MORGAN STANLEY INSTITUTIONAL FUND INC, 497, 1996-05-03

MORGAN STANLEY INSTITUTIONAL FUND INC
497, 1996-05-03

Previous: MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I, 497J, 1996-05-03

Next: PARK AVENUE PORTFOLIO, 497, 1996-05-03

<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-------------------------------------------------------------------------

GLOBAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL SMALL CAP PORTFOLIO
ASIAN EQUITY PORTFOLIO
EUROPEAN EQUITY PORTFOLIO
JAPANESE EQUITY PORTFOLIO
LATIN AMERICAN 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, or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund currently consists of twenty-eight portfolios
representing a broad range of investment choices. The Fund is designed to
provide clients with attractive alternatives for meeting their investment needs.
This prospectus (the "Prospectus") pertains to the Class A and the Class B
shares of the Global Equity, International Equity, Asian Equity, European
Equity, Japanese Equity and Latin American Portfolios (the "Multiclass
Portfolios") and to the Class A Shares of the International Small Cap Portfolio
(collectively, the "Portfolios"). On January 2, 1996, the Multiclass Portfolios
began offering two classes of shares, the Class A shares and the Class B shares,
except for the Money Market, Municipal Money Market and International Small Cap
Portfolios which only offer Class A shares. All shares of the Portfolios owned
prior to January 2, 1996 were redesignated Class A shares on January 2, 1996.
The International Equity Portfolio is currently closed to new investors with the
exception of certain Morgan Stanley customers. The Class A and Class B shares
currently offered by the Portfolios have different minimum investment
requirements and fund expenses. Shares of the portfolios are offered with no
sales charge or exchange or redemption fee (with the exception of the
International Small Cap Portfolio).

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 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 $1 billion.

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

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

The JAPANESE EQUITY PORTFOLIO seeks long-term capital appreciation through
investment 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 in debt
securities issued or guaranteed by Latin American governments or governmental
entities.

INVESTORS SHOULD NOTE THAT EACH PORTFOLIO MAY INVEST UP TO 10% OF ITS TOTAL
ASSETS IN RESTRICTED SECURITIES, AND THE INTERNATIONAL SMALL CAP AND LATIN
AMERICAN PORTFOLIOS MAY INVEST UP TO 25% OF THEIR RESPECTIVE 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 A
PORTFOLIO'S TOTAL ASSETS MAY BE CONSIDERED A SPECULATIVE ACTIVITY, MAY INVOLVE
GREATER RISK AND MAY INCREASE THE PORTFOLIO'S EXPENSES.

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

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under "Prospectus Summary" below. The Fund
currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL EQUITY
- -- Active Country Allocation, Asian Equity, Emerging Markets, European Equity,
Global Equity, Gold, International Equity, International Magnum, International
Small Cap, Japanese Equity and Latin American Portfolios; (ii) U.S. EQUITY --
Aggressive Equity, Emerging Growth, Equity Growth, MicroCap, Small Cap Value
Equity, U.S. Real Estate and Value Equity Portfolios; (iii) EQUITY AND FIXED
INCOME -- 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 May 1, 1996, which is incorporated
herein by reference. The Statement of Additional Information and the
prospectuses pertaining to the other portfolios of the Fund are available upon
request and without charge by writing or calling the Fund at the address and
telephone number set forth above.

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

THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
each Portfolio listed below will incur.
<TABLE>
<CAPTION>
GLOBAL EQUITY INTERNATIONAL EQUITY INTERNATIONAL SMALL ASIAN EQUITY
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO CAP PORTFOLIO PORTFOLIO
- --------------------------------------------- --------------- --------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A.................................... None None None* None
Class B.................................... None None None* None
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................... None None None None
Class B.................................... None None N/A None
Deferred Sales Load
Class A.................................... None None None None
Class B.................................... None None N/A None
Redemption Fees
Class A.................................... None None 1.00%* None
Class B.................................... None None 1.00%* None
Exchange Fees
Class A.................................... None None None None
Class B.................................... None None N/A None

EUROPEAN EQUITY JAPANESE EQUITY LATIN AMERICAN
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------- --------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A..................................................... None None None
Class B..................................................... None None None
Maximum Sales Load Imposed on Reinvested Dividends
Class A..................................................... None None None
Class B..................................................... None None None
Deferred Sales Load
Class A..................................................... None None None
Class B..................................................... None None None
Redemption Fees
Class A..................................................... None None None
Class B..................................................... None None None
Exchange Fees
Class A..................................................... None None None
Class B..................................................... None None None
</TABLE>

- --------------------------
* Shareholders of the International Small Cap Portfolio are charged a 1.00%
transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. The transaction fee is intended to allocate transaction costs
associated with purchases and redemptions of shares of the Portfolio to
investors actually making such purchases and redemptions rather than to the
Portfolio's other shareholders. The 1.00% fee represents the Adviser's
estimate of such transaction costs, which include the costs of acquiring and
disposing of Portfolio securities. The transaction fee is not a sales charge
or load, and is retained by the Portfolio. The fee does not apply to
Portfolios of the Fund other than the International Small Cap Portfolio and is
not charged in

2
<PAGE>
connection with the reinvestment of dividends or capital gain distributions.
The fee will not be charged with respect to purchases and redemptions that do
not result in actual transaction costs to the Portfolio. Examples of such
transactions include offsetting purchases and redemptions by different
shareholders occurring at the same time and in-kind purchases and redemptions.
<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY EQUITY INTERNATIONAL SMALL ASIAN EQUITY
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO CAP PORTFOLIO PORTFOLIO
- ------------------------------------------------ ------------- ------------------- ------------------- --------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)***
Class A....................................... 0.67% 0.77% 0.86% 0.62%
Class B....................................... 0.67% 0.77% N/A 0.62%
12b-1 Fees
Class A....................................... None None None None
Class B....................................... 0.25% 0.25% N/A 0.25%
Other Expenses
Class A....................................... 0.33% 0.23% 0.29% 0.38%
Class B....................................... 0.33% 0.23% N/A 0.38%
------------- ------- ------- --------------
Total Operating Expenses (Net of Fee Waivers)*
Class A....................................... 1.00% 1.00% 1.15% 1.00%
Class B....................................... 1.25% 1.25% N/A 1.25%
------------- ------- ------- --------------
------------- ------- ------- --------------

EUROPEAN EQUITY JAPANESE EQUITY LATIN AMERICAN
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------ ------------------- ------------------- --------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)***
Class A...................................................... 0.55% 0.60% 0.00%
Class B...................................................... 0.55% 0.60% 0.00%
12b-1 Fees
Class A...................................................... None None None
Class B...................................................... 0.25% 0.25% 0.25%
Other Expenses
Class A...................................................... 0.45% 0.40% 1.70%**
Class B...................................................... 0.45% 0.40% 1.70%**
------- ------- --------------
Total Operating Expenses (Net of Fee Waivers)
Class A...................................................... 1.00% 1.00% 1.70%**
Class B...................................................... 1.25% 1.25% 1.95%**
------- ------- --------------
-------
</TABLE>

- --------------------------
* "Other Expenses" for the Latin American Portfolio includes an annual fee of
0.125% of the Portfolios' average weekly net assets paid to local
administrators required under Brazilian and Chilean law. See "Local
Administrators for the Latin American Portfolio".

** Annualized.

*** The Adviser has agreed to waive its management fees and/or reimburse each
Portfolio, if necessary, if such fees would cause any of the total annual
operating expenses of the Portfolios to exceed a specified percentage of
their respective average daily net assets. Set forth

3
<PAGE>
below, for each Portfolio as applicable, are the management fees and total
operating expenses absent such fee waivers and/or expense reimbursements as
a percent of average daily net assets of the Class A shares of the
Portfolios and Class B Shares of the Multiclass Portfolios, respectively.

<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
ABSENT FEE WAIVERS
MANAGEMENT
FEES ABSENT FEE --------------------------
PORTFOLIO WAIVERS CLASS A CLASS B+
- ---------------------------------------------------------------- ---------------- ------------ ------------
<S> <C> <C> <C>
Global Equity................................................... 0.80% 1.13% 1.38%
International Equity............................................ 0.80% 1.03% 1.28%
International Small Cap......................................... 0.95% 1.24% N/A
Asian Equity.................................................... 0.80% 1.18% 1.43%
European Equity................................................. 0.80% 1.25% 1.50%
Japanese Equity................................................. 0.80% 1.20% 1.45%
Latin American.................................................. 1.10% 3.13%++ 3.38%++
</TABLE>

- ------------------------------
+ Estimated.

++ Annualized.
These reductions became effective as of the inception of each Portfolio,
except with respect to the International Equity Portfolio, as to which the
effective date was February 15, 1990. As a result of these reductions, the
Management Fees stated above are lower than the contractual fees stated under
"Management of the Fund." For further information on Fund expenses, see
"Management of the Fund."

The purpose of the table is to assist the investor in understanding the
various expenses that an investor in the Portfolios will bear directly or
indirectly. The Class A expenses and fees for Portfolios are based on actual
figures for the fiscal year ended December 31, 1995. The Class B expenses and
fees for the Multiclass Portfolios are based on estimates assuming that the
average daily net assets of the Class B shares of each Multiclass Portfolio will
be $50,000,000. "Other Expenses" include Board of Directors' fees and expenses,
amortization or organizational costs, filing fees, professional fees and costs
for shareholder reports. Due to the continuous nature of Rule 12b-1 fees, long
term Class B shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD").

4
<PAGE>
The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% rate of return and (2) redemption at the end
of each time period. As noted above, the only fee charged by the Fund upon
purchase or redemption of Fund shares is the 1% transaction fee assessed on
purchases and redemptions of shares of the International Small Cap Portfolio,
which charges are reflected in this example. The example is based on total
operating expenses of the Portfolios after fee waivers.

<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Global Equity Portfolio
Class A.......................... $ 10 $ 32 $ 55 $ 122
Class B.......................... 13 40 69 151
International Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
International Small Cap Portfolio
Class A.......................... 32 57 85 163
Asian Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
European Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
Japanese Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
Latin American Portfolio
Class A.......................... 17 54 92 201
Class B.......................... 20 61 105 227
</TABLE>

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

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

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

5
<PAGE>
FINANCIAL HIGHLIGHTS

The following table provides financial highlights for the Class A shares of
the Portfolios for each of the periods presented. The audited financial
highlights for the Class A shares for the fiscal year ended December 31, 1995
are part of the Fund's financial statements which appear in the Fund's December
31, 1995 Annual Report to Shareholders and which are included in the Fund's
Statement of Additional Information. The Portfolios' financial highlights for
each of the periods in the five years ended December 31, 1995 have been audited
by Price Waterhouse, LLP, whose unqualified report thereon is also included in
the Statement of Additional Information. Additional performance information for
the Class A shares is included in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. Financial highlights are not
available for the new Class B shares since they were not offered as of December
31, 1995. Subsequent to October 31, 1992 (the Fund's prior fiscal year end) the
Fund changed its fiscal year end to December 31. The following information
should be read in conjunction with the financial statements and notes thereto.

6
<PAGE>
GLOBAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
JULY 15, TWO MONTHS
1992* TO ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994 1995
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 10.00 $ 9.35 $ 9.75 $ 13.87 $ 13.40
----------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)(2).................. 0.02 0.01 0.08 0.08 0.18
Net Realized and Unrealized Gain/(Loss) on
Investments.................................. (0.67) 0.39 4.18 0.79 2.26
----------- ------------- ------------- ------------- -------------
Total from Investment Operations.............. (0.65) 0.40 4.26 0.87 2.44
----------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income......................... -- -- (0.02) (0.12) (0.22)
In Excess of Net Investment Income............ -- -- (0.03) -- --
Net Realized Gain............................. -- -- (0.09) (1.22) (1.31)
----------- ------------- ------------- ------------- -------------
Total Distributions............................. -- -- (0.14) (1.34) (1.53)
----------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD.................. $ 9.35 $ 9.75 $ 13.87 $ 13.40 $ 14.31
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
TOTAL RETURN.................................... (6.50)% 4.28% 44.24% 6.95% 18.66%
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........... $ 11,257 $ 11,739 $ 19,918 $ 78,935 $ 91,675
Ratio of Expenses to Average Net Assets
(1)(2)......................................... 1.00%** 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% 1.17%
Portfolio Turnover Rate......................... 10% 5% 42% 12% 28%
</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........ $ 0.08 $ 0.02 $ 0.01 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets.................... 5.22%** 2.49%** 1.66% 1.24% 1.13%
Net Investment Income (Loss) to Average
Net Assets..................................... (3.22)%** (0.80)%** 0.18% 0.63% 1.04%
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.80% of the
average daily net assets of the Global Equity Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.00% of the average daily net assets of the Class A shares and 1.25%
of the average daily net assets of the Class B shares. In the fiscal period
ended October 31, 1992, the two months ended December 31, 1992, and the
years ended December 31, 1993, 1994 and 1995, the Adviser waived management
fees and/or reimbursed expenses totalling $97,000, $28,000, $101,000,
$126,000 and $109,000, respectively, for the Global Equity Portfolio.

* Commencement of Operations.

** Annualized.

7
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
TWO
AUGUST 4, MONTHS YEAR
1989* TO YEAR YEAR YEAR ENDED ENDED
OCTO- ENDED OCTO- ENDED OCTO- ENDED OCTO- DECEM- DECEM-
BER 31, BER 31, BER 31, BER 31, BER 31, BER 31,
1989 1990 1991 1992 1992 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 10.00 $ 9.72 $ 10.05 $ 10.52 $ 9.83 $ 9.98
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................ 0.05 0.19 0.12 0.12 0.01 0.15
Net Realized and Unrealized Gain/(Loss) on
Investments..................................... (0.33) 0.20 0.58 (0.59) 0.14 4.36
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations................. (0.28) 0.39 0.70 (0.47) 0.15 4.51
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income............................ -- (0.06) (0.15) (0.17) -- (0.01)
In Excess of Net Investment Income............... -- -- -- -- -- (0.13)
Net Realized Gain................................ -- -- (0.08) (0.05) -- (0.26)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions................................ -- (0.06) (0.23) (0.22) -- (0.40)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD..................... $ 9.72 $ 10.05 $ 10.52 $ 9.83 $ 9.98 $ 14.09
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN....................................... (2.80)% 3.99% 7.17% (4.56)% 1.53% 46.50%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............. $ 7,811 $ 110,716 $ 283,776 $ 486,836 $ 510,727 $ 947,045
Ratio of Expenses to Average Net
Assets (1)(2)..................................... 1.35%** 1.03% 1.00% 1.00% 1.00%** 1.00%
Ratio of Net Investment Income to Average Net
Assets (1)(2)..................................... 2.34% 3.51% 2.27% 1.46% 0.68%** 1.25%
Portfolio Turnover Rate............................ 0% 38% 22% 12% 5% 23%

YEAR YEAR
ENDED DECEM- ENDED DECEM-
BER 31, BER 31,
1994 1995
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 14.09 $ 15.34
------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................ 0.16 0.16
Net Realized and Unrealized Gain/(Loss) on
Investments..................................... 1.54 1.55
------------ ------------
Total from Investment Operations................. 1.70 1.71
------------ ------------
DISTRIBUTIONS
Net Investment Income............................ (0.18) (0.06)
In Excess of Net Investment Income............... -- --
Net Realized Gain................................ (0.27) (1.84)
------------ ------------
Total Distributions................................ (0.45) (1.90)
------------ ------------
NET ASSET VALUE, END OF PERIOD..................... $ 15.34 $ 15.15
------------ ------------
------------ ------------
TOTAL RETURN....................................... 12.39% 11.77%
------------ ------------
------------ ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............. $1,304,770 $1,598,503
Ratio of Expenses to Average Net
Assets (1)(2)..................................... 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1)(2)..................................... 1.12% 1.38%
Portfolio Turnover Rate............................ 16% 27%
</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............................... $ 0.00+ $ 0.01 $ 0.01 $ 0.00+ $ 0.00+ $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets........ 2.58%** 1.24% 1.09% 1.02% 1.14%** 1.06%
Net Investment Income to Average Net
Assets............................... 1.11%** 3.30% 2.18% 1.44% 0.54%** 1.19%

<CAPTION>
(1) Effect of voluntary expense limitation d
<S> <C> <C>
Per share benefit to net investment
income............................... $ 0.004 $ 0.003
Ratios before expense limitation:
Expenses to Average Net Assets........ 1.03% 1.03%
Net Investment Income to Average Net
Assets............................... 1.09% 1.35%
</TABLE>

+ Per share benefit to net investment income is less than $0.0001.

(2)Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.80% of the
average daily net assets of the International Equity Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.00% of the average daily net assets of the Class A shares and 1.25%
of the average daily net assets of the Class B shares. In the year ended
October 31, 1991, the year ended October 31, 1992, the two months ended
December 31, 1992, and the years ended December 31, 1993, 1994 and 1995, the
Adviser waived management fees and/or reimbursed expenses totaling $147,000,
$78,000, $116,000, $405,000, $344,000 and $424,000, respectively, for the
International Equity Portfolio.

* Commencement of Operations.

** Annualized.

8
<PAGE>
INTERNATIONAL SMALL CAP PORTFOLIO

<TABLE>
<CAPTION>
DECEMBER 15,
1992* TO YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993+ 1994 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.00 $ 10.09 $ 14.64 $ 15.15
------ ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)(3)............... 0.01 0.09 0.14 0.24
Net Realized and Unrealized Gain on
Investments (2)........................... 0.08 4.48 0.62 0.15
------ ------------- ------------- -------------
Total from Investment Operations........... 0.09 4.57 0.76 0.39
------ ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income...................... -- 0.00 (0.03) (0.23)
In Excess of Net Investment Income......... -- (0.02) -- --
Net Realized Gain.......................... -- -- (0.22) (0.37)
Total Distributions.......................... -- (0.02) (0.25) (0.60)
------ ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 14.64 $ 15.15 $ 14.94
------ ------------- ------------- -------------
------ ------------- ------------- -------------
TOTAL RETURN................................. 0.90% 45.34% 5.25% 2.60%
------ ------------- ------------- -------------
------ ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........ $ 3,824 $ 52,834 $ 160,101 $ 198,669
Ratio of Expenses to Average Net Assets
(1)(3)...................................... 1.15%** 1.15% 1.15% 1.15%
Ratio of Net Investment Income to
Average Net Assets (1)(3)................... 1.37%** 0.66% 1.18% 1.72%
Portfolio Turnover Rate...................... 0% 14% 8% 24%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income.................................. $ 0.16 $ 0.10 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets........... 21.67%** 1.86% 1.29% 1.24%
Net Investment Income/(Loss) to Average
Net Assets.............................. (19.15)%** (0.05)% 1.04% 1.63%
</TABLE>

(2) Includes a 1% transaction fee on purchases and redemptions of capital
shares.

(3) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.95% of the
average daily net assets of the Class A shares of the Portfolio. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.15% of the average daily net assets of the Class A shares of the
Portfolio. In the period ended December 31, 1992, and the years ended
December 31, 1993, 1994 and 1995, the Adviser waived management fees and/or
reimbursed expenses totaling $32,000, $151,000, $174,000 and $181,000,
respectively, for the International Small Cap Portfolio.

* Commencement of Operations.

** Annualized.

+ Per share amounts for the year ended December 31, 1993 are based on average
outstanding shares.

9
<PAGE>
ASIAN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
TWO
JULY 1, YEAR MONTHS YEAR YEAR YEAR
1991, TO ENDED ENDED ENDED ENDED ENDED
OCTOBER OCTOBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1991 31, 1992 31, 1992 31, 1993 31, 1994 31, 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.00 $ 9.67 $ 13.63 $ 13.11 $ 26.20 $ 21.54
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)(2)............... 0.03 0.14 0.01 0.10 0.11 0.18
Net Realized and Unrealized Gain/(Loss) on
Investments............................... (0.36) 3.86 (0.53) 13.38 (4.15) 1.11
--------- --------- --------- --------- --------- ---------
Total from Investment Operations........... (0.33) 4.00 (0.52) 13.48 (4.04) 1.29
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income...................... -- (0.04) -- (0.01) (0.09) (0.34)
In Excess of Net Investment Income......... -- -- -- (0.13) -- (0.00)+
Net Realized Gain.......................... -- -- -- (0.12) (0.53) (3.01)
In Excess of Net Realized Gain............. -- -- -- (0.13) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions.......................... -- (0.04) -- (0.39) (0.62) (3.35)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD............... $ 9.67 $ 13.63 $ 13.11 $ 26.20 $ 21.54 $ 19.48
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN................................. (3.30)% 41.50% (3.82)% 105.71% (15.81)% 6.87%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........ $10,719 $41,017 $41,978 $287,136 $276,906 $314,884
Ratio of Expenses to Average Net Assets
(1)(2)...................................... 1.00%** 1.00% 1.00%** 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1)(2)............................... 1.13%** 1.53% 0.61%** 0.83% 0.52% 0.97%
Portfolio Turnover Rate...................... 2% 33% 10% 18% 47% 42%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(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 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets........... 2.52%** 1.63% 2.02%** 1.38% 1.20% 1.18%
Net Investment Income/(Loss)
to Average Net Assets................. (0.39)%** 0.90% (0.41)%** 0.45% 0.32% 0.79%
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.80% of the
average daily net assets of the Asian Equity Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.00% of the average daily net assets of the Class A shares and 1.25%
of the average daily net assets of the Class B shares. In the fiscal period
ended October 31, 1991, the year ended October 31, 1992, the two months
ended December 31, 1992, and the years ended December 31, 1993, 1994 and
1995, the Adviser waived management fees and/or reimbursed expenses totaling
$44,000, $167,000, $70,000, $477,000, $535,000 and $522,000, respectively,
for the Asian Equity Portfolio.

* Commencement of Operations.

** Annualized.

+ Amount is less than $0.01 per share.

10
<PAGE>
EUROPEAN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
APRIL 2,
1993* TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.00 $ 12.91 $ 13.94
------------- ------------- -------------
------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)(2)............... 0.08 0.08 0.14
Net Realized and Unrealized Gain on
Investments............................... 2.83 1.29 1.37
------------- ------------- -------------
Total from Investment Operations........... 2.91 1.37 1.51
------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income...................... -- (0.09) (0.15)
Net Realized Gain.......................... -- (0.25) (1.38)
------------- ------------- -------------
Total Distributions.......................... -- (0.34) (1.53)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD............... $ 12.91 $ 13.94 $ 13.92
------------- ------------- -------------
------------- ------------- -------------
TOTAL RETURN................................. 29.10% 10.88% 11.85%
------------- ------------- -------------
------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........ $ 12,681 $ 27,634 $ 69,583
Ratio of Expenses to Average Net Assets
(1)(2)...................................... 1.00%** 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1)(2)............................... 1.23%** 0.87% 1.37%
Portfolio Turnover Rate...................... 15% 79% 13%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income.................................. $ 0.09 $ 0.06 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets........... 2.43%** 1.62% 1.25%
Net Investment Income/(Loss) to Average
Net Assets.............................. (0.21)%** 0.25% 1.12%
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.80% of the
average daily net assets of the European Equity Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.00% of the average daily net assets of the Class A shares and 1.25%
of the average daily net assets of the Class B shares. In the fiscal period
ended December 31, 1993, 1994 and 1995, the Adviser waived management fees
and/or reimbursed expenses totaling $88,000, $112,000 and $130,000,
respectively, for the European Equity Portfolio.

* Commencement of Operations.

** Annualized.

11
<PAGE>
JAPANESE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 25,
1994* TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.00 $ 9.83
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)........... (0.01) 0.04
Net Realized and Unrealized Loss on
Investments+.............................. (0.16) (0.40)
------------- -------------
Total from Investment Operations........... (0.17) (0.36)
------------- -------------
DISTRIBUTIONS
In Excess of Net Investment Income......... -- (0.20)
------------- -------------
NET ASSET VALUE, END OF PERIOD............... $ 9.83 $ 9.27
------------- -------------
------------- -------------
TOTAL RETURN................................. (1.70)% (3.64)%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........ $ 50,332 $ 119,278
Ratio of Expenses to Average Net Assets
(1)(2)...................................... 1.00%** 1.00%
Ratio of Net Investment Income (Loss) to
Average Net Assets (1)(2)................... (0.10)%** 0.15%
Portfolio Turnover Rate...................... 1% 52%
</TABLE>

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

<TABLE>
<S> <C> <C> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income.................................. $ 0.02 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets........... 1.27%** 1.20%
Net Investment Loss to Average Net
Assets.................................. (0.37)%** (0.05)%
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 0.80% of the
average daily net assets of the Japanese Equity Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.00% of the average daily net assets of the Class A shares and 1.25%
of the average daily net assets of the Class B shares. In the fiscal period
ended December 31, 1994 and 1995, the Adviser waived management fees and/or
reimbursed expenses totaling $80,000 and $118,000, respectively, for the
Japanese Equity Portfolio.

* Commencement of Operations.

** Annualized.

+ The amount shown for the year ended December 31, 1995 for a share outstanding
throughout the year does not accord with aggregate net gains on investments
for the year because of the timing of sales and repurchases of the Portfolio
shares in relation to fluctuating market value of the investments in the
Portfolio.

12
<PAGE>
LATIN AMERICAN PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM JANUARY
18, 1995* TO
DECEMBER 31, 1995
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.00
-------
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).................. 0.05
Net Realized and Unrealized Loss on
Investments............................... (0.92)
-------
Total from Investment Operations........... (0.87)
-------
DISTRIBUTIONS
Net Investment Income...................... (0.04)
Return of Capital.......................... (0.03)
-------
Total Distributions.......................... (0.07)
-------
NET ASSET VALUE, END OF PERIOD............... $ 9.06
-------
-------
TOTAL RETURN................................. (8.68)%
-------
-------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........ $ 15,376
Ratio of Expenses to Average Net Assets
(1)(2)...................................... 1.70%**
Ratio of Net Investment Income to Average Net
Assets (1)(2)............................... 0.62%**
Portfolio Turnover Rate...................... 137%
</TABLE>

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

<TABLE>
<S> <C> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income.................................. $ 0.09
Ratios before expense limitation:
Expenses to Average Net Assets........... 3.13%**
Net Investment Loss to Average Net
Assets.................................. (0.48)%**
</TABLE>

(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive a management fee calculated at an annual rate of 1.10% of the
average daily net assets of the Latin American Portfolio. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Portfolio to the extent that the total operating expenses of the Portfolio
exceed 1.70% of the average daily net assets of the Class A shares and 1.95%
of the average daily net assets of the Class B shares. In the fiscal period
ended December 31, 1995, the Adviser waived management fees and/or
reimbursed expenses totalling $146,000 for the Portfolio.

* Commencement of Operations.

** Annualized.

13
<PAGE>
PROSPECTUS SUMMARY

THE FUND

The Fund consists of twenty-eight 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 offers Class A shares and, except for the
International Small Cap, Money Market and Municipal Money Market Portfolios,
also offers Class B shares. Each portfolio has its own investment objective and
policies designed to meet its specific goals. The investment objective of each
Portfolio described in this Prospectus is as follows:

-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 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 $1 billion.

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

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

-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.

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 equity securities of non-U.S. issuers which, in the
aggregate, replicate broad country indices.

-The CHINA GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in 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 equity securities of emerging country issuers.

-The INTERNATIONAL MAGNUM PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country (as defined in "Investment Objective and Policies" below)
weightings determined by the Adviser.

14
<PAGE>
-The GOLD PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of foreign and domestic issuers engaged in
gold-related activities.

U.S. EQUITY:

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

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

-The EQUITY GROWTH PORTFOLIO seeks long-term capital appreciation by
investing in growth-oriented equity securities of large capitalization
companies.

-The MICROCAP PORTFOLIO seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of small corporations.

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued equity securities 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 equity
securities 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 equity securities 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.

-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.

15
<PAGE>
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 December 31, 1995 had approximately $57.4 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

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares, offered
only by the Multiclass Portfolios, are offered at net asset value with no sales
commission, but with a 12b-1 fee, which is accrued daily and paid quarterly,
equal to 0.25% of the Class B shares' average daily net assets on an annualized
basis. Share purchases may be made by sending investments directly to the Fund
or through the Distributor. Shares in a Portfolio account opened prior to
January 2, 1996 were designated Class A shares on January 2, 1996. For a
Multiclass Portfolio account opened on or after January 2, 1996 (a "New
Multiclass Account"), the minimum initial investment is $500,000 for Class A
shares of each Multiclass Portfolio and $100,000 for Class B shares of each
Multiclass Portfolio. The International Equity Portfolio is currently closed to
new investors with the exception of certain Morgan Stanley customers. The
minimum initial investment for Class A shares of the International Small Cap
Portfolio is $500,000. Certain exceptions to the foregoing minimums apply to (1)
shares in a Multiclass Portfolio account opened prior to January 2, 1996 (each,
a "Pre-1996 Multiclass Account") with a value of $100,000 or more on March 1,
1996 (a "Grandfathered Class A Account"); (2) Portfolio accounts held by
officers of the Adviser and its affiliates; and (3) certain advisory or asset
allocation accounts, such as Total Funds Management accounts, managed by Morgan
Stanley or its affiliates, including the Adviser ("Managed Accounts"). The
Adviser reserves the right in its sole discretion to determine which of such
advisory or asset allocation accounts shall be Managed Accounts. For information
regarding Managed Accounts, please contact your Morgan Stanley account
representative or the Fund at the telephone number provided on the cover of this
Prospectus. Shares in a Pre-1996 Multiclass Account with a value of less than
$100,000 on March 1, 1996 (a "Grandfathered Class B Account") converted to Class
B shares on March 1, 1996. The minimum investment levels may be waived at the
discretion of the Adviser for (i) certain employees and customers of Morgan
Stanley or its affiliates and certain trust departments, brokers, dealers,
agents, financial planners, financial services firms, or investment advisers
that have entered into an agreement with Morgan Stanley or its affiliates; and
(ii) retirement and deferred compensation plans and trusts used to fund such
plans, including, but not limited to, those defined in Section 401(a), 403(b) or
457 of the Internal Revenue Code of 1986, as amended, and "rabbi trusts." See
"Purchase of Shares -- Minimum Investment and Account Sizes; Conversion from
Class A to Class B Shares."

16
<PAGE>
The minimum subsequent investment for each Portfolio account is $1,000
(except for automatic reinvestment of dividends and capital gains distributions
for which there is no minimum). Such subsequent investments will be applied to
purchase additional shares in the same class held by a shareholder in a
Portfolio account. See "Purchase of Shares -- Additional Investments."

HOW TO REDEEM

Class A shares of each Portfolio or Class B shares of each Multiclass
Portfolio may be redeemed at any time, without cost, at the net asset value per
share of shares of the applicable class next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. Certain redemptions may cause involuntary redemption or automatic
conversion. Class A or Class B shares held in New Multiclass Accounts are
subject to involuntary redemption if shareholder redemption(s) of such shares
reduces the value of such account to less than $100,000 for a continuous 60-day
period. Involuntary redemption does not apply to Managed Accounts, Grandfathered
Class A Accounts and Grandfathered Class B Accounts, regardless of the value of
such accounts. Class A shares in a New Multiclass Account will convert to Class
B shares if shareholder redemption(s) of such shares reduces the value of such
account to less than $500,000 for a continuous 60-day period. Class B shares in
a New Multiclass Account will convert to Class A shares if shareholder purchases
of additional Class B shares or market activity cause the value of the Class B
shares in the New Multiclass Account to increase to $500,000 or more. If a
shareholder reduces its total investment in Class A shares of the International
Small Cap Portfolio to less than $500,000, the investment may be subject to
redemption. See "Purchase of Shares -- Minimum Account Sizes and Involuntary
Redemption of Shares" and "Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio will invest
in securities of foreign issuers, which are subject to certain risks not
typically associated with domestic securities. The Latin American Portfolio
invests in securities of issuers located in developing countries and emerging
markets. These securities may impose greater liquidity risks and other risks not
typically associated with investing in more established markets. The Latin
American Portfolio may invest up to 20% of its total assets in lower rated debt
securities ("junk bonds"), including sovereign debt, which securities are
considered speculative with regard to the payment of interest and return of
principal. See "Investment Objectives and Policies" and "Additional Investment
Information." In addition, each Portfolio may invest in repurchase agreements,
lend its portfolio securities, purchase securities on a when-issued basis or
delayed delivery basis and invest in forward foreign currency exchange
contracts, and the Latin American Portfolio may invest in foreign currency
exchange options to hedge currency risk associated with investment in non-U.S.
dollar denominated securities. Each Portfolio may invest in short-term or
medium-term debt securities or hold cash or cash equivalents for temporary
defensive purposes. The International Small Cap Portfolio may invest in
securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. The Global Equity,
Japanese Equity, Latin American and Asian Equity Portfolios may also invest
indirectly in securities through sponsored or unsponsored American Depositary
Receipts. 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.

17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

THE GLOBAL EQUITY PORTFOLIO

The Global Equity Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of issuers throughout the world,
including U.S. issuers. With respect to the Portfolio, equity securities include
common and preferred stocks, convertible securities, and rights and warrants to
purchase common stocks. The Adviser expects that, under normal circumstances, at
least 20% of the Portfolio's total assets will be invested in the common stocks
of U.S. issuers. The remainder of the Portfolio will be invested in issuers
located throughout the world, including those located in emerging markets. At
least 65% of the total assets of the Portfolio will be invested in equity
securities under normal circumstances. Securities in emerging markets may not be
as liquid as those in developed markets and pose greater risks. Although the
Portfolio intends to invest primarily in securities listed on stock exchanges,
it will also invest in securities traded in over-the-counter markets. The
Adviser's orientation to individual stock selection and value driven approach in
selecting investments for the Portfolio are the same as those described for the
International Equity Portfolio discussed below. The Portfolio may invest in
American, Global or other types of Depositary Receipts.

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. It is anticipated that the annual turnover rate of
the Portfolio will not exceed 100% under normal circumstances.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

THE INTERNATIONAL EQUITY PORTFOLIO

The investment objective of the International Equity Portfolio is to provide
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 equity securities of non-U.S. issuers. With respect to
the Portfolio, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. At
least 65% of the total assets of the Portfolio will be invested in such equity
securities under normal circumstances.

The Adviser's approach in selecting investments for the Portfolio is
oriented to individual stock selection, and is value driven. In selecting stocks
for the Portfolio, the Adviser initially identifies those stocks which it
believes to be undervalued in relation to the issuer's assets, cash flow,
earnings and revenues, and then evaluates the future value of such stocks by
running the results of an in-depth study of the issuer through a dividend
discount model. The Adviser utilizes the research of a number of sources,
including its affiliate in Geneva, Switzerland, Morgan Stanley Capital
International, in identifying attractive securities, and applies a number of

18
<PAGE>
proprietary screening criteria to identify those securities it believes to be
undervalued. Portfolio holdings are regularly reviewed and subjected to
fundamental analysis to determine whether they continue to conform to the
Adviser's value criteria. Securities which no longer conform to such value
criteria are sold.

While the Portfolio is not subject to any specific geographic
diversification requirements, it currently intends to diversify investments
among countries to reduce currency risk. Investments will be made primarily in
equity securities of companies domiciled in developed countries, but may also be
made in equity securities of companies domiciled in developing countries as
well. Although the Portfolio intends to invest primarily in equity securities
listed on stock exchanges, it will also invest in equity securities traded in
over-the-counter markets. Securities of companies in developing countries may
pose liquidity risks. The Portfolio will not, under normal circumstances, invest
in equity securities of U.S. issuers. For a description of special
considerations and certain risks associated with investments in foreign issuers,
see "Additional Investment Information." The Portfolio may temporarily reduce
its equity holdings for defensive purposes in response to adverse market
conditions and invest in domestic, Eurodollar and foreign short-term money
market instruments. See "Investment Objectives and Policies" in the Statement of
Additional Information.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

THE INTERNATIONAL SMALL CAP PORTFOLIO

The investment objective of the International Small Cap Portfolio is to
provide 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 equity securities of non-U.S. issuers with equity market
capitalizations of less than $1 billion. With respect to the Portfolio, equity
securities include common and preferred stocks, convertible securities, and
rights and warrants to purchase common stocks. At least 65% of the total assets
of the Portfolio will be invested in such equity securities under normal
circumstances. The Portfolio will invest a minimum of 80% of its total assets in
companies with market capitalizations of less than $1 billion. The Adviser's
orientation to individual stock selection and value driven approach in selecting
investments for the Portfolio are the same as those described for the
International Equity Portfolio discussed above.

While the Portfolio is not subject to any specific geographic
diversification requirements, it currently intends to diversify investments
among countries to reduce currency risk. Investments will be made primarily in
equity securities of companies domiciled in developed countries, but limited
investments may also be made in the securities of companies domiciled in
developing countries as well, and will not normally exceed 5% of the total
assets of the Portfolio. Although the Portfolio intends to invest primarily in
equity securities listed on stock exchanges, it may also invest in equity
securities traded in over-the-counter markets. Small capitalization securities
involve greater issuer risk and the markets for such securities may be more
volatile and less liquid. Securities of companies in developing countries may
pose liquidity risks. The Portfolio will not, under normal circumstances, invest
in equity securities of U.S. issuers. For a description of special
considerations and certain risks associated with investments in foreign issuers,
see "Additional Investment Information." The Portfolio may

19
<PAGE>
temporarily reduce its equity holdings for defensive purposes in response to
adverse market conditions and invest in domestic, Eurodollar and foreign
short-term money market instruments. See "Investment Objectives and Policies" in
the Statement of Additional Information.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

THE ASIAN EQUITY PORTFOLIO

The investment objective of the Asian Equity Portfolio is to provide
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 equity securities which are traded on recognized stock
exchanges of the countries in Asia described below and in equity securities of
companies organized under the laws of an Asian country whose business is
conducted principally in Asia. The Portfolio does not intend to invest in equity
securities which are principally traded in markets in Japan or in companies
organized under the laws of Japan. The Portfolio may also invest in American
Depositary Receipts of Asian issuers that are traded on stock exchanges in the
U.S.

The Asian countries to be represented in the Portfolio, which include the
following countries, have the more established markets in the region: Hong Kong,
Singapore, Malaysia, Thailand, the Philippines and Indonesia. The Portfolio may
also invest in common stocks traded on markets in Taiwan, South Korea, India,
Pakistan, Sri Lanka and other developing markets that are open to foreign
investment. There is no requirement that the Fund, at any given time, invest in
any or all of the countries listed above or in any other Asian countries. The
Fund has no set policy for allocating investments among the various Asian
countries. Allocation of investments will depend on the relative attractiveness
of the stocks of issuers in the respective countries. Government regulation and
restrictions in many of the countries of interest may limit the amount, mode and
extent of investment in companies of such countries.

At least 65% of the total assets of the Portfolio will be invested in common
stocks of Asian countries under normal circumstances. The remaining portion of
the Fund will be kept in any combination of debt instruments, bills and bonds of
governmental entities in Asia and the U.S., in notes, debentures, and bonds of
companies in Asia and in money market instruments of the U.S. With respect to
the Portfolio, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks.

The Adviser's orientation to individual stock selection and value driven
approach in selecting investments for the Portfolio are similar to those
described for the International Equity Portfolio discussed above. The Adviser
will analyze assets, revenues and earnings of an issuer. In selecting industries
and particular issuers, the Adviser will evaluate costs of labor and raw
materials, access to technology, export of products and government regulation.
Although the Portfolio seeks to invest in larger companies, it may invest in
medium and small companies that, in the Adviser's view, have potential for
growth.

The Portfolio's investments will include securities of issuers located in
developing countries and traded in emerging markets. These securities pose
greater liquidity risks and other risks than securities of companies

20
<PAGE>
located in developed countries and traded in more established markets. For a
description of special considerations and certain risks associated with
investment in foreign issuers, see "Additional Investment Information -- Foreign
Investment." See also "Investment Objectives and Policies" in the Statement of
Additional Information.

Although the Portfolio intends to invest primarily in equity securities
listed on stock exchanges, it will also invest in equity securities traded in
over-the-counter markets. Securities traded in over-the-counter markets pose
liquidity risks. The Portfolio may also invest in initial public offerings in
the form of oversubscriptions or private placements. Such investments generally
entail short-term liquidity risks.

Pending investment or settlement, and for liquidity purposes, the Portfolio
may invest in domestic, Eurodollar and foreign short-term money market
instruments. The Portfolio may also purchase such instruments to temporarily
reduce its equity holdings for defensive purposes in response to adverse market
conditions.

Because of the lack of hedging facilities in the currency markets of Asia,
no active currency hedging strategy is anticipated currently. Instead, each
investment will be considered on a total currency adjusted basis with the U.S.
dollar as a base currency. The Portfolio may engage in currency exchange
contracts. See "Statement of Additional Information -- Forward Foreign Currency
Exchange Contracts" in this Prospectus.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

THE EUROPEAN EQUITY PORTFOLIO

The investment objective of the European Equity Portfolio is to provide
long-term capital appreciation. The Portfolio seeks to achieve this objective by
investing primarily in equity securities of European issuers, including those
located in Germany, France, Switzerland, Belgium, Italy, Finland, Sweden,
Denmark, Norway and the United Kingdom. Investments may also be made in equity
securities of issuers located in the smaller and emerging markets of Europe.
With respect to the Portfolio, equity securities include common and preferred
stocks, convertible securities, and rights and warrants to purchase common
stocks. At least 65% of the total assets of the Portfolio will be invested in
equity securities of European issuers under normal circumstances. The Adviser's
orientation to individual stock selection and value-driven approach in selecting
investments for the Portfolio are the same as those described for the
International Equity Portfolio discussed above. Securities in emerging markets
may not be as liquid as those in developed markets and pose greater risks.
Although the Portfolio intends to invest primarily in equity securities listed
on stock exchanges, it will also invest in equity securities traded in
over-the-counter markets.

21
<PAGE>
circumstances, invest in equity securities of U.S. issuers. For a description of
special considerations and certain risks associated with investments in foreign
issuers, see "Additional Investment Information." The Portfolio may temporarily
reduce its equity holdings for defensive purposes in response to adverse market
conditions and invest in domestic, Eurodollar and foreign short-term money
market instruments. See "Investment Objectives and Policies" in the Statement of
Additional Information.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

THE JAPANESE EQUITY PORTFOLIO

The investment objective of the Japanese Equity Portfolio is to provide
long-term capital appreciation. The Portfolio seeks to achieve this objective by
investing primarily in equity securities of Japanese issuers. With respect to
the Portfolio, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks.

Under normal conditions, the Portfolio will invest at least 80% of its total
assets in securities issued by entities that are organized under the laws of
Japan, affiliates of Japanese companies (wherever organized or traded), and
issuers not organized under the laws of Japan but deriving 50% or more of their
revenues from Japan. These securities may include debt securities (issued by the
Japanese government or by Japanese companies) when the Adviser believes that the
potential for capital appreciation from investment in debt securities equals or
exceeds that available from investment in equity securities. In making
investment decisions, the Adviser will consider, among other factors, the size
of the company, its financial condition, its marketing and technical strengths
and its competitiveness in its industry. All debt securities in which the
Portfolio may invest will be rated no lower than BBB by Standard & Poor's
Ratings Group ("S&P"), Baa by Moody's Investors Service, Inc. ("Moody's") or BBB
by Mikuni Inc. ("Mikuni") (a Japanese rating agency) or, if unrated, of
comparable quality as determined by the Adviser. Securities rated BBB by S&P,
Baa by Moody's or BBB by Mikuni have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments on such securities than would
be the case with higher rated securities. The convertible securities in which
the Portfolio may invest include bonds, notes, debentures, preferred stocks and
other securities convertible into common stocks and may be fixed-income or zero
coupon debt securities. Prior to their conversion, convertible securities may
have characteristics similar to nonconvertible debt securities.

The Portfolio currently intends to focus its investments in Japanese
companies that have an active market for their shares and that the Adviser
believes show a potential for better than average growth. The Portfolio
anticipates that most equity securities of Japanese companies in which it
invests, either directly or indirectly by means of American Depositary Receipts
or convertible debentures, will be listed on securities exchanges in Japan. The
Portfolio may also invest in equity securities of Japanese companies that are
traded in an over-the-counter market.

22
<PAGE>
The Portfolio may also invest up to 20% of its total assets in cash or
short-term government or other short-term prime obligations or repurchase
agreements so that funds may be readily available for general corporate
purposes, including the payment of dividends, redemptions and operating
expenses, for investment in securities through exercise of rights or otherwise.
For temporary defensive purposes, the Portfolio may invest some or all of its
assets in cash or such short-term obligations.

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. It is anticipated that the annual portfolio
turnover rate of the Portfolio will not exceed 100% under normal circumstances.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

RISK FACTORS RELATING TO JAPANESE EQUITY PORTFOLIO. Investors should
consider the following factors inherent in investment in Japan.

TRADE ISSUES. Because of the concentration of Japanese exports in highly
visible products such as automobiles, machine tools and semiconductors, and the
large trade surpluses ensuing therefrom, Japan is in a difficult phase in its
relation with its trading partners, particularly the U.S., where the trade
imbalance is the greatest. Retaliatory action taken by such trading partners
could affect the ability of Japanese companies to export goods to these
countries, which could negatively impact the value of securities in the
Portfolio.

CURRENCY FACTORS. Over a long period of years, the yen has generally
appreciated in relation to the dollar. The yen's appreciation would add to the
returns of dollars invested through the Portfolio in Japan. A decline in the
value of the yen would have the opposite effect, adversely affecting the value
of the Portfolio in dollar terms.

THE JAPANESE STOCK MARKET. Like other stock markets, the Japanese stock
market can be volatile. A decline in the market may have an adverse effect on
the availability of credit and on the value of the substantial stock holdings of
Japanese companies in particular, Japanese banks, insurance companies and other
financial institutions. A decline in the market may contribute to weakness in
Japan's economy. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios even after the recent market decline. Differences
in accounting methods make it difficult to compare the earnings of Japanese
companies with those of companies in other countries, especially the U.S. In
general, however, reported net income in Japan is understated relative to U.S.
accounting standards. In addition, Japanese companies have tended historically
to have higher growth rates than U.S. companies, and Japanese interest rates
have generally been lower than in the U.S., both of which factors tend to result
in lower discount rates and higher price-earnings ratios in Japan than in the
U.S.

THE LATIN AMERICAN PORTFOLIO

The investment objective of the Latin American Portfolio is long-term
capital appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities (i) of companies organized in or for which the
principal securities trading market is in Latin America, (ii) denominated in a
Latin American currency issued by companies to finance operations in Latin
America, or (iii) of companies that alone or on a consolidated basis derive 50%
or more of their annual revenues from either goods produced, sales made or
services

23
<PAGE>
performed in Latin America (collectively, "Latin American issuers") and by
investing, from time to time, in debt securities issued or guaranteed by a Latin
American government or governmental entity ("Sovereign Debt"). Income is not a
consideration in selecting investments or an investment objective.

Under normal conditions, substantially all, but not less than 80%, of the
Portfolio's total assets are invested in equity securities of Latin American
issuers and in Sovereign Debt. For purposes of this Prospectus, unless otherwise
indicated, Latin America consists of Argentina, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and
Venezuela. See "Additional Investment Information -- Foreign Investment Risk
Factors" for a discussion of the nature of information publicly available for
non-U.S. companies. With respect to the Portfolio, equity securities include
common and preferred stocks, convertible securities, rights and warrants to
purchase common stocks, equity interests in trusts or partnerships, and
American, Global or other types of Depositary Receipts. See "Additional
Investment Information -- Depositary Receipts."

The Portfolio focuses its investments in listed equity securities in
Argentina, Brazil, Chile and Mexico, the most developed capital markets in Latin
America. The Portfolio expects, under normal market conditions, to have at least
55% of its total assets invested in listed equity securities of issuers in these
four countries. In addition, the Portfolio actively invests in markets in other
Latin American countries such as Colombia, Peru and Venezuela. The Portfolio is
not limited in the extent to which it may invest in any Latin American country
and intends to invest opportunistically as markets develop. The portion of the
Portfolio's holdings in any Latin American country will vary from time to time,
although the portion of the Portfolio's assets invested in Chile may tend to
vary less than the portions invested in other Latin American countries because,
with limited exceptions, capital invested in Chile currently cannot be
repatriated for one year. See "Additional Investment Information -- Investment
Procedures: Argentina, Brazil, Chile and Mexico" in the Statement of Additional
Information.

The governments of some Latin American countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatizations"). The Adviser believes that
privatizations may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Portfolio in privatizations in
appropriate circumstances. In certain Latin American countries, the ability of
foreign entities, such as the Portfolio, to participate in privatizations may be
limited by local law, or the terms on which the Portfolio may be permitted to
participate may be less advantageous than those for local investors. There can
be no assurance that Latin American governments will continue to sell companies
currently owned or controlled by them or that any privatization programs in
which the Portfolio participates will be successful.

Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use Sovereign Debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Portfolio may participate in Latin American debt conversion programs. The
Adviser will evaluate opportunities to enter into debt conversion transactions
as they arise.

24
<PAGE>
Equity securities in which the Portfolio may invest include those that are
neither listed on a stock exchange nor traded over-the-counter. As a result of
the absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. See "Additional Investment Information
- -- Non-Publicly Traded Securities, Private Placements and Restricted Securities"
below.

To the extent that the Portfolio's assets are not invested in equity
securities of Latin American issuers or in Sovereign Debt, the remainder of the
assets may be invested in (i) debt securities of Latin American issuers, (ii)
equity or debt securities of corporate or governmental issuers located in
countries outside Latin America, and (iii) short-term and medium-term debt
securities of the type described under "Additional Investment Information --
Temporary Investments" below. The Portfolio's assets may be invested in debt
securities when the Portfolio believes that, based upon factors such as relative
interest rate levels and foreign exchange rates, such debt securities offer
opportunities for long-term capital appreciation. It is likely that many of the
debt securities in which the Portfolio will invest will be unrated. The
Portfolio may invest up to 20% of its total assets in securities that are
determined by the Adviser to be comparable to securities rated below investment
grade by S&P or Moody's ("junk bonds"). Such lower-quality securities are
regarded as being predominantly speculative and involve significant risks. See
"Additional Investment Information -- Lower Rated Debt Securities."

The Portfolio's holdings of lower-quality debt securities will consist
predominantly of Sovereign Debt, much of which trades at substantial discounts
from face value and which may include Sovereign Debt comparable to securities
rated as low as D by S&P or C by Moody's. The Portfolio may invest in Sovereign
Debt to hold and trade in appropriate circumstances, as well as to use to
participate in debt for equity conversion programs. The Portfolio will invest in
Sovereign Debt only when the Portfolio believes such investments offer
opportunities for long- term capital appreciation. Investment in Sovereign Debt
involves a high degree of risk and such securities are generally considered to
be speculative in nature. See "Additional Investment Information -- Sovereign
Debt."

For temporary defensive purposes, the Portfolio may invest less than 80% of
its total assets in Latin American equity securities and Sovereign Debt, in
which case the Portfolio may invest in other equity or debt securities or 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 hold
cash. See "Additional Investment Information -- Temporary Investments."

The Portfolio may enter into forward foreign currency exchange contracts and
foreign currency futures contracts, purchase and write (sell) put and call
options on securities, foreign currency and on foreign currency futures
contracts, and enter into stock index and interest rate futures contracts and
options thereon. See "Additional Investment Information." There currently are
limited options and futures markets for Latin American currencies, securities
and indexes, and the nature of the strategies adopted by the Adviser and the
extent to which those strategies are used depends on the development of those
markets. The Portfolio may also from time to time lend securities (but not in
excess of 20% of its total assets) from its portfolio to brokers, dealers and
financial institutions. See "Additional Investment Information -- Loans of
Portfolio Securities."

The Portfolio will not invest more than 25% of its total assets in one
industry except and to the extent, and only for such period of time as, the
Board of Directors determines in view of the considerations discussed below that
it is appropriate and in the best interest of the Portfolio and its shareholders
to invest more than 25% of the Portfolio's total assets in companies involved in
the telecommunications industry or financial services industry,

25
<PAGE>
respectively. Since the securities markets of Latin American countries are
emerging markets characterized by a relatively small number of issues, it is
possible that one or more markets may on occasion be dominated by issues of
companies engaged in these two industries. In addition, it is possible that
government privatizations in certain Latin American countries, which currently
represent a primary source of new issues in many Latin American markets and
often represent attractive investment opportunities, will occur in these two
industries. As a result, the Portfolio has adopted a policy under which it may
invest more than 25% of its total assets in securities of issuers in such
industries. The Portfolio would only take this action if the Board of Directors
determines that the Latin American markets are dominated by securities of
issuers in such industries and that, in light of the anticipated return,
investment quality, availability and liquidity of the issues in such industries,
the Portfolio's ability to achieve its investment objective would, in light of
its investment policies and limitations, be materially adversely affected if the
Portfolios were not able to invest greater than 25% of its total assets in such
industries. In the event that the Board of Directors permits greater than 25% of
the Portfolio's total assets to be invested in the telecommunications or
financial services industry, the Portfolio may be exposed to increased
investment risks peculiar to that industry. The Portfolio will notify its
shareholders of any decision by the Board of Directors to permit (or cease)
investments of more than 25% of the Portfolio's total assets in the
telecommunications or financial services industry. Such notice will, to the
extent applicable, include a discussion of any increased investment risks
peculiar to such industry to which the Portfolio may be exposed.

The Portfolio intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade for short-term gain. Accordingly, it
is anticipated that the annual portfolio turnover rate normally will not exceed
50%, although in any particular year, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. The rate of
portfolio turnover will not be a limiting factor when the Portfolio deems it
appropriate to purchase or sell securities. 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.

Any remaining assets of the Portfolio not invested as described above may be
invested in certain securities or obligations as set forth in "Additional
Investment Information" below.

ADDITIONAL INVESTMENT INFORMATION

BORROWING AND OTHER FORMS OF LEVERAGE. The Latin American Portfolio is
authorized to borrow money from banks and other entities in an amount equal to
up to 33 1/3% of its total assets (including the amount borrowed) less all
liabilities and indebtedness other than the borrowing, and may use the proceeds
of the borrowing for investment purposes or to pay dividends. Borrowing creates
leverage which is a speculative characteristic. Although the Portfolio is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Portfolio after taking into account considerations
such as the costs of borrowing and the likely investment returns on securities
purchased with borrowed monies. Borrowing by the Portfolio will create the
opportunity for increased net income but, at the same time, will involve special
risk considerations. Leveraging resulting from borrowing will magnify declines
as well as increases in the Portfolio's net asset value per share and net yield.

The Portfolio expects that all of its borrowing will be made on a secured
basis. The Portfolio's Custodian will either segregate the assets securing the
borrowing for the benefit of the lenders or arrangements will be made

26
<PAGE>
with a suitable sub-custodian. If assets used to secure the borrowing decrease
in value, the Portfolio may be required to pledge additional collateral to the
lender in the form of cash or securities to avoid liquidation of those assets.

DEPOSITARY RECEIPTS. The Asian Equity, Global Equity, Latin American and
Japanese Equity Portfolios may invest in American Depositary Receipts ("ADRs")
and the Global Equity and Latin American Portfolios may also invest in other
Depositary Receipts, including Global Depositary Receipts ("GDRs"), European
Depositary Receipts ("EDRs") and other Depositary Receipts (which, together with
ADRs, GDRs and EDRs, are hereinafter collectively referred to as "Depositary
Receipts"), to the extent that such Depositary Receipts become available. ADRs
are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of Depositary Receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, 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. The Portfolio may invest in sponsored and unsponsored
Depositary Receipts. 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.

FOREIGN INVESTMENT. 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
and other reporting standards and requirements comparable to those applicable to
U.S. companies. There may also be less government supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the U.S. Many
foreign securities markets have substantially less volume than U.S. national
securities exchanges, and securities of some foreign issuers are less liquid and
more volatile than securities of comparable domestic issuers. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the U.S. Dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes, which may decrease the
net return on foreign investments as compared to dividends and interest paid to
the Portfolios by U.S. companies, and 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. Many of the emerging or
developing countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.

Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and the Portfolios may temporarily hold uninvested reserves
in bank deposits in foreign currencies. Therefore, the value

27
<PAGE>
of each Portfolio's assets as measured in U.S. dollars may be affected favorably
or unfavorably by changes in currency rates and in exchange control regulations,
and the Portfolios may incur costs in connection with conversions between
various currencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Portfolio may enter into
forward foreign currency exchange contracts ("forward contracts") that provide
for the purchase of or sale of an amount of a specified currency at a future
date. Purposes for which such contracts may be used include protecting against a
decline in a foreign currency against the U.S. dollar between the trade date and
settlement date when a Portfolio purchases or sells securities, locking in the
U.S. dollar value of dividends declared on securities held by a Portfolio and
generally protecting the U.S. dollar value of securities held by a Portfolio
against exchange rate fluctuations. Such contracts may also be used as a
protective measure against the effects of fluctuating rates of currency exchange
and exchange control regulations. While such forward contracts may limit losses
to a Portfolio as a result of exchange rate fluctuation, they will also limit
any gains that may otherwise have been realized. The Latin American Portfolio
may also enter into foreign currency futures contracts. See "Investment
Objectives and Policies -- Forward Currency Exchange Contracts" in the Statement
of Additional Information. Except in circumstances where segregated accounts are
not required by the 1940 Act and the rules adopted thereunder, the Portfolio's
Custodian will place cash, U.S. government securities, or high-grade debt
securities into a segregated account of a Portfolio in an amount equal to the
value of such Portfolio's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Portfolio's commitments with respect to such
contracts. See "Investment Objectives and Policies -- Forward Foreign Currency
Exchange Contracts" in the Statement of Additional Information.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In order to remain
fully invested, and to reduce transaction costs, the Latin American Portfolio
may utilize appropriate securities index futures contracts, options on
securities index futures contracts, appropriate interest rate futures contracts
and options on interest rate futures contracts to a limited extent. Because
transactions costs associated with futures and options may be lower than the
costs of investing in securities directly, it is expected that the use of index
futures and options to facilitate cash flows may reduce a Portfolio's overall
transactions costs. The Portfolio may sell indexed financial futures contracts
in anticipation of or during a market decline to attempt to offset the decrease
in market value of securities in its portfolio that might otherwise result. When
the Portfolio is not fully invested and the Adviser anticipates a significant
market advance, it may purchase stock index futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that it intends to purchase. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the futures position but under unusual market conditions, a futures position may
be terminated without the corresponding purchase of securities. The Portfolio
will engage in futures and options transactions only for hedging purposes.

The Portfolio will engage only in transactions in securities index futures
contracts, interest rate futures contracts and options thereon which are traded
on a recognized securities or futures exchange. There currently are limited
securities index futures, interest rate futures and options on such futures
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such markets.

28
<PAGE>
The Portfolio may enter into futures contracts and options thereon provided
that not more than 5% of the Portfolio's total assets are required as deposit to
secure obligations under such contracts, and provided further that not more than
20% of the Portfolio's total assets, in the aggregate are invested in futures
contracts and options transactions.

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

INVESTMENT FUNDS. Some emerging countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging countries through investment funds which have been specifically
authorized. The Latin American Portfolio may invest in these investment funds
subject to the provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"), and other applicable laws as discussed below under "Investment
Restrictions." If the Portfolio invests in such investment funds, the
Portfolio's shareholders will bear not only their proportionate share of the
expenses of the Portfolio (including operating expenses and the fees of the
Adviser), but also will indirectly bear similar expenses of the underlying
investment funds.

Certain of the investment funds referred to in the preceding paragraph are
advised by the Adviser. The Portfolio may, to the extent permitted under the
1940 Act and other applicable law, invest in these investment funds. If the
Portfolio does elect to make an investment in such an investment fund, it will
only purchase the securities of such investment fund in the secondary market.

LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its securities to
brokers, dealers, domestic and foreign banks or other financial institutions for
the purpose of increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral or by a letter of credit at least
equal to the market value of the securities loaned plus accrued interest or
income. There may be risks of delay in recovery of the securities or even loss
of rights in the collateral should the borrower of the securities fail
financially. A Portfolio will not enter into securities loan transactions
exceeding in the aggregate 33 1/3% of the market value of the Portfolio's total
assets (exceeding in the aggregate 20% of such value with respect to the Latin
American Portfolio). For more detailed information about securities lending, see
"Investment Objectives and Policies" in the Statement of Additional Information.

LOWER RATED DEBT SECURITIES. The Latin American Portfolio may invest in
lower rated or unrated debt securities, commonly referred to as "junk bonds." In
addition, the emerging country debt securities in which the

29
<PAGE>
Portfolio may invest are subject to risk and will not be required to meet a
minimum rating standard and may not be rated. Fixed income securities are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The market values of fixed-income securities tend to vary inversely with
the level of interest rates. Yields and market values of lower rated and unrated
debt securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Fluctuations in the value of
the Portfolio's investments will be reflected in the Portfolio's net asset value
per share. The Adviser considers both credit risk and market risk in making
investment decisions for the Portfolio. Investors should carefully consider the
relative risks of investing in lower rated and unrated debt securities and
understand that such securities are not generally meant for short-term
investing.

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

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

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

30
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolios are permitted to invest in money
market instruments, although each Portfolio intends 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
U.S. Government and its agencies and instrumentalities, obligations of foreign
sovereignties, other debt securities, commercial paper including bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit) and repurchase agreements. For more detailed information about these
money market investments, see "Description of Securities and Ratings" in the
Statement of Additional Information.

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The International Small Cap Portfolio and the Latin American
Portfolio may invest in securities that are neither listed on a stock exchange
nor traded over-the-counter, including privately placed securities. Such
unlisted equity securities may involve a higher 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, more 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, each
Portfolio may not invest more than 15% of its net 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, as amended (the "1933 Act"). Nevertheless, to the extent
it can do so consistent with the foregoing limits, each 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 144A securities. Rule
144A securities may become illiquid if qualified institutional buyers are not
interested in acquiring the securities. Investors should note that investments
of 5% of a Portfolio's total assets may be considered a speculative activity and
may involve greater risk and expense to the Portfolio.

OPTIONS TRANSACTIONS. The Latin American Portfolio may seek to increase its
return or may hedge all or a portion of its portfolio investments through
options with respect to securities in which the Portfolio may invest. The
Portfolio will engage in transactions in such options which are traded on a
recognized securities or futures exchange and in over-the-counter options where
the option counterparty has a minimum net worth of $20 million. There currently
are limited options markets in emerging countries, including Latin American
countries and the nature of the strategies adopted by the Adviser and the extent
to which those strategies are used will depend on the development of such option
markets.

The Latin American Portfolio may write (i.e., sell) covered call options
which give the purchaser the right to buy the underlying security covered by the
option from the Portfolio at the stated exercise price. A "covered" call option
means that so long as the Portfolio is obligated as the writer of the option, it
will own (i) the

31
<PAGE>
underlying securities subject to the option, or (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option. As a matter of operating policy, the value of the
underlying securities on which options will be written at any one time will not
exceed 5% of the total assets of the Portfolio. In addition, as a matter of
operating policy, the Portfolio will neither purchase or write put options on
securities nor purchase call options on securities (except in connection with
closing purchase transactions).

The Latin American Portfolio will receive a premium from writing call
options, which increases the Portfolio's return on the underlying security in
the event the option expires unexercised or is closed out at a profit. By
writing a call, the Portfolio will limit its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Portfolio's obligation as writer of the option
continues. Thus, in some periods the Portfolio will receive less total return
and in other periods greater total return from writing covered call options than
it would have received from its underlying securities had it not written call
options.

The Latin American Portfolio may also write (i.e., sell) covered put
options. 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). 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. The Portfolio may sell put options to receive the premiums paid by
purchasers and to close out a long put option position. In addition, when the
Adviser wishes to purchase a security at a price lower than its current market
price, the Portfolio may write a covered put at an exercise price reflecting the
lower purchase price sought.

The Portfolio may also purchase put or call options on individual securities
or baskets of securities. 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"), 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 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. There are no other limits on the Portfolio's ability to purchase
call and put options.

The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by the
Portfolio and the prices of options relating to the securities purchased or sold
by the Portfolio; and (ii) possible lack of a liquid secondary market for an
option. Options that are not traded on an exchange (OTC options) are often
considered illiquid and may be difficult to value. In the opinion of the
Adviser, the risk that that Portfolio will be unable to close out an options
contract will be minimized by only entering into options transactions for which
there appears to be a liquid secondary market.

32
<PAGE>
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The aggregate of certain repurchase
agreements and certain other investments is limited as set forth under
"Investment Limitations."

SHORT SALES

The Latin American Portfolio may from time to time sell securities short
without limitation, 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 does not own (but has borrowed) in anticipation of a decline
in the market price of securities. When the Portfolio makes a short sale, 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, 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 can equal only the
total amount invested.

SOVEREIGN DEBT. The Latin American Portfolio's holdings of lower-quality
debt securities will consist predominantly of Sovereign Debt, much of which
trades at substantial discounts from face value. The Portfolio may invest in
Sovereign Debt of emerging market countries to hold and trade in appropriate
circumstances and to participate in debt to equity conversion programs.
Investment in Sovereign Debt involves a high degree of risk and such securities
are generally considered speculative in nature. The issuer or governmental
authorities that control the repayment of Sovereign Debt may not be able or
willing to repay the principal and/or interest when due in accordance with the
terms of such debt. A sovereign debtor's willingness or ability to repay
principal and interest due in a timely manner may be affected by, among other
factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the

33
<PAGE>
International Monetary Fund (the "IMF") and the political constraints to which a
sovereign debtor may be subject. Sovereign debtors may also be dependent on
expected disbursements from foreign governments, multilateral agencies and
others abroad to reduce principal and interest arrearages on their debt. The
commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on a sovereign debtor's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts. In certain instances, the Portfolio may invest in Sovereign
Debt that is in default as to payments of principal and/or interest. To the
extent the Portfolio is holding any non-performing Sovereign Debt, it may incur
additional expenses in connection with any restructuring of the issuer's
obligations or in otherwise enforcing its rights thereunder.

TEMPORARY INVESTMENTS. During periods in which the Adviser believes changes
in economic, financial or political conditions make it advisable, for temporary
defensive purposes the Latin American Portfolio may reduce its holdings in
equity and other securities and 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 emerging country governments (Latin American 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 emerging country banks (Latin American 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 emerging country corporations (Latin
American corporations) meeting the Portfolio's credit quality standards; and (e)
repurchase agreements with banks and broker-dealers with respect to such
securities. See "Additional Investment Information -- Repurchase Agreements."
For temporary defensive purposes, the Portfolio intends 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 in most
emerging countries, including most Latin American countries.)

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio of the Fund may
purchase securities on a when-issued or delayed delivery basis. In such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take as long as a month or more after the date of the purchase
commitment but will take place no more than 120 days after the trade date. Each
Portfolio will maintain with the Custodian a separate account with a segregated
portfolio of high-grade debt securities or equity 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, among other factors, the
general level of interest rates has changed. It is a current policy of each
Portfolio not to enter into when-issued commitments or delayed delivery
securities 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.

34
<PAGE>
INVESTMENT LIMITATIONS

Each Portfolio, except the Latin American Portfolio, is a diversified
investment company under the 1940 Act and is therefore subject to the following
limitations: (a) as to 75% of its total assets, a Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government and its agencies and instrumentalities, and
(b) a Portfolio may not own more than 10% of the outstanding voting securities
of any one issuer. The Latin American Portfolio is a non-diversified investment
company under the 1940 Act, which means that the Latin American 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 Latin American
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 their respective portfolio securities. The Latin American
Portfolio, however, intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended, for qualification as a
regulated investment company. See "Taxes."

Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. Each Portfolio
may not (i) enter into repurchase agreements with more than seven days to
maturity if, as a result, more than 15% of the market value of the Portfolio's
net assets would be invested in these 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, except the Latin American Portfolio is not
subject to such limits on borrowing and may borrow from banks and other entities
in amounts not in excess of 33 1/3% of its total assets (including the amount
borrowed) less liabilities; (iii) 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; (iv) invest in fixed
time deposits with a duration of over seven calendar days; or (v) 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. Set forth below as an annual
percentage of average daily net assets are the management fees payable to the
Adviser quarterly by each Portfolio pursuant to the terms of the Investment
Advisory Agreement. The fees of each of the Portfolios, which involve
international investments, are higher than those of most investment companies
because they involve international investments but the Adviser believes the fees
are comparable to those of investment companies with similar

35
<PAGE>
objectives. The Adviser has agreed to a reduction in the fees payable to it and
to reimburse the Portfolios, if necessary, if such fees would cause total annual
operating expenses of the Portfolios to exceed the maximums set forth in the
table below.

<TABLE>
<CAPTION>
MAXIMUM TOTAL ANNUAL
OPERATING
EXPENSES AFTER FEE
MANAGEMENT WAIVERS
ABSENT FEE ---------------------
PORTFOLIO WAIVERS CLASS A CLASS B
- ---------------------------------------- ----------- -------- --------
<S> <C> <C> <C>
Global Equity 0.80% 1.00% 1.25%
International Equity 0.80% 1.00% 1.25%
International Small Cap 0.95% 1.15% N/A
Asian Equity 0.80% 1.00% 1.25%
European Equity 0.80% 1.00% 1.25%
Japanese Equity 0.80% 1.00% 1.25%
Latin American 1.10% 1.70% 1.95%
</TABLE>

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business,
provides a broad range of portfolio management services to customers in the
United States and abroad. At December 31, 1995, the Adviser, together with its
affiliated asset management companies, managed investments totaling
approximately $57.4 billion, including approximately $41.9 billion under active
management and $15.5 billion as Named Fiduciary or Fiduciary Adviser. See
"Management of the Fund" in the Statement of Additional Information.

PORTFOLIO MANAGERS The following individuals have primary portfolio
management responsibility for the Portfolios noted below:

GLOBAL EQUITY PORTFOLIO -- FRANCES CAMPION. Frances Campion joined the
Adviser in January 1990 as a Global Equity Fund Manager and is now a Principal
of Morgan Stanley. Her responsibilities include day to day management of the
Global Equity product. Prior to joining the Adviser, Ms. Campion was a U.S.
equity analyst with Lombard Odler Limited where she had responsibility for the
management of global portfolios. Ms. Campion has ten years global investment
experience. She is a graduate of University of College, Dublin.

INTERNATIONAL EQUITY PORTFOLIO -- DOMINIC CALDECOTT. Dominic Caldecott is a
Managing Director and is responsible for research and stock selection in the
Pacific Basin and has been primarily responsible for managing the Portfolio's
assets since its inception. He has ten years professional experience, primarily
in Tokyo, Hong Kong, and Seoul. Prior to joining Morgan Stanley, he worked with
GT Management Group in Tokyo and Hong Kong, specializing in Pacific Basin
investment management. He became a Vice President of Morgan Stanley in 1987, a
principal in 1989, and a Managing Director in 1991. He is responsible for a
number of Pacific Basin investment programs for clients of Morgan Stanley. Mr.
Caldecott is a graduate of New College, Oxford, England.

INTERNATIONAL SMALL CAP PORTFOLIO -- MARGARET NAYLOR. Margaret Naylor is a
Principal of Morgan Stanley and works with Dominic Caldecott on Pacific Basin
research and stock selection. She joined the Adviser in March 1987 and has been
primarily responsible for managing the Portfolio's assets since December 1992.
Prior

36
<PAGE>
to joining the Adviser she spent three years at the Trade Policy Research
Centre, an independent research unit. Ms. Naylor is a graduate of the University
of York. Ms. Naylor became a Vice President of Morgan Stanley in 1993.

ASIAN EQUITY PORTFOLIO -- EAN WAH CHIN. Ean Wah 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 been primarily responsible for managing
the Portfolio's assets 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 of one of the largest portfolios in Asia. Ms. Chin was an ASEAN scholar
educated at the University of Singapore.

EUROPEAN EQUITY PORTFOLIO -- ROBERT SARGENT. Robert Sargent joined Morgan
Stanley International in May, 1986, and transferred to the Adviser in June,
1987. Mr. Sargent is now a Principal of Morgan Stanley and has been primarily
responsible for managing the Portfolio's assets since its inception. As the fund
manager with primary responsibility for continental European stock selection and
portfolio management, Mr. Sargent is closely involved with the Adviser's
fundamental research effort and company visiting program. He is a graduate of
York University, Toronto, Canada.

JAPANESE EQUITY PORTFOLIO -- DOMINIC CALDECOTT AND KUNIHIKO
SUGIO. Information about Mr. Caldecott is included under International Equity
Portfolio above. Mr. Caldecott is responsible for research and stock selection
in the Pacific Basin and has been primarily responsible for managing the
Portfolio's assets since its inception. Kunihiko Sugio joined the Adviser in
December 1993 as a Vice President and manages dedicated Japanese equity
portfolios. He has been primarily responsible for managing the Portfolio's
assets since its inception. Prior to joining Morgan Stanley, he worked with
Baring International Investment Management, Tokyo, where he was a Director and
fund manager. He graduated from Wakayama Kokuritsu University.

LATIN AMERICAN PORTFOLIO -- ROBERT L. MEYER. Robert Meyer joined the
Adviser in 1989 and is now a Principal of Morgan Stanley, with primary
responsibility for the Adviser's investments in all of Latin America and Israel.
He has had primary responsibility for managing the Portfolio's assets since its
inception. Robert is co-manager of the Latin American Discovery Fund, Inc. and
worked previously in the U.S. equity group at the Adviser. He was born in
Argentina and has a B.A. in Economics and Political Science from Yale College
and a J.D. from Harvard Law School.

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
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, assistance in the preparation of the Fund's registration statements
under federal and state laws. The Administration Agreement also provides that
the Administrator through its agents will provide the Fund dividend disbursing
and transfer agent services. For its services under the Administration
Agreement, the Fund pays the Adviser a monthly fee which on an annual basis
equals 0.15% of the average daily net assets of each Portfolio.

Under an agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase"), Chase provides certain administrative services to the Fund. In a
merger completed on September 1, 1995, Chase succeeded to all of the rights and
obligations under the U.S. Trust Administration Agreement between the Adviser
and the

37
<PAGE>
United States Trust Company of New York ("U.S. Trust"), pursuant to which U.S.
Trust had agreed to provide certain administrative services to the Fund.
Pursuant to a delegation clause in the U.S. Trust Administration Agreement, U.S.
Trust delegated its administration responsibilities to Chase Global Funds
Services Company ("CGFSC"), formerly known as Mutual Funds Service Company,
which after the merger with Chase is a subsidiary of Chase and will continue to
provide certain administrative services to the Fund. The Adviser supervises and
monitors such administrative services provided by CGFSC. 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. CGFSC'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.

LOCAL ADMINISTRATORS FOR THE LATIN AMERICAN PORTFOLIO

The Portfolio has entered into an administration agreement (the "Chilean
Administration Agreement") with Bice Chileconsult Agente de Valores S.A. (the
"Chilean Administrator"), a Chilean corporation, pursuant to which the Chilean
Administrator acts as the Portfolio's legal representative in Chile. Under the
Chilean Administration Agreement, the Chilean Administrator performs various
services for the Portfolio, including making and obtaining all exchange control
filings and approvals required for the Portfolio to effect investment and other
transactions in Chile and to remit moneys and other assets outside of Chile,
obtaining from the relevant authorities in Chile all confirmations or consents
relating to the tax status of the Portfolio and all tax rebates and other
payments which may be due to the Portfolio, and performing all other
administrative duties in Chile required by Chilean law or Chilean authorities
through instructions or regulations to be performed. For its services, the
Chilean Administrator is paid an annual fee by the Fund equal to the greater of
0.125% of the Portfolio's average weekly net assets invested in Chile or
$20,000, paid monthly. Unless terminated by the Fund's Board of Directors upon
60 days' prior written notice, or by the Chilean Administration upon 90 days'
prior written notice, the Chilean Administration Agreement will continue
automatically from year to year.

The Latin American Portfolio is required under Brazilian law to have a local
administrator in Brazil. Unibanco-Uniao (the "Brazilian Administrator"), a
Brazilian corporation, acts as the Portfolio's Brazilian administrator pursuant
to an agreement with the Portfolio (the "Brazilian Administration Agreement").
Under the Brazilian Administration Agreement, the Brazilian Administrator
performs various services for the Portfolio, including effecting the
registration of the Portfolio's foreign capital with the Central Bank of Brazil,
effecting all foreign exchange transactions related to the Portfolio's
investments in Brazil and obtaining all approvals required for the Portfolio to
make remittances of income and capital gains and for the repatriation of the
Portfolio's investments pursuant to Brazilian law. For its services, the
Brazilian Administrator is paid an annual fee equal to 0.125% of the Portfolio's
average weekly net assets invested in Brazil, paid monthly. The principal office
of the Brazilian Administrator is located at Avenida Eusebio Matoso, 891, Sao
Paulo, S.P., Brazil. The Brazilian Administration Agreement is terminable upon
six months' notice by either party; the Brazilian Administrator may be replaced
only by an entity authorized to act as a joint manager of a managed portfolio of
bonds and securities under Brazilian law.

The Portfolio is required under Colombian law to have a local administrator
in Colombia. CitiTrust S.A. (the "Colombian Administrator"), a Colombian Trust
Company, acts as the Portfolio's Colombian administrator

38
<PAGE>
pursuant to an agreement with the Portfolio (the "Colombian Agreement"). Under
the Colombian Agreement, the Columbian Administrator performs various services
for the Portfolio, including effecting all foreign exchange transactions related
to the Portfolio's foreign capital with the Central Bank of Colombia, effecting
all foreign exchange transactions related to the Portfolio's investments in
Colombia and obtaining all approvals required for the Portfolio to make
remittances of income and capital gains and the repatriation of the Portfolio's
investment pursuant to Colombian law. For its services, the Colombian
Administrator is paid an annual fee of $1,000 plus .20% per transaction. The
principal office of the Colombian Administrator is located at Sociedad
Fiduciaria International S.A., 8-89, Piso 2, Santa Fe de Bogota, Colombia. The
Colombian Agreement is terminable upon 30 days' notice by either party. The
Colombian Administrator may be replaced only by an entity authorized to act as a
joint manager of a managed portfolio of bonds and securities under Colombian
law.

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.

The Portfolios currently offer only the classes of shares offered by this
Prospectus. The Portfolios may in the future offer one or more classes of shares
with features, distribution expenses or other expenses that are different from
those of the classes currently offered.

The Fund has adopted a Plan of Distribution with respect to the Class B
shares of each Multiclass Portfolio pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan"). Under each Plan, the Distributor is entitled to receive from
each Multiclass Portfolio a distribution fee, which is accrued daily and paid
quarterly, of 0.25% of the Class B shares' average daily net assets on an
annualized basis. The distributor expects to reallocate most of its fee to its
investment representatives. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and each of
the Distributor and the Adviser is free to make additional payments out of its
own assets to promote the sale of Fund shares, including payments that
compensate financial institutions for distribution services or shareholder
services.

Each Plan is designed to compensate the Distributor for its services, not to
reimburse the Distributor for its expenses, and the Distributor may retain any
portion of the fee that it does not expend in fulfillment of its obligations to
the Fund.

EXPENSES. Each 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

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

39
<PAGE>
MINIMUM INVESTMENT AND ACCOUNT SIZES; CONVERSION FROM CLASS A TO CLASS B SHARES

For a Multiclass Portfolio account opened on or after January 2, 1996 (a
"New Multiclass Account"), the minimum initial investment and minimum account
size are $500,000 for Class A shares of each Portfolio and $100,000 for Class B
shares of each Multiclass Portfolio. The International Equity Portfolio is
currently closed to new investors, with the exception of certain Morgan Stanley
customers. The minimum initial investment for Class A shares of the
International Small Cap Portfolio is $500,000. Managed Accounts may purchase
Class A shares without being subject to such minimum initial investment or
minimum account size requirements for a Portfolio account. Officers of the
Adviser and its affiliates are subject to the minimums for a Portfolio account,
except they may purchase Class B shares subject to a minimum initial investment
and minimum account size of $5,000 for a Multiclass Portfolio account.

If the value of a New Multiclass Account containing Class A shares falls
below $500,000 (but remains at or above $100,000) because of shareholder
redemption(s), the Fund will notify the shareholders, and if the account value
remains below $500,000 (but remains at or above $100,000) for a continuous
60-day period, the Class A shares in such account will convert to Class B shares
and will be subject to the distribution fee and other features applicable to the
Class B shares. The Fund, however, will not convert Class A shares to Class B
shares based solely upon changes in the market that reduce the net asset value
of shares. Under current tax law, conversions between share classes are not a
taxable event to the shareholder.

Shares in a Portfolio account opened prior to January 2, 1996 were
designated Class A shares on January 2, 1996. Shares in a Multiclass Portfolio
account opened prior to January 2, 1996 (each, a "Pre-1996 Multiclass Account")
with a value of $100,000 or more on March 1, 1996 (a "Grandfathered Class A
Account") remained Class A shares regardless of account size thereafter. Except
for shares in a Managed Account, shares in a Pre-1996 Multiclass Account with a
value of less than $100,000 on March 1, 1996 (a "Grandfathered Class B Account")
converted to Class B shares on March 1, 1996. Grandfathered Class A Accounts and
Managed Accounts are not subject to conversion from Class A shares to Class B
shares.

Investors may also invest in the Fund by purchasing shares through a trust
department, broker, dealer, agent, financial planner, financial services firm or
investment adviser. An investor may be charged an additional service or
transaction fee by that institution. The minimum investment levels may be waived
at the discretion of the Adviser for (i) certain employees and customers of
Morgan Stanley or its affiliates and certain trust departments, brokers,
dealers, agents, financial planners, financial services firms, or investment
advisers that have entered into an agreement with Morgan Stanley or its
affiliates; and (ii) retirement and deferred compensation plans and trusts used
to fund such plans, including, but not limited to, those defined in Section
401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as amended, and
"rabbi trusts." The Fund reserves the right to modify or terminate the
conversion features of the shares as stated above at any time upon 60-days'
notice to shareholders.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

If the value of a New Multiclass Account falls below $100,000 because of
shareholder redemptions(s), the Fund will notify the shareholder, and if the
account value remains below $100,000 for a continuous 60-day period, the shares
in such account are subject to redemption by the Fund and, if redeemed, the net
asset value of such shares will be promptly paid to the shareholder. The Fund,
however, will not redeem shares based solely upon changes in the market that
reduce the net asset value of shares.

40
<PAGE>
For purposes of redemptions by the Fund, the foregoing minimum account size
requirements do not apply to New Multiclass Accounts containing Class B shares
held by officers of the Adviser or its affiliates. However, if the value of such
account held by an officer of the Adviser or its affiliates falls below $5,000
because of shareholder redemption(s), the Fund will notify the shareholder, and
if the account value remains below $5,000 for a continuous 60-day period, the
shares in such account are subject to redemption by the Fund and, if redeemed,
the net asset value of such shares will be promptly paid to the shareholder.

Grandfathered Class A Accounts, Grandfathered Class B Accounts and Managed
Accounts are not subject to involuntary redemption.

If a shareholder reduces its total investment in Class A shares of the
International Small Cap Portfolio to less than $500,000, the investment may be
subject to redemption.

The Fund reserves the right to modify or terminate the involuntary
redemption features of the shares as stated above at any time upon 60-days'
notice to shareholders.

CONVERSION FROM CLASS B TO CLASS A SHARES

If the value of Class B shares in a Multiclass Portfolio account increases,
whether due to shareholder share purchases or market activity, to $500,000 or
more, the Class B shares will convert to Class A shares. Under current tax law,
such conversion is not a taxable event to the shareholder. Class A shares
converted from Class B shares are subject to the same minimum account size
requirements that are applicable to New Multiclass Accounts containing Class A
shares, as stated above. The Fund reserves the right to modify or terminate this
conversion feature at any time upon 60-days' notice to shareholders.

INITIAL PURCHASES DIRECTLY FROM THE FUND

The Fund's determination of an investor's eligibility to purchase shares of
a given class will take precedence over the investor's selection of a class.
Assuming the investor is eligible for the class, the Fund will select the most
favorable class for the investor, if the investor has not done so.

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
Class A shares of each Portfolio and $100,000 minimum for Class B shares of
each Multiclass Portfolio, with certain exceptions for Morgan Stanley
employees and select customers) payable to "Morgan Stanley Institutional
Fund, Inc. -- [portfolio name]", to:

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

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

41
<PAGE>
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 class 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, the class selected, and the account number
assigned to you) as follows:

Chase Manhattan Bank, N.A.
One Manhattan Plaza
New York, NY 10081-1000
ABA #021000021
DDA #910-2-733293
Attn: Morgan Stanley Institutional Fund, Inc.
Ref: (Portfolio name, your account number, your account name)

Please call the Funds at 1-800-548-7786 prior to wiring funds.

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

Purchase orders for shares of the Portfolios which are received prior to the
regular close of the NYSE (currently 4:00 p.m. Eastern Time) will be executed
at the price computed on the date of receipt as long as the Transfer Agent
receives payment by check or in Federal Funds prior to the regular close of
the NYSE on such day.

Federal Funds purchase orders will be accepted only on a day on which the Fund
and Chase (the "Custodian Bank") are open for business. Your bank may charge a
service fee for wiring Federal 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
and, therefore, will not be earning dividends. Your bank may charge a service
fee for wiring funds.

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000 for each portfolio, except for automatic reinvestment of dividends and
capital gains distributions for which there are no minimums) by purchasing
shares at net asset value by mailing a check to the Fund (payable to "Morgan
Stanley Institutional Fund -- [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, the portfolio name and the class selected be specified in the
letter or wire to assure proper crediting to your account. In order to ensure
that your wire orders are invested promptly,

42
<PAGE>
you are requested to notify one of the Fund's representatives (toll-free
1-800-548-7786) prior to the wire date. Additional investments will be applied
to purchase additional shares in the same class held by a shareholder in a
Portfolio account.

OTHER PURCHASE INFORMATION

The purchase price of the Class A and Class B 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 regular close of the New York Stock
Exchange ("NYSE"), which is currently 4:00 p.m. Eastern Time, will be executed
at the price computed on the date of receipt; an order received after the
regular close of the NYSE will be executed at the price computed on the next day
the NYSE is open as long as the Transfer Agent receives payment by check or in
Federal Funds prior to the regular close of the NYSE on such day.

Although the legal rights of Class A and Class B shares will be identical,
the different expenses borne by each class will result in different net asset
values and dividends. The net asset value of Class B shares will generally be
lower than the net asset value of Class A shares as a result of the distribution
expense charged to Class B shares. It is expected, however, that the net asset
value per share of the two classes will tend to converge immediately after the
recording of dividends which will differ by approximately the amount of the
distribution expense accrual differential between the classes.

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

To 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 the
Distributor.

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio 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 Portfolios and the Portfolios' performance, the
Fund may in its discretion bar a stockholder that engages in excessive trading
of shares of any class 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 class of a portfolio of
the Fund within any 120-day period. As an example, exchanging shares of
portfolios of the Fund as follows amounts to excessive trading: exchanging Class
A shares of Portfolio A for Class A shares of Portfolio B, then exchanging Class
A shares of Portfolio B for Class A shares of Portfolio C and again exchanging
Class A shares of Portfolio C for Class A shares of Portfolio B within a 120-day

43
<PAGE>
period. 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, such as TFM
Accounts, 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 has been collected, which
may take up to eight business days after purchase. The Fund will redeem Class A
shares of each Portfolio or Class B shares of each Multiclass Portfolio at the
next determined net asset value of shares of the applicable class. On days that
both the NYSE and the Custodian Bank are open for business, the net asset values
per share of each of the Portfolios are determined at the regular close of
trading of the NYSE (currently 4:00 p.m. Eastern Time). Shares of each Portfolio
may be redeemed by mail or telephone. No charge is made for redemptions, except
for the imposition of the 1% transaction fee described under "Fund Expenses"
above, which may be assessed in connection with redemptions of shares of the
International Small Cap Portfolio. 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 a Portfolio.

BY MAIL

Each Portfolio will redeem its Class A or Class B 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 Chase Global Funds
Services Company, 73 Tremont Street, Boston, Massachusetts 02108-3913.

"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 class
and 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 regular
mail or express mail and it will be implemented at the net asset value next
determined after it is received.

44
<PAGE>
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. 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". 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 a Portfolio in lieu of
cash in conformity with applicable rules of the Commission.
Distributions-in-kind will be made in readily marketable securities. Investors
may incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.

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 FEATURES

You may exchange shares that you own in any Portfolio for shares of any
other available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares." Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available

45
<PAGE>
without shareholder election. Before you make an exchange, you should read the
prospectus of the portfolio(s) in which you seek to invest. Because an exchange
transaction is treated as a redemption followed by a purchase, an exchange would
be considered a taxable event 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. The exchange privilege may be
modified or terminated by the Fund at any time upon 60-days' notice to
shareholders.

BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name, class of shares and account number of your current Portfolio,
the name(s) of the portfolio(s) and class(es) of shares 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, class of shares
and account number of your current Portfolio, the name(s) 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 the class(es) of the portfolios
involved in the exchange of shares 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.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolio's shares may result in involuntary
conversion or redemption of your shares. See "Purchase of Shares" above.

VALUATION OF SHARES

The net asset value per share of a class of shares of each of the Portfolios
is determined by dividing the total market value of the Portfolio's investments
and other assets attributable to such class, less any liabilities attributable
to such class, by the total number of outstanding shares of each class of the
Portfolio. Net asset value is calculated separately for each class of the
Portfolios. 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 average bid and asked prices quoted on such valuation date by reputable
brokers.

46
<PAGE>
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recently quoted bid price, or,
when securities exchange valuations are used, at the latest quoted sale price on
the day of valuation. If there is no such reported sale, the latest quoted bid
price will be used. Securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used.

The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine the 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 for such currencies against the U.S. dollar last quoted by
any major bank.

Although the legal rights of Class A and Class B shares will be identical,
the different expenses borne by each class will result in different net asset
values and dividends for the class. Dividends will differ by approximately the
amount of the distribution expense accrual differential among the classes. The
net asset value of Class B shares will generally be lower than the net asset
value of the Class A shares as a result of the distribution expenses charged to
Class B shares.

PERFORMANCE INFORMATION

The Fund may from time to time advertise the "total return" for each class
of a Portfolio. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.

Each of the Portfolios may advertise "total return" which shows what an
investment in a class of 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 in the same class 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 on
redemption. The Fund may also include comparative performance information in
advertising or marketing the Portfolios' shares, including data from Lipper
Analytical Services, Inc., other industry publications, business periodicals,
rating services and market indices.

The performance figures for Class B shares will generally be lower than
those for Class A shares because of the distribution fee charged to Class B
shares.

47
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

All income dividends and capital gains distributions for a class of shares
will automatically be reinvested in additional shares at net asset value, except
that, upon written notice to the Fund or by checking off the appropriate box in
the Distribution Option Section on the Account Registration Form, a shareholder
may elect to receive income dividends and capital gains distributions in cash.

Each Portfolio expects to distribute substantially all of its net investment
income in the form of annual dividends. Net realized gains, if any, after
reduction for any available tax loss carryforwards 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 monthly client statement following such purchase
of shares. Consequently, confirmation of such purchases will not be provided at
the time of completion of such purchases as might otherwise be required by Rule
10b-10. Net capital gains, if any, will be distributed annually.

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.

Because of the distribution fee and any other expenses that may be
attributable to the Class B shares, the net income attributable to and the
dividends payable on Class B shares will be lower than the net income
attributable to and the dividends payable on Class A shares. As a result, the
net asset value per share of the classes of the Portfolios will differ at times.
Expenses of the Portfolios allocated to a particular class of shares thereof
will be borne on a pro rata basis by each outstanding share of that class.

TAXES

The following summary of certain 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 Portfolios or their shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.

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

Each Portfolio distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from a Portfolio's net investment income are taxable to shareholders
as ordinary income, whether received in cash or in additional shares. Such
dividends paid by a Portfolio will generally qualify for the 70%
dividends-received deduction for corporate shareholders only to the extent of
the aggregate 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.

48
<PAGE>
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), including any available capital loss carryforwards, prior to the end of
each calendar year to avoid liability for federal excise tax.

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

The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the Shareholder's adjusted basis in the sold, exchanged or 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.
The conversion of Class A shares to Class B shares should not be a taxable
event to the shareholder.

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.

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, each
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 each
Portfolio intends to meet Code requirements to pass through credit for such
taxes, there can be no assurance that each 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 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 each of the Fund's Portfolios and directs the Adviser to use its
best efforts to obtain the best available price and most favorable execution
with respect to all transactions for the Portfolios. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage services which, in
the opinion of the Adviser, are necessary for the achievement of better
execution, provided the Adviser believes this to be in the best interest of the
Fund.

49
<PAGE>
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 Portfolios or who act as agents in the purchase of shares of
the Portfolios for their clients.

In purchasing and selling securities for a 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 Portfolios, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by a Portfolio may also be appropriate for
other clients served by the Adviser. If purchase or sale of securities
consistent with the investment policies of a Portfolio and one or more of these
other clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Portfolio and 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 Fund's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley. In order
for Morgan Stanley or its affiliates to effect any portfolio transactions for
the Portfolios, 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.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Fund was organized as a Maryland corporation on June 16, 1988. The
Articles of Incorporation, as amended and restated, permit the Fund to issue up
to 34 billion 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. Subject to the notice period to shareholders with
respect to shares held by shareholders, 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

50
<PAGE>
respect to such classes. The shares of common stock of each Portfolio are
currently classified into two classes, the Class A shares and the Class B
shares, except for the International Small Cap, Money Market and Municipal Money
Market Portfolios, which only offer Class A shares.

The shares of each Portfolio, when issued, will be fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
The shares have no preference as to conversion, exchange, dividends, retirement
or other features and have no pre-emptive rights. The shares of each Portfolio
have non-cumulative 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, the Adviser 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

As of September 1, 1995, domestic securities and cash are held by Chase
which replaced U.S. Trust as the Fund's domestic custodian. Chase is not an
affiliate of the Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("MSTC"), an affiliate of the Adviser and the Distributor,
acts as the Fund's custodian for foreign assets held outside the United States
and employs subcustodians 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. MSTC may also hold
certain domestic assets for the Fund. For more information on the custodians,
see "General Information -- Custody Arrangements" in the Statement of Additional
Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

Chase Global Funds Services 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.

51
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
GLOBAL EQUITY, INTERNATIONAL EQUITY, INTERNATIONAL SMALL CAP,
ASIAN EQUITY, EUROPEAN EQUITY, JAPANESE EQUITY
AND LATIN AMERICAN PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

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

ACCOUNT REGISTRATION FORM
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
ACCOUNT INFORMATION If you need assistance in filling out this form
Fill in where applicable 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 1. / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
First Name Initial Last Name
2. JOINT TENANTS 2. / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
(RIGHTS OF First Name Initial Last Name
SURVIVORSHIP / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
PRESUMED UNLESS First Name Initial Last Name
TENANCY IN COMMON
IS INDICATED)
- ---------------------------------------------------------------------------------------------------------------
3. CORPORATIONS, 3. / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
TRUSTS AND OTHERS
Please call the / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Fund for additional
documents that may / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
be required to set
up account and to
authorize transactions.
Type of / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
Registration: ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)

/ / TRUST __________________________________ / / OTHER (Specify) ______________________________
- ---------------------------------------------------------------------------------------------------------------
B) MAILING ADDRESS Street or P.O. Box / / / / / / / / / / / / / / / / / / / / / / / / / / / /

Please fill in
completely, including City / / / / / / / / / / / / / State / / / Zip / / / / / /-/ / / / / / / /
telephone number(s).
Home Business
Telephone No./ / / /-/ / / /-/ / / / / Telephone No./ / / /-/ / / /-/ / / /
/ / United States / / Resident / /Non-Resident Alien:
Citizen Alien Indicate Country of Residence _________
- ---------------------------------------------------------------------------------------------------------------
C) TAXPAYER PART 1. Enter your Taxpayer IMPORTANT TAX INFORMATION
IDENTIFICATION Identification Number. For most You (as a payee) are required by
NUMBER individual taxpayers, this is your law to provide us (as payer) with
If the account is in Social Security Number. your correct Taxpayer Identification
more than one name, TAXPAYER IDENTIFICATION NUMBER Number. Accounts that have a missing
CIRCLE THE NAME OF THE / / / /-/ / / / / / / / / or incorrect Taxpayer Identification
PERSON WHOSE TAXPAYER OR Number will be subject to backup
IDENTIFICATION NUMBER SOCIAL SECURITY NUMBER withholding at a 31% rate on dividends,
IS PROVIDED IN SECTION / / / /-/ / /-/ / / / / distributions and other payments.
A) ABOVE. If no name PART 2. BACKUP WITHHOLDING If you have not provided us with
is circled, the number / / Check this box if you are your correct taxpayer identification
will be considered to be NOT subject to Backup number, you may be subject to
that of the last name Withholding under the a $50 penalty imposed by the Internal
listed. For Custodian provisions of Section Revenue Service.
account of a minor 3406(a)(1)(C) of the Internal Backup withholding is not an
(Uniform Gifts/Transfers Revenue Code. additional tax; the tax liability of
to Minors Acts), give the persons subject to backup withholding
Social Security Number will be reduced by the amount of tax
of the minor. 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 AND For Purchase of the following Portfolio(s):
CLASS SECTION GLOBAL EQUITY PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
(Class A shares INTERNATIONAL SMALL CAP PORTFOLIO / / Class A Shares $____
minimum $500,000 EUROPEAN EQUITY PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
for each Portfolio LATIN AMERICAN PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
and Class B shares INTERNATIONAL EQUITY PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
minimum $100,000 for ASIAN EQUITY PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
the Global Equity, JAPANESE EQUITY PORTFOLIO / / Class A Shares $____ / / Class B Shares $____
International Equity, Total Initial Investment $_____________
Asian Equity,
European Equity,
Japenese Equity and
Latin American Equity
Portfolios). Please
indicate Portfolio,
class and amount.

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

E) METHOD OF Payment by:
INVESTMENT / / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND, INC.--PORTFOLIO NAME)
Please
indicate
portfolio,
manner of / / Exchange $____________ From________________ / / / / / / / / / / /-/ /
payment. Name of Portfolio Account No.

/ / Account previously established by: / / Phone exchange / / Wire on_____/ / / / / / / / / / / /-/ /
Date Account No. (Check
(Previously assigned by the Fund) Digit)

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

F) DISTRIBUTION Income dividends and capital gains distributions (if any) to
OPTION 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 / / I/we hereby authorize the Fund and its ______________________ ________________
AND EXCHANGE OPTION agents to honor any telephone requests Name of COMMERCIAL Bank Bank Account No.
Please select at time of to wire redemption proceeds to the (Not Savings Bank)
initial application if you commercial bank indicated at right and/or ________________
wish to redeem or mail redemption proceeds to the name and Bank ABA No.
exchange shares by telephone. address in which my/our fund account is
A SIGNATURE GUARANTEE IS registered if such requests are believed
REQUIRED IF BANK ACCOUNT IS to be authentic. _________________________________________________
NOT REGISTERED IDENTICALLY
TO YOUR FUND ACCOUNT. THE FUND AND THE FUND'S TRANSFER AGENT WILL Name(s) in which your BANK Account is Established
EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE _________________________________________________
TELEPHONE REQUESTS FOR GENUINE. THESE PROCEDURES INCLUDE REQUIRING Bank's Street Address
REDEMPTIONS OR EXCHANGE THE INVESTOR TO PROVIDE CERTAIN PERSONAL
WILL NOT BE HONORED UNLESS IDENTIFICATION INFORMATION AT THE TIME AN _________________________________________________
THE BOX IS CHECKED. ACCOUNT IS OPENED AND PRIOR TO EFFECTING EACH City State Zip
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.

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

H) INTERESTED PARTY
OPTION
In addition to the account _________________________________________________________________
statement sent to my/our Name
registered address, I/we _________________________________________________________________
hereby authorize the fund
to mail duplicate _________________________________________________________________
statements to the name and Address
address provided at right.
_________________________________________________________________
City State Zip Code

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

I) DEALER
INFORMATION _______________________ _______________________________ ___________
Representative Name Representative No. Branch No.

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

J) SIGNATURE OF The undersigned certify that I/we have full authority and legal
ALL HOLDERS capacity to purchase and redeem shares of the Fund and affirm that I/we
AND TAXPAYER have received a current Prospectus of the Morgan Stanley Institutional
CERTIFICATION Fund, Inc. and agree to be bound by its terms. UNDER THE PENALTIES OF
Sign Here > PERJURY, I/WE CERTIFY THAT THE INFORMATION PROVIDED IN SECTION C)
ABOVE IS TRUE, CORRECT AND COMPLETE.

(X) (X)
__________________________________ ______________________________________
Signature Date Signature Date

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

</TABLE>

<PAGE>

(This page has been left blank intentionally.)

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 6
Prospectus Summary................................ 14
Investment Objectives and Policies................ 18
Additional Investment Information................. 26
Investment Limitations............................ 35
Management of the Fund............................ 35
Purchase of Shares................................ 39
Redemption of Shares.............................. 44
Shareholder Services.............................. 45
Valuation of Shares............................... 46
Performance Information........................... 47
Dividends and Capital Gains Distributions......... 48
Taxes............................................. 48
Portfolio Transactions............................ 49
General Information............................... 50
Account Registration Form
</TABLE>

GLOBAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL SMALL CAP PORTFOLIO
ASIAN EQUITY PORTFOLIO
EUROPEAN EQUITY PORTFOLIO
JAPANESE EQUITY PORTFOLIO
LATIN AMERICAN 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

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