<PAGE>
As filed with the Securities and Exchange Commission on May 24, 1996
File No. 33-23166
811-5624
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT (NO. 33-23166)
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 30
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 31
--------------
MORGAN STANLEY INSTITUTIONAL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 548-7786
Harold J. Schaaff, Jr., Esquire
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas, New York, New York 10020
(Name and Address of Agent for Service)
--------------
COPIES TO:
Warren J. Olsen Richard W. Grant, Esquire
Morgan Stanley Asset Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 2000 One Logan Square
New York, NY 10020 Philadelphia, PA 19103
--------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
/ / ON ________________ PURSUANT TO PARAGRAPH (b)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/ / ON _______________ PURSUANT TO PARAGRAPH (a) OF RULE 485
------------------
Registrant has elected to register an indefinite number of shares pursuant
to Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant
filed its Rule 24f-2 notice for the period ended December 31, 1995 on February
15, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
CROSS REFERENCE SHEET
PART A -INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
Item Number Location in Prospectus for the Fixed Income, Global Fixed Income,
- ----------- Municipal Bond, Mortgage-Backed Securities, High Yield, Money
Market and Municipal Money Market Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis-- Fund Expenses (Estimated for Mortgage-Backed Securities
Portfolio)
Item 3. Condensed Financial Information -- Financial Highlights (for the Fixed
Income, Global Fixed Income, Municipal Bond, High Yield, Money Market
and Municipal Money Market Portfolios only); Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Small Cap Value Equity, Value Equity
- ----------- and Balanced Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the Active Country Allocation
- ----------- Portfolio
---------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for Gold Portfolio
- ----------- -----------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A Location in Prospectus for the Global Equity, International Equity,
Item Number International Small Cap, Asian Equity, European Equity, Japanese
- ----------- Equity and Latin American Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Emerging Markets and Emerging
- ---------- Markets Debt Portfolios
------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the China Growth Portfolio
- ----------- -----------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Equity Growth, Emerging Growth,
- ----------- Microcap and Aggressive Equity Portfolios
--------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated for the MicroCap Portfolio)
Item 3. Condensed Financial Information -- Financial Highlights (for the
Equity Growth, Emerging Growth and Aggressive Equity Portfolios only);
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item number Location in Prospectus for the U.S. Real Estate Portfolio
- ----------- ---------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the International Magnum Portfolio
- ----------- -------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the Technology Portfolio
- ----------- ---------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- *
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A
Item Number Location in Statement of Additional Information for the Fixed
- ----------- Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield, Money Market, Municipal Money Market,
Small Cap Value Equity, Value Equity, Balanced, Active Country
Allocation, Gold, Global Equity, International Equity,
International Magnum, International Small Cap, Asian Equity,
European Equity, Japanese Equity, Latin American, Emerging
Markets, Emerging Markets Debt, China Growth, Equity Growth,
Emerging Growth, MicroCap, Aggressive Equity and U.S. Real Estate
Portfolios
-----------------------------------------------------------------
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- *
Item 13. Investment Objective and Policies -- Investment Objectives and
Policies; Investment Limitations
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund
Item 17. Brokerage Allocation -- *
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Net Asset Value; General
Information
Item 20. Tax Status -- Federal Tax Treatment of Forward Currency and Futures
Contracts
Item 21. Underwriters -- *
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
_______________________
* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
Form N-1A
Item Number Location in Statement of Additional Information for the
- ----------- Technology Portfolio
----------------------------------------------------------------
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- *
Item 13. Investment Objective and Policies -- Investment Objective and
Policies; Investment Limitations
Item 14. Management of the Fund-- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services-- Management of the Fund
Item 17. Brokerage Allocation -- *
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Net Asset Value; General
Information
Item 20. Tax Status -- Federal Tax Treatment of Forward Currency and Futures
Contracts
Item 21. Underwriters -- *
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements
Part C Other Information
- ------ -----------------
Part C contains the information required by the terms contained
therein under the items set forth in the form.
_______________________
* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
The Prospectus for the Fixed Income, Global Fixed Income, Municipal Bond,
Mortgage-Backed Securities, High Yield, Money Market and Municipal Money Market
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Small Cap Value Equity, Value Equity and Balanced
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Active Country Allocation Portfolio, included as
part of Post-Effective Amendment No. 29 to the Registration Statement on Form N-
1A of Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on April 30, 1996 is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the Gold Portfolio, included as part of Post-Effective
Amendment No. 29 to the Registration Statement on Form N-1A of Morgan Stanley
Institutional Fund, Inc. (File No. 33-23166) filed with the Securities and
Exchange Commission on April 30, 1996 is hereby incorporated by reference as if
set forth in full herein.
The Prospectus for the Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity and Latin American
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996, and in final form under Rule 497(e) on May 3, 1996, is hereby
incorporated by reference as if set forth in full herein.
The Prospectus for the Emerging Markets and Emerging Markets Debt
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the China Growth Portfolio, included as part of Post-
Effective Amendment No. 25 to the Registration Statement on Form N-1A of Morgan
Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the Securities
and Exchange Commission on August 1, 1995 is hereby incorporated by reference as
if set forth in full herein.
The Prospectus for the Equity Growth, Emerging Growth, MicroCap and
Aggressive Equity Portfolios, included as part of Post-Effective Amendment No.
29 to the Registration Statement on Form N-1A of Morgan Stanley Institutional
Fund, Inc. (File No. 33-23166) filed with the Securities and Exchange Commission
on April 30, 1996 is hereby incorporated by reference as if set forth in full
herein.
The Prospectus for the U.S. Real Estate Portfolio, included as part of
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of
Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on April 30, 1996 is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the International Magnum Portfolio, included as part of
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of
Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on April 30, 1996 is hereby incorporated by
reference as if set forth in full herein.
<PAGE>
The Statement of Additional Information for the Fixed Income, Global Fixed
Income, Municipal Bond, Mortgage-Backed Securities, High Yield, Money Market,
Municipal Money Market, Small Cap Value Equity, Value Equity, Balanced, Active
Country Allocation, Gold, Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity, Latin American,
Emerging Markets, Emerging Markets Debt, China Growth, Equity Growth, Emerging
Growth, MicroCap, Aggressive Equity, U.S. Real Estate and International Magnum
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
A PORTFOLIO OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-548-7786
----------------
Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company, or mutual fund, which offers redeemable shares in
a series of diversified and nondiversified investment portfolios ("portfolios").
The Fund currently consists of twenty-nine 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 Class B shares of the Technology
Portfolio (the "Portfolio"). The Class A and Class B shares currently offered by
the Portfolio have different minimum investment requirements and fund expenses.
Shares of the portfolios are offered with no sales charge, (with the exception
of International Small Cap Portfolio) exchange or redemption fee.
The TECHNOLOGY PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of companies that, in the opinion of the
Portfolio's investment adviser, are expected to benefit from their involvement
in technology and technology-related industries (as defined in "Investment
Objective and Policies" below).
INVESTORS SHOULD NOTE THAT THE PORTFOLIO MAY INVEST UP TO 15% OF ITS NET
ASSETS IN ILLIQUID ASSETS, INCLUDING RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES THAT ARE DETERMINED TO BE LIQUID). INVESTMENTS IN RESTRICTED
SECURITIES IN EXCESS OF 5% OF THE PORTFOLIO'S ASSETS MAY BE CONSIDERED A
SPECULATIVE ACTIVITY, MAY INVOLVE GREATER RISK AND MAY INCREASE THE PORTFOLIO'S
EXPENSES.
The Portfolio may invest in emerging markets securities, which are subject
to special risks. See "Additional Investment Information -- Foreign Investment."
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 [Date], 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 [DATE], 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Technology Portfolio will incur:
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
Class A................................................................................... None
Class B................................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
Class A................................................................................... None
Class B................................................................................... None
Deferred Sales Load
Class A................................................................................... None
Class B................................................................................... None
Redemption Fees
Class A................................................................................... None
Class B................................................................................... None
Exchange Fees
Class A................................................................................... None
Class B................................................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fee (Net of Fee Waiver)*
Class A................................................................................... 0.74%
Class B................................................................................... 0.74%
12b-1 Fees
Class A................................................................................... None
Class B................................................................................... 0.25%
Other Expenses (Net of Fee Waivers or Expense Reimbursements)
Class A................................................................................... 0.51%
Class B................................................................................... 0.51%
---------
Total Operating Expenses (Net of Fee Waivers or Expense Reimbursements)*
Class A................................................................................... 1.25%
Class B................................................................................... 1.50%
---------
---------
</TABLE>
- --------------
*The Adviser has agreed to waive its advisory fees and/or to reimburse the
Portfolio, if necessary, if such fees would cause the Portfolio's total annual
operating expenses, as a percentage of average daily net assets, to exceed the
percentages set forth in the table above. Absent the fee waiver, the Management
Fee would be 1.00%. Absent the fee waivers and/or expense reimbursements, the
Portfolio's total operating expenses are expected to be 1.51% of the average
daily net assets of the Class A shares and 1.76% of the average daily net
assets of the Class B shares. As a result of this reduction, the Management Fee
stated above is lower than the contractual fee stated under "Management of the
Fund." The Adviser reserves the right to terminate any of its fee waivers
and/or expense reimbursements at any time in its sole discretion. For further
information on Portfolio expenses, see "Management of the Fund."
2
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The purpose of the table above is to assist the investor in understanding
the various expenses that an investor in the Portfolio will bear directly or
indirectly. The Class A and Class B expenses and fees for the Portfolio are
based on estimates, assuming that the average daily net assets of the Class A
shares and Class B shares will each be $50,000,000. "Other Expenses" include
Board of Directors' fees and expenses, amortization of 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").
The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the Portfolio charges
no redemption fees of any kind. The following example is based on the total
operating expenses of the Portfolio after fee waivers.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Technology Portfolio
Class A........................................................ $ 13 $ 40 $ 15 $ 47
Class B........................................................ $ 15 $ 47 $ * $ *
</TABLE>
- ------------------
*Because the Portfolio is new, the Fund has not projected expenses for the
Portfolio beyond the 3-year period shown.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. THE PORTFOLIO IS NEW AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN. INFORMATION ABOUT THE ACTUAL PERFORMANCE OF THE
PORTFOLIO WILL BE CONTAINED IN THE FUND'S FUTURE ANNUAL REPORTS TO SHAREHOLDERS,
WHICH MAY BE OBTAINED WITHOUT CHARGE WHEN THEY BECOME AVAILABLE.
The Fund intends to comply with all state laws that restrict investment
company expenses. Currently, the most restrictive state law requires that the
aggregate annual expenses of an investment company shall not exceed two and
one-half percent (2 1/2%) of the first $30 million of average net assets, two
percent (2%) of the next $70 million of average net assets, and one and one-half
percent (1 1/2%) of the remaining net assets of such investment company. The
Adviser has agreed to a reduction in the amounts payable to it, and to reimburse
the Portfolio, if necessary, if in any fiscal year the sum of the Portfolio's
expenses exceeds the limit set by applicable state law.
3
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund consists of twenty-nine 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. This Prospectus pertains to the
Class A and Class B shares of the Technology Portfolio, the investment objective
of which is as follows:
-The TECHNOLOGY PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of companies that, in the opinion of the
Portfolio's investment adviser, are expected to benefit from their
involvement in technology and technology-related industries (as defined in
"Investment Objective and Policies" below).
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
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 ASIAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Asian issuers.
-The CHINA GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in 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 EUROPEAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of European issuers.
-The GLOBAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of issuers throughout the world,
including U.S. issuers.
-The GOLD PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of foreign and domestic issuers engaged in
gold-related activities.
-The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. 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 weightings determined by the Adviser.
-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.
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<PAGE>
-The JAPANESE EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Japanese issuers.
-The LATIN AMERICAN PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Latin American issuers and debt
securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY:
-The AGGRESSIVE EQUITY PORTFOLIO seeks capital appreciation by investing
primarily in corporate equity and equity-linked securities.
-The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented 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 medium and 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.
5
<PAGE>
-The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with the preservation of principal through investment
primarily in municipal obligations, the interest on which is exempt from
federal income tax.
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 , 1996 had approximately $ billion in assets under
management as an investment manager or as a fiduciary adviser, acts as
investment adviser to the Fund and each of its portfolios. See "Management of
the Fund -- Investment Adviser" and "Management of the Fund -- Administrator."
HOW TO INVEST
Class A shares of the Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of the
Portfolio 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%, on an
annualized basis, of the Class B shares' average daily net assets. Share
purchases may be made by sending investments directly to the Fund or through the
Distributor. The minimum initial investment for shares in a Portfolio account is
$250,000 for Class A shares and $50,000 for Class B shares. Certain exceptions
to the foregoing minimums apply to (1) Portfolio accounts held by officers of
the Adviser and its affiliates and (2) 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. 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."
The minimum subsequent investment for a 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."
6
<PAGE>
HOW TO REDEEM
Class A shares or Class B shares of the 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 a Portfolio account are subject to involuntary redemption if shareholder
redemption(s) of such shares reduces the value of such account to less than
$50,000 for a continuous 60-day period. Involuntary redemption does not apply to
Managed Accounts, regardless of the value of such accounts. Class A shares in a
Portfolio account will convert to Class B shares if shareholder redemption(s) of
such shares reduces the value of such account to less than $250,000 for a
continuous 60-day period. Class B shares in a Portfolio 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 Portfolio account to
increase to $250,000 or more. See "Purchase of Shares -- Minimum Account Sizes
and Involuntary Redemption of Shares" and "Redemption of Shares."
RISK FACTORS
The investment policies of the Portfolio entail certain risks and
considerations of which an investor should be aware. In particular, the
Portfolio's concentration in technology securities presents special risk
considerations. For example, the value of the Portfolio's shares may be
susceptible to factors affecting technology and technology-related industries
and to greater risk and market fluctuation than an investment in a portfolio
that invests in a broader range of portfolio securities. In certain instances,
technology companies may experience dramatic price movements precipitated by
investors' excessive optimism or pessimism with little or no basis in
fundamental economic conditions. Technology and technology-related industries
may produce or use products or services that prove commercially unsuccessful,
become obsolete quickly or become adversely affected by U.S. or foreign
government regulation. Additionally, these companies may be subject to risks of
developing technologies, competitive pressure and other factors and may be
dependent upon consumer and business acceptance as new technologies evolve. See
"Investment Objective and Policies" and "Additional Investment Information." The
Portfolio will invest in securities of foreign issuers, including issuers in
emerging countries, which are subject to certain risks not typically associated
with domestic securities, including (1) restrictions on foreign investment and
on repatriation of capital invested in foreign countries, (2) currency
fluctuations, (3) the cost of converting foreign currency into U.S. dollars, (4)
potential price volatility and lesser liquidity of shares traded on foreign
country securities markets or lack of a secondary trading market for such
securities and (5) political and economic risks, including the risk of
nationalization of expropriation of assets and the risk of war. In addition,
accounting, auditing, financial and other reporting standards in foreign
countries are not equivalent to U.S. standards and therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in foreign countries than in the United States.
There is also generally less governmental regulation of the securities industry
in foreign countries than the United States. Moreover, it may be more difficult
to obtain a judgment in a court outside the United States. See "Investment
Objective and Policies" and "Additional Investment Information." In addition,
the Portfolio may invest in repurchase agreements, lend its portfolio
securities, purchase securities on a when-issued basis and invest in forward
foreign currency exchange contracts to hedge currency risk associated with
investment in non-U.S. dollar denominated securities. Each of these investment
strategies involves specific risks which are described under "Investment
Objective and Policies" and "Additional Investment Information" herein and under
"Investment Objectives and Policies" in the Statement of Additional Information.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is described below, together with
the policies the Portfolio employs in its efforts to achieve this objective. The
Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Portfolio will attain its objective.
The investment policies described below are not fundamental policies and may be
changed without shareholder approval.
The investment objective of the 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 companies that, in the opinion of the Adviser, are
expected to benefit from their investment in technology and technology related
industries. The Portfolio expects to invest in companies in a broad range of
technology and technology related industries including, but not limited to:
computers, software and peripheral products; electronics; communications
equipment and services; entertainment; multimedia; and information services.
With respect to the Portfolio, equity securities include common and preferred
stocks, convertible securities, rights and warrants to purchase common stocks,
and any similar equity interests, such as trust or partnership interests. Such
equity securities may or may not pay dividends or distributions and may or may
not carry voting rights.
The Portfolio may invest up to 35% of its total assets in the equity or debt
securities of foreign issuers to permit the Portfolio to participate
sufficiently in the global technology market. The Portfolio may invest in
Depository Receipts, including American Depository Receipts, Global Depository
Receipts or similar securities that are convertible into securities of foreign
issuers and that evidence ownership of the underlying foreign security.
Depository Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In the event that
Depository Receipts are not available for a particular security, the Portfolio
may invest directly in that security, which may or may not be listed on a
foreign exchange. The securities in which the Portfolio may invest may be
denominated in any currency. The Portfolio may enter into forward foreign
currency exchange contracts in connection with the settlement of foreign
securities transactions or to hedge the underlying currency exposure related to
foreign investments. The Portfolio will not enter into these commitments for
speculative purposes. Investors should recognize that investing in foreign
companies involves certain special considerations that are not typically
associated with investing in U.S. companies. See "Additional Investment
Information" below.
The Portfolio may invest in the equity securities of both large and small
companies. While the Adviser believes that smaller companies can provide greater
growth potential than larger, more established firms, investing in the
securities of smaller companies also involves greater risk and portfolio price
volatility. Among the reasons for this greater price volatility are the lower
degree of market liquidity (the securities of companies with small stock market
capitalizations may trade less frequently and in limited volume) and the greater
sensitivity of small companies to changing economic conditions.
The Portfolio may from time to time and consistent with applicable legal
requirements sell securities short that it owns (i.e., "against the box") or
borrows. See "Additional Investment Information."
Any remaining assets of the Portfolio may be invested in certain securities
and obligations, including derivative securities, as set forth in "Additional
Investment Information" below.
8
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES. The
Portfolio may invest in securities such as convertible securities, preferred
stock, warrants or other securities exchangeable under certain circumstances for
shares of common stock. Warrants are instruments giving holders the right, but
not the obligation, to buy shares of a company at a given price during a
specified period.
The Portfolio may invest in equity-linked securities including, among
others, PERCS, ELKS or LYONs, which are securities that are convertible into, or
the value of which is based upon the value of, equity securities upon certain
terms and conditions. The amount received by an investor at maturity of such
securities is not fixed but is based on the price of the underlying common
stock. It is impossible to predict whether the price of the underlying common
stock will rise or fall. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial, or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market, which
is fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment bank or other lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
The following are three examples of equity-linked securities. The Portfolio
may invest in the securities described below or other similar equity-linked
securities.
PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
are preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, the Portfolio
may be compensated with a substantially higher dividend yield than that on the
underlying common stock. Investors, such as the Portfolio, that seek current
income, find PERCS attractive because a PERCS provides a higher dividend income
than that paid with respect to a company's common stock.
ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt
securities, in that the principal amount received at maturity is not fixed but
is based on the price of the issuer's common stock. ELKS are debt securities
commonly issued in fully registered form for a term of three years under an
indenture trust. At
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<PAGE>
maturity, the holder of ELKS will be entitled to receive a principal amount
equal to the lesser of a cap amount, commonly in the range of 30% to 55% greater
than the current price of the issuer's common stock, or the average closing
price per share of the issuer's common stock, subject to adjustment as a result
of certain dilution events, for the 10 trading days immediately prior to
maturity. Unlike PERCS, ELKS are commonly not subject to redemption prior to
maturity. ELKS usually bear interest during the three-year term at a
substantially higher rate than the dividend yield on the underlying common
stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, the Portfolio may be
compensated with the higher yield, contingent on how well the underlying common
stock does. Investors, such as the Portfolio, that seek current income, find
ELKS attractive because ELKS provide a higher dividend income than that paid
with respect to a company's common stock.
LYONS. Liquid Yield Option Notes ("LYONs") differ from ordinary debt
securities, in that the amount received prior to maturity is not fixed but is
based on the price of the issuer's common stock. LYONs are zero-coupon notes
that sell at a large discount from face value. For an investment in LYONs, the
Portfolio will not receive any interest payments until the notes mature,
typically in 15 to 20 years, when the notes are redeemed at face, or par, value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of
the same maturity, due in part to the fact that the LYONs are convertible into
common stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by the issuer at any time after an initial
period or if the issuer's common stock is trading at a specified price level or
better, or, at the option of the holder, upon certain fixed dates. The
redemption price typically is the purchase price of the LYONs plus accrued
original issue discount to the date of redemption, which amounts to the
lower-than-market yield. The Portfolio will receive only the lower-than-market
yield unless the underlying common stock increases in value at a substantial
rate. LYONs are attractive to investors, like the Portfolio, when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
DEPOSITORY RECEIPTS. The Portfolio is permitted to invest indirectly in
securities of foreign companies through sponsored or unsponsored ADRs, GDRs and
other types of Depository Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depository Receipts"), to the extent
such Depository Receipts are or become available. Depository Receipts are not
necessarily denominated in the same currency as the underlying securities. In
addition, the issuers of the securities underlying unsponsored Depository
Receipts are not obligated to disclose material information in the U.S. and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value of
the Depository Receipts. ADRs are Depository Receipts typically issued by a U.S.
financial institution which evidence ownership interests in a security or pool
of securities issued by a foreign issuer. GDRs and other types of Depository
Receipts are typically issued by foreign banks or trust companies, although they
also may be issued by U.S. financial institutions, and evidence ownership
interests in a security or pool of securities issued by either a foreign or a
U.S. corporation. Generally, Depository Receipts in registered form are designed
for use in the U.S. securities market and Depository Receipts in bearer form are
designed for use in securities markets outside the U.S. For purposes of the
Portfolio's investment policies, the Portfolio's investments in Depository
Receipts will be deemed to be investments in the underlying securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, the Portfolio may enter into forward foreign
currency exchange contracts ("forward contracts"), foreign currency futures
contracts and options on such contracts, and purchase put or call options on
foreign currencies. A
10
<PAGE>
forward contract involves an obligation to purchase or sell an amount of a
specified currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Forward contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks). Except when
used for hedging, the Portfolio's custodian will place cash, U.S. government
securities, or high-grade debt securities into a segregated account of the
Portfolio in an amount equal to the value of the Portfolio's total assets
committed to the consummation of forward 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 the Portfolio's commitments
with respect to such contracts. See "Investment Objective and Policies --
Forward Foreign Currency Exchange Contracts" in the Statement of Additional
Information.
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price set at the time of the contract. Foreign currency futures contracts
traded in the U.S. are traded on regulated exchanges. Parties to a futures
contract must make initial "margin" deposits to secure performance of the
contract, which generally range from 2% to 5% of the contract price. There also
are requirements to make "variation" margin deposits as the value of the futures
contract fluctuates. The Portfolio may not enter into foreign currency futures
contracts if the aggregate amount of initial margin deposits on the Portfolio's
futures positions would exceed 5% of the value of the Portfolio's total assets.
The Portfolio also will be required to segregate assets to cover its futures
contracts obligations.
At the maturity of a forward or futures contract, the Portfolio may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Portfolio will only enter
into such a forward or futures contract if it is expected that there will be a
liquid market in which to close out such contract. There can, however, be no
assurance that such a liquid market will exist in which to close a forward or
futures contract, in which case the Portfolio may suffer a loss.
Purposes for which such contracts may be used include protecting against a
decline in a foreign currency against the U.S. dollar between the trade date and
settlement date when the Portfolio purchases or sells securities, locking in the
U.S. dollar value of dividends declared on securities held by the Portfolio and
generally protecting the U.S. dollar value of securities held by the Portfolio
against exchange rate fluctuations. Such contracts will be used only as a
protective measure against the effects of fluctuating rates of currency exchange
and exchange control regulations. While such contracts may limit losses to the
Portfolio as a result of exchange rate fluctuation, they will also limit any
gains that may otherwise have been realized.
The Portfolio may attempt to accomplish objectives similar to those
described above with respect to forward and futures contracts for currency by
means of purchasing put or call options on foreign currencies on exchanges. A
put option gives the Portfolio the right to sell a currency at the exercise
price until the expiration of the option. A call option gives the Portfolio the
right to purchase a currency at the exercise price until the expiration of the
option.
FOREIGN INVESTMENT. The Portfolio may invest in securities of foreign
issuers. Investment in obligations of foreign issuers, especially in securities
of issuers in emerging countries, and in foreign branches of domestic
11
<PAGE>
banks involves somewhat different investment risks than those affecting
obligations of U.S. issuers. As used in this Prospectus, an emerging country is
any country that the International Bank for Reconstruction and Development (more
commonly known as the World Bank) has determined to have a low or middle income
economy. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the 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 Portfolio by domestic companies. It is not
expected that the 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. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain judgment in a
court outside the U.S.
Such investments in securities of foreign issuers are frequently denominated
in foreign currencies, and since the Portfolio may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the value of the 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 Portfolio
may incur costs in connection with conversions between various currencies.
INVESTMENT FUNDS. Some foreign 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 foreign countries through investment companies which have been
specifically authorized. The Portfolio may invest in these investment companies
subject to the provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"), and other applicable laws. If the Portfolio invests in such
investment companies, 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 companies. Certain of the investment
companies referred to above are advised by the Adviser. The Portfolio may, to
the extent permitted under the 1940 Act and other applicable law, invest in
these investment companies. If the Portfolio does elect to make an investment in
such an investment company, it will only purchase the securities of such
investment company in the secondary market.
LOANS OF PORTFOLIO SECURITIES. The 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. The
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Portfolio will not enter into securities loan transactions exceeding, in the
aggregate, 33 1/3% of the market value of the Portfolio's total assets. For more
detailed information about securities lending, see "Investment Objective and
Policies" in the Statement of Additional Information.
LOWER RATED DEBT SECURITIES. The 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 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,
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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.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments, although the Portfolio intends to stay invested in
securities satisfying its primary investment objective to the extent practical.
The 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 Portfolio 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 Portfolio may invest in securities that are neither listed on a
stock exchange nor traded over the counter. 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, companies whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements which
might be applicable if their securities were publicly traded. If such securities
are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Portfolio may be required to bear the
expenses of registration. As a general matter, the Portfolio may not invest more
than 15% of its net assets in illiquid securities, including securities for
which there is no readily available secondary market. Securities that are not
registered under the Securities Act of 1933, as amended, but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act will
not be included within the foregoing 15% restriction if the securities are
determined to be liquid. The Board of Directors has adopted guidelines and
delegated to the Adviser, subject to the supervision of the Board of Directors,
the daily function of determining and monitoring the liquidity of Rule 144A
securities. Rule 144A securities may become illiquid if qualified institutional
buyers are not interested in acquiring the securities.
REPURCHASE AGREEMENTS. The 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."
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SMALL AND MEDIUM-SIZED COMPANIES. Because the Portfolio may invest a
substantial portion of its assets in small-to medium-sized companies, which
companies are more vulnerable to financial and other risks than larger more
established companies, investments in the Portfolio may involve a higher degree
of risk and price volatility than the general equity markets.
SHORT SALES. The Portfolio may from time to time sell securities short
consistent with applicable legal requirements. A short sale is a transaction in
which the Portfolio would sell securities it either owns or has the right to
acquire at no added cost (i.e., "against the box") or does not own (but has
borrowed) in anticipation of a decline in the market price of the securities.
When the Portfolio makes a short sale of borrowed securities, the proceeds it
receives from the sale will be held on behalf of a broker until the Portfolio
replaces the borrowed securities. To deliver the securities to the buyer, the
Portfolio will need to arrange through a broker to borrow the securities and, in
so doing, the Portfolio will become obligated to replace the securities borrowed
at their market price at the time of the replacement, whatever that price may
be. The Portfolio may have to pay a premium to borrow the securities and must
pay any dividends or interest payable on the securities until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government securities or other liquid, high grade debt
obligations. In addition, if the short sale is not "against the box", the
Portfolio will place in a segregated account with the Custodian an amount of
cash, U.S. Government securities or other liquid, high grade debt obligations
equal to the difference, if any, between (1) the market value of the securities
sold at the time they were sold short and (2) any cash, U.S. Government
securities or other liquid, high grade debt obligations deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
SECURITIES OPTIONS, FUTURES CONTRACTS AND OPTIONS IN FUTURES CONTRACTS. The
Portfolio may write (i.e., sell) covered call options on portfolio securities
and may write covered put options on portfolio securities. By selling a covered
call option, the Portfolio would become obligated during the term of the option
to deliver the securities underlying the option should the option holder choose
to exercise the option before the option's termination date. In return for the
call it has written, the Portfolio will receive from the purchaser (or option
holder) a premium which is the price of the option, less a commission charged by
a broker. The Portfolio will keep the premium regardless of whether the option
is exercised. By selling a covered put option, the Portfolio incurs an
obligation to buy the security underlying the option from the purchaser of the
put at the option's exercise price at any time during the option period, at the
purchaser's election (certain options written by the Portfolio will be
exercisable by the purchaser only on a specific date). A call option is
"covered" if the Portfolio owns the security underlying the option it has
written or has an absolute or immediate right to acquire the security by holding
a call option on such security, or maintains a sufficient amount of cash, cash
equivalents or liquid securities to purchase the underlying security.
Generally, a put option is "covered" if the Fund maintains cash, U.S.
Government securities or other high grade debt obligations equal to the exercise
price of the option, or if the Fund holds a put option on the same underlying
security with a similar or higher exercise price.
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When the Portfolio writes covered call options, it augments its income by
the premiums received and is thereby hedged to the extent of that amount against
a decline in the price of the underlying securities. The premiums received will
offset a portion of the potential loss incurred by the Portfolio if the
securities underlying the options are ultimately sold by the Portfolio at a
loss. However, during the option period, the Portfolio has, in return for the
premium on the option, given up the opportunity for capital appreciation above
the exercise price should the market price of the underlying security increase,
but has retained the risk of loss should the price of the underlying security
decline.
The Portfolio may write put options to receive the premiums paid by
purchasers (when the Adviser wishes to purchase the security underlying the
option at a price lower than its current market price, in which case the
Portfolio will write the covered put at an exercise price reflecting the lower
purchase price sought) and to close out a long put option position.
The Portfolio may also purchase put options on their portfolio securities or
call options. When the Portfolio purchases a call option it acquires the right
to buy a designated security at a designated price (the "exercise price"), and
when the Portfolio purchases a put option it acquires the right to sell a
designated security at the exercise price, in each case on or before a specified
date (the "termination date"), which is usually not more than nine months from
the date the option is issued. The Portfolio may purchase call options to close
out a covered call position or to protect against an increase in the price of a
security it anticipates purchasing. The Portfolio may purchase put options on
securities which it holds in its portfolio to protect itself against decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Portfolio would incur no additional loss. The
Portfolio may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions. There are no other
limits on the Portfolio's ability to purchase call and put options.
The Portfolio may enter into futures contracts and options on futures
contracts to remain fully invested and to reduce transaction costs. The
Portfolio may also enter into futures transactions as a hedge against
fluctuations in the price of a security it holds or intends to acquire, but not
for speculation or for achieving leverage. The Portfolio may enter into futures
contracts and options on futures contracts provided that not more than 5% of the
Portfolio's total assets at the time of entering into the contract or option is
required as deposit to secure obligations under such contracts and options, and
provided that not more than 20% of the Portfolio's total assets in the aggregate
is invested in futures contracts, options on futures contracts and in options.
The Portfolio may purchase and write call and put options on futures
contracts that are traded on any international exchange, traded over-the-counter
or which are synthetic options or futures or equity swaps, and may enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. The
Portfolio will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in future contracts.
Options, futures and options on futures are derivative securities, in which
the Portfolio may invest for hedging purposes, as well as to remain fully
invested and to reduce transaction costs. Investing for the latter two
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purposes may be considered speculative. The primary risks associated with the
use of options, futures and options on futures are (i) imperfect correlation
between the change in market value of the securities held by the Portfolio and
the prices of futures and options relating to the securities purchased or sold
by the Portfolio; and (ii) possible lack of a liquid secondary market for an
option or a futures contract and the resulting inability to close a futures
position which could have an adverse impact on the Portfolio's ability to hedge.
In the opinion of the Board of Directors, the risk that the Portfolio will be
unable to close out a futures position or options contract will be minimized by
only entering into futures contracts or options transactions for which there
appears to be a liquid secondary market.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. In such transactions,
instruments are bought with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous yield or price at the
time of the transaction. Delivery of and payment for these securities may take
as long as a month or more after the date of the purchase commitment but will
take place no more than 120 days after the trade date. The Portfolio will
maintain with the custodian a separate account with a segregated portfolio of
high-grade debt securities or 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 the Portfolio enters into the
commitment and no interest accrues to the Portfolio until settlement. Thus, it
is possible that the market value at the time of settlement could be higher or
lower than the purchase price if, among other factors, the general level of
interest rates has changed. It is a current policy of the Portfolio not to enter
into when-issued commitments exceeding in the aggregate 15% of the market value
of the Portfolio's total assets less liabilities, other than the obligations
created by these commitments.
TEMPORARY INVESTMENTS. During periods in which the Adviser believes changes
in economic, financial or political conditions make it advisable the Portfolio
may reduce its holdings in equity and other securities, for temporary defensive
purposes, and the Portfolio may invest in certain short-term (less than twelve
months to maturity) and medium-term (not greater than five years to maturity)
debt securities or may hold cash. The short-term and medium-term debt securities
in which the Portfolio may invest consist of (a) obligations of the U.S. or
foreign country governments, their respective agencies or instrumentalities; (b)
bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of U.S. or foreign country banks denominated
in any currency; (c) floating rate securities and other instruments denominated
in any currency issued by international development agencies; (d) finance
company and corporate commercial paper and other short-term corporate debt
obligations of U.S. and foreign country corporations meeting the Portfolio's
credit quality standards; and (e) repurchase agreements with banks and
broker-dealers with respect to such securities. For temporary defensive
purposes, the 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.
INVESTMENT LIMITATIONS
The Portfolio is a non-diversified portfolio under the 1940 Act, which means
that the Portfolio is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Portfolio may invest a greater proportion of its assets in the securities of a
small number of issuers and as a result will be subject to greater risk with
respect to its portfolio securities. However, the Portfolio intends to comply
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with diversification requirements imposed by the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
See "Investment Limitations" in the Statement of Additional Information.
The Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of the Portfolio's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, the
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. The Portfolio
may not (i) enter into repurchase agreements with more than seven days to
maturity if, as a result, more than 15% of the market value of the Portfolio's
net assets would be invested in such repurchase agreements and other investments
for which market quotations are not readily available or which are otherwise
illiquid; (ii) borrow money, except from banks for extraordinary or emergency
purposes, and then only in amounts up to 10% of the value of the Portfolio's
total assets, taken at cost at the time of borrowing; or purchase securities
while borrowings exceed 5% of its total assets; (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. The Adviser is entitled to receive
from the Technology Portfolio an annual management fee, payable quarterly, equal
to 1.00% of the average daily net assets of the Portfolio.
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse the Portfolio, if necessary, if such fees would cause total annual
operating expenses of the Portfolio to exceed 1.25% of the average daily net
assets of the Class A shares of the Portfolio and 1.50% of the average daily net
assets of the Class B shares of the Portfolio.
The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. At [date], 1996, the Adviser, together with its
affiliated asset management companies, managed investments totaling
approximately $ billion, including approximately $ billion under active
management and $ billion as Named Fiduciary or Fiduciary Adviser. See
"Management of the Fund" in the Statement of Additional Information.
PORTFOLIO MANAGERS. DENNIS G. SHERVA AND CHRISTOPHER R. BLAIR. Dennis
Sherva is a Managing Director of Morgan Stanley & Co., Incorporated and head of
emerging growth stock investments at the Adviser. He will have primary
responsibility for managing the Portfolio's assets from its commencement of
operations. Prior to joining the Adviser in 1988, Mr. Sherva was Morgan
Stanley's Director of Worldwide Research activities for five
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years and maintained direct responsibilities for emerging growth stock strategy
and analysis. As an analyst following emerging growth stocks for the past
decade, he was rated number one in the small growth company category six times
by Institutional Investor magazine's All-America Research Team poll. Before
joining Morgan Stanley in 1977, Mr. Sherva had twelve years of industrial and
investment experience. He serves on the Board of Directors of Morgan Stanley
Venture Capital Inc. and Morgan Stanley R&D Ventures, Inc. Mr. Sherva graduated
from the University of Minnesota and received an M.A. from Wayne State
University. He is also Chartered Financial Analyst.
Christopher Blair joined the Adviser in 1993 as the Technology and
Telecommunications Analyst for the emerging growth stock group. Previously, he
had been a Financial Analyst for two years in Morgan Stanley's Corporate Finance
Department, where he focused on the telecommunications and technology sectors.
Mr. Blair graduated with Distinction from McGill University, where he received a
B.A. in Political Science and Economics.
ADMINISTRATOR. The Adviser also provides the Fund with administrative
services pursuant to an Administration Agreement. The services provided under
the Administration Agreement are subject to the supervision of the Officers and
the Board of Directors of the Fund and include day-to-day administration of
matters related to the corporate existence of the Fund, maintenance of its
records, preparation of reports, supervision of the Fund's arrangements with its
custodian and assistance in the preparation of the Fund's registration
statements under federal and state laws. The Administration Agreement also
provides that the Administrator, through its agents, will provide the Fund
dividend disbursing and transfer agent services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.15% of the average daily net assets of the Portfolio.
Under 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 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.
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.
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DISTRIBUTOR. Morgan Stanley serves as the exclusive Distributor of the
shares of the Fund. Under its Distribution Agreement with the Fund, Morgan
Stanley sells shares of the Portfolio upon the terms and at the current offering
price described in this Prospectus. Morgan Stanley is not obligated to sell any
certain number of shares of the Fund.
The Portfolio currently offers only the classes of shares offered by this
Prospectus. The Portfolio 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 pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan,
the Distributor is entitled to receive from the 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.
The 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. The Portfolio is responsible for payment of certain other fees
and expenses (including legal fees, accountants' fees, custodial fees and
printing and mailing costs) specified in the Administration and Distribution
Agreements.
PURCHASE OF SHARES
Class A and Class B shares of the Portfolio may be purchased, without sales
commission, at the net asset value per share next determined after receipt of
the purchase order by the Portfolio. See "Valuation of Shares."
MINIMUM INVESTMENT AND ACCOUNT SIZES; CONVERSION FROM CLASS A TO CLASS B SHARES
For a Portfolio account, the minimum initial investment and minimum account
size are $250,000 for Class A shares and $50,000 for Class B shares. 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 Portfolio account.
If the value of a Portfolio account containing Class A shares falls below
$250,000 (but remains at or above $50,000) because of shareholder redemption(s),
the Fund will notify the shareholder, and if the account value remains below
$250,000 (but remains at or above $50,000) 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. Managed Accounts are not subject to conversion
from Class A shares to Class B shares.
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Investors may also invest in the Portfolio 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 Portfolio account falls below $50,000 because of
shareholder redemption(s), the Fund will notify the shareholder, and if the
account value remains below $250,000 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.
For purposes of redemptions by the Fund, the foregoing minimum account size
requirements do not apply to Portfolio 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 $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. Managed
Accounts are not subject to involuntary 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 Portfolio account increases, whether due
to shareholder share purchases or market activity, to $250,000 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 Portfolio 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.
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INITIAL INVESTMENTS
1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($250,000 minimum for
Class A shares of the Portfolio and $50,000 for Class B shares of the
Portfolio, with certain exceptions for Morgan Stanley employees and select
customers) payable to "Morgan Stanley Institutional Fund, Inc. Technology
Portfolio", to:
Morgan Stanley Institutional Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
Payment will be accepted only in U.S. dollars, unless prior approval for payment
by other currencies is given by the Fund. The Class(es) of shares of the
Portfolio to be purchased should be designated on the Account Registration Form.
For purchases by check, the Fund is ordinarily credited with Federal Funds
within one business day. Thus your purchase of shares by check is ordinarily
credited to your account at the net asset value per share of the Portfolio
determined on the next business day after receipt.
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: (Technology Portfolio, your account number, your account name)
Please call the Fund 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 Portfolio 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.
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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, except for automatic reinvestment of dividends and capital gains
distributions for which there are no minimums) by purchasing shares at net asset
value by mailing a check to the Fund (payable to "Morgan Stanley Institutional
Fund, Inc. -- Technology Portfolio") 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, 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 the Portfolio is the
net asset value next determined after the order is received. See "Valuation of
Shares." An order received prior to the close of the New York Stock Exchange
("NYSE"), which is currently 4:00 p.m. Eastern Time, will be executed at the
price computed on the date of receipt; an order received after the close of the
NYSE will be executed at the price computed on the next day the NYSE is open 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 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.
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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 Portfolio and the Portfolio's 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
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 or Class B shares of the 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 value per share of the Portfolio is
determined at the close of trading of the NYSE (currently 4:00 p.m. Eastern
Time). Shares of the Portfolio may be redeemed by mail or telephone. No charge
is made for redemption. Any redemption proceeds may be more or less than the
purchase price of your shares depending on, among other factors, the market
value of the investment securities held by the Portfolio.
BY MAIL
The Portfolio will redeem its Class A shares 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, MA 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, MA 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.
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BY TELEPHONE
Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of Morgan Stanley Institutional Fund's
representatives for further details. In times of drastic market conditions, the
telephone redemption option may be difficult to implement. If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier and will be implemented at the net asset value next determined
after it is received. Redemption requests sent to the Fund through express mail
must be mailed to the address of the Dividend Disbursing and Transfer Agent
listed under "General Information." The Fund and the Fund's transfer agent (the
"Transfer Agent") will employ reasonable procedures to confirm that the
instructions communicated by telephone are genuine. These procedures include
requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested
by telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions regarding transaction requests. Neither the Fund nor the Transfer
Agent will be responsible for any loss, liability, cost or expense for following
instructions received by telephone that either of them reasonably believes to be
genuine.
To change the commercial bank or account designated to receive redemption
proceeds, a written request must be sent to the Fund at the address above.
Requests to change the bank or account must be signed by each shareholder and
each signature must be guaranteed.
FURTHER REDEMPTION INFORMATION
Normally the Fund will make payment for all shares redeemed within one
business day of receipt of the request, but in no event will payment be made
more than seven days after receipt of a redemption request in good order.
However, payments to investors redeeming shares which were purchased by check
will not be made until payment for the purchase has been collected, which may
take up to eight days after the date of purchase. The Fund may suspend the right
of redemption or postpone the date upon which redemptions are effected at times
when the NYSE is closed, or under any emergency circumstances as determined by
the Securities and Exchange Commission (the "Commission").
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Portfolio to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of securities held by the Portfolio in lieu of
cash in conformity with applicable rules of the Commission.
Distributions-in-kind will be made in readily marketable securities. Investors
may incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.
To protect your account, the Fund and its agents from fraud, signature
guarantees are required for certain redemptions to verify the identity of the
person who has authorized a redemption from your account. Please contact the
Fund for further information. See "Redemption of Shares" in the Statement of
Additional Information.
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SHAREHOLDER SERVICES
EXCHANGE FEATURES
You may exchange shares that you own in the Portfolio for shares of any
other available portfolio 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 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 the 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 the Portfolio, the names of the portfolio(s) and class(es)
of shares 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 of the
portfolios involved in the exchange of shares at the close of business. Requests
received after 4:00 p.m. are processed the next business day based on the net
asset value determined at the close of business on such day. For additional
information regarding responsibility for the authenticity of telephoned
instructions, see "Redemption of Shares -- By Telephone" above.
TRANSFER OF REGISTRATION
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, MA 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 and 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 the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to such class, less any liabilities attributable to
such class, by the total number of outstanding shares of such class of the
Portfolio. Net asset value is calculated
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separately for each class of the Portfolio. Net asset value per share is
determined as of the close of the NYSE on each day that the NYSE is open for
business. Price information on listed securities is taken from the exchange
where the security is primarily traded. Securities listed on a U.S. securities
exchange for which market quotations are available are valued at the last quoted
sale price on the day the valuation is made. Securities listed on a foreign
exchange are valued at their closing price. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are not
readily available are valued at a price within a range not exceeding the current
asked price nor less than the current bid price. The current bid and asked
prices are determined based on the bid and asked prices quoted on such valuation
date by reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices, but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recently quoted bid price, or
when securities exchange valuations are used, at the latest quoted sale price on
the day of valuation. If there is no such reported sale, the latest quoted bid
price will be used. Securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used.
The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above-stated procedure are determined in good faith at fair value using
methods determined by the Board of Directors. For purposes of calculating net
asset value per share, all assets and liabilities initially expressed in foreign
currencies will be translated into U.S. dollars at the mean of the bid price and
asked price of such currencies against the U.S. dollar last quoted by any major
bank.
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 expense charged to
Class B shares.
PERFORMANCE INFORMATION
The Fund may from time to time advertise total return for each class of the
Portfolio. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an investment in a
class of the Portfolio would have earned over a specified period of time (such
as one, five or ten years), assuming that all distributions and dividends by the
Portfolio were reinvested 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 Portfolio's shares. Such performance information may include data
from Lipper Analytical Services, Inc., other industry publications, business
periodicals, rating services and market indices.
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<PAGE>
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.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All income dividends and capital gains distributions for a class of shares
will automatically be reinvested in additional shares of such class at net asset
value, except that, upon written notice to the Fund or by checking off the
appropriate box in the Distribution Option Section on the Account Registration
Form, a shareholder may elect to receive income dividends and capital gains
distributions in cash. The Portfolio expects to distribute substantially all of
its net investment income in the form of annual dividends. Net 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 under the Securities
Exchange Act of 1934, as amended, on the next monthly client statement following
such purchase of shares. Consequently, confirmations of such purchases will not
be provided at the time of completion of such purchases as might otherwise be
required by Rule 10b-10.
Undistributed net investment income is included in the 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 Portfolio will differ at times.
Expenses of the Portfolio 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 Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
The Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other portfolios. The Portfolio
intends to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the 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.
The Portfolio distributes substantially all of its net investment income
(including, for this purpose, the excess of net short-term capital gain over net
long-term capital loss) to shareholders. Dividends from the Portfolio's net
investment income are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. Such dividends paid by the
Portfolio will generally qualify for the 70%
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dividends-received deduction for corporate shareholders to the extent of
qualifying dividend income received by the Portfolio from U.S. corporations. The
Portfolio will report annually to its shareholders the amount of dividend income
qualifying for such treatment.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held the
Portfolio's shares. The Portfolio sends reports annually to shareholders of the
federal income tax status of all distributions made during the preceding year.
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary income and capital gain net income (the excess of
short-term and long-term capital gains over short-term and long-term capital
losses), including any available capital loss carryforwards, prior to the end of
each calendar year to avoid liability for federal excise tax.
Dividends and other distributions declared by the Portfolio in October,
November or December of any year and payable to shareholders of record on a date
in such month will be deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of that year if the distributions are paid by
the Portfolio at any time during the following January.
The sale, redemption or exchange of shares may result in taxable gain or
loss to the selling, redeeming or exchanging shareholder, depending upon whether
the fair market value of the sale, redemption or exchange proceeds exceeds or is
less than the shareholder's adjusted basis in the sold, redeemed or exchanged
shares. Any such taxable gain or loss generally will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise generally will be treated as short-term capital gain or loss. If
capital gain distributions have been made with respect to shares that are sold,
redeemed or exchanged 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 advisers concerning the
application of state and local income taxes to investments in the Portfolio,
which may differ from the federal income tax consequences described above.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE PORTFOLIO.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolio. The Fund has authorized the Adviser to pay
higher commissions in recognition of brokerage services which, in the opinion of
the Adviser, are necessary for the achievement of better execution, provided the
Adviser believes this to be in the best interest of the Fund.
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Since shares of the Portfolio are not marketed through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through such firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Fund's portfolios or who act as agents in the purchase of
shares of the Fund's portfolios for their clients.
In purchasing and selling securities for the Portfolio, it is the Fund's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Portfolio, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Portfolio may also be appropriate
for other clients served by the Adviser. If purchase or sale of securities
consistent with the investment policies of the Portfolio and one or more of
these other clients served by the Adviser is considered at or about the same
time, transactions in such securities will be allocated among the Portfolio and
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 each portfolio's brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley. In order
for Morgan Stanley or its affiliates to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by Morgan Stanley
or such affiliates must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the Board
of Directors of the Fund, including a majority of the Directors who are not
"interested persons," as defined in the 1940 Act, have adopted procedures which
are reasonably designed to provide that any commissions, fees or other
remuneration paid to Morgan Stanley or such affiliates are consistent with the
foregoing standard.
Portfolio securities will not be purchased from, or through, or sold to or
through, the Adviser or Morgan Stanley or any "affiliated persons," as defined
in the 1940 Act, of Morgan Stanley when such entities are acting as principals,
except to the extent permitted by law.
Although the Portfolio will not invest for short-term trading purposes,
investment securities may be sold from time to time without regard to the length
of time they have been held. It is anticipated that, under normal circumstances,
the annual turnover rate of the Portfolio will not exceed 100%.
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
30
<PAGE>
designate one or more classes of shares of common stock and to classify and
reclassify any unissued shares with respect to such classes. The shares of
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 the 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 preemptive rights. The shares of the Portfolio have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Persons or organizations owning 25% or more of the
outstanding shares of the Portfolio may be presumed to "control" (as that term
is defined in the 1940 Act) the Portfolio. Persons or organizations owning 25%
or more of the outstanding shares of the Portfolio may be presumed to "control"
(as that term is defined in the 1940 Act) the Portfolio. Under Maryland law, the
Fund is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act.
REPORTS TO SHAREHOLDERS
The 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
The Fund's domestic securities and cash are held by Chase. 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.
31
<PAGE>
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE FUND OR THE DISTRIBUTOR TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Prospectus Summary................................ 4
Investment Objective and Policies................. 8
Additional Investment Information................. 9
Investment Limitations............................ 17
Management of the Fund............................ 18
Purchase of Shares................................ 20
Redemption of Shares.............................. 24
Shareholder Services.............................. 26
Valuation of Shares............................... 26
Performance Information........................... 27
Dividends and Capital Gains Distributions......... 28
Taxes............................................. 28
Portfolio Transactions............................ 29
General Information............................... 30
Account Registration Form......................... 32
</TABLE>
TECHNOLOGY PORTFOLIO
A PORTFOLIO OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
Common Stock
($.001 PAR VALUE)
-------------
PROSPECTUS
-------------
Investment Adviser
Morgan Stanley
Asset Management Inc.
Distributor
Morgan Stanley & Co.
INCORPORATED
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY INSTITUTIONAL FUND, INC. -- TECHNOLOGY PORTFOLIO
P.O. BOX 2798, BOSTON, MA 02208-2798
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ACCOUNT REGISTRATION FORM
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<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 C) 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 Gift/Transfer Revenue Code. additional tax; the tax liability of
to Minor Act), 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.
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D) PORTFOLIO AND For Purchase of the following Portfolio:
CLASS SELECTION Technology Portfolio / / Class A Shares $____ / / Class B Shares $____
(Class A shares
minimum $500,000
for each Portfolio Total Initial Investment $_____________
and Class B shares
minimum $100,000 for
each Portfolio).
Please indicate
class and amount.
- ---------------------------------------------------------------------------------------------------------------
E) METHOD OF Payment by:
INVESTMENT / / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND, INC.--TECHNOLOGY PORTFOLIO)
Please
indicate
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)
<PAGE>
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F) DISTRIBUTION Income dividends and capital gains distributions (if any) will
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 / / I/we hereby authorize the Fund and its ______________________ ________________
REDEMPTION 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 rightand/or
wish to redeem shares by mail redemption proceeds to the name and ________________
telephone. A SIGNATURE address in which my/our fund account is Bank ABA No.
GUARANTEE IS REQUIRED IF registered if such requests are believed
BANK ACCOUNT IS NOT to be authentic. _________________________________________________
REGISTERED IDENTICALLY TO THE FUND AND THE FUND'S TRANSFER AGENT WILL Name(s) in which your BANK Account is Established
YOUR FUND ACCOUNT. EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE _________________________________________________
TELEPHONE REQUESTS FOR GENUINE. THESE PROCEDURES INCLUDE REQUIRING Bank's Street Address
REDEMPTIONS WILL NOT BE THE INVESTOR TO PROVIDE CERTAIN PERSONAL
HONORED UNLESS THE BOX IS IDENTIFICATION INFORMATION AT THE TIME AN _________________________________________________
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
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I) DEALER
INFORMATION _______________________ _______________________________ ___________
Representative Name Representative No. Branch No.
- ---------------------------------------------------------------------------------------------------------------
J) SIGNATURE OF The undersigned certify(ies) 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
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</TABLE>
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and nondiversified series
("Portfolios"). The Fund currently consists of twenty-nine Portfolios offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of each
Portfolio are offered with no sales charge, exchange or (with the exception of
the International Small Cap Portfolio) redemption fee. The Class A shares and
Class B shares currently offered by the Portfolios have different minimum
investment requirements and fund expenses. This Statement of Additional
Information addresses information of the Fund applicable to Class A shares and
Class B shares of the Technology Portfolio (the "Portfolio"), one of the twenty-
nine portfolios.
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the prospectus of the Portfolio (the "Prospectus"). To
obtain the Prospectus or the prospectus and/or Statement of Additional
Information relating to any of the other Portfolios, please call the Morgan
Stanley Institutional Fund, Inc. Services Group at 1-800-548-7786.
TABLE OF CONTENTS
Page
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Tax Considerations Relating to Foreign Investments . . . . . . . . .
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STATEMENT OF ADDITIONAL INFORMATION DATED ___________, 1996, RELATING TO THE
PROSPECTUS OF THE TECHNOLOGY PORTFOLIO DATED ______________, 1996.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Portfolio's investment objective and
policies set forth in the Prospectus:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
To the extent the Portfolio invests in securities denominated in foreign
currencies, the assets of the Portfolio may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Portfolio may incur costs in connection with conversions between various
currencies. The Portfolio will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.
The Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. When the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract
for a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when the Portfolio anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
the Portfolio's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The Portfolio does not intend to enter
into such forward contracts to protect the value of portfolio securities on a
continuous basis. The Portfolio will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign currency
in excess of the value of its securities or other assets denominated in that
currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of the Portfolio will thereby be served. Except under circumstances where a
segregated account is not required under the 1940 Act or the rules adopted
thereunder, the Fund's Custodian will place cash, U.S. government securities, or
high-grade debt securities into a segregated account of the Portfolio in an
amount equal to the value of its total assets committed to the consummation of
forward currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will be equal to
the amount of the Portfolio's commitments with respect to such contracts.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, the Portfolio
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for the Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
2
<PAGE>
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Portfolio entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent that the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio would suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Portfolio is not required to enter into such transactions with regard
to its foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
FUTURES CONTRACTS
The Portfolio may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and reducing transactions
costs and may also enter into futures contracts for hedging purposes. The
Portfolio will not enter into futures contracts or options thereon for
speculative purposes. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
at a specified future time and at a specified price. Futures contracts, which
are standardized as to maturity date and underlying financial instrument, are
traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Futures contracts on securities indices or other indices do not require the
physical delivery of securities, but merely provide for profits and losses
resulting from changes in the market value of a contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures position is simply closed out. Changes in the
market value of a particular futures contract reflect changes in the level of
the index on which the futures contract is based.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits. With respect to each
long position in a futures contract or option thereon, the underlying commodity
value of such contract will always be covered by cash and cash equivalents set
aside plus accrued profits held at the futures commission merchant.
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a U.S. Exchange and enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which
3
<PAGE>
the market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Portfolio will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Portfolio intends to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Portfolio require that all
futures transactions constitute bona fide hedging transactions except that the
Portfolio may engage in futures transactions that do not constitute bona fide
hedging to the extent that not more than 5% of the liquidation value of the
Portfolio's total assets are required as margin deposits or premiums for such
transactions. The Portfolio will only sell futures contracts to protect
securities owned against declines in price or purchase contracts to protect
against an increase in the price of securities intended for purchase. As
evidence of this hedging interest, the Portfolio expects that approximately 75%
of their futures contracts will be "completed"; that is, equivalent amounts of
related securities will have been purchased or are being purchased by the
Portfolio upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Portfolio will incur commission expenses in both opening and closing
out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Portfolio will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of its total assets. In addition, the Portfolio will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under futures contracts and options on futures contracts and, under
options, futures contracts and options on futures contracts would exceed 20% of
its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contracts at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, the Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Portfolio's ability
to effectively hedge.
The Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
Portfolio engages in futures strategies only for hedging purposes, the Adviser
does not believe that the Portfolio is subject to the risks of loss frequently
associated with futures transactions. The Portfolio would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying security or currency and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that
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the Portfolio could both lose money on futures contracts and also experience a
decline in value of its portfolio securities. There is also the risk of loss by
the Portfolio of margin deposits in the event of bankruptcy of a broker with
whom the Portfolio has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS TRANSACTIONS
GENERAL INFORMATION. As stated in the Prospectus, the Portfolio may purchase
and sell options on equity securities. Additional information with respect to
option transactions is set forth below. Call and put options on portfolio
securities are listed on various U.S. and foreign securities exchanges ("listed
options") and are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they
trade or by a clearing corporation, such as Options Clearing Corporation
("OCC") in the United States. Ownership of a listed call option gives the
fund the right to buy from the clearing corporation or exchange, the
underlying security covered by the option at the state exercise price (the
price per unit of the underlying security or currency) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of
the option would then have the obligation to sell to the clearing corporation
or exchange, the underlying security or currency at that exercise price prior
to the expiration date of the option, regardless of the current market price.
Ownership of a listed put option would give the Portfolio the right to sell
the underlying security or currency to the clearing corporation or exchange
at the state exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security from the clearing corporation or exchange at the exercise price.
OTC options are purchased from or sold (written) to dealers of financial
institutions which have entered into direct agreements with the Portfolio. With
OTC options, such variables as expiration date, exercise price and premium will
be agreed upon between the Portfolio and the transactions dealer, without the
intermediation of a third party such as a clearing corporation or exchange. If
the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that
option, the Portfolio would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. The Portfolio may write (i.e., sell) covered call options
on portfolio securities. By doing so, the Portfolio would become obligated
during the terms of the option to deliver the securities underlying the option
should the option holder choose to exercise the option before the option's
termination date. In return for the call it has written, the Portfolio will
receive from the purchaser (or option holder) a premium which is the price of
the option, less a commission charged by a broker. The Portfolio will keep the
premium regardless of whether the option is exercised. A call option is
"covered" if the Portfolio owns the security underlying the option it has
written or has an absolute or immediate right to acquire the security by holding
a call option on such security, or maintains a sufficient amount of cash, cash
equivalents or liquid securities to purchase the underlying security. When the
Portfolio writes covered call options, it augments its income by the premiums
received and is thereby hedged to the extent of that amount against a decline in
the price of the underlying securities and the premiums received will offset a
portion of the potential loss incurred by the Portfolio if the securities
underlying the options are ultimately sold by the Portfolio at a loss. However,
during the option period, the Portfolio has, in return for the premium on the
option, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
The size of premiums will fluctuate with varying market conditions.
COVERED PUT WRITING. The Portfolio may write covered put options on portfolio
securities. By doing so, the Portfolio incurs an obligation to buy the security
underlying the option from the purchaser of the put at the option's exercise
price at any time during the option period, at the purchaser's election (certain
listed and OTC options written by the Portfolio will be exercisable by the
purchaser only on a specific date). Generally, a put option is "covered" if the
Portfolio maintains cash, U.S. Government securities or other high grade debt
obligations equal to the exercise price of the option or if the Portfolio holds
a put option on the same underlying security with a similar or higher exercise
price.
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The Portfolio will write put options to receive the premiums paid by
purchasers; when the Adviser wishes to purchase the security underlying the
option at a price lower than its current market price, in which case it will
write the covered put at an exercise price reflecting the lower purchase price
sought; and to close out long put option positions.
PURCHASE OF PUT AND CALL OPTIONS. The Portfolio may purchase listed or OTC put
or call options on its portfolio securities in amounts exceeding no more than 5%
of its total assets. When the Portfolio purchases a call option it acquires the
right to purchase 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 itself against a decline in the
value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Portfolio would incur no additional loss. The
Portfolio may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions.
The amount the Portfolio pays to purchase an option is called a "premium",
and the risk assumed by the Portfolio when it purchases an option is the loss of
this premium. Because the price of an option tends to move with that of its
underlying security, if the Portfolio is to make a profit, the price of the
underlying security must change and the change must be sufficient to cover the
premium and commissions paid. A price change in the security underlying the
option does not assure a profit since prices in the options market may not
always reflect such a change.
PORTFOLIO TURNOVER
The portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the Portfolio for the year, excluding U.S. Government securities and securities
with maturities of one year or less. The portfolio turnover rate for a year is
calculated by dividing the lesser of sales or the average monthly value of the
Portfolio's portfolio purchases of portfolio securities during that year by
securities, excluding money market instruments. The rate of portfolio turnover
will not be a limiting factor when the Portfolio deems it appropriate to
purchase or sell securities for the Portfolio. However, the U.S. federal tax
requirement that the Portfolio derive less than 30% of its gross income from the
sale or disposition of securities held less than three months may limit the
Portfolio's ability to dispose of its securities. See "Taxes."
SECURITIES LENDING
The Portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Portfolio attempts to increase its net investment income through
the receipt of interest on the loan. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Portfolio. The Portfolio may lend its investment securities
to qualified brokers, dealers, domestic and foreign banks or other financial
institutions, so long as the terms, structure and the aggregate amount of such
loans are not inconsistent with the Investment Company Act of 1940, as amended
(the "1940 Act"), or the Rules and Regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Portfolio at any
time, and (d) the Portfolio receive reasonable interest on the loan (which may
include the Portfolio investing any cash collateral in interest bearing
short-term investments), any distributions on the loaned securities and any
increase in their market value. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will only be made to borrowers
deemed by the Advisor to be of good standing and when, in the judgment of the
Advisor, the consideration which can be earned currently from such securities
loans justifies the attendant risk. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Board of Directors of the Fund.
At the present time, the staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's
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Board of Directors. Voting rights may pass with the loaned securities, provided
that if a material event occurs affecting a security on loan, the loan must be
called and the securities voted.
SHORT SALES
The Portfolio may from time to time sell securities short without
limitation but consistent with applicable legal requirements, although initially
the Portfolio does not intend to sell securities short. A short sale is a
transaction in which the Portfolio would sell securities it owns or has the
right to acquire at no added cost (i.e., "against the box") or does not own (but
has borrowed) in anticipation of a decline in the market price of the
securities. When the Portfolio makes a short sale of borrowed securities, the
proceeds it receives from the sale will be held on behalf of a broker until the
Portfolio replaces the borrowed securities. To deliver the securities to the
buyer, the Portfolio will need to arrange through a broker to borrow the
securities and, in so doing, the Portfolio will become obligated to replace the
securities borrowed at their market price at the time of replacement, whatever
that price may be. The Portfolio may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government Securities or other liquid, high grade debt
obligations. In addition, if the short sale is not "against the box," the
Portfolio will place in a segregated account with its custodian, or designated
sub-custodian, an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government Securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Portfolio will maintain the segregated account daily at a level
so that (1) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (2) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
SPECIAL RISKS ASSOCIATED WITH FORWARD CONTRACTS, FOREIGN CURRENCY FUTURES
CONTRACTS AND OPTIONS THEREON AND OPTIONS ON FOREIGN CURRENCIES
Transactions in forward contracts, as well as futures and options on
foreign currencies, are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Portfolio permitted to engage in such hedging
transactions. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors applicable
to the countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying forward contracts, futures contracts and options. As a
result, the available information on which the Portfolio's trading systems will
be based may not be as complete as the comparable data on which the Portfolio
makes investment and trading decisions in connection with securities and other
transactions. Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which will not be
reflected in the forward, futures or options markets until the following day,
thereby preventing the Portfolio from responding to such events in a timely
manner.
Settlements of over-the-counter forward contracts or of the exercise of
foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires parties to such contracts to accept
or make delivery of such currencies in conformity with any United States or
foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the Commission. In an over-the-counter trading environment, many of
the protections associated with transactions on exchanges will not be available.
For example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction
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costs, this entire amount could be lost. Moreover, an option writer could lose
amounts substantially in excess of its initial investment due to the margin and
collateral requirements associated with such option positions. Similarly, there
is no limit on the amount of potential losses on forward contracts to which the
Portfolio is a party.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and the Portfolio may be unable to close
out options purchased or written, or forward contracts entered into, until their
exercise, expiration or maturity. This in turn could limit the Portfolio's
ability to realize profits or to reduce losses on open positions and could
result in greater losses.
Furthermore, over-the-counter transactions are not backed by the guarantee
of an exchange's clearing corporation. The Portfolio will therefore be subject
to the risk of default by, or the bankruptcy of, the financial institution
serving as its counterparty. One or more of such institutions also may decide
to discontinue its role as market-maker in a particular currency, thereby
restricting the Portfolio's ability to enter into desired hedging transactions.
The Portfolio will enter into over-the-counter transactions only with parties
whose creditworthiness has been reviewed and found satisfactory by the Adviser.
Over-the-counter options on foreign currencies, like exchange-traded
commodity futures contracts and commodity option contracts, are within the
exclusive regulatory jurisdiction of the CFTC. The CFTC currently permits the
trading of such options, but only subject to a number of conditions regarding
the commercial purpose of the purchaser of such options.
Options on foreign currencies traded on a national securities exchange are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency options positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting the Portfolio to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures for
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on exercise.
TAXES
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's Prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio within the Fund is generally treated as a separate
corporation for federal income tax purposes, and thus the provisions of the Code
generally will be applied to each Portfolio separately, rather than to the Fund
as a whole.
The Portfolio intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Portfolio must, among other things, (a) derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
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securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; (b) derive
less than 30% of its gross income each taxable year from the sale or other
disposition of the following items if held less than three months (A) stock or
securities, (B) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), and (C) foreign currencies
(or options, futures, or forward contracts on foreign currencies) that are not
directly related to the Portfolio's principal business of investing in stocks or
securities (or options or futures with respect to stock or securities) (the
"short-short test") and (c) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio's taxable year, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash and cash items,
United States Government securities, securities of other RICs, and other
securities, with such other securities limited, in respect to any one issuer, to
an amount not greater than 5% of the value of the Portfolio's total assets or
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities (other than
United States Government securities or securities of other RICs) of any one
issuer or two or more issuers which the Portfolio controls and which are engaged
in the same, similar, or related trades or business. For purposes of the 90% of
gross income requirement described above, foreign currency gains which are not
directly related to the Portfolio's principal business of investing in stock or
securities (or options or futures with respect to stock or securities) may be
excluded from income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, the Portfolio must distribute at least 90% of its net investment income
(which generally includes dividends, taxable interest, and the excess of net
short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax-exempt interest income, if any, to
shareholders. If the Portfolio meets all of the RIC requirements, it will not
be subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
If the Portfolio fails to qualify as a RIC for any year, all of its income
will be subject to tax at corporate rates, and its distributions (including
capital gains distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Portfolio's current and accumulated earnings
and profits, and will be eligible for the corporate dividends received deduction
for corporate shareholders.
The Portfolio will decide whether to distribute or to retain all or part of
any net capital gains (the excess of net long-term capital gains over net short-
term capital losses) in any year for reinvestment. If any such gains are
retained, the Portfolio will pay federal income tax thereon, and, if the
Portfolio makes an election, the shareholders will include such undistributed
gains in their income, will increase their basis in Portfolio shares by 65% of
the amount included in their income and will be able to claim their share of the
tax paid by the Portfolio as a refundable credit against their federal income
tax liability.
A gain or loss realized by a shareholder on the sale, exchange or exemption
of shares of the Portfolio held as a capital asset will be capital gain or loss,
and such gain or loss will be long-term if the holding period for the shares
exceeds one year, and otherwise will be short-term. Any loss realized on a
sale, exchange, or redemption of shares of the Portfolio will be disallowed to
the extent the shares disposed of are replaced within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
Any loss realized by a shareholder on the disposition of shares held 6 months or
less is treated as a long-term capital loss to the extent of any distributions
of net long-term capital gains received by the shareholder with respect to such
shares or any inclusion of undistributed capital gain with respect to such
shares.
The conversion of Class A shares to Class B shares should not be a taxable
event to the shareholder.
The Portfolio will generally be subject to a nondeductible 4% federal
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
The Portfolio is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions, and
redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Portfolio, that the
Social Security or Taxpayer Identification Number provided is correct and that
the shareholder is exempt from backup withholding or is not currently subject to
backup withholding.
For certain transactions, the Portfolio is required for federal income tax
purposes to recognize as gain or loss its net unrealized gains and losses on
forward currency and futures contracts as of the end of each taxable year, as
well as those actually realized during the year. In most cases, any such gain
or loss recognized with respect to a regulated futures contract is considered to
be 60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Realized gain or loss
attributable to a foreign currency forward contract is treated as 100% ordinary
income. Furthermore, foreign
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currency futures contracts which are intended to hedge against a change in the
value of securities held by the Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
As discussed above, in order for the Portfolio to continue to qualify for
federal income tax treatment as a RIC, at least 90% of its gross income for a
taxable year must be derived from certain qualifying income, including
dividends, interest, income derived from loans of securities, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
related income, including gains from options, futures and forward contracts,
derived with respect to its business of investing in stock, securities or
currencies. Any net gain realized from the closing out of futures contracts
will therefore generally be qualifying income for purposes of the 90%
requirement. Qualification as a RIC also requires that less than 30% of the
Portfolio's gross income be derived from the sale or other disposition of stock,
securities, options, futures or forward contracts (including certain foreign
currencies not directly related to the Fund's business of investing in stock or
securities) held less than three months. In order to avoid realizing excessive
gains on futures contracts held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so.
Short sales engaged in by the Portfolio may reduce the holding property
held by the Portfolio which is substantially identical to the property sold
short. This rule may make it more difficult for the Portfolio to satisfy the
short-short test. This rule may also have the effect of converting capital
gains recognized by the Portfolio from long-term to short-term as well as
converting capital losses recognized by the Portfolio from short-term to long-
term.
SPECIAL TAX CONSIDERATIONS RELATING TO FOREIGN INVESTMENTS
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Portfolio accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Portfolio actually collects
such receivables or pays such liabilities are treated as ordinary income or
ordinary loss to the Portfolio. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss
to the Portfolio. These gains or losses increase or decrease the amount of the
Portfolio's net investment income available to be distributed to its
shareholders as ordinary income.
It is expected that the Portfolio will be subject to foreign withholding
taxes with respect to its dividend and interest income from foreign countries,
and the Portfolio may be subject to foreign income taxes with respect to other
income. So long as more than 50% in value of the Portfolio's total assets at
the close of the taxable year consists of stock or securities of foreign
corporations, the Portfolio may elect to treat certain foreign income taxes
imposed on it for United States federal income tax purposes as paid directly by
its shareholders. The Portfolio will make such an election only if it deems it
to be in the best interest of its shareholders and will notify shareholders in
writing each year if it makes an election and of the amount of foreign income
taxes, if any, to be treated as paid by the shareholders. If the Portfolio
makes the election, shareholders will be required to include in income their
proportionate shares of the amount of foreign income taxes treated as imposed on
the Portfolio and will be entitled to claim either a credit (subject to the
limitations discussed below) or, if they itemize deductions, a deduction, for
their shares of the foreign income taxes in computing their federal income tax
liability.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to a number of complex limitations regarding the
availability and utilization of the credit. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by the Portfolio.
Shareholders are urged to consult their tax advisors regarding the application
of these rules to their particular circumstances.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation, or a foreign
partnership ("Foreign Shareholder") depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Portfolio is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of net
investment income plus the excess of net short-term capital gains over net
long-term capital losses will be subject to U.S. withholding tax at the rate of
30% (or such lower treaty rate as may be applicable) upon the gross amount of
the dividend. Furthermore, Foreign Shareholders will generally be exempt from
U.S. federal income tax on gains realized on the
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sale of shares of the Portfolio, distributions of net long-term capital gains,
and amounts retained by the Fund which are designated as undistributed capital
gains.
If the income from the Portfolio is effectively connected with a U.S. trade
or business carried on by a Foreign Shareholder, then distributions from the
Portfolio and any gains realized upon the sale of shares of the Portfolio, will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
The Portfolio may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Portfolio, including the potential application of the
provisions of the Foreign Investment in Real Estate Property Tax Act of 1980, as
amended.
PURCHASE OF SHARES
The following supplements the Purchase of Shares section in the Prospectus.
The purchase price of shares of the Portfolio is the net asset value next
determined after the order is received. An order received prior to the regular
close of the New York Stock Exchange (the "NYSE") will be executed at the price
computed on the date of receipt; and an order received after the regular close
of the NYSE will be executed at the price computed on the next day the NYSE is
open as long as the Fund's transfer agent receives payment by check or in
Federal Funds prior to the regular close of the NYSE on such day. Shares of the
Fund may be purchased on any day the NYSE is open. The NYSE will be closed on
the following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
The following supplements the Redemption of Shares section in the
Prospectus.
The Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the Commission, (ii) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for the Portfolio to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
No charge is made by the Portfolio for redemptions. Any redemption may be
more or less than the shareholder's cost depending on the market value of the
securities held by the Portfolio.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and
(2) share transfer requests.
A guarantor must be a bank, a trust company, a member firm of a domestic
stock exchange, or a foreign branch of any of the foregoing. Notaries public
are not acceptable guarantors.
11
<PAGE>
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the Shareholder Services section in the
Prospectus.
EXCHANGE FEATURES
Shares of the Portfolio of the Fund may be exchanged for shares of any
other available Portfolio (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 a shareholder receives in 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.
Any such exchange will be based on the respective net asset values of the
shares involved. There is no sales commission or charge of any kind. Before
making an exchange, a shareholder should consider the investment objectives of
the Portfolio to be purchased.
Exchange requests may be made either by mail or telephone. Exchange
requests by mail should be sent to Morgan Stanley Institutional Fund, Inc., P.O.
Box 2798, Boston, Massachusetts 02208-2798. Telephone exchanges will be accepted
only if the certificates for the shares to be exchanged are held by the Fund for
the account of the shareholder and the registration of the two accounts will be
identical. Requests for exchanges received prior to 4:00 p.m. (Eastern Time)
will be processed as of the close of business on the same day. Requests
received after these times will be processed on the next business day.
Exchanges may be subject to limitations as to amounts or frequency, and to other
restrictions established by the Board of Directors to assure that such exchanges
do not disadvantage the Fund and its shareholders.
For federal income tax purposes an exchange between Portfolios is a taxable
event for shareholders subject to tax, and, accordingly, a gain or loss may be
realized. The exchange privilege may be modified or terminated by the Fund at
any time upon 60 days' notice to shareholders.
TRANSFER OF SHARES
Shareholders may transfer shares of the Portfolio to another person by
making a written request to the Fund. The request should clearly identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions, the written request must be received
in good order before any transfer can be made. Transferring shares may affect
the eligibility of an account for a given class of the Portfolio's shares and
may result in involuntary conversion or redemption of such shares.
INVESTMENT LIMITATIONS
The Portfolio has adopted the following restrictions which are fundamental
policies and may not be changed without the approval of the lesser of: (1) at
least 67% of the voting securities of the Portfolio present at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented by proxy, or (2) more than 50% of the outstanding
voting securities of the Portfolio. The Portfolio will not:
(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling options or futures contracts or from
investing in securities or other instruments backed by physical commodities);
(2) purchase or sell real estate, although it may purchase and sell
securities of companies that deal in real estate and may purchase and sell
securities that are secured by interests in real estate;
12
<PAGE>
(3) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;
(4) issue senior securities;
(5) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes, and then, in no event, in excess of 10% of the
Portfolio's total assets valued at the lower of market or cost and the Portfolio
may not purchase additional securities when borrowings exceed 5% of total
assets, except that the Portfolio may borrow amounts up to 33 1/3% of its total
assets (including the amount borrowed) less liabilities (other than borrowings);
(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities;
(7) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the Portfolio's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and
(8) write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
The Portfolio will diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the market value of the
Portfolio's total assets is represented by cash (including cash items and
receivables), U.S. Government securities, and other securities, with such other
securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Portfolio's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities);
In addition, the Portfolio has adopted nonfundamental investment
limitations as stated below and in the Prospectus. Such limitations may be
changed without shareholder approval. The Portfolio will not:
(1) purchase on margin or sell short, except that the Portfolio may enter
into short sales in accordance with its investment objective and policies;
(2) purchase or retain securities of an issuer if those Officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(3) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(6) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(7) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Portfolio's net assets (taken at market value) would be invested in
warrants, valued at the lower of cost or market. Included within this amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be warrants
that are not listed on a recognized stock exchange;
(8) invest in real estate limited partnership interests;
(9) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the Prospectus) that are publicly distributed, and (ii) by lending
its portfolio securities to
13
<PAGE>
banks, brokers, dealers and other financial institutions so long as such loans
are not inconsistent with the 1940 Act or the Rules and Regulations or
interpretations of the Commission thereunder;
(10) invest in oil, gas or other mineral leases; and
(11) purchase puts, calls, straddles, spreads and any combination thereof
if for any reason thereof the value of its aggregate investment in such classes
of securities will exceed 5% of its total assets, except that the Portfolio may
enter into option transactions to the extent that not more than 5% of the
Portfolio's total assets are required as deposits to secure obligations under
options and not more than 20% of its total assets are invested in options,
futures contracts and options on futures contracts at any time.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a
Government Obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be deemed to have
a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand;
(d) an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. Directors and officers of the
Fund are also directors and officers of some or all of the other investment
companies managed, administered, advised or distributed by Morgan Stanley Asset
Management Inc. or its affiliates. The other Directors have no affiliation with
the Fund's adviser, distributor or administrative services provider. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth
below:
14
<PAGE>
Principal Occupation During
Name, Address and Age Postion With Fund Past Five Years
--------------------- ----------------- -----------------------------
Barton M. Biggs* Chairman and Chairman, Director and Managing
1221 Avenue of the Director Director of Morgan Stanley Asset
Americas Management Inc. and Morgan
New York, NY 10020 Stanley Asset Management
(63) Limited; Managing Director of
Morgan Stanley & Co., Inc.;
Director of Morgan Stanley Group
Inc.; Member of Investment
Advisory Counsel of the Thailand
Fund; Director of the Rand
McNally Company; Member of the
Yale Development Board; Chairman
and Director of 16 U.S.
registered investment companies
managed by Morgan Stanley Asset
Management Inc.
Warren J. Olsen* Director and Principal of Morgan Stanley &
1221 Avenue of the President Co., Inc. and of Morgan Stanley
Americas Asset Management Inc.; President
New York, NY 10020 and Director of 16 U.S.
(39) registered investment companies
managed by Morgan Stanley Asset
Management Inc.
John D. Barrett, II Director Chairman and Director of Barrett
521 Fifth Avenue Associates, Inc. (investment
New York, NY 10135 counseling); Director of the
(60) Ashforth Company (real estate);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP
43 Arch Street (law firm); Director of the
Greenwich, CT 06830 Morgan Stanley Fund, Inc. and
(59) PCS Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive
8255 North Central Officer of Rand McNally
Park Avenue (publication); Director of
Skokie, IL 60076 Allendale Insurance Co., Mercury
(56) Finance (consumer finance);
Zenith Electronics, Hubbell,
Inc. (industrial electronics);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
Samuel T. Reeves Director Chairman of the Board and CEO,
8211 North Pinacle L.L.C. (investment
Fresno Street firm); Director, Pacific Gas and
Fresno, CA 93720 Electric and PG&E Enterprises
(61) (utilities); Director of the
Morgan Stanley Fund, Inc. and
PCS Cash Fund, Inc.
Fergus Reid Director Chairman and Chief Executive
85 Charles Colman Blvd Officer of LumeLite Corporation
Pawling, NY 12564 (injection molding firm);
(63) Trustee and Director of Vista
Mutual Fund Group; Director of
the Morgan Stanley Fund, Inc.
and PCS Cash Fund, Inc.
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law
2800 North Central Avenue firm); Previously associated
Phoenix, AZ 85004 with Copple, Chamberlin & Boehm,
(62) P.C. and Rake, Copple, Downey &
Black, P.C. (law firms);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
15
<PAGE>
Principal Occupation During
Name, Address and Age Postion with Fund Past Five Years
--------------------- ----------------- -----------------------------
Frederick B. Whittemore* Director Advisory Director of Morgan
1251 Avenue of the Stanley & Co., Inc.; Vice-
Americas, 30th Flr. Chairman and Director of 15 U.S.
New York, NY 10020 registered investment companies
(65) managed by Morgan Stanley Asset
Management Inc.
James W. Grisham* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co., Inc. and of Morgan Stanley
Americas Asset Management Inc.; Vice
New York, NY 10020 President of 16 U.S. registered
(54) investment companies managed by
Morgan Stanley Asset Management
Inc.
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co. and of Morgan Stanley Asset
Americas Management Inc.; General Counsel
New York, NY 10020 and Secretary of Morgan Stanley
(35) Asset Management Inc.; Vice
President of 16 U.S. registered
investment companies managed by
Morgan Stanley Asset Management
Inc.
Joseph P. Stadler* Vice President Vice President of Morgan Stanley
1221 Avenue of the & Co. Inc. and Morgan Stanley
Americas Asset Management Inc.;
New York, NY 10020 Previously with Price Waterhouse
(41) LLP (accounting); Vice President
of 16 U.S. registered investment
companies managed by Morgan
Stanley Asset Management Inc.
Valerie Y. Lewis* Secretary Vice President of Morgan Stanley
1221 Avenue of the & Co. Inc. and Morgan Stanely
Americas Asset Management Inc.;
New York, NY 10020 Previously with Citicorp
(40) (banking); Secretary of 16 U.S.
registered investment companies
managed by Morgan Stanley Asset
Management Inc.
Karl O. Hartmann Assistant Senior Vice President, Secretary
73 Tremont Street Secretary and General Counsel of Chase
Boston, MA 02108-3913 Global Funds Services Company;
(41) Previously, Leland, O'Brien,
Rubinstein Associates, Inc.
(investments).
James R. Rooney Treasurer Vice President, Chase Global
73 Tremont Street Funds Services Company; Director
Boston, MA 02108-3913 of Fund Administration; Officer
(37) of various investment companies
managed by Morgan Stanley Asset
Management Inc.; Previously with
Scudder, Stevens & Clark, Inc.
(investments) and Ernst & Young
LLP (accounting); Treasurer of
16 U.S. registered investment
companies managed by Morgan
Stanley Asset Management Inc.
Joanna Haigney Assistant Supervisor of Fund
73 Tremont Street Treasurer Administration and Compliance,
Boston, MA 02108-3913 Chase Global Funds Services
(29) Company; Previously with Coopers
& Lybrand LLP; Assistant
Treasurer of 16 U.S. registered
investment companies managed by
Morgan Stanley Asset Management
Inc.
_______
* "Interested Person" within the meaning of the 1940 Act.
16
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
Effective June 28, 1995, the Open-end Fund Complex will pay each of the
nine Directors who is not an "interested person" an annual aggregate fee of
$55,000, plus out-of-pocket expenses. The Open-end Fund Complex will pay each
of the members of the Fund's Audit Committee, which consists of the Fund's
Directors who are not "interested persons," an additional annual aggregate fee
of $10,000 for serving on such a committee. The allocation of such fees will be
among the three funds in the Open-end Fund Complex in direct proportion to their
respective average net assets. For the fiscal year December 31, 1995, the Fund
paid approximately $244,000 in Directors' fees and expenses. Directors who are
also officers or affiliated persons receive no remuneration for their services
as Directors. The Fund's officers and employees are paid by the Adviser or its
agents. As of May 6, 1996, to Fund management's knowledge, the Directors and
officers of the Fund, as a group, owned more than 1% of the outstanding common
stock of the following Portfolios of the Fund: 2.5% Active Country Allocation
Portfolio - Class B shares; 1.5% Aggressive Equity Portfolio - Class B shares;
1.6% Asian Equity Portfolio - Class A shares; 1.6% Emerging Markets Portfolio -
Class B shares; 1.5% Emerging Markets Debt Portfolio - Class A shares; 2.0%
Equity Growth Portfolio - Class B shares; 6.4% Fixed Income Portfolio - Class B
shares; 2.5% Global Fixed Income Portfolio - Class B shares; 8.6% Gold Portfolio
- - Class A shares; 3.4% Gold Portfolio - Class B shares; 1.2% International
Equity Portfolio - Class B shares; 1.0% Japanese Equity Portfolio - Class A
shares; 4.3% Latin American Portfolio - Class A shares and 9.4% Municipal Bond
Portfolio - Class B shares. The following table shows aggregate compensation
paid to each of the Fund's Directors by the Fund and the Fund Complex,
respectively, in the fiscal year ended December 31, 1995.
17
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
PERSON, COMPENSATION RETIREMENT ANNUAL COMPENSATION
POSITION FROM BENEFITS ACCRUED BENEFITS FROM REGISTRANT
REGISTRANT AS PART OF FUND UPON AND FUND COMPLEX
EXPENSES RETIREMENT PAID TO DIRECTORS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barton M. Biggs, $ N/A $ N/A
Director and Chairman
of the Board
Warren J. Olsen, N/A N/A
Director and President
John D. Barrett, II 14,085 26,405
Director
Gerard E. Jones, 25,335 79,655
Director
Andrew McNally, IV 11,916 32,834
Director
Samuel T. Reeves 11,916 14,303
Director
Fergus Reid 14,085 48,517
Director
Frederick O. Robertshaw 11,916 36,055
Director
Frederick B. Whittemore 12,150 41,429
Director
John P. Britton* 11,250 11,250
Director
George R. Bunn* 12,900 12,900
Director
Peter E. deSvastich* 11,250 25,225
Director
</TABLE>
___________
* As of June 30, 1995, Messrs. Britton, Bunn and deSvastich resigned from the
Board of Directors.
18
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
Morgan Stanley Asset Management Inc. ("MSAM" or the "Adviser") is a
wholly-owned subsidiary of Morgan Stanley Group Inc. The principal offices of
Morgan Stanley Group Inc. are located at 1221 Avenue of the Americas, New York,
NY 10020. As compensation for advisory services for the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995, the Adviser earned
fees of approximately $17,539,000, $34,338,000 and $40,534,000, respectively,
and from such fees voluntarily waived fees of $3,037,000, $2,640,000 and
$3,526,000, respectively. For the fiscal years ended December 31, 1993,
December 31, 1994 and December 31, 1995, the Fund paid brokerage commissions of
approximately $5,827,000, $7,287,293 and $10,317,515, respectively. For the
fiscal years ended December 31, 1993, December 31, 1994 and December 31, 1995,
the Fund paid in the aggregate $797,000, $796,000 and $377,000, respectively, as
brokerage commissions to Morgan Stanley & Co. Incorporated, an affiliated
broker-dealer, which represented 13%, 11% and 4% of the total amount of
brokerage commissions paid in each respective period. For the fiscal years
ended December 31, 1993 , December 31, 1994 and December 31, 1995, the Fund paid
administrative fees to MSAM of approximately $4,662,000, $4,458,000 and
$5,238,000, respectively.
Pursuant to the MSAM Administration Agreement between the Adviser and the
Fund, the Adviser provides Administrative Services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.15 of 1% of the average daily net assets of the Portfolio.
Under the Agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase," successor in interest to United States Trust Company of New York),
Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds Service
Company and now a Chase subsidiary) provides certain administrative services to
the Fund. CGFSC provides operational and administrative services to investment
companies with approximately $62 billion in assets and having approximately
187,286 shareholder accounts as of March 31, 1996. CGFSC's business address is
73 Tremont Street, Boston, Massachusetts 02108-3913.
DISTRIBUTION OF FUND SHARES
Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Morgan Stanley Group Inc., serves as the Distributor of the Fund's
shares pursuant to a Distribution Agreement for the Fund and a Plan of
Distribution for the Class B shares of the Portfolio pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan the Distributor is entitled to
receive from the Portfolio a distribution fee, which is accrued daily and paid
quarterly, at an annual rate of up to 0.25% of the average daily net assets of
the Class B shares of the Portfolio. The Distributor expects to allocate most
of its fee to its investment representatives and investment dealers, banks or
financial service firms that provide distribution services ("Participating
Dealer"). The actual amount of such compensation is agreed upon by the Fund's
Board of Directors and by the Distributor. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
The Plan obligates the Portfolio to accrue and pay to the Distributor the
fee agreed to under its Distribution Agreement. The Plan does not obligate the
Portfolio to reimburse the Distributor for the actual expenses the Distributor
may incur in fulfilling its obligations under the Plan. Thus, under the Plan,
even if the Distributor's actual expenses exceed the fee payable to it
thereunder at any given time, the Portfolio will not be obligated to pay more
than that fee. If the Distributor's actual expenses are less than the fee it
receives, the Distributor will retain the full amount of the fee. The Plan for
the Class B shares were most recently approved by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of a Plan or in any agreements related thereto, on
September 20, 1995.
The Technology Portfolio was not in operation in the fiscal year ended
December 31, 1995.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Adviser and, as described below,
impose additional, more onerous, restrictions on the Fund's investment
personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in
19
<PAGE>
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Adviser. Furthermore, the Codes provide for trading "blackout periods" that
prohibit trading by investment personnel of the Fund within periods of trading
by the Fund in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of May 6, 1996 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
ACTIVE COUNTRY ALLOCATION PORTFOLIO: The Trustees of Columbia University in the
City of New York, 475 Riverside Drive, Suite 401, New York, NY 10115, owned 17%
of such Portfolio's total outstanding Class A shares.
City of New York Deferred Compensation Plan, 40 Rector Street, 3rd Floor, New
York, NY 10006, owned 20% of such Portfolio's total outstanding Class A shares.
Oglebay Norton Company, 1100 Superior Avenue, Cleveland, OH 44114-2598, owned
12% of such Portfolio's total outstanding Class A shares.
The Flinn Foundation, Northern Trust Co., Master Trust Dept., P.O. Box 92984,
Chicago, IL 60675, owned 8% of such Portfolio's total outstanding Class A
shares.
Sahara Enterprises, Inc., 3 First National Plaza, Suite 2000, Chicago, IL 60602-
4260, owned 7% of such Portfolio's total outstanding Class A shares.
The Chase Manhattan Bank, N.A., Trustee Chubb Capital Accumulation Plan, 770
Broadway, New York, NY 10003, owned 5% of such Portfolio's total outstanding
Class A shares.
Jeffrey R. Holzschuh, 66 Sawmill Lane, Greenwich, CT 06830-4046, owned 15% of
such Portfolio's total outstanding Class B shares.
Benefit Administrators of America Inc., Attn: John Stephens, 636 Grand Avenue,
Des Moines, IA 50309, owned 15% of such Portfolio's total outstanding Class B
shares.
David Johnson and Audrey E. Johnson, 405 East Winchester, Libertyville, IL
60048-1677, owned 11% of such Portfolio's total outstanding Class B shares.
John P. and Janet K. Hanlon, 7 Stafford Place, Towaco, NJ 07082, owned 7% of
such Portfolio's total outstanding Class B shares.
Michael and Maureen Cassedy, 1221 Jones Street, Apt. D1, San Francisco, CA
94109-4228, owned 7% of such Portfolio's total outstanding Class B shares.
Guarantee & Trust Company, IRA R/O, 101 S. Spring Street, La Grange, IL 60525,
owned 6% of such Portfolio's total outstanding Class B shares.
AGGRESSIVE EQUITY PORTFOLIO: Valassis Enterprises - Equity C/O Franklin
Enterprises, 520 Lake Cook Road, Suite 380, Deerfield, IL 60015, owned 15% of
such Portfolio's total outstanding Class A shares.
Kinghugh S.A., C/O Morgan Stanley Asset Management, 1221 Avenue of the Americas,
New York, NY 10020, owned 10% of such Portfolio's total outstanding Class A
shares.
Hullbridge Investment Limited, The Tropic Isle Building, Wickahams Cay Tortola,
British Virgin Islands, owned 8% of such Portfolio's total outstanding Class A
shares.
Guy L. DeChazal, Morgan Stanley & Company, 1221 Avenue of the Americas - 33rd
floor, New York, NY 10020, owned 8% of such Portfolio's total outstanding Class
B shares.
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John S. Richardson, 100 Peachtree Way, Atlanta, GA 30305-3738, owned 6% of such
Portfolio's total outstanding Class B shares.
Caroline B. Case, 54 Tanglewylde Avenue, Bronxville, NY 10708, owned 6% of such
Portfolio's total outstanding Class B shares.
Peter Boer, 47 Country Road, Village of Golf, FL 33436-5604, owned 6% of such
Portfolio's total outstanding Class B shares.
Mr. James Fuld, Jr., 114 East 72nd Street, New York, NY 10021, owned 5% of such
Portfolio's total outstanding Class B shares.
ASIAN EQUITY PORTFOLIO: Association De Bienfaisance Et De Retraite Des
Policiers De La Communaute Urbaine De Montreal, 480 Gilford Street, Montreal,
Quebec H2J1N3, owned 7% of such Portfolio's total outstanding Class A shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O.
Box 92956, Chicago, IL 60675-2956, owned 5% of such Portfolio's total
outstanding Class A shares.
BALANCED PORTFOLIO: The American Roentgen Ray Society, 1891 Preston White
Drive, Reston, VA 22091-5431, owned 30% of such Portfolio's total outstanding
Class A shares.
Kinney Printing Co-Employees, 4801 S. Lawndale, Chicago, IL 60532-3018, owned 5%
of such Portfolio's total outstanding Class A shares.
William Guthrie, IRA Rollover, 435 Sheridan Road, Winnetka, IL 60093-2626,
owned 15% of such Portfolio's total outstanding Class B shares.
Laverne M. Brownsey Trust, 135 S. LaSalle Street, Chicago, IL 60602-4274, owned
5% of such Portfolio's total outstanding Class B shares.
EMERGING GROWTH PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 28% of such
Portfolio's total outstanding Class A shares.
Allendale Mutual Insurance Co., P.O. Box 7500, Johnston, RI 02919-0750, owned
10% of such Portfolio's total outstanding Class A shares.
Mac & Co. A/C Benf 0741602, P.O. Box 3198, Pittsburgh, PA 15230, owned 8% of
such Portfolio's total outstanding Class A shares.
EMERGING MARKETS DEBT PORTFOLIO: Northwestern University, 633 Clark Street,
Evanston, IL 60208-1122, owned 13% of such Portfolio's total outstanding Class A
shares.
Swarthmore College, 500 College Avenue, Swarthmore, PA 19081-1110, owned 7% of
such Portfolio's total outstanding Class A shares.
Bartlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64132, owned 9% of such Portfolio's total outstanding Class B shares.
EMERGING MARKETS PORTFOLIO: Ministers & Missionaries Benefit Board of the
American Baptist Churches, 475 Riverside Drive, New York, NY 10115, owned 9% of
such Portfolio's total outstanding Class A shares.
Ewing Marion Kauffman Foundation, 4900 Oak Street, Kansas City, MO 64112, owned
8% of such Portfolio's total outstanding Class A shares.
EQUITY GROWTH PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675, owned 34% of such
Portfolio's total outstanding Class A shares.
St. Raymonds Cemetery Reserve Fund, 1201 Balcom Avenue, Bronx, NY 10465, owned
9% of such Portfolio's total outstanding Class A shares.
Donald A. Moore Jr., 160 E. 72 Street, New York, NY 10021, owned 8% of such
Portfolio's total outstanding Class B shares.
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EUROPEAN EQUITY PORTFOLIO: Alan Gerry, C/O Granite Associates LP, 1 Cablevision
Center, Liberty, NY 12754, owned 8% of such Portfolio's total outstanding Class
A shares.
KPMG - Harvey Armstrong, FAO Volker Dolch Family Trust, 50 W. San Fernando
Street, San Jose, CA 95113-2413, owned 17% of such Portfolio's total outstanding
Class B shares.
Marc Andreessen Trustees, FBO Marc Andreessen, 16615 Lark Avenue, Los Gatos, CA
95030, owned 7% of such Portfolio's total outstanding Class B shares.
Frank E. Hunt Trust, 8627 Madison Drive, Niles, IL 60648-2321, owned 6% of such
Portfolio's total outstanding Class B shares.
Christopher E. O'Donnell Trust, 1147 W. George Street, Chicago, IL 60657-4313,
owned 6% of such Portfolio's total outstanding Class B shares.
James P. Smith Jr., 552 Ponte Vedra Boulevard, Ponte Vedra, FL 32082-2316,
owned 6% of such Portfolio's total outstanding Class B shares.
Beatrice Synder, Trustee FBO Jay Synder 21484, 300 Winston Drive, Apt. 1711,
Cliffside Park, NJ 07010-3222, owned 6% of such Portfolio's total outstanding
Class B shares.
Deborah Meredith, 1386 Pritchett Court, Los Altos, CA 94024-5713, owned 6% of
such Portfolio's total outstanding Class B shares.
Steven J. Wong, 20021 Marribrook Drive, Saratoga, CA 95070-5445, owned 6% of
such Portfolio's total outstanding Class B shares.
Benedikt von Schroder & Kristin von Schroder, Burnitz Str. 67, 6000 Frankfurt
70, Germany, owned 5% of such Portfolio's total outstanding Class B shares.
FIXED INCOME PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 23% of such
Portfolio's total outstanding Class A shares.
Brooks School, C/O Mr. Frank Marino, North Andover, MA 01845, owned 6% of such
Portfolio's total outstanding Class A shares.
Morgan Stanley Foundation, 1221 Avenue of the Americas, New York, NY 10020,
owned 6% of such Portfolio's total outstanding Class A shares.
William M. Manger, Jr., 8 E. 81 Street, New York, NY 10028-0201, owned 6% of
such Portfolio's total outstanding Class B shares.
Harold J. Schaaff, IRA, 49 Old Orchard Lane, Ocean Twp, NJ 07712, owned 6% of
such Portfolio's total outstanding Class B shares.
Delaware Charter & Guarantee & Trust, IRA Rollover, 5813 West North Avenue,
Kalamazoo, MI 49009, owned 6% of such Portfolio's total outstanding Class B
shares.
Michael J. and Patricia L. Berchtold Trust, C/O Morgan Stanley Asia, Three
Exchange Square, Hong Kong, owned 6% of such Portfolio's total outstanding Class
B shares.
Richard B. Lonoff and Jacqueline M. Carr, 43 Mamanasco Road, Ridgefield, CT
06877-2402, owned 5% of such Portfolio's total outstanding Class B shares.
GLOBAL EQUITY PORTFOLIO: Robert College of Istanbul Turkey C/O Morgan Stanley
Asset Management, 25 Cabot Square, London, England E144QA, owned 48% of such
Portfolio's total outstanding Class A shares.
Gaz Metropolitan and Company Limited Partnership, 1717 Du Havre, Montreal,
Canada H2K-2X3, owned 15% of such Portfolio's total outstanding Class A shares.
JM Kaplan Fund, Inc., 880 Third Avenue, 3rd floor, New York, NY 10022, owned
12% of such Portfolio's total outstanding Class A shares.
22
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Divtex and Company FBO, Pritchard Hubble and Herr C/O Texas Commerce Bank, P.O.
Box 951405, Dallas, TX 75395, owned 8% of such Portfolio's total outstanding
Class A shares.
Kaplan Choate Value Partners, L.P., 880 Third Avenue, New York, NY 10022-4730,
owned 7% of such Portfolio's total outstanding Class A shares.
North American Trust Company, FBO Heller/Robert S. Venning, P.O. Box 84419, San
Diego, CA 92138, owned 12% of such Portfolio's total outstanding Class B
shares.
Janet Synder, IRA, Custodian MSTC, 3677 Sunsey Way, Sanford, MI 48657, owned 8%
of such Portfolio's total outstanding Class B shares.
Douglas E. Ebert Trust, Douglas E. Ebert, Trustee and Successor in Trust, 3470
Twin Oaks Court, W. Bloomfield, MI 48324-3249, owned 7% of such Portfolio's
total outstanding Class B shares.
John F. Raynolds III, 386 Park Avenue South, New York, NY 10016, owned 6% of
such Portfolio's total outstanding Class B shares.
Wells Fargo Bank, Custodian for the Rice Family Trust, 201 3rd Street, San
Francisco, CA 94163, owned 5% of such Portfolio's total outstanding Class B
shares.
GLOBAL FIXED INCOME PORTFOLIO: Farm Credit Bank Retirement Plan, Columbia
District American Industries Trust Company Trustee, 5700 NW Central Drive, 4th
Floor, Houston, TX 77092, owned 14% of such Portfolio's total outstanding Class
A shares.
Northern Trust Company as Custodian FBO The Lund Foundation, P.O. Box 92956,
Chicago, IL 60675, owned 11% of such Portfolio's total outstanding Class A
shares.
The Northern Trust Customer FBO Resort Condominiums International, P.O. Box
92956, Chicago, IL 60675-2956, owned 6% of such Portfolio's total outstanding
Class A shares.
Divtex and Co., FBO Pritchard Hubble and Herr, c/o Texas Commerce Bank, P.O. Box
951405, Dallas, TX 75395-1405, owned 6% of such Portfolio's total outstanding
Class A shares.
David Brooks Gendron, C/O CS First Boston - London, 55 East 52nd Street, New
York, NY 10055, owned 12% of such Portfolio's total outstanding Class B shares.
Marjorie S. Burggraf, FBO The Robert V. Burgraff Family Trust UTA DTD 11-5-86,
2378 E. Oakmont Drive, Idaho Falls, ID 83404-7720, owned 8% of such Portfolio's
total outstanding Class B shares.
Steven J. Wong, 20021 Marribrook Drive, Saratoga, CA 95070-5445, owned 6% of
such Portfolio's total outstanding Class B shares.
Thomas E. Congden, 1776 Lincoln Street, Suite 1100, Denver, CO 80203-1080,
owned 6% of such Portfolio's total outstanding Class B shares.
GOLD PORTFOLIO: Stockton Trust Partnership, 7373 North Scottsdale Road,
Scottsdale, AZ 85253, owned 31% of such Portfolio's total outstanding Class A
shares.
Judith L. Biggs, 390 Riversville Road, Greenwich, CT 06831-3200, owned 10% of
such Portfolio's total outstanding Class A shares.
Wallace Genetic Foundation, C/O Stanley Rosenberg, 7 Charles Lane, Rye Brook, NY
10573, owned 9% of such Portfolio's total outstanding Class A shares.
Barton M. Biggs, 390 Riversville Road, Greenwich, CT 06830, owned 9% of such
Portfolio's total outstanding Class A shares.
Trust U/A Sixth Will of Howard Ross, C/O James H. Ross, Rossrock Company, Inc.,
150 East 52nd Street, New York, NY 10020, owned 6% of such Portfolio's total
outstanding Class A shares.
23
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Kinghugh S.A., C/O Morgan Stanley Asset Management, 1221 Avenue of the Americas,
New York, NY 10020, owned 5% of such Portfolio's total outstanding Class A
shares.
Steven C. Olson, 505 Knollwood Road, Ridgewood, NJ 07450, owned 46% of such
Portfolio's total outstanding Class B shares.
Gregory W. Neumann, 5 Mt. Austin Road, House B, The Peak, Hong Kong, owned 21%
of such Portfolio's total outstanding Class B shares.
Michael J. and Patricia L. Berchtold, Trust, C/O Morgan Stanley Asia, Three
Exchange Square, Hong Kong, owned 10% of such Portfolio's total outstanding
Class B shares.
Matthew and Deborah Carrara, 443 W. Eugnie Street, Apt. 3E, Chicago, IL 60614,
owned 8% of such Portfolio's total outstanding Class B shares.
Christian B. Malone, 750 Columbus Avenue, Apt. 8N, New York, NY 10025-6479,
owned 7% of such Portfolio's total outstanding Class B shares.
HIGH YIELD PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley Profit
Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 21% of such
Portfolio's total outstanding Class A shares.
Valassis Enterprises - Equity, c/o Franklin Enterprises, 520 Lake Cook Road,
Suite 380, Deerfield, IL 60015, owned 14% of such Portfolio's total outstanding
Class A shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 11% of such Portfolio's total outstanding Class B
shares.
Austin Koenen, 360 Sunset Road, Pompton Pines, NJ 07444-1513, owned 8% of such
Portfolio's total outstanding Class B shares.
John B. and Judy D. Morel, 28 Twelve Pines, The Woodlands, TX 77381, owned 6% of
such Portfolio's total outstanding Class B shares.
INTERNATIONAL MAGNUM PORTFOLIO: Infirmary Health Systems, Inc., P.O. Box 2226,
Mobile, AL 36652-2226, owned 49% of such Portfolio's total outstanding Class A
shares.
Ameritas Life Insurance Corporation, P.O. Box 81889, Lincoln, NE 68501, owned
34% of such Portfolio's total outstanding Class A shares.
Luanne C. Wells and Paul C. Heeschen Trustees, FBO Palm Trust, 450 Newport
Center Drive, Newport Beach, CA 92660-7614, owned 17% of such Portfolio's total
outstanding Class A shares.
Warren R. Appleton, SEP IRA, P.O. Box 3415, Redmond, WA 98073, owned 27% of such
Portfolio's total outstanding Class B shares.
Mike and Rose Crowe, 8840 SE 74th Place, Mercer Island, WA 98040-5700, owned 16%
of such Portfolio's total outstanding Class B shares.
Steve E. Trautman III and Sonja K. Gustafson, 4232 Meridian Avenue, Seattle, WA
98103, owned 14% of such Portfolio's total outstanding Class B shares.
William W. McCaughey, 15519 SE 27th Street, Bellevue, WA 98007, owned 12% of
such Portfolio's total outstanding Class B shares.
Meridian Real Estate L.P., P.O. Box 1202, Bellevue, WA 98009, owned 9% of such
Portfolio's total outstanding Class B shares.
Warren R. and Nancy J. Appleton, P.O. Box 3415, Redmond, WA 98073, owned 9% of
such Portfolio's total outstanding Class B shares.
24
<PAGE>
Julie A. Solomon, 1602 DeFoor Mill Court, Atlanta, GA 30318, owned 9% of such
Portfolio's total outstanding Class B shares.
INTERNATIONAL SMALL CAP PORTFOLIO: The Short Brothers Pension Fund, P.O. Box
241, Airport Road, Belfast, N. Ireland, owned 11% of such Portfolio's total
outstanding Class A shares.
The Casey Family Program, 1300 Dexter Avenue, Suite 400, Seattle, WA 98109-3547,
owned 8% of such Portfolio's total outstanding Class A shares.
Trustees of Boston College Attn: Paul Haran Associates Treasurer, St. Thomas
More Hall 310, Chestnut Hill, MA 02167, owned 7% of such Portfolio's total
outstanding Class A shares.
General Mills, Inc. Master Trust: Pooled International Fund, One General Mills
Blvd., Minneapolis, MN 55426, owned 7% of such Portfolio's total outstanding
Class A shares.
JAPANESE EQUITY PORTFOLIO: Alan Gerry, C/O Granite Associates L.P., 1
Cablevision Center, Liberty, NY 12754, owned 5% of such Portfolio's total
outstanding Class A shares.
Marc Andreessen Trustees, FBO Marc Andreessen, 16615 Lark Avenue, Los Gatos, CA
95030, owned 7% of such Portfolio's total outstanding Class B shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 7% of such Portfolio's total outstanding Class B shares.
LATIN AMERICAN PORTFOLIO: Chicago Methodist Episcopal Church Aid Society, C/O
Gordon Worley, 1407 Clinton Place, River Forest, IL 60305, owned 23% of such
Portfolio's total outstanding Class B shares.
Henri Dyner, 232 Truman Drive, Cresskill, NJ 07626, owned 23% of such
Portfolio's total outstanding Class B shares.
Marc Andreessen Trustees, FBO Marc Andreessen, 16615 Lark Avenue, Los Gatos, CA
95030, owned 15% of such Portfolio's total outstanding Class B shares.
John P. Hanlon and Janet K. Hanlon, 7 Stafford Place, Towaco, NJ 07082, owned
8% of such Portfolio's total outstanding Class B shares.
Lawrence B. Sorrel, 58 Taunton Road, Scarsdale, NY 10583, owned 6% of such
Portfolio's total outstanding Class B shares.
MUNICIPAL BOND PORTFOLIO: Daniel F. McDonald and Maria J. McDonald, 8550 Old
Dominion Drive, McLean, VA 22102, owned 10% of such Portfolio's total
outstanding Class A shares.
Cushman Trust, C/O Cambrian Services, 1114 Avenue of the Americas, Suite 2702,
New York, NY 10036, owned 6% of such Portfolio's total outstanding Class A
shares.
Arnold E. and Jill I. Bellowe Trustees, 915 Park Lane, Montecito, CA 93108-
1421, owned 5% of such Portfolio's total outstanding Class A shares.
James A. Rutherford, C/O Wingset Inc., 15 South High Street, P.O. Box 166, New
Albany, OH 43054-0166, owned 6% of such Portfolio's total outstanding Class A
shares.
Robert and Ellen Lieberman, 1136 5th Avenue, New York, NY 10128-0122, owned 60%
of such Portfolio's total outstanding Class B shares.
Alok and Maya Sama, C/O Morgan Stanley Hong Kong Pouch, Avenue of the
Americas, New York, NY 10020-1104, owned 30% of such Portfolio's total
outstanding Class B shares.
James W. and Diana E. Grisham, 454 South Pleasant Avenue, Ridgewood, NJ 07450-
5446, owned 9% of such Portfolio's total outstanding Class B shares.
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<PAGE>
SMALL CAP VALUE EQUITY PORTFOLIO: Morgan Stanley & Co. Pension Fund, C/O
Northern Trust Company Cust, 770 Broadway, New York, NY 10003, owned 14% of such
Portfolio's total outstanding Class A shares.
Wendel and Company, C/O The Bank of New York, P.O. Box 1066, New York, NY 10286,
owned 6% of such Portfolio's total outstanding Class A shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 20% of such Portfolio's total outstanding Class B
shares.
Kinney Printing Co-Employees, Attn: Dolores M. Miklos, 4801 South Lawndale,
Chicago, IL 60632-3018, owned 6% of such Portfolio's total outstanding Class B
shares.
George W. Gardner, Self Declaration of Trust, 70 E. Cedar, Chicago, IL 60611,
owned 5% of such Portfolio's total outstanding Class B shares.
U.S. REAL ESTATE PORTFOLIO: European Patent Organization Pension Reserve Fund,
Erhardtstrasse 27, Munich, Germany 80331, owned 7% of such Portfolio's total
outstanding Class A shares.
Morgan, Stanley & Co. Pension Fund, C/O Northern Trust Company Cust, 770
Broadway, New York, NY 10003, owned 9% of such Portfolio's total outstanding
Class A shares.
Charles Schwab & Company, Inc., 101 Montgomery Street, San Francisco, CA 94104,
owned 8% of such Portfolio's total outstanding Class A shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 8% of such Portfolio's total outstanding Class B shares.
Eleanor S. Herkert Trustee of The Eleanor S. Herkert Trust, 2000 Diana Drive,
Lakeview West, Hallandale, FL 33009-4709, owned 7% of such Portfolio's total
outstanding Class B shares.
Kansas Children's Service League, P.O. Box 517, Wichita, KS 67201, owned 6% of
such Portfolio's total outstanding Class B shares.
Donald A. Moore, Jr., 160 E. 72 Street, New York, NY 10021, owned 5% of such
Portfolio's total outstanding Class B shares.
Plastic Surgery Affiliates P.C., Money Purchase Plan & Trust, 300 W. Clarendon,
Phoenix, AZ 85013-3422, owned 5% of such Portfolio's total outstanding Class B
shares.
VALUE EQUITY PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675, owned 19% of such
Portfolio's total outstanding Class A shares.
Victoria B. McLaughlin, Upper Dogwood Lane, Rye, NY 10580, owned 7% of such
Portfolio's total outstanding Class B shares.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the Portfolio's past performance.
Performance quotations by investment companies are subject to rules adopted
by the Commission, which require the use of standardized performance quotations.
In the case of total return, non-standardized performance quotations may be
furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the Commission. Current yield
and average annual compounded total return quotations used by the Fund are based
on the standardized methods of computing performance mandated by the Commission.
An explanation of those and other methods used by the Fund to compute or express
performance follows.
TOTAL RETURN
26
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From time to time the Portfolio may advertise total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Portfolio) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10-year period (or
over the life of the Portfolio) and the deduction of all applicable Fund
expenses on an annual basis.
Total return figures are calculated according to the following formula:
P(1 + T) to the power of n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-,
or 10-year periods (or fractional portion thereof).
COMPARISONS
To help investors better evaluate how an investment in the Portfolio might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages. The
following publications may be used:
(a) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. -- analyzes price, current yield, risk, total
return and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
(b) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest,
Financial Times, Global Investor, Investor's Daily, Lipper
Analytical Services, Inc., Morningstar, Inc., New York Times,
Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund
performance over specified time periods.
(c) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and
Bloomberg L.P.
(d) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed
Income Fund Performance Analysis -- measures total return and
average current yield for the mutual fund industry. Ranks
individual mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
(e) Mutual Fund Source Book, published by Morningstar, Inc. --
analyzes price, yield, risk and total return for equity funds.
(f) Savings and Loan Historical Interest Rates -- as published in the
U.S. Savings & Loan League Fact Book.
(g) Stocks, Bonds, Bills and Inflation, published by Hobson
Associates -- historical measure of yield, price and total return
for common and small company stock, long-term government bonds,
U.S. Treasury bills and inflation.
The following indices and averages may also be used:
27
<PAGE>
(a) Composite Indices -- 70% Standard & Poor's 500 Stock Index and
30% NASDAQ Industrial Index; 35% Standard & Poor's 500 Stock
Index and 65% Salomon Brothers High Grade Bond Index; and 65%
Standard & Poor's 500 Stock Index and 35% Salomon Brothers High
Grade Bond Index.
(b) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of
change, over time, in the price of goods and services in major
expenditure groups.
(c) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company
stocks and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
(d) EMBI+ -- Expanding on the EMBI, which includes only Bradys, the
EMBI+ includes a broader group of Brady Bonds, loans, Eurobonds
and the U.S. Dollar local markets instruments. A more
comprehensive benchmark than the EMBI, the EMBI+ covers 49
instruments from 14 countries. At $96 billion, its market cap is
nearly 50% higher than the EMBI's. The EMBI+ is not, however,
intended to replace the EMBI but rather to complement it. The
EMBI continues to represent the most liquid, most easily traded
segment of the market, including more of the assets that
investors typically hold in their portfolios. Both of these
indices are published daily.
(e) IFC Global Total Return Composite Index -- an unmanaged index of
common stocks and includes 18 developing countries in Latin
America, East and South Asia, Europe, the Middle East and Africa
(net of dividends reinvested).
(e) Indata Equity-Median Stock Index -- an unmanaged index which
includes an average asset allocation of 5% cash and 95% equity
based on $30.6 billion in assets among 562 portfolios for the
year ended December 31, 1995.
(f) Lipper Capital Appreciation Index -- a composite of mutual funds
managed for maximum capital gains.
(g) Morgan Stanley Capital International Combined Far East Free ex-
Japan Index -- a market-capitalization weighted index comprising
stocks in Hong Kong, Indonesia, Korea, Malaysia, Philippines,
Singapore, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex Japan Index at 20% of its market
capitalization.
(h) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900
securities on the stock exchanges of countries in Europe,
Australia and the Far East.
(i) Morgan Stanley Capital International Emerging Markets Global
Latin American Index -- an unmanaged, arithmetic market value
weighted average of the performance of over 196 securities on the
stock exchanges of Argentina, Brazil, Chile, Colombia, Mexico,
Peru and Venezuela (assumes reinvestment of dividends).
(j) Morgan Stanley Capital International Europe Index -- an unmanaged
index of common stocks and includes 14 countries throughout
Europe.
(k) Morgan Stanley Capital International Japan Index -- an unmanaged
index of common stocks.
(l) Morgan Stanley Capital International Latin America Index -- a
broad-based market capitalization-weighted composite index
covering at least 60% of markets in Mexico, Argentina, Brazil,
Chile, Colombia, Peru and Venezuela (assumes dividends
reinvested).
(m) Morgan Stanley Capital International World Index -- an
arithmetic, market value-weighted average of the performance of
over 1,470 securities listed on the stock exchanges of countries
in Europe, Australia, the Far East, Canada and the United States.
(n) NASDAQ Composite Index -- an unmanaged index of common stocks.
(o) NASDAQ Industrial Index -- a capitalization-weighted index
composed of more than 3,000 domestic stocks taken from the
following industry sectors: agriculture, mining, construction,
manufacturing, electronic components, services and public
administration enterprises. It is a value-weighted index
calculated on price change only and does not include income.
28
<PAGE>
(p) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation
and finance company stocks listed on the New York Stock Exchange.
(q) Russell 2500 Index -- comprised of the bottom 500 stocks in the
Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the
stocks in the Russell 2000 Index. The largest security in the
index has a market capitalization of approximately 1.3 billion.
(r) Standard & Poor's 500 Stock Index or its component indices --
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(s) Standard & Poor's Small Cap 600 Index -- a capitalization-
weighted index of 600 domestic stocks having market
capitalizations which reside within the 50th and the 83rd
percentiles of the market capitalization of the entire stock
market, chosen for certain liquidity characteristics and for
industry representation.
(t) Wilshire 5000 Equity Index or its component indices -- represents
the return on the market value of all common equity securities
for which daily pricing is available. Comparisons of performance
assume reinvestment of dividends.
(u) Lipper Science and Technology Fund Index -- a composite index of
the mutual funds which invest at least 65% of their assets in
science and technology stocks.
(v) Hambrecht and Quist Technology Index is an index of computer and
chip makers, biotechnology concerns and other high-tech
companies.
(w) SoundView Technology Index is an unweighted index consisting of
more than 100 technology companies.
(x) Morgan Stanley High Tech 35 Index -- an index comprised of
thirty-five technology stocks chosen by Morgan Stanley.
(y) Pacific Stock Exchange Index -- an index consisting of
approximately 100 technology and healthcare technology concerns.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Portfolio,
that the averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its futures. In addition, there can be no assurance that the
Fund will continue this performance as compared to such other averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Articles of Incorporation, as amended and restated, permit the
Directors to issue 34 billion shares of common stock, par value $.001 per share,
from an unlimited number of classes ("Portfolios") of shares. Currently the
Fund consists of shares of twenty-nine Portfolios (the China Growth and
Mortgage-Backed Securities Portfolios are not currently offering shares).
The shares of each Portfolio of the Fund are fully paid and nonassessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Portfolio of the Fund have no pre-emptive
rights. The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so. A
shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his name on the books of
the Fund.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of the Portfolio's net
investment income, if any. The Fund may also distribute any net realized
capital gains in the amount and at the times that will avoid both income
(including taxable gains) taxes on it and the imposition of the federal excise
tax on income and capital gains (see discussion under "Taxes" in this Statement
of Additional Information). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or capital gains distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares of
the Portfolio by an investor may have the effect of reducing the per share net
asset value of the Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect
a return of capital, are subject to income taxes for shareholders subject to tax
as set forth herein and in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and capital gains distributions for a class of shares are
automatically received in additional shares of such class of the Portfolio at
net asset value (as of the business day following the record date). This
automatic reinvestment of dividends and distributions will remain in effect
until the Fund is notified by the shareholder in writing at least three days
prior to the record date that either the Income Option (income dividends in cash
and capital gains distributions in additional shares at net asset value) or the
Cash Option (both income dividends and capital gains distributions in cash) has
been elected.
CUSTODY ARRANGEMENTS
Chase serves as the Fund's domestic custodian. Chase is not affiliated
with Morgan Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn,
NY, acts as the Fund's custodian for foreign assets held outside the United
States and employs subcustodians who were approved by the Directors of the Fund
in accordance with Rule 17f-5 adopted by the Commission under the 1940 Act.
Morgan Stanley Trust Company is an affiliate of Morgan Stanley & Co.
Incorporated. In the selection of foreign subcustodians, the Directors consider
a number of factors, including, but not limited to, the reliability and
financial stability of the institution, the ability of the institution to
provide efficiently the custodial services required for the Fund, and the
reputation of the institution in the particular country or region.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS: Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Aa -
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The
modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicates a mid-range rating and the modifier 3 indicates
that the issue ranks at the lower end of the rating category. A - Bonds which
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. Baa - Bonds
which are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Ba - Bonds which are rated Ba are judged
to have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B - Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Caa - Bonds which are rated
Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect
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to principal or interest. Ca - Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
EXCERPTS FROM STANDARD & POOR'S RATINGS GROUP ("S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest. AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only to a
small degree. A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. C - The rating C is reserved for income bonds
on which no interest is being paid. D - Debt rated D is in default, and payment
of interest and/or repayment of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows:
MIG-1 -- best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established broad-based access to the market
for refinancing, or both; MIG-2 -- high quality with margins of protection ample
although not so large as in the preceding group; MIG-3 - favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-2 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is very strong.
II. DESCRIPTION OF U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government.
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Associates, are, in effect, backed by
the full faith and credit of the United States through provisions in their
charters that they may make "indefinite and unlimited" drawings on the Treasury,
if needed to service debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institution in
meeting its debt obligations. However, the U.S. Treasury has no lawful
obligation to assume the financial liabilities of these agencies or others.
Finally, other agencies and instrumentalities, such as the Farm Credit System
and the Federal Home Loan Mortgage Corporation, are federally chartered
institutions under Government supervision, but their debt securities are backed
only by the creditworthiness of those institutions, not the U.S. Government.
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Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency organized
under Federal charter with Government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Immediate Credit
Banks, and the Federal National Mortgage Association.
III. DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds generally include debt obligations issued by states and
their political subdivisions, and duly constituted authorities and corporations,
to obtain funds to construct, repair or improve various public facilities such
as airports, bridges, highways, hospitals, housing, schools, streets and water
and sewer works. Municipal Bonds may also be issued to refinance outstanding
obligations as well as to obtain funds for general operating expenses and for
loans to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Municipal Bond Portfolio and the Municipal Money
Market Portfolio may also invest in tax-exempt industrial development bonds,
short-term municipal obligations, project notes, demand notes and tax-exempt
commercial paper in accordance with the Portfolio's investment objectives and
policies.
Industrial revenue bonds (i.e., private activity bonds) in most cases are
revenue bonds and generally do not have the pledge of the credit of the issuer.
The payment of the principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities financed by the
bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. Short-term
municipal obligations issued by states, cities, municipalities or municipal
agencies include Tax Anticipation Notes, Revenue Anticipation Notes, Bond
Anticipation Notes, Construction Loan Notes and Short-Term Discount Notes.
Project Notes are instruments guaranteed by the Department of Housing and Urban
Development but issued by a state or local housing agency. While the issuing
agency has the primary obligation on such Project notes, they are also secured
by the full faith and credit of the United States.
Note obligations with demand or put options may have a stated maturity in
excess of one year, but allow any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay in its discretion the
outstanding principal of the notes plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as a bank's prime rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. The demand notes in which the
Municipal Money Market Portfolio will invest are payable on not more than one
year's notice.
The yields of Municipal Bonds depend on, among other things, general money
market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's and S&P represent their opinions of the quality
of the Municipal Bonds. It should be emphasized that such ratings are general
and are not absolute standards of quality. Consequently, Municipal Bonds with
the same maturity, coupon and rating may have different yields, while Municipal
Bonds of the same maturity and coupon, but with different ratings, may have the
same yield. It will be the responsibility of the Adviser to appraise
independently the fundamental quality of the bonds held by the Municipal Bond
Portfolio and the Municipal Money Market Portfolio.
Municipal Bonds are sometimes purchased on a "when issued" basis meaning
the buyer has committed to purchasing certain specified securities at an
agreed-upon price when they are issued. The period between commitment date and
issuance date can be a month or more. It is possible that the securities will
never be issued and the commitment canceled.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of either the Municipal
Bond Portfolio or the Municipal Money Market Portfolio to achieve its investment
objective. In that event, the Fund's Directors and officers would reevaluate
its investment objective and policies and consider recommending to its
shareholders changes in such objective and policies.
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Similarly, from time to time proposals have been introduced before State
and local legislatures to restrict or eliminate the State and local income tax
exemption (to the extent such an exemption applies, which may not apply in all
cases) for interest on Municipal Bonds. Similar proposals may be introduced in
the future. If any such proposal were enacted, it might restrict or eliminate
the ability of either of the Municipal Bond Portfolio or the Municipal Money
Market Portfolio to achieve its investment objective. In that event, the Fund's
Directors and officers would reevaluate the Portfolio's investment objective and
policies and consider recommending to its shareholders changes in such objective
and policies.
IV. DESCRIPTION OF MORTGAGE-BACKED SECURITIES
"Mortgage-Backed Securities" are securities that, directly or indirectly,
represent a participation in, or are secured by and payable from, mortgage loans
on real property. Mortgage-backed securities include collateralized mortgage
obligations ("CMOs"), pass-through securities issued or guaranteed by agencies
or instrumentalities of the U.S. government or by private sector entities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. government or by private originators
or investors in mortgage loans. They are backed by Mortgage Pass-Through
Securities (discussed below) or whole loans (all such assets, the "Mortgage
Assets") and are evidenced by a series of bonds or certificates issued in
multiple classes or "tranches." The principal and interest on the underlying
Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways.
CMOs may be issued by agencies or instrumentalities of the U.S. government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity having
the credit status of a governmental agency or instrumentality are generally
structured with one or more types of credit enhancement as described below. An
issuer of CMOs may elect to be treated, for federal income tax purposes, as a
Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of CMOs issued
after 1991 must elect to be treated as a REMIC or it will be taxable as a
corporation under rules regarding taxable mortgage pools.
In a CMO, a series of bonds or certificates are issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued with a
specific fixed or floating coupon rate and has a stated maturity or final
scheduled distribution date. Principal prepayments on the underlying Mortgage
Assets may cause the CMOs to be retired substantially earlier than their stated
maturities or final scheduled distribution dates. Interest is paid or accrues
on CMOs on a monthly, quarterly or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
CMO in many ways. The general goal in allocating cash flows on Mortgage Assets
to the various classes of a CMO is to create certain tranches on which the
expected cash flows have a higher degree of predictability than the underlying
Mortgage Assets. As a general matter, the more predictable the cash flow is on
a particular CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on Assets.
As part of the process of creating more predictable cash flows on certain
tranches of a CMO, one or more tranches generally must be created that absorb
most of the changes in the cash flows on the underlying Mortgage Assets. The
yields on these tranches are generally higher than prevailing market yields on
Mortgage-Backed Securities with similar average lives. Because of the
uncertainty of the cash flows on these tranches, the market prices of and yields
on these tranches are more volatile.
Included within the category of CMOs are PAC Bonds. PAC Bonds are a type
of CMO tranche or series designed to provide relatively predictable payments of
principal provided that, among other things, the actual prepayment experience on
the underlying mortgage loans falls within a predefined range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the predefined range or if deviations from other assumptions occur,
principal payments on the PAC Bond may be earlier or later than predicted. The
magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risks of prepayment than are other types of
mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities in
which the Mortgage-Backed Securities Portfolio may invest include pass-through
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government or by private sector entities. Mortgage pass-through securities
issued or guaranteed by private sector originators of or investors in mortgage
loans and are structured similarly to governmental pass-through securities.
Because private pass-throughs typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality, they are generally
structured with one or more types of credit enhancement described below. FNMA
and FHLMC obligations are not backed by the full faith and credit of the U.S.
government as GNMA certificates are, but FNMA and FHLMC securities are supported
by the instrumentalities' right to borrow from the United States Treasury. Each
of GNMA, GNMA and FHLMC guarantees timely distributions of interest to
certificate holders.
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Each of GNMA and FNMA also guarantees timely distributions of scheduled
principal. FHLMC has in the past guaranteed only the ultimate collection of
principal of the underlying mortgage loan; however, FHLMC now issued Mortgage-
Backed Securities (FHLMC Gold Pcs) which also guarantee timely payment of
monthly principal reductions. REFCORP obligations are backed, as to principal
payments, by zero coupon U.S. Treasury bonds, and as to interest payment,
ultimately by the U.S. Treasury. Obligations issued by such U.S. governmental
agencies and instrumentalities are described more fully below.
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act, or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the
Department of Veterans Affairs under the Servicemen's Readjustment Act of 1944,
as amended ("VA Loans"), or by pools of other eligible mortgage loans. The
Housing Act provides that the full faith and credit of the United States
government is pledged to the payment of all amounts that may be required to be
paid under any guaranty. In order to meet its obligations under such guaranty,
Ginnie Mae is authorized to borrow from the United States Treasury with no
limitations as to amount.
Each Ginnie Mae Certificate will represent a pro rata interest in one or
more of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multi-family residential
properties under construction; (vi) mortgage loans on completed multi-family
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodical changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except as
otherwise specified above, will be fully-amortizing loans secured by first liens
on one- to four-family housing units.
FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed
by the full faith and credit of the United States government.
Each Fannie Mae Certificate will represent a pro rata interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.
FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations
solely of Freddie Mac and are not backed by the full faith and credit of the
U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
The mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
CREDIT ENHANCEMENT. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failure by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection generally refers to the provision of advances, typically by
the entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties (referred
to herein as "third party credit support), through various means of structuring
the transaction or through a combination of such approaches. The Mortgage-
Backed Securities Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price the
Portfolio pays for a security.
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The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with defaults on the underlying assets being borne first
by the holders of the most subordinated class), creation of "reserve funds"
(where cash or investments, sometimes funded from a portion of the payments on
the underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each security is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.
V. FOREIGN INVESTMENTS
The Portfolio may invest, in securities of foreign issuers. Investors
should recognize that investing in such foreign securities involves certain
special considerations which are not typically associated with investing in U.S.
issuers. For a description of the effect on the Portfolio of currency exchange
rate fluctuation, see "Investment Objective and Policies -- Forward Foreign
Currency Exchange Contracts" above. As foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards and
may have policies that are not comparable to those of domestic issuers, there
may be less information available about certain foreign companies than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed issuers than in the U.S. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. Foreign securities not listed
on a recognized domestic or foreign exchange are regarded as not readily
marketable and therefore such investments will be limited to 15% of the
Portfolio's net asset value at the time of purchase.
Although the Portfolio will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. It is not expected that
the Portfolio or its shareholders would be able to claim a credit for U.S. tax
purposes with respect to any such foreign taxes. However, these foreign
withholding taxes may not have a significant impact on the Portfolio, because
the Portfolio's investment objective is to seek long-term capital appreciation
and any dividend or interest income should be considered incidental.
FINANCIAL STATEMENTS
There are no financial statements for the Technology Portfolio because the
Portfolio has just become operational as of the date of this Statement of
Additional Information.
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PART C
Morgan Stanley Institutional Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
--------------------
1. INCLUDED IN PART A (PROSPECTUSES)
The Registrant's audited financial highlights for the Money
Market, Municipal Money Market, Aggressive Equity, Emerging
Growth, Equity Growth, Value Equity, Small Cap Value Equity, U.S.
Real Estate, Balanced, Active Country Allocation, Global Equity,
International Equity, International Small Cap, European Equity,
Asian Equity, Emerging Markets, Gold, Japanese Equity, Latin
American, Emerging Markets Debt, Fixed Income, Global Fixed
Income, High Yield and Municipal Bond Portfolios, respectively,
for the fiscal year ended December 31, 1995, are included in the
prospectuses of the foregoing portfolios which were filed with
the SEC as set forth in Part A and are incorporated herein by
reference. The Fund's Mortgage-Backed Securities, China Growth,
MicroCap, International Magnum and Technology Portfolios were not
operational as of December 31, 1995. Accordingly, no audited
financial highlights are included in the respective prospectus of
each of the foregoing portfolios.
2. INCLUDED IN PART B (STATEMENT OF ADDITIONAL INFORMATION)
The Registrant's audited financial statements for the Money
Market, Municipal Money Market, Aggressive Equity, Emerging
Growth, Equity Growth, Value Equity, Small Cap Value Equity, U.S.
Real Estate, Balanced, Active Country Allocation, Global Equity,
International Equity, International Small Cap, European Equity,
Asian Equity, Emerging Markets, Gold, Japanese Equity, Latin
American, Emerging Markets Debt, Fixed Income, Global Fixed
Income, High Yield and Municipal Bond Portfolios, respectively,
for the fiscal year ended December 31, 1995, including Price
Waterhouse LLP's report thereon are incorporated by reference
from the Statement of Additional Information from the
Registrant's December 31, 1995 Annual Report to Shareholders.
Included in such financial statements are the following:
1. Report of Independent Accountants
2. Statement of Net Assets at December 31, 1995
3. Statement of Operations for the period ended December 31,
1995
4. Statement of Changes in Net Assets for the respective
periods presented in the two year period ended December 31,
1995
5. Financial Highlights for the respective periods presented in
the five year period ended December 31, 1995
6. Notes to Financial Statements
The Fund's Mortgage-Backed Securities, China Growth, MicroCap,
International Magnum and Technology Portfolios were not
operational as of December 31, 1995. Accordingly, no audited
financial statements are included in the Statement of Additional
Information.
<PAGE>
(B) EXHIBITS
--------
1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post-Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on October 13, 1995.
(b) Articles Supplementary to Registrant's Articles of Incorporation
(reclassifying shares) is filed herewith.
(c) Articles Supplementary to Registrant's Articles of Incorporation
(adding new Technology Portfolio) is filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the SEC
via EDGAR on August 1, 1995.
3 Not Applicable.
4 Registrant's Form of Specimen Security was previously filed and is
incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(b) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding Registrant's
Value Equity, Balanced and Fixed Income Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(c) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Global
Equity, Global Fixed Income, European Equity and Equity Growth
Portfolios) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(d) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Asian Equity
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(e) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Active
Country Allocation Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(f) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Emerging
Markets, High Yield and International Small Cap Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(g) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Small Cap
Value Equity Portfolio) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
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<PAGE>
(h) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Emerging
Markets Debt, Mortgage-Backed Securities, Municipal Bond and
Japanese Equity Portfolios) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(i) Sub-Advisory Agreement among Registrant, Morgan Stanley Asset
Management Inc. and Sun Valley Gold Company (with respect to the
Gold Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(j) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the China Growth
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(k) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Latin
American Portfolio) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(l) Withdrawn.
(m) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Aggressive
Equity and U.S. Real Estate Portfolios) is incorporated by
reference to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on August 1, 1995.
(n) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the MicroCap
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(o) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the
International Magnum Portfolio) is incorporated by reference to
Post-Effective Amendment No. 28 to the Registrant's Registration
Statement on Form N1-A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on November 3, 1995.
(p) Form of Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding the
Technology Portfolio), is filed herewith.
6 (a) Distribution Agreement between Registrant and Morgan Stanley &
Co. Incorporated is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(b) Supplement to Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated is incorporated by reference to
Post-Effective Amendment No. 29 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on April 29, 1996.
8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New York
dated March 10, 1994 is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(b) Registrant's Custody Agreement (International), dated July 31,
1989, as amended is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
C-3
<PAGE>
(c) Amendment dated April 22, 1996 to Registrant's Custody Agreement
(International), dated July 31, 1989, is filed herewith.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(b) U.S. Trust Administration Agreement is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on August 1, 1995.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
11 Consent of Independent Accountants, is filed herewith.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
15 Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(the "Class B Plan") of the Active Country Allocation Portfolio is
incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-23166
and 811-5624), as filed with the SEC via EDGAR on November 1, 1995.
The following Class B Plans have been omitted because they are
substantially identical to the one incorporated by reference herein.
The omitted Class B Plans differ from the Class B Plan incorporated by
reference herein only with respect to the portfolio to which the Class
B Plan relates: Fixed Income, Global Fixed Income, Municipal Bond,
Mortgage-Backed Securities, High Yield, Money Market, Municipal Money
Market, Small Cap Value Equity, Value Equity, Balanced, Gold, Global
Equity, International Equity, International Small Cap, Asian Equity,
European Equity, Japanese Equity, Latin American, Emerging Markets,
Emerging Markets Debt, China Growth, Equity Growth, Emerging Growth,
MicroCap, Aggressive Equity, U.S. Real Estate, International Magnum
and Technology Portfolios.
16 Schedule of Computation of Performance Information is incorporated by
reference to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-5624),
as filed with the SEC via EDGAR on August 1, 1995.
19 Registrant's Rule 18F-3 Multiple Class Plan is incorporated by
reference to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-5624),
as filed with the SEC via EDGAR on November 1, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
27 Financial Data Schedules for the fiscal year ended December 31, 1995
for Registrant's portfolios in operation during such periods (See Item
24(a)), are filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (ON APRIL 30, 1996)
Active Country Allocation Portfolio
Class A. . . . . . . . . . . . . . . . . . . 63
Class B. . . . . . . . . . . . . . . . . . . 27
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<PAGE>
Aggressive Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 116
Class B. . . . . . . . . . . . . . . . . . . 74
Asian Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 955
Class B. . . . . . . . . . . . . . . . . . . 263
Balanced Portfolio
Class A. . . . . . . . . . . . . . . . . . . 54
Class B. . . . . . . . . . . . . . . . . . . 63
Emerging Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 492
Class B. . . . . . . . . . . . . . . . . . . 158
Emerging Markets Portfolio
Class A. . . . . . . . . . . . . . . . . . . 1132
Class B. . . . . . . . . . . . . . . . . . . 249
Equity Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 507
Class B. . . . . . . . . . . . . . . . . . . 109
Fixed Income Portfolio
Class A. . . . . . . . . . . . . . . . . . . 290
Class B. . . . . . . . . . . . . . . . . . . 63
Global Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 23
Class B. . . . . . . . . . . . . . . . . . . 50
Global Fixed Income Portfolio
Class A. . . . . . . . . . . . . . . . . . . 83
Class B. . . . . . . . . . . . . . . . . . . 50
High Yield Portfolio
Class A. . . . . . . . . . . . . . . . . . . 441
Class B. . . . . . . . . . . . . . . . . . . 77
International Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 313
Class B. . . . . . . . . . . . . . . . . . . 145
International Small Cap Portfolio
Class A. . . . . . . . . . . . . . . . . . . 152
Latin American Portfolio
Class A. . . . . . . . . . . . . . . . . . . 506
Class B. . . . . . . . . . . . . . . . . . . 23
Money Market Portfolio
Class A. . . . . . . . . . . . . . . . . . . 555
Municipal Money Market Portfolio
Class A. . . . . . . . . . . . . . . . . . . 362
Small Cap Value Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 452
Class B. . . . . . . . . . . . . . . . . . . 49
U.S. Real Estate Portfolio
Class A. . . . . . . . . . . . . . . . . . . 499
Class B. . . . . . . . . . . . . . . . . . . 66
Value Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 484
Class B. . . . . . . . . . . . . . . . . . . 69
European Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 606
Class B. . . . . . . . . . . . . . . . . . . 37
Municipal Bond Portfolio
Class A. . . . . . . . . . . . . . . . . . . 109
Class B. . . . . . . . . . . . . . . . . . . 5
Mortgage-Backed Securities Portfolio
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<PAGE>
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
Japanese Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 679
Class B. . . . . . . . . . . . . . . . . . . 83
Emerging Markets Debt Portfolio
Class A. . . . . . . . . . . . . . . . . . . 569
Class B. . . . . . . . . . . . . . . . . . . 66
Gold Portfolio
Class A. . . . . . . . . . . . . . . . . . . 54
Class B. . . . . . . . . . . . . . . . . . . 9
China Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
MicroCap Portfolio
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
International Magnum Portfolio
Class A. . . . . . . . . . . . . . . . . . . 4
Class B. . . . . . . . . . . . . . . . . . . 8
Technology Portfolio
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
ITEM 27. INDEMNIFICATION
Reference is made to Article TEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS WITH INVESTMENT ADVISER
Reference is made to the caption "The Investment Adviser" in the
Prospectus constituting Part A of this Registration Statement and "Investment
Advisory Services" in Part B of Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business, profession,
vocation, or employment of substantial nature engaged in by the Chairman,
President and Directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of Form ADV filed by MSAM pursuant to the
Advisers Act (SEC File No. 801-15757).
DIRECTORS:
----------
James M. Allwin Director
Barton M. Biggs Director
Gordon S. Gray Director
Peter A. Nadosy Director
Dennis G. Sherva Director
OFFICERS:
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<PAGE>
Barton M. Biggs Chairman
Peter A. Nadosy Vice Chairman
James M. Allwin President - Managing Director
Barton M. Biggs Managing Director
P. Dominic Caldecott Managing Director (MSAM) - UK
A. Macdonald Caputo Managing Director
Ean Wah Chin Managing Director (MSAM) - Singapore
Garry B. Crowder Managing Director
Michael A. Crowe Managing Director
Madhav Dhar Managing Director
Kurt A. Feuerman Managing Director
Gordon S. Gray Managing Director
Gary D. Latainer Managing Director
Peter A. Nadosy Managing Director
Dennis G. Shorva Managing Director
Richard G. Woolworth, Jr. Managing Director
Warren Ackerman III Principal
John R. Alkire Principal (MSAM) - Tokyo
Robert E. Angevine Principal
Gerald P. Barth-Wehrenalp Principal
Francine J. Bovich Principal
Stuart J. M. Breslow Principal
Terence P. Carmichael Principal
Arthur Certosimo Principal
James K. K. Cheng Principal (MSAM) - Singapore
Stephen C. Cordy Principal
Jacqueline A. Day Principal (MSAM) - UK
Paul B. Ghaffari Principal
James Wayne Grisham Principal
Perry E. Hall II Principal
Marianne Laing Hay Managing Director (MSAM) - UK
Margaret Kinsley Johnson Principal
Kathryn Jonas Kasanoff Principal
Debra A. F. Kushma Principal
Marianne J. Lippmann Principal
Gary J. Mangino Principal
M. Paul Martin Principal
Walter Maynard, Jr. Principal
Robert L. Meyer Principal
Margaret P. Naylor Principal (MSAM) - UK
Warren Olsen Principal
Christopher G. Petrow Principal
Russell C. Platt Principal
Gail Hunt Reeke Principal
Christine I. Reilly Principal
Bruce R. Sandberg Principal
Robert A. Sargent Managing Director (MSAM) - UK
Harold J. Schaaff, Jr. Principal
Kiat Seng Scah Principal (MSAM) - Singapore
Vinod R. Sethl Managing Director
Stephen C. Sexauer Principal
Robert M. Smith Principal
Philip W. Winters Principal
Alford E. Zick, Jr. Principal
Marshall T. Bassett Vice President
L. Kenneth Brooks Vice President
Andrew C. Brown Principal (MSAM) - UK
Frances Campion Principal (MSAM) - UK
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<PAGE>
Carl Kuo-Wei Chien Vice President (MSAM) - Hong Kong
Lori A. Cohane Vice President
James Colmenares Vice President
Kate Cornish-Bowden Vice President (MSAM) - UK
Raye L. Dube Vice President
Abigail Jones Feder Principal
Josephine M. Glass Vice President
Maureen A. Grover Vice President
Kenneth R. Holley Vice President
Valerie Y. Lewis Vice President
Gordon W. Loory Vice President
Yvonne Longley Vice President (MSAM) - UK
Jeffrey Margolis Principal
Paula J. Morgan Vice President (MSAM) - UK
Clare K. Mutone Vice President
Martin O. Pearce Vice President
Alexander A. Pena Vice President
Anthony J. Pesce Vice President
David J. Polansky Vice President
Donald P. Ryan Vice President
Michael James Smith Vice President (MSAM) - UK
Kim I. Spellman Vice President
Joseph P. Stadler Vice President
Christian K. Stadlinger Vice President
Catherine Steinhardt Vice President
Kunihiko Sugio Principal (MSAM) - Tokyo
Joseph Y.S. Tern Vice President (MSAM) - Singapore
Ann D. Thiviergo Principal
Richard Boon Hwee Toh Vice President (MSAM) - Singapore
K.N. Vaidyanathan Vice President (MSAM) - Bombay
Kevin V. Wasp Vice President
Harold J. Schaaff, Jr. General Counsel and Secretary
Madeline D. Barkhorn Assistant Secretary
Charlene R. Herzer Assistant Secretary
Charles R. Hintz Treasurer
Michael B. Kushma Principal
William S. Auslander Vice President
Johathan Paul Backeridge Vice President - (MSAM) Australia
Nikhil Dhaon Vice President
Daniel E. Fox Vice President
Thomas A. Funk Vice President
James A. Grasselino Vice President
Holly D. Happs Vice President
Peter L. Kirby Vice President
Daniel R. Lascano Vice President
Willam David Lack Vice President - (MSAM) London
Terumi Nagata Vice President - (MSAM) Tokyo
Akash Prakash Vice President - (MSAM) Bombay
Andy B. Skov Vice President
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity Fund;
The Brazilian Investment Fund, Inc.; certain portfolios of The Enterprise Group
of Funds, Inc.; Fountain Square International Equity Fund; General American
Capital Co.; The Latin American Discovery Fund, Inc., certain portfolios of The
Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa Investment
Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley Emerging
Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.; all funds
of the Morgan Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund,
Inc.; all funds of The Morgan Stanley High Yield Fund, Inc.; Morgan Stanley
India Investment Fund, Inc.; The Pakistan Investment
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<PAGE>
Fund, Inc.; PCS Cash Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment
Fund, Inc.; Principal Aggressive Growth Fund, Inc.; Principal Asset Allocation
Fund, Inc.; certain portfolios of the SunAmerica Series Trust and certain
portfolios of the Fortis Series Fund.
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for Morgan
Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc. and PCS Cash Fund,
Inc. The information required by this Item 29 with respect to each Director and
officer of MS&Co. is incorporated by reference to Schedule A of Form BD filed by
MS&Co. pursuant to the Securities and Exchange Act of 1934 (SEC File No. 8-
15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of the Registrant; Registrant's
Transfer Agent, Chase Global Funds Services Company, formerly Mutual Funds
Service Company, P.O. Box 2798, Boston, Massachusetts 02208-2798; MSAM; MS&Co.;
and the Registrant's custodian banks, including sub-custodians.
ITEM 31. MANAGEMENT SERVICES
-------------------
The Registrant has entered into a Service Agreement with The Chase
Manhattan Bank, N.A., successor in interest to United States Trust Company of
New York, which was filed as Exhibit No. 9(b) to Post-Effective Amendment No. 25
to the Fund's Registration Statement and is incorporated herein by reference.
ITEM 32. UNDERTAKINGS
------------
1. Registrant hereby undertakes to file a post-effective amendment
containing reasonably current financial statements, which need not be certified,
for the China Growth, Mortgage-Backed Securities, International Magnum, MicroCap
and Technology Portfolios within four to six months of their effective date or
the commencement of operations, whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the Investment
Company Act of 1940 inform the Board of Directors of his or their desire to
communicate with other Shareholders of the Fund, the Directors will inform such
Shareholder(s) as to the approximate number of Shareholders of record and the
approximate costs of mailing or afford said Shareholders access to a list of
Shareholders.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on May 22, 1996.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: /s/ Warren J. Olsen
-------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Warren J. Olsen Director, President May 22, 1996
- ------------------------------ (Principal Executive
Warren J. Olsen Officer)
*/s/ Barton M. Biggs Director (Chairman) May 22, 1996
- ------------------------------
Barton M. Biggs
*/s/ Fergus Reid Director May 22, 1996
- ------------------------------
Fergus Reid
*/s/ Frederick O. Robertshaw Director May 22, 1996
- ------------------------------
Frederick O. Robertshaw
*/s/ Andrew McNally IV Director May 22, 1996
- ------------------------------
Andrew McNally IV
*/s/ John D. Barrett II Director May 22, 1996
- ------------------------------
John D. Barrett II
*/s/ Gerard E. Jones Director May 22, 1996
- ------------------------------
Gerard E. Jones
*/s/ Samuel T. Reeves Director May 22, 1996
- ------------------------------
Samuel T. Reeves
*/s/ Frederick B. Whittemore Director May 22, 1996
- ------------------------------
Frederick B. Whittemore
*/s/ James R. Rooney Treasurer May 22, 1996
- ------------------------------ (Principal
James R. Rooney Accounting
Officer)
*By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
-------------
EDGAR
Exhibit
Number Description
EX-99.B 1(a) Articles of Amendment and Restatement are incorporated by
reference to Post-Effective Amendment No. 26 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
October 13, 1995.
(b) Articles Supplementary to Registrant's Articles of
Incorporation (reclassifying shares) is filed herewith.
(c) Articles Supplementary to Registrant's Articles of
Incorporation (adding new Technology Portfolio) is filed
herewith.
EX-99.B 2 Amended and Restated By-laws are incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
4 Registrant's Form of Specimen Security was previously filed
and is incorporated herein by reference.
EX-99.B 5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (b) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Equity, Balanced and Fixed Income Portfolios)
is incorporated by reference to Post-Effective Amendment No.
25 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 5 (c) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Global Equity, Global Fixed Income, European Equity and
Equity Growth Portfolios) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (d) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Asian Equity Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (e) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Active Country Allocation Portfolio) is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form
<PAGE>
N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
EX-99.B 5 (f) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Emerging Markets, High Yield and International Small Cap
Portfolios) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed
with the SEC via EDGAR on August 1, 1995.
EX-99.B 5 (g) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Small Cap Value Equity Portfolio) is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
August 1, 1995.
EX-99.B 5 (h) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Emerging Markets Debt, Mortgage-Backed Securities,
Municipal Bond and Japanese Equity Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 5 (i) Sub-Advisory Agreement among Registrant, Morgan Stanley
Asset Management Inc. and Sun Valley Gold Company (with
respect to the Gold Portfolio) is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (j) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the China Growth Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (k) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Latin American Portfolio) is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (l) Withdrawn.
EX-99.B 5 (m) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Aggressive Equity and U.S. Real Estate Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
2
<PAGE>
EX-99.B 5 (n) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the MicroCap Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (o) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the International Magnum Portfolio) is incorporated by
reference to Post-Effective Amendment No. 28 to the
Registrant's Registration Statement of Form N1-A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
November 3, 1995.
EX-99.B 5 (p) Form of Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Technology Portfolio), is filed herewith.
EX-99.B 6 (a) Distribution Agreement between Registrant and Morgan Stanley
& Co. Incorporated is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 6 (b) Supplement to Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated is incorporated by
reference to Post-Effective Amendment No. 29 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
April 29, 1996.
EX-99.B 8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New
York dated March 10, 1994 is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 8 (b) Registrant's Custody Agreement (International), dated July
31, 1989, as amended is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 8 (c) Amendment dated April 22, 1996 to Registrant's Custody
Agreement (International), dated July 31, 1989, is filed
herewith.
EX-99.B 9 (a) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. (the "MSAM Administration
Agreement") is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed
with the SEC via EDGAR on August 1, 1995.
EX-99.B 9 (b) U.S. Trust Administration Agreement is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed
3
<PAGE>
with the SEC via EDGAR on August 1, 1995.
EX-99.B 10 Opinion of Counsel is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 11 Consent of Independent Accountants, is filed herewith.
EX-99.B 13 Purchase Agreement is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 15 Form of Plan of Distribution Pursuant to Rule 12b-1 for
Class B Shares (the "Class B Plan") of the Active Country
Allocation Portfolio is incorporated by reference to Post-
Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on November 1, 1995. The
following Class B Plans have been omitted because they are
substantially identical to the one incorporated by reference
herein. The omitted Class B Plans differ from the Class B
Plan incorporated by reference herein only with respect to
the portfolio to which the Class B Plan relates: Fixed
Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield, Money Market, Municipal Money
Market, Small Cap Value Equity, Value Equity, Balanced,
Gold, Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity,
Latin American, Emerging Markets, Emerging Markets Debt,
China Growth, Equity Growth, Emerging Growth, MicroCap,
Aggressive Equity, U.S. Real Estate, International Magnum
and Technology Portfolios.
EX-99.B 16 Schedule of Computation of Performance Information is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 19 Registrant's Rule 18F-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
November 1, 1995.
EX-99.B 24 Powers of Attorney are incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 27 Financial Data Schedules for the fiscal year ended December
31, 1995 for Registrant's portfolios in operation during
such periods (See Item 24(a)), are filed herewith.
4
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY INSTITUTIONAL FUND, INC., a Maryland corporation (the
"Corporation"), pursuant to Section 2-208 and 2-208.1 of the Maryland General
Corporation Law ("MGCL"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation at a meeting duly
convened and held on December 18, 1995 adopted a resolution redesignating and
reclassifying the shares of stock which the Corporation shall have the authority
to issue in the amount of thirty-four billion (34,000,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of thirty-four
million dollars ($34,000,000) from the current designation and classification of
such shares in twenty-eight portfolios as follows:
NUMBER OF SHARES
OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Money Market Portfolio - Class A . . . . . . . . . . . . . . . . . 2,000,000,000
Money Market Portfolio - Class B . . . . . . . . . . . . . . . . . 2,000,000,000
Municipal Money Market Portfolio - Class A . . . . . . . . . . . . 2,000,000,000
Municipal Money Market Portfolio - Class B . . . . . . . . . . . . 2,000,000,000
Emerging Growth Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
Emerging Growth Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
International Equity Portfolio - Class A . . . . . . . . . . . . . . 500,000,000
International Equity Portfolio - Class B . . . . . . . . . . . . . . 500,000,000
Value Equity Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Value Equity Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
<PAGE>
Fixed Income Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Fixed Income Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Balanced Portfolio - Class A . . . . . . . . . . . . . . . . . . . . 500,000,000
Balanced Portfolio - Class B . . . . . . . . . . . . . . . . . . . . 500,000,000
Global Equity Portfolio - Class A. . . . . . . . . . . . . . . . . . 500,000,000
Global Equity Portfolio - Class B. . . . . . . . . . . . . . . . . . 500,000,000
Global Fixed Income Portfolio - Class A. . . . . . . . . . . . . . . 500,000,000
Global Fixed Income Portfolio - Class B. . . . . . . . . . . . . . . 500,000,000
European Equity Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
European Equity Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
Equity Growth Portfolio - Class A. . . . . . . . . . . . . . . . . . 500,000,000
Equity Growth Portfolio - Class B. . . . . . . . . . . . . . . . . . 500,000,000
Asian Equity Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Asian Equity Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Active Country Allocation Portfolio - Class A. . . . . . . . . . . . 500,000,000
Active Country Allocation Portfolio - Class B. . . . . . . . . . . . 500,000,000
International Small Cap Portfolio - Class A. . . . . . . . . . . . . 500,000,000
International Small Cap Portfolio - Class B. . . . . . . . . . . . . 500,000,000
High Yield Portfolio - Class A . . . . . . . . . . . . . . . . . . . 500,000,000
High Yield Portfolio - Class B . . . . . . . . . . . . . . . . . . . 500,000,000
Emerging Markets Portfolio - Class A . . . . . . . . . . . . . . . . 500,000,000
Emerging Markets Portfolio - Class B . . . . . . . . . . . . . . . . 500,000,000
Small Cap Value Equity Portfolio - Class A . . . . . . . . . . . . . 500,000,000
Small Cap Value Equity Portfolio - Class B . . . . . . . . . . . . . 500,000,000
Emerging Markets Debt Portfolio - Class A. . . . . . . . . . . . . . 500,000,000
Emerging Markets Debt Portfolio - Class B. . . . . . . . . . . . . . 500,000,000
Mortgage-Backed Securities Portfolio - Class A . . . . . . . . . . . 500,000,000
Mortgage-Backed Securities Portfolio - Class B . . . . . . . . . . . 500,000,000
Municipal Bond Portfolio - Class A . . . . . . . . . . . . . . . . . 500,000,000
Municipal Bond Portfolio - Class B . . . . . . . . . . . . . . . . . 500,000,000
Japanese Equity Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
Japanese Equity Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
Gold Portfolio - Class A . . . . . . . . . . . . . . . . . . . . . . 500,000,000
Gold Portfolio - Class B . . . . . . . . . . . . . . . . . . . . . . 500,000,000
China Growth Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
China Growth Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Latin American Portfolio - Class A . . . . . . . . . . . . . . . . . 500,000,000
Latin American Portfolio - Class B . . . . . . . . . . . . . . . . . 500,000,000
Aggressive Equity Portfolio - Class A. . . . . . . . . . . . . . . . 500,000,000
Aggressive Equity Portfolio - Class B. . . . . . . . . . . . . . . . 500,000,000
U.S. Real Estate Portfolio - Class A . . . . . . . . . . . . . . . . 500,000,000
U.S. Real Estate Portfolio - Class B . . . . . . . . . . . . . . . . 500,000,000
MicroCap Portfolio - Class A . . . . . . . . . . . . . . . . . . . . 500,000,000
MicroCap Portfolio - Class B . . . . . . . . . . . . . . . . . . . . 500,000,000
International Magnum Portfolio - Class A . . . . . . . . . . . . . . 500,000,000
International Magnum Portfolio - Class B . . . . . . . . . . . . . . 500,000,000
<PAGE>
so that the thirty-four billion (34,000,000,000) shares of common stock, par
value $.001 per share, of the Corporation authorized to be issued are designated
and classified as follows:
NUMBER OF SHARES
OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Money Market Portfolio - Class A . . . . . . . . . . . . . . . . . 4,000,000,000
Municipal Money Market Portfolio - Class A . . . . . . . . . . . . 4,000,000,000
Emerging Growth Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
Emerging Growth Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
International Equity Portfolio - Class A . . . . . . . . . . . . . . 500,000,000
International Equity Portfolio - Class B . . . . . . . . . . . . . . 500,000,000
Value Equity Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Value Equity Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Fixed Income Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Fixed Income Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Balanced Portfolio - Class A . . . . . . . . . . . . . . . . . . . . 500,000,000
Balanced Portfolio - Class B . . . . . . . . . . . . . . . . . . . . 500,000,000
Global Equity Portfolio - Class A. . . . . . . . . . . . . . . . . . 500,000,000
Global Equity Portfolio - Class B. . . . . . . . . . . . . . . . . . 500,000,000
Global Fixed Income Portfolio - Class A. . . . . . . . . . . . . . . 500,000,000
Global Fixed Income Portfolio - Class B. . . . . . . . . . . . . . . 500,000,000
European Equity Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
European Equity Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
Equity Growth Portfolio - Class A. . . . . . . . . . . . . . . . . . 500,000,000
Equity Growth Portfolio - Class B. . . . . . . . . . . . . . . . . . 500,000,000
Asian Equity Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
Asian Equity Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Active Country Allocation Portfolio - Class A. . . . . . . . . . . . 500,000,000
Active Country Allocation Portfolio - Class B. . . . . . . . . . . . 500,000,000
International Small Cap Portfolio - Class A. . . . . . . . . . . . 1,000,000,000
High Yield Portfolio - Class A . . . . . . . . . . . . . . . . . . . 500,000,000
High Yield Portfolio - Class B . . . . . . . . . . . . . . . . . . . 500,000,000
Emerging Markets Portfolio - Class A . . . . . . . . . . . . . . . . 500,000,000
Emerging Markets Portfolio - Class B . . . . . . . . . . . . . . . . 500,000,000
Small Cap Value Equity Portfolio - Class A . . . . . . . . . . . . . 500,000,000
Small Cap Value Equity Portfolio - Class B . . . . . . . . . . . . . 500,000,000
Emerging Markets Debt Portfolio - Class A. . . . . . . . . . . . . . 500,000,000
Emerging Markets Debt Portfolio - Class B. . . . . . . . . . . . . . 500,000,000
Mortgage-Backed Securities Portfolio - Class A . . . . . . . . . . . 500,000,000
Mortgage-Backed Securities Portfolio - Class B . . . . . . . . . . . 500,000,000
Municipal Bond Portfolio - Class A . . . . . . . . . . . . . . . . . 500,000,000
Municipal Bond Portfolio - Class B . . . . . . . . . . . . . . . . . 500,000,000
Japanese Equity Portfolio - Class A. . . . . . . . . . . . . . . . . 500,000,000
Japanese Equity Portfolio - Class B. . . . . . . . . . . . . . . . . 500,000,000
Gold Portfolio - Class A . . . . . . . . . . . . . . . . . . . . . . 500,000,000
Gold Portfolio - Class B . . . . . . . . . . . . . . . . . . . . . . 500,000,000
<PAGE>
China Growth Portfolio - Class A . . . . . . . . . . . . . . . . . . 500,000,000
China Growth Portfolio - Class B . . . . . . . . . . . . . . . . . . 500,000,000
Latin American Portfolio - Class A . . . . . . . . . . . . . . . . . 500,000,000
Latin American Portfolio - Class B . . . . . . . . . . . . . . . . . 500,000,000
Aggressive Equity Portfolio - Class A. . . . . . . . . . . . . . . . 500,000,000
Aggressive Equity Portfolio - Class B. . . . . . . . . . . . . . . . 500,000,000
U.S. Real Estate Portfolio - Class A . . . . . . . . . . . . . . . . 500,000,000
U.S. Real Estate Portfolio - Class B . . . . . . . . . . . . . . . . 500,000,000
MicroCap Portfolio - Class A . . . . . . . . . . . . . . . . . . . . 500,000,000
MicroCap Portfolio - Class B . . . . . . . . . . . . . . . . . . . . 500,000,000
International Magnum Portfolio - Class A . . . . . . . . . . . . . . 500,000,000
International Magnum Portfolio - Class B . . . . . . . . . . . . . . 500,000,000
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement.
FOURTH: The description of the shares of stock of each class designated
and classified as set forth above, including any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption is as set forth in the
Articles of Amendment and Restatement and has not changed in connection with
these Articles Supplementary to the Articles of Amendment and Restatement.
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY INSTITUTIONAL FUND, INC. has caused
these presents to be signed in its name and on its behalf by its President and
attested by its Secretary on this 18th day of December, 1995.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: /s/Warren J. Olsen
-------------------------
Warren J. Olsen
President
Attest: /s/Valerie Y. Lewis
-----------------------
Valerie Y. Lewis
Secretary
<PAGE>
The undersigned, President of MORGAN STANLEY INSTITUTIONAL FUND, INC.,
who executed on behalf of said corporation the foregoing Articles Supplementary
to the Articles of Amendment and Restatement of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/Warren J. Olsen
--------------------------
Warren J. Olsen
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY INSTITUTIONAL FUND, INC., a Maryland corporation (the
"Corporation"), pursuant to Section 2-208 and 2-208.1 of the Maryland General
Corporation Law ("MGCL"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation at a meeting duly
convened and held on April 22, 1996 adopted a resolution adding one new
portfolio, offering Class A and Class B shares of common stock, and correcting
the total number of shares of stock which the Corporation shall have the
authority to issue from thirty-four billion (34,000,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of thirty-four
million dollars ($34,000,000) designated and classified in twenty-eight
portfolios as follows:
NUMBER OF SHARES
OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Money Market Portfolio - Class A . . . . . . . . . . . . . .4,000,000,000 shares
Municipal Money Market Portfolio - Class A . . . . . . . . .4,000,000,000 shares
Emerging Growth Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
Emerging Growth Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
International Equity Portfolio - Class A . . . . . . . . . . .500,000,000 shares
International Equity Portfolio - Class B . . . . . . . . . . .500,000,000 shares
Value Equity Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Value Equity Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Fixed Income Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Fixed Income Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
<PAGE>
Balanced Portfolio - Class A . . . . . . . . . . . . . . . . .500,000,000 shares
Balanced Portfolio - Class B . . . . . . . . . . . . . . . . .500,000,000 shares
Global Equity Portfolio - Class A. . . . . . . . . . . . . . .500,000,000 shares
Global Equity Portfolio - Class B. . . . . . . . . . . . . . .500,000,000 shares
Global Fixed Income Portfolio - Class A. . . . . . . . . . . .500,000,000 shares
Global Fixed Income Portfolio - Class B. . . . . . . . . . . .500,000,000 shares
European Equity Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
European Equity Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
Equity Growth Portfolio - Class A. . . . . . . . . . . . . . .500,000,000 shares
Equity Growth Portfolio - Class B. . . . . . . . . . . . . . .500,000,000 shares
Asian Equity Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Asian Equity Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Active Country Allocation Portfolio - Class A. . . . . . . . .500,000,000 shares
Active Country Allocation Portfolio - Class B. . . . . . . . .500,000,000 shares
International Small Cap Portfolio - Class A. . . . . . . . .1,000,000,000 shares
High Yield Portfolio - Class A . . . . . . . . . . . . . . . .500,000,000 shares
High Yield Portfolio - Class B . . . . . . . . . . . . . . . .500,000,000 shares
Emerging Markets Portfolio - Class A . . . . . . . . . . . . .500,000,000 shares
Emerging Markets Portfolio - Class B . . . . . . . . . . . . .500,000,000 shares
Small Cap Value Equity Portfolio - Class A . . . . . . . . . .500,000,000 shares
Small Cap Value Equity Portfolio - Class B . . . . . . . . . .500,000,000 shares
Emerging Markets Debt Portfolio - Class A. . . . . . . . . . .500,000,000 shares
Emerging Markets Debt Portfolio - Class B. . . . . . . . . . .500,000,000 shares
Mortgage-Backed Securities Portfolio - Class A . . . . . . . .500,000,000 shares
Mortgage-Backed Securities Portfolio - Class B . . . . . . . .500,000,000 shares
Municipal Bond Portfolio - Class A . . . . . . . . . . . . . .500,000,000 shares
Municipal Bond Portfolio - Class B . . . . . . . . . . . . . .500,000,000 shares
Japanese Equity Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
Japanese Equity Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
Gold Portfolio - Class A . . . . . . . . . . . . . . . . . . .500,000,000 shares
Gold Portfolio - Class B . . . . . . . . . . . . . . . . . . .500,000,000 shares
China Growth Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
China Growth Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Latin American Portfolio - Class A . . . . . . . . . . . . . .500,000,000 shares
Latin American Portfolio - Class B . . . . . . . . . . . . . .500,000,000 shares
Aggressive Equity Portfolio - Class A. . . . . . . . . . . . .500,000,000 shares
Aggressive Equity Portfolio - Class B. . . . . . . . . . . . .500,000,000 shares
U.S. Real Estate Portfolio - Class A . . . . . . . . . . . . .500,000,000 shares
U.S. Real Estate Portfolio - Class B . . . . . . . . . . . . .500,000,000 shares
MicroCap Portfolio - Class A . . . . . . . . . . . . . . . . .500,000,000 shares
MicroCap Portfolio - Class B . . . . . . . . . . . . . . . . .500,000,000 shares
International Magnum Portfolio - Class A . . . . . . . . . . .500,000,000 shares
International Magnum Portfolio - Class B . . . . . . . . . . .500,000,000 shares
to thirty-five billion (35,000,000,000) shares of common stock, par value $.001
per share, having an aggregate par value of thirty-five million dollars
($35,000,000) and adding one new portfolio, offering Class A and Class B shares
of common stock,
<PAGE>
so that the common stock par value $.001 per share of the Corporation authorized
to be issued is designated and classified as follows:
NUMBER OF SHARES
OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Money Market Portfolio - Class A . . . . . . . . . . . . . .4,000,000,000 shares
Municipal Money Market Portfolio - Class A . . . . . . . . .4,000,000,000 shares
Emerging Growth Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
Emerging Growth Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
International Equity Portfolio - Class A . . . . . . . . . . .500,000,000 shares
International Equity Portfolio - Class B . . . . . . . . . . .500,000,000 shares
Value Equity Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Value Equity Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Fixed Income Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Fixed Income Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Balanced Portfolio - Class A . . . . . . . . . . . . . . . . .500,000,000 shares
Balanced Portfolio - Class B . . . . . . . . . . . . . . . . .500,000,000 shares
Global Equity Portfolio - Class A. . . . . . . . . . . . . . .500,000,000 shares
Global Equity Portfolio - Class B. . . . . . . . . . . . . . .500,000,000 shares
Global Fixed Income Portfolio - Class A. . . . . . . . . . . .500,000,000 shares
Global Fixed Income Portfolio - Class B. . . . . . . . . . . .500,000,000 shares
European Equity Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
European Equity Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
Equity Growth Portfolio - Class A. . . . . . . . . . . . . . .500,000,000 shares
Equity Growth Portfolio - Class B. . . . . . . . . . . . . . .500,000,000 shares
Asian Equity Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
Asian Equity Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Active Country Allocation Portfolio - Class A. . . . . . . . .500,000,000 shares
Active Country Allocation Portfolio - Class B. . . . . . . . .500,000,000 shares
International Small Cap Portfolio - Class A. . . . . . . . .1,000,000,000 shares
High Yield Portfolio - Class A . . . . . . . . . . . . . . . .500,000,000 shares
High Yield Portfolio - Class B . . . . . . . . . . . . . . . .500,000,000 shares
Emerging Markets Portfolio - Class A . . . . . . . . . . . . .500,000,000 shares
Emerging Markets Portfolio - Class B . . . . . . . . . . . . .500,000,000 shares
Small Cap Value Equity Portfolio - Class A . . . . . . . . . .500,000,000 shares
Small Cap Value Equity Portfolio - Class B . . . . . . . . . .500,000,000 shares
Emerging Markets Debt Portfolio - Class A. . . . . . . . . . .500,000,000 shares
Emerging Markets Debt Portfolio - Class B. . . . . . . . . . .500,000,000 shares
Mortgage-Backed Securities Portfolio - Class A . . . . . . . .500,000,000 shares
Mortgage-Backed Securities Portfolio - Class B . . . . . . . .500,000,000 shares
Municipal Bond Portfolio - Class A . . . . . . . . . . . . . .500,000,000 shares
Municipal Bond Portfolio - Class B . . . . . . . . . . . . . .500,000,000 shares
Japanese Equity Portfolio - Class A. . . . . . . . . . . . . .500,000,000 shares
Japanese Equity Portfolio - Class B. . . . . . . . . . . . . .500,000,000 shares
Gold Portfolio - Class A . . . . . . . . . . . . . . . . . . .500,000,000 shares
Gold Portfolio - Class B . . . . . . . . . . . . . . . . . . .500,000,000 shares
China Growth Portfolio - Class A . . . . . . . . . . . . . . .500,000,000 shares
<PAGE>
China Growth Portfolio - Class B . . . . . . . . . . . . . . .500,000,000 shares
Latin American Portfolio - Class A . . . . . . . . . . . . . .500,000,000 shares
Latin American Portfolio - Class B . . . . . . . . . . . . . .500,000,000 shares
Aggressive Equity Portfolio - Class A. . . . . . . . . . . . .500,000,000 shares
Aggressive Equity Portfolio - Class B. . . . . . . . . . . . .500,000,000 shares
U.S. Real Estate Portfolio - Class A . . . . . . . . . . . . .500,000,000 shares
U.S. Real Estate Portfolio - Class B . . . . . . . . . . . . .500,000,000 shares
MicroCap Portfolio - Class A . . . . . . . . . . . . . . . . .500,000,000 shares
MicroCap Portfolio - Class B . . . . . . . . . . . . . . . . .500,000,000 shares
International Magnum Portfolio - Class A . . . . . . . . . . .500,000,000 shares
International Magnum Portfolio - Class B . . . . . . . . . . .500,000,000 shares
Technology Portfolio - Class A . . . . . . . . . . . . . . . .500,000,000 shares
Technology Portfolio - Class B . . . . . . . . . . . . . . . .500,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement.
FOURTH: The description of the shares of stock of each class designated
and classified as set forth above, including any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption is as set forth in the
Articles of Amendment and Restatement and has not changed in connection with
these Articles Supplementary to the Articles of Amendment and Restatement.
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY INSTITUTIONAL FUND, INC. has caused
these presents to be signed in its name and on its behalf by its President and
attested by its Secretary on this 2nd day of May, 1996.
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By:/s/
-------------------------
Warren J. Olsen
President
Attest:/s/
---------------------
Valerie Y. Lewis
Secretary
<PAGE>
The undersigned, President of MORGAN STANLEY INSTITUTIONAL FUND, INC.,
who executed on behalf of said corporation the foregoing Articles Supplementary
to the Articles of Amendment and Restatement of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/
-------------------------
Warren J. Olsen
<PAGE>
Exhibit 99B.5(p)
MORGAN STANLEY INSTITUTIONAL FUND, INC.
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
Technology Portfolio
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as
of October 1, 1988 between Morgan Stanley Institutional Fund, Inc. (the "Fund")
and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement,
dated as of October 1, 1988 (the "Agreement"), between the Fund and the Adviser.
The Agreement sets forth the rights and obligation of the parties with respect
to the management of the Portfolios of the Fund. The Fund has created an
additional portfolio: the Technology Portfolio (the "Additional Portfolio").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement with respect to
the Additional Portfolio will be as set forth below:
Portfolio Percentage Rate
--------- ---------------
Technology Portfolio 1.00%
This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Agreement as of the __ day
of ________, 199_.
MORGAN STANLEY ASSET
MANAGEMENT, INC.
-----------------------------
Vice President
MORGAN STANLEY INSTITUTIONAL
FUND, INC.
-----------------------------
Director and President
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
DATED AS OF APRIL 22, 1996
BETWEEN MORGAN STANLEY TRUST COMPANY (THE "CUSTODIAN")
AND MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "CLIENT")
WHEREAS, the Custodian and the Client have entered into a Custody
Agreement dated as of July 31, 1989 (the "Agreement") for the safekeeping of
securities and cash received by the Custodian for the account of the Client;
WHEREAS, the Client wishes to appoint the Custodian to act as the
Client's agent for the purpose of lending Securities held for the Account of
the Client;
WHEREAS, the Client and the Custodian have agreed to enter into this
Amendment in order to authorize the Custodian to take certain additional
actions on behalf of the Customer;
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. Terms defined in the Agreement are used herein with their defined
meanings.
2. The Custodian agrees to act as agent for the Client with respect
to the lending of securities by the Client to the security brokers and other
borrowers listed in Attachment A, as amended or supplemented by the Client
from time to time by Authorized Instructions, pursuant to securities loan
agreements ("Securities Loan Agreements") in a form substantially similar to
Exhibit A hereto, or such other form as shall be approved by the Client from
time to time by Authorized Instructions. The Custodian will notify all
borrowers that the Client is prepared to lend Securities and that the
Custodian is acting as agent for the Client. The Client will identify
initially in the Client profile, and from time to time by Authorized
Instructions, all Securities which are available for lending.
The procedures the Custodian and the Client will use in performing
activities in connection with this Amendment are set forth in a procedures
manual provided to the Client by the Custodian as such manual may be amended
from time to time by the Custodian by written notice to the Client.
3. The Custodian shall receive on the Client's behalf all collateral
("Collateral") pledged to the Client by any borrower pursuant to a Securities
Loan Agreement. All cash Collateral received from any borrower pursuant to a
Securities Loan Agreement shall be invested as specified by Client in
Authorized Instructions. Unless otherwise agreed between the Custodian and
the Client, Collateral shall consist only of cash.
1
<PAGE>
4. All decisions with respect to the investment and reinvestment of
Collateral will be made by the Client and the Custodian shall not be liable
for any such decision of the Client.
5. The Client agrees to pay the Custodian a monthly fee for the
transfer of securities, loan monitoring and recordkeeping in the amount set
forth on Schedule 1, or as otherwise agreed upon from time to time.
6. The Client represents that (i) the Custodian is duly authorized
to execute and deliver the Securities Loan Agreement on the Client's behalf,
(ii) the Client has the power to so authorize the Custodian, to enter into
the loans contemplated by the Securities Loan Agreement and to perform the
obligations of Lender under such loans, and (iii) the Client has taken all
requisite action (corporate or otherwise) to authorize such execution and
delivery by the Custodian and such performance by it.
7. Except as expressly amended hereby, all terms and provisions of
the Agreement are and shall continue to be in full force and effect. This
Amendment shall be construed in accordance with the applicable laws of the
State of New York. This Amendment may be executed by one or both of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective authorized officers as of
the day and year first above written.
MORGAN STANLEY TRUST COMPANY
By: ___________________________________
Name: Joseph C. Weinheffer
Title: Vice President
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: ___________________________________
Name: Michael F. Klein
Title: Vice President
2
<PAGE>
SCHEDULE 1
Securities transfer/loan monitoring/recordkeeping fee, payable upon
the first day of the month following the calendar month in which such fee
was incurred:
<TABLE>
<CAPTION>
FUND MONTHLY FEE
---- -----------
<S> <C>
International Equity $28,000
Asian Equity $ 9,000
Active Country $ 5,000
International Small Capital $ 2,700
Japanese Equity $ 2,400
European Equity $ 1,500
</TABLE>
No transaction charges will be payable to MSTC for cash and securities
movements with respect to any securities loans under this Amendment. Custody
fees payable to MSTC under the Agreement shall continue to be calculated as
if no securities loans were made, and such custody fees shall not be
applicable with respect to Collateral received from Borrowers.
3
<PAGE>
MORGAN STANLEY TRUST COMPANY
SECURITIES LENDING
APPROVED U.S. BORROWERS
AS OF MARCH 1996
<TABLE>
<CAPTION>
SUGGESTED CREDIT LIMIT
----------------------
<S> <C>
* Barclays de Zoere Wedd Securities 200,000,000
* Bear Stearns & Company 200,000,000
* BT Securities Corporation 200,000,000
* CS First Boston Inc. 200,000,000
* Daiwa Securities America 100,000,000
* Dean Witter Reynolds Inc. 100,000,000
* Donaldson Lufkin & Jenrette 100,000,000
* Dresdner Bank Securities Corp. 200,000,000
* Goldman Sachs & Company 300,000,000
* J.P. Morgan Securities Inc. 100,000,000
* Lehman Brothers Inc. 300,000,000
* Lehman Government Securities Inc. 300,000,000
* Merrill Lynch Pierce Fenner & Smith 300,000,000
* Nomura Securities Inc. 200,000,000
* Oppenheimer & Company 100,000,000
* PaineWebber Inc. / 200,000,000
* Prudential Securities Inc. 100,000,000
* Raymond James & Associates Inc. 75,000,000
* Republic NY Securities 75,000,000
* Salomon Brothers Inc. 200,000,000
* Shelby Cullom Davis Inc. 100,000,000
* Smith Barney Inc. 200,000,000
* Societe Generale Securities Corp. 100,000,000
* Spear, Leeds and Kellogg, Inc. 75,000,000
* Swiss Bank Corp. 300,000,000
* UBS Securities Inc. 300,000,000
* U.S. Clearing Corp. 75,000,000
* S.G. Warburg & Co. Inc. 200,000,000
* Yamaichi International America 75,000,000
</TABLE>
* To be amended as MSTC adds additional counterparties
<PAGE>
[PSA LOGO]
Public Securities Association
40 Broad Street, New York, NY 10004-2373
Telephone (212) 809-7000
MASTER SECURITIES LOAN AGREEMENT
Dated as of _________ __, 1994
Between: Each Lender listed on Appendix
A hereto (each a "Lender") acting through
Morgan Stanley Trust Company ("Agent")
_________________________________________
and
("Borrower")
_________________________________________
This Agreement sets forth the terms and conditions under which one
party ("Lender") may, from time to time, lend to the other party ("Borrower")
certain securities against a pledge of collateral. Capitalized terms not
otherwise defined herein shall have the meanings provided in Section 26.
The parties hereto agree as follow:
1. LOANS OF SECURITIES
1.1 Subject to the terms and conditions of this Agreement, Borrower
or Lender may, from time to time, orally seek to initiate a transaction in
which Lender will lend securities to Borrower. Borrower and Lender shall
agree orally on the terms of each Loan, including the issuer of the
securities, the amount of securities to be lent, the basis of compensation,
and the amount of Collateral to be transferred by Borrower, which terms may
be amended during the Loan.
1.2 Notwithstanding any other provision in this Agreement regarding
when a Loan commences, a Loan hereunder shall not occur until the Loaned
Securities and the Collateral therefor have been transferred in accordance
with Section 16.
1.3 WITHOUT WAIVING ANY RIGHTS GIVEN TO LENDER HEREUNDER, IT IS
UNDERSTOOD AND AGREED THAT THE PROVISIONS OF THE SECURITIES INVESTOR
PROTECTION ACT OF 1970 MAY NOT PROTECT LENDER WITH RESPECT TO LOANED
SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL DELIVERED TO LENDER
MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF BORROWER'S OBLIGATIONS IN
THE EVENT BORROWER FAILS TO RETURN THE LOANED SECURITIES.
2. TRANSFER OF LOANED SECURITIES
2.1 Unless otherwise agreed, Lender shall transfer Loaned Securities
to Borrower hereunder on or before the Cutoff Time on the date agreed to by
Borrower and Lender for the commencement of the Loan.
2.2 Unless otherwise agreed, Borrower shall provide Lender, in each
Loan in which Lender is a Customer, with a schedule and receipt listing the
Loaned Securities. Such schedule and receipt may consist of (a) a schedule
provided to Borrower by Lender and executed and returned by Borrower when the
Loaned Securities are received, (b) in the case of securities transferred
through a Clearing Organization which provides transferors with a notice
evidencing such transfer, such notice, or (c) a confirmation or other
document provided to Lender by Borrower.
-1-
<PAGE>
3. COLLATERAL
3.1 Unless otherwise agreed, Borrower shall, prior to or concurrently
with the transfer of the Loaned Securities to Borrower, but in no case later
than the close of business on the day of such transfer, transfer to Lender
Collateral with a market value at least equal to a percentage of the market
value of the Loaned Securities agreed to by Borrower and Lender (which shall
be not less than 100% of the market value of the Loaned Securities) (the
"Margin Percentage").
3.2 The Collateral transferred by Borrower to Lender, as adjusted
pursuant to Section 8, shall be security for Borrower's obligations in
respect of such Loan and for any other obligations on Borrower to Lender.
Borrower hereby pledges with, assigns to, and grants Lender a continuing
first security interest in, and a lien upon, the Collateral, which shall
attach upon the transfer of the Loaned Securities by Lender to Borrower and
which shall cease upon the transfer of the Loaned Securities by Borrower to
Lender. In addition to the rights and remedies given to Lender hereunder,
Lender shall have all the rights and remedies of a secured party under the
New York Uniform Commercial Code. It is understood that Lender may use or
invest the Collateral, if such consists of cash, at its own risk, but that
(unless Lender is a Broker-Dealer) Lender shall, during the term of any Loan
hereunder, segregate Collateral from all securities or other assets in its
possession. Lender may pledge, repledge, hypothecate, rehypothecate, lend,
relend, sell or otherwise transfer the Collateral, or re-register Collateral
evidenced by physical certificates in any name other than the Borrower's,
only (a) if Lender is Broker-Dealer or (b) in the event of a Default by
Borrower. Segregation of Collateral may be accomplished by appropriate
identification on the books and records of Lender if it is a "financial
intermediary" or a "clearing corporation" within the meaning of the New York
Uniform Commercial Code.
3.3 Except as otherwise provided herein, upon transfer to Lender of
the Loaned Securities on the day a Loan is terminated pursuant to Section 5,
Lender shall be obligated to transfer the Collateral (as adjusted pursuant to
Section 8) to Borrower no later than the Cutoff Time on such day or, if such
day is not a day on which a transfer of such Collateral may be effected under
Section 16, the next day on which such a transfer may be effected.
3.4 If Borrower transfers Collateral to Lender, as provided in
Section 3.1, and Lender does not transfer the Loaned Securities to Borrower,
Borrower shall have the absolute right to the return of the Collateral; and
if Lender transfers Loaned Securities to Borrower and Borrower does not
transfer Collateral to Lender as provided in Section 3.1, Lender shall have
the absolute right to the return of the Loaned Securities.
3.5 Borrower may, upon reasonable notice to Lender (taking into
account all relevant factors, including industry practice, the type of
Collateral to be substituted and the applicable method of transfer),
substitute Collateral for Collateral securing any Loan or Loans; PROVIDED,
HOWEVER, that such substituted Collateral shall (a) consist only of cash,
securities or owner property that Borrower and Lender agreed would be
acceptable Collateral prior to the Loan or Loans and (b) have a market value
such that the aggregate market value of such substituted Collateral, together
with all other Collateral for Loans in which the party substituting such
Collateral is acting as Borrower, shall equal or exceed the agreed upon
Margin Percentage of the market value of the Loaned Securities. Prior to the
expiration of any letter of credit supporting Borrower's obligations
hereunder, Borrower shall, no later than the Cutoff Time on the date such
letter of credit expires, obtain an extension of the expiration of such
letter of credit or replace such letter of credit by providing Lender with a
substitute letter of credit in an amount at least equal to the amount of the
letter of credit for which it is substituted.
3.6 Lender acknowledges that, in connection with Loans of Government
Securities and as otherwise permitted by applicable law, some securities
provided by Borrower as Collateral under this Agreement may not be guaranteed
by the United States.
-2-
<PAGE>
4. FEES FOR LOAN
4.1 Unless otherwise agreed, (a) Borrower agrees to pay Lender a
loan fee (a "Loan Fee"), computed daily on each Loan to the extent such Loan
is secured by Collateral other than cash based on the aggregate par value (in
the case of Loans of Government Securities) or the aggregate market value (in
the case of all other Loans) of the Loaned Securities on the day for which
such Loan Fee is being computed and (b) Lender agrees to pay Borrower a fee
or rebate (a "Cash Collateral Fee") on Collateral consisting of cash, computed
daily based on the amount of cash held by Lender as Collateral, in the case
of each of the Loan Fee and the Cash Collateral Fee at such rates as Borrower
and Lender may agree. Except as Borrower and Lender may otherwise agree (in
the event that cash Collateral is transferred by clearing house funds or
otherwise). Loan funds shall accrue from and including the date on which the
Loaned Securities are transferred to Borrower to, but excluding, the date on
which such Loaned Securities are returned to Lender, and Cash Collateral Fees
shall accrue from and including the date on which the cash Collateral is
transferred to Lender to, but excluding, the date on which such cash
Collateral is returned to Borrower.
4.2 Unless otherwise agreed, any Loan Fee or Cash Collateral Fee
payable hereunder shall be payable:
(a) in the case of any Loan of securities other than Government
Securities, upon the earlier of (i) the fifteenth day of the
month following the calendar month in which such fee was incurred
or (ii) the termination of all Loans hereunder (or, if a transfer
of cash in accordance with Section 16 may not be effected on such
fifteenth day or the day of such termination, as the case may be,
the next day on which such a transfer may be effected); and
(b) in the case of any Loan of Government Securities, upon the
termination of such Loan.
Notwithstanding the foregoing, all Loan Fees shall be payable by Borrower
immediately in the event of a Default hereunder by Borrower and all Cash
Collateral Fees shall be payable immediately by Lender in the event of a
Default by Lender.
5. TERMINATION OF THE LOAN. Unless otherwise agreed, (a) Borrower may
terminate a Loan on any Business Day by giving notice to Lender and
transferring the Loaned Securities to Lender before the Cutoff Time on such
Business Day, and (b) Lender may terminate a Loan on a termination date
established by notice given to Borrower prior to the close of business on a
Business Day. The termination date established by a termination notice given
by Lender to Borrower shall be a date no earlier than the standard settlement
date for trades of the Loaned Securities entered into on the date of such
notice, which date shall, unless Borrower and Lender agree to the contrary,
be (i) in the case of Government Securities, the next Business Day following
such notice and (ii) in the case of all other securities, the fifth Business
Day following such notice. Unless otherwise agreed, Borrower shall, on or
before the Cutoff Time on the termination date of a Loan, transfer the Loaned
Securities to Lender, PROVIDED, HOWEVER, that upon such transfer by Borrower,
Lender shall transfer the Collateral (as adjusted pursuant to Section 8) to
Borrower in accordance with Section 3.3.
6. RIGHTS OF BORROWER IN RESPECT OF THE LOANED SECURITIES. Except as set
forth in Sections 7.1 and 7.2 and as otherwise agreed by Borrower and Lender,
until Loaned Securities are required to be redelivered to Lender upon
termination of a Loan hereunder. Borrower shall have all of the incidents of
ownership of the Loaned Securities, including the right to transfer the
Loaned Securities to others. Lender hereby waives the right to vote, or to
provide any consent or to take any similar action with respect to, the Loaned
Securities in the event that the record date or deadline for such vote,
consent or other action falls during the term of the Loan.
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7. DIVIDENDS, DISTRIBUTIONS, ETC.
7.1 Lender shall be entitled to receive all distributions made on
or in respect of the Loaned Securities which are not otherwise received by
Lender, to the full extent it would be so entitled if the Loaned
Securities had not been lent to Borrower, including, but not limited to:
(a) cash and all other property. (b) stock dividends, (c) securities
recovered as a result of split ups of the Loaned Securities and distributions
in respect thereof, (d) interest payments, and (e) all rights to purchase
additional securities.
7.2 Any cash distributions made on or in respect of the Loaned
Securities which Lender is entitled to receive pursuant to Section 7.1 shall
be paid by the transfer of cash to Lender by Borrower, on the date any such
distribution is paid, in an amount equal to such cash distribution, so long
as Lender is not in Default at the time of such payment. Non-cash
distributions received by Borrower shall be added to the Loaned Securities
on the date of distribution and shall be considered such for all purposes,
except that if the Loan has terminated, Borrower shall forthwith transfer
the same to Lender.
7.3 Borrower shall be entitled to receive all cash distributions
made on or in respect of non-cash Collateral which are not otherwise
received by Borrower, to the full extent it would be so entitled if the
Collateral had not been transferred to Lender. Any distributions of cash made
on or in respect of such Collateral which Borrower is entitled to receive
hereunder shall be paid by the transfer of cash to Borrow by Lender, on the
Date any such distribution is paid, in an amount equal to such cash
distribution, so long as Borrower is not in Default at the time of such
payment.
7.4 (a) Unless otherwise agree, if (i) Borrower is required to make a
payment (a "Borrower Payment") with respect to cash distributions on Loaned
Securities under Sections 7.1 and 7.2 ("Securities Distributions"), or
(ii) Lender is required to make a payment (a "Lender Payment") with respect
to cash distributions on Collateral under Section 7.3 ("Collateral
Distributions"), and (iii) Borrower or Lender, as the case may be
("Payor"), shall be required by law to collect any withholding or other
tax, duty, fees, levy or charge required to be deducted or withheld from
such Borrower Payment or Lender Payment ("Tax"), then Payor shall
(subject to subsections (b) and (c) below), pay such additional amounts
as may be necessary in order that the net amount of the Borrower
Payment or Lender Payment received by the Lender or Borrower, as the case
may be ("Payee"), after payment of such Tax equals the net amount of
the Securities Distribution or Collateral Distribution that would have
been received if such Securities Distribution or Collateral
Distribution had been paid directly to the Payee.
(b) No additional amounts shall be payable to a Payee under
subsection (a) above to the extent that Tax would have been imposed on a
Securities Distribution or Collateral Distribution paid directly to the
Payee.
(c) No additional amounts shall be payable to a Payee under
subsection (a) above to the extent that such Payee is entitled in an exemption
from, or reduction in the rate of Tax on a Borrower Payment or Lender Payment
subject to the provision of a certificate or other documentation, but has
failed timely to provide such certificate or other documentation.
(d) Each party hereto shall be deemed to represent that, as of the
commencement of any Loan hereunder, no Tax would be imposed on any cash
distribution paid to it with respect to (i) Loaned Securities subject to
a Loan in which it is acting as Lender or (ii) Collateral for any
Loan in which it is acting as Borrower, unless such party has given notice
to the contrary to the other party hereto (which notice shall specify the
rate at which such Tax would be imposed). Each party agrees to notify the
other of any charge net occurs during the term of a Loan in the rate of any
Tax that would be imposed on any such cash distributions payable to it.
7.5 To the extent that, under the provisions of Sections 7.1
through 7.4 (a) a transfer of cash or other property by Borrower would give
rise to Margin Excess (as defined in Section 8.3 below) or (b) a transfer
of cash or other property by Lender would give rise to a Margin Deficit (as
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defined in Section 8.2) Borrower or Lender (as the case may be) shall not be
obligated to make such transfer of cash or other property in accordance with
such Sections, but shall in lieu of such transfer immediately credit the
amounts that would have been transferable under such Sections to the account
of Lender or Borrower (as the case may be).
8. MARK TO MARKET.
8.1 Borrower shall daily mark to market any Loan hereunder and in the
event that at the close of trading on any Business Day the market value of
the Collateral for any Loan to Borrower shall be less than 100% of the market
value of all the outstanding Loaned Securities subject to such Loan. Borrower
shall transfer additional Collateral no later than the close of the next
Business Day so that the market value of such additional Collateral, when
added to the market value of the other Collateral for such Loan, shall equal
100% of the market value of the Loaned Securities.
8.2 In addition to any rights of Lender under Section 8.1, in the event
that the close of trading on any Business Day the aggregate market value of
all Collateral for Loans by Lender shall be less than the Margin Percentage
of the market value of all the outstanding Loaned Securities subject to such
Loans (a "Margin Deficit"), Lender may, by notice to Borrower, demand that
Borrower transfer to Lender additional Collateral so that the market value of
such additional Collateral, when added to the market value of all other
Collateral for such Loans, shall equal or exceed the agreed upon Margin
Percentage of the market value of the Loaned Securities. Unless otherwise
agreed, such transfer is to be made no later than the close of the next
Business Day following the day of Lender's notice to Borrower.
8.3 In the event that at the close of trading on any Business Day the
market value of all Collateral for Loans to Borrower shall be greater than
the Margin Percentage of the market value of all the outstanding Loaned
Securities subject to such Loans (a "Margin Excess") Borrower may, by
notice to Lender, demand that Lender transfer to Borrower such amount of the
Collateral selected by Borrower so that the market value of the Collateral
for such Loans, after deduction of such amounts, shall thereupon not exceed
the Margin Percentage of the market value of the Loaned Securities. Unless
otherwise agreed, such transfer is to be made no later than the close of the
next Business Day following the day of Borrower's notice to Lender.
8.4 Borrower and Lender may agree, with respect to one or more Loans
hereunder, to mark the values to market pursuant to Section 8.2 and 8.3 by
separately valuing the Loaned Securities lent and the Collateral given in
respect thereof on a Loan-by-Loan basis.
8.5 Borrower and Lender may agree, with respect to any or all Loans
hereunder, that the respective rights of Lender and Borrower under Sections
8.2 and 8.3 may be exercised only where a Margin Excess or Margin Deficit
exceeds is specified dollar amount or a specified percentage of the market
value of the Loaned Securities under such Loans (which amount or percentage
shall be agreed to by Borrower and Lender prior to entering into any such
Loans).
9. REPRESENTATIONS. Each party to this Agreement hereby makes the
following representations and warranties, which shall continue during the
term of any Loan hereunder:
9.1 Each party hereto represents and warrants that (a) it has the power
to execute and deliver this Agreement, to enter into the Loans contemplated
hereby and to perform its obligations hereunder; (b) it has taken all
necessary action to authorize such execution, delivery and performance; and
(c) this Agreement constitutes a legal, valid and binding obligation
enforceable against it in accordance with its terms.
9.2 Each party hereto represents and warrants that the execution,
delivery and performance by it of this Agreement and each Loan hereunder will
at all times comply with all applicable laws and regulations including those
of applicable regulatory and self-regulatory organizations.
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9.3 Each party hereto represents and warrants that it has not relied on
the other for any tax or accounting advice concerning this Agreement and that
it has made its own determination as to the tax and accounting treatment of
any Loan and any dividends, remuneration or other funds received hereunder.
9.4 Borrower represents and warrants that it is acting for its own
account. Lender represents and warrants that it is acting for its own account
unless it expressly specifies otherwise in writing and complies with Section
10.3(b).
9.5 Borrower represents and warrants that (a) it has, or will have at
the time of transfer of any Collateral, the right to grant a first security
interest therein subject to the terms and conditions hereof, and (b) it (or
the person to whom it relends the Loaned Securities) is borrowing or will
borrow the Loaned Securities (except for Loaned Securities that qualify as
"exempted securities" under Regulation T of the Board of Governors of the
Federal Reserve System) for the purpose of making delivery of such securities
in the case of short sales, failure to receive securities required to be
delivered, or as otherwise permitted pursuant to Regulation T as in effect
from time to time.
9.6 Lender represents and warrants that it has, or will have at the
time of transfer of any Loaned Securities, the right to transfer the Loaned
Securities subject to the terms and conditions hereof.
10. COVENANTS
10.1 Each party hereto agrees and acknowledges that (a) each Loan
hereunder is a "securities contract" as such term is defined in Section 741(7)
of Title 11 of the United States Code (the "Bankruptcy Code"), (b) each and
every transfer of funds, securities and other property under this Agreement
and each Loan hereunder is a "settlement payment" or a "margin payment," as
such terms are used in Sections 362(b)(6) and 546(e) of the Bankruptcy Code,
and (c) the rights given to Borrower and Lender hereunder upon a Default by
the other constitute the right to cause the liquidation of a securities
contract and the right to set off mutual debts and claims in connection with a
securities contract, as such terms are used in Sections 555 and 362(b)(6) of
the Bankruptcy Code. Each party hereto further agrees and acknowledges that
if a party hereto is an "insured depository institution," as such term is
defined in the Federal Deposit Insurance Act, as amended ("FDIA"), than each
Loan hereunder is a "securities contract" and "qualified financial contract,"
as such terms are defined in the FDIA and any rules, orders or policy
statements thereunder.
10.2 Borrower agrees to be liable as principal with respect to its
obligations hereunder.
10.3 Lender agrees either (a) to be liable as principal with respect to
its obligations hereunder or (b) to execute and comply fully with the
provisions of Annex 1 (the terms and conditions of which Annex are
incorporated herein and made a part hereof).
10.4 Promptly upon (and in any event within seven (7) Business Days
after) demand by Lender, Borrower shall furnish Lender with Borrower's most
recent publicly-available financial statements and any other financial
statements mutually agreed upon by Borrower and Lender. Unless otherwise
agreed, if Borrower is subject to the requirements of Rule 17a-5(c) under the
Exchange Act, it may satisfy the requirements of this Section by furnishing
Lender with its most recent statement required to be furnished to customers
pursuant to such Rule.
10.5 Except to the extent required by applicable law or regulation or
as otherwise agreed, Borrower and Lender agree that Loans hereunder shall in
no event be "exchange contracts" for purposes of the rules of any securities
exchange and that Loans hereunder shall not be governed by the buy-in or
similar rules of any such exchange, registered national securities or other
self-regulatory organization.
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11. EVENTS OF DEFAULT. All Loans hereunder may, at the option of the
non-defaulting party exercised by notice to the defaulting party (which
option shall be deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of an event specified in subsection (e)
below), be terminated immediately upon the occurrence of any one or more of
the following events (individually, a "Default"):
(a) if any Loaned Securities shall not be transferred to Lender upon
termination of the Loan as required by Section 5;
(b) if any Collateral shall not be transferred to Borrower upon
termination of the Loan as required by Sections 3.3 and 5;
(c) if either party shall fail to transfer Collateral as required by
Section 8;
(d) if either party (i) shall fail to transfer to the other party amounts
in respect of distributions required to be transferred by Section 7,
(ii) shall have received notice of such failure from the
non-defaulting party, and (iii) shall not have cured such default
by the Cut-off Time on the next day after such notice on which a
transfer of cash may be effected in accordance with Section 16;
(e) if (i) either party shall commence as debtor any case or proceeding
under any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar law, or seek the appointment of a receiver,
conservator, trustee, custodian or similar official for such
party or any substantial part of its property, (ii) any such case
or proceeding shall be commenced against either party, or another
shall seek such an appointment, or any application shall be filed
against either party, or another shall seek such an appointment, or
any application shall be filed against either party for a
protective decree under the provisions of the Securities Investor
Protection Act of 1970, which (A) is consented to or not timely
contested by such party, (B) results in the entry of an order for
relief, such an appointment, the issuance of such a protective decree
or the entry of an order having a similar effect, or (C) is not
dismissed within 15 days, (iii) either party shall make a general
assignment for the benefit of creditors, or (iv) either party shall
admit in writing its inability to pay its debts as they become due;
(f) if either party shall have been suspended or expelled from membership
or participation in any national securities exchange or registered
national securities association of which it is a member or other
self-regulatory organization to whose rules it is subject or if it
is suspended from dealing in securities by any federal or state
government agency thereof;
(g) if either party shall have its license, charter, or other
authorization necessary to conduct a material portion of its business
withdrawn, suspended or revoked by any applicable federal or state
government or agency thereof;
(h) if any representation made by either party in respect of this
Agreement or any Loan or Loans hereunder shall be incorrect or
untrue in any material respect during the term of any Loan hereunder;
(i) if either party notifies the other, orally or in writing, of its
inability to or its intention not to perform its obligations
hereunder or otherwise disaffirms, rejects or repudiates any of
its obligations hereunder, or;
(j) if either party (i) shall fail to perform any material obligation
under the Agreement not specifically set forth in clauses (a) through
(i) above, including but not limited to the payment of fees as
required by Section 4, and the payment of transfer taxes as required
by Section 14, (ii) shall have received notice of such failure from
the non-defaulting party and (iii) shall not have cured such failure
by the Cut-off Time
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on the next day after such notice on which a transfer of cash may
be effected under Section 15.
12. LENDER'S REMEDIES. Upon the occurrence of a Default under Section 11
entitling Lender to terminate all Loans hereunder, Lender shall have the
right (without further notice to Borrower), in addition to any other remedies
provided herein or under applicable law, (a) to purchase a like amount of
Loaned Securities ("Replacement Securities") in the principal market for such
securities in a commercially reasonable manner, (b) to sell any Collateral in
the principal market for such Collateral in a commercially reasonable manner
and (c) to apply and set off the Collateral and any proceeds thereof
(including any amounts drawn under a letter of credit supporting any Loan)
against the payment of the purchase price for such Replacement Securities and
any amounts due to Lender under Sections 4, 7, 14 and 17. In the event Lender
shall exercise such rights, Borrower's obligation to return a like amount of
the Loaned Securities shall terminate. Lender may similarly apply the
Collateral and any proceeds thereof to any other obligation of Borrower under
this Agreement, including Borrower's obligations with respect to distributions
paid to Borrower (and not forwarded to Lender) in respect of Loaned
Securities. In the event that (i) the purchase price of Replacement
Securities (plus all other amounts, if any, due to Lender hereunder) exceeds
(ii) the amount of the Collateral, Borrower shall be liable to Lender for the
amount of such excess together with interest thereon at a rate equal to (A)
in the case of purchases of Foreign Securities, LIBOR, (B) in the case of
purchases of any other securities (or other amounts, if any, due to Lender
hereunder), the Federal Funds Rate or (C) such other rate as may be specified
in Schedule B, in each case as such rate fluctuates from day to day, from the
date of such purchase until the date of payment of such excess. As security
for Borrower's obligation to pay such excess, Lender shall have, and Borrower
hereby grants, a security interest in any property of Borrower then held by
or for Lender and a right of setoff with respect to such property and any
other amount payable by Lender to Borrower. The purchase price of Replacement
Securities purchased under this Section 12 shall include, and the proceeds of
any sale of Collateral shall be determined after deduction of, broker's fees
and commissions and all other reasonable costs, fees and expenses related to
such purchase or sale (as the case may be). In the event Lender exercises its
rights under this Section 12, Lender may elect in its sole discretion, in
lieu of purchasing all or a portion of the Replacement Securities of selling
all or a portion of the collateral, to be deemed to have made, respectively,
such purchase of Replacement Securities or sale of Collateral for an amount
equal to the price therefor on the date of such exercise obtained from a
generally recognized source or the most recent closing bid quotation from
such a source. Subject to Section 19, upon the satisfaction of all
obligations hereunder, any remaining Collateral shall be returned to Borrower.
13. Borrower's Remedies. Upon the occurrence of a Default under Section 11
entitling Borrower to terminate all Loans hereunder, Borrower shall have the
right (without further notice to Lender), in addition to any other remedies
provided herein or under applicable law, (a) to purchase a like amount of
Collateral ("Replacement Collateral") in the principal market for such
Collateral in a commercially reasonable manner, (b) to sell a like amount of
the Loaned Securities in the principal market for such securities in a
commercially reasonable manner, (c) to apply and set off the Loaned
Securities and any proceeds thereof against (i) the payment of the purchase
price for such Replacement Collateral (ii) Lender's Obligation to return any
cash or other Collateral and (iii) any amounts due to Borrower under Sections
4, 7 and 17, in such event, Borrower may treat the Loaned Securities as its
own and Lender's obligation to return a like amount of the collateral shall
terminate: PROVIDED, HOWEVER, that Lender shall immediately return any letters
of credit supporting any Loan upon the exercise or deemed exercise by
Borrower of its termination rights under Section 11. Borrower may similarly
apply the Loaned Securities and any proceeds thereof to any other obligation
of Lender under this Agreement, including Lender's obligations with respect
to distributions paid to Lender (and not forwarded to Borrower) in respect of
Collateral. In the event that (i) the sales price received from such Loaned
Securities is less than (ii) the purchase price of Replacement Collateral
(plus the amount of any cash or other Collateral not replaced by Borrower and
all other amounts, if any, due to Borrower hereunder), Lender shall be liable
to Borrower for the amount of any such deficiency, together with interest on
such amounts at a rate equal to (A) in the case of Collateral consisting of
Foreign Securities, LIBOR, (B) in the case of Collateral consisting of any
other securities (or other amounts due, if any, to Borrower hereunder),
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the Federal Funds Rate or (C) such other rate as may be specified in
Schedule B, in each case as such rate fluctuates from day to day, from the
date of such sale until the date of payment of such deficiency. As security
for Lender's obligation to pay such deficiency, Borrower shall have, and
Lender hereby grants, a security interest in any property of Lender then
held by or for Borrower and a right of setoff with respect to such property
and any other amount payable by Borrower to Lender. The purchase price of
any Replacement Collateral purchased under this Section 13 shall include,
and the proceeds of any sale of Loaned Securities shall be determined after
deduction of, Broker's fees and commissions and all other reasonable costs,
fees and expenses related to such purchase or sale (as the case may be). In
the event Borrower exercises its rights under this Section 13, Borrower may
elect in its sole discretion, in lieu of purchasing all or a portion of the
Replacement Collateral or selling all or a portion of the Loaned Securities,
to be deemed to have made, respectively, such purchase of Replacement
Collateral or sale of Loaned Securities for an amount equal to the price
therefor on the date of such exercise obtained from a generally recognized
source or the most recent closing bid quotation from such a source. Subject
to Section 19, upon the satisfaction of all Lender's obligations hereunder,
any remaining Loaned Securities (or remaining cash proceeds thereof) shall
be returned to Lender. Without limiting the foregoing, the parties hereto
agree that they intend the Loans hereunder to be loans of securities. If,
however, any Loan is deemed to be a loan of money by Borrower to Lender,
then Borrower shall have, and Lender shall be deemed to have granted, a
security interest in the Loaned Securities and the proceeds thereof.
14. Transfer Taxes. All transfer taxes with respect to the transfer of the
Loaned Securities by Lender to Borrower and by Borrower to Lender upon
termination of the Loan shall be paid by Borrower.
15. Market Value.
15.1 Unless otherwise agreed, if the principal market for the securities
to be valued is a national securities exchange in the Unites States, their
market value shall be determined by their last sale price on such exchange on
the preceding Business Day or, if there was no sale on that day, by the last
sale price on the next preceding Business Day on which there was a sale on
such exchange, all as quoted on the Consolidated Tape or, if not quoted on
the Consolidated Tape, then as quoted by such exchange.
15.2 Except as provided in Section 15.3 or 15.4 or as otherwise agreed,
if the principal market for the securities to be valued is the
over-the-counter market, their market value shall be determined as follows. If
the securities are quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), their market value shall be the
closing sale price on NASDAQ on the preceding Business Day or, if the
securities are issued for which last sale prices are not quoted on NASDAQ,
the closing bid price on such day. If the securities to be valued are not
quoted on NASDAQ, their market value shall be the highest bid quotation as
quoted in any of The Wall Street Journal, the National Quotation Bureau pink
sheets, the Salomon Brothers quotation sheets, quotations sheets of
registered market makers and, if necessary, dealers' telephone quotations on
the preceding Business Day. In each case, if the relevant quotation did not
exist on such day, then the relevant quotation on the next preceding Business
Day in which there was such a quotation shall be the market value.
15.3 Unless otherwise agreed, if the securities to be valued are
Government Securities, their market value shall be the average of the bid and
ask prices as quoted on Prophesy at 3:30 P.M. New York time on the Business
Day preceding the date on which such determination is made. If the securities
are not so quoted on such day, their market value shall be determined as of
the next preceding Business Day on which they were so quoted. If the
securities to be valued are Government Securities that are not quoted on
Prophesy, their market value shall be determined as of the close of business
on the preceding Business Day in accordance with market practice for such
securities.
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15.4 Unless otherwise agreed, if the securities to be valued are Foreign
Securities, their market value shall be determined as of the close of
business on the preceding Business Day in accordance with market practice in
the principal market for such securities.
15.5 Unless otherwise agreed, the market value of a letter of credit
shall be the undrawn amount thereof.
15.6 All determinations of market value under Sections 15.1, 15.2, 15.3
and 15.4 shall include, where applicable, accrued interest to the extent not
already included therein (other than any interest transferred to the other
party pursuant to Section 7), unless market practice with respect to the
valuation of such securities in connection with securities loans is to the
contrary. All determinations of market value that are required to be made at
the close of trading on any Business Day pursuant to Section 8 or otherwise
hereunder shall be made as if being determined at the commencement of trading
on the next Business Day. The determinations of market value provided for in
this Section 15 shall apply for all purposes under this Agreement, except for
purposes of Sections 12 and 13.
16. TRANSFERS.
16.1 All transfers of securities hereunder shall be by (a) physical
delivery of certificates representing such securities together with duly
executed stock and bond transfer powers, as the case may be, with signatures
guaranteed by a bank or a member firm of the New York Stock Exchange, Inc.,
(b) transfer on the books of a Clearing Organization, or (c) such other means
as Borrower and Lender may agree. In every transfer of securities hereunder,
the transferor shall take all steps necessary (i) to effect a "transfer"
under Section 8-313 of the New York Uniform Commercial Code or, where
applicable, under any U.S. federal regulation governing transfers of
securities and (ii) to provide the transferee with comparable rights under
any applicable foreign law or regulation.
16.2 All transfers of cash Collateral hereunder shall be by (a) wire
transfer in immediately available, freely transferable funds or (b) such
other means as Borrower and Lender may agree. All other transfers of cash
hereunder shall be made in accordance with the preceding sentence or by
delivery of a certified or official bank check representing next-day New York
Clearing House Funds.
16.3 All transfers of a letter of credit from Borrower to Lender shall be
made by physical delivery to Lender of an irrevocable letter of credit issued
by a "bank" as defined in Section 3(a)(6)(A)-(C) of the Exchange Act.
Transfer of a letter of credit from Lender to Borrower shall be made by
causing such letter of credit to be returned or by causing the amount of such
letter of credit to be reduced to the amount required after such transfer.
16.4 A transfer of securities, cash or letters of credit may be effected
under this Section 16 on any day except (a) a day on which the transferee is
closed for business at its address set forth in Schedule A hereto or (b) a
day on which a Clearing Organization or wire transfer system is closed, if
the facilities of such Clearing Organization or wire transfer system are
required to effect such transfer.
17. CONTRACTUAL CURRENCY.
17.1 Borrower and Lender agree that: (a) any payment in respect of a
distribution under Section 7 shall be made in the currency in which the
underlying distribution of cash was made; (b) any return of cash shall be
made in the currency in which the underlying transfer of cash was made and
(c) any other payment of cash in connection with a Loan under this Agreement
shall be in the currency agreed upon by Borrower and Lender in connection
with such Loan (the currency established under clause (a), (b) or (c)
hereinafter referred to as the "Contractual Currency"). Notwithstanding the
foregoing, the payee of any such payment may, at its option, accept tender
thereof in any other currency; PROVIDED, HOWEVER, that, to the extent
permitted by applicable law,
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the obligation of the payor to make such payment will be discharged only to
the extent of the amount of Contractual Currency that such payee may,
consistent with normal banking procedures, purchase with such other currency
(after deduction of any premium and costs of exchange) on the banking day
next succeeding its receipt of such currency.
17.2 If for any reason the amount in the Contractual Currency received
under Section 17.1, including amounts received after conversion of any
recovery under any judgment or order expressed in a currency other than the
Contractual Currency, falls short of the amount in the Contractual Currency
due in respect of this Agreement, the party required to make the payment will
(unless a Default has occurred and such party is the non-defaulting party) as
a separate and independent obligation and to the extent permitted by
applicable law, immediately pay such additional amount in the Contractual
Currency as may be necessary to compensate for the shortfall.
17.3 If for any reason the amount in the Contractual Currency received
under Section 17.1 exceeds the amount in the Contractual Currency due in
respect of this Agreement, then the party receiving the payment will (unless a
Default has occurred and such party is the non-defaulting party) refund
promptly the amount of such excess.
18. ERISA. Lender shall, if any of the securities transferred to the Borrower
hereunder for any Loan have been or shall be obtained, directly or
indirectly, from or using the assets of any Plan, so notify Borrower in
writing upon the execution of the Agreement or upon initiation of such Loan
under Section 1.1. If Lender so notifies Borrower, then Borrower and Lender
shall conduct the Loan in accordance with the terms and conditions of
Department of Labor Prohibited Transaction Exemption 81-6 (46 Fed. Reg. 7527,
Jan. 23, 1981; as amended, 52 Fed. Reg. 18754. May 19, 1987), or any
successor thereto (unless Borrower and Lender have agreed prior to entering
into a Loan that such Loan will be conducted in reliance on another
exemption, or without relying on any exemption, from the prohibited
transaction provisions of Section 406 of the Employee Retirement Income
Security Act of 1974, as amended, and Section 4975 of the Internal Revenue
Code of 1986, as amended). Without limiting the foregoing and notwithstanding
any other provision of this Agreement, if the Loan will be conducted in
accordance with Prohibited Transaction Exemption 81-6 then:
(a) Borrower represents and warrants to Lender that it is either (i) a
bank subject to federal or state supervision, (ii) a broker-dealer
registered under the Exchange Act or (iii) exempt from registration
under Section 15(a)(1) of the Exchange Act as a dealer in Government
Securities.
(b) Borrower represents and warrants that, during the term of any Loan
hereunder, neither Borrower nor any affiliate of Borrower has any
discretionary authority or control with respect to the investment of
the assets of the Plan involved in the Loan or renders investment
advice (within the meaning of 29 C.F.R. Section 2510.3-21(c)) with
respect to the assets of the Plan involved in the Loan. Lender
agrees that, prior to or at the commencement of any Loan hereunder,
it will communicate to Borrower information regarding the Plan
sufficient to identify to Borrower any person or persons that have
discretionary authority or control with respect to the investment of
the assets of Plan involved in the Loan or that render investment
advice (as defined in the preceding sentence) with respect to the
assets of the Plan involved in the Loan. In the event Lender fails
to communicate and to keep current during the term of any Loan such
information, Lender rather than Borrower shall be deemed to have
made the representation and warranty in the first sentence of this
clause (b).
(c) Borrower and Lender agree that:
(i) the term "Collateral" shall mean cash, securities issued or
guaranteed by the United States government or its agencies
or
-11-
<PAGE>
instrumentalities, or irrevocable bank letters of credit
issued by a person other than Borrower or an affiliate
thereof:
(ii) prior to the making of any Loans hereunder, Borrower
shall provide Lender with (A) the most recent available
audited statement of Borrower's financial condition and
(B) the most recent available unaudited statement of
Borrower's financial condition (if more recent than the
most recent audited statement), and each Loan made
hereunder shall be deemed a representation by Borrower
that there has been no material adverse change in Borrower's
financial condition subsequent to the date of the latest
financial statements or information furnished in accordance
herewith:
(iii) the Loan may be terminated by Lender at any time, whereupon
Borrower shall deliver the Loaned Securities to Lender within
the lesser of (A) the customary delivery period for such
securities; (B) five Business Days and (C) the time negotiated
for such delivery between Borrower and Lender; provided,
however, that Borrower and Lender may agree to a longer
period only if permitted by Prohibited Transaction
Exemption 81-6; and
(iv) the Collateral transferred shall be security only for
obligations of Borrower to the Plan with respect to Loans,
and shall not be security for any obligation of Borrower to
any agent or affiliate of the Plan.
19. SINGLE AGREEMENT. Borrower and Lender acknowledge that, and have
entered into this Agreement in reliance on the fact that, all Loans hereunder
constitute a single business and contractual relationship and have been
entered into in consideration of each other. Accordingly, Borrower and
Lender hereby agree that payments, deliveries and other transfers made
by either of them in respect of any Loan shall be deemed to have been made
in consideration of payments, deliveries and other transfers in respect
of any other Loan hereunder, and the obligations to make any such
payments, deliveries and other transfers may be applied against each other
and netted. In addition, Borrower and Lender acknowledge that, and have
entered into this Agreement in reliance on the fact that, all Loans
hereunder have been entered into in consideration of each other. Accordingly,
Borrower and Lender hereby agree that (a) each shall perform all of its
obligations in respect of each Loan hereunder, and that a default in the
performance of any such obligation by Borrower or by Lender (the "Defaulting
Party") in any Loan hereunder shall constitute a default by the Defaulting
Party under all such Loans hereunder, and (b) the non-defaulting party shall
be entitled to set off claims and apply property held by it in respect of
any Loan hereunder against obligations owing to it in respect of any other
Loan with the Defaulting Party.
20. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
21. WAIVER. The failure of a party to this Agreement to insist upon
strict adherence to any term of this Agreement on any occasion shall not
be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Agreement. All waivers in respect of a Default must be in writing.
22. REMEDIES. All remedies hereunder and all obligations with respect to
any Loan shall survive the termination of the relevant Loan, return of Loaned
Securities or Collateral and termination of this Agreement.
-12-
<PAGE>
23. NOTICES AND OTHER COMMUNICATIONS. Unless another address is specified
in writing by the respective party to whom any notice or other communication
is to be given hereunder, all such notices or communications shall be in
writing or confirmed in writing and delivered at the respective addresses set
forth in Schedule A attached hereto. All notices shall be effective upon
actual receipt, PROVIDED, HOWEVER, that if any notice shall be received by a
party on a day on which such party is not open for business at its office
located at the address set forth in Schedule A, such notice shall be deemed
to have been received by such party at the opening of business on the next
day on which such party is open for business at such address.
24. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL
24.1 EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS
TO THE NON-EXECUTIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK
COURT SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY SUCH COURT,
SOLELY FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT TO ENFORCE
ITS OBLIGATIONS HEREUNDER OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY LOAN
HEREUNDER AND (B) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT AND ANY RIGHT OF JURISDICTION ON ACCOUNT OF ITS
PLACE OF RESIDENCE OR DOMICILE.
24.2 EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
25. MISCELLANEOUS. This Agreement supersedes any other agreement between
the parties hereto concerning loans of securities between Borrower and
Lender. This Agreement shall not be assigned by either party without the
prior written consent of the other party and any attempted assignment without
such consent shall be null and void. Subject to the foregoing, this Agreement
shall be binding upon and shall ensure to the benefit of Borrower and Lender
and their respective heirs, representatives, successors and assigns. This
Agreement may be terminated by either party upon written notice to the other,
subject only to fulfillment of any obligations then outstanding. This
Agreement shall not be modified, except by an instrument in writing signed by
the party against whom enforcement is sought. The parties hereto acknowledge
and agree that, in connection with this Agreement and each Loan hereunder,
time is of the essence. Each provision and agreement herein shall be treated
as separate and independent from any other provision herein and shall be
enforceable notwithstanding the unenforceability of any such other
provision or agreement.
26. DEFINITIONS. For the purposes hereof:
26.1 "Broker-Dealer" shall mean any person that is a broker
(including a municipal securities broker), dealer, municipal securities
dealer, government securities broker or government securities dealer as
defined in the Exchange Act, regardless of whether the activities of such
person are conducted in the United States or otherwise require such person
to register with the Securities and Exchange Commission or other
regulatory body.
26.2 "Business Day" shall mean, with respect to any Loan hereunder,
a day on which regular trading occurs in the principal market for the Loaned
Securities subject to such Loan, PROVIDED, HOWEVER, that for purposes of
Section 15, such term shall mean a day on which regular trading occurs in
the principal market for the securities whose value is being determined.
Notwithstanding the foregoing, (i) for purposes of Section 8, "Business
Day" shall mean any day on which regular trading occurs in the principal
market for any Loaned Securities or for any securities Collateral under
any outstanding Loan hereunder and "next Business Day" shall mean the next
day on which a transfer of Collateral may be effected in accordance with
Section 16: and (ii) in no event shall a Saturday or Sunday be considered
a Business Day.
-13-
<PAGE>
26.3 "Clearing Organization" shall mean The Depositary Trust
Company, or, if agreed to by Borrower and Lender, such other clearing
agency at which Borrower (or Borrower's agent) and Lender (or Lender's agent)
maintain accounts or a book-entry system maintained by a Federal Reserve
Bank.
26.4 "Collateral" shall mean, whether now owned or hereafter acquired
and to the extent permitted by applicable law (a) any property which Borrower
and Lender agree shall be acceptable collateral prior to the Loan and which is
transferred to Lender pursuant to Section 3 or 8 (including as collateral,
for definitional purposes, any letters of credit mutually acceptable to
Lender and Borrower), (b) any property substituted therefor pursuant to
Section 3.5 (c) all accounts in which such property is deposited and all
securities and the like in which any cash collateral is invested or
reinvested, and (d) any proceeds of any of the foregoing. For purposes of
return of collateral by Lender or purchases or sale of securities pursuant
to Section 12 or 13, such term shall include securities of the same issue,
class and quantity as the Collateral initially transferred by Borrower to
Lender.
26.5 "Customer" shall mean any person that is a customer of
Borrower under Rule 15c3-3 under the Exchange Act or any comparable
regulation of the Secretary of the Treasury under Section 15C of the
Exchange Act (to the extent that Borrower is subject to such Rule or
comparable regulation).
26.6 "Cutoff Time" shall mean a time on a Business Day by which
a transfer of cash, securities or other property must be made by
Borrower or Lender to the other as shall be agreed by Borrower and
Lender in Schedule B or otherwise orally or in writing or, in the absence
of any such agreement, as shall be determined in accordance with market
practice.
26.7 "Default" shall have the meaning assigned in Section 11.
26.8 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
26.9 "Federal Funds Rate" shall mean the rate of interest (expressed
as an annual rate), as published in Federal Reserve Statistical
Release H.15(518) or any publication substituted therefor, charged for federal
funds (dollars in immediately available funds borrowed by banks on an
overnight unsecured basis) on that day or, if that day is not banking day
in New York City, on the next preceding banking day.
26.10 "Foreign Securities" shall mean, unless otherwise agreed,
securities that are principally cleared and settled outside the
United States.
26.11 "Government Securities" shall mean government securities
as defined in Section 3(a)(42)(A)-(C) of the Exchange Act.
26.12 "LIBOR" shall mean for any date, the offered rate for deposits
in U.S. dollars for a period of three months which appears on the
Reuters Screen UBC page as of 11:00 A.M., London time, on such date
(or, if at least two such rules appear, the arithmetic mean of such rates).
26.13 "Loan" shall mean a loan of securities hereunder.
26.14 "Loaned Security" shall mean any security which is a
security as defined in the Exchange Act, transferred in a Loan hereunder
until such security (or an identical security) is transferred back to
Lender hereunder, except that, if any new or different security shall
be exchanged for any Loaned Security by recapitalization, merger,
consolidation other corporate action, such new or different security shall,
effective upon such exchange, be deemed to become a Loaned Security in
substitution for the former Loaned Security for which such exchange
is made. For purposes of return of Loaned Securities by Borrower or
purchase or sale of securities pursuant to Section 12 or 13, such
term shall include securities of this same issuer, class and quantity
as the Loaned Securities, as adjusted pursuant to the preceding sentence.
-14-
<PAGE>
26.15 "Plan" shall mean (a) any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 which is subject to Part 4 of Subtitle B of Title 1
of such Act: (b) any "plan" as defined in Section 4975(e)(1) of the
Internal Revenue Code of 1986, or (c) any entity the assets of which
are deemed to be assets of any such "employee benefit plan" or
"plan" by reason of the Department of Labor's plan asset regulation,
29 C.F.R Section 2510 3-101
[BORROWER]
Each of the Lenders listed on Appendix A
acting through Morgan Stanley Trust
Company as lending Agent.
By: ________________________ By: _____________________________
Title: ________________________ Title: _____________________________
Date: ________________________ Date: _____________________________
-15-
<PAGE>
ANNEX I
AGENT
This Annex sets forth the terms and conditions governing all
transactions in which Agent is acting as agent for one or more Lenders. Unless
otherwise defined, capitalized items used in this Annex shall have the
meanings assigned in the Securities Loan Agreement of which it forms a part
(such agreement, together with this Annex and any other schedules or
exhibits, referred to as the "Agreement") and unless otherwise specified, all
section references or exhibits herein are intended to refer to sections of
such Securities Loan Agreement.
1. ADDITIONAL REPRESENTATIONS AND WARRANTIES. (a) Agent makes the
representations and warranties set forth in Section 9.1, 9.2 and 9.3 of
the Agreement.
(b) Agent hereby makes the following representations and warranties,
which shall continue during the term of any Loan: Each Lender has represented
to Agent that it has duly authorized Agent to execute and deliver the
Agreement on its behalf, has the power to so authorize Agent and to enter
into the Loans contemplated by the Agreement and to perform the obligations
of Lender under such Loans and has taken all necessary action to authorize
such execution and delivery by Agent and such performance by it.
2. IDENTIFICATION OF LENDERS. Agent agrees (a) to provide Borrower
prior to any Loan under the Agreement with a written list of Lenders for
which it intends to act as Agent (which list may be amended in writing from
time to time as mutually agreed between Agent and Borrower), and (b) to
provide Borrower, before the close of business on the next Business Day
after orally agreeing to enter into a Loan, with notice of the specific
Lender or Lenders for whom it is acting in connection with such Loan.
Borrower acknowledges that Agent shall not have any obligation to provide
it with confidential information regarding the financial status of the
Lenders; Agent agrees, however, that it will assist Borrower in obtaining
from Agent's Lenders such information regarding the financial status of
such Lenders as Borrower may reasonably request.
3. LIMITATION OF AGENT'S LIABILITY. Agent is acting as agent for the
accounts identified in Appendix A and the parties agree that Agent shall not
be liable as principal with respect to the obligations.
4. MULTIPLE LENDERS
(a) In the event that Agent proposes to act for more than one Lender
hereunder, Loans under this Agreement shall be treated as transactions
entered into on behalf of separate Lenders.
(b) The parties agree that (i) Agent will provide Borrower, together
with the notice described in Section 2(b) of this Annex, notice specifying
the portion of each Loan
<PAGE>
allocable to the account of each of the Lenders for which it is acting (to
the extent that any such Loan is allocable to the account of more than one
Lender); (ii) the portion of any individual Loan allocable to each Lender
shall be deemed a separate Loan under the Agreement; (iii) the mark to market
obligations of Borrower and Lender under Section 8 of the Agreement shall be
determined on a Loan-by-Loan basis (unless the parties agree to determine
such obligations on a Lender-by-Lender basis); and (iv) Borrower's and
Lender's remedies under the Agreement upon the occurrence of a Default shall
be determined as if Agent had entered into a separate Agreement with Borrower
on behalf on each of the Lenders.
(c) Notwithstanding any other provision of the Agreement (including
without limitation this Annex), the parties agree that any transactions by
Agent on behalf of a Plan shall be treated as transactions on behalf of
separate Lenders in accordance with Section 4(b) of this Annex (and all mark
to market obligations of the parties shall be determined on a Loan-by-Loan
basis).
5. INTERPRETATION OF TERMS. All references to "Lender" in the
Agreement shall, subject to the provisions of this Annex (including among
other provisions the limitations on Agent's liability in Section 3 of this
Annex), be construed to reflect that (i) each Lender shall have in connection
with any Loan or Loans entered into by Agent on its behalf, the rights,
responsibilities, privileges and obligations of a "Lender" directly entering
into such Loan or Loans with Borrower under the Agreement, and (ii) each
Lender has designated Agent as its sole agent for performance of Lender's
obligations to Borrower and for receipt of performance by Borrower of its
obligations to Lender in connection with any Loan or Loans under the
Agreement (including, among other things, as agent for each Lender in
connection
2
<PAGE>
with transfers of securities, cash or other property and as agent for giving
and receiving all notices under the Agreement).
[BORROWER] Each of the Lenders listed on Appendix A
acting through Morgan Stanley Trust
Company as lending agent.
By: ________________________ By: ________________________
Title: ________________________ Title: ________________________
Date: ________________________ Date: ________________________
Agreed and Accepted:
MORGAN STANLEY TRUST COMPANY, Agent
By: ________________________
Title: ________________________
Date: ________________________
3
<PAGE>
ANNEX II
Supplemental Terms and Conditions
The following Supplemental Terms and Conditions (the "Supplement")
supplement and amend the Master Securities Loan Agreement (the "Agreement")
dated _______________ __, 199_ between __________________ and each of the
lenders listed on Appendix A acting through Morgan Stanley Trust COmpany as
lending agent.
1. The phrases "one party ("Lender") and "the other party ("Borrower")"
shall be replaced with "Lender" and "Borrower", respectively, in the
first sentence of the preamble to the Agreement.
2. The phrase "7 or" shall be inserted after the word "Section" in the first
sentence of Section 3.2 of the Agreement.
3. The word "non-cash" shall be inserted before the word "Collateral"
in each instance where it appears in the fifth sentence of Section 3.2
of the Agreement.
4. The phrase "(or other Collateral acceptable to Lender)" shall be inserted
after the words "substitute letter of credit" in the last sentence of
Section 3.5.
5. The phrase "market or" shall be inserted after the words "based on the
aggregate" in clause (a) of the first sentence of Section 4.1 of the
Agreement; the phrase "(as agreed to by Lender and Borrower)" shall be
inserted after the words "par value" in such clause and the phrase "(in
the case of Loans of Government Securities) or the aggregate market value
(in the case of all other loans)" shall be deleted.
6. The sentence "Such Loan Fees and Cash Collateral Fees shall be calculated
on the basis of a 360-day year for the actual number of days the Loaned
Securities are outstanding in accordance with the preceding sentence."
shall be added to the end of Section 4.1 of the Agreement.
7. The phrase "after receipt of an invoice from Borrower" shall be inserted
after the words "in which such fee was incurred" in clause (a) of
Section 4.2.
8. The sentence "Notwithstanding the preceding sentence, Lender shall be
entitled to receive any distribution made on or in respect of the Loaned
Securities if and to the extent Borrower receives such distribution as a
result of casting a vote, providing a consent or taking any other action
as to which Lender has waived its rights under this Section 6" shall be
added to the end of Section 6 of the Agreement.
9. The word "(a)" shall be inserted after the phrase "except that" in the
second sentence of Section 7.2 of the Agreement and the phrase "and
(b) Lender may, when the non-cash distributions are in the nature of
warrants, options or other rights to purchase or subscribe for additional
shares, direct Borrower to deliver the same to Lender on the Business
Day of such non-cash distribution or, in the case of Foreign Securities,
on the
<PAGE>
Business Day following the date of such non-cash distribution" to the end
of the second sentence of such Section.
10. The sentence "Non-cash distributions received by Lender shall be added
to the Collateral on the date of distribution and shall be considered
such for all purposes, except that if the Loan has terminated. Lender
shall forthwith transfer the same to Borrower" shall be inserted at the
end of Section 7.3 of the Agreement.
11. The phrase "Subject to Section 7.4(d), "shall be inserted at the
beginning of Section 9.3 of the Agreement.
12. The work "ensure" shall be replaced by the word "enure" in the third
sentence of Section 25 of the Agreement.
13. The number ",7" shall be inserted after the number "3" in clause (a)
of the first sentence of Section 26.4 of the Agreement.
14. The phrase ", or if no rate is quoted on such date, on the next preceding
day on which rates are quoted" shall be added to the end of Section 26.12
of the Agreement.
Except as otherwise set forth herein, the Agreement shall remain
unchanged and in full force and effect. From and after the date hereof, any
reference to the Agreement shall be a reference to the Agreement as amended
hereby.
[BORROWER] Each of the Lenders listed on Appendix A
acting through Morgan Stanley Trust
Company as lending agent.
By: _______________________ By: ________________________
Title: _______________________ Title: ________________________
Date: _______________________ Date: ________________________
2
<PAGE>
APPENDIX A
ACCOUNT'S AGENT MANAGING
ACCOUNTS CASH COLLATERAL
<PAGE>
SCHEDULE A
NAMES AND ADDRESSES FOR COMMUNICATIONS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, NY 11201
Attention: Ms. Diane Pastor
Tel.: (718) 754-4878
Fax: (718) 754-4437
_________________________________
_________________________________
_________________________________
Attention: ______________________
______________________
Tel.: ( ) _________________
Fax: ( ) _________________
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 30 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 9, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Report to Shareholders of Morgan Stanley Institutional Fund, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Independent Accountants" in the
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000836487
<NAME> MORGAN STANLEY INSTITUTIONAL FUND, INC.
<SERIES>
<NUMBER> 14
<NAME> ACTIVE COUNTRY ALLOCATION PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 149,711
<INVESTMENTS-AT-VALUE> 160,656
<RECEIVABLES> 857
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 9,417
<TOTAL-ASSETS> 170,944
<PAYABLE-FOR-SECURITIES> (23)
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (258)
<TOTAL-LIABILITIES> (281)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,244
<SHARES-COMMON-STOCK> 14,673
<SHARES-COMMON-PRIOR> 15,712
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (7,782)
<ACCUMULATED-NET-GAINS> 838
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,363
<NET-ASSETS> 170,663
<DIVIDEND-INCOME> 3,211
<INTEREST-INCOME> 179
<OTHER-INCOME> 0
<EXPENSES-NET> (1,316)
<NET-INVESTMENT-INCOME> 2,074
<REALIZED-GAINS-CURRENT> (1,123)
<APPREC-INCREASE-CURRENT> 15,675
<NET-CHANGE-FROM-OPS> 16,626
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,800)
<DISTRIBUTIONS-OF-GAINS> (12,502)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,883
<NUMBER-OF-SHARES-REDEEMED> (10,268)
<SHARES-REINVESTED> 1,346
<NET-CHANGE-IN-ASSETS> (12,314)
<ACCUMULATED-NII-PRIOR> 1,418
<ACCUMULATED-GAINS-PRIOR> 7,989
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,068
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,934
<AVERAGE-NET-ASSETS> 164,600
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.84)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.63
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000836487
<NAME> MORGAN STANLEY INSTITUTIONAL FUND, INC.
<SERIES>
<NUMBER> 12
<NAME> ASIAN EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 270,840
<INVESTMENTS-AT-VALUE> 313,770
<RECEIVABLES> 3,696
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317,489
<PAYABLE-FOR-SECURITIES> 427
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,178
<TOTAL-LIABILITIES> 2,605
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 268,221
<SHARES-COMMON-STOCK> 16,166
<SHARES-COMMON-PRIOR> 12,854
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3)
<ACCUMULATED-NET-GAINS> 3,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,928
<NET-ASSETS> 314,884
<DIVIDEND-INCOME> 4,990
<INTEREST-INCOME> 711
<OTHER-INCOME> 0
<EXPENSES-NET> (2,905)
<NET-INVESTMENT-INCOME> 2,796
<REALIZED-GAINS-CURRENT> 12,459
<APPREC-INCREASE-CURRENT> 7,852
<NET-CHANGE-FROM-OPS> 23,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,869)
<DISTRIBUTIONS-OF-GAINS> (40,469)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,613
<NUMBER-OF-SHARES-REDEEMED> (23,439)
<SHARES-REINVESTED> 2,138
<NET-CHANGE-IN-ASSETS> 37,978
<ACCUMULATED-NII-PRIOR> 1,886
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