<PAGE>
SUPPLEMENT DATED AUGUST 14, 1997
TO PROSPECTUS DATED MAY 1, 1997
TECHNOLOGY PORTFOLIO
A PORTFOLIO OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
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The Prospectus is being amended and supplemented to: (i) reflect changes to
the parent of the investment adviser, administrator and the distributor; (ii)
detail the Portfolio's revised investment policies with respect to certain
derivative instruments; (iii) reflect a change in the definition of high yield
securities with respect to the High Yield Portfolio; and (iv) reflect the
Adviser's intention to exercise its authority to sell securities short on behalf
of the Portfolio. The Prospectus is amended and supplemented as follows:
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On May 31, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto, Morgan
Stanley Group Inc. was the direct parent of Morgan Stanley Asset Management Inc.
(the "Adviser") and Morgan Stanley & Co. Incorporated ("Morgan Stanley"). The
Adviser and Morgan Stanley are now subsidiaries of Morgan Stanley, Dean Witter,
Discover & Co.
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The section entitled "FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS" on
pages 13-15 is deleted.
The section entitled "OPTIONS TRANSACTIONS" on page 17 is deleted.
After the section entitled "WHEN-ISSUED AND DELAYED DELIVERY SECURITIES" on
page 19, the following sections are inserted:
DERIVATIVE INSTRUMENTS
The Portfolio is permitted to invest in various derivative
instruments for both hedging and non-hedging purposes. Derivative
instruments include options, futures and options on futures, structured
investments and structured notes, caps, floors, collars and swaps.
Additionally, the Portfolio may invest in other derivative instruments
that are developed over time if their use would be consistent with the
objectives of the Portfolio. The Portfolio will limit its use of
derivative instruments to 33 1/3% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments. The
Portfolio's investments in forward foreign currency contracts and
derivatives used for hedging purposes are not subject to the limit
described above.
The Portfolio may use derivative instruments under a number of
different circumstances to further its investment objectives. The
Portfolio may use derivatives when doing so provides more liquidity than
the direct purchase of the securities underlying such derivatives. For
example, the Portfolio may purchase derivatives to quickly gain exposure
to a market in response to changes in the Portfolio's investment
strategy, upon the inflow of investable cash or when the derivative
provides greater liquidity than the underlying securities market. The
Portfolio may also use derivatives when it is restricted from directly
owning the underlying securities due to foreign investment restrictions
or
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other reasons or when doing so provides a price advantage over
purchasing the underlying securities directly, either because of a
pricing differential between the derivatives and securities markets or
because of lower transaction costs associated with the derivatives
transaction. Derivatives may also be used by the Portfolio for hedging
purposes and in other circumstances when the Portfolio's portfolio
managers believe it advantageous to do so consistent with the
Portfolio's investment objective. The Portfolio will not, however, use
derivatives in a manner that creates leverage, except to the extent that
the use of leverage is expressly permitted by the Portfolio's investment
policies, and then only in a manner consistent with such policies.
Some of the derivative instruments in which the Portfolio may invest
and the risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS
The Portfolio may invest in caps, floors and collars, which are
instruments analogous to options. In particular, a cap is the right to
receive the excess of a reference rate over a given rate and is
analogous to a put option. A floor is the right to receive the excess of
a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That
is, the buyer of a collar buys a cap and writes a floor, and the writer
of a collar writes a cap and buys a floor. The risks associated with
caps, floors and collars are similar to those associated with options.
In addition, caps, floors and collars are subject to risk of default by
the counterparty because they are privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio may purchase and sell futures contracts and options on
futures contracts, including but not limited to securities index
futures, foreign currency exchange futures, interest rate futures and
other financial futures. Futures contracts provide for the sale by one
party and purchase by another party of a specified amount of a specific
security, instrument or basket thereof, at a specific future date and at
a specified price. An option on a futures contract is a legal contract
that gives the holder the right to buy or sell a specified amount of
futures contracts at a fixed or determinable price upon the exercise of
the option.
The Portfolio may sell securities index futures contracts and/or
options thereon in anticipation of or during a market decline to attempt
to offset the decrease in market value of investments in its portfolio,
or purchase securities index futures in order to gain market exposure.
Subject to applicable laws, the Portfolio may engage in transactions in
securities index futures contracts (and options thereon) which are
traded on a recognized securities or futures exchange, or may purchase
or sell such instruments in the over-the-counter market. There currently
are limited securities index futures and options on such futures in many
countries, particularly emerging countries. The nature of the strategies
adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Portfolio may engage in transactions involving foreign currency
exchange futures contracts. Such contracts involve an obligation to
purchase or sell a specific currency at a specified future date and at a
specified price. The Portfolio may engage in such transactions to hedge
its holdings and commitments against changes in the level of future
currency rates or to adjust its exposure to a particular currency.
<PAGE>
The Portfolio may engage in transactions in interest rate futures
transactions. Interest rate futures contracts involve an obligation to
purchase or sell a specific debt security, instrument or basket thereof
at a specified future date at a specified price. The value of the
contract rises and falls inversely with changes in interest rates. The
Portfolio may engage in such transactions to hedge its holdings of debt
instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial
instruments, such as U.S. Government securities, foreign currencies, and
certificates of deposit. Such contracts involve an obligation to
purchase or sell a specific security, instrument or basket thereof at a
specified future date at a specified price. Like interest rate futures
contracts, the value of financial futures contracts rises and falls
inversely with changes in interest rates. The Portfolio may engage in
financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, the
Portfolio may enter into futures contracts and options thereon for both
hedging and non-hedging purposes, provided that not more than 5% of the
Portfolio's total assets at the time of entering the transaction are
required as margin and option premiums to secure obligations under such
contracts relating to non-hedging activities.
Gains and losses on futures contracts and options thereon depend on
the Adviser's ability to predict correctly the direction of securities
prices, interest rates and other economic factors. Other risks
associated with the use of futures and options are (i) imperfect
correlation between the change in market value of investments held by
the Portfolio and the prices of futures and options relating to
investments purchased or sold by the Portfolio, and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting
inability to close a futures position. 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 exchange or
secondary market. The risk of loss in trading on futures contracts in
some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures
pricing.
OPTIONS TRANSACTIONS
The Portfolio may seek to increase its return or may hedge its
portfolio investments through options transactions with respect to
securities, instruments, indices or baskets thereof in which the
Portfolio may invest, as well as with respect to foreign currency.
Purchasing a put option gives the Portfolio the right to sell a
specified security, currency or basket of securities or currencies at
the exercise price until the expiration of the option. Purchasing a call
option gives the Portfolio the right to purchase a specified security,
currency or basket of securities or currencies at the exercise price
until the expiration of the option.
The Portfolio also may write (i.e., sell) put and call options on
investments held in its portfolio, as well as with respect to foreign
currency. When the Portfolio has written an option, it receives a
premium, which increases the Portfolio's return on the underlying
security or instrument in the event the option expires unexercised or is
closed out at a profit. However, by writing a call option, the Portfolio
will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price
of the option for as long as the Portfolio's obligation as writer of the
option continues. The Portfolio may only write options that are
"covered." A covered call
<PAGE>
option means that so long as the Portfolio is obligated as the writer of
the option, it will earmark or segregate sufficient liquid assets to
cover its obligations under the option or own (i) the underlying
security or instrument subject to the option, (ii) securities or
instruments convertible or exchangeable without the payment of any
consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price
no higher than the price at which the underlying instrument was sold
pursuant to a short option position.
By writing (or selling) a put option, the Portfolio incurs an
obligation to buy the security or instrument 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. The Portfolio may
also write options that may be exercised by the purchaser only on a
specific date. The Portfolio that has written a put option will earmark
or segregate sufficient liquid assets to cover its obligations under the
option or will own a put option on the same underlying security with an
equal or higher strike price.
The Portfolio may engage in transactions in options which are traded
on recognized exchanges or over-the-counter. There currently are limited
options markets in many countries, particularly emerging countries such
as Latin American countries, and the nature of the strategies adopted by
the Adviser and the extent to which those strategies are used will
depend on the development of such options markets. The primary risks
associated with the use of options are (i) imperfect correlation between
the change in market value of investments held, purchased or sold by the
Portfolio and the prices of options relating to such investments, and
(ii) possible lack of a liquid secondary market for an option.
STRUCTURED NOTES
Structured Notes are derivatives on which the amount of principal
repayment and/or interest payments is based upon the movement of one or
more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and
LIBOR) and stock indices such as the S&P 500 Index. In some cases, the
impact of the movements of these factors may increase or decrease
through the use of multipliers or deflators. The Portfolio may use
structured notes to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain
other risks.
SWAPS -- SWAP CONTRACTS
Swaps and Swap Contracts are derivatives in the form of a contract
or other similar instrument in which two parties agree to exchange the
returns generated by a security, instrument, basket or index thereof for
the returns generated by another security, instrument, basket thereof or
index. The payment streams are calculated by reference to a specific
security, index or instrument and an agreed upon notional amount. The
relevant indices include but are not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, the
Portfolio may agree to swap the return generated by a fixed income index
for the return generated by a second fixed income index. The currency
swaps in which the Portfolio may enter will generally involve an
agreement to pay interest streams in one currency based on a specified
index in exchange for receiving interest streams denominated in another
currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
<PAGE>
The Portfolio will usually enter into swaps on a net basis, i.e.,
the two return streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
returns. The Portfolio's obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Portfolio) and
any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or
liquid securities. The Portfolio will not enter into any swap agreement
unless the counterparty meets the rating requirements set forth in
guidelines established by the Fund's Board of Directors.
Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal.
Accordingly, the risk of loss with respect to interest rate and total
rate of return swaps is limited to the net amount of payments that the
Portfolio is contractually obligated to make. If the other party to an
interest rate or total rate of return swap defaults, the Portfolio's
risk of loss consists of the net amount of payments that the Portfolio
is contractually entitled to receive. In contrast, currency swaps may
involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the
entire principal value of a currency swap may be subject to the risk
that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the
Portfolio may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in
recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swaps market has become relatively
liquid. Swaps that include caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than "traditional"
swaps.
The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Adviser is incorrect
in its forecasts of market values, interest rates, and currency exchange
rates, the investment performance of the Portfolio would be less
favorable than it would have been if this investment technique were not
used.
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The fourth bullet point under the heading "FIXED INCOME:" on page 7 of the
Prospectus is deleted and replaced with the following:
- 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 four
highest rating categories of the recognized rating services.
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The first sentence of the first paragraph of the discussion under "SHORT
SALES" on page 18 is deleted and replaced with the following:
The Portfolio may, and currently intends to, from time to time sell
securities short without limitation, but consistent with applicable legal
requirements.
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PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED AUGUST 14, 1997
TO STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
TECHNOLOGY PORTFOLIO
A PORTFOLIO OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
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The Statement of Additional Information ("SAI") is being amended and
supplemented to: (i) reflect changes to the parent of the investment adviser,
administrator and distributor; (ii) reflect changes in the Fund's policies
regarding investments in certain instruments; (iii) reflect changes in the Board
of Directors and officers of the Fund; (iv) reflect changes in information
concerning performance of the Fund; and (v) reflect the Adviser's intention to
exercise its authority to sell securities short on behalf of the Portfolio. The
SAI is amended and supplemented as follows:
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The first paragraph of the discussion under "FUTURES CONTRACTS" on page 5 is
deleted and replaced with the following:
The Portfolio may enter into futures contracts and options on
futures contracts. 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 CFTC.
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The sixth paragraph of the discussion under "FUTURES CONTRACTS" on page 5 is
deleted and replaced with the following:
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a U.S. Exchange or on any recognized
securities or futures exchange to the extent permitted by the CFTC and
enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives
the purchaser the right (in return for the premium paid) to assume a
position in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise
price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
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The discussion under "RESTRICTIONS ON THE USE OF FUTURES CONTRACTS" on page
6 is deleted and replaced with the following:
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 limit its use of derivative
instruments, including futures contracts, to 33 1/3% of its total assets
measured by the aggregate notional amount of outstanding derivative
instruments.
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The second paragraph of the discussion under "RISK FACTORS IN FUTURES
TRANSACTIONS" on page 6 is deleted and replaced with the following:
The Portfolio will minimize the risk that it will be unable to close
out a futures contract by generally entering into futures which are
traded on recognized international or national futures exchanges and for
which there appears to be a liquid secondary market, however, the
Portfolio may enter into over-the-counter futures transactions to the
extent permitted by applicable law.
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The first paragraph of the discussion under "GENERAL INFORMATION" on page 9
is deleted and replaced with the following:
GENERAL INFORMATION
The Portfolio may purchase and sell options on portfolio securities
and securities indices. Additional information with respect to option
transactions is set forth below. Call and put options on equity
securities are listed on various U.S. and foreign securities exchanges
("listed options") and are written in over-the-counter transactions
("OTC Options").
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The first paragraph of the discussion under "PURCHASE OF PUT AND CALL
OPTIONS" on page 10 is deleted and replaced with the following:
PURCHASE OF PUT AND CALL OPTIONS
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 no more
than nine months from the date the option is issued.
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Non-fundamental investment limitation number (1) on page 17 is deleted and
replaced with the following non-fundamental investment limitation:
(1) purchase on margin or sell short, except that the Portfolio may
(i) enter into option transactions and futures contracts to the extent
described in its Prospectus; and (ii) enter into short sales in
accordance with its investment objective and policies;
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<PAGE>
Non-fundamental investment limitation number (8) on pages 17-18 is deleted
and the remaining non-fundamental investment limitations are renumbered
accordingly.
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At the Fund's May 21, 1997 Board of Directors meeting, the Board elected
Michael F. Klein to serve as the Fund's Director and President. Also at the
meeting, Joanna Haigney resigned, effective May 21, 1997, as Assistant Treasurer
to serve as the Fund's Treasurer and Rene J. Feuerman was elected to serve as
Assistant Treasurer of the Fund. The Board also accepted, effective May 31,
1997, the resignation of Warren J. Olsen and, effective May 21, 1997, the
resignation of James R. Rooney. Accordingly, the Statement of Additional
Information is amended and supplemented as follows:
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Under the section entitled "MANAGEMENT OF THE FUND" on page 19, the
information on Warren J. Olsen is deleted and replaced with the following:
<TABLE>
<S> <C> <C>
Michael F. Klein* Director and Principal of Morgan Stanley Asset
1221 Avenue of the President Management Inc.; President and Director of
Americas three investment companies and Officer of
New York, NY 10020 various other investment companies managed
12/12/58 by Morgan Stanley Asset Management Inc.
Previously practiced law with the New York
firm of Rogers & Wells.
</TABLE>
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On page 20, the information on Michael F. Klein is deleted.
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On page 20, the information on James R. Rooney is deleted and replaced with
the following:
<TABLE>
<S> <C> <C>
Joanna Haigney Treasurer Assistant Vice President, Senior Manager of
73 Tremont Street Fund Administration and Compliance
Boston, MA 02108-3913 Services, Chase Global Funds Services
10/10/66 Company; Officer of various investment
companies managed by Morgan Stanley Asset
Management Inc. Previously with Coopers &
Lybrand LLP.
</TABLE>
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On page 20, the information on Joanna Haigney is deleted and replaced with
the following:
<TABLE>
<S> <C> <C>
Rene J. Feuerman Assistant Manager of Fund Administration and Compliance
73 Tremont Street Treasurer Services, Chase Global Funds Services Company.
Boston, MA 02108-3913 Previously Fund Administrator and Senior Fund
1/25/67 Accountant, Chase Global Funds Services Company.
</TABLE>
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The first sentence of the discussion under "INVESTMENT ADVISORY AND
ADMINISTRATIVE AGREEMENTS" on page 21, is deleted and replaced with the
following:
Morgan Stanley Asset Management Inc. ("MSAM" or the "Adviser") is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
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<PAGE>
Before the section entitled "GENERAL INFORMATION" which begins on page 31,
the following section is inserted:
GENERAL PERFORMANCE INFORMATION
Each Portfolio's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Portfolio as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Portfolio's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Portfolio may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Portfolio advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Portfolios may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
Portfolios. The Portfolios may also compare their performance to that of other
compilations or indices that may be developed and made available in the future.
The Portfolios may include in advertisements, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, foreign securities, stocks,
bonds, treasury bills and shares of a Portfolio. In addition, advertisements may
include a discussion of certain attributes or benefits to be derived by an
investment in a Portfolio and/or other mutual funds, shareholder profiles and
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and various investment alternatives. Advertisements may
include lists of representative Morgan Stanley clients. The Portfolios may also
from time to time include discussions or illustrations of the effects of
compounding in advertisements. "Compounding" refers to the fact that, if
dividends or other distributions on a Portfolio investment are reinvested by
being paid in additional Portfolio shares, any future income or capital
appreciation of a Portfolio would increase the value, not only of the original
investment in the Portfolio, but also of the additional Portfolio shares
received through reinvestment.
The Portfolios may include in its advertisements, discussions or
illustrations of the potential investment goals of a prospective investor
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, goal setting, questionnaires
designed to help create a personal financial profile, worksheets used to project
savings needs based on assumed rates of inflation and hypothetical rates of
return and action plans offering investment alternatives), investment management
techniques, policies or
<PAGE>
investment suitability of a Portfolio (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in tax-
deferred and taxable investments). Advertisements and sales materials relating
to a Portfolio may include information regarding the background and experience
of its portfolio managers; the resources, expertise and support made available
to the portfolio managers by Morgan Stanley; and the portfolio managers' goals,
strategies and investment techniques.
The Portfolios' advertisements may discuss economic and political conditions
of the United States and foreign countries, the relationship between sectors of
the U.S., a foreign, or the global economy and the U.S., a foreign, or the
global economy as a whole and the effects of inflation. The Portfolios may
include discussions and illustrations of the growth potential of various global
markets including, but not limited to, Africa, Asia, Europe, Latin America,
North America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the
Portfolios' shareholder reports (including the investment composition of a
Portfolio), as well as the views of Morgan Stanley as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Portfolio.
The Portfolios may quote various measures of volatility and benchmark
correlation in advertising. The Portfolios may compare these measures to those
of other funds. Measures of volatility seek to compare the historical share
price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. A Portfolio may also advertise its current interest rate
sensitivity, duration, weighted average maturity or similar maturity
characteristics.
The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Portfolio at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when prices
are low. While such a strategy does not assure a profit or guard against loss in
a declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
--------------
The first sentence of the first paragraph of the discussion under "SHORT
SALES" on page 12 is deleted and replaced with the following:
The Portfolio may from time to time sell securities short without
limitation, but consistent with applicable legal requirements.
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
