such date or time). Absent U.S. Trust's timely receipt of such instructions,
such instruments will expire without liability to U.S. Trust.
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<PAGE>
6. RECEIPT AND DISBURSEMENT OF MONEY.
(a) U.S. Trust shall open and maintain a custody account for the
Fund (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account,
subject to the provisions hereof, all cash received by it from or for the
Fund. U.S. Trust shall make payments of cash to, or for the account of,
the Fund from such cash only (i) for the purchase of securities for the
Fund as provided in Paragraph 12 hereof; (ii) upon receipt of Written
Instructions, for the payment of dividends or other distributions of
shares, or for the payment of interest, taxes, administration, distribution
or advisory fees or expenses which are to be borne by the Fund under the
terms of this Agreement, any Advisory Agreement, or any administration
agreement of the Fund; (iii) upon receipt of Written Instructions for
payments in connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by or to be
delivered to U. S. Trust; (iv) to a subcustodian pursuant to Paragraph 7
hereof; (v) for temporary short-term investment of such cash as provided in
Paragraph 10 hereof pending use of such cash for the other purposes as
provided herein (referred to herein as "Excess Cash"); or (vi) upon receipt
of Written Instructions for other corporate purposes.
(b) U.S. Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as
custodian for the Fund.
7. RECEIPT OF SECURITIES.
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<PAGE>
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall
hold all securities and non-cash Property received by it for the Fund. All
such securities and non-cash Property are to be held or disposed of by U.S.
Trust for the Fund pursuant to the terms of this Agreement. In the absence
of Written Instructions accompanied by a certified resolution authorizing
the specific transaction by the Fund's Directors, U.S. Trust shall have no
power or authority to withdraw, deliver, assign, hypothecate, pledge or
otherwise dispose of any such securities and non-cash Property, except in
accordance with the express terms provided for in this Agreement. In
connection with its duties under this Paragraph 7, U.S. Trust may, at its
own expense, enter into subcustodian agreements with other banks or trust
companies for the receipt of certain securities and cash to be held by U.S.
Trust for the account of the Fund pursuant to this Agreement; provided that
each such bank or trust company has an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000) and that such bank or trust company
agrees with U.S. Trust to comply with all relevant provisions of the 1940
Act and applicable rules and regulations thereunder. U.S. Trust will be
liable for acts or omissions of any such subcustodian.
(b) Promptly after the close of business on each day, U.S. Trust
shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities
Depository or the Book Entry System pursuant to Paragraph 8 hereof, U.S.
Trust shall also by book-entry or otherwise identify as
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<PAGE>
belonging to the Fund the quantity of securities that belongs to the Fund
that are part of a fungible bulk of securities registered in the name of
U.S. Trust (or its nominee) or shown in U.S. Trust's account on the books
of a Securities Depository or the Book-Entry System. At least monthly and
from time to time, U.S. Trust shall furnish the Fund with a detailed
statement of the Property held for the Fund under this Agreement.
8. USE OF SECURITIES DEPOSITORY OR THE BOOK-ENTRY SYSTEM. The Fund
shall deliver to U.S. Trust a certified resolution of the Directors of the Fund
approving, authorizing and instructing U.S. Trust on a continuous and ongoing
basis until instructed to the contrary by Written Instructions actually received
by U.S. Trust (i) to deposit in a Securities Depository or the Book-Entry System
all securities of the Fund eligible for deposit therein and (ii) to utilize a
Securities Depository or the Book-Entry System to the extent possible in
connection with the performance of its duties hereunder, including without
limitation, settlements of purchases and sales of securities by the Fund, and
deliveries and returns of securities collateral in connection with borrowings.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from
any assets and cash controlled by U.S. Trust in other than a fiduciary or
custodian capacity but may be commingled with other assets held in such
capacities. U.S. Trust will effect payment for securities and receive and
deliver securities in accordance with accepted
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<PAGE>
industry practices in the place where the transaction is settled, unless
the Fund has given U.S. Trust Written Instructions to the contrary.
(b) All books and records maintained by U.S. Trust which relate
to the Fund's participation in a Securities Depository or the Book-Entry
System will at all times during U.S. Trust's regular business hours be open
to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
9. INSTRUCTIONS CONSISTENT WITH THE ARTICLES, ETC. Unless otherwise
provided in this Agreement, U.S. Trust shall act only upon Written Instructions.
U.S. Trust may assume that any Written Instructions received hereunder are not
in any way inconsistent with any provision of the Articles or By-Laws of the
Fund or any vote or resolution of the Fund's Directors, or any committee
thereof. U.S. Trust shall be entitled to rely upon any Written Instructions
actually received by U.S. Trust pursuant to this Agreement. The Fund agrees
that U.S. Trust shall incur no liability in acting upon Written Instructions
given to U.S. Trust. In accord with instructions from the Fund, as required by
accepted industry practice or as U.S. Trust may elect in effecting the execution
of Fund instructions, advances of cash or other Property made by U.S. Trust,
arising from the purchase, sale, redemption, transfer or other disposition of
Property of the Fund, or in connection with the disbursement of funds to any
party, or in payment of fees, expenses, claims or liabilities owed to U.S. Trust
by the Fund, or to any other party which has secured judgment in a court of law
against the Fund which creates an overdraft in the accounts or over-delivery of
Property shall be deemed a loan by U.S. Trust to the Fund, payable on demand,
bearing interest at such rate customarily charged
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by U.S. Trust for similar loans. The Fund agrees that test arrangements,
authentication methods or other security devices to be used with respect to
instructions which the Fund may give by telephone, telex, TWX, facsimile
transmission, bank wire or through an electronic instruction system, shall be
processed in accordance with terms and conditions for the use of such
arrangements, methods or devices as U.S. Trust may put into effect and modify
from time to time. The Fund shall safeguard any test keys, identification codes
or other security devices which U.S. Trust makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by U.S. Trust or by the Fund as a result of U.S. Trust's acting in
accordance with instructions from any unauthorized person using the proper
security device unless such loss, liability or damage was incurred as a result
of U.S. Trust's negligence or willful misconduct. U.S. Trust may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Account. In
the event that the Fund uses U.S. Trust's Asset Management System ("AMS"), the
Fund agrees that U.S. Trust is not responsible for the consequences of the
failure of the AMS to perform for any reason, beyond the reasonable control of
U.S. Trust, or the failure of any communications carrier, utility, or
communications network. In the event the AMS is inoperable, the Fund agrees
that it will accept the communication of transaction instructions by telephone,
facsimile transmission on equipment compatible to U.S. Trust's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
10. TRANSACTIONS NOT REQUIRING WRITTEN INSTRUCTIONS. U.S. Trust is
authorized to take the following action without Written Instructions:
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<PAGE>
(a) COLLECTION OF INCOME AND OTHER PAYMENTS. U.S. Trust shall:
(i) collect and receive for the account of the Fund, all
income and other payments and distributions, including (without
limitation) stock dividends, rights, warrants and similar items,
included or to be included in the Property of the Fund, and promptly
advise the Fund of such receipt and shall credit such income, as
collected, to the Fund. From time to time, U.S. Trust may elect, but
shall not be so obligated, to credit the Account with interest,
dividends or principal payments on payable or contractual settlement
date, in anticipation of receiving same from a payor, central
depository, broker or other agent employed by the Fund or U.S. Trust.
Any such crediting and posting shall be at the Fund's sole risk, and
U.S. Trust shall be authorized to reverse any such advance posting in
the event U.S. Trust does not receive good funds from any such payor,
central depository, broker or agent of the Fund.
(ii) with respect to securities of foreign issuers, effect
collection of dividends, interest and other income, and to notify the
Fund of any call for redemption, offer of exchange, right of
subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood,
however, that U.S. Trust shall be under no responsibility for any
failure or delay in effecting such collections or giving such notice
with respect to securities of foreign issuers, regardless of whether
or not the relevant information is published in any financial service
available to U.S. Trust unless such failure or delay is due to its
negligence or willful misconduct; provided
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that this sub-paragraph (ii) shall not be construed as creating any
such responsibility with respect to securities of non-foreign issuers.
Collections of income in foreign currency are, to the extent possible,
to be converted into United States Dollars unless otherwise instructed
in writing, and in effecting such conversion U.S. Trust may use such
methods or agencies as it may see fit, including the facilities of its
own foreign division at customary rates. All risk and expenses
incident to such collection and conversion are for the account of the
Fund, and U.S. Trust shall have no responsibility for fluctuations in
exchange rates affecting any such conversion.
(iii) endorse and deposit for collection in the name of the
Fund, checks, drafts, or other orders for the payment of money on the
same day as received;
(iv) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities issued
with respect to any portfolio securities of the Fund held by U.S.
Trust hereunder;
(v) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(vi) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments
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and the endorsement for collection of checks, drafts and other
negotiable instruments;
(vii) with respect to domestic securities, to exchange
securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is
changed, and to surrender securities at maturity or when advised of
earlier call for redemption, against payment therefor in accordance
with accepted industry practice. The Fund understands that U.S. Trust
subscribes to one or more nationally recognized services that provide
information with respect to calls for redemption of bonds or other
corporate actions. U.S. Trust shall not be liable for failure to
redeem any called bond or to take other action if notice of such call
or action was not provided by any service to which it subscribes
provided that U.S. Trust shall have acted in good faith without
negligence and in accordance with "Street Practice" (as is customary
in industry). U.S. Trust shall have no duty to notify the Fund of any
rights, duties, limitations, conditions or other information set forth
in any security (including mandatory or optional put, call and similar
provisions), but U.S. Trust shall forward to the Fund any notices or
other documents subsequently received in regard to any such security.
When fractional shares of stock of a declaring corporation are
received as a stock distribution, unless specifically instructed to
the contrary in writing, U.S. Trust is authorized to sell the fraction
received and credit the Fund's account. Unless specifically instructed
to the contrary in writing, U.S. Trust is authorized to
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exchange securities in bearer form for securities in registered form.
If any Property registered in the name of a nominee of U.S. Trust is
called for partial redemption by the issuer of such Property, U.S.
Trust is authorized to allot the called portion to the respective
beneficial holders of the Property in such manner deemed to be fair
and equitable by U.S. Trust in its sole discretion.
(b) MISCELLANEOUS TRANSACTIONS. U.S. Trust is authorized to
deliver or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of
the Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary
securities for definitive securities; and
(iii) for transfer of securities into the name of the Fund
or U.S. Trust or a nominee of either, or for exchange of securities
for a different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units bearing
the same interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be
delivered to U.S. Trust.
If to the Fund: Morgan Stanley Institutional Fund, Inc.
1221 Avenue of the Americas
New York, NY 10020
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Attention: Mr. Anthony Pesce
If to U.S. Trust: Mr. Peter Arrighetti
Senior Vice President
U.S. Trust Company of New York
114 West 47th Street
New York, NY 10036
(c) SHORT-TERM INVESTMENTS. U.S. Trust is authorized to make
temporary short-term investments of Excess Cash pursuant to the following
standing instructions:
(i) to the extent that U.S. Trust is authorized by law and
regulation as a custodian of assets of investment companies to make
temporary short-term investments on behalf of the Fund, U.S. Trust
shall invest Excess Cash in interest-bearing or income-producing
accounts, including repurchase agreement programs, accounts of U.S.
Trust, or similar accounts of like liquidity and minimal credit risk;
and
(ii) to the extent that the amount of such Excess Cash exceeds
U.S. Trust's legal authorization (referred to herein as "Above-Limit
Excess Cash"), U.S. Trust shall invest Above-Limit Excess Cash in
either (A) interest-bearing time deposits not exceeding 3 days in
duration, or (B) repurchase agreements with maturities of less than 3
days entered into with repurchase agreement dealers approved by the
Board of Directors of the Fund, depending on which
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investment, time deposits or repurchase agreements, would produce a
higher return.
11. TRANSACTIONS REQUIRING WRITTEN INSTRUCTIONS. Upon receipt of
Written Instructions and not otherwise, U.S. Trust, directly or through the use
of a Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in
such Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities
may be exercised;
(b) Deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of
any corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund
and take such other steps as shall be stated in said instructions to be for
the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;
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(e) Release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan
incurred by the Fund; provided, however, that securities shall be released
only upon payment to U.S. Trust of the monies borrowed, except that in
cases where additional collateral is required to secure a borrowing already
made, subject to proper prior authorization, further securities may be
released for that purpose; and pay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon surrender of the note
or notes evidencing the loan;
(f) Deliver any securities held for the Fund upon the exercise of
a covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate
security lending agreements concerning the lending of the Fund's securities
into which the Fund may enter, from time to time.
12. PURCHASE OF SECURITIES. Promptly after each purchase of
securities by the Investment Adviser (or any sub-adviser), the Fund shall
deliver to U.S. Trust (as Custodian) Written Instructions specifying with
respect to each such purchase: (a) the name of the issuer and the title of the
securities, (b) the number of shares of the principal amount purchased and
accrued interest, if any, (c) the dates of purchase and settlement, (d) the
purchase price per unit, (e) the total amount payable upon such purchase, (f)
the name of the person from whom or the broker through whom the purchase was
made and (g) the Investment Fund of the Fund for which the purchase was made.
U.S. Trust shall upon receipt of securities purchased by or for the Investment
Fund of the Fund pay out of the moneys held for the account of such
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Investment Fund of the Fund the total amount payable to the person from whom or
the broker through whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Written Instructions.
13. SALES OF SECURITIES. Promptly after each sale of securities by
the Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian)
Written Instructions, specifying with respect to each such sale: (a) the name
of the issuer and the title of the security, (b) the number of shares or
principal amount sold, and accrued interest, if any, (c) the date of sale, (d)
the sale price per unit, (e) the total amount payable to the Fund upon such
sale, (f) the name of the broker through whom or the person to whom the sale was
made and (g) the Investment Fund of the Fund for which the sale was made. U.S.
Trust shall deliver the securities upon receipt of the total amount payable to
the Fund upon such sale, provided that the same conforms to the total amount
payable as set forth in such Written Instructions. Subject to the foregoing,
U.S. Trust may accept payment in such form as shall be satisfactory to it, and
may deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
14. AUTHORIZED SHARES. The Fund has a fixed number of shares of each
class of its securities.
15. RECORDS. The books and records pertaining to the Fund which are
in the possession of U.S. Trust shall be the property of the Fund. Such books
and records shall be prepared and maintained as required by the 1940 Act; other
applicable federal and state securities laws and rules and regulations; and, any
state or federal regulatory body having appropriate jurisdiction. The Fund, or
the Fund's authorized representatives, shall have access
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to such books and records at all times during U.S. Trust's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund, copies of any such books and
records shall be provided by U.S. Trust to the Fund or the Fund's authorized
representative at the Fund's expense.
16. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
17. CONFIDENTIALITY. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the Fund
all records and other information relative to the Fund and its prior, present or
potential Shareholders and relative to the investment advisers and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where U.S.
Trust may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit U.S. Trust from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
Shareholders of the Fund.
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18. EQUIPMENT FAILURES. In the event of equipment failures beyond
U.S. Trust's control, U.S. Trust shall, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions but shall not have
liability with respect thereto. U.S. Trust shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provision for back up emergency use of electronic data processing equipment to
the extent appropriate equipment is available.
19. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF FUND. If U.S. Trust shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive,
from the Fund clarification or advice.
(b) ADVICE OF COUNSEL. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be taken or omitted by U.S.
Trust, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Fund or U.S. Trust at the option of
U.S. Trust).
(c) CONFLICTING ADVICE. In case of conflict between directions
or advice received by U.S. Trust pursuant to subparagraph (a) of this
paragraph and advice received by U.S. Trust pursuant to subparagraph (b) of
this paragraph, U.S. Trust shall be entitled to rely on and follow the
advice received pursuant to the latter provision alone.
(d) PROTECTION OF U.S. TRUST. U.S. Trust shall be protected in
any action or inaction which it takes or omits to take in reliance on any
directions or advice received pursuant to subparagraph (a) of this section
which U.S. Trust, after receipt of
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any such directions or advice, in good faith believes to be consistent with
such directions or advice. However, nothing in this paragraph shall be
construed as imposing upon U.S. Trust any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms or another provision of this
Agreement, the same is a condition to U.S. Trust's properly taking or
omitting to take such action. Nothing in this subparagraph shall excuse
U.S. Trust when an action or omission on the part of U.S. Trust constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by
U.S. Trust of its duties under this Agreement.
20. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Fund
assumes full responsibility for insuring that the contents of each Prospectus of
the Fund comply with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
21. COMPENSATION. As compensation for the services described within
this Agreement and rendered by U.S. Trust during the term of this Agreement, the
Fund will pay to U.S. Trust, in addition to reimbursement of its out-of-pocket
expenses, monthly fees as outlined in Attachment A.
22. INDEMNIFICATION. The Fund, as sole owner of the Property, agrees
to indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934 as amended, the 1940 Act, and any state and foreign securities and blue
sky laws, all as or to be amended from time to time) and expenses,
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including (without limitation) attorney's fees and disbursements, arising
directly or indirectly (a) from the fact that securities included in the
Property are registered in the name of any such nominee or (b) without limiting
the generality of the foregoing clause (a) from any action or thing which U.S.
Trust takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund given in accordance with
the terms of this Agreement, or (ii) upon Written Instructions; provided, that
neither U.S. Trust nor any of its nominees or subcustodian shall be indemnified
against any liability to the Fund or to its Shareholders (or any expenses
incident to such liability) arising out of (x) U.S. Trust's or such nominee's or
subcustodian's own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian or (y) U.S. Trust's own or its subcustodian's
negligent failure to perform its duties under this Agreement. In the event of
any advance of cash for any purpose made by U.S. Trust resulting from orders or
Written Instructions of the Fund, or in the event that U.S. Trust or its nominee
or subcustodian shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's or subcustodian's
own negligent action, negligent failure to act, willful misconduct, or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian, the Fund shall promptly reimburse U.S. Trust
for such advance of cash or such taxes, charges, expenses, assessments, claims
or liabilities.
23. RESPONSIBILITY OF U.S. TRUST. U.S. Trust shall be under no duty
to take any action on behalf of the Fund except as specifically set forth herein
or as may be specifically
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agreed to by U.S. Trust in writing. In the performance of its duties hereunder,
U.S. Trust shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement. U.S. Trust shall be
responsible for its own negligent failure or that of any subcustodian it shall
appoint to perform its duties under this Agreement but to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, U.S. Trust shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith, or gross negligence on the part
of U.S. Trust or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, U.S. Trust in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which U.S. Trust believes to be genuine, (b) the validity of the issue of any
securities purchased or sold by the Fund, the legality of the purchase or sale
thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficiency of the amount
to be received therefor, (d) the legality of the redemption of any Shares, or
the propriety of the amount to be paid therefor, (e) the legality of the
declaration or payment of any dividend or distribution on Shares, or (f) delays
or errors or loss of data occurring by reason of circumstances beyond U.S.
Trust's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as provided
in Paragraph 18), flood or catastrophe, acts of
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God, insurrection, war, riots, or failure of the mail, transportation systems,
communication systems or power supply.
24. COLLECTION. All collections of monies or other property in
respect, or which are to become part of the Property (but not the safekeeping
thereof upon receipt by U.S. Trust) shall be at the sole risk of the Fund. In
any case in which U.S. Trust does not receive any payment due the Fund within a
reasonable time after U.S. Trust has made proper demands for the same, it shall
so notify the Fund in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto, and to
telephonic demands, and await instructions from the Fund. U.S. Trust shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. U.S. Trust shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course.
25. DURATION AND TERMINATION. This Agreement shall be effective as of
the date hereof and shall continue until termination by the Fund or by U.S.
Trust on 90 days' written notice. Upon any termination of this Agreement,
pending appointment of a successor to U.S. Trust or a vote of the Shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property, U.S. Trust shall not deliver cash, securities or
other property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a successor custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that U.S. Trust
shall not be required to make any such delivery or payment until full payment
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shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by U.S. Trust or on or against U.S. Trust and
until full payment shall have been made to U.S. Trust of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 21 of
this Agreement.
26. NOTICES. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W.
47th Street, New York, New York, 10036; (b) if to the Fund, at the address of
the Fund; or (c) if to neither of the foregoing, at such other address as shall
have been notified to the sender of any such Notice or other communication. If
the location of the sender of a Notice and the address of the addressee thereof
are, at the time of sending, more than 100 miles apart, the Notice may be sent
by first-class mail, in which case it shall be deemed to have been given three
days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately,
and, if the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, not more than 100 miles apart, the Notice
may be sent by first-class mail, in which case it shall be deemed to have been
given two days after it is sent, or if sent by messenger, it shall be deemed to
have been given on the day it is delivered, or if sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
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27. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
28. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
29. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and the year first
above written.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ATTEST: /s/ Valerie Y. Lewis BY /s/ Warren J. Olsen
--------------------- ---------------------------
NAME:
-------------------------
TITLE: President
------------------------
UNITED STATES TRUST COMPANY
OF NEW YORK
ATTEST: /s/ Jacqueline Binder BY /s/ Peter C. Arrighetti
--------------------- ---------------------------
NAME:
-------------------------
TITLE: Senior Vice President
------------------------
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Exhibit 8(b)
CUSTODY AGREEMENT
This Custody Agreement is dated July 31, 1989 between MORGAN STANLEY TRUST
COMPANY, a New York State chartered trust company (the "Custodian"), and MORGAN
STANLEY INSTITUTIONAL FUND, INC. (the "Client").
1. The Client hereby appoints the Custodian as a custodian of securities
and other property owned or under the control of the Client which are delivered
to the Custodian, or any Subcustodian as appointed below, from time to time to
be held in custody for the benefit of the Client. The Client instructs the
Custodian to establish on the books and records of the Custodian one or more
accounts listed in Appendix 2 (the "Accounts") in the name of the Client. Upon
the Custodian's confirmation to the Client of the opening of such additional
Accounts, or of the closing of Accounts, Appendix 2 shall be deemed
automatically amended accordingly. The Custodian shall record in the Accounts
and shall have general responsibility for the safekeeping of all securities
("Securities"), cash and other property (all such Securities, cash and other
property being collectively the "Property") of the Client so delivered for
custody. It is understood that certain procedures the Custodian will use in
carrying out its responsibilities under this Agreement are set forth in a client
services guide (the "Client Services Guide ") prepared by the Custodian and
delivered to the
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Client, as such Client Services Guide may be amended from time to time by the
Custodian by written notice to the Client.
2. The Property may be held in custody and deposit accounts that have
been established by the Custodian with one or more domestic or foreign banks, or
through the facilities of one or more clearing agencies or central securities
depositories, as listed on Exhibit A hereto (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by written notice to
the Client. The Custodian may hold Property for all of its clients with a
Subcustodian in a single account that is identified as belonging to the
Custodian for the benefit of its clients. Any Subcustodian may hold Property in
a securities depository and may utilize a clearing agency. The Client agrees
that the Property may be physically held outside the United States. The
Custodian shall not be liable for any loss resulting from FORCE MAJEURE
including, but not limited to, losses resulting from nationalization,
expropriation, exchange controls or acts of war or terrorism.
3. With respect to Property held by a Subcustodian pursuant to Section 2:
(a) The Custodian will identify on its books as belonging to the
Client any Property held by a Subcustodian for the Custodian's
account;
(b) The Custodian will hold Property through a Subcustodian only if
(i) such Subcustodian and any securities depository or clearing
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agency in which such Subcustodian holds Property, or any of their
creditors, may not assert any right, charge, security interest,
hen, encumbrance or other claim of any kind to such Property
except a claim of payment for its safe custody or administration
and (H) beneficial ownership of such Property may be freely
transferred without the payment of money or value other than for
safe custody or administration;
(c) The Custodian shall require that Property held by the
Subcustodian for the Custodian's account be identified on the
Subcustodian's books as separate from any property held by the
Subcustodian other than property of the Custodian's clients and
as held solely for the benefit of clients of the Custodian; and
(d) In the event that the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian will be required
by its agreement with the Custodian to identify on its books such
Property as being held for the account of the Custodian as a
custodian for its clients.
4. The Custodian shall allow the Client's accountants reasonable access
to the Custodian's records relating to the
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Property held by the Custodian as such accountants may reasonably require in
connection with their examination of the Client's affairs. The Custodian shall
also obtain from any Subcustodian (and will require each Subcustodian to use
reasonable efforts to obtain from any securities depository or clearing agency
in which it deposits Property) an undertaking, to the extent consistent with
local practice and the laws of the jurisdiction or jurisdictions to which such
Subcustodian, securities depository or clearing agency is subject, to permit
independent public accountants such reasonable access to the records of such
Subcustodian, securities depository or clearing agency as may be reasonably
required in connection with the examination of the Client's affairs or to take
such other action as the Custodian in its judgment may deem sufficient to ensure
such reasonable access.
5. The Custodian shall provide such reports and other information to the
Client and to such persons as the Client directs as the Custodian and the Client
may agree from time to time.
6. The Custodian shall make or cause any Subcustodian to make payments
from monies being held in the Accounts only:
(a) upon the purchase of Securities and then, to the extent
consistent with practice in the jurisdiction in which settlement
occurs, upon the delivery of such Securities;
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(b) for payments to be made in connection with the conversion,
exchange or surrender of Securities;
(c) upon a request of the Client that the Custodian return monies
being held in the Accounts;
(d) upon a request of the Client that monies be exchanged for or used
to purchase monies denominated in a different currency;
(e) as provided in Sections 8 and 12 hereof,
(f) upon termination of this Custody Agreement as hereinafter set
forth, and
(g) for any other purpose upon receipt of Authorized Instructions (as
hereinafter defined).
Except as provided in the last two sentences of this Section 6 and as
provided in Section 8, all payments pursuant to this Section 6 will be made only
upon receipt by the Custodian of Authorized Instructions. In the event that it
is not possible to make a payment in accordance with Authorized Instructions,
the Custodian shall proceed in accordance with the procedures set forth in the
Client Services Guide. Any payment pursuant to subsection (f) of this Section 6
will be made in accordance with Section 16.
7. The Custodian will make or cause any Subcustodian to make transfers,
exchanges or deliveries of Securities only:
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(a) upon sale of such Securities and then, to the extent consistent
with practice in the jurisdiction in which settlement occurs,
upon receipt of payment therefor; (b) upon exercise of
conversion, subscription, purchase, exchange or other similar
rights pertaining to such Securities and, if applicable to such
exercise and if consistent with practice in applicable
jurisdiction only on receipt of substitute or additional
securities to be received upon such exercise;
(b) as provided in Section 8 hereof,
(c) upon the termination of this Custody Agreement as hereinafter set
forth; and
(d) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 7 and as
provided in Section 8, all transfers, exchanges or deliveries of Securities
pursuant to this Section 7 will be made only upon receipt by the Custodian of
Authorized Instructions. In the event that it is not possible to transfer
Securities in accordance with Authorized Instructions of the Client, the
Custodian shall proceed in accordance with the procedures set forth in the
Client Services Guide. Any transfer or delivery pursuant to subsection (d) of
this Section 7 will be made in accordance with Section 16.
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8. In the absence of Authorized Instructions to the contrary, the
Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling
Property or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for
to the Client;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts ;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts
or temporary securities for securities in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the securities themselves);
(d) surrender Securities at maturity or when called for redemption
upon receiving payment therefor;
(e) execute in the Client's name such ownership and other
certificates as may be required to obtain the payment of income
from Securities;
(f) pay or cause to be paid, from the
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Accounts, any and all taxes and levies in the nature of taxes
imposed on Property by any governmental authority in connection
with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Client, checks, drafts
and other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings
with the Property.
9. "Authorized Instructions" of the Client shall mean instructions from
an Authorized Person received by telecopy, tested telex, electronic or other
electronic means or by such other means as may be agreed in writing pursuant to
the Client Services Guide or otherwise in advance between the Client and the
Custodian.
" Authorized Person" means each of the persons or entities identified
on Appendix 3 as amended from time to time by written notice from the Client to
the Custodian. The Client represents and warrants to the Custodian that each
Authorized Person listed in Appendix 3, as amended from time to time, is
authorized to issue Authorized Instructions on behalf of the Client. Prior to
the delivery of the Property to the Custodian, the Custodian shall provide a
list of designated system user ID numbers and passwords that the Client shall be
responsible for
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assigning to Authorized Persons. The Custodian shall assume that an electronic
transmission received and identified by a system user ED number and password was
sent by an Authorized Person. The Custodian agrees to provide additional
designated system user ID numbers and passwords as needed by the Client. The
Client authorizes the Custodian to issue new system user ID numbers upon the
request of a previously existing Authorized Person. Upon the issuance of
additional system user D:) numbers by the Custodian to the Client, Appendix 3
shall be deemed automatically amended accordingly. The Client authorizes the
Custodian to receive, act and rely upon any Authorized Instructions received by
the Custodian which have been issued, or purport to have been issued, by an
Authorized Person.
Any Authorized Person may cancel/correct or otherwise amend any
Authorized Instruction received by the Custodian, but the Client agrees to
indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a result of their having relied upon or acted
on any prior Authorized Instruction. An amendment or cancellation of an
Authorized Instruction to deliver or receive any security or funds in connection
with a trade will not be processed once the trade has settled.
10. Securities which must be held in registered form may be registered in
the name of the Custodian's nominee or, in the case of Securities in the custody
of an entity other than the Custodian, in the name of such entity's nominee.
The Client
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agrees to hold the Custodian and Subcustodians and any such nominee unless from
any liability arising out of any such person acting as a holder of record of
such Securities. The Custodian may without notice to the Client cause any
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Client.
11. Unless the Client and the Custodian otherwise agree, all cash received
by the Custodian for the Accounts shall be placed in deposit accounts maintained
by the Custodian for the benefit of its clients with Subcustodians or other
domestic or foreign deposit taking institutions identified to the Client. The
Client understands that such deposit accounts may not be accompanied by the
benefit of any governmental insurance. If the Custodian and the Client have
agreed in writing in advance that certain cash in the Accounts shall bear
interest, the Custodian shall be responsible for crediting the Accounts with
interest on such cash at the rates and times as agreed between the Client and
the Custodian from time to time and such rates may be greater than or less than
the rates paid on deposits by the applicable deposit taking institution. Any
difference between the interest so paid to the Client and the interest so paid
by the Subcustodians and other deposit taking institutions shall be for the
account of the Custodian.
12. From time to time, the Custodian may extend or arrange short-term
credit for the Client which is (i) necessary in connection with payment and
clearance of securities and
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foreign exchange transactions or (ii) pursuant to an agreed schedule, as and if
set forth in the Client Services Guide, of credits for dividends and interest
payments on Securities. All such extensions of credit shall be repayable by the
Client on demand. The Custodian shall be entitled to charge the Client interest
for any such credit extension at rates to be agreed upon from time to time. In
addition to any other remedies available, the Custodian shall be entitled to a
right of set-off against the Property to satisfy the repayment of such credit
extensions and the payment of accrued interest thereon. The Custodian may act
as the Client's agent or act as a principal in foreign exchange transactions at
such rates as are agreed from time to time between the Client and the Custodian.
13. The Client represents that (i) the execution, delivery and
performance of this Agreement (including, without limitation, the ability to
obtain the short-term extensions of credit in accordance with Section 12) are
within the Client's power and authority and have been duly authorized by all
requisite action (corporate or otherwise) and (ii) this Agreement and each
extension of short-term credit extended or arranged for the benefit of the
Client in accordance with Section 12 will at all times constitute a legal, valid
and binding obligation of the Client and be enforceable against the Client in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general
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principles of equity (regardless of whether considered in a proceeding in equity
or at law).
The Custodian represents that the execution, delivery and performance of
this Agreement is within the Custodian's power and authority and has been duly
authorized by all requisite action of the Custodian. This Agreement constitutes
the legal, valid and binding obligation of the Custodian enforceable against the
Custodian in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' fights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
14. The Custodian shall be responsible for the performance of only such
duties as are set forth in this Agreement or the Client Services Guide or
contained in Authorized Instructions given to the Custodian which are not
contrary to the provisions of any relevant law or regulation. The Custodian
shall not be liable to the Client or to any other person for any action taken or
omitted to be taken by it in connection with this Agreement in the absence of
negligence or willful misconduct on the part of the Custodian or any
Subcustodian. Upon the request of the Custodian, the Client agrees to deliver
to the Custodian a duly executed power of attorney, in form and substance
satisfactory to the Custodian, authorizing the Custodian to take any action or
execute any instrument on behalf of the Client as necessary or advisable to
accomplish the purposes of this
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Agreement. The Client shall indemnify the Custodian and each agent against any
liability, loss or expense (including attorney fees and disbursements) incurred
in connection with this Agreement, except to the extent such liability, loss or
expense results from the negligence or willful misconduct or breach of the
Custodian or any Subcustodian.
15. The Client agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and the Custodian's out-of-pocket or incidental
expenses. The Client hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
the Accounts or any Property held therein. The Custodian is and any
Subcustodians are authorized to charge the Accounts for such items and the
Custodian shall have a lien, charge and security interest on any and all
Property for any amount owing to the Custodian from time to time under this
Agreement.
16. This Agreement may be terminated by the Client or the Custodian by 60
days written notice to the other, sent by registered mail. If notice of
termination is given, the Client shall, within 30 days following the giving of
such notice, deliver to the Custodian a statement in writing specifying the
successor custodian or other person to whom the Custodian shall transfer the
Property. In either event the Custodian, subject to
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the satisfaction of any lien it may have, will transfer the Property to the
person so specified. If the Custodian does not receive such statement the
Custodian, at its election, may transfer the Property to a bank or trust company
established under the laws of the United States or any state thereof to be held
and disposed of pursuant to the provisions of this Agreement or may continue to
hold the Property until such a statement is delivered to the Custodian. In such
event the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian remains in possession of any Property and
the provisions of this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect; provided, however, that the
Custodian shall no longer settle any transactions in securities for the
Accounts.
17. The Custodian, its agents and employees will maintain the
confidentiality of information concerning the Property held in the Client's
account, including in dealings with affiliates of the Custodian. In the event
the Custodian or any Subcustodian is requested or required to disclose any
confidential information concerning the Property, the Custodian shall to the
extent practicable and legally permissible, promptly notify the Client of such
request or requirement so that the Client may seek a protective order or waive
the Custodian's or such Subcustodian's compliance with this Section 17. In the
absence of such a waiver, if the Custodian or such Subcustodian is compelled, in
the opinion of its counsel, to disclose any
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confidential information, the Custodian or such Subcustodian may disclose such
information to such persons as, in the opinion of counsel, is so required.
18. Any notice or other communication from the Client to the Custodian,
unless otherwise provided by this Agreement, shall be sent by certified or
registered mail to Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn,
New York, 11201, Attention: President, and any notice from the Custodian to the
Client is to be mailed postage prepaid, addressed to the Client at the address
appearing below, or as it may hereafter be changed on the Custodian's records in
accordance with notice from the Client.
19. The Custodian may assign all of its rights and obligations hereunder
to any other entity which is qualified to act as custodian under the terms of
this Agreement and majority-owned, directly or indirectly, by Morgan Stanley
Group Inc., and upon the assumption of the rights and obligations hereunder by
such entity, such entity shall succeed to all of the rights and obligations of,
and be substituted for, the Custodian hereunder as if such entity had been
originally named as custodian herein. The Custodian shall give prompt written
notice to the Client upon the effectiveness of any such assignment. This
Agreement shall bind the successors and assigns of the Client and the Custodian.
This Agreement shall bind the successors and assigns of the Client and the
Custodian and shall be governed by the laws of the State of New York applicable
to contracts executed in and to
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be performed in that state. The Custodian and the Client hereby irrevocably
submit to the exclusive jurisdiction of any New York State court or United
States District Court located in New York in any action or proceeding arising
out of this Agreement and hereby irrevocably waive any objection to the venue of
any such action or proceeding brought in any such court or any defense of
inconvenient forum.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: /s/ Warren J. Olsen
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Name: Warren J. Olsen
Title: President
Address for record: ____________________
____________________
____________________
Accepted:
MORGAN STANLEY TRUST COMPANY
By: ________________________
Authorized Signature
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APPENDIX 2
CLIENT ACCOUNTS
ACCOUNT ACCOUNT
ACCOUNT NAME NUMBER MNEMONIC
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1. MSIF - INTERNATIONAL EQUITY PORTFOLIO 00040111(7) MSIF
2. MSIF/BALANCED PORTFOLIO 00040115(8) VBAL
3. MSIF/GLOBAL FIXED INC PORT 00040116(6) MFIX
4. MSIF/ASIAN EQUITY FUND 00040117(4) MSAS
5. MSIF A/C 5 ASIAN EQUITY PORTFOLIO HOLDING 00040351(9) MIE5
6. MSIF A/C/6 ASIAN EQUITY PORTFOLIO HOLDING 00040352(7) MIE6
7. MSIF A/C 7 ASIAN EQUITY PORTFOLIO HOLDING 00040353(5) MIE7
8. MSIF A/C 8 ASIAN EQUITY PORTFOLIO HOLDING 00040354(3) MIE8
9. MSIF ACTIVE COUNTRY ALLOCATION FD. 00040358(4) MACT
10. MSIF GLOBAL EQUITY PORTFOLIO 00040364(2) MSGE
11. MSIF INTERNATIONAL SMALL CAP 00040365(9) MSMC
12. MSIF EMERGING MARKET PORTFOLIO 00040366(7) MSEM
13. MSIF EUROPEAN EQUITY PORTFOLIO HOLDING A/C 00040372(5) MEEL
MOUSSETEEI
14. MSIF EUROPEAN EQUITY FUND PORTFOLIO 00040373(3) MSEE
15. MSEM/HOLDING ACCOUNT 00040376(6) MSEH
16. MSIF REAL YIELD PORTFOLIO 00040382(4) MRYP
17. MSIF EMERGING MARKETS DELOT FUND 00040383(2) MSED
18. MSIF GOLD PORTFOLIO 00040386(5) MGLD
19. MSIF JAPANESE EQUITY PORTFOLIO 00040388(1) MJPN
20. MSIF LATIN AMERICA PORTFOLIO 00041106(6) MLAP
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APPENDIX 3
Part I - Authorized Signatures
The Custodian is directed to accept and act upon Authorized Instructions
received from any of the following persons or entities:
Telephone/ Authorized
Name Organization Title Fax Signature
--- ------------ ----- ---------- ----------
Authorized by: _______________________________
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Exhibit A
MARKET COVERAGE LIST
MARCH 1995
COUNTRY AGENT
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Argentina Citibank N.A
Australia Australia and New Zealand Bank
Austria Euroclear
CASH ONLY: Creditanstalt Bankverein
Bangladesh Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Botswana Barclays Bank of Botswana
Brazil Banco de Boston
Canada Montreal Trust Company
CASH ONLY: Bank of Nova Scotia
Chile Citibank N.A.
China Hongkong & Shanghai Bank Corp.
Colombia Cititrust
Czech Republic ING Bank
Denmark Euroclear
CASH ONLY: Den Danske Bank
Finland Euroclear
CASH ONLY: Union Bank of Finland
France Banque Indosuez
Germany BHF Bank
Ghana Barclays Bank of Ghana
Greece Citibank N.A.
Hong Kong Hongkong & Shanghai Bank Corp.
Hungary Euroclear (see Austria)
Citibank Budapest
India Standard Chartered Bank
Indonesia Hongkong & Shanghai Bank Corp.
Ireland Allied Irish Bank
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COUNTRY AGENT
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Israel Bank Leumi
Italy Barclays Bank
Japan Morgan Stanley International**/
MUTUAL FUND CLIENTS: Mitsubishi Bank Ltd.
Jordan Arab Bank plc
Kenya Barclays Bank of Kenya
Korea Standard Chartered Bank
Luxembourg Euroclear/Banque Bruxelles Lambert
Malaysia Overseas Chinese Banking Corp.
Mexico Citibank N.A.
Morocco Banque Commerciale du Maroc
Netherlands ABN Amro Bank
New Zealand Australia and New Zealand Bank
Norway Euroclear
CASH ONLY: Den Norske Bank
Pakistan Standard Chartered Bank
Papua New Guinea Australia and New Zealand Bank (see
Australia)
Peru Citibank N.A.
Philippines Hongkong & Shanghai Bank Corp.
Poland Citibank S.A.
Portugal Banco Comercial Portugues
Singapore Oversea Chinese Banking Corp.
South Africa First National Bank of Southern Africa
Spain Banco Santander
Sri Lanka Hongkong & Shanghai Bank Corp.
Swaziland Barclays Bank of Swaziland
----------
**/Not an eligible foreign custodian under Rule 17F-5.
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COUNTRY AGENT
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Sweden Euroclear
CASH ONLY: Svenska Handelsbanken
Switzerland Bank Leu
Taiwan Hongkong & Shanghai Bank Corp.
Thailand Standard Chartered Bank
Turkey Citibank N.A.
United Kingdom Barclays Bank PLC
USA DTC
Chemical Bank
Uruguay Citibank N.A.
Venezuela Citibank N.A.
Zambia Barclays Bank of Zambia
Zimbabwe Barclays Bank of Zimbabwe
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Exhibit 9(a)
MSAM ADMINISTRATION AGREEMENT
Agreement dated as of October 1, 1988 between MORGAN STANLEY
INSTITUTIONAL FUND, INC., a Maryland corporation (the "Fund") and MORGAN STANLEY
ASSET MANAGEMENT INC., a Delaware corporation ("MSAM").
WHEREAS, the Fund has filed a Registration Statement on Form N-1A to
register as an investment company under the Investment Company Act of 1940 (the
"1940 Act") and to offer shares of three portfolios (the Money Market Portfolio,
the Municipal Money Market Portfolio, and the Emerging Growth Portfolio) under
the Securities Act of 1933; and
WHEREAS, the Fund desires to retain MSAM to render certain management,
administrative, transfer agency, dividend disbursing and other services to the
Fund, and MSAM is willing to render such services;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints MSAM to act as administrator to the Fund for
the period and on the terms set forth in this Agreement. In connection
therewith, MSAM accepts such appointment and agrees to render the services and
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation herein provided. The parties hereto agree that MSAM may render and
provide the services described herein directly or through the services of third
parties. In connection with such appointment, the Fund will deliver to MSAM
copies of each of the following documents and will deliver to it all future
amendments and supplements, if any:
A. Certified copies of the Articles of Incorporation of the Fund as
presently in effect and as amended from time to time;
B. A certified copy of the Fund's By-Laws as presently in effect as
amended from time to time;
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C. A copy of the resolution of the Fund's Board of Directors
authorizing this Agreement;
D. Specimens of all forms of outstanding and new stock certificates
in the forms approved from time to time by the Board of Directors of the Fund
with a certificate of the Secretary of the Fund as to such approval;
E. The Fund's registration statement on Form N-1A as filed with, and
declared effective by, the U.S. Securities and Exchange Commission, and all
amendments thereto;
F. Each resolution of the Board of Directors of the Fund authorizing
the original issue of its shares.
G. Certified copies of the resolutions of the Fund's Board of
Directors authorizing: (1) certain persons to give instructions to the Fund's
Custodian pursuant to the Corporate Custody Agreement and (2) certain persons to
sign checks and pay expenses on behalf of the Fund.
H. A copy of the Investment Advisory Agreement dated October 1, 1988
between the Fund and Morgan Stanley Asset Management Inc.
I. A copy of the Corporate Custody Agreement dated October 1, 1988
between the Fund and The Morgan Guaranty Trust Company of New York.
J. Such other certificates, documents or opinions which MSAM may, In
its reasonable discretion, deem necessary or appropriate in the proper
performance of its duties.
2. REPRESENTATION AND WARRANTIES OF MSAM
MSAM represents and warrants to the Fund that:
A. It is a corporation, duly organized and existing in good standing
under the laws of Delaware.
B. It is duly qualified to carry on its business in the State of New
York.
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C. It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform the services contemplated in
this Agreement.
D. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
E. It has and will continue to have and maintain, directly or
through third parties, the necessary facilities, equipment and personnel to
perform its duties and obligations under this Agreement.
3. AUTHORIZED SHARES
The Fund certifies to MSAM that as of the close of business on the
date of this Agreement, the Fund is authorized to issue 2,500,000,000 shares of
common stock ("shares"), $0.001 par value, and that the Board of Directors has
the power to classify or reclassify unissued shares of stock, from time to time,
into one or more classes ("Portfolios") of shares, and that it would initially
offer shares of three Portfolios (the Money Market Portfolio, the Municipal
Money Market Portfolio and the Emerging Growth Portfolio).
4. SERVICES PROVIDED BY MSAM
MSAM shall discharge, directly or through third parties, the following
responsibilities subject to the control of the Fund's Board of Directors, and in
compliance with the objectives, policies and limitations set forth in the Fund's
registration statement, By-Laws and applicable laws and regulations.
A. GENERAL ADMINISTRATION. Under the direction of the Fund's Board
of Directors, MSAM shall manage, administer, and conduct all of the general
business activities of the Fund other than those which have been contracted to
third parties by the Fund. MSAM shall, directly or through third parties,
provide the personnel and facilities necessary to perform such general business
activities under the supervision of the Fund's Board of Directors and Executive
Officers.
B. ACCOUNTING. MSAM shall, directly or through third parties,
provide the following accounting services to the Fund:
3
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1) Maintenance of the books and records and accounting controls for
the Fund's assets, including records of all securities transactions;
2) Daily calculation of the net asset value for each of the Fund's
Portfolios;
3) Accounting for dividends and interest received and distributions
made by each of the Fund's Portfolios;
4) Preparation and filing of the Fund's U.S. tax returns and annual
and semi-annual reports on Form N-SAR;
5) The production of transaction data, financial reports and such
other periodic and special reports as the Board of Directors of the
Fund may reasonably request;
6) The preparation of financial statements for the annual and semi-
annual reports and other shareholder communications;
7) Liaison with the Fund's independent auditors;
8) Monitoring and administration of arrangements with the Fund's
custodian and depository banks; and
9) Maintenance of (but not the payment for) the Fidelity Bond
required to be maintained under the 1940 Act and preparation of the
filings required in connection therewith.
C. TRANSFER AGENT. The Fund hereby directs MSAM to be responsible
for the appointment of Transfer Agent for the Fund and MSAM agrees to act in
such capacity. In connection with such appointment, the transfer agent shall:
1) Maintain records showing for each Fund shareholder the following:
a) Name, address and tax identifying number (if applicable);
b) Number of shares of the Portfolio of the Fund held;
c) Historical information including dividends paid and date and
price of all transactions including individual purchases and
redemptions; and
4
<PAGE>
d) Any dividend reinvestment order, application, dividend
address and correspondence relating to the current maintenance of
the account;
2) Record the issuance of shares of common stock of each Portfolio
of the Fund and shall notify the Fund in case any proposed issue of
shares by the Fund shall result in an over-issue as identified by
Section 8-104(2) of the Uniform Commercial Code and in case any issue
would result in such an over-issue, shall refuse to countersign and
issue, and/or credit, said shares. Except as specifically agreed in
writing, MSAM and any transfer agent appointed by MSAM shall have no
obligation when countersigning and issuing and/or crediting shares, to
take cognizance of any other laws relating to the issue and sale of
such shares except insofar as policies and procedures of the Stock
Transfer Association recognize such laws.
3) Process all orders for the purchase of shares of each Portfolio
of the Fund in accordance with the Fund's current registration
statement. Upon receipt of any check or other payment for purchase of
shares of the Fund from an investor, the transfer agent will (i) stamp
the order with the date of receipt, (ii) determine the amounts thereof
due the Fund, and notify the Fund of such determination and deposit,
such notification to be given on a daily basis of the total amounts
determined and deposited to said account during such day. The
transfer agent shall then credit the share account of the investor
with the number of shares to be purchased according to the price of
the Portfolio's shares in effect for purchases made on the date such
payment is received as set north in the Fund's current prospectus and
shall promptly mail a confirmation of said purchase to the investor,
all subject to any instructions which the Fund may give to MSAM or the
transfer agent with respect to the timing or manner of acceptance of
orders for shares relating to payments so received by it.
4) Receive and stamp with the date of receipt all requests for
redemptions of shares held in certificate or non-certificate form, and
shall process said redemptions requests as follows:
a) If such certificate or redemption request complies with the
applicable standards approved by the Fund, MSAM or the transfer
agent shall on each business day notify the Fund of the total
5
<PAGE>
number of shares presented and covered by such requests received
by MSAM or the transfer agent on such day;
b) On or prior to the seventh calendar day succeeding any such
request for redemption, MSAM or the transfer agent shall notify
the Custodian, subject to instructions from the Fund, to transfer
monies to such account as designated by MSAM or the transfer
agent for such payment to the redeeming shareholder of the
applicable redemption or repurchase price.
c) If any such certificate or request for redemption does not
comply with applicable standards, MSAM or the transfer agent
shall promptly notify the investor of such fact, together with
the reason therefore, and shall effect such redemption at the
Portfolio's price next determined after receipt of documents
complying with said standards or, at such other time as the Fund
shall so direct;
5) Acknowledge all correspondence from shareholders relating to
their share accounts and undertake such other shareholder
correspondence as may from time to time be mutually agreed upon;
6) Process redemptions, exchanges and transfers of Fund shares upon
telephone instructions from qualified shareholders in accordance with
the procedures set forth in the Fund's current prospectus. MSAM and
any transfer agent appointed by MSAM shall be permitted to act upon
the instruction of any person by telephone to redeem, exchange and/or
transfer Fund shares from any account for which such services have
been authorized. In accordance with Section 7 herein, the Fund hereby
agrees to indemnify and hold MSAM and any transfer agent appointed by
MSAM harmless against all losses, costs or expenses, including
attorney fees, suffered or incurred by MSAM and any transfer agent
appointed by MSAM directly or indirectly as a result of (i) taping the
telephone conversation of any shareholder, or (ii) relying on the
telephone instructions of any person acting on behalf of a shareholder
account for which telephone services have been authorized.
D. RECORDING OF TRANSFER. A transfer agent duly appointed by MSAM
is authorized to transfer on the records of the Fund maintained by it, shares
represented by certificates, as well as issued shares held in non-certificate
form, upon the surrender to it of the certificate or in the case of non-
certificated shares, comparable transfer documents in proper form for transfer,
and upon cancellation thereof to countersign
6
<PAGE>
and issue new certificates or other document of ownership for a like amount of
stock and to deliver the same pursuant to the transfer instructions.
E. STOCK CERTIFICATES. The Fund shall supply any transfer agent
appointed by MSAM with a sufficient supply of continuous form blank stock
certificates for each of the Fund's Portfolios and from time to time shall renew
such supply upon request of MSAM or such transfer agent. Such blank stock
certificates shall be properly signed, manually or facsimile, as authorized by
the Fund, and shall bear the Fund's seal or facsimile thereof; and
notwithstanding the death, resignation or removal of any officers of the Fund
authorized to sign certificates of stock, the transfer agent may, until
otherwise directed by the Fund or MSAM, continue to countersign certificates
which bear the manual or facsimile signature of such officer.
F. ISSUE OF SHARE CERTIFICATES. If a shareholder of any Portfolio
of the Fund requests a certificate representing his shares, the transfer agent,
will countersign and mail by first class mail, a share certificate to the
investor at his address as set forth on the transfer books of the Fund.
G. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned unpaid for any reason, MSAM or a third party
appointed by MSAM will take such steps, including redepositing said check for
collection or returning said check to the investor, as MSAM or a third party
appointed by MSAM may, at its discretion, deem appropriate, or as the Fund may
instruct.
H. DIVIDEND TAX REPORTING AND WITHHOLDING. MSAM or a third party
appointed by MSAM will prepare, file with the Internal Revenue Service and mail
to shareholders such returns for reporting payment of dividends and
distributions as are required by applicable laws to be so filed and/or mailed
and MSAM or a third party appointed by MSAM shall withhold such sums as are
required to be withheld under applicable Federal income tax laws, rules and
regulations.
I. PROXIES. MSAM or a third party appointed by MSAM shall mail
proxy statements, proxy cards and other materials supplied to it by the Fund and
shall receive, examine and tabulate returned proxies. MSAM or a third party
appointed by MSAM shall make interim reports of the status of such tabulation to
the Fund upon request, and shall certify the final results of the tabulation.
J. DIVIDEND DISBURSING. MSAM or a third party appointed by MSAM
shall act as Dividend Disbursing Agent for the Fund and each of its Portfolios,
and, as such, shall prepare and mail checks or credit income and capital gain
payments to shareholders. The Fund shall advise MSAM or a third party appointed
by MSAM
7
<PAGE>
of the declaration of any dividend or distribution and the record and payable
date thereof at least five (5) days prior to the record date. MSAM or a third
party appointed by MSAM shall, on or before the payment date of any such
dividend or distribution, notify the Fund's Custodian of the estimated amount
required to pay any portion of said dividend or distribution which is payable in
cash, and on or before the payment date of such distribution, the Fund shall
instruct its Custodian to make available to MSAM or a third party appointed by
MSAM sufficient funds for the cash amount to be paid out. If a shareholder is
entitled to receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to his account and/or certificates
delivered where requested. A shareholder not electing issuance of certificates
will receive a confirmation from MSAM or a third party appointed by MSAM
indicating the number of shares credited to his account as a result of the
reinvested dividend or distribution.
K. OTHER INFORMATION. MSAM shall, directly or through third
parties, furnish for the Fund such other information as is required by law,
including but not limited to shareholder lists, and such statistical information
as may be reasonably requested by the Fund.
5. SERVICES TO BE OBTAINED INDEPENDENTLY BY THE FUND
The following shall be provided at no expense to MSAM hereunder:
A. Organizational expenses;
B. Services of an independent accountant;
C. Services of outside legal counsel (including such counsel's
review of the Fund's registration statement, proxy materials and other reports
and materials prepared by MSAM directly or through third parties under this
Agreement);
D. Any services contracted for by the Fund directly from parties
other than MSAM;
E. Trading operations and brokerage fees, commissions and transfer
taxes in connection with the purchase and sale of securities for its investment
portfolio;
F. Taxes, insurance premiums and other fees and expenses applicable
to it operation;
8
<PAGE>
G. Investment advisory services;
H. Costs incidental to any meetings of shareholders including, but
not limited to, legal and accounting fees, proxy filing fees and the
preparation, printing and mailing of any proxy materials;
I. Costs incidental to Directors' meetings, including fees and
expenses of Directors;
J. The salary and expenses of any officer or employee of the Fund;
K. Custodian and depository banks, and all services related thereto;
L. Costs incidental to the preparation, printing and distribution of
its registration statement and any amendments thereto, and shareholder reports;
M. All registration fees and filing fees required under the
securities laws of the United States and state regulatory authorities;
N. Fidelity bond and Director's and Officers' liability insurance.
6. PRICES, CHARGES AND INSTRUCTIONS
A. The Fund will pay to MSAM, as compensation for the services
provided and the expenses assumed pursuant to this Agreement, as agreed to in a
written fee schedule approved by the parties hereto (see Schedule A). In
addition, MSAM, or third parties providing such services for the benefit of the
Fund through arrangements with MSAM shall be reimbursed for the cost of any and
all forms, including blank checks and proxies, used by it in communicating with
shareholders of the Fund, or especially prepared for use in connection with its
obligations hereunder, as well as the cost of postage, telephone, telex and
telecopy used in communicating with shareholders of the Fund and microfilm used
each year to record the previous year's transactions in shareholder accounts and
computer tapes used for permanent storage of records, permanent storage costs
for hard copy Fund records and cost of insertion of materials in mailing
envelopes by outside firms. Prior to ordering any forms in such supply as it
estimates will be adequate for more than two years' use, MSAM or any third party
appointed by MSAM shall obtain the written consent of the Fund. All forms for
which MSAM or any third party appointed by MSAM has received reimbursement from
the Fund shall be and remain the property of the Fund until used.
9
<PAGE>
B. At any time MSAM, and third parties providing such services for
the benefit of the Fund through arrangements with MSAM may apply to any officer
of the Fund or officer of the Fund's investment adviser for instructions, and
may consult with legal counsel for the Fund, or its own outside legal counsel,
at the expense of the Fund, with respect to any matter arising in connection
with the services to be performed by MSAM or any third party appointed by MSAM
under this Agreement and MSAM and such third parties shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in good
faith in reliance upon such instructions. In carrying out its duties hereunder,
MSAM and such third parties shall be protected and indemnified in acting upon
any paper or document believed by it to be genuine and to have been signed by
the proper person or persons and shall not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from the
Fund. MSAM shall also be protected and indemnified, except where a stop order
is in effect, in recognizing stock certificates which MSAM reasonably believes
to bear the proper manual or facsimile signature of the officers of the Fund,
and the proper counter-signatures of any former transfer agent.
7. LIMITATION OF LIABILITY AND INDEMNIFICATION
A. MSAM shall be responsible hereunder for the performance of only
such duties as are set forth or contemplated herein or contained in instructions
given to it which are not contrary to this Agreement. MSAM shall have no
liability for any loss or damage resulting from the performance or non-
performance of its duties hereunder unless solely caused by or resulting from
the gross negligence or willful misconduct of MSAM, its officers and employees.
B. The Fund shall indemnify and hold MSAM, and third parties
providing services for the benefit of the Fund through arrangements with MSAM,
harmless from all loss, cost, damage and expense, including reasonable expenses
for counsel, incurred by such person resulting from any claim, demand, action or
omission by it in the performance of its duties hereunder or under such
arrangements with MSAM, or as a result of acting upon any instructions
reasonably believed by any such person to have been executed by a duly
authorized officer of the Fund or of the Fund's investment advisers, provided
that this indemnification shall not apply to actions or omissions of MSAM, its
officers, employees or agents in cases of its or their own gross negligence or
willful misconduct.
C. The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above, but, if the
Fund elects to
10
<PAGE>
assume the defense, such defense shall be conducted by counsel chosen by the
Fund. In the event the Fund elects to assume the defense of any such suit and
retain such counsel, MSAM or any of its affiliated persons or any third parties
providing services for the benefit of the Fund through arrangements with MSAM,
named as defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless at such time the Fund
specifically authorizes in writing the retaining of such counsel at the Fund's
expense.
D. No provisions of this Agreement shall be deemed to protect MSAM
or any of its directors, officers and/or employees, against liability to the
Fund or its shareholders to which it might otherwise be subject by reason of any
fraud, willful misfeasance or gross negligence in the performance of its duties
or the reckless disregard of its obligations under this Agreement.
8. CONFIDENTIALITY
MSAM agrees that, except as otherwise required by law or as necessary
in accordance with this Agreement, MSAM will keep confidential all records and
information in its possession relating to the Fund or its shareholders or
shareholder accounts and will not disclose the same to any person except at the
request or with the written consent of the Fund.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
The Fund assumes full responsibility hereunder for complying with all
applicable requirements of the Securities Act of 1933, the Investment Company
Act of 1940 and the Securities Exchange Act of 1934, all as amended, and any
laws, rules and regulations of governmental authorities having jurisdiction,
except to the extent that MSAM specifically assumes any such obligations under
the terms of this Agreement.
MSAM shall, directly or through third parties, maintain and preserve
for the periods prescribed, such records relating to the services to be
performed by MSAM under this Agreement as are required pursuant to the
Investment Company Act of 1940 and the Securities Exchange Act of 1934. All
such records shall at all times remain the respective properties of the Fund,
shall be readily accessible during normal business hours to each, and shall be
promptly surrendered upon the termination of this Agreement or otherwise on
written request. Records shall be surrendered in usable machine readable form.
11
<PAGE>
10. STATUS OF MSAM
The services of MSAM to the Fund are not to be deemed exclusive, and
MSAM shall be free to render similar services to others. MSAM shall be deemed
to be an independent contractor hereunder and shall, unless otherwise expressly
provided herein or authorized by the Fund from time to time, have no authority
to act or represent the Fund in any way or otherwise be deemed an agent of the
Fund with respect to this Agreement.
11. PRINTED MATTER CONCERNING THE FUND OR MSAM
Neither the Fund nor MSAM shall, with respect to this Agreement,
publish and circulate any printed matter which contains any reference to the
other party without its prior written approval, excepting such printed matter as
refers in accurate terms to MSAM's appointment under this Agreement and except
as required by applicable laws.
12. TERM, AMENDMENT AND TERMINATION
This Agreement may be modified or amended from time to time by mutual
agreement between the parties hereto. The Agreement shall remain in effect for
a period of one year from the date the Fund's registration statement on file
with the U.S. Securities and Exchange Commission becomes effective and shall
automatically continue in effect thereafter unless terminated by either party at
the end of such period or thereafter on one 60 days' prior written notice. Upon
termination of the Agreement, the Fund shall pay to MSAM such compensation as
may be due under the terms hereof as of the date of such termination. If,
during the initial one year period, either of the parties hereto shall be in
default in the performance of any of its duties and obligations hereunder (the
defaulting party), the other party hereto may give written notice to the
defaulting party and if such default shall not have been remedied within 30 days
after such written notice is given, then the party giving such notice may
terminate this Agreement by 90 days' written notice of such termination to the
defaulting party, but such termination shall not affect any rights or
obligations of either party arising from or relating to such default under the
terms hereof.
13. NOTICES
12
<PAGE>
Any notice or other communication authorized or required by this
Agreement to be given to any party mentioned herein shall be sufficiently given
if addressed to such party and mailed postage prepaid or delivered to its
principal office.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by any of the parties hereto
without the prior consent in writing of the other party.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Fund and MSAM, and their respective successors.
16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the day and year first above written.
ATTEST: MORGAN STANLEY
INSTITUTIONAL FUND, INC.
By:
----------------------- --------------------------
Kathryn R. McKenna Stephen Brent Wells
Assistant Secretary President
ATTEST: MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
----------------------- --------------------------
Kathryn R. McKenna Stephen Brent Wells
Assistant Secretary Principal
14
<PAGE>
SCHEDULE A
TO
MSAM ADMINISTRATION AGREEMENT DATED AS OF OCTOBER 1, 1988
MORGAN STANLEY INSTITUTIONAL FUND, INC.
and
MORGAN STANLEY ASSET MANAGEMENT INC.
FEE SCHEDULE
For the services provided and the expenses assumed pursuant to the attached
Morgan Stanley Asset Management Inc. Administration Agreement, the Morgan
Stanley Institutional Fund, Inc. shall pay to Morgan Stanley Asset Management
Inc. an annual fee, in monthly installments, of .20% of the average daily net
assets of the Emerging Growth Portfolio and .15% of the average daily net assets
of each of the Money Market and Municipal Money Market Portfolios. This fee is
allocated to each Portfolio based on the relative net assets of each, provided,
however, that the annual fee payable in respect of the Money Market Portfolio
will be reduced to the extent that the Portfolio's annual operating expense
ratio would exceed .55% of the aggregate net assets of such Portfolio.
<PAGE>
SCHEDULE A
TO
MSAM ADMINISTRATION AGREEMENT DATED AS OF OCTOBER 1, 1988
between
MORGAN STANLEY INSTITUTIONAL FUND, INC.
and
MORGAN STANLEY ASSET MANAGEMENT INC.
AS AMENDED AS OF JANUARY 25, 1990
FEE SCHEDULE
For the services provided and the expenses assumed pursuant to the attached
Morgan Stanley Asset Management Inc. Administration Agreement, the Morgan
Stanley Institutional Fund, Inc. (the "Fund") shall pay to Morgan Stanley Asset
Management Inc. an annual fee, in monthly installments, of .15% of the average
daily net assets of each Portfolio of the Fund. This fee is allocated to each
portfolio based on the relative net assets of each.
<PAGE>
Exhibit 9(b)
U.S. TRUST ADMINISTRATION AGREEMENT
THIS AGREEMENT made as of February 24, 1992 by and between Morgan
Stanley Asset Management Inc., a Delaware corporation ("MSAM"), and United
States Trust Company of New York, a New York State chartered bank and trust
company (the "Administrator").
W I T N E S S E T H:
WHEREAS, The Morgan Stanley Institutional Fund, Inc. (the "Fund") is
registered as a no-load, diversified, open-end, management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") and
currently consists of eleven separate operating portfolios; and
WHEREAS, MSAM is responsible for the provision of certain transfer
agent, fund accounting and administration services to the Fund pursuant to the
Agreement between MSAM and the Fund dated as of October 1, 1988 (the "MSAM
Administration Agreement"); and
WHEREAS, MSAM wishes to retain the Administrator to provide certain
transfer agent, fund accounting and administration services with respect to the
Fund, and the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT AND DELEGATION. (a) MSAM hereby appoints the
Administrator to provide transfer agent, fund accounting and fund administration
services for MSAM for the benefit of the Fund, subject to the supervision of
MSAM and the Board of Directors of the Fund (the "Board"), for the period and on
the terms set forth in this Agreement. The Administrator accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 4 of this Agreement. In the event
that the Fund establishes one or more additional portfolios with respect to
which MSAM decides to retain the Administrator to act as administrator
hereunder, MSAM shall notify the Administrator in writing. If the Administrator
is willing to render such services to a new portfolio, they shall so notify MSAM
in writing whereupon such portfolio shall become subject to the provisions of
this Agreement to the same extent as the existing portfolios of the Fund, except
to the extent that said provisions (including those relating to the compensation
payable by MSAM) may be modified with respect to such portfolio in writing by
MSAM and
<PAGE>
the Administrator at the time of the addition of such new portfolio.
(b) The Administrator is hereby authorized to use the services
of its wholly-owned subsidiary, Mutual Fund Services Company ("MFSC"), to
perform any of the functions provided for hereunder; provided that such use
shall in no way limit the Administrator's contractual rights and
obligations hereunder. References to "the Administrator" hereunder shall
be deemed to include MFSC.
2. DELIVERY OF DOCUMENTS. The Fund has furnished the Administrator
with copies, properly certified or authenticated, of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Administrator to provide certain transfer agency, fund
accounting and administration services to the Fund and approving this
Agreement;
(b) The Fund's Articles of Incorporation ("Charter");
(c) The Fund's Bylaws ("Bylaws");
(d) The Fund's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's current Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and the 1940
Act, as filed with the SEC; and
(f) The Fund's most recent Prospectus and Statement of
Additional Information and all amendments and supplements thereto (such
Prospectus and Statement of Additional Information and supplements thereto,
as presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectus").
MSAM will timely furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. SERVICES PROVIDED BY THE ADMINISTRATOR. The Administrator shall
discharge the following responsibilities subject to the control of MSAM and the
Fund's Board of Directors, and in compliance with the objectives, policies and
limitations set forth in the Fund's Registration Statement, By Laws and
applicable laws and regulations.
- 2 -
<PAGE>
A. GENERAL ADMINISTRATION. Under the direction of MSAM and the
Fund's Board of Directors, the Administrator shall manage, administer,
and conduct the general business activities of the Fund other than
those which have been contracted to third parties by the Fund. The
Administrator shall provide the personnel and facilities necessary to
perform such general business activities under the supervision of MSAM
and the Fund's Board of Directors and Executive Officers. A detailed
description of these services is included in Attachment B of this
Agreement.
B. FUND ACCOUNTING. The Administrator shall provide the following
accounting services to the Fund:
1) Maintenance of the books and records and accounting controls
for the Fund's assets, including records of all securities
transactions;
2) Calculation and transmission of the Fund's Net Asset Value
to the NASD source for publication of prices in accordance with the
prospectus and to such other entities as directed by MSAM;
3) Accounting for dividends and interest received and
distributions made by the Fund;
4) Preparation and filing of the Fund's tax returns and Semi-
Annual Reports on Form N-SAR;
5) Production of transaction data, financial reports and such
other periodic and special reports as the Board of Directors of the
Fund may reasonably request;
6) The preparation of financial statements for the semi-annual
and annual reports and other shareholder communications;
7) Liaison with the Fund's independent auditors; and
8) Monitoring and administration of arrangements with the
Fund's custodian and depository banks. A complete listing of reports
that will be available to the Fund is included in Attachment C of this
Agreement.
C. TRANSFER AGENT. MSAM on behalf of the Fund hereby appoints the
Administrator as Transfer Agent for the Fund and the Administrator
agrees to act in such capacity. In connection with such appointment,
the Administrator shall:
- 3 -
<PAGE>
1) Maintain records showing for each Fund shareholder the
following: a) Name, address and tax identifying number; b) Number of
shares of each portfolio of the Fund; c) Historical information
including, but not limited to, dividends paid and date and price of
all transactions including individual purchases and redemptions; and
d) Any dividend reinvestment order, application, dividend address and
correspondence relating to the current maintenance of the account;
2) Record the issuance of shares of common stock of each
Portfolio of the Fund and shall notify the Fund in case any proposed
issue of shares by the Fund shall result in an over-issue as
identified by Section 8-104(2) of the Uniform Commercial Code and in
case any issue would result in such an over-issue, shall refuse to
countersign and issue, and/or credit, said shares. Except as
specifically agreed in writing between the Administrator and the Fund,
the Administrator shall have no obligation when countersigning and
issuing and/or crediting shares to take cognizance of any other laws
relating to the issue and sale of such shares except insofar as
policies and procedures of the Stock Transfer Association recognize
such laws;
3) Process all orders for the purchase of shares of the Fund in
accordance with the Fund's current registration statement. Upon
receipt of any check or other payment for purchase of shares of the
Fund from an investor, it will (i) stamp the envelope with the date of
receipt, (ii) forthwith process the same for collection, (iii)
determine the amounts thereof due the Fund, and notify the Fund of
such determination and deposit, such notification to be given on a
daily basis of the total amounts determined and deposited to the
Fund's custodian bank account during such day. The Administrator
shall then credit the share account of the investor with the number of
shares to be purchased according to the price of the Fund's shares in
effect for purchases made on the date such payment is received by the
Administrator, as set forth in the Fund's current prospectus and shall
promptly mail a confirmation of said purchase to the investor, all
subject to any instructions which the Fund may give to the
Administrator with respect to the timing or manner of acceptance of
orders for shares relating to payments so received by it;
4) Receive and stamp with the date of receipt all requests for
redemptions or repurchase of shares held in certificate or non-
certificate form and shall
- 4 -
<PAGE>
process redemptions and repurchase requests as follows: If such
certificate or redemption request complies with the applicable
standards approved by the Fund, the Administrator shall on each
business day notify the Fund of the total number of shares presented
and covered by such requests received by the Administrator on such
day; b) On or prior to the seventh calendar day succeeding any such
request for redemption, the Administrator shall notify the Custodian,
subject to instructions from the Fund, to transfer monies to such
account as designated by the Administrator for such payment to the
redeeming shareholder of the applicable redemption or repurchase
price; c) If any such certificate or request for redemption or
repurchase does not comply with applicable standards, the
Administrator shall promptly notify the investor of such fact,
together with the reason therefor, and shall effect such redemption at
the Fund's price next determined after receipt of documents complying
with said standards or, at such other time as the Fund shall so
direct;
5) Acknowledge all correspondence from shareholders relating to
their share accounts and undertake such other shareholder
correspondence as may from time to time be mutually agreed upon;
6) Process redemptions, exchanges and transfers of Fund shares
upon telephone instructions from qualified shareholders in accordance
with the procedures set forth in the Fund's current prospectus. The
Administrator shall be permitted to act upon the instruction of any
person by telephone to redeem, exchange and/or transfer Fund shares
from any account for which such services have been authorized;
In accordance with this Agreement, the Fund hereby agrees to
indemnify and hold the Administrator harmless against all losses,
costs or expenses, including attorney fees and expenses, suffered or
incurred by the Administrator directly or indirectly as a result of:
(i) taping the telephone conversation of any shareholder; or (ii)
relying on the telephone instructions of any person acting on behalf
of a shareholder account for which telephone services have been
authorized.
D. RECORDING OF TRANSFER. The Administrator is authorized to
transfer on the records of the Fund maintained by it, shares
represented by certificates, as well as issued shares held in non-
certificate form, upon the surrender to it of the certificate or in
the
- 5 -
<PAGE>
case of non-certificated shares, comparable transfer documents in
proper form for transfer, and upon cancellation thereof to countersign
and issue new Certificates or other document of ownership for a like
amount of stock and to deliver the same pursuant to the transfer
instructions.
E. STOCK CERTIFICATES. The Fund shall supply the Administrator with
a sufficient supply of blank stock certificates and from time to time
shall renew such supply upon request of the Administrator. Such blank
stock certificates shall be properly signed, manually or by facsimile,
as authorized by the Fund, and shall bear the Fund's corporate seal or
facsimile thereof; and notwithstanding the death, resignation or
removal of any officers of the Fund authorized to sign certificates of
stock, the Administrator may, until otherwise directed by the Fund,
continue to countersign certificates which bear the manual or
facsimile signature of such officer.
F. ISSUE OF SHARE CERTIFICATES. If a shareholder of the Fund
requests a certificate representing his shares, the Administrator as
Transfer Agent, will countersign and mail by first class mail, a share
certificate to the investor at his address as set forth on the
transfer books of the Fund.
G. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned unpaid for any reason, the
Administrator will take such steps, including redepositing said check
for collection or returning said check to the investor, as the
Administrator may, at its discretion, deem appropriate, or as the Fund
may instruct.
H. DIVIDEND TAX REPORTING AND WITHHOLDING. The Administrator will
prepare, file with the Internal Revenue Service and mail to
shareholders such returns for reporting payment of dividends and
distributions as are required by applicable laws to be so filed and/or
mailed and the Administrator shall withhold such sums as are required
to be withheld under applicable Federal income tax laws, rules and
regulations.
I. PROXIES. The Administrator shall mail proxy statements, proxy
cards and other materials supplied to it by the Fund and shall
receive, examine and tabulate returned proxies. The Administrator
shall make interim reports of the status of such tabulation to the
Fund upon request, and shall certify the final results of the
tabulation.
- 6 -
<PAGE>
J. DIVIDEND DISBURSING. The Administrator shall act as Dividend
Disbursing Agent for the Fund, and, as such, shall prepare and mail
checks or credit income and capital gain payments to shareholders.
The Fund shall advise the Administrator of the declaration of any
dividend or distribution and the record and payable date thereof at
least five (5) days prior to the record date. The Administrator
shall, on or before the payment date of any such dividend or
distribution, notify the Fund's Custodian of the estimated amount
required to pay any portion of said dividend or distribution which is
payable in cash, and on or before the payment date of such
distribution, the Fund shall instruct its Custodian to make available
to the Administrator sufficient funds for the cash amount to be paid
out. If a shareholder is entitled to receive additional shares by
virtue of any such distribution or dividend, appropriate credits will
be made to his account and/or certificates delivered where requested
and authorized by the Fund. A shareholder not electing issuance of
certificates will receive a confirmation from the Administrator
indicating the number of shares credited to his account.
The Administrator will also:
(a) Provide office facilities (which may be in the offices of
the Administrator or a corporate affiliate of them, but shall be in such
location as the Fund shall reasonably approve) and the services of a
principal financial officer to be appointed by the Fund;
(b) Furnish statistical and research data, clerical services,
and stationery and office supplies;
(c) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such
developments, counsel and assist the Fund in routine regulatory
examinations or investigations of the Fund, and work with outside counsel
to the Fund in connection with regulatory matters or litigation.
In performing its duties as administrator of the Fund, the
Administrator (a) will act in accordance with the Fund's Articles of
Incorporation, Bylaws, Prospectus, Statement of Additional Information and the
instructions and directions of the Fund's Board of Directors and will conform
to, and comply with, the requirements of the 1940 Act and all other applicable
Federal or state laws and regulations, and (b) will consult with outside legal
counsel to the Fund, as necessary or appropriate.
- 7 -
<PAGE>
The Administrator will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrator further agrees that all such records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
4. FEES; EXPENSES; EXPENSE REIMBURSEMENT. For the services rendered
pursuant to this Agreement for the Fund, the Administrator shall be entitled to
a fee based on the average net assets of the Fund determined at the annual rate
outlined in Attachment A of this Agreement and applied to the average daily net
assets of the Fund. Such fees are to be computed daily and paid monthly within
the first fifteen days of the following month. Upon any termination of this
Agreement before the end of any month, the fee for such part of the month shall
be prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Administrator, the
value of the Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles and resolutions of the Fund's Board of
Directors.
The Administrator will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrator and the Fund.
The compensation of such person or persons for such employment shall be paid by
the Administrator and no obligation may be incurred on behalf of the Fund in
such respect.
The Administrator will bear all expenses in connection with the
performance of its services under this Agreement except as otherwise expressly
provided herein. Other expenses to be incurred in the operation of the Fund,
including taxes, interest, brokerage fees and commissions, if any, salaries and
fees of officers and Directors who are not officers, directors, shareholders or
employees of the Administrator, or the Fund's investment adviser or distributor
for the Fund, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory and administration fees, charges of custodians,
certain insurance premiums including fidelity bond premiums, outside auditing
and legal expenses, costs of maintenance of corporate existence, typesetting and
printing of prospectuses for regulatory purposes and for distribution to current
shareholders of the Fund, costs of shareholders' reports and corporate
- 8 -
<PAGE>
meetings and any extraordinary expenses, will be borne by the Fund, provided,
however, that, except as provided in any distribution plan adopted by the Fund,
the Fund will not bear, directly or indirectly, the cost of any activity which
is primarily intended to result in the distribution of shares of the Fund, and
further provided that the Administrator may utilize one or more independent
pricing services, approved from time to time by the Board of Directors of the
Fund, to obtain securities prices in connection with determining the net asset
value of the Fund. The Fund will reimburse the Administrator for its share of
the cost of such services based upon its actual use of the services.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator
agrees on behalf of itself and its employees to treat confidentially and as
proprietary information of the Fund all records and other information relative
to the Fund's prior, present or potential shareholders, and not to use such
records and information for any purpose other than performance of their
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where the Administrator may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
6. LIMITATION OF LIABILITY. The Administrator shall not be liable
for any error of judgement or mistake of law or for any loss or expense suffered
by the Fund, in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
7. TERM. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. The Agreement shall
continue in effect unless terminated by either party on 90 days' prior written
notice. Notwithstanding anything in this Agreement to the contrary, this
Agreement shall terminate on the termination of the MSAM Administration
Agreement. Upon termination of the Agreement, MSAM shall pay to the
Administrator such compensation as may be due under the terms hereof as of the
date of such termination. This Agreement shall automatically terminate upon
its assignment by the Administrator without the prior written consent of MSAM,
provided, however, that no such assignment shall release the Administrator from
its obligations under this Agreement.
8. HIRING OF EMPLOYEES. The Fund and the Administrator agree that
they will not enter into discussions of
- 9 -
<PAGE>
employment or make offers of employment to each others' employees without
written approval from the other.
9. GOVERNING LAW. This Agreement shall be governed by New York law.
10. AMENDMENTS. No provision of this Agreement may be changed,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought.
11. MISCELLANEOUS. The parties to this Agreement acknowledge and
agree that all liabilities arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, including without limitation,
liabilities arising in connection with any agreement of the Fund set forth
herein to indemnify any party to this Agreement or any other person, shall be
satisfied out of the assets of the Fund and that no Director, officer or
shareholder of the Fund shall be personally liable for any of the foregoing
liabilities.
If a change or discharge is sought against the Fund, the instrument
must be signed by the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date indicated below.
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By: ______________________________
Title:
- 10 -
<PAGE>
ATTACHMENT A: FEE SCHEDULE
FUND ADMINISTRATION:
This fee includes compliance, regulatory and financial reporting, fund
accounting and pricing, and legal support.
10 Basis Points on first $1 Billion in assets
4 Basis Points on assets above $1 Billion
The following exceptions apply:
The Money Market Portfolio annual fee is capped at 8 Basis Points.
The Municipal Money Market Portfolio annual fee is capped at 10 Basis
Points.
The Emerging Growth Portfolio annual fee is capped at 15 Basis Points.
The following schedule applies for new portfolios within the MSAM
Institutional Fund:
- 4 Basis Points for first 6 months.
- 4 Basis Points or $12,500, whichever is greater for next 6 month
period.
- 4 Basis Points or $50,000 per year, whichever is greater after 12
months.
All of the above Basis Point fees are calculated on the average daily net
assets of the Fund.
The above fee schedule will remain in effect until modified in writing by
mutual written agreement of the Fund and the Administrator.
- 1 -
<PAGE>
Transfer Agency and Shareholder Servicing
There will be an annual account maintenance fee of $12 per "Sweep"
shareholder account.
There will be an annual account maintenance fee for each "regular", i.e.
non-Sweep, shareholder account as determined by the schedule below.
Money Market Portfolio $18. per account
Municipal Money Market Portfolio 18.
International Equity 15.
Emerging Growth Portfolio 16.
Value Equity Portfolio 15.
Balanced Portfolio 15.
Equity Growth 15.
Global Fixed Income Portfolio 15.
Fixed Income Portfolio 16.
Asian Equity 15.
Active Country Allocation 15.
In addition to the annual shareholder maintenance fees, the Fund will be billed
for standard out-of-pocket expenses as they relate to "regular" accounts, i.e.,
non-Sweep accounts. These expenses include but are not limited to the cost of
forms, statement forms, confirmations, envelopes, postage, special delivery mail
service, special handling for mailings, data communication lines, securities
pricing services, including backup pricing services, and corporate action
services.
The Fund Accounting System will be available 24 hours every business day for
system access by MSAM personnel except during those times when normal and
routine system maintenance and backup is being performed and when MFSC's fund
accounting personnel are performing accounting for the Fund on the System.
Procedures for accessing the System will be developed and reviewed with MSAM on
an ongoing basis.
There is no charge for accessing the Fund Accounting and Transfer Agency Systems
if done on an "ad hoc" or intermittent basis by MSAM personnel. MSAM is
responsible for providing and maintaining the appropriate computer and
telecommunications hardware to access the U.S. Trust Systems and for any
resulting dial-up or leased line charges.
U.S. Trust is responsible for the cost of transmitting daily fund accounting
reports over telecommunications facilities to the appropriate MSAM locations.
- 2 -
<PAGE>
ATTACHMENT B: FUND ADMINISTRATION SERVICES
ADMINISTRATION DUTIES AND RESPONSIBILITIES
COMPLIANCE
Monitor each portfolio's compliance with investment restrictions (i.e.
issuer or industry diversification, etc.) listed in the current
prospectuses and Statement of Additional Information. (Frequency - Daily)
Monitor each portfolio's compliance with the requirements of the Internal
Revenue Code (the "Code") Section 851 for qualification as regulated
investment companies (90% income, 30% Income - Short Three, Diversification
Tests). (Frequency - Monthly)
Calculate and recommend dividend and capital gain distributions in
accordance with distribution policies detailed in the prospectuses.
(Frequency - Determined by prospectus)
Prepare year-end dividend and capital gain distributions to establish
Funds' status as RIC under Section 4982 of the Code regarding minimum
distribution requirements. File Federal Excise Tax Return (Form 8613).
(Frequency - Annually)
Mail and follow up on quarterly requests for "Securities Transaction
Reports" to the Funds' Directors and Officers and "access persons" under
the terms of the Funds' Code of Ethics and SEC regulation.
Monitor sales of Funds' shares by state for State Securities registration
purposes (not applicable to closed end funds).
File all sales reports and registration upgrades and renewals with the
appropriate state securities departments.
(Frequency - State specific)
Monitor investment manager's compliance with Board directives such as
"Approved Issuers Listings for Repurchase Agreements" and provisions of
Rule 2a-7 for money market funds. (Frequency - Daily)
Review investments involving interests in any broker, dealer, underwriter
or investment adviser to ensure continued compliance with Section 12(d)(3)
of the 1940 Act. (Frequency - Quarterly)
When applicable, monitor compliance with Rules 17f-2 and 17f-5 in
conjunction with the Custodian.
- 1 -
<PAGE>
REPORTING
Prepare agreed upon management reports and Board of Directors' materials
such as unaudited financial statements, distribution summaries, and
deviations of mark-to-market valuation and the amortized cost for money
market funds.
Report Fund performance to outside services as directed by Fund management.
Prepare and file Funds' Semi-Annual Reports on Form N-SAR with the SEC.
Prepare and file Funds' Federal tax return on Form 1120-RIC along with all
state and local tax returns and State Expense Limitation returns, where
applicable.
Prepare annual "Income Percentages by State" for tax-exempt funds to
distribute to shareholders.
Prepare and coordinate printing of Funds' Quarterly (when applicable),
Semi-Annual and Annual Reports to shareholders.
File four copies of every report to shareholders with the SEC under Rule
30021.
Prepare and file Rule 24f-2 Notice with SEC (open end funds).
Notify shareholders as to what portion, if any, of the distributions made
by the Funds during the prior fiscal year were exempt-interest dividends
under Section 852(b)(5)(A) of the Internal Revenue Code.
Provide Form 1099-MISC to persons other than corporations (i.e., Directors)
to whom the Funds paid more than $600 during the year.
Prepare annual foreign tax credit information for international funds to
distribute to shareholders.
On a monthly basis calculate, prepare and distribute Total Return
Performance with comparative indices.
Prepare annual "U.S. Government and Agency Reported Income" to be provided
to shareholders for possible state income tax relief.
- 2 -
<PAGE>
ADMINISTRATION
Serve as Treasurer and Secretary of the Funds and attend Fund Board
meetings. Present the Report of the Administrator at each Board meeting.
Prepare Fund portfolio expense projections, establish accruals and review
on a periodic basis.
Expenses based on a percentage of Fund's average daily net assets
(advisory and administrative fees).
Expenses based on actual charges annualized and accrued daily
(audit fees, registration fees, directors' fees, etc.).
For new funds, obtain Employer Identification Number and CUSIP number.
Estimate organization (offering) costs and monitor against actual
disbursements.
Provide financial information for Fund proxies and prospectuses (Expense
Table).
Coordinate all communications and data collection with regards to any
regulatory examinations.
Review, submit for approval (as necessary), and make payments for expenses
of the Fund and report the expense payments as part of the Report of the
Administrator.
Coordinate the receipt of the Statement of Audit Report, the Cash Statement
Report and the Transaction Statement Report from the Custodian.
LEGAL AFFAIRS
Prepare documents, such as Articles of Incorporation, and Bylaws, and Stock
Certificates.
Update and file post-effective amendments to the Fund's registration
statement on Form N-1A or Form N-2.
Prepare, mail and tabulate proxy materials and serve as Inspector of
Election for the Funds.
Manage the relationships with servicers who also provide services to the
Fund. Review contracts between the Fund and its service providers being
sensitive to conflict of interest situations.
- 3 -
<PAGE>
Research technical issues and questions arising out of a Fund's special
status under the tax and securities laws.
Review advertising material prepared by the Funds and coordinate the filing
of advertising materials with all relevant regulatory authorities.
- 4 -
<PAGE>
ATTACHMENT C
DOMESTIC FUND ACCOUNTING DAILY REPORTS
A) GENERAL LEDGER REPORTS
1. Trial Balance Report
2. General Ledger Activity Report
B) PORTFOLIO REPORTS
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C) PRICING REPORTS
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D) ACCOUNTS RECEIVABLE/PAYABLE REPORTS
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E) OTHER
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
- 5 -
<PAGE>
INTERNATIONAL FUND ACCOUNTING DAILY REPORTS
A) GENERAL LEDGER
1. Trial Balance Report
2. General Ledger Activity Report
B) PORTFOLIO REPORTS
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C) CURRENCY REPORTS
1. Currency Purchase/Sales Journal
2. Currency Valuation Report
D) PRICING REPORTS
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by % Change
4. NAV Report
5. NAV Proof Report
E) ACCOUNTS RECEIVABLE/PAYABLE REPORTS
1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F) OTHER
1. Exchange Rate Report
2. Cash Availability Report
3. Settlement Journal
- 6 -
<PAGE>
MONTHLY FUND ACCOUNTING REPORTS
A) STANDARD REPORTS
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
10. SEC Yield Calculation Work Sheet
B) INTERNATIONAL REPORTS
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
- 7 -
<PAGE>
Exhibit 10
The Vanguard Group
of Investment Companies EXHIBIT 10
October 4, 1988
Morgan Stanley Institutional Fund, Inc.
1300 Morris Drive
Valley Forge, PA 19482
Gentlemen:
Morgan Stanley Institutional Fund, Inc. (the "Fund") is duly established as a
Maryland corporation under Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") filed with the Maryland Department of Assessments
and Taxation on June 16, 1988. I have acted as Counsel to the Fund in
connection with its initial registration as an open-end management investment
company under the Investment Company Act of 1940 ("1940 Act"), as amended. It
is my capacity as Counsel to the Fund that I am furnishing you this opinion.
I have examined the Fund's: (1) Articles of Incorporation; (2) minutes of the
meetings of shareholders and Directors; (3) Notification of the Registration on
Form N-8A under the 1940 Act; (4) Registration Statement on Form N-1A under the
Securities Act of 1933 ("1933 Act") and 1940 Act, and all amendments thereto,;
and (5) all other relevant documents and records, as well as the procedures and
requirements relative to the issuance and sale of the Fund's shares of common
stock, $.001 par value.
Based upon the foregoing information and my examination, it is my opinion that:
1. The Fund is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland. The Fund is authorized to
issue two billion five hundred million (2,500,000,000) shares of common stock
with a par value of one-tenth of one cent ($.001) per share.
2. The Fund has filed a Registration Statement with the U.S.
Securities and Exchange Commission on Form N-1A to register as an open-end
management company under the 1940 Act and to register an indefinite number of
its securities under the 1933 Act.
<PAGE>
Morgan Stanley Institutional Fund, Inc.
October 4, 1989
Page 2
3. The Fund has filed registration statements, applications and/or
other documents required to register its securities under various State
Securities laws.
4. The Fund will be authorized to offer and sell its shares when all
necessary Federal and State regulatory authorizations, which are prerequisite to
the issuance of the Fund's shares, have been obtained, subject to the Fund's
continuing to maintain the effectiveness of the requisite Registration Statement
under the 1933 Act and certain of the state Securities laws.
5. Such shares, when issued for consideration deemed by the Board of
Directors to be consistent with the Fund's Articles of Incorporation, will be
legally authorized, fully paid and non-assessable.
6. The holders of the Fund's shares will have all the rights
provided with respect to such holdings by the Articles of Incorporation and the
laws of the State of Maryland.
I hereby consent to the use of this opinion as an Exhibit to the Fund's
Registration Statement under the 1933 and 1940 Acts, and to the applications and
registration statements, and amendments thereto, filed in accordance with the
securities laws of the states in which shares of the Fund are offered. I
further consent to reference in the prospectus of the Fund to the fact that this
opinion concerning the legality of the issue has been rendered by me.
Sincerely,
/s/ Raymond J. Klapinsky
Raymond J. Klapinsky
Counsel
RJK:dm
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 25 to the
registration statement on Form N-1A (the "Registration Statement") of our
report dated February 17, 1995, relating to the financial statements and
financial highlights appearing in the December 31, 1994 Annual Report to
Shareholders of Morgan Stanley Institutional Fund, Inc., which appears in
such Statement of Additional Information, and to the incorporation by
reference of our report into the Equity Growth Portfolio, Emerging Growth
Portfolio, MicroCap Portfolio and Aggressive Equity Portfolio Prospectus. We
also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in the Equity Growth Portfolio,
Emerging Growth Portfolio, MicroCap Portfolio and Aggresive Equity Portfolio
Prospectus; and under the heading "Financial Statements" in the Statement of
Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the American
New York, New York 10036
July 28, 1995
<PAGE>
Exhibit 13
PURCHASE AGREEMENT
Morgan Stanley Institutional Fund, Inc., a no-load, open-end
management investment company (the "Fund"), and Morgan Stanley Asset Management
Inc., a New York corporation ("MSAM"), intending to be legally bound, hereby
agree as follow:
1. In order to provide the Fund with its initial capital, the Fund
hereby sells to MSAM and MSAM hereby purchases 100,000 shares of common stock of
the Fund's Money Market Portfolio (the "Shares") at $1.00 per share. The Fund
hereby acknowledges receipt from MSAM of $100,000 in full payment for the
Shares.
2. MSAM represents and warrants to the Fund that the Shares are
being acquired for investment and not with a view to distribution thereof and
that MSAM has no present intention to redeem or dispose of any of the Shares.
3. MSAM hereby agrees that it will not redeem any of the Shares
prior to the time that the Fund has completed the amortization of its
organizational expenses. In the event that the Fund liquidates before the
deferred organizational expenses are fully amortized, then the Shares shall bear
their proportionate share of such unamortized organizational expenses.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
12th day of October, 1988.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By /s/ Stephen Brent Wells
-----------------------
Stephen Brent Wells
President
MORGAN STANLEY ASSET MANAGEMENT INC.
By /s/ Stephen Brent Wells
-----------------------
Stephen Brent Wells
Principal
<PAGE>
Exhibit 16
EXHIBIT 16
---------------------------------------
MORGAN STANLEY INSTITUTIONAL FUND, INC.
EMERGING GROWTH PORTFOLIO
---------------------------------------
Exhibit
Average Annual Total Return
Calculation
n
ERV=P(1+T)
P=hypothetical initial payment of $1000
T=average annual total return
n=number of years
ERV=ending redeemable value
Average Annual Return
Through OCTOBER 31, 1991
VARIABLE 1 YEAR INCEPTION
P= $1,000.00
n= 0.997
ERV= $907.27
T= -9.297%
Average Annual Return
Through JANUARY 31, 1991
VARIABLE 1 YEAR INCEPTION
P= $1,000.00 $1,000.00
n= 1.000 1.249
ERV= $1,256.64 $1,227.23
T= 25.664% 17.809%
<PAGE>
Exhibit 24
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Warren J. Olsen, whose signature appears below, does hereby constitute
and appoint Harold J. Schaaff, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable Morgan Stanley
Institutional Fund, Inc. (the "Fund") to comply with the Securities Act of 1933,
as amended (the "1933 Act") and the Investment Company Act of 1940, as amended
(the "1940 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a President
and a director of the Fund such Registration Statement and any and all such
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/Warren J. Olsen
--------------------
Warren J. Olsen
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Barton M. Biggs, whose signature appears below, does hereby constitute
and appoint Warren J. Olsen and Harold J. Schaaff, his true and lawful attorneys
and agents, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorneys and
agents may deem necessary or advisable or which may be required to enable Morgan
Stanley Institutional Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940
Act, together with any and all amendments thereto, including foregoing, the
power and authority to sign in the name and on behalf of the undersigned as a
director of the Fund such Registration Statement and any and all such amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents
shall do or cause to be done by virtue hereof.
/s/Barton M. Biggs
------------------
Barton M. Biggs
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Fergus Reid, whose signature appears below, does hereby constitute and
appoint Warren J. Olsen and Harold J. Schaaff, his true and lawful attorneys and
agents, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorneys and agents
may deem necessary or advisable or which may be required to enable Morgan
Stanley Institutional Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940
Act, together with any and all amendments thereto, including foregoing, the
power and authority to sign in the name and on behalf of the undersigned as a
director of the Fund such Registration Statement and any and all such amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents
shall do or cause to be done by virtue hereof.
/s/Fergus Reid
--------------
Fergus Reid
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Frederick O. Robertshaw, whose signature appears below, does hereby
constitute and appoint Warren J. Olsen and Harold J. Schaaff, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or advisable or which may be required to
enable Morgan Stanley Institutional Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all amendments thereto,
including foregoing, the power and authority to sign in the name and on behalf
of the undersigned as a director of the Fund such Registration Statement and any
and all such amendments filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
/s/Frederick O. Robertshaw
---------------------------
Frederick O. Robertshaw
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Andrew McNally IV, whose signature appears below, does hereby
constitute and appoint Warren J. Olsen and Harold J. Schaaff, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or advisable or which may be required to
enable Morgan Stanley Institutional Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all amendments thereto,
including foregoing, the power and authority to sign in the name and on behalf
of the undersigned as a director of the Fund such Registration Statement and any
and all such amendments filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
/s/Andrew McNally IV
--------------------
Andrew McNally IV
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
John D. Barrett II, whose signature appears below, does hereby
constitute and appoint Warren J. Olsen and Harold J. Schaaff, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or advisable or which may be required to
enable Morgan Stanley Institutional Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all amendments thereto,
including foregoing, the power and authority to sign in the name and on behalf
of the undersigned as a director of the Fund such Registration Statement and any
and all such amendments filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
/s/John D. Barrett II
----------------------
John D. Barrett II
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Gerard E. Jones, whose signature appears below, does hereby constitute
and appoint Warren J. Olsen and Harold J. Schaaff, his true and lawful attorneys
and agents, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorneys and
agents may deem necessary or advisable or which may be required to enable Morgan
Stanley Institutional Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940
Act, together with any and all amendments thereto, including foregoing, the
power and authority to sign in the name and on behalf of the undersigned as a
director of the Fund such Registration Statement and any and all such amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents
shall do or cause to be done by virtue hereof.
/s/Gerard E. Jones
-------------------
Gerard E. Jones
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Samuel T. Reeves, whose signature appears below, does hereby
constitute and appoint Warren J. Olsen and Harold J. Schaaff, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or advisable or which may be required to
enable Morgan Stanley Institutional Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all amendments thereto,
including foregoing, the power and authority to sign in the name and on behalf
of the undersigned as a director of the Fund such Registration Statement and any
and all such amendments filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
/s/Samuel T. Reeves
-------------------
Samuel T. Reeves
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Frederick B. Whittemore, whose signature appears below, does hereby
constitute and appoint Warren J. Olsen and Harold J. Schaaff, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents may deem necessary or advisable or which may be required to
enable Morgan Stanley Institutional Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all amendments thereto,
including foregoing, the power and authority to sign in the name and on behalf
of the undersigned as a director of the Fund such Registration Statement and any
and all such amendments filed with the Securities and Exchange Commission under
the 1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
/s/Frederick B. Whittemore
---------------------------
Frederick B. Whittemore
Date: July 28, 1995
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
James R. Rooney, whose signature appears below, does hereby constitute
and appoint Warren J. Olsen and Harold J. Schaaff, his true and lawful attorneys
and agents, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorneys and
agents may deem necessary or advisable or which may be required to enable Morgan
Stanley Institutional Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940
Act, together with any and all amendments thereto, including foregoing, the
power and authority to sign in the name and on behalf of the undersigned as
Treasurer (Principal Accounting Officer) of the Fund such Registration Statement
and any and all such amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents shall do or cause to be done by virtue
hereof.
/s/James R. Rooney
------------------
James R. Rooney
Date: July 28, 1995
<PAGE>
[ARTICLE] 6
[CIK] 0000836487
[NAME] MORGAN STANLEY INSTITUTIONAL FUNDS, INC.
[SERIES]
[NUMBER] 27
[NAME] AGGRESSIVE EQUITY PORTFOLIO
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] MAR-08-1995
[PERIOD-END] JUN-30-1995
[INVESTMENTS-AT-COST] 16,722
[INVESTMENTS-AT-VALUE] 17,889
[RECEIVABLES] 946
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 18,835
[PAYABLE-FOR-SECURITIES] 531
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 49
[TOTAL-LIABILITIES] 580
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 16,328
[SHARES-COMMON-STOCK] 1,546
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 62
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 711
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,154
[NET-ASSETS] 18,255
[DIVIDEND-INCOME] 79
[INTEREST-INCOME] 36
[OTHER-INCOME] 0
[EXPENSES-NET] (37)
[NET-INVESTMENT-INCOME] 78
[REALIZED-GAINS-CURRENT] 711
[APPREC-INCREASE-CURRENT] 1,154
[NET-CHANGE-FROM-OPS] 1,943
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (16)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,584
[NUMBER-OF-SHARES-REDEEMED] (39)
[SHARES-REINVESTED] 1
[NET-CHANGE-IN-ASSETS] 18,255
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 29
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 84
[AVERAGE-NET-ASSETS] 11,785
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.06
[PER-SHARE-GAIN-APPREC] 1.77
[PER-SHARE-DIVIDEND] (0.02)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.81
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000836487
[NAME] MORGAN STANLEY INSTITUTIONAL FUNDS, INC.
[SERIES]
[NUMBER] 25
[NAME] LATIN AMERICAN PORTFOLIO
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-18-1995
[PERIOD-END] JUN-30-1995
[INVESTMENTS-AT-COST] 13,933
[INVESTMENTS-AT-VALUE] 13,957
[RECEIVABLES] 567
[ASSETS-OTHER] 1
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 14,525
[PAYABLE-FOR-SECURITIES] 510
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 62
[TOTAL-LIABILITIES] 572
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 14,662
[SHARES-COMMON-STOCK] 1,586
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 21
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (754)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 24
[NET-ASSETS] 13,953
[DIVIDEND-INCOME] 120
[INTEREST-INCOME] 33
[OTHER-INCOME] 0
[EXPENSES-NET] (132)
[NET-INVESTMENT-INCOME] 21
[REALIZED-GAINS-CURRENT] (754)
[APPREC-INCREASE-CURRENT] 24
[NET-CHANGE-FROM-OPS] (709)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,956
[NUMBER-OF-SHARES-REDEEMED] (370)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 13,953
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 57
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 205
[AVERAGE-NET-ASSETS] 11,556
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.01
[PER-SHARE-GAIN-APPREC] (1.21)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.80
[EXPENSE-RATIO] 2.54
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000836487
[NAME] MORGAN STANLEY INSTITUTIONAL FUNDS, INC.
[SERIES]
[NUMBER] 23
[NAME] MUNICIPAL BOND PORTFOLIO
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-18-1995
[PERIOD-END] JUN-30-1995
[INVESTMENTS-AT-COST] 42,728
[INVESTMENTS-AT-VALUE] 43,467
[RECEIVABLES] 928
[ASSETS-OTHER] 44
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 44,439
[PAYABLE-FOR-SECURITIES] 562
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 47
[TOTAL-LIABILITIES] 609
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 42,717
[SHARES-COMMON-STOCK] 4,723
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 196
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 178
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 739
[NET-ASSETS] 43,830
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 990
[OTHER-INCOME] 0
[EXPENSES-NET] (89)
[NET-INVESTMENT-INCOME] 901
[REALIZED-GAINS-CURRENT] 178
[APPREC-INCREASE-CURRENT] 739
[NET-CHANGE-FROM-OPS] 1,818
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (705)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,480
[NUMBER-OF-SHARES-REDEEMED] (1,273)
[SHARES-REINVESTED] 66
[NET-CHANGE-IN-ASSETS] 43,830
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 69
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 151
[AVERAGE-NET-ASSETS] 44,072
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.21
[PER-SHARE-GAIN-APPREC] 0.21
[PER-SHARE-DIVIDEND] (0.16)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.26
[EXPENSE-RATIO] 0.45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000836487
[NAME] MORGAN STANLEY INSTITUTIONAL FUNDS, INC.
[SERIES]
[NUMBER] 26
[NAME] U.S. REAL ESTATE PORTFOLIO
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] FEB-24-1995
[PERIOD-END] JUN-30-1995
[INVESTMENTS-AT-COST] 39,216
[INVESTMENTS-AT-VALUE] 40,516
[RECEIVABLES] 1,632
[ASSETS-OTHER] 1
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 42,149
[PAYABLE-FOR-SECURITIES] 2,185
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 44
[TOTAL-LIABILITIES] 2,229
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 37,595
[SHARES-COMMON-STOCK] 3,685
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 715
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 310
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,300
[NET-ASSETS] 39,920
[DIVIDEND-INCOME] 742
[INTEREST-INCOME] 59
[OTHER-INCOME] 0
[EXPENSES-NET] (86)
[NET-INVESTMENT-INCOME] 715
[REALIZED-GAINS-CURRENT] 310
[APPREC-INCREASE-CURRENT] 1,300
[NET-CHANGE-FROM-OPS] 2,325
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,882
[NUMBER-OF-SHARES-REDEEMED] (197)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 39,920
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 68
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 144
[AVERAGE-NET-ASSETS] 25,442
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.19
[PER-SHARE-GAIN-APPREC] 0.64
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.83
[EXPENSE-RATIO] 0.97
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
