MORGAN STANLEY INSTITUTIONAL FUND INC, 485BPOS, 1997-05-01

MORGAN STANLEY INSTITUTIONAL FUND INC
485BPOS, 1997-05-01

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<PAGE>

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. 34
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 35

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

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) OF RULE 485
/X/ ON MAY 1, 1997 PURSUANT TO PARAGRAPH (b) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485
/ / 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, 1996 on February
21, 1997.

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

<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, Municipal Bond,
- ----------- Mortgage-Backed Securities, 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, Balanced, Global Fixed Income and High Yield 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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 -- 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 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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 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 -- 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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 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 1996 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1996: Mortgage-Backed Securities, China
Growth and MicroCap 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>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------

FIXED INCOME PORTFOLIO
MUNICIPAL BOND PORTFOLIO
MORTGAGE-BACKED SECURITIES PORTFOLIO
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund is designed to provide clients with attractive
alternatives for meeting their investment needs. The Fund currently consists of
twenty-nine portfolios representing a broad range of investment choices. This
prospectus (the "Prospectus") pertains to the Class A and the Class B shares of
the Fixed Income, Municipal Bond and Mortgage-Backed Securities Portfolios (the
"Non-Money Portfolios") and to the Class A shares of the Money Market and
Municipal Money Market Portfolios (the "Money Portfolios") (each, a "Portfolio"
and collectively, the "Portfolios"). The Class A and Class B shares currently
offered by the Non-Money Portfolios have different minimum investment
requirements and fund expenses. Shares of the portfolios are offered with no
sales charge, exchange fee or redemption fee, (except that the International
Small Cap Portfolio may impose a transaction fee). The Mortgage-Backed
Securities Portfolio currently is not being offered.

INVESTMENTS IN THE MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE
THAT THE MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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, Small Cap Value Equity,
Technology, 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 and Municipal Bond Portfolios; and (v)
MONEY MARKET -- Money Market and Municipal Money Market Portfolios. Additional
information about the Fund is contained in a "Statement of Additional
Information" dated May 1, 1997, 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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
the Portfolios indicated below will incur:

<TABLE>
<CAPTION>
MORTGAGE- MUNICIPAL
FIXED MUNICIPAL BACKED MONEY MONEY
INCOME BOND SECURITIES MARKET MARKET
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A........................................................... None None None None None
Class B........................................................... None None None N/A N/A
Maximum Sales Load Imposed on Reinvested Dividends
Class A........................................................... None None None None None
Class B........................................................... None None None N/A N/A
Deferred Sales Load
Class A........................................................... None None None None None
Class B........................................................... None None None N/A N/A
Redemption Fees
Class A........................................................... None None None None None
Class B........................................................... None None None N/A N/A
Exchange Fees
Class A........................................................... None None None None None
Class B........................................................... None None None N/A N/A
</TABLE>

<TABLE>
<CAPTION>
MORTGAGE- MUNICIPAL
FIXED MUNICIPAL BACKED MONEY MONEY
INCOME BOND SECURITIES MARKET MARKET
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO PORTFOLIO
- -------------------------------------------------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)*
Class A......................................... 0.20% 0.07% 0.20%+ 0.30%** 0.30%**
Class B......................................... 0.20% 0.07% 0.20%+ N/A N/A
12b-1 Fees
Class A......................................... None None None+ None None
Class B......................................... 0.15%*** 0.25% 0.25%+ N/A N/A
Other Expenses
Class A......................................... 0.25% 0.38% 0.25%+ 0.22% 0.23%
Class B......................................... 0.25% 0.38% 0.25%+ N/A N/A
-------- -------- -------- -------- --------
Total Operating Expenses (Net of Fee Waivers)*
Class A......................................... 0.45% 0.45% 0.45%+ 0.52%** 0.53%**
Class B......................................... 0.60% 0.70% 0.70%+ N/A N/A
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

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

+Estimated.

*The Adviser has agreed to waive its management fees and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolios to exceed a specified percentage of their respective
average daily net assets. As a result of these reductions, the Management Fees
stated above are lower than the contractual fees 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 Fund expenses see "Management of the Fund." Set forth below, for
each Portfolio as applicable, are the management fees and total operating
expenses absent such fee waivers and/or expense reimbursements as a percent of
average daily net assets of the Class A shares of the Portfolios and Class B
shares of the Non-Money Portfolios, respectively.

2
<PAGE>

<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
ABSENT FEE WAIVERS
MANAGEMENT FEES ----------------------------
PORTFOLIO ABSENT FEE WAIVERS CLASS A CLASS B
- ------------------------------------------------------ ----------------------- ------------- -------------
<S> <C> <C> <C>
Fixed Income.......................................... 0.35% 0.60% 0.74%
Municipal Bond........................................ 0.35% 0.73% 0.98%
Mortgage-Backed Securities............................ 0.35% 0.60% 0.85%
Money Market.......................................... 0.30% 0.52% N/A
Municipal Money Market................................ 0.30% 0.53% N/A
</TABLE>

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

**No fee waiver or expense reimbursement is in effect for this Portfolio.

***The Distributor has agreed to waive 0.10% of the 0.25% distribution fee it is
entitled to receive from this Portfolio.

The purpose of the table above is to assist the investor in understanding
the various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. Expenses for the Mortgage-Backed Securities Portfolio
are based on estimates and assume that the average daily net assets of the
Mortgage-Backed Securities Portfolio will be $50,000,000. 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
National Association of Securities Dealers, Inc. ("NASD") Conduct Rules.

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

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Fixed Income Portfolio
Class A............................. $ 5 $ 14 $ 25 $ 57
Class B............................. 6 19 33 75
Municipal Bond Portfolio
Class A............................. 5 14 25 57
Class B............................. 7 22 39 87
Mortgage-Backed Securities Portfolio
Class A............................. 5 14 * *
Class B............................. 7 22 * *
Money Market Portfolio
Class A............................. 5 17 29 65
Municipal Money Market Portfolio
Class A............................. 5 17 30 66
</TABLE>

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

* Because the Mortgage-Backed Securities Portfolio was not operational as of the
Fund's fiscal year end, the Fund has not projected expenses beyond the
three-year period shown.

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A and Class
B shares of the Fixed Income and Municipal Bond Portfolios and the Class A
shares of the Money Market and Municipal Money Market Portfolios for each of the
periods presented. The audited financial highlights for the Portfolios' shares
for each of the periods presented are part of the Fund's financial statements
which appear in the Fund's December 31, 1996 Annual Report to Shareholders and
which are incorporated by reference in the Fund's Statement of Additional
Information. The Portfolios' financial highlights for each of the periods
presented have been audited by Price Waterhouse LLP, whose unqualified report
thereon is also incorporated by reference in the Statement of Additional
Information. Additional performance information is included in the Annual
Report. The Annual Report and the financial statements therein, along with the
Statement of Additional Information, are available at no cost from the Fund at
the address and telephone number noted on the cover page of this Prospectus. The
Mortgage-Backed Securities Portfolio was not operational as of December 31,
1996. After October 31, 1992, the Fund changed its fiscal year end to December
31. The following information should be read in conjunction with the financial
statements and notes thereto.

4
<PAGE>
FIXED INCOME PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
---------
PERIOD
FROM
CLASS A JANUARY
--------------------------------------------------------------------- 2,
TWO 1996***
YEAR YEAR YEAR YEAR MONTHS YEAR TO
ENDED ENDED ENDED ENDED ENDED ENDED DECEMBER
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER OCTOBER 31,
31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 31, 1992 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 10.81 $ 9.82 $ 11.05 $ 10.93 $ 10.92 $ 10.55 $ 10.81
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income (1)............ 0.67 0.72 0.59 0.54 0.10 0.69 0.64
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.20) 1.06 (0.92) 0.41 0.01 0.39 (0.19)
--------- --------- --------- --------- --------- --------- ---------
Total from Investment
Operations.......... 0.47 1.78 (0.33) 0.95 0.11 1.08 0.45
--------- --------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment
Income................ (0.70) (0.79) (0.53) (0.56) (0.10) (0.69) (0.68)
In Excess of Net
Investment Income..... (0.00)+ -- -- (0.01) -- -- --
Net Realized Gain...... -- -- (0.37) (0.26) -- (0.02) --
In Excess of Net
Realized Gain......... -- -- (0.00)+ -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total
Distributions....... (0.70) (0.79) (0.90) (0.83) (0.10) (0.71) (0.68)
--------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD.................. $ 10.58 $ 10.81 $ 9.82 $ 11.05 $ 10.93 $ 10.92 $ 10.58
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN............. 4.61% 18.76% (3.10)% 9.07% 1.02% 10.61% 4.35%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands).... $130,733 $165,527 $209,331 $240,668 $154,210 $146,546 $ 1,462
Ratio of Expenses to
Average Net
Assets (1)............ 0.45% 0.45% 0.45% 0.45% 0.45%** 0.45% 0.60%**
Ratio of Net Investment
Income to Average Net
Assets (1)............ 6.30% 6.85% 5.73% 4.97% 5.56%** 6.59% 6.15%**
Portfolio Turnover
Rate.................. 183% 172% 388% 240% 15% 105% 183%
- ------------------------------
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income............. $0.02 $0.01 $0.01 $0.02 $0.01 $0.02 $0.01
Ratios before expense
limitation:
Expenses to Average
Net Assets......... 0.60% 0.59% 0.58% 0.60% 0.75%** 0.59% 0.74%**
Net Investment
Income to Average
Net Assets......... 6.15% 6.71% 5.60% 4.82% 5.26%** 6.45% 6.01%**
</TABLE>

** Annualized.

*** The Portfolio began offering Class B Shares on January 2, 1996.

+ Amount is less than $0.01 per share.

5
<PAGE>
MUNICIPAL BOND PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------- ------------
PERIOD FROM PERIOD FROM
JANUARY 18, JANUARY 2,
YEAR ENDED 1995* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $ 10.37 $ 10.00 $ 10.37
------------ ------------ ------------
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)...................................... 0.49 0.44 0.44
Net Realized and Unrealized Gain (Loss) on Investments......... (0.12) 0.42 (0.08)
------------ ------------ ------------
Total from Investment Operations............................. 0.37 0.86 0.36
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income.......................................... (0.49) (0.45) (0.49)
In Excess of Net Investment Income............................. -- (0.00)+ --
Net Realized Gain.............................................. -- (0.04) --
------------ ------------ ------------
Total Distributions.......................................... (0.49) (0.49) (0.49)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD................................... $ 10.25 $ 10.37 $ 10.24
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN..................................................... 3.67% 8.80% 3.55%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).......................... $ 40,227 $ 45,869 $ 69
Ratio of Expenses to Average Net Assets (1).................... 0.45% 0.45%** 0.70%**
Ratio of Net Investment Income to Average Net Assets (1)....... 4.77% 4.61%** 4.56%**
Portfolio Turnover Rate........................................ 45% 180% 45%
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C>
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income................ $0.03 $0.03 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets............................ 0.73% 0.73%** 0.98%**
Net Investment Income to Average Net Assets............... 4.50% 4.33%** 4.28%**
</TABLE>

* Commencement of Operations.

** Annualized.

*** The Portfolio began offering Class B Shares on January 2, 1996.

+ Amount is less than $0.01 per share.

6
<PAGE>
MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
TWO YEAR
YEAR MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED OCTOBER
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER 31,
31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 1992
----------- ----------- ----------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income (1)....... 0.049 0.054 0.040 0.027 0.005 0.039
----------- ----------- ----------- --------- --------- ------
DISTRIBUTIONS
Net Investment
Income........... (0.049) (0.054) (0.040) (0.027) (0.005) (0.039)
In Excess of Net
Investment
Income........... -- -- -- 0.000+ -- --
----------- ----------- ----------- --------- --------- ------
Total
Distributions... (0.049) (0.054) (0.040) (0.027) (0.005) (0.039)
----------- ----------- ----------- --------- --------- ------
NET ASSET VALUE, END
OF PERIOD.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
TOTAL RETURN........ 5.03% 5.51% 3.84% 2.76% 0.50% 3.77%
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
RATIOS AND
SUPPLEMENTAL DATA:
Net Assets, End of
Period
(Thousands)...... $1,284,633 $836,693 $690,503 $657,163 $599,172 $612,968
Ratio of Expenses
to Average Net
Assets (1)....... 0.52% 0.51% 0.49% 0.53% 0.55%** 0.52%
Ratio of Net
Investment Income
to Average Net
Assets (1)....... 4.92% 5.37% 3.77% 2.71% 3.11%** 3.74%
- ------------------------------
(1) Effect of
voluntary
expense
limitation
during the
period:
Per share
benefit to net
investment
income........ N/A N/A N/A $0.000+ $0.000+ N/A
Ratios before
expense
limitation:
Expenses to
Average Net
Assets........ N/A N/A N/A 0.54% 0.59%** N/A
Net Investment
Income to
Average Net
Assets........ N/A N/A N/A 2.70% 3.07%** N/A
</TABLE>

** Annualized.

+ Amount if less than $0.001 per share.

7
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
TWO
MONTHS YEAR
YEAR YEAR ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED OCTOBER
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER 31,
31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 1992
----------- ----------- ----------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income (1)....... 0.030 0.034 0.020 0.019 0.004 0.026
----------- ----------- ----------- --------- --------- ------
DISTRIBUTIONS
Net Investment
Income........... (0.030) (0.034) (0.020) (0.019) (0.004) (0.026)
In Excess of Net
Investment
Income........... -- -- -- (0.000)+ -- --
----------- ----------- ----------- --------- --------- ------
Total
Distributions... (0.030) (0.034) (0.020) (0.019) (0.004) (0.026)
----------- ----------- ----------- --------- --------- ------
NET ASSET VALUE, END
OF PERIOD.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
TOTAL RETURN........ 3.02% 3.44% 2.44% 1.91% 0.37% 2.74%
----------- ----------- ----------- --------- --------- ------
----------- ----------- ----------- --------- --------- ------
RATIOS AND
SUPPLEMENTAL DATA:
Net Assets, End of
Period
(Thousands)...... $721,410 $451,519 $359,444 $266,524 $208,866 $206,691
Ratio of Expenses
to Average Net
Assets (1)....... 0.53% 0.52% 0.51% 0.54% 0.57%** 0.55%
Ratio of Net
Investment Income
to Average Net
Assets (1)....... 2.98% 3.38% 2.42% 1.89% 2.31%** 2.66%
- ------------------------------
(1) Effect of
voluntary
expense
limitation dur-
ing the period:
Per share
benefit to net
investment
income........ N/A N/A N/A $0.000+ $0.000+ N/A
Ratios before
expense
limitation:
Expenses to
Average Net
Assets........ N/A N/A N/A 0.56% 0.67%** N/A
Net Investment
Income to
Average Net
Assets........ N/A N/A N/A 1.87% 2.21%** N/A
</TABLE>

** Annualized.

+ Amount is less than $0.001 per share.

8
<PAGE>
PROSPECTUS SUMMARY

THE FUND

The Fund consists of twenty-nine portfolios, offering institutional and high
net worth individual investors a broad range of investment choices coupled with
the advantages of a no-load mutual fund with Morgan Stanley and its affiliates
providing customized services as Adviser, Administrator and Distributor. Each
portfolio offers Class A shares and, except the International Small Cap, Money
Market and Municipal Money Market Portfolios, also offers Class B shares. Each
portfolio has its own investment objective and policies designed to meet its
specific goals. The investment objective of each Portfolio described in this
Prospectus is as follows:

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

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

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

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

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

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

9
<PAGE>
- 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 domiciled in
EAFE countries.

- The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in equity securities of non-U.S. issuers with
equity market capitalizations of less than $1 billion.

- The 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,
from time to time, 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 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 be benefit from their
involvement in technology and technology-related industries.

- 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.

10
<PAGE>
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 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 CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITIES PORTFOLIOS ARE
CURRENTLY NOT BEING OFFERED.

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 March 31, 1997 had in excess of $118 billion in assets under
management as an investment manager or as a fiduciary adviser, acts as
investment adviser to the Fund and each of its portfolios. See "Management of
the Fund -- Investment Adviser" and "Management of the Fund -- Administrator."

HOW TO INVEST

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of each
Non-Money 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% of
the Class B shares average daily net assets on an annualized basis. The
Distributor has agreed to waive 0.10% of the 0.25% 12b-1 fee with respect to the
Fixed Income Portfolio. Share purchases may be made by sending investments
directly to the Fund or through the Distributor. The minimum initial investment,
generally, is $500,000 for Class A shares of each Portfolio and $100,000 for
Class B shares of each Non-Money Portfolio. The minimum initial investment
amount is reduced for certain categories of investors. For additional
information on how to purchase shares and minimum initial investments, see
"Purchase of Shares."

HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of 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 that cause the value of an
account to remain for a continuous 60-day period below the minimum investment
amount for Class A shares or Class B shares may result in involuntary redemption
or automatic conversion. For additional information on how to redeem shares and
involuntary redemption or conversion, see "Purchase of Shares -- Minimum Account
Sizes and Involuntary Redemption of Shares" and "Redemption of Shares."

11
<PAGE>
RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. The Fixed Income and Money
Market Portfolios may invest in securities of foreign issuers, which are subject
to certain risks not typically associated with U.S. securities. In addition,
each Portfolio may invest in repurchase agreements, lend its portfolio
securities and purchase securities on a when-issued or delayed delivery basis.
The Money Market Portfolio may invest in reverse repurchase agreements. Each
Non-Money Portfolio may invest in certain derivatives, including futures
contracts and options on futures contracts and, in the case of the Fixed Income
Portfolio, options. These investments entail certain costs and risks, including
imperfect correlation between the value of securities held by a Portfolio and
the value of the particular derivative instrument, and the risk that a Portfolio
could not close out a derivatives position when it would be most advantageous to
do so. The Fixed Income Portfolio may invest in foreign currency forward
contracts to hedge currency risks associated with investment in non-U.S. dollar
denominated securities. The Municipal Money Market Portfolio may invest in
"puts" on municipal bonds or notes and the Municipal Bond and Municipal Money
Market Portfolios may invest up to 20% of such Portfolios' total assets in
taxable securities. Each of these investment strategies involves specific risks
which are described under "Investment Objectives and Policies" and "Additional
Investment Information."

12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each Portfolio is described below, together with
the policies the Portfolios employ in their efforts to achieve these objectives.
Each Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Portfolios will attain their
objectives. In addition to the investments and strategies described below, the
Portfolios may invest in certain securities and obligations as set forth in
"Additional Investment Information" below and as described under "Investment
Objectives and Policies" in the Statement of Additional Information. The
investment policies described below are not fundamental policies unless
otherwise noted and may be changed without shareholder approval.

THE FIXED INCOME PORTFOLIO

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

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

THE MUNICIPAL BOND PORTFOLIO

The Municipal Bond Portfolio seeks to produce a high level of current income
consistent with preservation of principal by investing in a portfolio consisting
primarily of intermediate- and long-term investment-grade Municipal Obligations,
the interest on which is exempt from federal income tax. "Municipal Obligations"
include notes, bonds and other securities issued by or on behalf of states,
territories and possessions of the U.S. and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, on which the interest on
such Obligations is, in the opinion of counsel for the issuer or the Portfolio,
exempt from federal income tax.

The Portfolio will invest only in Municipal Obligations if they are
investment grade securities. Investment grade securities are (i) bonds rated
within one of the four highest rating categories of Moody's (Aaa, Aa, A or Baa)
or S&P (AAA, AA, A or BBB); (ii) notes rated within one of the two highest
rating categories of Moody's (MIG1 or MIG2) or one of the two highest rating
categories of S&P (SP-1 or SP-2); (iii) commercial paper rated P-1 or

13
<PAGE>
P-2 by Moody's or A-1 or A-2 by S&P; (iv) variable rate securities rated VMIG1
or VMIG2 by Moody's; and (v) unrated Municipal Obligations that the Adviser
believes are of comparable quality to securities in the foregoing rating
categories. Bonds rated Baa by Moody's or BBB by S&P have speculative
characteristics.

Under normal market conditions, the Portfolio will invest at least 80% of
its net assets in Municipal Obligations (or futures contracts or options on
futures relating thereto), which at the time of investment are "investment grade
securities." This policy is fundamental and may not be changed without the
approval of a majority of the Portfolio's outstanding voting securities.

Although there are no maturity restrictions on the Municipal Obligations in
which the Portfolio invests, it is currently anticipated that the average
maturity of the Portfolio will range between 7 and 20 years. Under normal market
conditions, at least 65% of the Portfolio's net assets will be invested in
Municipal Obligations having an initial maturity of more than one year. The
Adviser will actively manage the Portfolio, and adjust its average maturity
(including by the use of futures contracts and options on futures), depending on
its assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. During
periods of rising interest rates and declining prices, the average maturity of
the Portfolio may be shorter, while during periods of declining interest rates
and rising prices, the Portfolio may have a longer average maturity.

The Portfolio may also invest up to 20% of its net assets in cash, cash
equivalents, U.S. Government Securities and taxable corporate "investment grade
securities." U.S. Government Securities consist of direct obligations of the
U.S. Treasury and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by
agencies or instrumentalities may be backed by the full faith and credit of the
United States (such as securities issued by the Government National Mortgage
Association ("GNMA")), or supported by the issuing agency's right to borrow from
the U.S. Treasury (such as securities issued by the Federal Home Loan Banks), or
backed only by the credit of the issuing instrumentality such as securities
issued by the Federal National Mortgage Association ("FNMA")). The Portfolio
will not invest more than 20% of its net assets in Municipal Obligations the
interest on which is subject to alternative minimum tax.

THE MORTGAGE-BACKED SECURITIES PORTFOLIO

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 mortgage-backed securities either (i) issued or guaranteed by the
U.S. Government or (ii) rated A or higher by Moody's or S&P or, if unrated,
determined by the Adviser to be of comparable quality.

Mortgage-backed securities are securities that, directly or indirectly,
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including governmental pass-through securities such as those
issued or guaranteed by GNMA, FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Unlike GNMA certificates, FNMA and FHLMC obligations are
not backed by the full faith and credit of the U.S. government; they are
supported by the issuing instrumentality's right to borrow from the U.S.
Treasury. Each of GNMA, FNMA and FHLMC guarantees timely distributions of
interest to certificate holders and GNMA and FNMA also guarantee timely
distributions of scheduled principal. Mortgage-backed securities also include
collateralized mortgage obligations ("CMOs") and pass-through securities issued
or guaranteed by private sector entities. CMOs are debt obligations or
pass-through certificates issued by agencies or instrumentalities of the U.S.
government or by private originators or investors in mortgage loans. CMOs are
backed by

14
<PAGE>
mortgage pass-through securities or whole loans and are evidenced by a series of
bonds or certificates issued in multiple classes or tranches. Private
pass-through securities are issued by private originators of or investors in
mortgage loans and are structured similarly to governmental pass-through
securities. Because private pass-throughs typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality,
they are generally structured with one or more types of credit enhancement.

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

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

Due to the possibility that prepayments on home mortgages will alter cash
flow on mortgage-backed securities, it is not possible to determine in advance
the actual final maturity date or average life. Like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of mortgage-backed securities
held by a portfolio may be lengthened. This extension of average life causes the
market price of the securities to decrease further than if their average lives
were fixed. However, when interest rates fall, mortgage-backed securities may
not enjoy as large a gain in market value due to prepayment risk because
additional mortgage prepayments must be reinvested at lower interest rates.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.

THE MONEY MARKET PORTFOLIO

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

U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued
or guaranteed by the U.S. Government, such as U.S. Treasury securities and those
backed by the full faith and credit of the United States, such as obligations of
GNMA, the Farmers Home Administration and the Export-Import Bank. The Portfolio
may also invest in obligations issued or guaranteed by U.S. Government agencies
or instrumentalities where the

15
<PAGE>
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System and the Federal Home Loan Banks.

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

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

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

QUALITY INFORMATION. The Portfolio uses the amortized cost method of
valuation in accordance with regulations issued by the Securities and Exchange
Commission (the "Commission"). Accordingly, the Portfolio will limit its
portfolio investments to those instruments that present minimal credit risks and
are of "eligible quality" as determined by the Adviser under the supervision of
the Board of Directors in accordance with regulations of the Commission, as they
may from time to time be amended. For this purpose, "eligible quality" means a
security rated (i) in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations assigning a rating to the
security or issuer or, (ii) if only one rating organization assigned a rating,
by that rating organization or (iii) if unrated, of comparable quality as
determined by the Board of Directors. The Money Market Portfolio will not
purchase any bank or corporate obligation unless it is rated at least Aa or
Prime-1 by Moody's or AA or A-1 by S&P, or is deemed to be of comparable
quality.

These standards must be satisfied at the time an investment is made. In the
event that an investment held by the Portfolio is assigned a lower rating or
ceases to be rated, the Adviser under the supervision of the Board of Directors,
will promptly reassess whether such security presents minimal credit risk and
whether the Portfolio

16
<PAGE>
should continue to hold the security. If a portfolio security no longer presents
minimal credit risk or is in default, the Portfolio will dispose of the security
as soon as reasonably practicable unless the Board of Directors determines that
it is not in the best interests of the Portfolio to do so.

THE MUNICIPAL MONEY MARKET PORTFOLIO

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

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

MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds and project
notes, as well as municipal commercial paper and municipal demand obligations.
There may be no secondary market for project notes, and the Portfolio intends to
hold such notes until maturity. There is no specific percentage limitation on
these investments.

QUALITY INFORMATION. The Portfolio uses the amortized cost method of
valuation in accordance with regulations issued by the Commission. Accordingly,
the Portfolio will limit its portfolio investments to those instruments which
present minimal credit risk and which are of "eligible quality" as determined by
the Adviser under the supervision of the Board of Directors in accordance with
regulations of the Commission, as they may from time to time be amended. For
this purpose, "eligible quality" means a security rated (i) in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations assigning a rating to the security or issuer or, (ii) if
only one rating organization assigned a rating, by that rating organization or
(iii) if unrated, of comparable quality as determined by the Board of Directors.
The Municipal Money Market Portfolio will not purchase any municipal obligation
unless it is rated at least Aa, MIG-1 (or MIG-2 in the case of New York State
municipal notes), or Prime-1 by Moody's, or AA, SP-1 or A-1 by S&P, or is deemed
to be of comparable quality.

17
<PAGE>
These standards must be satisfied at the time an investment is made. In the
event that an investment held by the Portfolio is assigned a lower rating or
ceases to be rated, the Adviser under the supervision of the Board of Directors
will promptly reassess whether such security presents minimal credit risk and
whether the Portfolio should continue to hold the security. If a portfolio
security no longer presents minimal credit risk or is in default, the Portfolio
will dispose of the security as soon as reasonably practicable unless the Board
of Directors determines that it is not in the best interests of the Portfolio to
do so. The credit quality of municipal obligations is frequently enhanced by
various arrangements with domestic or foreign financial institutions, such as
letters of credit, guarantees and insurance, and these arrangements are
considered when investment quality is evaluated.

PUTS FOR THE MUNICIPAL MONEY MARKET PORTFOLIO. The Portfolio may to the
extent consistent with the Portfolio's investment policies, purchase without
limit municipal bonds or notes together with the right to resell them at an
agreed price or yield within a specified period prior to maturity. This right to
resell is known as a "put." The aggregate price paid for securities with puts
may be higher than the price which otherwise would be paid. The purpose of this
practice is to permit the Portfolio to be fully invested in tax-exempt
securities while maintaining the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions, to purchase at a later
date securities other than those subject to the put and to facilitate the
Adviser's ability to manage the Portfolio actively. The principal risk of puts
is that the put writer may default on its obligation to repurchase. The Adviser
will monitor each put writer's ability to meet its obligations. No value is
assigned to any puts. The cost of any such put is carried as an unrealized loss
from the time of purchase until it is exercised or expires.

ADDITIONAL INVESTMENT INFORMATION

FOREIGN INVESTMENT. The Fixed Income Portfolio may invest in U.S.
dollar-denominated securities of foreign issuers trading in U.S. markets and in
non-U.S. dollar-denominated obligations of foreign issuers. The Money Market
Portfolio may invest in U.S. dollar-denominated commercial paper issued by a
foreign corporation that is a direct parent or subsidiary of a U.S. corporation.
Investment in obligations of foreign issuers and in foreign branches of domestic
banks involves somewhat different investment risks than those affecting
obligations of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to domestic companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Portfolio by domestic companies. It is not expected that a Portfolio or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. Additional risks include future political and
economic developments, the possibility that a foreign jurisdiction might impose
or change withholding taxes on income payable with respect to foreign
securities, possible seizure, nationalization or expropriation of the foreign
issuer or foreign deposits, and the possible adoption of foreign governmental
restrictions such as exchange controls. Many of the foreign countries described
above may have less stable political environments than more developed countries.
Also, it may be more difficult to obtain a judgment in a court outside the
United States.

18
<PAGE>
Investments in securities of foreign issuers are frequently denominated in
foreign currencies and the Fixed Income Portfolio may temporarily hold
uninvested reserves in bank deposits in foreign currencies. Therefore, 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.

FOREIGN CURRENCY FORWARD CONTRACTS. The Fixed Income Portfolio may enter
into foreign currency forward contracts ("forward contracts") that provide for
the purchase or sale of an amount of a specified currency at a future date. The
Portfolio may use such contracts to protect 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, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. While forward contracts may limit losses as a result
of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Portfolio, except
the Money Market and Municipal Money Market Portfolios, may purchase and sell
futures contracts and options on futures contracts, including but not limited to
financial futures, securities index futures, foreign currency exchange futures,
and interest rate futures contracts. 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 Portfolios 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
Portfolios 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 Portfolios 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 date and at a specified price. The
Portfolios may engage in such transactions to hedge their respective holdings
and commitments against changes in the level of future currency rates or to gain
exposure to a particular currency.

19
<PAGE>

specified future date at a specified price. The value of the contract rises and
falls inversely with changes in interest rates. The Portfolios may engage in
such transactions to hedge their 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
Portfolios may engage in financial futures contracts for hedging and non-hedging
purposes.

Under rules adopted by the Commodity Futures Trading Commission, each
Portfolio may enter into futures contracts and options thereon for both hedging
and non-hedging purposes, provided that not more than 5% of such Portfolios'
total assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to
activities that do not constitute "bona-fide" hedging. No Portfolio, except the
Fixed Income Portfolio, will enter into futures contracts to the extent that its
outstanding obligations to purchase securities under such contracts, in
combination with its outstanding obligations with respect to options
transactions (including options to purchase securities or instruments) would
exceed 20% of its total assets.

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 a 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 a 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.

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

MONEY MARKET INSTRUMENTS. The Portfolios are permitted to invest in money
market instruments, although each Portfolio intends to stay invested in
securities satisfying its primary investment objective to the extent practical.
Each Portfolio may make money market investments pending other investment or
settlement for liquidity, or in adverse market conditions. See "Temporary
Investments." The money market investments permitted for the Portfolios include
obligations of the U.S. Government and its agencies and instrumentalities;
obligations of foreign sovereignties; other debt securities; commercial paper;
bank obligations; certificates of deposit (including Eurodollar certificates of
deposit); and repurchase agreements.

20
<PAGE>

OPTIONS TRANSACTIONS. The Fixed Income 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 may not
purchase call and put options to the extent that the value of its aggregate
investment in options exceeds 5% of its total assets.

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.
A Portfolio that has written an option 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 option means that so long as the Portfolio is obligated as the
writer of the option, it will own (i) the underlying security or instrument
subject to the option or (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the option.

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. Options written by the Portfolio may be exercisable by the
purchaser only on a specific date. A Portfolio that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option.

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 option 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.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines of the Fund's
Board of Directors. In a repurchase agreement, a Portfolio buys a security from
a seller that has agreed to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. The
term of these agreements is usually from overnight to one week and never exceeds
one year. Repurchase agreements may be viewed as a fully collateralized loan of
money by the Portfolio to the seller. The Portfolio always receives securities
with a market value at least equal to the purchase price (including accrued
interest) as collateral, and this value is maintained during the term of the
agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the collateral may be
delayed or limited. The Portfolio may not enter into repurchase agreements with
more than seven days to

21
<PAGE>
maturity if, as a result, more than 15% of the market value of the Portfolio's
net assets are invested in these agreements and other investments for which
market quotations are not readily available or which are otherwise illiquid.

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

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

TEMPORARY INVESTMENTS. For temporary defensive purposes, when the Adviser
determines that market conditions warrant, each Portfolio may invest up to 100%
of its assets in dollar and non-dollar denominated money market instruments and
short- and medium-term debt securities that the Adviser believes to be of high
quality, or hold cash. The short- and medium-term debt securities in which a
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.

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<PAGE>
amount at least equal to these commitments. The payment obligation and the
interest rates that will be received are each fixed at the time a Portfolio
enters into the commitment and no interest accrues to the Portfolio until
settlement. Thus, it is possible that the market value at the time of settlement
could be higher or lower than the purchase price if the general level of
interest rates has changed. It is a fundamental policy of the Money Market
Portfolio and a current policy of the Municipal Money Market Portfolio not to
enter into when-issued commitments exceeding, in the aggregate, 15% of the
market value of the Portfolio's total assets less liabilities other than the
obligations created by these commitments.

INVESTMENT LIMITATIONS

Each Portfolio is a diversified investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") and is subject to the following
limitations: (a) as to 75% of its total assets, a Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government and its agencies and instrumentalities, and
(b) a Portfolio may not own more than 10% of the outstanding voting securities
of any one issuer.

Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares and under certain
non-fundamental investment limitations that may be changed without shareholder
approval. For additional information on fundamental and non-fundamental
investment limitations, see "Investment Limitations" in the Statement of
Additional Information.

MANAGEMENT OF THE FUND

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

<TABLE>
<CAPTION>
MAXIMUM TOTAL OPERATING EXPENSES
AFTER FEE WAIVERS
MANAGEMENT FEE ----------------------------------------
PORTFOLIO ABSENT FEE WAIVERS CLASS A CLASS B
- -------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Fixed Income 0.35% 0.45% 0.60%
Municipal Bond 0.35% 0.45% 0.70%
Mortgage-Backed Securities 0.35% 0.45% 0.70%
Money Market 0.30% 0.55% N/A
Municipal Money Market 0.30% 0.57% N/A
</TABLE>

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<PAGE>

Non-Money Discover & Co. announced that they had entered into an Agreement and
Plan of Merger to form Morgan Stanley, Dean Witter, Discover & Co. Morgan
Stanley Group Inc. is the direct parent of the Adviser and Morgan Stanley.
Subject to certain conditions being met, it is currently anticipated that the
transaction will close in mid-1997. Thereafter, the Adviser and Morgan Stanley
will be subsidiaries of Morgan Stanley, Dean Witter, Discover & Co. At March 31,
1997, the Adviser, together with its affiliated asset management companies,
managed investments totaling in excess of $118 billion, including approximately
$100 billion under active management and $18 billion as Named Fiduciary or
Fiduciary Adviser. See "Management of the Fund" in the Statement of Additional
Information.

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

FIXED INCOME PORTFOLIO -- WARREN ACKERMAN, III. Warren Ackerman is a
Principal of the Advisor and a Senior Fixed Income Portfolio Manager. Mr.
Ackerman joined the Advisor in December 1993. Prior to joining the Advisor, Mr.
Ackerman spent over 14 years with Bankers Trust Company as a Managing Director
responsible for institutional active fixed income management. Prior to Bankers,
he spent almost seven years as a Vice President with Irving Trust Company in the
Trust Investment Division. Mr. Ackerman is a graduate of Monmouth College with a
B.S. in Economics. Mr. Ackerman has had primary responsibility for managing the
Portfolio's assets since March 1994.

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

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

MONEY MARKET PORTFOLIO -- ABIGAIL JONES FEDER, KENNETH R. HOLLEY, ELLEN D.
HARVEY, CHRISTIAN G. ROTH AND SCOTT F. RICHARD. Abigail Feder is a Principal of
Morgan Stanley and shares responsibility for managing short-term taxable and
tax-exempt portfolios. Ms. Feder joined Morgan Stanley's Corporate Finance
Department in 1985. In 1987 she joined the Adviser as a Marketing Analyst and
was promoted to a Marketing Director in 1988. She joined the Fixed Income Group
as a Portfolio Manager in 1989 and she became a Vice President in 1992. Ms.
Feder holds a B.A. from Vassar College. Kenneth R. Holley joined the Adviser as
a short-term fixed income portfolio manager in July, 1993. Prior thereto, he
worked for 2 1/2 years as a Finance Officer for the African Development Bank
implementing trading strategies for the bank's $1 billion short to intermediate
U.S. dollar portfolio. Prior to joining the ADB, Mr. Holley spent 1 1/2 years
with Ward and Associates Asset Management as a Vice President responsible for
fixed income strategy. Before Ward and Associates he worked in the fixed income
department of Salomon Brothers, Inc. Mr. Holley holds a B.S. degree in
Engineering from University of Pennsylvania and an M.B.A. from the Wharton
School. Mr. Barth and Ms. Feder have had primary responsibility for managing the
Portfolio's assets since inception. Mr. Holley has shared primary responsibility
for managing

24
<PAGE>

the Portfolio's assets since August, 1993. Ellen D. Harvey shares primary
responsibility for managing the Portfolio's assets. She joined the Adviser in
1996 and has been a portfolio manager with Miller Anderson & Sherrerd, LLP
("MAS"), an affiliate of the Adviser, since 1984. She assumed responsibility for
the MAS-advised Cash Reserves Portfolio in 1990, the Limited Duration Portfolio
in 1992 and the Intermediate Duration Portfolio in 1994. Ms. Harvey holds an
A.B. in economics from Princeton University and an M.A. in economics from George
Washington University. Christian G. Roth shares primary responsibility for
managing the Portfolio's assets. He joined the Adviser in 1996 and has been a
portfolio manager with MAS since 1991. He served as Senior Associate, Dean
Witter Capital Corporation from 1987 to 1991. He assumed responsibility for the
MAS-advised Limited Duration and Intermediate Duration Portfolios in 1994. Mr.
Roth holds a B.S. from The Wharton School of the University of Pennsylvania.
Scott F. Richard shares primary responsibility for managing the Portfolio's
assets. He joined the Adviser in 1996 and has been a portfolio manager with MAS
since 1992. He served as Vice President, Head of Fixed Income Research & Model
Development for Goldman, Sachs & Co. from 1987 to 1991 and as Head of Mortgage
Research in 1992. He assumed responsibility for the MAS-advised Mortgage-Backed
Securities Portfolio in 1992 and the Limited Duration, Intermediate Duration,
Municipal and PA Municipal Portfolios in 1994. Mr. Richard holds a B.S. from
Massachusetts Institute of Technology and a D.B.A. from Harvard Graduate School
of Business Administration.

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

ADMINISTRATOR. The Adviser also provides administrative services to the
Fund 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 laws. The Administration Agreement also provides that
the Administrator through its agents will provide dividend disbursing and
transfer agent services to the Fund. For its services under the Administration
Agreement, the Fund pays the Adviser a monthly fee which on an annual basis
equals .15% of the average daily net assets of each Portfolio.

Under an agreement between the Adviser and The Chase Manhattan Bank
("Chase"), Chase provides certain administrative services to the Fund through
its corporate affiliate, Chase Global Funds Services Company ("CGFSC"). The
Adviser supervises and monitors such administrative services provided by CGFSC.
Their services are also subject to the supervision of the Board of Directors of
the Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913.

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, Distributor and other service
providers. The Officers of the Fund conduct and supervise its daily business
operations.

DISTRIBUTOR. Morgan Stanley serves as the exclusive Distributor of the
shares of the Fund. Under its Distribution Agreement with the Fund, Morgan
Stanley sells shares of each Portfolio upon the terms and at the current
offering price described in this Prospectus. Morgan Stanley is not obligated to
sell any certain number of shares of any Portfolio.

25
<PAGE>
The Portfolios currently offer only the classes of shares offered by this
Prospectus. The Portfolios may in the future offer one or more classes of shares
with features, distribution expenses or other expenses that are different from
those of the classes currently offered.

The Fund has adopted a Plan of Distribution with respect to the Class B
shares of each of the Non-Money Portfolios pursuant to Rule 12b-1 under the 1940
Act (each, a "Plan"). Under each Plan, the Distributor is entitled to receive
from each of the Non-Money Portfolios 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 Distributor has agreed to waive 0.10% of the 0.25% distribution
fee it is entitled to receive from the Fixed Income Portfolio.

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

PURCHASE OF SHARES

Class A and Class B shares of the Non-Money Portfolios and Class A shares of
the Money Portfolios may be purchased, without sales commission, at the net
asset value per share next determined after receipt of the purchase order by the
Non-Money Portfolio and, in the case of the Money Portfolios, at the price next
determined after Federal Funds are available to the Money Portfolio. See
"Valuation of Shares."

MINIMUM INVESTMENT AND ACCOUNT SIZES; CONVERSION FROM CLASS A TO CLASS B SHARES

For a Non-Money Portfolio account opened on or after January 2, 1996 (a "New
Non-Money Account"), the minimum initial investment and minimum account size are
$500,000 for Class A shares and $100,000 for Class B shares. The minimum initial
investment for each Money Portfolio is $50,000. Certain advisory or asset
allocation accounts, such as Total Funds Management accounts, managed by Morgan
Stanley or its affiliates, including the Adviser ("Managed Accounts") may
purchase Class A shares without being subject to any minimum initial investment
or minimum account size requirements for a Portfolio account. Employees of the
Adviser and certain of its affiliates may purchase Class A shares subject to
conditions, including a lower minimum initial investment, established by
Officers of the Fund.

If the value of a New Non-Money Account containing Class A shares falls
below $500,000 (but remains at or above $100,000) because of shareholder
redemption(s), the Fund will notify the shareholder, and if the account value
remains below $500,000 (but remains at or above $100,000) for a continuous
60-day period, the Class A shares in such account will convert to Class B shares
and will be subject to the distribution fee and other features

26
<PAGE>
applicable to the Class B shares. The Fund, however, will not convert Class A
shares to Class B shares based solely upon changes in the market that reduce the
net asset value of shares. Under current tax law, conversions between share
classes are not a taxable event to the shareholder.

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

Investors may also invest in the Fund by purchasing shares through a trust
department, broker, dealer, agent, financial planner, financial services firm or
investment adviser. An investor may be charged an additional service or
transaction fee by that institution.

The minimum investment levels may be waived at the discretion of the Adviser
for (i) certain employees and customers of Morgan Stanley or its affiliates and
certain trust departments, brokers, dealers, agents, financial planners,
financial services firms, or investment advisers that have entered into an
agreement with Morgan Stanley or its affiliates; and (ii) retirement and
deferred compensation plans and trusts used to fund such plans, including, but
not limited to, those defined in Section 401(a), 403(b) or 457 of the Internal
Revenue Code of 1986, as amended (the "Code") 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.

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.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

If the value of a New Non-Money Account falls below $100,000 because of
shareholder redemption(s), the Fund will notify the shareholder, and if the
account value remains below $100,000 for a continuous 60-day period, the shares
in such accounts 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.

Grandfathered Class A Accounts, Grandfathered Class B Accounts and Managed
Accounts are not subject to involuntary redemption. If a shareholder reduces its
total investment in Class A shares of a Money Portfolio to less than $10,000,
the investment may be subject to redemption. The Fund reserves the right to
modify or terminate the involuntary redemption features of the shares as stated
above at any time upon 60-days notice to shareholders.

CONVERSION FROM CLASS B TO CLASS A SHARES

If the value of Class B shares in a Non-Money Portfolio account increases,
whether due to shareholder share purchases or market activity, to $500,000 or
more, the Class B shares will convert to Class A shares. Under current tax law,
such conversion is not a taxable event to the shareholder. Class A shares
converted from Class B

27
<PAGE>

shares are subject to the same minimum account size requirements that are
applicable to New Non-Money Accounts containing Class A shares, as stated above.
The Fund reserves the right to modify or terminate this conversion feature at
any time upon 60-days notice to shareholders.

INITIAL PURCHASES DIRECTLY FROM THE FUND

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

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
Class A shares of each Non-Money Portfolio, $100,000 minimum for Class B
shares of each Non-Money Portfolio, and $50,000 minimum for each Money
Portfolio, with certain exceptions for Morgan Stanley employees and select
customers, including those who participate in the Automatic Purchase of
Portfolio Shares program described below) payable to "Morgan Stanley
Institutional Fund, Inc. -- [portfolio name]", to:

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

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

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

A. Telephone the Fund (toll free: 1-800-548-7786) and provide us with your
name, address, telephone number, Social Security or Tax Identification
Number, the portfolio(s) selected, the 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:

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

28
<PAGE>
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.

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

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

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

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

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000 for each portfolio, except for automatic reinvestment of dividends and
capital gains distributions for which there are no minimums) by purchasing
shares at net asset value by mailing a check to the Fund (payable to "Morgan
Stanley Institutional Fund, Inc. -- [portfolio name]") at the above address or
by wiring monies to the Custodian Bank as outlined above. It is very important
that your account name, 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

29
<PAGE>
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

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

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

Investors may also invest in the Fund by purchasing shares through the
Distributor.

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of a Portfolio and raise its expenses. Consequently, in the interest
of all the stockholders of the Portfolios and each 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
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. 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 or accounts, managed or advised by the
Adviser and/or any of its affiliates.

INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT

30
<PAGE>

that allocates your investments across a combination of either Class A or Class
B shares of certain of the Portfolios selected to meet your long-term investment
objectives as well as, in certain circumstances, your current income objectives.

The TFM Adviser has developed investment strategies for TFM Accounts to meet
the diverse financial needs of different investors. You can open a TFM Account
by meeting with one of the investment professionals of a Participating Dealer
who will review your situation and help you identify your long-term investment
and/or current income objectives. After using TFM criteria to determine your
long-term investment and/or current income objectives, you can choose one of
several TFM investment strategies. Based on your chosen strategy, your initial
investment will be allocated among a number of the Class A or Class B shares of
the Portfolios. Depending on market conditions, the TFM Adviser periodically
reallocates the combination of Portfolios or the percentage amounts invested in
the shares of each Portfolio to implement your TFM investment strategy. In
addition, your TFM Account will be periodically rebalanced to maintain your TFM
strategy's current asset allocation mix, if and when the performance of one or
more of the Portfolios unbalances the strategy's mix. You will pay the TFM
Adviser a fee for the TFM Account service that is in addition to and separate
from the fees and expenses you will pay directly or indirectly as an investor in
the Portfolios. See "Fund Expenses."

From time to time, one or more of the Portfolios used for investment by the
TFM Accounts may experience relatively large investments or redemptions due to
the TFM Account allocations or rebalancings recommended by the TFM Adviser.
These transactions will affect the Portfolios, since Portfolios that experience
redemptions as a result of reallocations or rebalancings may have to sell
portfolio securities and Portfolios that receive additional cash will have to
invest it in additional portfolio securities. While it is impossible to predict
the overall impact of these transactions over time, there could be adverse
effects on portfolio management to the extent that Portfolios may be required to
sell securities or invest cash at times when they would not otherwise do so.
These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase transaction costs. The Adviser,
representing the interests of the Portfolios, is committed to minimizing the
impact of TFM Account transactions on the Portfolios. The Adviser, however, will
have a conflict in fulfilling this responsibility in that it also serves as a
TFM Adviser. In that capacity, the Adviser, representing the interests of the
TFM Accounts, also is committed to minimizing the impact of TFM Account
transactions on the Portfolios to the extent consistent with pursuing the
investment objectives of the TFM Accounts. In addition, an affiliate of the TFM
Adviser, the Distributor is compensated on the sale, and may be compensated for
distribution or shareholder services on the sale of shares of the Portfolios.
See "Purchase of Shares" and "Shareholder Services -- Exchange Features." The
Adviser will monitor the impact of TFM Account transactions on the Portfolios.

REDEMPTION OF SHARES

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<PAGE>
Time), and the net asset value per share of the Municipal Money Market Portfolio
is determined at 11:00 a.m. (Eastern Time) and the net asset value per share of
the Money Market Portfolio is determined at 12:00 p.m. (Eastern Time). Shares of
a Portfolio may be redeemed by mail or telephone. No charge is made for
redemption. Any redemption proceeds may be more or less than the purchase price
of your shares depending on, among other factors, the market value of the
investment securities held by the Portfolio.

BY MAIL

Each Non-Money Portfolio will redeem its Class A and Class B shares and each
Money Portfolio will redeem its Class A shares at the net asset value next
determined after your request is received if the request is received in "good
order." Your request should be addressed to Morgan Stanley Institutional Fund,
Inc., P.O. Box 2798, Boston, Massachusetts 02208-2798, except that deliveries by
overnight courier should be addressed to Morgan Stanley Institutional Fund,
Inc., c/o Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913.

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

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

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

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

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

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of 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 express mail 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 name of the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Fund at the address
above. Requests to change the bank or account must be signed by each shareholder
and each signature must be guaranteed.

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<PAGE>
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 Commission.

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

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

SHAREHOLDER SERVICES

EXCHANGE FEATURES

You may exchange shares that you own in a Portfolio for shares of any other
available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares." Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available 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 may be modified or terminated by the Fund at any time
upon 60-days notice to shareholders.

BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name, class of shares and account number of your current Portfolio,
the names 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, MA 02208-2798.

BY TELEPHONE

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<PAGE>

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 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 Portfolio shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolios' 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 each Non-Money
Portfolio is determined by dividing the total market value of the Non-Money
Portfolio's investments and other assets attributable to such class, less all
liabilities attributable to such class, by the number of total outstanding
shares of such a class of the Non-Money Portfolio. Net asset value is calculated
separately for each class of the Portfolio. Net asset value per share of the
Non-Money Portfolios is determined as of the regular close of the NYSE on each
day that the NYSE is open for business. 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 readily available are valued at a price within a
range not exceeding the current asked price nor less than the current bid price.
The current bid and asked prices are determined based on the average of the bid
and asked prices quoted on such valuation date by two reputable brokers.

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

34
<PAGE>

accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the mean
of the bid and asked price for such currencies against the U.S. dollar last
quoted by any major bank.

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

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

PERFORMANCE INFORMATION

The Fund may from time to time advertise total return for each class of the
Fixed Income, Municipal Bond and Mortgage-Backed Securities Portfolios. In
addition, from time to time the Fund may advertise "yield" for the Municipal
Bond, Money Market and Municipal Money Market Portfolios and "effective yield"
for the Money Market and Municipal Money Market Portfolios. In addition to these
yield figures, the Municipal Bond and Municipal Money Market Portfolio may
advertise a tax equivalent yield. THESE FIGURES ARE BASED ON HISTORICAL
PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.

Each of the Non-money Portfolios may advertise "total return" which 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 upon redemption. The "yield" of the Municipal Bond Portfolio
refers to the income generated by an investment in the Portfolio over a
one-month or 30-day period, while the "yield" of the Money Market and Municipal
Money Market Portfolios refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that 30- or seven-day period is assumed to be
generated each 30-day period for twelve periods or each week over a 52-week
period, and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned on an investment in
the Portfolio is assumed to be reinvested. The "effective yield" will be

35
<PAGE>
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. A "tax equivalent yield" is the "yield" of the Portfolio
increased by an amount based on an assumed rate of tax for a shareholder. For
further information concerning these figures, see "Calculation of Yield and
Total Return" in the Statement of Additional Information. The Fund may also use
comparative performance information in marketing the Portfolios' shares,
including data from Lipper Analytical Services, Inc., Donoghue's Money Fund
Report, other industry publications, business periodicals, rating services and
market indices.

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

FIXED INCOME, MUNICIPAL BOND AND MORTGAGE-BACKED SECURITIES PORTFOLIOS

All income dividends and capital gains distributions for a class of shares
of each Non-Money Portfolio will be automatically 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.

Each Non-Money Portfolio expects to distribute substantially all of its
taxable net investment income in the form of monthly dividends. Net realized
capital gains of each Non-Money Portfolio, if any, after reduction for any tax
loss carryforwards will also be distributed annually.

Undistributed net investment income is included in each Non-Money
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 each Non-Money Portfolio will differ
at times. Expenses of each Non-Money Portfolio allocated to a particular class
of shares will be borne on a pro rata basis by each outstanding share of that
class.

MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS

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

36
<PAGE>
For the purpose of calculating dividends, net income of each Money Portfolio
shall consist of interest earned, including any discount or premium ratably
amortized to the date of maturity, minus estimated expenses of the Money
Portfolio.

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

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

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

It is an objective of management to maintain the price per share of each
Money Portfolio as computed for the purpose of sales and redemptions at exactly
$1.00. In the event the Board of Directors determine that a deviation from the
$1.00 per share price may exist which may result in a material dilution or other
unfair results to investors or existing shareholders, they will take corrective
action they regard as necessary and appropriate, including the sale of
instruments from a Money Portfolio prior to maturity to realize capital gains or
losses; shortening average portfolio maturity; withholding dividends; making a
special capital distribution; or redemptions of shares in kind.

TAXES

GENERAL

The following summary of 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 a Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.

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

37
<PAGE>

Each Portfolio intends to distribute substantially all of its taxable net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from a Portfolio's net investment income (other than
"exempt-interest dividends," described below) are taxable to shareholders as
ordinary income, whether received in cash or in additional shares. Distributions
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss) are taxable to shareholders as long-term capital gain,
regardless of how long shareholders have held their shares. Distributions of net
investment income and net capital gain are not eligible for the corporate
dividends-received deduction. Each Portfolio will send reports annually to its
shareholders of the federal income tax status of all distributions made during
the preceding year.

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

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

The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any dividends, capital gains distributions and redemption proceeds paid to any
individual or certain other non-corporate shareholder (1) who has failed to
provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Application Form, (2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that such shareholder
is not subject to backup withholding. This backup withholding is not an
additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.

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

Conversion of shares between classes are not taxable events to the
shareholder.

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

THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET PORTFOLIOS

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

38
<PAGE>
Exempt-interest dividends are excludable from a shareholder's gross income
for regular income tax purposes. However, the receipt of such dividends may have
collateral federal income tax consequences, including alternative minimum tax
consequences. In addition, the receipt of exempt-interest dividends may cause
persons receiving Social Security or Railroad Retirement benefits to be taxable
on a portion of such benefits. See the Statement of Additional Information.
Current federal tax law limits the types of volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Portfolios to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirement for the payment of exempt-interest
dividends.

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

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

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

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

PORTFOLIO TRANSACTIONS

The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Fund's portfolios. The
Adviser seeks the best execution of all portfolio transactions. A portfolio may
pay higher commission rates than the lowest available when the Adviser believes
it is reasonable to do so in light of the value of the research, statistical,
and pricing services provided by the broker effecting the transaction.

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 intermediary brokers or
dealers. However, the Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the applicable portfolio to
their clients or who act as agents in the purchase of shares of the portfolio
for their clients.

39
<PAGE>
remuneration paid to Morgan Stanley or other affiliates must be fair and
reasonable in comparison to those of other broker-dealers for comparable
transactions involving similar securities being purchased or sold during a
comparable time period.

PORTFOLIO TURNOVER

The Portfolios generally do not invest for short-term trading purposes,
however, when circumstances warrant, each Portfolio may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or lower portfolio turnover
rate than expected and the Portfolios will not consider portfolio turnover rate
a limiting factor in making investment decisions consistent with their
respective objectives and policies. For the fiscal year ended December 31, 1996,
the Fixed Income Portfolio had a portfolio turnover rate of 183%. As portfolio
turnover increases, the Portfolios may expect to pay correspondingly increased
brokerage and trading costs. In addition to transaction costs, higher portfolio
turnover may result in the realization of capital gains. As discussed under
"Taxes," to the extent net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes.

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 35 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. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of common stock of each
portfolio are currently classified into two classes, the Class A shares and
Class B shares, except for the International Small Cap, Money Market and
Municipal Money Market Portfolios, which offer only Class A shares.

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

REPORTS TO SHAREHOLDERS

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

In addition, 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.

40
<PAGE>
CUSTODIAN

Chase is the Fund's custodian for domestic and certain foreign assets. 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 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.

41
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
FIXED INCOME, MUNICIPAL BOND, MORTGAGE-BACKED SECURITIES,
MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

<TABLE>
<C> <S> <C>
ACCOUNT INFORMATION If you need assistance in filling out this form for the Morgan Stanley
Fill in where applicable Institutional Fund, please contact your Morgan Stanley representative
or call us toll free 1-(800)-548-7786. Please print all items except
signature, and mail to the Fund at the address above.
A) REGISTRATION
1. INDIVIDUAL
2. JOINT TENANTS
(RIGHTS OF SURVIVORSHIP PRESUMED UNLESS
TENANCY IN COMMON
IS INDICATED)
</TABLE>

1.
First Name Initial Last Name
2.
First Name Initial Last Name
First Name Initial Last Name

<TABLE>
<C> <S> <C>
3. CORPORATIONS,
TRUSTS AND OTHERS
Please call the Fund for additional
documents that may be required to set up
account and to authorize transactions.
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)
</TABLE>

/ / TRUST ________________________ / / OTHER (Specify) ________________________
<TABLE>
<C> <S> <C>
B) MAILING ADDRESS
Please fill in completely,
including telephone number(s).

<CAPTION>
B)

Current Mailing Address (If different from Permanent Address)
Street Address
City
Country
Postal Code
Home Telephone No. Business Telephone No.

<TABLE>
<C> <S> <C> <C>
C) TAXPAYER Enter your Taxpayer Identification Number. For most individual
IDENTIFICATION taxpayers, this is your Social Security Number.
NUMBER
1. INDIVIDUAL
2. JOINT TENANTS
(RIGHTS OF SURVIVORSHIP PRESUMED UNLESS
TENANCY IN COMMON
IS INDICATED)
For Custodian account
of a minor (Uniform
Gifts/Transfers to Minor
Acts), give the Social
Security Number of
the minor
OR
1. TAXPAYER IDENTIFICATION SOCIAL SECURITY
NUMBER ("TIN") NUMBER ("SSN")
OR
2. TIN
SSN
OR
TIN
SSN
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your
correct TIN(s) or SSN(s). Accounts that have a missing or incorrect
TIN(s) or SSN(s) will be subject to backup withholding at a 31% rate on
dividends, distributions and other payments. If you have not provided us
with your correct TIN(s) or SSN(s), you may be subject to a $50 penalty
imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax liability of
persons subject to backup withholding will be reduced by the amount of
tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
You may be notified that you are subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code because you have
underreported interest or dividends or you were required to, but failed
to, file a return which would have included a reportable interest or
dividend payment.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C> <C> <C>
D) PORTFOLIO AND For Purchase of the following / / Class A Shares $ / / Class B Shares $
CLASS SELECTION Portfolio(s): / / Class A Shares $ / / Class B Shares $
(Class A shares minimum $500,000 Fixed Income Portfolio / / Class A Shares $ / / Class B Shares $
and Class B shares minimum $100,000 Municipal Bond Portfolio / / Class A Shares $
for each of the Fixed Income, Mortgage-Backed Securities / / Class A Shares $
Municipal Bond and Mortgage-Backed Portfolio
Securities Portfolios. Minimum Money Market Portfolio
$50,000 for each of the Money Municipal Money Market
Market and Municipal Money Market Portfolio
Portfolios). Please indicate
Portfolio, class and amount.
Total Initial Investment $
</TABLE>

<TABLE>
<C> <S> <C>
E) METHOD OF
INVESTMENT
Please indicate
portfolio, manner of
payment.
</TABLE>

Payment by:

/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)

<TABLE>
<S> <C>
/ / Exchange $ From -- - - - - - - - - - -- - -
Name of Portfolio Account No.
/ / Account previously established by: / / Phone exchange / / Wire on -- - - - - - - - - - -- - -
Account No. (Check
(Previously assigned by the Fund) Digit)
Date
</TABLE>

<TABLE>
<C> <S> <C> <C>
G) TELEPHONE / / I/we hereby authorize the Fund and
REDEMPTION its agents to honor any telephone Name of COMMERCIAL Bank (Not Savings
AND EXCHANGE requests to wire redemption proceeds to Bank)
OPTION the commercial bank indicated at right Bank Account No.
Please select at time of and/or mail redemption proceeds to the
initial application if you name and address in which my/our fund
wish to redeem or exchange account is registered if such requests Bank
shares by telephone. A are believed to be authentic. ABA
SIGNATURE GUARANTEE IS The Fund and the Fund's Transfer Agent No.
REQUIRED IF BANK ACCOUNT IS will employ reasonable procedures to
NOT REGISTERED IDENTICALLY TO confirm that instructions communicated Name(s) in which your BANK Account is
YOUR FUND ACCOUNT. by telephone are genuine. These Established
TELEPHONE REQUESTS FOR procedures include requiring the
REDEMPTIONS OR EXCHANGE WILL investor to provide certain personal Bank's Street
NOT BE HONORED UNLESS THE BOX identification information at the time Address
IS CHECKED. an account is opened and prior to
effecting each transaction requested by City State Zip
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.
</TABLE>

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

<TABLE>
<C> <S> <C>
I) DEALER
INFORMATION
Representative Name Representative No. Branch
No.
</TABLE>

<TABLE>
<C> <S> <C>
J) SIGNATURE OF
ALL HOLDERS
AND TAXPAYER
CERTIFICATION
Sign Here ,
</TABLE>

/ / U.S. CITIZEN(S)/TAXPAYER(S):

/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM
IS/ARE THE CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT
SUBJECT TO ANY BACKUP WITHHOLDING EITHER BECAUSE (A) I/WE ARE
EXEMPT FROM BACKUP WITHHOLDING; (B) I/WE HAVE NOT BEEN
NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I/WE ARE
SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS; OR (C) THE IRS HAS NOTIFIED
ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING.

/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE HAVE
APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY
ADMINISTRATION FOR A TIN OR A SSN AND I/WE UNDERSTAND THAT IF
I/ WE DO NOT PROVIDE EITHER NUMBER TO CHASE GLOBAL FUNDS
SERVICES COMPANY ("CGFSC") WITHIN 60 DAYS OF THE DATE OF THIS
APPLICATION OR IF I/WE FAIL TO FURNISH MY/OUR CORRECT SSN(S)
OR TIN(S), I/WE MAY BE SUBJECT TO A PENALTY AND A 31% BACKUP
WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU MAY REQUEST SUCH
FORM BY CALLING CGFSC AT 800-282-4404.

/ / NON-U.S. CITIZEN(S)/TAXPAYER(S)
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S.
CITIZENS OR RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY
THE INTERNAL REVENUE SERVICE.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.

(X)
(X) Signature (if joint account, both
Signature Date must sign) Date
</TABLE>

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

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

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 9
Investment Objectives and Policies................ 13
Additional Investment Information................. 18
Investment Limitations............................ 23
Management of the Fund............................ 23
Purchase of Shares................................ 26
Redemption of Shares.............................. 31
Shareholder Services.............................. 33
Valuation of Shares............................... 34
Performance Information........................... 35
Dividends and Capital Gains Distributions......... 36
Taxes............................................. 37
Portfolio Transactions............................ 39
General Information............................... 40
Account Registration Form
</TABLE>

FIXED INCOME PORTFOLIO
MUNICIPAL BOND PORTFOLIO
MORTGAGE-BACKED SECURITIES PORTFOLIO
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

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

Investment Adviser
Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. Box 2798, Boston, MA 02208-2798

- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO
BALANCED PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
HIGH YIELD PORTFOLIO
PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-548-7786
----------------

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company, or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund is designed to provide clients with attractive
alternatives for meeting their investment needs. The Fund currently consists of
twenty-nine portfolios representing a broad range of investment choices. This
prospectus (the "Prospectus") pertains to the Class A and the Class B shares of
the Small Cap Value Equity, Value Equity, Balanced, Global Fixed Income and High
Yield Portfolios (each, a "Portfolio," and collectively, the "Portfolios"). The
Class A and Class B shares currently offered by the Portfolios have different
minimum investment requirements and fund expenses. Shares of the portfolios are
offered with no sales charge, exchange fee or redemption fee, (except that the
International Small Cap Portfolio may impose a transaction fee).

THE HIGH YIELD PORTFOLIO INVESTS PREDOMINANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS PORTFOLIO. SEE "RISK FACTORS RELATING TO INVESTING IN HIGH YIELD
SECURITIES."
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, Small Cap Value Equity,
Technology, 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 and Municipal Bond Portfolios; and (v)
MONEY MARKET -- Money Market and Municipal Money Market Portfolios. Additional
information about the Fund is contained in a "Statement of Additional
Information", dated May 1, 1997, 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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
each Portfolio will incur:

<TABLE>
<CAPTION>
GLOBAL
FIXED HIGH
SMALL CAP VALUE VALUE EQUITY BALANCED INCOME YIELD
SHAREHOLDER TRANSACTION EXPENSES EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------ ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A................................. None None None None None
Class B................................. None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends
Class A................................. None None None None None
Class B................................. None None None None None
Deferred Sales Load
Class A................................. None None None None None
Class B................................. None None None None None
Redemption Fees
Class A................................. None None None None None
Class B................................. None None None None None
Exchange Fees
Class A................................. None None None None None
Class B................................. None None None None None
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C> <C> <C> <C> <C>
- ------------------------------------------

<CAPTION>
GLOBAL
FIXED HIGH
SMALL CAP VALUE VALUE EQUITY BALANCED INCOME YIELD
(AS A PERCENTAGE OF AVERAGE NET ASSETS) EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------- ------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)**
Class A................................. 0.53% 0.42% 0.00% 0.18% 0.375%
Class B................................. 0.53% 0.42% 0.00% 0.18% 0.375%
12b-1 Fees
Class A................................. None None None None None
Class B................................. 0.25% 0.25% 0.25% 0.15%* 0.25%
Other Expenses
Class A................................. 0.47% 0.28% 0.70% 0.32% 0.32%
Class B................................. 0.47% 0.28% 0.70% 0.32% 0.32%
------ ------ ----------- -------- --------
Total Operating Expenses (Net of Fee
Waivers)**
Class A................................. 1.00% 0.70% 0.70% 0.50% 0.695%
Class B................................. 1.25% 0.95% 0.95% 0.65% 0.945%
------ ------ ----------- -------- --------
------ ------ ----------- -------- --------
</TABLE>

- --------------------------
*The Distributor has agreed to waive 0.10% of the 0.25% distribution fee it is
entitled to receive from this Portfolio.

**The Adviser has agreed to waive its management fee and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolios to exceed a specified percentage of their
respective average daily net assets. As a result of these reductions, the
Management Fees stated above are lower than the contractual fees 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

2
<PAGE>

information on Fund expenses, see "Management of the Fund." Set forth below,
for each Portfolio, are the management fees and total operating expenses
absent such fee waivers and/or expense reimbursements as a percent of the
average daily net assets of the Class A shares and Class B shares,
respectively.

3
<PAGE>

<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
ABSENT FEE WAIVERS
MANAGEMENT FEE ------------------------
PORTFOLIO ABSENT FEE WAIVERS CLASS A CLASS B
- ------------------------------------------------------------ -------------------- ---------- ------------
<S> <C> <C> <C>
Small Cap Value Equity...................................... 0.85% 1.32% 1.69%
Value Equity................................................ 0.50% 0.78% 1.03%
Balanced.................................................... 0.50% 1.32% 1.68%
Global Fixed Income......................................... 0.40% 0.72% 0.86%
High Yield.................................................. 0.375% 0.695% 0.945%
</TABLE>

The purpose of the table above is to assist the investor in understanding
the various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. 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 National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

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 above, the Portfolios charge no redemption
fees of any kind. The following example is based on total operating expenses of
the Portfolios after fee waivers.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Value Equity Portfolio
Class A.......................................................... $ 10 $ 32 $ 55 $ 122
Class B.......................................................... 13 40 69 151
Value Equity Portfolio
Class A.......................................................... 7 22 39 87
Class B.......................................................... 10 30 53 117
Balanced Portfolio
Class A.......................................................... 7 22 39 87
Class B.......................................................... 10 30 53 117
Global Fixed Income
Class A.......................................................... 5 16 28 63
Class B.......................................................... 7 21 36 81
High Yield Portfolio
Class A.......................................................... 8 24 42 93
Class B.......................................................... 10 32 55 122
</TABLE>

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

4
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A and Class
B shares for each of the Portfolios for the periods presented. The audited
financial highlights for the Portfolios' shares for each of the periods
presented are part of the Fund's financial statements which appear in the Fund's
December 31, 1996 Annual Report to Shareholders which are incorporated by
reference in the Fund's Statement of Additional Information. The Portfolios'
financial highlights for each of the periods presented have been audited by
Price Waterhouse LLP, whose unqualified report thereon is also incorporated by
reference in the Statement of Additional Information. Additional performance
information is included in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. After October 31, 1992, the
Fund changed its fiscal year end to December 31. The following information
should be read in conjunction with the financial statements and notes thereto.

5
<PAGE>
SMALL CAP VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------ ------------
PERIOD FROM PERIOD FROM
DECEMBER 17, JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 11.91 $ 10.80 $ 11.10 $ 10.14 $ 10.00 $ 11.95
------------ ------------ ------------ ------------ ------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)............. 0.32 0.30 0.28 0.24 0.01 0.23
Net Realized and Unrealized Gain
(Loss) on Investments................ 2.36 1.82 (0.01) 0.90 0.13 2.38
Total from Investment Operations 2.68 2.12 0.27 1.14 0.14 2.61
DISTRIBUTIONS
Net Investment Income................. (0.32) (0.38) (0.27) (0.18) -- (0.30)
Net Realized Gain..................... (3.38) (0.63) (0.30) -- -- (3.38)
------------ ------------ ------------ ------------ ------ ------------
Total Distributions................. (3.70) (1.01) (0.57) (0.18) -- (3.68)
------------ ------------ ------------ ------------ ------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 10.89 $ 11.91 $ 10.80 $ 11.10 $ 10.14 $ 10.88
------------ ------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------------ ------ ------------
TOTAL RETURN............................ 22.99% 20.63% 2.53% 11.33% 1.40% 22.33%
------------ ------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------------ ------ ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).......................... $23,970 $51,919 $40,033 $26,775 $ 5,974 $ 1,689
Ratio of Expenses to Average Net
Assets (1)........................... 1.00% 1.00% 1.00% 1.00% 1.00%** 1.24%**
Ratio of Net Investment Income to
Average Net Assets (1)............... 2.20% 2.60% 2.67% 2.56% 1.64%** 1.93%**
Portfolio Turnover Rate............... 32% 36% 22% 29% 0% 32%
Average Commission Rate#.............. $0.0402 N/A N/A N/A N/A $0.0402
</TABLE>

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

<TABLE>
<C><S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net in-
vestment income............ $0.04 $0.02 $0.03 $0.06 $0.13 $0.05
Ratios before expense
limitation:
Expenses to Average Net As-
sets....................... 1.32 % 1.21 % 1.26 % 1.68 % 23.14 %** 1.69 %**
Net Investment Income (Loss)
to Average Net Assets...... 1.89 % 2.39 % 2.41 % 1.88 % (20.50 )%** 1.50 %**
</TABLE>

* Commencement of Operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

# Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.

6
<PAGE>
VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 13.94 $ 11.50 $ 12.63 $ 11.31
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.41 0.38 0.40 0.37
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 2.27 3.30 (0.55) 1.31
------------ ------------ ------------ ------------
Total from Investment
Operations.......... 2.68 3.68 (0.15) 1.68
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment
Income................ (0.41) (0.47) (0.40) (0.36)
Net Realized Gain...... (2.32) (0.77) (0.58) --
------------ ------------ ------------ ------------
Total
Distributions....... (2.73) (1.24) (0.98) (0.36)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 13.89 $ 13.94 $ 11.50 $ 12.63
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN............. 19.73% 33.69% (1.29)% 15.14%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands) $106,128 $147,365 $73,406 $54,598
Ratio of Expenses to
Average Net Assets
(1)................... 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment
Income to Average Net
Assets (1)............ 2.62% 3.01% 3.37% 3.23%
Portfolio Turnover
Rate.................. 42% 43% 33% 51%
Average Commission
Rate#................. $0.0434 N/A N/A N/A

TWO MONTHS
ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31,
1992 1992
------------ ------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 10.71 $ 10.24
------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.08 0.38
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 0.52 0.48
------------ ------------
Total from Investment
Operations.......... 0.60 0.86
------------ ------------
DISTRIBUTIONS
Net Investment
Income................ -- (0.39)
Net Realized Gain...... -- --
------------ ------------
Total
Distributions....... -- (0.39)
------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 11.31 $ 10.71
------------ ------------
------------ ------------
TOTAL RETURN............. 5.60% 8.51%
------------ ------------
------------ ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands) $27,541 $25,013
Ratio of Expenses to
Average Net Assets
(1)................... 0.70%** 0.70%
Ratio of Net Investment
Income to Average Net
Assets (1)............ 4.41%** 3.72%
Portfolio Turnover
Rate.................. 9% 56%
Average Commission
Rate#................. N/A N/A

<CAPTION>
CLASS B
------------
PERIOD FROM
JANUARY 2,
1996*** TO
DECEMBER 31,
1996
------------
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 14.06
------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.29
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 2.25
------
Total from Investment
Operations.......... 2.54
------
DISTRIBUTIONS
Net Investment
Income................ (0.39)
Net Realized Gain...... (2.32)
------
Total
Distributions....... (2.71)
------
NET ASSET VALUE, END OF
PERIOD.................. $ 13.89
------
------
TOTAL RETURN............. 18.57%
------
------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands) $ 2,555
Ratio of Expenses to
Average Net Assets
(1)................... 0.95%**
Ratio of Net Investment
Income to Average Net
Assets (1)............ 2.33%**
Portfolio Turnover
Rate.................. 42%
Average Commission
Rate#................. $0.0434
</TABLE>

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

<TABLE>
<C> <S> <C> <C>
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit
to net investment
income............ $0.01 $0.01
Ratios before expense
limitation:
Expenses to Average
Net Assets........ 0.78 % 0.77 %
Net Investment
Income to
Average Net
Assets............ 2.55 % 2.94 %

$0.01 $0.03 $0.01 $0.01 $0.01

0.80 % 0.95 % 1.20 %** 0.84 % 1.03 %**

3.27 % 2.98 % 3.91 %** 3.58 % 2.26 %**

</TABLE>

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

# Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were paid, during the period.

6
<PAGE>
BALANCED PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
CLASS A ------------
----------------------------------------------------------------------------- PERIOD FROM
TWO MONTHS JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1996
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 9.98 $ 8.96 $ 11.13 $ 11.31 $ 11.00 $ 10.61 $ 10.02
------------ ------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)................... 0.52 0.39 0.42 0.44 0.10 0.58 0.34
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.54 1.62 (0.64) 0.79 0.21 0.42 0.65
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total from Investment
Operations.......... 1.06 2.01 (0.22) 1.23 0.31 1.00 0.99
------------ ------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment
Income................ (0.48) (0.50) (0.49) (0.41) -- (0.58) (0.46)
In Excess of Net
Investment Income..... 0.00+ -- -- (0.08) -- -- (2.37)
Net Realized Gain...... (2.37) (0.49) (1.46) (0.06) -- (0.03) (2.83)
In Excess of Net
Realized Gain......... -- -- -- (0.86) -- -- $ 8.18
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
Distributions....... (2.85) (0.99) (1.95) (1.41) -- (0.61) 10.24%
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 8.19 $ 9.98 $ 8.96 $ 11.13 $ 11.31 $ 11.00
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN............. 10.93% 23.63% (2.32)% 12.09% 2.82% 9.57% 10.24%
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of
Period (Thousands).... $ 5,992 $ 22,642 $ 18,492 $ 29,684 $ 39,984 $ 40,332 $ 2,197
Ratio of Expenses to
Average Net Assets
(1)................... 0.70% 0.70% 0.70% 0.70% 0.70%** 0.70% 0.95%**
Ratio of Net Investment
Income to Average Net
Assets (1)............ 3.93% 4.10% 4.13% 3.88% 5.29%** 5.21% 3.73%**
Portfolio Turnover
Rate.................. 22% 26% 44% 136% 4% 40% 22%
Average Commission
Rate#................. $0.0397 N/A N/A N/A N/A N/A $0.0397
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit
to net investment
income........... $0.08 $0.03 $0.03 $0.04 $0.01 $0.01 $0.07
Ratios before
expense limitation:
Expenses to
Average Net
Assets........... 1.32 % 1.02 % 0.95 % 1.02 % 1.00 ** 0.79 % 1.68% **
Net Investment
Income to Average
Net Assets....... 3.31 % 3.78 % 3.88 % 3.56 % 4.99 ** 5.12 % 3.00% **
</TABLE>

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

+ Amount is less than $0.01 per share.

# Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.

7
<PAGE>
GLOBAL FIXED INCOME PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
-------
PERIOD
FROM
CLASS A JANUARY
--------------------------------------------------------------------------- 2,
TWO MONTHS 1996***
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED TO
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER OCTOBER DECEMBER
31, 31, 31, 31, 31, 31, 31,
1996 1995 1994 1993 1992 1992 1996
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 11.22 $ 10.29 $ 11.68 $ 11.26 $ 11.41 $ 10.61 $11.23
---------- ---------- ---------- ---------- ---------- ---------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.61 0.76 0.70 0.69 0.14 0.53 0.48
Net Realized and
Unrealized Gain (Loss)
on Investments 0.08 1.15 (1.38) 0.90 (0.29) 0.55 0.18
---------- ---------- ---------- ---------- ---------- ---------- -------
Total from Investment
Operations.......... 0.69 1.91 (0.68) 1.59 (0.15) 1.08 0.66
---------- ---------- ---------- ---------- ---------- ---------- -------
DISTRIBUTIONS
Net Investment
Income................ (0.61) (0.98) (0.40) (0.79) -- (0.27) (0.60)
In Excess of Net
Investment Income..... -- -- -- (0.22) -- -- --
Net Realized Gain...... -- -- (0.31) (0.16) -- (0.01) --
---------- ---------- ---------- ---------- ---------- ---------- -------
Total
Distributions....... (0.61) (0.98) (0.71) (1.17) -- (0.28) (0.60)
---------- ---------- ---------- ---------- ---------- ---------- -------
NET ASSET VALUE, END OF
PERIOD.................. $ 11.30 $ 11.22 $ 10.29 $ 11.68 $ 11.26 $ 11.41 $11.29
---------- ---------- ---------- ---------- ---------- ---------- -------
---------- ---------- ---------- ---------- ---------- ---------- -------
TOTAL RETURN............. 6.44% 19.32% (6.08)% 15.34% (1.31)% 10.29% 6.12%
---------- ---------- ---------- ---------- ---------- ---------- -------
---------- ---------- ---------- ---------- ---------- ---------- -------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands).... $112,888 $102,852 $130,675 $172,468 $ 92,897 $ 94,847 $1,559
Ratio of Expenses to
Average Net Assets
(1)................... 0.50% 0.50% 0.50% 0.50% 0.50%** 0.50% 0.65%**
Ratio of Net Investment
Income to Average Net
Assets (1)............ 5.50% 6.79% 6.34% 5.99% 6.99%** 6.92% 5.28%**
Portfolio Turnover
Rate.................. 258% 207% 171% 108% 9% 144% 258%
</TABLE>

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

<TABLE>
<C><S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income................ $0.02 $0.02 $0.02 $0.02 $0.01 $0.03 $0.02
Ratios before expense
limitation:
Expenses to Average Net
Assets................ 0.72 % 0.71 % 0.66 % 0.70 % 0.90 %** 0.86 % 0.86 %**
Net Investment Income
to Average Net
Assets................ 5.29 % 6.58 % 6.18 % 5.79 % 6.59 %** 6.56 % 5.08 %**
</TABLE>

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

8
<PAGE>
HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------------------------------------- -----------
PERIOD FROM PERIOD FROM
TWO MONTHS SEPTEMBER JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED 28, 1992* 1996*** TO
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER TO DECEMBER
31, 31, 31, 31, 31, OCTOBER 31, 31,
1996 1995 1994 1993 1992 1992 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.46 $ 9.55 $ 11.16 $ 9.95 $ 9.77 $ 10.00 $ 10.49
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1)..... 1.03 1.14 0.97 0.90 0.14 0.08 0.98
Net Realized and Unrealized
Gain (Loss) on
Investments................ 0.47 0.97 (1.40) 1.21 0.19 (0.31) 0.45
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations............... 1.50 2.11 (0.43) 2.11 0.33 (0.23) 1.43
----------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income....... (1.05) (1.20) (0.97) (0.90) (0.15) -- (1.02)
In Excess of Net Investment
Income..................... (0.00)+ -- -- -- -- -- --
Net Realized Gain........... -- -- (0.21) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Distributions....... (1.05) (1.20) (1.18) (0.90) (0.15) -- (1.02)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD....................... $ 10.91 $ 10.46 $ 9.55 $ 11.16 $ 9.95 $ 9.77 $ 10.90
TOTAL RETURN.................. 15.01% 23.35% (4.18)% 22.11% 3.41% (2.30)% 14.37%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)................ $ 95,663 $ 62,245 $ 97,223 $ 74,500 $ 20,194 $ 16,950 $ 5,665
Ratio of Expenses to Average
Net Assets (1)............. 0.75% 0.75% 0.75% 0.75% 0.75%** 0.75%** 1.00%**
Ratio of Net Investment
Income to Average Net
Assets (1)................. 9.78% 11.09% 9.42% 8.70% 8.96%** 9.89%** 9.49%**
Portfolio Turnover Rate..... 117% 90% 74% 104% 24% 9% 117%
</TABLE>

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

<TABLE>
<C><S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income.......... $ 0.01 $ 0.01 $ 0.001 $ 0.02 $ 0.01 $ 0.01 $ 0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets..................... 0.82% 0.83% 0.76% 0.96% 1.62%** 1.23%** 1.05%**
Net Investment Income to
Average Net Assets......... 9.71% 11.01% 9.41% 8.49% 8.09%** 9.41%** 9.44%**
</TABLE>

* Commencement of Operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

+ Amount is less than $0.01 per share.

9
<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. The investment objective of each
Portfolio described in this Prospectus is as follows:

- 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 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.

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

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

GLOBAL AND INTERNATIONAL EQUITY:

- The ASIAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in 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.

10
<PAGE>
- The GOLD PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of foreign and domestic issuers engaged in
gold-related activities.

- 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 domiciled in
EAFE countries.

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

US EQUITY:

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

- The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented 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 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.

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.

11
<PAGE>
- The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with preservation of principal by investing primarily in
municipal obligations, the interest on which is exempt from federal income
tax.

MONEY MARKET:

THE CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITIES PORTFOLIOS ARE
CURRENTLY NOT BEING OFFERED.

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 March 31, 1997 had in excess of $118 billion in assets under
management as an investment manager or as a fiduciary adviser, acts as
investment adviser to the Fund and each of its Portfolios. See "Management of
the Fund -- Investment Adviser" and "Management of the Fund -- Administrator."

HOW TO INVEST

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of each
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% of the
Class B shares' average daily net assets on an annualized basis. The Distributor
has agreed to waive 0.10% of the 0.25% 12b-1 fee with respect to the Global
Fixed Income Portfolio. Share purchases may be made by sending investments
directly to the Fund or through the Distributor. The minimum initial investment,
generally, is $500,000 for Class A shares of each Portfolio and $100,000 for
Class B shares of each Portfolio. The minimum initial investment amount is
reduced for certain categories of investors. For additional information on how
to purchase shares and minimum initial investments, see "Purchase of Shares."

HOW TO REDEEM

Class A shares or Class B shares of each 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 that
cause the value of an account to remain for a continuous 60-day period below the
minimum investment amount for Class A shares or for Class B shares may result in
involuntary redemption or automatic conversion. For additional information on
how to redeem shares and involuntary redemption or conversion, see "Purchase of
Shares -- Minimum Account Sizes and Involuntary Redemption of Shares" and
"Redemption of Shares."

12
<PAGE>
RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio may invest
in securities of foreign issuers and foreign currency forward contracts to hedge
currency risk associated with investments in non-U.S. dollar-denominated
securities, which are subject to certain risks not typically associated with
U.S. securities. The High Yield Portfolio may invest in non-publicly traded
securities, private placements and restricted securities and in lower rated and
unrated securities which are subject to additional risk factors. In particular:
(1) adverse economic and corporate changes and changes in interest rates may
have a greater impact on issuers of lower rated securities and may lead to
greater price volatility, and (2) such securities may be more difficult to value
accurately or sell in the secondary market. Because the Small Cap Value Equity
Portfolio seeks high long-term total return by investing primarily in small- to
medium-sized corporations which are more vulnerable to financial risks and other
risks than larger corporations, investments may involve a higher degree of risk
and price volatility than investments in the general equity markets. In
addition, each Portfolio may invest in repurchase agreements, lend its portfolio
securities and purchase securities on a when-issued or delayed delivery basis
and invest in money market instruments. The Portfolios may invest in certain
derivatives, including futures and options on futures and, except in the case of
the High Yield Portfolio, options. These investments entail certain costs and
risks, including imperfect correlation between the value of securities held by a
Portfolio and the value of the particular derivative instrument, and the risk
that a Portfolio could not close out a derivatives position when it would be
most advantageous to do so. Each Portfolio, except the Global Fixed Income and
High Yield Portfolios, may also invest indirectly in securities through
Depositary Receipts. Each Portfolio may invest in short-term or medium-term debt
securities or hold cash or cash equivalents for temporary defensive purposes.
Each of these investment strategies involves specific risks which are described
under "Investment Objectives and Policies" and "Additional Investment
Information" herein and under "Investment Objectives and Policies" in the
Statement of Additional Information.

13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each Portfolio is described below, together with
the policies the Portfolios employ in their efforts to achieve these objectives.
Each Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Portfolios will attain their
objectives. In addition to the investments and strategies described below, the
Porfolios may invest in certain securities and obligations as set forth in
"Additional Investment Information" below and as described under "Investment
Objectives and Policies" in the Statement of Additional Information. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval.

THE SMALL CAP VALUE EQUITY PORTFOLIO

The investment objective of the Small Cap Value Equity Portfolio is to
provide high long-term total return by investing in equity securities of small-
to medium-sized corporations that the Adviser believes to be undervalued
relative to the stock market in general at the time of purchase. The Portfolio
invests primarily in corporations domiciled in the U.S. with market
capitalizations that range generally from $70 million up to $1 billion, but may
from time to time invest in similar size foreign corporations. Under normal
circumstances, the Portfolio will invest at least 65% of the value of its total
assets in equity securities of corporations whose equity market capitalization
is up to $1 billion. The Portfolio may invest up to 35% of the value of its
total assets in equity securities of corporations which are generally smaller
than the 500 largest corporations in the United States. With respect to the
Portfolio, equity securities include common and preferred stocks, convertible
securities, rights and warrants to purchase common stocks, and similar equity
interests, such as trusts or partnership interests. These investments may or may
not carry voting rights. The portfolio may, on occasion, invest in equity
securities of foreign issuers that trade on a U.S. exchange or over-the-counter
in the form of Depositary Receipts or common stocks.

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

Companies considered attractive will have the following characteristics:

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

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

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

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

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

14
<PAGE>
THE VALUE EQUITY PORTFOLIO

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

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

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

THE BALANCED PORTFOLIO

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

The Adviser uses a valuation-driven balanced portfolio philosophy which
combines separate equity, fixed income and asset allocation strategies. The
equity investment approach is the same as that used for the Value Equity
Portfolio. This produces a portfolio of stocks with low price-to-earnings and
price-to-book ratios and high dividend yields. The fixed income strategy values
bonds using historical yield differentials. Short and intermediate government,
corporate and mortgage bonds are used exclusively to implement the Portfolio's
fixed income strategy. The asset allocation strategy shifts the stock/bond/cash
equivalent mix relative to calculated risk and return levels. All three
strategies use historical capital market behavior to reach conclusions.

The Portfolio will typically maintain between 35% and 65% of its total
assets invested in equity securities, depending upon the Adviser's assessment of
market conditions. With respect to the Portfolio, equity securities include
common and preferred stocks, convertible securities, and rights and warrants to
purchase common

15
<PAGE>
stocks. In overvalued equity markets, the common stock exposure will be at the
low end of this range. It is expected that equity exposure will average
approximately 55% over time. Up to 25% of the Portfolio's total assets may be
invested in the securities of foreign issuers.

Fixed income securities in which the Portfolio may invest include U.S.
Government securities, mortgage-backed securities, corporate bonds, bank
obligations and other short-term money market instruments. The average maturity
of the fixed income securities in the Portfolio will, under normal
circumstances, be approximately five years, although this will vary with
changing market conditions.

THE GLOBAL FIXED INCOME PORTFOLIO

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

The Adviser seeks to minimize investment risk by investing only in high
quality debt securities. U.S. Government securities that the Portfolio may
invest in include obligations issued by the U.S. Government, such as U.S.
Treasury securities, as well as those guaranteed or backed by the full faith and
credit of the United States, such as obligations of the Government National
Mortgage Association and The Export-Import Bank. The Portfolio may also invest
in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Portfolio must look principally to the issuing or
guaranteeing agency for ultimate repayment. The Portfolio may invest in
obligations issued or guaranteed by foreign governments and their political
subdivisions, authorities, agencies or instrumentalities, and by supranational
entities (such as the World Bank, The European Economic Community, The Asian
Development Bank and the European Coal and Steel Community). Investment in
foreign government securities will be limited to those of developed nations
which the Adviser believes pose limited credit risk. These countries currently
include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Ireland,
Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, The United Kingdom and Germany. Corporate and supranational
obligations which the Portfolio will invest in will be limited to those rated A
or better by Moody's Investors Services, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") or IBCA Ltd., or if unrated, to those that are of
comparable quality in the determination of the Board of Directors and the
Adviser.

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

The Portfolio will have a neutral investment position in medium-term
securities (i.e., those with a remaining maturity of between three and seven
years) and will respond to changing interest rate levels by shortening or
lengthening portfolio maturity through investment in longer- or shorter-term
instruments. For example, the Portfolio will respond to high levels of real
interest rates through a lengthening in portfolio maturity. Current

16
<PAGE>
and historical yield spreads among the three main market segments -- the
Government, Foreign and Euro markets -- guide the Adviser's selection of markets
and particular securities within those markets. The analysis of currencies is
made independent of the analysis of markets. Value in foreign exchange is
determined by relative purchasing power parity of a given currency. The
Portfolio seeks to invest in currencies currently undervalued based on
purchasing power parity. The Adviser analyzes current account and capital
account performance and real interest rates to adjust for shorter-term currency
flows.

THE HIGH YIELD PORTFOLIO

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. The Portfolio normally invests
between 80% and 100% of its total assets in these higher yielding securities,
which generally entails increased credit and market risk. To mitigate these
risks the Portfolio will diversify its holdings by issuer, industry and credit
quality, but investors should carefully review the section below entitled "Risk
Factors Relating to Investing in High Yield Securities."

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

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

17
<PAGE>
The Portfolio may also invest in zero coupon, pay-in-kind or deferred
payment securities. Zero coupon securities are securities that are sold at a
discount to par value and securities on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received "phantom
income" annually. Because the Portfolio will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares of the Portfolio, it
will have fewer assets with which to purchase income producing securities. The
Portfolio accrues income with respect to these securities prior to the receipt
of cash payments. Pay-in-kind securities are securities that have interest
payable by delivery of additional securities. Upon maturity, the holder is
entitled to receive the aggregate par value of the securities. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.

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

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

Prices for high yield securities may be affected by legislative and
regulatory developments. These developments could adversely affect the
Portfolio's net asset value and investment practices, the secondary market for
high yield securities, the financial condition of issuers of these securities
and the value of outstanding high yield

18
<PAGE>
securities. For example, federal legislation requiring the divestiture by
federally insured savings and loan associations of their investments in high
yield bonds and limiting the deductibility of interest by certain corporate
issuers of high yield bonds adversely affected the market in recent years.

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

The table below provides a summary of ratings assigned by S&P to debt
obligations in the High Yield Portfolio. These figures are dollar-weighted
averages of month-end portfolio holdings during the fiscal year ended December
31, 1996, presented as a percentage of total investments. These percentages are
historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.

<TABLE>
<CAPTION>
S&P
- ----------------
AVERAGE
PERCENT
OF
PORTFOLIO
RATING HOLDINGS
- ------- -------
<S> <C>
AAA 0.00%
-------
AA 0.00%
-------
A 0.21%
-------
BBB 1.53%
-------
BB 39.73%
-------
B 37.48%
-------
CCC 2.14%
-------
CC 0.00%
-------
Unrated 18.91%
-------
</TABLE>

ADDITIONAL INVESTMENT INFORMATION

DEPOSITARY RECEIPTS. Each Portfolio, except the Global Fixed Income and
High Yield Portfolios, is permitted to invest in Depositary Receipts, including
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other Depositary Receipts (which,
together with ADRs, GDRs and EDRs, are hereinafter collectively referred to as
"Depositary Receipts"), to the extent that such Depositary Receipts are or
become available. ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security or
a pool of securities issued by a foreign issuer (the "underlying issuer") and
deposited with the depositary. ADRs include American Depositary Shares and New
York Shares and may be "sponsored" or "unsponsored." Sponsored ADRs are
established jointly by a depositary and the underlying issuer, whereas
unsponsored ADRs may be established by a depositary without participation by the
underlying issuer. The issuers of the stock of unsponsored ADRs are not
obligated to disclose material information in the United States and therefore,
there may not be a correlation between such information and the market value of
the ADR. GDRs, EDRs and other types of Depositary

19
<PAGE>
Receipts are typically issued by foreign depositaries, although they may also be
issued by U.S. depositaries, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. The Portfolios may invest in
sponsored and unsponsored Depositary Receipts. For purposes of the Portfolios'
investment policies, the Portfolios' investments in Depositary Receipts will be
deemed to be investments in the underlying securities.

FOREIGN CURRENCY FORWARD CONTRACTS. Each Portfolio may enter into foreign
currency forward contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. The Portfolios
may use such contracts to protect 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, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. Forward contracts may also be used as a protective
measure against the effects of fluctuating rates of currency exchange and
exchange control regulations. While forward contracts may limit losses as a
result of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account 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.

FOREIGN INVESTMENT. Investment in obligations of foreign issuers involves
somewhat different investment risks than those affecting obligations of U.S.
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Many foreign securities markets have
substantially less volume than U.S. national securities exchanges, and
securities of some foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States. Dividends and interest paid by foreign issuers may be subject
to withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Portfolios
by domestic companies, and it is not expected that a Portfolio or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. 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. Also, it may be more difficult to obtain
a judgment in a court outside the United States.

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

20
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios may
purchase and sell futures contracts and options on futures contracts, including
but not limited to financial futures, securities index futures, foreign currency
exchange futures, and interest rate futures contracts. 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 Portfolios 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 Portfolios may engage in such transactions to hedge their respective
holdings and commitments against changes in the level of future currency rates
or to gain exposure to a particular currency.

The Portfolios 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 Portfolios may engage in such
transactions to hedge their holdings of debt instruments against future changes
in interest rates.

Under rules adopted by the Commodity Futures Trading Commission, each
Portfolio may enter into futures contracts and options thereon for both hedging
and non-hedging purposes, provided that not more than 5% of such Portfolios'
total assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to
activities that do not constitute "bona-fide" hedging. No Portfolio, except the
Global Fixed Income Portfolio, will enter into futures contracts to the extent
that its outstanding obligations to purchase securities under such contracts, in
combination with its outstanding obligations with respect to options
transactions (including options to purchase securities or instruments) would
exceed 20% of its total assets.

21
<PAGE>

held by a 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 a 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.

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

MONEY MARKET INSTRUMENTS. Each Portfolio is permitted to invest in money
market instruments, although the Portfolios intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. Each Portfolio may make money market investments pending other
investment or settlement for liquidity, or in adverse market conditions. See
"Temporary Investments." The money market investments permitted for the
Portfolios include: obligations of the U.S. Government and its agencies and
instrumentalities; other debt securities; commercial paper; bank obligations;
certificates of deposit (including Eurodollar certificates of deposit); and
repurchase agreements.

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The High Yield Portfolio may invest in securities that are neither
listed on a stock exchange nor traded over-the-counter, including privately
placed securities. Such unlisted equity securities may involve a higher degree
of business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they may
be less liquid than publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Portfolio or less than
what may be considered the fair value of such securities. Further, 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. Nor as a general matter, may the Portfolio
invest more than 10% of its total assets in securities that are restricted from
sale to the public without registration ("Restricted Securities") under the
Securities Act of 1933, as amended (the "1933 Act"). However, the Portfolio may
invest up to 20% of its total assets in liquid Restricted Securities that can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities"). The Board of Directors has adopted guidelines
and delegated to the Adviser, subject to the supervision of the Board of
Directors, the daily function of determining and monitoring the liquidity of
Rule 144A Securities. Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

22
<PAGE>

OPTIONS TRANSACTIONS. Each Portfolio, except the High Yield Portfolio, may
seek to increase its returns or may hedge its portfolio investments through
options transactions with respect to securities, instruments, indices or baskets
thereof in which such Portfolios may invest, as well as with respect to foreign
currency. Purchasing a put option gives a 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 a 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. A Portfolio may not purchase call and put options to the extent that the
value of its aggregate investment in options, excluding options on futures
contracts, exceeds 5% of its total assets.

The Portfolios also may write (i.e., sell) put and call options on
investments held in its portfolio, as well as with respect to foreign currency.
A Portfolio that has written an option 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, a 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 Portfolios may only write options that are "covered." A
covered call option means that so long as the Portfolio is obligated as the
writer of the option, it will own (i) the underlying security or instrument
subject to the option or (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the option.

By writing (or selling) a put option, a 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. Options written by a Portfolio may be exercisable by the
purchaser only on a specific date. A Portfolio that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option.

The Portfolios 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 option 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 a Portfolio and the prices of options relating to
such investments, and (ii) possible lack of a liquid secondary market for an
option.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week,
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. Each 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 Portfolios may not enter into
repurchase agreements with more

23
<PAGE>
than seven days to maturity if, as a result, more than 15% of the market value
of the Portfolio's net assets are invested in these agreements and other
investments for which market quotations are not readily available or which are
otherwise illiquid.

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

INVESTMENT LIMITATIONS

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

The Global Fixed Income Portfolio is a non-diversified investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
means the Global Fixed Income Portfolio is not limited by the 1940 Act in the
proportion of its total assets that may be invested in the obligations of a
single issuer. Thus, the Global Fixed Income Portfolio may invest a greater
proportion of its total assets in the securities of a smaller number of issuers
and, as a result, will be subject to greater risk with respect to its portfolio
securities. Nevertheless, the Global Fixed Income Portfolio intends to comply
with the more limited diversification requirements imposed by the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.

24
<PAGE>
Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares and under certain
non-fundamental investment limitations that may be changed without shareholder
approval. For additional information on fundamental and non-fundamental
investment limitations, see "Investment Limitations" in the Statement of
Additional Information.

MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Adviser and
Administrator of the Fund and each Portfolio. 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 Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages each Portfolio's
investments. Set forth below as an annual percentage of average daily net assets
are the management fees payable to the Adviser quarterly by each Portfolio
pursuant to the terms of the Investment Advisory Agreement. The Adviser has
agreed to a reduction in the fees payable to it and to reimburse the Portfolios,
if necessary, if such fees would cause total annual operating expenses of the
Portfolios to exceed the maximums set forth in the table below.

<TABLE>
<CAPTION>
MAXIMUM TOTAL OPERATING
EXPENSES
AFTER FEE WAIVERS
MANAGEMENT ----------------------------
PORTFOLIO FEE CLASS A CLASS B
- ------------------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
Small Cap Value Equity Portfolio 0.85% 1.00% 1.25%
Value Equity Portfolio 0.50% 0.70% 0.95%
Balanced Portfolio 0.50% 0.70% 0.95%
Global Fixed Income 0.40% 0.50% 0.65%
High Yield 0.375% 0.75% 1.00%
</TABLE>

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to customers in the
United States and abroad. On February 5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. announced that they had entered into an Agreement
and Plan of Merger to form Morgan Stanley, Dean Witter, Discover & Co. Morgan
Stanley Group Inc. is the direct parent of the Adviser and Morgan Stanley.
Subject to certain conditions being met, it is currently anticipated that the
transaction will close in mid-1997. Thereafter, the Adviser and Morgan Stanley
will be subsidiaries of Morgan Stanley, Dean Witter, Discover & Co. At March 31,
1997, the Adviser, together with its affiliated asset management companies,
managed investments totaling in excess of $118 billion, including approximately
$100 billion under active management and $18 billion as Named Fiduciary or
Fiduciary Adviser. See "Management of the Fund" in the Statement of Additional
Information.

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

SMALL CAP VALUE EQUITY PORTFOLIO -- CHRISTIAN K. STADLINGER. Mr. Stadlinger
is a Vice President of the Adviser and manages the small-cap value equity
product of the Adviser's Chicago affiliate. He became a member

25
<PAGE>

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

VALUE EQUITY AND BALANCED PORTFOLIOS -- STEPHEN C. SEXAUER AND ALFORD E.
ZICK, JR. Mr. Sexauer is a Principal of Morgan Stanley and is a member of the
investment management team of the Adviser's Chicago affiliate as well as Vice
President of the Adviser. In addition to portfolio management, his equity
research responsibilities include aerospace, industrials, capital goods,
transportation, and diversified financial companies. Mr. Sexauer joined the firm
in July 1989 after three years as a Vice President at Salomon Brothers.
Previously, he was with Merrill Lynch Economics and Wharton Econometrics. Mr.
Sexauer received a B.S. in Economics from the University of Illinois and an
M.B.A. in Economics and Statistics from the University of Chicago. Mr. Zick is a
Principal of Morgan Stanley and is a member of the investment management team of
the Adviser's Chicago affiliate. In addition to portfolio management, his equity
research responsibilities include consumer staples, retail and insurance
companies. He became a member of the Adviser's Chicago investment management
team in August 1989, after an extensive career in asset management with Chicago
Pacific Corporation, Staley Continental, Inc., and A.E. STALEY Manufacturing
Company. Mr. Zick has a degree in accounting from the University of Illinois.
Mr. Sexauer and Mr. Zick have had primary responsibility for managing the Value
Equity and Balanced Portfolios since their inception in January and February,
1990, respectively.

GLOBAL FIXED INCOME PORTFOLIO -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL
F. O'BRIEN AND ROBERT M. SMITH. J. David Germany shares primary responsibility
for managing the Portfolio's assets. He joined the Adviser in 1996 and has been
a portfolio manager with the Adviser's affiliate, Miller Anderson & Sherrerd,
LLP ("MAS") since 1991. He was Vice President & Senior Economist for Morgan
Stanley from 1989 to 1991. He assumed responsibility for the Global Fixed Income
and International Fixed Income Portfolios of the MAS-advised MAS Funds in 1993
and the MAS Fund's Multi-Asset-Class Portfolio in 1994. Mr. Germany was Senior
Staff Economist (International Finance and Macroeconomics) to the Council of
Economic Advisors -- Executive Office of the President from 1986 through 1987
and an Economist with the Board of Governors of the Federal Reserve System --
Division of International Finance from 1983 through 1987. He holds an A.B.
degree (Valedictorian) from Princeton University and a Ph.D. in Economics from
the Massachusetts Institute of Technology. Michael B. Kushma, a Principal at
Morgan Stanley, joined the firm in 1987. He shares primary responsibility for
managing the Portfolio's assets. He was a member of Morgan Stanley's Global
fixed income strategy group in the fixed income division from 1987-1995 where he
became the divisions' senior government bond strategist. He joined the Adviser
in 1995 where he took responsibility for the global fixed income portfolios. Mr.
Kushma received an A.B. in economics from Princeton University in 1979, and M.
Sc. in economics from the London School of Economics in 1981 and an M.Phil. in
economics from Columbia University in 1983. Paul F. O'Brien shares primary
responsibility for managing the Portfolio's assets. He joined the Adviser and
MAS in 1996. He was head of European Economics from 1993 through 1995 for JP
Morgan and as Principal Administrator from 1991 through 1992 for the
Organization for Economic Cooperation and Development. He assumed responsibility
for the MAS-advised MAS Funds' Global Fixed Income and International Fixed
Income Portfolios in 1996. Mr. O'Brien holds a B.S. degree from the
Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota. Robert Smith, a Principal of Morgan

26
<PAGE>
Stanley, joined the Adviser in June 1994 and has shared primary responsibility
for managing the Portfolio's assets since July 1994. Prior to joining the
Adviser he spent eight years as Senior Portfolio Manager -- Fixed Income at the
State of Florida Pension Fund. Mr. Smith's responsibilities included active
total-rate-of-return management of long term portfolios and supervision of other
fixed income managers. A graduate of Florida State University with a B.S. in
Business, Mr. Smith also received an M.B.A. -- Finance from Florida State and
holds a Chartered Financial Analyst (CFA) designation.

HIGH YIELD PORTFOLIO -- ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F.
ESSER. ROBERT ANGEVINE is a Principal of the Adviser and the Portfolio Manager
for high yield investments. He shares primary responsibility for managing the
Portfolio's assets. Prior to joining the Adviser in October 1988, he spent over
eight years at Prudential Insurance where he was responsible for the largest
open-end high yield mutual fund in the country. Mr. Angevine also manages high
yield assets for one of the largest corporate pension funds in the country. His
other experience includes international treasury operations at a major
pharmaceutical company and commercial banking. Mr. Angevine received an M.B.A
from Fairleigh Dickinson University and a B.A. in Economics from Lafayette
College. He served two years as a Lieutenant in the U.S. Army. Thomas L. Bennett
shares responsibility for managing the Portfolio's assets. He joined the Adviser
in 1996 and has been a portfolio manager with MAS since 1984. Mr. Bennett
assumed responsibility for the MAS-advised MAS Funds' Fixed Income Portfolio in
1984, the Domestic Fixed Income Portfolio in 1987, the High Yield Portfolio in
1985, the Fixed Income Portfolio II in 1990, the Special Purpose Fixed Income
and Balanced Portfolios in 1992 and the Multi-Asset-Class Portfolio in 1994. Mr.
Bennett also is the Chairman of the MAS Funds and has a B.S degree (Chemistry)
and an M.B.A. from the University of Cincinnati. Stephen F. Esser shares primary
responsibility for managing the Portfolio's assets. He joined the Adviser in
1996 and has been a portfolio manager with MAS since 1988. He assumed
responsibility for the MAS-advised MAS Funds' High Yield Portfolio in 1989. Mr.
Esser is a member of the New York Society of Security Analysts and has a B.S.
degree (Summa Cum Laude; Phi Beta Kappa) from the University of Delaware.

ADMINISTRATOR. The Adviser also provides administrative services to the
Fund 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 laws. The Administration Agreement also provides that
the Administrator, through its agents, will provide dividend disbursing and
transfer agent services to the Fund. For its services under the Administration
Agreement, the Fund pays the Adviser a monthly fee which on an annual basis
equals 0.15% of the average daily net assets of each Portfolio.

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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 each Portfolio upon the terms and at the current
offering price described in this Prospectus. Morgan Stanley is not obligated to
sell any certain number of shares of any Portfolio.

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

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

Each Plan is designed to compensate the Distributor for its services, not to
reimburse the Distributor for its expenses, and the Distributor may retain any
portion of the fee that it does not expend in fulfillment of its obligations to
the Fund. The Distributor has agreed to waive 0.10% of the 0.25% distribution
fee it is entitled to receive from the Global Fixed Income Portfolio.

PURCHASE OF SHARES

Class A and Class B shares of each Portfolio may be purchased at the net
asset value per share next determined after receipt of the purchase order by the
Portfolios. See "Valuation of Shares."

MINIMUM INVESTMENT AND ACCOUNT SIZES; CONVERSION FROM CLASS A TO CLASS B SHARES

For a Portfolio account opened on or after January 2, 1996 (a "New
Account"), the minimum initial investment and minimum account size are $500,000
for Class A shares and $100,000 for Class B shares of each Portfolio. Certain
advisory or asset allocation accounts, such as Total Funds Management accounts,
managed by Morgan Stanley or its affiliates, including the Adviser ("Managed
Accounts") may purchase Class A shares without being subject to a minimum
initial investment or minimum account size requirements for a Portfolio account.
Employees of the Adviser and certain of its affiliates may purchase Class A
shares subject to conditions, including a lower minimum initial investment,
established by Officers of the Fund.

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<PAGE>
applicable to the Class B shares. The Fund, however, will not convert Class A
shares to Class B shares based solely upon changes in the market that reduce the
net asset value of shares. Under current tax law, conversions between share
classes are not a taxable event to the shareholder.

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

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 Code and
"rabbi trusts". The Fund reserves the right to modify or terminate the
conversion features of the shares as stated above at any time upon 60-days
notice to shareholders.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

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

Grandfathered Class A Accounts, Grandfathered Class B Accounts and 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 $500,000 or more, the
Class B shares will convert to Class A shares. Under current tax law, such
conversion is not a taxable event to the shareholder. Class A shares converted
from Class B shares are subject to the same minimum account size requirements
that are applicable to New 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.

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<PAGE>
INITIAL PURCHASES DIRECTLY FROM THE FUND

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
Class A shares of each Portfolio and $100,000 minimum for Class B shares of
each Portfolio, with certain exceptions for Morgan Stanley employees and
select customers) payable to "Morgan Stanley Institutional Fund, Inc. --
[portfolio name]," to:

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

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

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

Please call the 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.

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

Federal Funds purchase orders will be accepted only on a day on which the Fund
and Chase (the "Custodian Bank") are open for business. Your bank may charge a
service fee for wiring Federal Funds.

3) BY BANK WIRE. The same procedure outlined under "By Federal Funds Wire"
above must be followed in purchasing shares by bank wire. However, money
transferred by bank wire may or may not be converted into Federal Funds the
same day, depending on the time the money is received and the bank handling
the wire. Prior to such conversion, an investor's money will not be invested
and, therefore, will not be earning dividends. Your bank may charge a service
fee for wiring funds.

ADDITIONAL INVESTMENTS

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

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<PAGE>
Investors may also invest in the Fund by purchasing shares through the
Distributor.

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of a portfolio and raise its expenses. Consequently, in the interest
of all the stockholders of each Portfolio and each 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
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. 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 the Adviser
and/or any of its affiliates.

INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT

In addition to the considerable diversification among individual securities
you receive by investing in a particular Portfolio, you can further reduce risk
by spreading your assets among several different Portfolios that each have
different risk and return characteristics. TFM is an active investment
management service managed by Morgan Stanley or its affiliates, including Morgan
Stanley Asset Management Inc. (each, a "TFM Adviser"), that allocates your
investments across a combination of either Class A or Class B shares of certain
of the Portfolios selected to meet your long-term investment objectives as well
as, in certain circumstances, your current income objectives.

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<PAGE>

may be required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transaction costs. The
Adviser, representing the interests of the Portfolios, is committed to
minimizing the impact of TFM Account transactions on the Portfolios. The
Adviser, however, will have a conflict in fulfilling this responsibility in that
it also serves as a TFM Adviser. In that capacity, the Adviser, representing the
interests of the TFM Accounts, also is committed to minimizing the impact of TFM
Account transactions on the Portfolios to the extent consistent with pursuing
the investment objectives of the TFM Accounts. In addition, an affiliate of the
TFM Adviser, the Distributor is compensated on the sale, and may be compensated
for distribution or shareholder services on the sale of shares of the
Portfolios. See "Purchase of Shares" and "Shareholder Services -- Exchange
Features." The Adviser will monitor the impact of TFM Account transactions on
the Portfolios.

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until payment of the purchase price has been collected,
which may take up to eight business days after purchase. The Fund will redeem
Class A shares or Class B shares of each Portfolio at the next determined net
asset value of shares of their applicable class. On days that both the NYSE and
the Custodian Bank are open for business, the net asset value per share of each
of the Portfolios is determined at the regular close of trading of the NYSE
(currently 4:00 p.m. Eastern Time). Shares of each Portfolio may be redeemed by
mail or telephone. No charge is made for 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 a Portfolio.

BY MAIL

Each Portfolio will redeem its Class A or Class B shares at the net asset
value determined on the date the request is received, if the request is received
in "good order" before the regular close of the NYSE. Your request should be
addressed to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798, Boston,
Massachusetts 02208-2798, except that deliveries by overnight courier should be
addressed to Morgan Stanley Institutional Fund, Inc., c/o Chase Global Funds
Services Company, 73 Tremont Street, Boston, Massachusetts 02108-3913.

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

(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 Fund representative.

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<PAGE>
BY TELEPHONE

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

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

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

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<PAGE>
SHAREHOLDER SERVICES

EXCHANGE FEATURES

You may exchange shares that you own in any Portfolio for shares of any
other available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares." Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available 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 may be modified or terminated by the Fund at any time
upon 60-days notice to shareholders.

BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name, class of shares and account number of your current Portfolio,
the names(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 current Portfolio, the name(s) 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 Portfolio shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolio's shares and may result in
involuntary conversion or redemption of your shares. See "Purchase of Shares"
above.

VALUATION OF SHARES

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<PAGE>

regular close of the NYSE on each day that the NYSE is open for business. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Securities listed on a U.S. securities exchange for which
market quotations are available are valued at the last quoted sale price on the
day the valuation is made. Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at a
price within a range not exceeding the current asked price nor less than the
current bid price. The current bid and asked prices are determined based on the
average bid and asked prices quoted on such valuation date by reputable brokers.

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 quotations are not
readily available (including restricted securities and unlisted foreign
securities) and those securities the prices for which it is inappropriate to
determine the prices in accordance with the above-stated procedures are
determined in good faith at fair value using methods determined by the Board of
Directors. For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be translated into
U.S. dollars at the mean of the bid 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 Small Cap Value Equity, Value Equity and Balanced Portfolios. In addition,
from time to time the Fund may advertise "yield" for the Global Fixed Income and
High Yield Portfolios. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE.

Each Portfolio may advertise "total return" which shows what an investment
in a class of a Portfolio would have earned over a specified period of time
(such as one, five or ten years) assuming that all distributions and dividends
by the Portfolio were reinvested in the same class on the reinvestment dates
during the period. Total return does not take into account any federal or state
income taxes that may be payable on dividends and

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<PAGE>
distributions or on redemption. The "yield" of the Global Fixed Income and High
Yield Portfolios refers to the income generated by an investment in the
Portfolio over a month or 30-day period. This income is then annualized. That
is, the amount of income generated by the investment during that 30-day period
is assumed income generated each 30-day period for twelve periods, and is shown
as a percentage of the investment. The Fund may also include comparative
performance information in advertising or marketing the Portfolios' shares,
including data from Lipper Analytical Services, Inc., other industry
publications, business periodicals, rating service and market indices. For
further information concerning these figures, see "Calculation of Yield and
Total Return"in the Statement of Additional Information.

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

Each Portfolio expects to distribute substantially all of its taxable net
investment income in the form of quarterly dividends. Net realized capital
gains, if any, after reduction for any available tax loss carryforwards will
also be distributed annually.

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

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

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

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<PAGE>

Each Portfolio intends to distribute substantially all of its taxable net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from a Portfolio's net investment income are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Such dividends paid by a Portfolio, except the High Yield and Global
Equity Portfolios, will generally qualify for the 70% dividends-received
deduction for corporate shareholders to the extent of the aggregate qualifying
dividend income received by the Portfolio from U.S. corporations. Dividends paid
by the High Yield and Global Equity Portfolios will generally not qualify for
the 70% dividends-received deduction for corporate shareholders.

Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares. Each
Portfolio will send reports annually to shareholders of the federal income tax
status of all distributions made during the preceding year.

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

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

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

Conversion of shares between classes are not taxable events to the
shareholder.

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<PAGE>
PORTFOLIO TRANSACTIONS

Subject to the overriding objective of obtaining the best execution of
orders, the Fund may use broker-dealer affiliates of the Adviser, including
Morgan Stanley, to effect portfolio brokerage transactions under procedures
adopted by the Fund's Board of Directors. For such transactions, the commission
rates and other remuneration paid to Morgan Stanley or other affiliates must be
fair and reasonable in comparison to those of other broker-dealers for
comparable transactions involving similar securities being purchased or sold
during a comparable time period.

PORTFOLIO TURNOVER

The Portfolios generally do not invest for short-term trading purposes,
however, when circumstances warrant, each Portfolio may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or lower portfolio turnover
rate than expected and the Portfolios will not consider portfolio turnover rate
a limiting factor in making investment decisions consistent with their
respective objectives and policies. For the fiscal year ended December 31, 1996,
the Global Fixed Income and High Yield Portfolios had portfolio turnover rates
of 258% and 117%, respectively. As portfolio turnover increases, the Portfolios
may expect to pay correspondingly increased brokerage and trading costs. In
addition to transaction costs, higher portfolio turnover may result in the
realization of capital gains. As discussed under "Taxes," to the extent net
short-term capital gains are realized, any distributions resulting from such
gains are considered ordinary income for federal income tax purposes.

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 35 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. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of 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 Portfolio which offer only Class A shares.

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

REPORTS TO SHAREHOLDERS

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

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.

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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE CORPORATE BOND RATINGS:

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

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

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

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

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

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

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the 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 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.

41
<PAGE>
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:

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

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.

42
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.

SMALL CAP VALUE EQUITY, VALUE EQUITY, BALANCED, GLOBAL FIXED INCOME
AND HIGH YIELD PORTFOLIOS

P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

1.
First Name Initial Last Name
2.
First Name Initial Last Name
First Name Initial Last Name

<TABLE>
<C> <S> <C>
3. CORPORATIONS,
TRUSTS AND OTHERS
Please call the Fund for additional
documents that may be required to set up
account and to authorize transactions.
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)
</TABLE>

/ / TRUST ________________________ / / OTHER (Specify) ________________________
<TABLE>
<C> <S> <C>
B) MAILING ADDRESS
Please fill in completely,
including telephone number(s).

<CAPTION>
B)

Current Mailing Address (If different from Permanent Address)
Street Address
City
Country
Postal Code
Home Telephone No. Business Telephone No.

<PAGE>

<TABLE>
<C> <S> <C> <C> <C>
D) PORTFOLIO AND For Purchase of the following / / Class A Shares $ / / Class B Shares $
CLASS SELECTION Portfolio(s): / / Class A Shares $ / / Class B Shares $
(Class A shares minimum $500,000 Small Cap Value Equity / / Class A Shares $ / / Class B Shares $
for each Portfolio and Class B Portfolio / / Class A Shares $ / / Class B Shares $
shares minimum $100,000 for each Value Equity Portfolio / / Class A Shares $ / / Class B Shares $
Portfolio. Please indicate Balanced Portfolio
Portfolio, class and amount. Global Fixed Income Portfolio
High Yield Portfolio
Total Initial Investment $
</TABLE>

<TABLE>
<C> <S> <C>
E) METHOD OF
INVESTMENT
Please indicate
portfolio, manner of
payment.
</TABLE>

Payment by:

/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)

<TABLE>
<C> <S> <C>
I) DEALER
INFORMATION
Representative Name Representative No. Branch
No.
</TABLE>

<TABLE>
<C> <S> <C>
J) SIGNATURE OF
ALL HOLDERS
AND TAXPAYER
CERTIFICATION
Sign Here ,
</TABLE>

/ / U.S. CITIZEN(S)/TAXPAYER(S):

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.

(X)
(X) Signature (if joint account, both
Signature Date must sign) Date
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 10
Investment Objectives and Policies................ 14
Additional Investment Information................. 19
Investment Limitations............................ 24
Management of the Fund............................ 25
Purchase of Shares................................ 28
Redemption of Shares.............................. 33
Shareholder Services.............................. 35
Valuation of Shares............................... 35
Performance Information........................... 36
Dividends and Capital Gains Distributions......... 37
Taxes............................................. 37
Portfolio Transactions............................ 39
General Information............................... 39
Account Registration Form
</TABLE>

SMALL CAP VALUE EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO
BALANCED PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
HIGH YIELD PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

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

Investment Adviser
Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

ACTIVE COUNTRY ALLOCATION 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

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

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, Small Cap Value Equity,
Technology, 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, and Municipal Bond Portfolios; and (v)
MONEY MARKET -- Money Market and Municipal Money Market Portfolios. Additional
information about the Fund is contained in a "Statement of Additional
Information," dated May 1, 1997, 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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
FUND EXPENSES

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

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
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
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (Net of Fee Waiver)*
Class A................................................................................. 0.36%
Class B................................................................................. 0.36%
12b-1 Fees
Class A................................................................................. None
Class B................................................................................. 0.25%
Other Expenses
Class A................................................................................. 0.44%
Class B................................................................................. 0.44%
-----------
Total Operating Expenses (Net of Fee Waivers)*
Class A................................................................................. 0.80%
Class B................................................................................. 1.05%
-----------
-----------
</TABLE>

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

*The Adviser has agreed to waive its management fees and/or to reimburse the
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolio to exceed a specified percentage of its respective
average daily net assets. Absent the fee waiver, the management fee would be
0.65%. Absent the fee waiver and/or expense reimbursement, the Portfolio's
total operating expenses would be 1.09% of the average daily net assets of the
Class A shares and 1.33% 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 Fund expenses, see
"Management of the Fund."

2
<PAGE>
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. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. 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 National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Active Country Allocation Portfolio
Class A.......................................................... $ 8 $ 26 $ 44 $ 99
Class B.......................................................... 11 33 58 128
</TABLE>

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following table provides financial highlights for the Class A and Class
B shares of the Portfolio for each of the periods presented. The audited
financial highlights for the Portfolio's shares for each of the periods
presented are part of the Fund's financial statements which appear in the Fund's
December 31, 1996 Annual Report to Shareholders and which are incorporated by
reference in the Fund's Statement of Additional Information. The Portfolio's
financial highlights for each of the periods presented have been audited by
Price Waterhouse LLP, whose unqualified report thereon is also incorporated by
reference in the Statement of Additional Information. Additional performance
information is included in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. After October 31, 1992 (the
Fund's prior fiscal year end), the Fund changed its fiscal year end to December
31. The following information should be read in conjunction with the financial
statements and notes thereto.

4
<PAGE>

ACTIVE COUNTRY ALLOCATION PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------
PERIOD FROM
TWO MONTHS JANUARY 17,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1992* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1996 1995 1994 1993 1992 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 11.63 $ 11.65 $ 12.21 $ 9.59 $ 9.37 $ 10.00
------------- ------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)........ 0.24 0.17 0.19 0.13 0.02 0.11
Net Realized and Unrealized Gain
(Loss) on Investments........... 0.88 1.00 (0.25) 2.75 0.20 (0.74)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment
Operations.................... 1.12 1.17 (0.06) 2.88 0.22 (0.63)
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income............ (0.81) (0.25) (0.14) (0.09) -- --
In Excess of Net Investment
Income.......................... (0.02) (0.10) -- (0.08) -- --
Net Realized Gain................ (0.48) (0.84) (0.36) -- -- --
In Excess of Net Realized Gain... -- -- -- (0.09) -- --
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions............ (1.31) (1.19) (0.50) (0.26) -- --
------------- ------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD..... $ 11.44 $ 11.63 $ 11.65 $ 12.21 $ 9.59 $ 9.37
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
TOTAL RETURN....................... 9.71% 10.57% (0.52)% 30.72% 2.35% (6.30)%
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)..................... $183,193 $170,663 $182,977 $150,854 $50,234 $47,534
Ratio of Expenses to Average Net
Assets (1)...................... 0.80% 0.80% 0.80% 0.80% 0.80%** 0.88%**
Ratio of Net Investment Income to
Average Net Assets (1).......... 1.22% 1.26% 1.43% 1.29% 1.22%** 2.32%**
Portfolio Turnover Rate.......... 65% 72% 51% 53% 2% 62%
Average Commission Rate #........ $0.0028 N/A N/A N/A N/A N/A
- ------------------------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income............ $0.03 $0.05 $0.03 $0.05 $0.01 $0.03
Ratios before expense
limitation:
Expenses to Average Net
Assets....................... 1.09% 1.18% 1.00% 1.33% 1.70%** 1.58%**
Net Investment Income to
Average Net Assets........... 0.94% 0.88% 1.23% 0.76% 0.32%** 1.62%**

<CAPTION>
CLASS B
-------------

PERIOD FROM
JANUARY 2,
1996*** TO
DECEMBER 31,
1996
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 11.66
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)........ 0.06
Net Realized and Unrealized Gain
(Loss) on Investments........... 1.00
-------------
Total from Investment
Operations.................... 1.06
-------------
DISTRIBUTIONS
Net Investment Income............ (0.78)
In Excess of Net Investment
Income.......................... (0.02)
Net Realized Gain................ (0.48)
In Excess of Net Realized Gain... --
-------------
Total Distributions............ (1.28)
-------------
NET ASSET VALUE, END OF PERIOD..... $ 11.44
-------------
-------------
TOTAL RETURN....................... 9.22%
-------------
-------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)..................... $633
Ratio of Expenses to Average Net
Assets (1)...................... 1.05%**
Ratio of Net Investment Income to
Average Net Assets (1).......... 1.09%**
Portfolio Turnover Rate.......... 65%
Average Commission Rate #........ $0.0028
- ------------------------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income............ $0.02
Ratios before expense
limitation:
Expenses to Average Net
Assets....................... 1.33%**
Net Investment Income to
Average Net Assets........... 0.82%**
</TABLE>

* Commencement of Operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

# Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period. For the year ended December 31,
1996, the average commission rate paid on trades on which commissions were
charged was 0.11% of the trade amount.

5
<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 the International
Small Cap, Money Market and Municipal Money Market Portfolios, also offers Class
B shares. Each portfolio has its own investment objective and policies designed
to meet its specific goals. The investment objective of the Portfolio described
in this Prospectus is as follows:

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

GLOBAL AND INTERNATIONAL EQUITY:

-The ASIAN EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in 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 domiciled in
EAFE countries.

-The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in the equity securities of non-U.S. issuers with
equity market capitalizations of less than $1 billion.

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

6
<PAGE>

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

US EQUITY:

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

-The EMERGING GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in growth-oriented 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 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.

-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.

7
<PAGE>
-The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with preservation of principal by investing 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.

THE CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITIES PORTFOLIOS ARE
CURRENTLY NOT BEING OFFERED.

INVESTMENT MANAGEMENT

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% of the
Class B shares' average daily net assets on an annualized basis. Share purchases
may be made by sending investments directly to the Fund or through the
Distributor. The minimum initial investment, generally, is $500,000 for Class A
shares of the Portfolio and $100,000 for Class B shares of the Portfolio. The
minimum initial investment amount is reduced for certain categories of
investors. For additional information on how to purchase shares and minimum
initial investments, see "Purchase of Shares".

HOW TO REDEEM

Shares of the Portfolio may be redeemed at any time, without cost, at the
net asset value per share of 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 that cause the value of an
account to remain for a continuous 60-day period below the minimum investment
amount for Class A shares or for Class B shares may result in involuntary
redemption or automatic conversion. For additional information on how to redeem
shares and involuntary redemption or conversion, see "Purchase of Shares --
Minimum Account Sizes and Involuntary Redemption of Shares" and "Redemption of
Shares."

RISK FACTORS

8
<PAGE>

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 or 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. The Portfolio may invest in certain derivatives, including
options, futures and options on futures. These investments entail certain costs
and risks, including imperfect correlation between the value of securities held
by the Portfolio and the value of the particular derivative instrument, and the
risk that the Portfolio could not close out a derivatives position when it would
be most advantageous to do so. In addition, the Portfolio may invest in
repurchase agreements, lend its portfolio securities, purchase securities on a
when-issued basis and invest in foreign currency forward 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."

9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Portfolio is to provide 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 Adviser utilizes a top-down approach in
selecting investments for the Portfolio that emphasizes country selection and
weighting rather than individual stock selection. This approach reflects the
Adviser's philosophy that a diversified selection of securities representing
exposure to world markets, based upon the economic outlook and current valuation
levels for each country, is an effective way to maximize the return and minimize
the risk associated with international investment. 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 Portfolio invests primarily in equity securities, which include common
and preferred stock, convertible securities and rights and warrants to purchase
common stocks. In addition to the investments and strategies described below,
the Portfolio may invest in certain securities and obligations as set forth in
"Additional Investment Information" below. The investment policies described
below are not fundamental policies and may be changed without shareholder
approval.

The Adviser determines country allocations for the Portfolio on an ongoing
basis within policy ranges dictated by each country's market capitalization and
liquidity. The Portfolio will invest in the industrialized countries throughout
the world that comprise the Morgan Stanley Capital International EAFE (Europe,
Australia and the Far East) Index. The Portfolio will also invest in emerging
country equity securities. With respect to the Portfolio, the term "emerging
country" applies to any country which, in the opinion of the Adviser, is
generally considered to be an emerging country by the international financial
community, including the International Bank for Reconstruction and Development
(more commonly known as the World Bank) and the International Finance
Corporation. There are currently over 130 countries which, in the opinion of the
Adviser, are generally considered to be emerging countries by the international
financial community, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe. Currently, investing in many emerging countries is not feasible
or may involve unacceptable risks. The Portfolio will focus its investments on
those emerging market countries in which it believes the economies are
developing strongly and in which the markets are becoming more sophisticated.
With respect to the portion of the Portfolio that is invested in emerging
country equity securities, the Portfolio currently intends to invest primarily
in some or all of the following countries:

<TABLE>
<S> <C>
Argentina Portugal
Brazil Philippines
India South Africa
Indonesia South Korea
Malaysia Thailand
Mexico Turkey
</TABLE>

10
<PAGE>
licensing to convert such currency or other appropriately licensed or sanctioned
contractual guarantee to protect such investment against loss of that currency's
external value, or the Portfolio has a reasonable expectation at the time the
investment is made that such governmental licensing or other appropriately
licensed or sanctioned guarantee would be obtained or that the currency in which
the security is quoted would be freely convertible at the time of any proposed
sale of the security by the Portfolio.

By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are used
then to determine what the Adviser believes to be a fair value for the stock
market of each country. Discrepancies between actual value and fair value as
determined by the Adviser provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
Adviser's purchasing-power parity exchange rate model to arrive at an expected
total return in U.S. dollars. The final country allocation decision is then
arrived at by considering the expected total return in light of various country
specific considerations such as market size, volatility, liquidity and country
risk.

Within a particular country, investments are made through the purchase of
equity securities which, in aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International index for the given
country. The Adviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Portfolio. An
issuer may be considered to be from a particular country if, in the opinion of
the Adviser, it has one or more of the following characteristics: (i) its
principal securities trading market is in that country, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in that country; or (iii) it is
organized under the laws of, and has a principal office in, that country. The
Adviser will base determinations as to eligibility on publicly available
information and inquiries made to the companies. Indexation of the Portfolio's
stock selection reduces stock-specific risk through diversification and
minimizes transaction costs, which can be substantial in foreign markets.

Common stocks purchased for the Portfolio normally will be listed on a major
stock exchange in the subject country. The Portfolio will not invest in the
stocks of U.S. issuers. For a description of special considerations and certain
risks associated with investments in foreign issuers, see "Additional Investment
Information." The Portfolio may temporarily reduce its equity holdings in
response to adverse market conditions and invest in domestic, Eurodollar and
foreign short-term money market instruments for defensive purposes.

11
<PAGE>
ADDITIONAL INVESTMENT INFORMATION

FOREIGN CURRENCY FORWARD CONTRACTS. The Portfolio may enter into foreign
currency forward contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. The Portfolio may
use such contracts to protect 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, lock in the U.S. dollar value of dividends and
interest on securities held by the Portfolio, and generally to protect the U.S.
dollar value of securities held by the Portfolio against exchange rate
fluctuation. While forward contracts may limit losses as a result of exchange
rate fluctuations, they will also limit any gains that might otherwise have been
realized. The Portfolio's Custodian may be required to place cash or liquid
securities in a segregated account 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.

FOREIGN INVESTMENT. Investment in obligations of foreign issuers involves
somewhat different investment risks than those affecting obligations of U.S.
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Many foreign securities markets have
substantially less volume than U.S. national securities exchanges, and
securities of some foreign issuers are less liquid and more volatile than
securities of comparable U.S. issuers. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States. Dividends and interest paid by foreign issuers may be subject
to withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Portfolios
by domestic companies. Additional risks include future political and economic
developments, the possibility that a foreign jurisdiction might impose or change
withholding taxes on income payable with respect to foreign securities, possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits, and the possible adoption of foreign governmental restrictions such as
exchange controls. Many emerging countries may have less stable political
environments than more developed countries. Also, it may be more difficult to
obtain a judgment in a court outside the United States.

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.

12
<PAGE>

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 their respective holdings and
commitments against changes in the level of future currency rates or to gain
exposure to a particular currency.

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 their 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
activities that do not constitute "bona fide" hedging. The Portfolio will not
enter into futures contracts to the extent that its outstanding obligations to
purchase securities under such contracts, in combination with its outstanding
obligations with respect to options transactions (including options to purchase
securities or instruments) would exceed 20% of its total assets.

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

13
<PAGE>

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.

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 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.

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; bank obligations;
certificates of deposit (including Eurodollar certificates of deposit); and
repurchase agreements.

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 may not
purchase call and put options to the extent that the value of its aggregate
investment in options exceeds 5% of its total assets.

14
<PAGE>

REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines adopted by the
Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The Portfolio may not enter into
repurchase agreements with more than seven days to maturity if, as a result,
more than 10% of the market value of the Portfolio's 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.

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
cash or liquid securities 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 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.

INVESTMENT LIMITATIONS

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

15
<PAGE>
under certain non-fundamental investment limitations that may be changed without
shareholder approval. For additional information on fundamental and
non-fundamental investment limitations, see "Investment Limitations" in
Statement of Additional Information.

MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Adviser and
Administrator of the Fund and the Portfolio. 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 the Portfolio's
investments. The Adviser is entitled to receive from the Active Country
Allocation Portfolio an annual management fee, payable quarterly, equal to 0.65%
of the average daily net assets of the Portfolio.

The fees of the Portfolio are higher than those of most investment
companies' because the Portfolio invests internationally. The Adviser believes
that the fees are comparable to those of other investment companies that invest
internationally. 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 0.80% of the average daily
net assets of the Class A shares of the Portfolio and 1.05% of the average daily
net assets of the Class B shares of the Portfolio.

PORTFOLIO MANAGERS. BARTON M. BIGGS, MADHAV DHAR, FRANCINE J. BOVICH AND
ANN D. THIVIERGE. Barton M. Biggs has been Chairman and a director of the
Adviser since 1980 and a Managing Director of Morgan Stanley since 1975. He is
also a director of Morgan Stanley Group Inc. and a director and chairman of
various registered investment companies to which the Adviser and certain of its
affiliates provide investment advisory services. Mr. Biggs holds a B.A. from
Yale University and an M.B.A. from New York University. Madhav Dhar is a
Managing Director of Morgan Stanley. He joined the Adviser in 1984 to focus on
global asset allocation and investment strategy and now is a co-head of the
Adviser's emerging markets group. He is the portfolio manager of the Fund's
Emerging Markets Portfolio, the Emerging Markets and Global Equity Allocation
Funds of the Morgan Stanley Fund, Inc., and the Morgan Stanley Emerging Markets
Fund, Inc. (a closed-end investment company listed on the New York Stock
Exchange). He holds a B.S. (honors) from St. Stephens College, Delhi University
(India), and an M.B.A. from Carnegie-Mellon University. Francine Bovich joined
the Adviser as a Principal in 1993. She is responsible for product development,
portfolio management and communication of the Adviser's asset allocation
strategy to institutional investor clients. Previously, Ms. Bovich was a
Principal and

16
<PAGE>
Executive Vice President of Westwood Management Corp. ("Westwood"), a registered
investment adviser. Before joining Westwood, she was a Managing Director of
Citicorp Investment Management, Inc. (now Chancellor Capital Management), where
she was responsible for the Institutional Investment Management Group. Ms.
Bovich began her investment career with Banker's Trust Company. She holds a B.A.
in Economics from Connecticut College and an M.B.A. in Finance from New York
University. Ann Thivierge is a Principal of the Adviser. She is a member of the
Adviser's asset allocation committee, primarily representing the Total Fund
Management team since its inception in 1991. Prior to joining the Adviser in
1986, she spent two years at Edgewood Management Company, a privately held
investment management firm. Ms. Thivierge holds a B.A. in International
Relations from James Madison College, Michigan State University, and an M.B.A.
in Finance from New York University.

ADMINISTRATOR. The Adviser also provides administrative services to the
Fund 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 laws. The Administration Agreement also provides that
the Administrator, through its agents, will provide dividend disbursing and
transfer agent services to the Fund. 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.

LOCAL ADMINISTRATOR FOR THE PORTFOLIO. The Portfolio has, as required by
local law, entered into an administration agreement with a local administrator
in Brazil. A local administrator provides certain services for the Portfolio
with respect to the Portfolio's investments in that country, including services
relating to foreign exchange, local taxes, remittance of income and capital
gains, and repatriation of investments. The Portfolio's local adminstrator in
Brazil, Unibanco-Uniao, a Brazilian corporation, is paid by the Fund an annual
fee of 0.125% of the Portfolio's average weekly net assets invested in Brazil.

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

DISTRIBUTOR. Morgan Stanley serves as the exclusive Distributor of the
shares of the Fund. Under its Distribution Agreement with the Fund, Morgan
Stanley sells shares of the Fund upon the terms and at the current offering
price described in this Prospectus. Morgan Stanley is not obligated to sell any
certain number of shares of the Portfolio.

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.

17
<PAGE>
The Fund has adopted a Plan of Distribution with respect to the Class B
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (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 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 opened on or after January 2, 1996 (a "New
Account"), the minimum initial investment and minimum account size are $500,000
for Class A shares and $100,000 for Class B shares. Certain advisory or asset
allocation accounts, such as Total Funds Management accounts, managed by Morgan
Stanley or its affiliates, including the Adviser ("Managed Accounts") may
purchase Class A shares without being subject to such minimum initial investment
or minimum account size requirements for a Portfolio account. Employees of the
Adviser and certain of its affiliates may purchase Class A Shares subject to
conditions, including a lower minimum investment, established by Officers of the
Fund.

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

18
<PAGE>
Investors may also invest in the Fund by purchasing shares through a trust
department, broker, dealer, agent, financial planner, financial services firm or
investment adviser. An investor may be charged an additional service or
transaction fee by that institution.

The minimum investment levels may be waived at the discretion of the Adviser
for (i) certain employees and customers of Morgan Stanley or its affiliates and
certain trust departments, brokers, dealers, agents, financial planners,
financial services firms, or investment advisers that have entered into an
agreement with Morgan Stanley or its affiliates; and (ii) retirement and
deferred compensation plans and trusts used to fund such plans, including, but
not limited to, those defined in Section 401(a), 403(b) or 457 of the Internal
Revenue Code of 1986, as amended (the "Code") 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

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 $500,000 or more, the
Class B shares will convert to Class A Shares. Under current tax law, such
conversion is not a taxable event to the shareholder. Class A shares converted
from Class B shares are subject to the same minimum account size requirements
that are applicable to New 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

19
<PAGE>
INITIAL INVESTMENTS

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
Class A shares of the Portfolio and $100,000 for Class B shares of the
Portfolio, with certain exceptions for Morgan Stanley employees and select
customers) payable to "Morgan Stanley Institutional Fund, Inc. -- [portfolio
name]", to:

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

Payment will be accepted only in U.S. dollars, unless prior approval for
payment by other currencies is given by the Fund. The 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.

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

Please call the 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.

20
<PAGE>
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.

Federal Funds purchase orders will be accepted only on a day on which the Fund
and Chase (the "Custodian Bank") are open for business. Your bank may charge a
service fee for wiring Federal Funds.

3) BY BANK WIRE. The same procedure outlined under "By Federal Funds Wire"
above must be followed in purchasing shares by bank wire. However, money
transferred by bank wire may or may not be converted into Federal Funds the
same day, depending on the time the money is received and the bank handling
the wire. Prior to such conversion, an investor's money will not be invested
and, therefore, will not be earning dividends. Your bank may charge a service
fee for wiring funds.

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000, except for automatic reinvestment of dividends and capital gains
distributions for which there are no minimums) by purchasing shares at net asset
value by mailing a check to the Fund (payable to "Morgan Stanley Institutional
Fund, Inc. -- [portfolio name]") at the above address or by wiring monies to the
Custodian Bank as outlined above. It is very important that your account name,
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

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.

Investors may also invest in the Fund by purchasing shares through the
Distributor.

21
<PAGE>
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
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. 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 or accounts managed or advised by the
Adviser and/or any of its affiliates.

INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT

The TFM Adviser has developed investment strategies for TFM Accounts to meet
the diverse financial needs of different investors. You can open a TFM Account
by meeting with one of the investment professionals of a Participating Dealer
who will review your situation and help you identify your long-term investment
and/or current income objectives. After using TFM criteria to determine your
long-term investment and/or current income objectives, you can choose one of
several TFM investment strategies. Based on your chosen strategy, your initial
investment will be allocated among a number of the Class A or Class B shares of
the portfolios. Depending on market conditions, the TFM Adviser periodically
reallocates the combination of portfolios or the percentage amounts invested in
the shares of each portfolio to implement your TFM investment strategy. In
addition, your TFM Account will be periodically rebalanced to maintain your TFM
strategy's current asset allocation mix, if and when the performance of one or
more of the portfolios unbalances the strategy's mix. You will pay the TFM
Adviser a fee for the TFM Account service that is in addition to and separate
from the fees and expenses you will pay directly or indirectly as an investor in
the portfolios. See "Fund Expenses."

From time to time, one or more of the portfolios used for investment by the
TFM Accounts may experience relatively large investments or redemptions due to
the TFM Account allocations or rebalancings recommended by the TFM Adviser.
These transactions will affect the portfolios, since portfolios that experience
redemptions as a result of reallocations or rebalancings may have to sell
portfolio securities and portfolios that receive additional cash will have to
invest it in additional portfolio securities. While it is impossible to predict
the overall impact of these transactions over time, there could be adverse
effects on portfolio management to the extent that portfolios may be required to
sell securities or invest cash at times when they would not otherwise do so.
These transactions could also have tax consequences if sales of securities
resulted in gains and could also increase

22
<PAGE>

transaction costs. The Adviser, representing the interests of the portfolios, is
committed to minimizing the impact of TFM Account transactions on the
portfolios. The Adviser, however, will have a conflict in fulfilling this
responsibility in that it also serves as a TFM Adviser. In that capacity, the
Adviser, representing the interests of the TFM Accounts, also is committed to
minimizing the impact of TFM Account transactions on the portfolios to the
extent consistent with pursuing the investment objectives of the TFM Accounts.
In addition, an affiliate of the TFM Adviser, the Distributor is compensated on
the sale,and may be compensated for distribution or shareholder services on the
sale of shares of the portfolios. See "Purchase of Shares" and "Shareholder
Services -- Exchange Features." The Adviser will monitor the impact of TFM
Account transactions on the Portfolios.

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until payment of the purchase price has been collected,
which may take up to eight business days after purchase. The Fund will redeem
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, Massachusetts 02208-2798, except that deliveries by overnight courier
should be addressed to Morgan Stanley Institutional Fund, Inc., c/o Chase Global
Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108-3913.

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

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

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

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

BY TELEPHONE

23
<PAGE>
be mailed to you or wired to your bank. Please contact one of the 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
express mail 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.

FURTHER REDEMPTION INFORMATION

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.

SHAREHOLDER SERVICES

EXCHANGE FEATURES

24
<PAGE>
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 your current Portfolio,
the name(s) of the portfolio(s) and class(es) of shares into which you intend to
exchange shares, and the signatures of all registered account holders. Send the
exchange request to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, MA 02208-2798.

BY TELEPHONE

When exchanging shares by telephone, have ready the name, class of shares
and account number of the current 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 Portfolio shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolio's shares 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 each class of the
Portfolio. Net asset value is calculated 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 readily available are valued at a price that is
considered to best

25
<PAGE>

represent fair value within a range not exceeding the current asked price nor
less than the current bid price. The current average 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 quotations are not
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 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 Portfolio may advertise "total return" which 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, including data from Lipper Analytical
Services, Inc., other industry publications, business periodicals, rating
services and market indices.

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

26
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

All income dividends and capital gains distributions for a class of shares
will be automatically 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 taxable net
investment income in the form of annual dividends. Net realized capital gains,
if any, after reduction for any available tax loss carryforwards will also be
distributed annually.

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 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 advisors regarding
specific questions as to federal, state and local income taxes.

The Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other portfolios. The Portfolio
intends to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the 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 intends to distribute substantially all of its taxable net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from the Portfolio's net investment income are taxable
to shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Such dividends paid by the Portfolio will generally not
qualify for the 70% dividends-received deduction for corporate shareholders. The
Portfolio will report annually to its shareholders the amount of dividend income
qualifying for such treatment.

Distributions of net capital gain (i.e., net long-term capital gain in
excess of net short-term capital losses) are taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held the
Portfolio's shares. The Portfolio will send reports annually to shareholders of
the federal income tax status of all distributions made during the preceding
year.

27
<PAGE>
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 gain over short-term and long-term capital
loss, 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 in that year if the distributions are paid by the Portfolio at
any time during the following January.

The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any taxable dividends, capital gains distributions and redemption proceeds paid
to any individual or certain other non-corporate shareholder (1) who has failed
to provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Application Form, (2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that such shareholder
is not subject to backup withholding. This backup withholding is not an
additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.

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

Conversion of shares between classes are not taxable events 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.

Investment income received by the Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that the Portfolio is liable for foreign income taxes so withheld, the
Portfolio intends to operate so as to meet the requirements of the Code to pass
through to the shareholders credit for foreign income taxes paid. Although the
Portfolio intends to meet Code requirements to pass through credit for such
taxes, there can be no assurance that the Portfolio will be able to do so.

PORTFOLIO TRANSACTIONS

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<PAGE>
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 intermediary brokers or
dealers. However, the Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the applicable portfolio to
their clients or who act as agents in the purchase of shares of the portfolio
for their clients.

PORTFOLIO TURNOVER

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 35 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. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of 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 offer only 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 pre-emptive rights. The shares of the Portfolio have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Persons or organizations owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term is
defined in the 1940 Act) that portfolio. Under Maryland law, the Fund is not
required to hold an annual meeting of its shareholders unless required to do so
under the 1940 Act.

REPORTS TO SHAREHOLDERS

29
<PAGE>
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

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.

30
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ACTIVE COUNTRY ALLOCATION PORTFOLIO
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

<TABLE>
<C> <S> <C>
If you need assistance in filling out this form for the
ACCOUNT INFORMATION Morgan Stanley Institutional Fund, please contact your
Fill in where applicable Morgan Stanley representative or call us toll free
1-(800)-548-7786. Please print all items except signature,
and mail to the Fund at the address above.
A) REGISTRATION
1. INDIVIDUAL
2. JOINT TENANTS
(RIGHTS OF SURVIVORSHIP PRESUMED UNLESS
TENANCY IN COMMON
IS INDICATED)
</TABLE>

1.
First Name Initial Last Name
2.
First Name Initial Last Name
First Name Initial Last Name

<TABLE>
<C> <S> <C>
3. CORPORATIONS,
TRUSTS AND OTHERS
Please call the Fund for additional
documents that may be required to set up
account and to authorize transactions.
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)
</TABLE>

/ / TRUST ________________________ / / OTHER (Specify) ________________________

<TABLE>
<C> <S> <C>
B) MAILING ADDRESS
Please fill in completely, including
telephone number(s).
</TABLE>

/ / United States Citizen / / Resident Alien
Street or P.O. Box
City
State Zip
Home Telephone No. Business Telephone No.
/ / Non-Resident Alien:
Permanent Address (Where you reside permanently for tax purposes)
Street Address
City
Country Postal Code
Home Telephone No. Business Telephone No.
Current Mailing Address (If different from Permanent Address)
Street Address
City
Country
Postal Code
Home Telephone No. Business Telephone No.

<TABLE>
<C> <S> <C> <C>
C) TAXPAYER Enter your Taxpayer Identification Number. For most individual
IDENTIFICATION taxpayers, this is your Social Security Number.
NUMBER
1. INDIVIDUAL
2. JOINT TENANTS
(RIGHTS OF SURVIVORSHIP PRESUMED UNLESS
TENANCY IN COMMON
IS INDICATED)
For Custodian account
of a minor (Uniform
Gifts/Transfers to Minor
Acts), give the Social
Security Number of
the minor
OR
1. TAXPAYER IDENTIFICATION SOCIAL SECURITY NUMBER
NUMBER ("TIN") ("SSN")
OR
2. TIN SSN
OR
TIN SSN
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your
correct TIN(s) or SSN(s). Accounts that have a missing or incorrect
TIN(s) or SSN(s) will be subject to backup withholding at a 31% rate on
dividends, distributions and other payments. If you have not provided us
with your correct TIN(s) or SSN(s), you may be subject to a $50 penalty
imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax liability of
persons subject to backup withholding will be reduced by the amount of
tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
You may be notified that you are subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code because you have
underreported interest or dividends or you were required to, but failed
to, file a return which would have included a reportable interest or
dividend payment.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C> <C> <C>
D) PORTFOLIO AND For Purchase of the following
CLASS SECTION Portfolio(s): / / Class A Shares $ / / Class B Shares $
(Class A shares minimum Active Country Allocation
$500,000 for the Portfolio
Portfolio and Class B
shares minimum $100,000
for the Portfolio).
Please indicate class and
amount.
Total Initial Investment $
</TABLE>

<TABLE>
<C> <S> <C>
E) METHOD OF
INVESTMENT
Please indicate
portfolio, manner of
payment.
</TABLE>

Payment by:

/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)

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

<TABLE>
<C> <S> <C>
I) DEALER
INFORMATION
Representative Name Representative
No. Branch
No.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C>
J) SIGNATURE OF
ALL HOLDERS
AND TAXPAYER
CERTIFICATION
Sign Here ,
</TABLE>

<TABLE>
<S> <C>
The undersigned certify that I/we have full authority and legal capacity
to purchase and redeem shares of the Fund and affirm that I/we have
received a current Prospectus of the Morgan Stanley Institutional Fund,
Inc. and agree to be bound by its terms.
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF
PERJURY THAT THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT
AND THAT AS REQUIRED BY FEDERAL LAW (PLEASE CHECK APPLICABLE BOXES
BELOW):
/ / U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM
IS/ARE THE CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT
SUBJECT TO ANY BACKUP WITHHOLDING EITHER BECAUSE (A) I/WE ARE
EXEMPT FROM BACKUP WITHHOLDING; (B) I/WE HAVE NOT BEEN
NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I/WE
ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS; OR (C) THE IRS HAS NOTIFIED
ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE
HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL
SECURITY ADMINISTRATION FOR A TIN OR A SSN AND I/WE
UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO CHASE
GLOBAL FUNDS SERVICES COMPANY ("CGFSC") WITHIN 60 DAYS OF THE
DATE OF THIS APPLICATION OR IF I/WE FAIL TO FURNISH MY/OUR
CORRECT SSN(S) OR TIN(S), I/WE MAY BE SUBJECT TO A PENALTY
AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION
PROCEEDS. (PLEASE PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU
MAY REQUEST SUCH FORM BY CALLING CGFSC AT 800-282-4404.
/ / NON-U.S. CITIZEN(S)/TAXPAYER(S)
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS
OR RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE
INTERNAL REVENUE SERVICE.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.

(X)
(X) Signature (if joint account, both
Signature Date must sign) Date
</TABLE>
<PAGE>
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--------------------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 6
Investment Objective and Policies................. 10
Additional Investment Information................. 12
Investment Limitations............................ 15
Management of the Fund............................ 16
Purchase of Shares................................ 18
Redemption of Shares.............................. 23
Shareholder Services.............................. 24
Valuation of Shares............................... 25
Performance Information........................... 26
Dividends and Capital Gains Distributions......... 27
Taxes............................................. 27
Portfolio Transactions............................ 28
General Information............................... 29
Account Registration Form
</TABLE>

ACTIVE COUNTRY ALLOCATION 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

GOLD 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

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

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, Small Cap Value Equity,
Technology, 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 and Municipal Bond Portfolios; and (v)
MONEY MARKET -- Money Market and Municipal Money Market Portfolios. Additional
information about the Fund is contained in a "Statement of Additional
Information," dated May 1, 1997, 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.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.

<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
the Gold 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

ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------------
<S> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (Net of Fee Waiver)*
Class A................................................................................... 0.52%
Class B................................................................................... 0.52%
12b-1 Fees
Class A................................................................................... None
Class B................................................................................... 0.25%
Other Expenses
Class A................................................................................... 0.73%
Class B................................................................................... 0.73%
---------
Total Operating Expenses (Net of Fee Waivers)*
Class A................................................................................... 1.25%
Class B................................................................................... 1.50%
---------
---------
</TABLE>

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

*The Adviser has agreed to waive its management fees and/or to reimburse the
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolio to exceed a specified percentage of its respective
average daily net assets. Absent the fee waiver, the management fee would be
1.00%. Absent the fee waiver and/or expense reimbursement, the Portfolio's
total operating expenses would be 1.73% of the average daily net assets of the
Class A shares and 1.94% 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 Fund expenses, see
"Management of the Fund."

2
<PAGE>

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. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. 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 National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

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 above, the Portfolio charges no redemption
fees of any kind. The example is based on total operating expenses of the
Portfolio after fee waivers.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gold Portfolio
Class A.......................................................... $ 13 $ 40 $ 69 $ 151
Class B.......................................................... 15 47 82 179
</TABLE>

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following table provides financial highlights for the Class A and Class
B shares of the Portfolio for each of the periods presented. The audited
financial highlights for the Portfolio's shares for each of the periods
presented are part of the Fund's financial statements which appear in the Fund's
December 31, 1996 Annual Report to Shareholders and which are incorporated by
reference in the Fund's Statement of Additional Information. The Portfolio's
financial highlights for each of the periods presented have been audited by
Price Waterhouse LLP, whose unqualified report thereon is also incorporated by
reference in the Statement of Additional Information. Additional performance
information is included in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. The following information
should be read in conjunction with the financial statements and notes thereto.

4
<PAGE>
GOLD PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
PERIOD FROM
FEBRUARY 1, 1994*
YEAR ENDED YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1996 DECEMBER 31, 1995 1994
--------------------- ----------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 8.55 $ 9.13 $ 10.00
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)................ 0.05 (0.07) 0.03
Net Realized and Unrealized Gain (Loss) on
Investments++.................................. 1.41 1.22 (0.88)
------- ------ -------
Total from Investment Operations.............. 1.46 1.15 (0.85)
------- ------ -------
DISTRIBUTIONS
Net Investment Income........................... (0.05) (0.01) (0.02)
In Excess of Net Investment Income.............. (0.01) -- --
Net Realized Gain............................... -- -- (1.72)
In Excess of Net Realized Gain.................. (0.65) -- --
------- ------ -------
Total Distributions........................... (0.71) (1.73) (0.02)
------- ------ -------
NET ASSET VALUE, END OF PERIOD.................... $ 9.30 $ 8.55 $ 9.13
------- ------ -------
------- ------ -------
TOTAL RETURN...................................... 16.94% 13.21% (8.49)%
------- ------ -------
------- ------ -------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........... $27,810 $7,409 $ 30,243
Ratio of Expenses to Average Net Assets (1)..... 1.25%** 1.25% 1.25%
Ratio of Net Investment Income (Loss) to Average
Net Assets (1)................................. 0.57% (0.31)% 0.41%**
Portfolio Turnover Rate......................... 94% 47% 56%
Average Commission Rate#........................ $0.0246 N/A N/A

<CAPTION>
CLASS B
-------------------
PERIOD FROM
JANUARY 2, 1996***
TO DECEMBER 31,
1996
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 8.81
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)................ 0.03
Net Realized and Unrealized Gain (Loss) on
Investments++.................................. 1.14
-------
Total from Investment Operations.............. 1.17
-------
DISTRIBUTIONS
Net Investment Income........................... (0.04)
In Excess of Net Investment Income.............. (0.01)
Net Realized Gain............................... --
In Excess of Net Realized Gain.................. (0.65)
-------
Total Distributions........................... (0.70)
-------
NET ASSET VALUE, END OF PERIOD.................... $ 9.28
-------
-------
TOTAL RETURN...................................... 13.21%
-------
-------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)........... $ 1,370
Ratio of Expenses to Average Net Assets (1)..... 1.50%**
Ratio of Net Investment Income (Loss) to Average
Net Assets (1)................................. 0.30%**
Portfolio Turnover Rate......................... 94%
Average Commission Rate#........................ $0.0246
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income.......... $0.04 $0.11 $0.04 $0.04
Ratios before expense
limitation:
Expenses to Average Net
Assets..................... 1.73% 1.76% 1.72%** 1.94%**
Net Investment Loss to
Average Net Assets......... 0.10 % (0.82 )% (0.06 )%** (0.13 )%**
</TABLE>

* Commencement of operations.

** Annualized.

*** The Portfolio began offering Class B Shares on January 2, 1996.

++ The amounts shown for the year ended December 31, 1996 for a share
outstanding throughout the year does not accord with aggregate net losses on
investments for the year because of the timing of sales and repurchases of
the portfolio shares in relation to fluctuating market value of the
investments in the Portfolio.

5
<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 the International
Small Cap, Money Market and Municipal Money Market Portfolios, also offers Class
B shares. Each portfolio has its own investment objective and policies designed
to meet its specific goals. The investment objective of the Gold Portfolio is as
follows:

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

GLOBAL AND INTERNATIONAL EQUITY:

- 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 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 domiciled in
EAFE countries.

6
<PAGE>
- The JAPANESE EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of Japanese issuers.

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 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.

- 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 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.

7
<PAGE>
- 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.

MONEY MARKET:

THE CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITIES PORTFOLIOS ARE
CURRENTLY NOT BEING OFFERED.

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 March 31, 1997 had in excess of $118 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. Sun Valley Gold
Company (the "Sub-Adviser"), which at February 28, 1997, had in excess of $32
million in assets under management, acts as sub-adviser to the Portfolio. See
"Management of the Fund -- Investment Adviser and Sub-Adviser" and "Management
of the Fund -- Administrator."

HOW TO INVEST

HOW TO REDEEM

8
<PAGE>

more or less than the purchase price. Certain redemptions that cause the value
of an account to remain for a continuous 60-day period below the minimum
investment amount for the Class A shares or for Class B shares may result in
involuntary redemption or automatic conversion. For additional information on
how to redeem shares and involuntary redemption or conversion, 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. The Portfolio's investments
may be subject to greater risk and market fluctuation than a fund that invests
in securities representing a broader range of investment alternatives.
Historically, stock prices of companies involved in precious metals-related
industries have been volatile. In addition, prices of gold and other precious
metals and minerals may fluctuate sharply over short periods of time due to
various world-wide economic, financial and political factors. The Portfolio may
also invest in securities of foreign issuers which are subject to certain risks
not typically associated with domestic securities. In addition, the Portfolio
may invest in repurchase agreements, lend its portfolio securities and purchase
securities on a when-issued basis. The Portfolio may invest in foreign currency
forward contracts to hedge currency risk associated with investment in non-U.S.
dollar denominated securities. The Portfolio may invest in certain derivatives,
including options, futures and options on futures. These investments entail
certain costs and risks, including imperfect correlation between the value of
securities held by the Portfolio and the value of the particular derivative
instrument, and the risk that the Portfolio could not close out a derivatives
position when it would be most advantageous to do so. The Portfolio may also
invest in securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. Each of these
investment strategies involves specific risks which are described under
"Investment Objective and Policies" and "Additional Investment Information."

9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Gold Portfolio is long-term capital
appreciation. The production of any current income is incidental to this
objective. The Portfolio seeks to achieve its objective by investing primarily
in the equity securities of foreign and domestic issuers engaged in gold-related
activities. There can be no assurance that the Portfolio's investment objective
will be achieved. 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. In addition to the investments and strategies
described below, the Portfolio may invest in certain securities and obligations
as set forth in "Additional Investment Information" below. The investment
policies described below are not fundamental policies and may be changed without
shareholder approval. Because the securities in which the Portfolio invests may
involve risks not associated with more traditional investments, an investment in
the Portfolio, by itself, should not be considered a balanced investment
program.

Under normal circumstances, the Portfolio will invest at least 70% of its
total assets in equity securities of companies principally engaged in the
exploration, mining, fabrication, processing, distribution or trading of gold
(or, to a lesser degree, silver, platinum or other precious metals or minerals)
or the financing, managing, controlling or operating of companies engaged in
such activities. (Such activities and the activities of such related financing,
managing, controlling or operating companies are referred to herein as
"gold-related" or "precious-metals-related" activities.) For these purposes, a
company will be considered to be principally engaged in such activities if it
derives more than 50% of its income, or devotes 50% or more of its assets, to
such activities. With respect to the Portfolio, equity securities include common
and preferred stocks, convertible securities, and rights and warrants to
purchase common stocks. The Portfolio will invest more than 25% of its total
assets in securities of companies in the group of industries involved in
gold-related or precious-metals-related activities, as described above, and may
invest more than 25% of its total assets in one or more of the industries, such
as mining, that are a part of such group of industries, as described above.
Potential investors in the Portfolio should consider the possibly greater risk
arising from the concentration of the Portfolio's investments in one such
industry or the group of industries.

Because most of the world's gold production is outside of the United States,
the Portfolio expects that a significant portion of its assets may be invested
in securities of foreign issuers. The percentage of assets invested in
particular countries or regions will change from time to time in accordance with
the judgment of Morgan Stanley Asset Management Inc. (the "Adviser") and Sun
Valley Gold Company (the "Sub-Adviser", and collectively with the Adviser, the
"Advisers"), which may be based on, among other things, consideration of the
political stability and economic outlook of these countries or regions. It is
currently anticipated, however, that the Portfolio's assets will be principally
invested in the equity securities of companies located in the United States,
Canada and Australia, and the Portfolio's assets may be invested in equity
securities of companies located in South Africa.

The Portfolio expects to invest in foreign securities by buying the foreign
securities themselves, but the Portfolio may also invest in American Depositary
Receipts ("ADRs") and other Depositary Receipts, or similar securities that are
convertible into securities of foreign issuers and that evidence ownership of
the underlying foreign security when the Advisers believe that it is in the best
interest of the Portfolio to do so.

The Portfolio may also invest up to 10% of its total assets in gold bullion.
Bullion will only be bought from and sold to U.S. and foreign banks, regulated
U.S. commodities exchanges, exchanges affiliated with a regulated

10
<PAGE>
U.S. stock exchange, and dealers who are members of, or affiliated with, a
regulated U.S. commodities exchange, in accordance with applicable investment
laws. Investors should note that bullion offers the potential for capital
appreciation or depreciation, but unlike other investments does not generate
income. In bullion transactions, the Portfolio may encounter higher custody
costs and other costs (including shipping and insurance) than those costs that
are normally associated with ownership of securities. The Fund may attempt to
minimize the costs associated with the actual custody of bullion by the use of
receipts or certificates representing ownership interests in bullion. The
Advisers currently intend to use the Portfolio's investments in gold bullion as
a short-term investment for portfolio management purposes.

The Portfolio may also invest up to 30% of its assets in money market
instruments under normal circumstances, although the Portfolio intends to stay
invested in securities satisfying its primary investment objective to the extent
practicable. Money market instruments include obligations of the U.S. Government
and its agencies and instrumentalities, commercial paper including bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit) and repurchase agreements.

For hedging purposes only, the Portfolio may enter into foreign currency
forward contracts, covered call and put options (listed on a U.S. securities
exchange or written in the over-the-counter market), futures contracts and
options on futures. The Portfolio may also enter into repurchase agreements,
purchase securities on a when-issued or delayed delivery basis and lend its
portfolio securities.

ADDITIONAL INVESTMENT INFORMATION

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

11
<PAGE>

FOREIGN INVESTMENT. Investment in securities of foreign issuers involves
somewhat different investment risks than those affecting U.S. investments. There
may be limited publicly available information with respect to foreign issuers,
and foreign issuers are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to
domestic companies. There may also be less government supervision and regulation
of foreign securities exchanges, brokers and listed companies than in the United
States. Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. 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. 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. Current
developments in South Africa have raised the threat of political instability and
uncertainty concerning the impact of such instability on South Africa's economy
and businesses. Accordingly, the risk of investing in securities of issuers in
South Africa may be greater than the risk of investing in more stable foreign
countries.

Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and 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 exchange control regulations, and the Portfolio may incur
costs in connection with conversions between various currencies.

12
<PAGE>

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.

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

13
<PAGE>

GOLD RELATED INVESTMENTS. The Portfolio intends to invest at least 70% of
its total assets in securities of companies engaged in gold-related activities.
As a result of this policy, which is a fundamental policy of the Portfolio, the
Portfolio's investments may be subject to greater risk and market fluctuation
than a fund that invests in securities representing a broader range of
investment alternatives. Historically, stock prices of companies involved in
precious-metals-related industries have been volatile. Investment related to
gold and other precious metals and minerals are considered speculative and are
impacted by a variety of world-wide economic, financial and political factors.
Prices of gold and other precious metals may fluctuate sharply over short
periods of time due to changes in inflation or expectations regarding inflation
in various countries, the availability of supplies of precious metals, changes
in industrial and commercial demand, metal sales by governments, central banks
or international agencies, investment speculation, monetary and other economic
policies of various governments and government restrictions on private ownership
of certain precious metals and minerals.

LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend securities to
brokers, dealers, domestic and foreign banks or other financial institutions for
the purpose of increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral, or by a letter of credit at least
equal to the market value of the securities loaned plus accrued interest or
income. There may be a risk of delay in recovery of the securities or even loss
of rights in the collateral should the borrower of the securities fail
financially. The Portfolio will not enter into securities loan transactions
exceeding, in the aggregate, 33 1/3% of the market value of its total assets.

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 investments or
settlement for liquidity, or in adverse market conditions. See "Temporary
Investments." 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;
bank obligations; certificates of deposit (including Eurodollar certificates of
deposit); and repurchase agreements.

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<PAGE>

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. Nor as a general matter, may the Portfolio
invest more than 10% of its total assets in securities that are restricted from
sale to the public without registration ("Restricted Securities") under the
Securities Act of 1933, as amended (the "1933 Act"). However, each Portfolio may
invest up to 20% of its total assets in liquid Restricted Securities that can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities"). The Board of Directors has adopted guidelines
and delegated to the Adviser, subject to the supervision of the Board of
Directors, the daily function of determining and monitoring the liquidity of
Rule 144A Securities. Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

PRECIOUS METALS FORWARD AND FUTURES CONTRACTS. The Portfolio may enter into
futures contracts on precious metals as a hedge against changes in the prices of
precious metals held or intended to be acquired by

15
<PAGE>

the Portfolio, but not for speculation or for achieving leverage. The
Portfolio's hedging activities may include purchases of futures contracts as an
offset against the effect of anticipated increases in the price of a precious
metal which the Portfolio intends to acquire or sales of futures contracts as an
offset against the effect of anticipated declines in the price of precious metal
which the Portfolio owns. The Portfolio may enter into precious metals forward
contracts, which are similar to precious metals futures contracts in that they
both provide for the purchase or sale of precious metals at an agreed price with
delivery to take place at an agreed future time. However, unlike futures
contracts, forward contracts are negotiated contracts which are primarily used
in the dealer market. The Portfolio will use forward contracts for the same
hedging purposes as those applicable to futures contracts, as described above.
Precious metals futures and forward contract prices can be volatile and are
influenced principally by changes in spot market prices, which in turn are
affected by a variety of political and economic factors. While the correlation
between changes in prices of futures and forward contracts and prices of the
precious metals being hedged by such contracts has historically been very
strong, the correlation may be imperfect at times, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected precious metals price trends.

The Portfolio may also purchase and write covered call or put options on
precious metals futures contracts. Such options would be purchased solely for
hedging purposes. Call options might be purchased to hedge against an increase
in the price of precious metals the Portfolio intends to acquire, and put
options may be purchased to hedge against a decline in the price of precious
metals owned by the Portfolio. As is the case with futures contracts, options on
precious metals futures may facilitate the Portfolio's acquisition of precious
metals or permit the Portfolio to defer disposition of precious metals for tax
or other purposes.

REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines of the Fund's
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 Portfolio may not 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 are invested in these agreements and other
investments for which market quotations are not readily available or which are
otherwise illiquid.

TEMPORARY INVESTMENTS. For temporary defensive purposes, when the Advisers
determine that market conditions warrant, the Portfolio may invest up to 100% of
its assets in dollar and non-dollar denominated money market instruments and
short- and medium-term debt securities that the Advisers believe to be of high
quality, or hold cash. The short- 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

16
<PAGE>

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.

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
cash or liquid securities 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.

INVESTMENT LIMITATIONS

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

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 and under certain
non-fundamental investment limitation that may be changed without shareholder
approval. For additional information on fundamental and non-fundamental
investment limitations, see "Investment Limitations" in the Statement of
Additional Information.

MANAGEMENT OF THE FUND

INVESTMENT ADVISER AND SUB-ADVISER. Morgan Stanley Asset Management Inc. is
the Adviser and Administrator of the Fund and the Portfolio. 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. With respect to the Portfolio, the
Adviser has delegated these responsibilities, subject to its supervision, to the
Sub-Adviser. The Adviser is entitled to receive from the Portfolio an annual
investment advisory fee, payable quarterly, in an amount equal to 1.00% of the
average daily net assets of the Portfolio.

Sun Valley Gold Company is sub-adviser of the Portfolio. Pursuant to a
Sub-Advisory Agreement, and subject at all times to the supervision of the
Adviser and the Board of Directors of the Fund, the Sub-Adviser provides
investment advice and portfolio management services, makes the Portfolio's
day-to-day investment

17
<PAGE>
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. The Sub-Adviser is entitled to receive from
the Adviser an annual sub-advisory fee, payable quarterly, in an amount equal to
0.40% 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 the total annual
operating expenses for Class A and Class B shares to exceed 1.25% and 1.50%,
respectively, of its average daily net assets. The Sub-Adviser has agreed to a
proportionate reduction in its fees from the Adviser if the Adviser is required
to waive its fees or to reimburse the Portfolio so that the Portfolio's total
operating expenses for Class A and Class B shares do not exceed 1.25% and 1.50%,
respectively, of its average daily net assets.

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business, and
provides a broad range of portfolio management services to customers in the
United States and abroad. On February 5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. announced that they had entered into an Agreement
and Plan of Merger to form Morgan Stanley, Dean Witter, Discover & Co. Morgan
Stanley Group Inc. is the direct parent of the Adviser and Morgan Stanley.
Subject to certain conditions being met, it is currently anticipated that the
transaction will close in mid-1997. Thereafter, the Adviser and Morgan Stanley
will be subsidiaries of Morgan Stanley, Dean Witter, Discover & Co. At March 31,
1997 the Adviser, together with its affiliated asset management companies,
managed investments totaling in excess of $118 billion, including approximately
$100 billion under active management and $18 billion as Named Fiduciary or
Fiduciary Adviser. See "Management of the Fund" in the Statement of Additional
Information.

The Sub-Adviser, with principal offices at 620 Sun Valley Road, Sun Valley,
Idaho 83340, specializes in the management of gold-related investments. At
February 28, 1997, the Sub-Adviser managed investments totaling in excess of $32
million.

PORTFOLIO MANAGER. Peter F. Palmedo, the President of the Sub-Adviser since
its inception in January, 1992, has had primary portfolio management
responsibility for the Portfolio since its inception. He has also served as
President of Sun Valley Gold Trading, Inc., a registered broker-dealer, since
its inception in January, 1992, and of Mad River Management since September,
1989. Prior thereto, Mr. Palmedo worked at Morgan Stanley in the institutional
equity department and specialized in portfolio risk management, derivatives and
the development and analysis of long-dated options, synthetic options and
options embedded in securities. He received a BA in Business and Finance from
Hampshire College in 1979.

ADMINISTRATOR. The Adviser also provides administrative services to the
Fund 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 report, supervision of the Fund's arrangements with its
custodian, and assistance in the preparation of the Fund's registration
statements under federal laws. The Administration Agreement also provides that
the Administrator, through its agents, will provide dividend disbursing and
transfer agent services to the Fund. 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.

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<PAGE>

DISTRIBUTOR. Morgan Stanley serves as the exclusive Distributor of the
shares of the Fund. Under its Distribution Agreement with the Fund, Morgan
Stanley sells shares of the Portfolio upon the terms and at the current offering
price described in this Prospectus. Morgan Stanley is not obligated to sell any
certain number of shares of the Portfolio.

The Fund has adopted a Plan of Distribution with respect to 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, 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, accountant's 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

19
<PAGE>

minimum initial investment or minimum account size requirements for a Portfolio
account. Employees of the Adviser and certain of its affiliates may purchase
Class A shares subject to conditions, including a lower minimum initial
investment, established by Officers of the Fund.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

20
<PAGE>
CONVERSION FROM CLASS B TO CLASS A SHARES

INITIAL PURCHASES DIRECTLY FROM THE FUND

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form, and mailing it, together with a check ($500,000 minimum
for Class A shares of the Portfolio and $100,000 minimum for Class B shares
of the Portfolio, with certain exceptions for Morgan Stanley employees and
select customers) payable to "Morgan Stanley Institutional Fund, Inc. --
[portfolio name]", to:

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

Payment will be accepted only in U.S. dollars, unless prior approval for payment
by other currencies is given by the Fund. The 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.

21
<PAGE>
B. Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account (be sure to have your bank include the name of
the portfolio(s) selected, the class selected and the account number
assigned to you) as follows:

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

Please call the 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.

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

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 funds.

ADDITIONAL INVESTMENTS

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

OTHER PURCHASE INFORMATION

22
<PAGE>
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.

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

Investors may also invest in the Fund by purchasing shares through the
Distributor.

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of the 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 shares of Portfolio A for shares of Portfolio B, then exchanging
shares of Portfolio B for shares of Portfolio C and again exchanging shares of
Portfolio C for shares of Portfolio B within a 120-day period. 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 or accounts managed or
advised by the Adviser and/or any of its affiliates.

INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT

23
<PAGE>

current income objectives. After using TFM criteria to determine your long-term
investment and/or current income objectives, you can choose one of several TFM
investment strategies. Based on your chosen strategy, your initial investment
will be allocated among a number of the Class A or Class B shares of the
Portfolios. Depending on market conditions, the TFM Adviser periodically
reallocates the combination of Portfolios or the percentage amounts invested in
the shares of each Portfolio to implement your TFM investment strategy. In
addition, your TFM Account will be periodically rebalanced to maintain your TFM
strategy's current asset allocation mix, if and when the performance of one or
more of the Portfolios unbalances the strategy's mix. You will pay the TFM
Adviser a fee for the TFM Account service that is in addition to and separate
from the fees and expenses you will pay directly or indirectly as an investor in
the Portfolios. See "Fund Expenses."

REDEMPTION OF SHARES

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

BY MAIL

24
<PAGE>
request should be addressed to Morgan Stanley Institutional Fund, Inc., P.O. Box
2798, Boston, Massachusetts 02208-2798, except that deliveries by overnight
courier should be addressed to Morgan Stanley Institutional Fund, Inc., c/o
Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts
02108-3913.

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

(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 Fund representative.

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of the 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 express mail 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.

FURTHER REDEMPTION INFORMATION

25
<PAGE>
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.

SHAREHOLDER SERVICES

EXCHANGE FEATURES

You may exchange shares that you own in the Portfolio for shares of any
other available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares." Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available 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 may be modified or terminated by the Fund at any time
upon 60-days notice to shareholders.

BY MAIL

BY TELEPHONE

When exchanging shares by telephone, have ready the name, class of shares
and account number of the current portfolios, the name(s) 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(es) of the portfolio(s) involved in the exchange of shares at the close of
business. Requests received after 4:00 p.m. (Eastern Time) are processed the
next business day based on the net asset value determined at the close of
business on such day. For additional information regarding responsibility for
the authenticity of telephoned instructions, see "Redemption of Shares -- By
Telephone" above.

26
<PAGE>
TRANSFER OF REGISTRATION

You may transfer the registration of any of your Portfolio shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolio's shares 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 each class of the
Portfolio. Net asset value is calculated separately for each class of the
Portfolio. Net asset value per share is determined as of the regular close of
the NYSE on each day that the NYSE is open for business. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a U.S. securities exchange for which market
quotations are available are valued at the last quoted sale price on the day the
valuation is made. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at a
price within a range not exceeding the current asked price nor less than the
current bid price. The current bid and asked prices are determined based on the
average of 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 quotations are not
readily available (including restricted and unlisted foreign securities) and
those securities for which it is inappropriate to determine prices in accordance
with the above-stated procedures are determined in good faith at fair value
using methods determined by the Board of Directors. For purposes of calculating
net asset value per share, all assets and liabilities initially expressed in
foreign currencies will be translated into U.S. dollars at the mean of the bid
and asked price of such currencies against the U.S. dollar last quoted by any
major bank.

27
<PAGE>
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 Portfolio may advertise "total return" which 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 dividend and distributions or upon redemption. The
Fund may also include comparative performance information in advertising or
marketing the Portfolio's shares. Such performance information may include data
from Lipper Analytical Services, Inc., other industry publications, business
periodicals, rating services and market indices.

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

The Portfolio expects to distribute substantially all of its taxable net
investment income in the form of quarterly dividends. Net realized capital
gains, if any, after reduction for any available tax loss carryforwards will
also be distributed annually.

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 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.

28
<PAGE>
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.

The Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Fund's other portfolios. The Portfolio
intends to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the 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 intends to distribute substantially all of its taxable net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from the Portfolio's net investment income are taxable
to shareholders as ordinary income, whether received in cash or in additional
shares. Such dividends will generally qualify for the 70% dividends-received
deduction for corporate shareholders only to the extent of the aggregate
qualifying dividend income received by the Portfolio from U.S. corporations. The
Portfolio will report annually to its shareholders the amount of dividend income
qualifying for such treatment.

Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares. The
Portfolio will send 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 gain 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.

Conversion of shares between classes are not taxable events to the
Shareholder.

29
<PAGE>
Shareholders are urged to consult with their tax advisors 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.

PORTFOLIO TRANSACTIONS

PORTFOLIO TURNOVER

30
<PAGE>
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 35 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. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of 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 offer only 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 pre-emptive rights. The shares of the Portfolio have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Persons or organizations owning 25% or more of the
outstanding shares of a portfolio may be presumed to "control" (as that term is
defined in the 1940 Act) that Portfolio. Under Maryland law, the Fund is not
required to hold an annual meeting of its shareholders unless required to do so
under the 1940 Act.

REPORTS TO SHAREHOLDERS

CUSTODIAN

Chase is the Fund's custodian for domestic and certain foreign assets. 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 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.

31
<PAGE>
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.

32
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
GOLD PORTFOLIO
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

A) REGISTRATION
1. INDIVIDUAL
2. JOINT TENANTS
(RIGHTS OF
SURVIVORSHIP PRESUMED
UNLESS
TENANCY IN COMMON
IS INDICATED)
</TABLE>

1.
First
Name Initial Last Name

2.
First
Name Initial Last Name

First
Name Initial Last Name

<TABLE>
<C> <S> <C>
3. CORPORATIONS,
TRUSTS AND OTHERS
Please call the Fund
for additional documents
that may be required to
set up account and to
authorize transactions.
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)
</TABLE>

/ / TRUST ________________________ / / OTHER (Specify) ________________________

<TABLE>
<C> <S> <C>
B) MAILING ADDRESS
Please fill in completely, including
telephone number(s).
</TABLE>

/ / United States Citizen / / Resident Alien

Street or P.O. Box

City

State Zip

Home Telephone No. Business Telephone No.

/ / Non-Resident Alien:

Permanent Address (Where you reside permanently for tax purposes)

Street Address

City

Country Postal Code

Home Telephone No. Business Telephone No.

Current Mailing Address (If different from Permanent Address)

Street Address

City

Country

Postal Code

Home Telephone No. Business Telephone No.

IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer)
with your correct TIN(s) or SSN(s). Accounts that have a
missing or incorrect TIN(s) or SSN(s) will be subject to
backup withholding at a 31% rate on dividends, distributions
and other payments. If you have not provided us with your
correct TIN(s) or SSN(s), you may be subject to a $50 penalty
imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax liability
of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
You may be notified that you are subject to backup withholding
under Section 3406(a)(1)(C) of the Internal Revenue Code
because you have underreported interest or dividends or you
were required to, but failed to, file a return which would
have included a reportable interest or dividend payment.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C> <C> <C>
D) PORTFOLIO AND For Purchase of the following / / Class A Shares $ / / Class B Shares $
CLASS SECTION Portfolio:
(Class A shares minimum Gold Portfolio
$500,000 for the
Portfolio and Class B
shares minimum $100,000
for the Portfolio).
Please indicate class and
amount.
Total Initial Investment $
</TABLE>

<TABLE>
<C> <S> <C>
E) METHOD OF
INVESTMENT
Please indicate
portfolio, manner of
payment.
</TABLE>

Payment by:

/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)

<TABLE>
<C> <S> <C>
H) INTERESTED PARTY
OPTION Name
In addition to the
account statement sent to
my/our registered Address
address, I/we hereby
authorize the Fund to City State Z
mail duplicate statements Code
to the name and address
provided at right.
</TABLE>

<TABLE>
<C> <S> <C>
I) DEALER
INFORMATION
Representative Name Representative
No. Branch
No.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C>
J) SIGNATURE OF
ALL HOLDERS
AND TAXPAYER
CERTIFICATION
Sign Here ,
</TABLE>

<TABLE>
<S> <C>
The undersigned certify that I/we have full authority and legal capacity
to purchase and redeem shares of the Fund and affirm that I/we have
received a current Prospectus of the Morgan Stanley Institutional Fund,
Inc. and agree to be bound by its terms.
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF
PERJURY THAT THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT
AND THAT AS REQUIRED BY FEDERAL LAW (PLEASE CHECK APPLICABLE BOXES
BELOW):
/ / U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM
IS/ARE THE CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT
SUBJECT TO ANY BACKUP WITHHOLDING EITHER BECAUSE (A) I/WE ARE
EXEMPT FROM BACKUP WITHHOLDING; (B) I/WE HAVE NOT BEEN
NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I/WE
ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS; OR (C) THE IRS HAS NOTIFIED
ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE
HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL
SECURITY ADMINISTRATION FOR A TIN OR A SSN AND I/WE
UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO CHASE
GLOBAL FUNDS SERVICES COMPANY ("CGFSC") WITHIN 60 DAYS OF THE
DATE OF THIS APPLICATION OR IF I/WE FAIL TO FURNISH MY/OUR
CORRECT SSN(S) OR TIN(S), I/WE MAY BE SUBJECT TO A PENALTY
AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION
PROCEEDS. (PLEASE PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU
MAY REQUEST SUCH FORM BY CALLING CGFSC AT 800-282-4404.
/ / NON-U.S. CITIZEN(S)/TAXPAYER(S):
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S.
CITIZENS OR RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY
THE INTERNAL REVENUE SERVICE.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.

(X)
(X) Signature (if joint account, both
Signature Date must sign) Date
</TABLE>

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 6
Investment Objective and Policies................. 10
Additional Investment Information................. 11
Investment Limitations............................ 17
Management of the Fund............................ 17
Purchase of Shares................................ 19
Redemption of Shares.............................. 24
Shareholder Services.............................. 26
Valuation of Shares............................... 27
Performance Information........................... 28
Dividends and Capital Gains Distributions......... 28
Taxes............................................. 28
Portfolio Transactions............................ 30
General Information............................... 31
Account Registration Form
</TABLE>

GOLD PORTFOLIO
A PORTFOLIO OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

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

Investment Adviser
Morgan Stanley
Asset Management Inc.

Sub-Adviser
Sun Valley Gold Company

Distributor
Morgan Stanley & Co.
Incorporated

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

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company, or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund is designed to provide clients with attractive
alternatives for meeting their investment needs. The Fund currently consists of
twenty-nine portfolios representing a broad range of investment choices. This
prospectus (the "Prospectus") pertains to the Class A and the Class B shares of
the Global Equity, International Equity, Asian Equity, European Equity, Japanese
Equity and Latin American Portfolios (each a "Multiclass Portfolio" and
collectively, the "Multiclass Portfolios") and to the Class A Shares of the
International Small Cap Portfolio (each, a "Portfolio" and collectively, the
"Portfolios"). The International Equity Portfolio is currently closed to new
investors with the exception of certain Morgan Stanley & Co. Incorporated
("Morgan Stanley") customers. The Class A and Class B shares currently offered
by the Portfolios have different minimum investment requirements and fund
expenses. Shares of the portfolios are offered with no sales charge, exchange
fee or redemption fee, (except that the International Small Cap Portfolio may
impose a transaction fee).

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 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, Small Cap Value Equity,
Technology, 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 and Municipal Bond Portfolios; and (v)
MONEY MARKET -- Money Market and Municipal Money Market Portfolios. Additional
information about the Fund is contained in a "Statement of Additional
Information," dated May 1, 1997, 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.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
FUND EXPENSES

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

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

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

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

(continued)

2
<PAGE>

and is retained by the Portfolio. The fee does not apply to portfolios of the
Fund other than the International Small Cap Portfolio and is not charged in
connection with the reinvestment of dividends or capital gain distributions.
The fee will not be charged with respect to purchases and redemptions that do
not result in actual transaction costs to the Portfolio. Examples of such
transactions include offsetting purchases and redemptions by different
shareholders occurring at the same time and in-kind purchases and redemptions.

<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY EQUITY INTERNATIONAL SMALL ASIAN EQUITY
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO CAP PORTFOLIO PORTFOLIO
- ------------------------------------------------ ------------- ------------------- ------------------- --------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)**
Class A....................................... 0.65% 0.78% 0.87% 0.60%
Class B....................................... 0.65% 0.78% N/A 0.60%
12b-1 Fees
Class A....................................... None None None None
Class B....................................... 0.25% 0.25% N/A 0.25%
Other Expenses
Class A....................................... 0.35% 0.22% 0.28% 0.40%
Class B....................................... 0.35% 0.22% N/A 0.40%
------------- ------- ------- --------------
Total Operating Expenses (Net of Fee Waivers)
Class A....................................... 1.00% 1.00% 1.15% 1.00%
Class B....................................... 1.25% 1.25% N/A 1.25%
------------- ------- ------- --------------
------------- ------- ------- --------------

EUROPEAN EQUITY JAPANESE EQUITY LATIN AMERICAN
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------ ------------------- ------------------- --------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)**
Class A...................................................... 0.64% 0.73% 0.62%
Class B...................................................... 0.64% 0.73% 0.62%
12b-1 Fees
Class A...................................................... None None None
Class B...................................................... 0.25% 0.25% 0.25%
Other Expenses
Class A...................................................... 0.36% 0.27% 1.08%
Class B...................................................... 0.36% 0.27% 1.08%
------- ------- --------------
Total Operating Expenses (Net of Fee Waivers)
Class A...................................................... 1.00% 1.00% 1.70%
Class B...................................................... 1.25% 1.25% 1.95%
------- ------- --------------
------- ------- --------------
</TABLE>

** The Adviser has agreed to waive its management fees and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolios to exceed a specified percentage of their
respective average daily net assets. As a result of these reductions, the
Management Fees stated above are lower than the contractual fees 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 Fund expenses, see "Management

3
<PAGE>

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

<TABLE>
<CAPTION>
TOTAL
OPERATING EXPENSES
ABSENT
MANAGEMENT FEE WAIVERS
FEES ABSENT FEE --------------------------
PORTFOLIO WAIVERS CLASS A CLASS B
- -------------------------------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Global Equity................................................. 0.80% 1.15% 1.39%
International Equity.......................................... 0.80% 1.02% 1.27%
International Small Cap....................................... 0.95% 1.23% N/A
Asian Equity.................................................. 0.80% 1.25% 1.52%
European Equity............................................... 0.80% 1.16% 1.40%
Japanese Equity............................................... 0.80% 1.07% 1.31%
Latin American................................................ 1.10% 2.18% 2.43%
</TABLE>

The purpose of the table is to assist the investor in understanding the
various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. 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 National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

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

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

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

5
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A and Class
B shares of the Multiclass Portfolios and the Class A shares of the
International Small Cap Portfolio for each of the periods presented. The audited
financial highlights for the Portfolios' shares for each of the periods
presented are part of the Fund's financial statements which appear in the Fund's
December 31, 1996 Annual Report to Shareholders and which are incorporated by
reference in the Fund's Statement of Additional Information. The Portfolios'
financial highlights for each of the periods presented have been audited by
Price Waterhouse LLP, whose unqualified report thereon is also incorporated by
reference in the Statement of Additional Information. Additional performance
information is included in the Annual Report. The Annual Report and the
financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page of this Prospectus. After October 31, 1992, the
Fund changed its fiscal year end to December 31. The following information
should be read in conjunction with financial statements and notes thereto.

6
<PAGE>
GLOBAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------------------------------------- ------------
PERIOD FROM PERIOD FROM
TWO MONTHS JULY 15, JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1992* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1996
------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 14.31 $ 13.40 $ 13.87 $ 9.75 $ 9.35 $ 10.00 $ 14.36
------------ ------------ ------------ ------------ ------------ ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.23 0.18 0.08 0.08 0.01 0.02 0.13
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 3.02 2.26 0.79 4.18 0.39 (0.67) 3.02
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total from Investment
Operations............ 3.25 2.44 0.87 4.26 0.40 (0.65) 3.15
------------ ------------ ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS
Net Investment Income.... (0.23) (0.22) (0.12) (0.02) -- -- (0.21)
In Excess of Net
Investment Income....... -- -- -- (0.03) -- --
Net Realized Gain........ (1.09) (1.31) (1.22) (0.09) -- -- (1.09)
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total Distributions.... (1.32) (1.53) (1.34) (0.14) -- -- (1.30)
------------ ------------ ------------ ------------ ------------ ----------- ------------
NET ASSET VALUE, END OF
PERIOD.................... $ 16.24 $ 14.31 $ 13.40 $ 13.87 $ 9.75 $ 9.35 $ 16.21
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
TOTAL RETURN............... 22.83% 18.66% 6.95% 44.24% 4.28% (6.50)% 22.04%
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands)............. $80,297 $91,675 $78,935 $19,918 $11,739 $11,257 $3,928
Ratio of Expenses to
Average Net Assets
(1)..................... 1.00% 1.00% 1.00% 1.00% 1.00%** 1.00%** 1.25%**
Ratio of Net Investment
Income to Average Net
Assets (1).............. 1.38% 1.17% 0.87% 0.84% 0.69%** 1.00%** 1.29%**
Portfolio Turnover
Rate.................... 26% 28% 12% 42% 5% 10% 26%
Average Commission Rate
#....................... $0.0299 N/A N/A N/A N/A N/A $0.0299
</TABLE>

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

<TABLE>
<C><S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income............... $0.03 $0.02 $0.02 $0.01 $0.02 $0.08 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets... 1.15 % 1.13 % 1.24 % 1.66 % 2.49 %** 5.22 %** 1.39 %**
Net Investment Income (Loss) to
Average Net Assets.............. 1.23 % 1.04 % 0.63 % 0.18 % (0.80 )%** (3.22 )%** 1.15 %**
</TABLE>

* Commencement of operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

7
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
CLASS A ------------
-------------------------------------------------------------------------------------- PERIOD FROM
TWO MONTHS JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1996
------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 15.15 $ 15.34 $ 14.09 $ 9.98 $ 9.83 $ 10.52 $ 15.24
------------ ------------ ------------ ------------ ------------ ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.25 0.16 0.16 0.15 0.01 0.12 0.23
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 2.71 1.55 1.54 4.36 0.14 (0.59) 2.59
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total from Investment
Operations............ 2.96 1.71 1.70 4.51 0.15 (0.47) 2.82
------------ ------------ ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS
Net Investment Income.... (0.36) (0.06) (0.18) (0.01) -- (0.17) (0.33)
In Excess of Net
Investment Income....... -- -- -- (0.13) -- -- --
Net Realized Gain........ (0.80) (1.84) (0.27) (0.26) -- (0.05) (0.80)
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total Distributions.... (1.16) (1.90) (0.45) (0.40) -- (0.22) (1.13)
------------ ------------ ------------ ------------ ------------ ----------- ------------
NET ASSET VALUE, END OF
PERIOD.................... $ 16.95 $ 15.15 $ 15.34 $ 14.09 $ 9.98 $ 9.83 $ 16.93
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
TOTAL RETURN............... 19.64% 11.77% 12.39% 46.50% 1.53% (4.56)% 18.58%
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands)............. $2,264,424 $1,598,530 $1,304,770 $ 947,045 $ 510,727 $ 486,836 $ 5,393
Ratio of Expenses to
Average Net
Assets (1).............. 1.00% 1.00% 1.00% 1.00% 1.00%** 1.00% 1.25%**
Ratio of Net Investment
Income to Average Net
Assets (1).............. 1.64% 1.38% 1.12% 1.25% 0.68%** 1.46% 1.68%**
Portfolio Turnover
Rate.................... 18% 27% 16% 23% 5% 12% 18%
Average Commission
Rate#................... $0.0238 N/A N/A N/A N/A N/A $0.0238
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment
income.......................... $0.00 $0.003 $0.004 $0.01 $0.00 $0.00 $0.00
Ratios before expense limitation:
Expenses to Average Net Assets... 1.02 % 1.03 % 1.03 % 1.06 % 1.14 %** 1.02 % 1.27 %**
Net Investment Income to Average
Net Assets...................... 1.61 % 1.35 % 1.09 % 1.19 % 0.54 %** 1.44 % 1.66 %**
</TABLE>

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

8
<PAGE>
INTERNATIONAL SMALL CAP PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 15,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1992* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993++ 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 14.94 $ 15.15 $ 14.64 $ 10.09 $ 10.00
------------- ------------- ------------- ------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).................. 0.21 0.24 0.14 0.09 0.01
Net Realized and Unrealized Gain on
Investments (2)........................... 2.29 0.15 0.62 4.48 0.08
------------- ------------- ------------- ------------- ------
Total from Investment Operations......... 2.50 0.39 0.76 4.57 0.09
------------- ------------- ------------- ------------- ------
DISTRIBUTIONS
Net Investment Income...................... (0.22) (0.23) (0.03) 0.00 --
In Excess of Net Investment Income......... -- -- -- (0.02) --
Net Realized Gain.......................... (0.39) (0.37) (0.22) -- --
------------- ------------- ------------- ------------- ------
Total Distributions...................... (0.61) (0.60) (0.25) (0.02) --
------------- ------------- ------------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 16.83 $ 14.94 $ 15.15 $ 14.64 $ 10.09
------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------
TOTAL RETURN................................. 16.82% 2.60% 5.25% 45.34% 0.90%
------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)...... $ 234,743 $ 198,669 $ 160,101 $ 52,834 $ 3,824
Ratio of Expenses to Average Net Assets
(1)....................................... 1.15% 1.15% 1.15% 1.15% 1.15%**
Ratio of Net Investment Income to
Average Net Assets (1).................... 1.29% 1.72% 1.18% 0.66% 1.37%**
Portfolio Turnover Rate.................... 35% 24% 8% 14% 0%
Average Commission Rate#................... $0.0159 N/A N/A N/A N/A
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income................................ $0.01 $0.01 $0.02 $0.10 $0.16
Ratios before expense limitation:
Expenses to Average Net Assets......... 1.23 % 1.24 % 1.29 % 1.86 % 21.67 %**
Net Investment Income/(Loss) to Average
Net Assets............................ 1.20 % 1.63 % 1.04 % (0.05 )% (19.15 )%**
(2) Reflects a 1% transaction fee on
purchases and redemptions of capital
shares.
</TABLE>

* Commencement of operations.

** Annualized

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

#Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period. For the year ended December 31,
1996, the average commission rate paid on trades on which commissions were
charged was 0.30% of the trade amount.

9
<PAGE>
ASIAN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
CLASS A ------------
-------------------------------------------------------------------------------------- PERIOD FROM
TWO MONTHS JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1996
------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 19.48 $ 21.54 $ 26.20 $ 13.11 $ 13.63 $ 9.67 $ 19.55
------------ ------------ ------------ ------------ ------------ ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)................... 0.17 0.18 0.11 0.10 0.01 0.14 0.11
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.50 1.11 (4.15) 13.38 (0.53) 3.86 0.46
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total from Investment
Operations.......... 0.67 1.29 (4.04) 13.48 (0.52) 4.00 0.57
------------ ------------ ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS
Net Investment
Income................ (0.15) (0.34) (0.09) (0.01) -- (0.04) (0.11)
In Excess of Net
Investment Income..... (0.00)+ (0.00+ -- (0.13) -- -- --
Net Realized Gain...... (1.27) (3.01) (0.53) (0.12) -- -- (1.27)
In Excess of Net
Realized Gain......... -- -- -- (0.13) -- --
------------ ------------ ------------ ------------ ------------ ----------- ------------
Total
Distributions....... (1.42) (3.35) (0.62) (0.39) -- (0.04) (1.38)
------------ ------------ ------------ ------------ ------------ ----------- ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 18.73 $ 19.48 $ 21.54 $ 26.20 $ 13.11 $ 13.63 $ 18.74
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
TOTAL RETURN............. 3.49% 6.87% (15.81)% 105.71% (3.82)% 41.50% 2.92%
------------ ------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ------------ ----------- ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (Thousands).... $363,498 $314,884 $276,906 $287,136 $ 41,978 $41,017 $ 11,002
Ratio of Expenses to
Average Net Assets
(1)................... 1.00% 1.00% 1.00% 1.00% 1.00%** 1.00% 1.25%**
Ratio of Net Investment
Income to Average Net
Assets (1)............ 0.74% 0.97% 0.52% 0.83% 0.61%** 1.53% 0.58%**
Portfolio Turnover
Rate.................. 69% 42% 47% 18% 10% 33% 69%
Average Commission
Rate#................. $0.0111 N/A N/A N/A N/A N/A $0.0111
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income............... $0.05 $0.03 $0.04 $0.05 $0.02 $0.06 $0.04
Ratios before expense limitation:
Expenses to Average Net Assets... 1.25 % 1.18 % 1.20 % 1.38 % 2.02 %** 1.63 % 1.52 %**
Net Investment Income (Loss) to
Average Net Assets.............. 0.54 % 0.79 % 0.32 % 0.45 % (0.41) %** 0.90 % 0.37 %**
</TABLE>

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

+ Amount is less than $0.01 per share.

#Beginning with fiscal year 1996, the Portfolio is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period. For the year ended December 31,
1996, the average commission rate paid on trades on which commissions were
charged was 0.52% of the trade amount.

10
<PAGE>
EUROPEAN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------- -------------
PERIOD FROM PERIOD FROM
APRIL 2, JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 13.92 $ 13.94 $ 12.91 $ 10.00 $ 14.05
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).................. 0.24 0.14 0.08 0.08 0.18
Net Realized and Unrealized Gain on
Investments............................... 2.85 1.37 1.29 2.83 2.73
------------- ------------- ------------- ------------- -------------
Total from Investment Operations......... 3.09 1.51 1.37 2.91 2.91
------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income...................... (0.25) (0.15) (0.09) -- (0.23)
In Excess of Net Investment Income......... (0.02) -- -- -- (0.02)
Net Realized Gain.......................... (0.04) (1.38) (0.25) -- (0.04)
------------- ------------- ------------- ------------- -------------
Total Distributions...................... (0.31) (1.53) (0.34) -- (0.29)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD............... $ 16.70 $ 13.92 $ 13.94 $ 12.91 $ 16.67
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
TOTAL RETURN................................. 22.29% 11.85% 10.88% 29.10% 20.76%
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)...... $ 178,356 $ 69,583 $ 27,634 $ 12,681 $ 2,654
Ratio of Expenses to Average Net Assets
(1)....................................... 1.00% 1.00% 1.00% 1.00%** 1.25%**
Ratio of Net Investment Income to Average
Net Assets (1)............................ 1.83% 1.37% 0.87% 1.23%** 1.67%**
Portfolio Turnover Rate.................... 24% 13% 79% 15% 24%
Average Commission Rate#................... $0.0212 N/A N/A N/A $0.0212
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income................................ $0.02 $0.03 $0.06 $0.09 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets......... 1.16 % 1.25 % 1.62 % 2.43 %** 1.40 %**
Net Investment Income (Loss) to Average
Net Assets............................ 1.67 % 1.12 % 0.25 % (0.21 )%** 1.52 %**
</TABLE>

* Commencement of operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

11
<PAGE>
JAPANESE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------- -------------
PERIOD FROM PERIOD FROM
APRIL 25, JANUARY 2,
YEAR ENDED YEAR ENDED 1994* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996++ 1995 1994 1996++
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.27 $ 9.83 $ 10.00 $ 9.25
------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)........... -- 0.04 (0.01) (0.02)
Net Realized and Unrealized Loss on
Investments+.............................. (0.13) (0.40) (0.16) (0.14)
------------- ------------- ------------- -------------
Total from Investment Operations......... (0.13) (0.36) (0.17) (0.16)
------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income...................... (0.66) -- -- (0.64)
In Excess of Net Investment Income......... (0.52) (0.20) -- (0.51)
------------- ------------- ------------- -------------
Total Distributions...................... (1.18) (0.20) -- (1.15)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD............... $ 7.96 $ 9.27 $ 9.83 $ 7.94
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN................................. (1.40)% (3.64)% (1.70)% (1.67)%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)...... $ 152,229 $ 119,278 $ 50,332 $ 3,431
Ratio of Expenses to Average Net Assets
(1)....................................... 1.00% 1.00% 1.00%** 1.25%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (1).................... (0.04)% 0.15% (0.10)%** (0.26)%**
Portfolio Turnover Rate.................... 38% 52% 1% 38%
Average Commission Rate#................... $0.0561 N/A N/A $0.0561
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income (loss)......................... $0.01 $0.06 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets......... 1.07 % 1.20 % 1.27 %** 1.31 %**
Net Investment Income (Loss) to Average
Net Assets............................ (0.11 )% (0.05 )% (0.37 )%** (0.32 )%**
</TABLE>

* Commencement of operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

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

++ Per share amounts for the year ended December 31, 1996 are based on average
outstanding shares.

12
<PAGE>
LATIN AMERICAN PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
-----------------------------------------
PERIOD FROM CLASS B
JANUARY 18, -------------------
YEAR ENDED 1995* TO DECEMBER PERIOD FROM JANUARY
DECEMBER 31, 31, 2, 1996*** TO
1996 1995 DECEMBER 31, 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.06 $ 10.00 $ 9.44
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1).................. 0.14 0.05 0.09
Net Realized and Unrealized Gain (Loss) on
Investments............................... 4.27 (0.92) 3.90
------- ------- -------
Total from Investment Operations......... 4.41 (0.87) 3.99
------- ------- -------
DISTRIBUTIONS
Net Investment Income...................... (0.13) (0.04) (0.10)
Net Realized Gain.......................... (2.02) -- (2.02)
Return of Capital.......................... -- (0.03)
------- ------- -------
Total Distributions...................... (2.15) (0.07) (2.12)
------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $ 11.32 $ 9.06 $ 11.31
------- ------- -------
------- ------- -------
TOTAL RETURN................................. 48.77% (8.68)% 42.44%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)...... $ 30,409 $ 15,376 $ 1,333
Ratio of Expenses to Average Net Assets
(1)....................................... 1.70% 1.70%** 1.95%**
Ratio of Net Investment Income to Average
Net Assets (1)............................ 1.21% 0.62%** 0.89%**
Portfolio Turnover Rate.................... 192% 137% 192%
Average Commission Rate#................... $0.0004 N/A $0.0004
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C>
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income................................ $0.05 $0.09 $0.05
Ratios before expense limitation:
Expenses to Average Net Assets......... 2.18 % 3.13 %** 2.43 %**
Net Investment Loss to Average Net
Assets................................ 0.75 % (0.48 )%** 0.42 %**
</TABLE>

* Commencement of Operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

13
<PAGE>
PROSPECTUS SUMMARY

THE FUND

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

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

-The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in equity securities of non-U.S. issuers with equity
market capitalizations of less than $1 billion.

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

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

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

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

GLOBAL AND INTERNATIONAL EQUITY:

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

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

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

-The INTERNATIONAL MAGNUM PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers domiciled in
EAFE countries.

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

U.S. EQUITY:

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

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

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

-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.

15
<PAGE>
-The MUNICIPAL BOND PORTFOLIO seeks to produce a high level of current
income consistent with preservation of principal by investing 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.

THE CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITIES PORTFOLIOS ARE
CURRENTLY NOT BEING OFFERED.

INVESTMENT MANAGEMENT

HOW TO INVEST

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of each
Multiclass 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%
of the Class B shares' average daily net assets on an annualized basis.
Shareholders of the International Small Cap Portfolio may be charged a 1.00%
transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. Share purchases may be made by sending investments directly to the
Fund or through the Distributor. The minimum initial investment, generally, is
$500,000 for Class A shares of each Portfolio and $100,000 for Class B shares of
each Multiclass Portfolio. The minimum initial investment amount is reduced for
certain categories of investors. For additional information on how to purchase
shares and minimum initial investments, see "Purchase of Shares."

16
<PAGE>
HOW TO REDEEM

Shares of each 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, (except that shareholders of the
International Small Cap Portfolio may be charged a 1.00% transaction fee, which
is payable directly to the International Small Cap Portfolio, in connection with
each purchase and redemption of shares of the Portfolio). The redemption price
may be more or less than the purchase price. Certain redemptions that cause the
value of an account to remain for a continuous 60-day period below the minimum
investment amount for Class A shares or for Class B shares may result in
involuntary redemption or automatic conversion. For additional information on
how to redeem shares and involuntary redemption or conversion, see "Purchase of
Shares -- Minimum Account Sizes and Involuntary Redemption of Shares" and
"Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio will invest
in securities of foreign issuers, which are subject to certain risks not
typically associated with domestic securities. Each Portfolio may invest in
securities of issuers located in emerging markets. These securities may impose
greater liquidity risks and other risks not typically associated with investing
in more established markets. The Latin American Portfolio may invest up to 20%
of its total assets in lower rated debt securities ("junk bonds"), which are
considered speculative with regard to the payment of interest and return of
principal. See "Investment Objectives and Policies" and "Additional Investment
Information." In addition, each Portfolio may invest in repurchase agreements,
lend its portfolio securities, purchase securities on a when-issued or delayed
delivery basis and invest in foreign currency forward contracts. The Latin
American Portfolio may invest in foreign currency exchange futures and options
to hedge currency risk associated with investment in non-U.S. dollar denominated
securities and may also invest in futures contracts and options on futures
contracts with respect to securities and indices. The Latin American Portfolio
may invest in certain derivatives, including options, futures and options on
futures. These investments entail certain costs and risks, including imperfect
correlation between the value of securities held by the Portfolio and the value
of the particular derivative instrument, and the risk that the Portfolio could
not close out a derivatives position when it would be most advantageous to do
so. The Asian Equity, International Small Cap and Latin American Portfolios may
invest in securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. The Global Equity,
Japanese Equity, Latin American and Asian Equity Portfolios may also invest
indirectly in securities through sponsored or unsponsored Depositary Receipts.
Because the Latin American Portfolio is a non-diversified portfolio, the
Portfolio will invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, will be subject to greater risk with
respect to its portfolio securities. Each of these investment strategies
involves specific risks which are described under "Investment Objectives and
Policies" and "Additional Investment Information" herein and under "Investment
Objectives and Policies" in the Statement of Additional Information.

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INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each Portfolio is described below, together with
the policies the Portfolios employ in their efforts to achieve these objectives.
Each Portfolio's investment objective is a fundamental policy which may not be
changed without the approval of a majority of the Portfolio's outstanding voting
securities. There is no assurance that the Portfolios will attain their
objectives. Each of the Portfolios invests in equity securities, which include
common and preferred stocks, convertible securities, rights and warrants to
purchase common stocks and, in the case of the Latin American Portfolio, equity
interests in trusts and partnerships. In addition to the investments and
strategies described below, the Portfolios may invest in certain securities and
obligations as set forth in "Additional Investment Information" below. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval.

THE GLOBAL EQUITY PORTFOLIO

The Global Equity Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of issuers throughout the world,
including U.S. issuers. At least 65% of the total assets of the Portfolio will
be invested in equity securities under normal circumstances. The Adviser expects
that, under normal circumstances, at least 20% of the Portfolio's total assets
will be invested in the common stocks of U.S. issuers. The remainder of the
Portfolio will be invested in issuers located throughout the world, including
those located in emerging markets. Securities of issuers located in emerging
markets may not be as liquid as those in developed markets and pose greater
risks. Although the Portfolio intends to invest primarily in securities listed
on stock exchanges, it will also invest in securities traded in over-the-counter
markets and may invest in equity securities in the form of Depositary Receipts.

The Adviser's approach in selecting investments for the Portfolio is
oriented to individual stock selection, and is value driven. In selecting stocks
for the Portfolio, the Adviser initially identifies those stocks which it
believes to be undervalued in relation to the issuer's assets, cash flow,
earnings and revenues, and then evaluates the future value of such stocks by
running the results of an in-depth study of the issuer through a dividend
discount model. The Adviser utilizes the research of a number of sources,
including Morgan Stanley Capital International, an affiliate of the Adviser
located in Geneva, Switzerland, in identifying attractive securities, and
applies a number of proprietary screening criteria to identify those securities
it believes to be undervalued. Portfolio holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to conform
to the Adviser's value criteria. Securities which no longer conform to such
value criteria are sold.

THE INTERNATIONAL EQUITY PORTFOLIO

The investment objective of the International Equity Portfolio is to provide
long-term capital appreciation. The production of any current income is
incidental to this objective. The Portfolio seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers. At least 65% of
the total assets of the Portfolio will be invested in such equity securities
under normal circumstances.

The Adviser's orientation to individual stock selection and value driven
approach in selecting investments for the Portfolio are the same as those
described for the Global Equity Portfolio discussed above. While the Portfolio
is not subject to any specific geographic diversification requirements, it
currently intends to diversify investments among countries to reduce risk,
including currency risk. Investments will be made primarily in equity securities
of companies domiciled in developed countries, but may also be made in equity
securities of

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issuers domiciled in emerging markets. The Portfolio will not, under normal
circumstances, invest in equity securities of U.S. issuers. Although the
Portfolio intends to invest primarily in equity securities listed on stock
exchanges, it will also invest in equity securities traded in over-the-counter
markets. Securities of companies in emerging countries may pose liquidity risks.
For a description of special considerations and certain risks associated with
investments in foreign issuers, see "Additional Investment Information."

THE INTERNATIONAL SMALL CAP PORTFOLIO

The investment objective of the International Small Cap Portfolio is to
provide long-term capital appreciation. The production of any current income is
incidental to this objective. The Portfolio seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers with equity market
capitalizations of less than $1 billion. At least 65% of the total assets of the
Portfolio will be invested in such equity securities under normal circumstances.
The Portfolio will invest a minimum of 80% of its total assets in companies with
market capitalizations of less than $1 billion. The Adviser's orientation to
individual stock selection and value driven approach in selecting investments
for the Portfolio are the same as those described for the Global Equity
Portfolio discussed above.

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

THE ASIAN EQUITY PORTFOLIO

The investment objective of the Asian Equity Portfolio is to provide
long-term capital appreciation. The production of any current income is
incidental to this objective. The Portfolio seeks to achieve its objective by
investing primarily in equity securities which are traded on recognized stock
exchanges of the countries in Asia described below and in equity securities of
companies organized under the laws of an Asian country whose business is
conducted principally in Asia. The Portfolio does not intend to invest in equity
securities which are principally traded in markets in Japan or in companies
organized under the laws of Japan. The Portfolio may also invest in Depositary
Receipts of Asian issuers.

The Portfolio will invest primarily in the more established Asian markets,
including Hong Kong, Singapore, Malaysia, Thailand, the Philippines and
Indonesia. The Portfolio may also invest in common stocks traded on markets in
Taiwan, South Korea, India, Pakistan, Sri Lanka and other emerging markets that
are open to foreign investment. There is no requirement that the Portfolio, at
any given time, invest in any or all of the countries listed above or in any
other Asian countries. The Portfolio has no set policy for allocating
investments among the

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various Asian countries. Allocation of investments will depend on the relative
attractiveness of the stocks of issuers in the respective countries. Government
regulation and restrictions in many of the countries of interest may limit the
amount, mode and extent of investment in companies of such countries.

At least 65% of the total assets of the Portfolio will be invested in common
stocks of Asian countries under normal circumstances. The remaining portion of
the Portfolio will be kept in any combination of debt instruments, bills and
bonds of governmental entities in Asia and the United States, in notes,
debentures and bonds of companies in Asia and in money market instruments.

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

The Portfolio's investments will include securities of issuers located in
emerging countries and traded in emerging markets. These securities pose greater
liquidity risks and other risks than securities of companies located in
developed countries and traded in more established markets. For a description of
special considerations and certain risks associated with investment in foreign
issuers, see "Additional Investment Information."

Although the Portfolio intends to invest primarily in equity securities
listed on stock exchanges, it will also invest in equity securities traded in
over-the-counter markets and in Depositary Receipts. Securities traded in
over-the-counter markets pose liquidity risks. Pending investment or settlement,
and for liquidity purposes, the Portfolio may invest in domestic, Eurodollar and
foreign short-term money market instruments. The Portfolio may also invest in
initial public offerings in the form of oversubscriptions or private placements.
Such investments generally entail short-term liquidity risks.

The Portfolio may enter into currency exchange contracts. Because of the
lack of hedging facilities in the currency markets of Asia, the Portfolio
currently does not actively engage in currency hedging strategies, although it
may do so in the future. Instead, each investment will be considered on a total
currency adjusted basis with the U.S. dollar as a base currency. See "Foreign
Currency Forward Contracts."

THE EUROPEAN EQUITY PORTFOLIO

The investment objective of the European Equity Portfolio is to provide
long-term capital appreciation. The Portfolio seeks to achieve this objective by
investing primarily in equity securities of European issuers, including those
located in Germany, France, Switzerland, Belgium, Italy, Finland, Sweden,
Denmark, Norway and the United Kingdom. Investments may also be made in equity
securities of issuers located in the smaller and emerging markets of Europe.

While the Portfolio is not subject to any specific geographic
diversification requirements, it currently intends to diversify investments
among countries to reduce currency risk. At least 65% of the total assets of the
Portfolio will be invested in equity securities of European issuers under normal
circumstances. The Portfolio will not, under normal circumstances, invest in
equity securities of U.S. issuers. The Adviser's orientation to individual stock
selection and value-driven approach in selecting investments for the Portfolio
are the same as those described for the Global Equity Portfolio discussed above.
Securities in emerging markets may not be as

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<PAGE>
liquid as those in developed markets and pose greater risks. Although the
Portfolio intends to invest primarily in equity securities listed on stock
exchanges, it will also invest in equity securities traded in over-the-counter
markets. For a description of special considerations and certain risks
associated with investments in foreign issuers, see "Additional Investment
Information."

THE JAPANESE EQUITY PORTFOLIO

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

The Portfolio currently intends to focus its investments in Japanese
companies that have an active market for their shares and that the Adviser
believes show a potential for better than average growth. In making investment
decisions, the Adviser will consider, among other factors, the size of the
company, its financial condition, its marketing and technical strengths and its
competitiveness in its industry. The Portfolio anticipates that most equity
securities of Japanese companies in which it invests, either directly or
indirectly by means of Depositary Receipts or convertible debentures, will be
listed on securities exchanges in Japan. The Portfolio may also invest in equity
securities of Japanese companies that are traded in an over-the-counter market.

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

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

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

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

THE LATIN AMERICAN PORTFOLIO

The investment objective of the Latin American Portfolio is long-term
capital appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities (i) of companies organized in or for which the
principal securities trading market is in Latin America, (ii) denominated in a
Latin American currency and issued by companies to finance operations in Latin
America, or (iii) of companies that alone or on a consolidated basis derive 50%
or more of their annual revenues from either goods produced, sales made or
services performed in Latin America (collectively, "Latin American issuers") and
by investing, from time to time, in debt securities issued or guaranteed by a
Latin American government or governmental entity. Under normal conditions,
substantially all, but not less than 80%, of the Portfolio's total assets are
invested in equity securities of Latin American issuers and in debt securities
issued or guaranteed by a Latin American government or governmental entity. For
purposes of this Prospectus, unless otherwise indicated, Latin America consists
of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican
Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama,
Paraguay, Peru, Uruguay and Venezuela.

The Portfolio focuses its investments in listed equity securities in
Argentina, Brazil, Chile and Mexico, the most developed capital markets in Latin
America. The Portfolio expects, under normal market conditions, to have at least
55% of its total assets invested in listed equity securities of issuers in these
four countries. The Portfolio is not limited in the extent to which it may
invest in any Latin American country and intends to invest opportunistically as
markets develop. The portion of the Portfolio's holdings in any Latin American
country will vary from time to time, although the portion of the Portfolio's
assets invested in Chile may tend to vary less than the portions invested in
other Latin American countries because, with limited exceptions, capital
invested in Chile currently cannot be repatriated for one year. Equity
securities in which the Portfolio may invest include those that are neither
listed on a stock exchange nor traded over-the-counter. As a result of the
absence of a public trading market for these securities, they may be less liquid
than publicly traded securities.

The governments of some Latin American countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatizations"). The Adviser believes that
privatizations may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Portfolio in privatizations in
appropriate circumstances. In certain Latin American countries, the ability of
foreign entities, such as the Portfolio, to participate in privatizations may be
limited by local law, or the terms on

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which the Portfolio may be permitted to participate may be less advantageous
than those for local investors. There can be no assurance that Latin American
governments will continue to sell companies currently owned or controlled by
them or that any privatization programs in which the Portfolio participates will
be successful.

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

The Portfolio's holdings may consist of lower-quality debt securities, many
of which trade at substantial discounts from face value, and may include
securities rated as low as D by S&P or C by Moody's. The issuers or governmental
authorities that control the repayment of the debt securities held by the
Portfolio may be unable or unwilling to repay the principal and/or interest when
due in accordance with the terms of such debt. Additionally, the willingness or
ability of many Latin American government or government related issuers to repay
principal and interest due in a timely manner may be affected by, among other
factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the International Monetary Fund (the "IMF")
and the political constraints to which a sovereign debtor may be subject.
Issuers may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. These disbursements may be conditioned on the
issuer's implementation of economic reforms and/or economic performance and the
timely service of such debtor's obligations. Failure to satisfy these conditions
may result in the cancellation of such third parties' commitments to lend funds
to the sovereign debtor, which may further impair such debtor's ability or
willingness to timely service its debts. In certain instances, the Portfolio may
invest in government issued or guaranteed debt that is in default as to payments
of principal and/or interest. To the extent the Portfolio is holding government
issued or guaranteed debt, it may incur additional expenses in connection with
any restructuring of the issuer's obligations or in otherwise enforcing its
rights. Investment in such debt securities involves a high degree of risk and is
generally considered to be speculative. The Portfolio will invest in such debt
securities only when the Portfolio believes such investments offer opportunities
for long-term capital appreciation.

To the extent that the Portfolio's assets are not invested in equity
securities of Latin American issuers or in government issued or guaranteed debt
securities, the remainder of its assets may be invested in (i) debt securities
of other Latin American issuers, (ii) equity or debt securities of corporate or
governmental issuers located in countries outside Latin America, and (iii)
short-term and medium-term debt securities of the type described under
"Additional Investment Information -- Temporary Investments" below. The
Portfolio's assets may be invested in debt securities when the Portfolio
believes that, based upon factors such as relative interest rate levels and
foreign exchange rates, debt securities offer opportunities for long-term
capital appreciation. It is likely that many of the debt securities in which the
Portfolio will invest will be unrated. The Portfolio may invest up to 20% of its
total assets in lower-quality debt securities that are determined by the Adviser
to be comparable

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to securities rated below investment grade by S&P or Moody's ("junk bonds").
Investment in such debt securities involves a high degree of risk and is
generally considered to be speculative in nature. See "Additional Investment
Information -- Lower Rated Debt Securities."

The Portfolio will not invest more than 25% of its total assets in one
industry except and to the extent, and only for such period of time as, the
Board of Directors determines in view of the considerations discussed below that
it is appropriate and in the best interest of the Portfolio and its shareholders
to invest more than 25% of the Portfolio's total assets in companies involved in
the telecommunications industry or financial services industry, respectively.
Since the securities markets of Latin American countries are emerging markets
characterized by a relatively small number of issues, it is possible that one or
more markets may on occasion be dominated by issues of companies engaged in
these two industries. In addition, it is possible that government privatizations
in certain Latin American countries, which currently represent a primary source
of new issues in many Latin American markets and often represent attractive
investment opportunities, will occur in these two industries. If the Board of
Directors permits greater than 25% of the Portfolio's total assets to be
invested in the telecommunications or financial services industry, the Portfolio
may be exposed to increased investment risks peculiar to that industry. The
Portfolio will notify its shareholders of any decision by the Board of Directors
to permit (or cease) investments of more than 25% of the Portfolio's total
assets in the telecommunications or financial services industry including, if
applicable, a discussion of any increased investment risks peculiar to such
industry to which the Portfolio may be exposed.

ADDITIONAL INVESTMENT INFORMATION

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

The Portfolio expects that all of its borrowing will be made on a secured
basis. The Portfolio's Custodian will either segregate the assets securing the
borrowing for the benefit of the lenders or arrangements will be made with a
suitable sub-custodian. If assets used to secure the borrowing decrease in
value, the Portfolio may be required to pledge additional collateral to the
lender in the form of cash or securities to avoid liquidation of those assets.

DEPOSITARY RECEIPTS. The Asian Equity, Global Equity, Latin American and
Japanese Equity Portfolios may invest in Depositary Receipts, including American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European
Depositary Receipts ("EDRs") and other Depositary Receipts (which, together with
ADRs, GDRs and EDRs, are hereinafter collectively referred to as "Depositary
Receipts"), to the extent that such Depositary Receipts are or become available.
ADRs are securities, typically issued by a U.S. financial

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<PAGE>

institution (a "depositary"), that evidence ownership interests in a security or
a pool of securities issued by a foreign issuer (the "underlying issuer") and
deposited with the depositary. ADRs include American Depositary Shares and New
York Shares and may be "sponsored" or "unsponsored." Sponsored ADRs are
established jointly by a depositary and the underlying issuer, whereas
unsponsored ADRs may be established by a depositary without participation by the
underlying issuer. The issuers of the stock of unsponsored ADRs are not
obligated to disclose material information in the United States and therefore,
there may not be a correlation between such information and the market value of
the ADR. GDRs, EDRs and other types of Depositary Receipts are typically issued
by foreign depositaries, although they may also be issued by U.S. depositaries,
and evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. The Portfolios may invest in sponsored and
unsponsored Depositary Receipts. For purposes of the Portfolios' investment
policies, the Portfolios' investments in Depositary Receipts will be deemed to
be investments in the underlying securities.

FOREIGN CURRENCY FORWARD CONTRACTS. Each Portfolio may enter into foreign
currency forward contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. The Portfolios
may use such contracts to protect 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, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. While forward contracts may limit losses as a result
of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account 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.

FOREIGN INVESTMENT. Investment in securities of foreign issuers involves
somewhat different investment risks than those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial and other reporting standards and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign securities exchanges,
brokers and listed companies than in the United States. Many foreign securities
markets have substantially less volume than U.S. national securities exchanges,
and securities of some foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States. Dividends and interest paid by foreign issuers may be subject
to withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Portfolios
by domestic companies, and it is not expected that a Portfolio or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. 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

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possible adoption of foreign governmental restrictions such as exchange
controls. Many of the emerging countries may have less stable political
environments than more developed countries. Also, it may be more difficult to
obtain a judgment in a court outside the United States.

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

The Asian Equity Portfolio may invest in securities of issuers located in
Hong Kong. Hong Kong was established as a British colony in the 1840's and has
been ruled by the British Government through an appointed Governor. Effective
July 1, 1997, Hong Kong reverts to Chinese sovereignty and will be ruled as a
Special Administrative Region of China. Although China has made certain
commitments to preserve the economic and social freedoms currently enjoyed in
Hong Kong, there can be no assurances China's commitments will be maintained.
Action taken by the Chinese government which limits or causes uncertainty with
regard to these economic and social freedoms could have an adverse affect on the
Portfolio's investments in securities of issuers located in Hong Kong.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Latin American
Portfolio may purchase and sell futures contracts and options on futures
contracts, including but not limited to financial futures, securities index
futures, foreign currency exchange futures, and interest rate futures contracts.
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.

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<PAGE>

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
activities that do not constitute "bona-fide" hedging. The Portfolio will not
enter into futures contracts to the extent that its outstanding obligations to
purchase securities under such contracts, in combination with its outstanding
obligations with respect to options transactions (including options to purchase
securities or instruments) would exceed 20% of its total assets.

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.

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

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

27
<PAGE>
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. A Portfolio will not enter into securities loan
transactions exceeding in the aggregate 33 1/3% (20% for the Latin American
Portfolio) of the market value of the Portfolio's total assets.

LOWER RATED DEBT SECURITIES. The Latin American Portfolio may invest in
lower rated or unrated debt securities, commonly referred to as "junk bonds." In
addition, the emerging country debt securities in which the Portfolio may invest
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 market for lower rated and unrated debt securities is relatively new and
adverse economic developments may disrupt the market for lower rated and unrated
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.

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<PAGE>

permitted for the Portfolios include obligations of the U.S. Government and its
agencies and instrumentalities; obligations of foreign sovereignties; other debt
securities; commercial paper; bank obligations; certificates of deposit
(including Eurodollar certificates of deposit); and repurchase agreements.

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The Asian Equity, International Small Cap Portfolio and the Latin
American Portfolio may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities.
Such unlisted equity securities may involve a higher degree of business and
financial risk that can result in substantial losses. As a result of the absence
of a public trading market for these securities, they may be less liquid than
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Portfolios 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 Portfolios
may be required to bear the expenses of registration.

As a general matter, each Portfolio may not invest more than 15% of its net
assets in illiquid securities, including securities for which there is no
readily available secondary market. Nor as a general matter, may each Portfolio
invest more than 10% of its total assets in securities that are restricted from
sale to the public without registration ("Restricted Securities") under the
Securities Act of 1933, as amended (the "1933 Act"). However, each Portfolio may
invest up to 25% of its total assets in liquid Restricted Securities that can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities"). The Board of Directors has adopted guidelines
and delegated to the Adviser, subject to the supervision of the Board of
Directors, the daily function of determining and monitoring the liquidity of
Rule 144A Securities. Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

OPTIONS TRANSACTIONS. The Latin American 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 may not
purchase call and put options to the extent that the value of its aggregate
investment in options exceeds 5% of its total assets.

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. A Portfolio
that has written an option 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 option means that so long as the Portfolio is obligated as the writer of
the option, it will own (i) the underlying security or instrument subject to the
option or (ii) securities or instruments convertible or exchangeable without the
payment of any consideration into the security or instrument subject to the
option.

29
<PAGE>

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The Portfolio may not 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 are invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid.

SHORT SALES. The Latin American Portfolio may from time to time sell
securities short without limitation, but consistent with applicable legal
requirements, although at present the Portfolio does not intend to sell
securities short. A short sale is a transaction in which the Portfolio sells
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. To deliver the securities to the buyer, the
Portfolio arranges through a broker to borrow the securities and, in so doing,
the Portfolio becomes obligated to replace the securities borrowed at their
market price at the time of replacement. When the Portfolio makes a short sale,
the proceeds it receives from the sale will be held on behalf of a broker until
the Portfolio replaces the borrowed securities. 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.

30
<PAGE>
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.

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

INVESTMENT LIMITATIONS

Each Portfolio, except the Latin American Portfolio, is a diversified
investment company under the 1940 Act and is therefore subject to the following
limitations: (a) as to 75% of its total assets, a Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government and its agencies and instrumentalities, and
(b) a Portfolio may not own more than 10% of the outstanding voting securities
of any one issuer. The Latin American Portfolio is a non-diversified investment
company under the 1940 Act, which means that the Latin American Portfolio is not
limited by the 1940 Act in the proportion of its total assets that may be
invested in the obligations of a single issuer. Thus, the Latin American
Portfolio may invest a greater proportion of its total assets in the securities
of a smaller number of issuers and, as a result, will be subject to greater risk
with respect to its portfolio securities. Nevertheless, the Latin American
Portfolio intends to comply with the more limited diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company.

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<PAGE>
Each Portfolio also operates under certain investment restrictions that are
deemed fundamental limitations and may be changed only with the approval of the
holders of a majority of such Portfolio's outstanding shares and under certain
non-fundamental investment limitations that may be changed without shareholder
approval. For additional information on fundamental and non-fundamental
investment limitations, see "Investment Limitations" in the Statement of
Additional Information.

MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Adviser and
Administrator of the Fund and each Portfolio. The Adviser provides investment
advice and portfolio management services, pursuant to an Investment Advisory
Agreement and, subject to the supervision of the Fund's Board of Directors,
makes each of the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages each of the
Portfolio's investments. Set forth below as an annual percentage of average
daily net assets are the management fees payable to the Adviser quarterly by
each Portfolio pursuant to the terms of the Investment Advisory Agreement. The
fee for each of the Portfolios is higher than most investment companies' because
each of the Portfolios invests internationally. The Adviser believes that the
fees are comparable to those of other investment companies that invest
internationally. The Adviser has agreed to a reduction in the fees payable to it
and to reimburse the Portfolios, if necessary, if such fees would cause total
annual operating expenses of the Portfolios to exceed the maximums set forth in
the table below.

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

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

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

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

INTERNATIONAL SMALL CAP PORTFOLIO -- MARGARET NAYLOR. Margaret Naylor is a
Principal of Morgan Stanley and works with Dominic Caldecott on Pacific Basin
research and stock selection. She joined the Adviser in March 1987 and has been
primarily responsible for managing the Portfolio's assets since December 1992.
Prior to joining the Adviser she spent three years at the Trade Policy Research
Centre, an independent research unit. Ms. Naylor is a graduate of the University
of York. Ms. Naylor became a Vice President of Morgan Stanley in 1993.

ASIAN EQUITY PORTFOLIO -- EAN WAH CHIN. Ean Wah Chin is a Managing Director
of Morgan Stanley, and is responsible for the Adviser's regional Asia ex-Japan
operations based in Singapore. She has been primarily responsible for managing
the Portfolio's assets since its inception. Prior to joining Morgan Stanley in
1986, Ms. Chin spent eight years with the Monetary Authority of Singapore and
the Government of Singapore Investment Corporation, where she was a portfolio
manager of one of the largest portfolios in Asia. Ms. Chin was an ASEAN scholar
educated at the University of Singapore.

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

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

33
<PAGE>
LATIN AMERICAN PORTFOLIO -- ROBERT L. MEYER. Robert Meyer joined the
Adviser in 1989 and is now a Principal of Morgan Stanley, with primary
responsibility for the Adviser's investments in all of Latin America and Israel.
He has had primary responsibility for managing the Portfolio's assets since its
inception. Robert is co-manager of the Latin American Discovery Fund, Inc. and
worked previously in the U.S. equity group at the Adviser. He was born in
Argentina and has a B.A. in Economics and Political Science from Yale College
and a J.D. from Harvard Law School.

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

LOCAL ADMINISTRATORS FOR THE LATIN AMERICAN PORTFOLIO. The Portfolio has,
as required by local law, entered into administration agreements with local
administrators in Brazil, Chile, and Colombia. A local administrator provides
certain services for the Portfolio with respect to the Portfolio's investments
in that country, including services relating to foreign exchange, local taxes,
remittance of income and capital gains, and repatriation of investments. The
Portfolio's local administrator in Brazil, Unibanco-Uniao, a Brazilian
corporation, is paid by the Fund an annual fee of 0.125% of the Portfolio's
average weekly net assets invested in Brazil. The Portfolio's local
administrator in Chile, Bice Chileconsult Agente de Valores S.A., a Chilean
corporation, is paid by the Fund an annual fee of 0.125% of the Portfolio's
average weekly net assets invested in Chile. The Portfolio's local administrator
in Colombia, CitiTrust S.A., a Colombian trust company, is paid by the Fund an
annual fee of $1,000 plus 0.20% per transaction in Colombia.

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

PURCHASE OF SHARES

Class A shares of each Portfolio and Class B shares of each Multiclass
Portfolio may be purchased at the net asset value per share next determined
after receipt of the purchase order by the Portfolio. See "Valuation of Shares."
Shareholders of the International Small Cap Portfolio may be charged a 1.00%
transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. The transaction fee is intended to allocate transaction costs
associated with purchases and redemptions of shares of the Portfolio to
investors actually making such purchases and redemptions rather than to the
Portfolio's other shareholders. The 1.00% fee represents the Adviser's estimate
of such transaction costs, which include the costs of acquiring and disposing of
Portfolio securities. The transaction fee is not a sales charge or load, and is
retained by the Portfolio. The fee does not apply to Portfolios of the Fund
other than the International Small Cap Portfolio and is not charged in
connection with the reinvestment of dividends or capital gain distributions. The
fee will not be charged with respect to purchases and redemptions that do not
result in actual transaction costs to the Portfolio.

MINIMUM INVESTMENT AND ACCOUNT SIZES; CONVERSION FROM CLASS A TO CLASS B SHARES

For a Portfolio account opened on or after January 2, 1996 (a "New
Account"), the minimum initial investment and minimum account size are $500,000
for Class A shares and $100,000 for Class B shares of each Portfolio. Certain
advisory or asset allocation accounts, such as Total Funds Management accounts,
managed by Morgan Stanley or its affiliates, including the Adviser ("Managed
Accounts") may purchase Class A shares without being subject to such minimum
initial investment or minimum account size requirements for a Portfolio account.
Employees of the Adviser and certain of its affiliates may purchase Class A
shares subject to conditions, including a lower minimum initial investment,
established by Officers of the Fund.

35
<PAGE>
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.

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 Code and
"rabbi trusts." The Fund reserves the right to modify or terminate the
conversion features of the shares as stated above at any time upon 60-days
notice to shareholders.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

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

Grandfathered Class A Accounts, Grandfathered Class B Accounts and Managed
Accounts are not subject to involuntary redemption. If a shareholder reduces its
total investment in Class A shares of the International Small Cap Portfolio to
less than $500,000, the investment may be subject to redemption. The Fund
reserves the right to modify or terminate the involuntary redemption features of
the shares as stated above at any time upon 60-days notice to shareholders.

CONVERSION FROM CLASS B TO CLASS A SHARES

If the value of Class B shares in a Multiclass Portfolio account increases,
whether due to shareholder share purchases or market activity, to $500,000 or
more, the Class B shares will convert to Class A shares. Under current tax law,
such conversion is not a taxable event to the shareholder. Class A shares
converted from Class B

36
<PAGE>
shares are subject to the same minimum account size requirements that are
applicable to New Multiclass Accounts containing Class A shares, as stated
above. The Fund reserves the right to modify or terminate this conversion
feature at any time upon 60-days notice to shareholders.

INITIAL PURCHASES DIRECTLY FROM THE FUND

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check ($500,000 minimum for
Class A shares of each Portfolio and $100,000 minimum for Class B shares of
each Multiclass Portfolio, with certain exceptions for Morgan Stanley
employees and select customers) payable to "Morgan Stanley Institutional
Fund, Inc. -- [portfolio name]", to:

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

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

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:

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

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

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

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

Federal Funds purchase orders will be accepted only on a day on which the Fund
and Chase (the "Custodian Bank") are open for business. Your bank may charge a
service fee for wiring Federal Funds.

3) BY BANK WIRE. The same procedure outlined under "By Federal Funds Wire"
above must be followed in purchasing shares by bank wire. However, money
transferred by bank wire may or may not be converted into Federal Funds the
same day, depending on the time the money is received and the bank handling
the wire. Prior to such conversion, an investor's money will not be invested
and, therefore, will not be earning dividends. Your bank may charge a service
fee for wiring funds.

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment
$1,000 for each portfolio, except for automatic reinvestment of dividends and
capital gains distributions for which there are no minimums) by purchasing
shares at net asset value by mailing a check to the Fund (payable to "Morgan
Stanley Institutional Fund, Inc. -- [portfolio name]") at the above address or
by wiring monies to the Custodian Bank as outlined above. It is very important
that your account name, 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

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

38
<PAGE>
because your check does not clear, you will be responsible for any loss the Fund
or its agents incur. If you are already a shareholder, the Fund may redeem
shares from your account(s) to reimburse the Fund or its agents for any loss. In
addition, you may be prohibited or restricted from making future investments in
the Fund.

Investors may also invest in the Fund by purchasing shares through the
Distributor.

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of a Portfolio and raise its expenses. Consequently, in the interest
of all the stockholders of the Portfolios and the Portfolios' performance, the
Fund may in its discretion bar a stockholder that engages in excessive trading
of shares of any class of a portfolio from further purchases of shares of the
Fund for an indefinite period. The Fund considers excessive trading to be more
than one purchase and sale involving shares of the same class of a Portfolio of
the Fund within any 120-day period. As an example, exchanging shares of
portfolios of the Fund as follows amounts to excessive trading: exchanging
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. 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 or accounts managed or advised by the
Adviser and/or any of its affiliates.

INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT

39
<PAGE>

a result of reallocations or rebalancings may have to sell portfolio securities
and Portfolios that receive additional cash will have to invest it in additional
portfolio securities. While it is impossible to predict the overall impact of
these transactions over time, there could be adverse effects on portfolio
management to the extent that Portfolios may be required to sell securities or
invest cash at times when they would not otherwise do so. These transactions
could also have tax consequences if sales of securities resulted in gains and
could also increase transaction costs. The Adviser, representing the interests
of the Portfolios, is committed to minimizing the impact of TFM Account
transactions on the Portfolios. The Adviser, however, will have a conflict in
fulfilling this responsibility in that it also serves as a TFM Adviser. In that
capacity, the Adviser, representing the interests of the TFM Accounts, also is
committed to minimizing the impact of TFM Account transactions on the Portfolios
to the extent consistent with pursuing the investment objectives of the TFM
Accounts. In addition, an affiliate of the TFM Adviser, the Distributor is
compensated on the sale, and may be compensated for distribution or shareholder
services on the sale of shares of the Portfolios. See "Purchase of Shares" and
"Shareholder Services -- Exchange Features." The Adviser will monitor the impact
of TFM Account transactions on the Portfolios.

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until payment of the purchase price has been collected,
which may take up to eight business days after purchase. The Fund will redeem
Class A shares of each Portfolio or Class B shares of each Multiclass Portfolio
at the next determined net asset value of shares of the applicable class. On
days that both the NYSE and the Custodian Bank are open for business, the net
asset value per share of each of the Portfolios is determined at the regular
close of trading of the NYSE (currently 4:00 p.m. Eastern Time). Shares of each
Portfolio may be redeemed by mail or telephone. No charge is made for
redemptions, except for the imposition of the 1% transaction fee described under
"Purchase of Shares" above, which may be assessed in connection with redemptions
of shares of the International Small Cap Portfolio. Any redemption proceeds may
be more or less than the purchase price of your shares depending on, among other
factors, the market value of the investment securities held by a Portfolio.

BY MAIL

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

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

40
<PAGE>
(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 Fund representative.

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of the Fund's representatives for further
details. In times of drastic market conditions, the telephone redemption option
may be difficult to implement. If you experience difficulty in making a
telephone redemption, your request may be made by regular mail or express mail
and it will be implemented at the net asset value next determined after it is
received. 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.

FURTHER REDEMPTION INFORMATION

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

41
<PAGE>
SHAREHOLDER SERVICES

EXCHANGE FEATURES

BY MAIL

BY TELEPHONE

When exchanging shares by telephone, have ready the name, class of shares
and account number of your current Portfolio, the name(s) of the portfolio(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(es) of the portfolios involved in the exchange of shares at the close of
business. Requests received after 4:00 p.m. (Eastern Time) are processed the
next business day based on the net asset value determined at the close of
business on such day. For additional information regarding responsibility for
the authenticity of telephoned instructions, see "Redemption of Shares -- By
Telephone" above.

TRANSFER OF REGISTRATION

You may transfer the registration of any of your Portfolio shares to another
person by writing to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798. As in the case of redemptions, the written
request must be received in good order before any transfer can be made.
Transferring the registration of shares may affect the eligibility of your
account for a given class of the Portfolio's shares may result in involuntary
conversion or redemption of your shares. See "Purchase of Shares" above.

VALUATION OF SHARES

42
<PAGE>

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 readily available are valued at a
price within a range not exceeding the current asked price nor less than the
current bid price. The current bid and asked prices are determined based on the
average of 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 quotations are not
readily available (including restricted and unlisted foreign securities) and
those securities for which it is inappropriate to determine the prices in
accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be translated into U.S. dollars at the mean
of the bid and asked price for such currencies against the U.S. dollar last
quoted by any major bank.

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

PERFORMANCE INFORMATION

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

43
<PAGE>
distributions or on redemption. The Fund may also include comparative
performance information in advertising or marketing the Portfolios' shares,
including data from Lipper Analytical Services, Inc., other industry
publications, business periodicals, rating services and market indices.

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Portfolio expects to distribute substantially all of its taxable net
investment income in the form of annual dividends. Net realized capital gains,
if any, after reduction for any available tax loss carryforwards will also be
distributed annually.

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

TAXES

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

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

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

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

44
<PAGE>
only to the extent of the aggregate qualifying dividend income received by the
Portfolio from U.S. corporations. Each Portfolio will report annually to its
shareholders the amount of dividend income qualifying for such treatment.

Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares. Each
Portfolio will send reports annually to its shareholders of the federal income
tax status of all distributions made during the preceding year.

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

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

Conversion of shares between classes are not taxable events to the
shareholder.

Investment income received by a Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that a Portfolio is liable for foreign income taxes so withheld, each
Portfolio intends to operate so as to meet the requirements of the Code to pass
through to the shareholders credit for foreign income taxes paid. Although each
Portfolio intends to meet Code requirements to pass through credit for such
taxes, there can be no assurance that each Portfolio will be able to do so.

45
<PAGE>
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN A PORTFOLIO.

PORTFOLIO TRANSACTIONS

PORTFOLIO TURNOVER

The Portfolios generally do not invest for short-term trading purposes,
however, when circumstances warrant, each Portfolio may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or lower portfolio turnover
rate than expected and the Portfolios will not consider portfolio turnover rate
a limiting factor in making investment decisions consistent with their
respective objectives and policies. For the fiscal year ended December 31, 1996,
the Latin America Portfolio had a portfolio turnover rate of 192%. As portfolio
turnover increases, the Portfolios may expect to pay correspondingly increased
brokerage and trading costs. In addition to transaction costs, higher portfolio
turnover may result in the realization of capital gains. As discussed under
"Taxes," to the extent net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

46
<PAGE>
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 offer only Class A shares.

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

REPORTS TO SHAREHOLDERS

CUSTODIAN

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.

47
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
GLOBAL EQUITY, INTERNATIONAL EQUITY, INTERNATIONAL SMALL CAP,
ASIAN EQUITY, EUROPEAN EQUITY, JAPANESE EQUITY AND LATIN AMERICAN PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

1.
First Name Initial Last Name
2.
First Name Initial Last Name
First Name Initial Last Name

<TABLE>
<C> <S> <C>
3. CORPORATIONS,
TRUSTS AND OTHERS
Please call the Fund for additional
documents that may be required to set up
account and to authorize transactions.
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Type of Registration: / / INCORPORATED / / UNINCORPORATED / / PARTNERSHIP / / UNIFORM GIFT/TRANSFER TO MINOR
ASSOCIATION (ONLY ONE CUSTODIAN AND MINOR PERMITTED)
</TABLE>

/ / TRUST ________________________ / / OTHER (Specify) ________________________

<TABLE>
<C> <S> <C>
B) MAILING ADDRESS
Please fill in completely, including
telephone number(s).
</TABLE>

Current Mailing Address (If different from Permanent Address)
Street Address
City
Country
Postal Code
Home Telephone No. Business Telephone No.

<PAGE>

<TABLE>
<C> <S> <C> <C> <C>
D) PORTFOLIO AND For Purchase of the following / / Class A Shares $ / / Class B Shares $
CLASS SECTION Portfolio(s): / / Class A Shares $
(Class A shares minimum $500,000 Global Equity Portfolio / / Class A Shares $ / / Class B Shares $
for each Portfolio and Class B International Equity Portfolio / / Class A Shares $ / / Class B Shares $
shares minimum $100,000 for the International Small Cap / / Class A Shares $ / / Class B Shares $
Global Equity, International Portfolio / / Class A Shares $ / / Class B Shares $
Equity, Asian Equity, European Asian Equity Portfolio / / Class A Shares $ / / Class B Shares $
Equity, Japanese Equity and Latin European Equity Portfolio
American Equity Portfolios). Please Japanese Equity Portfolio
indicate Portfolio, class and Latin American Portfolio
amount.
Total Initial Investment $
</TABLE>

<TABLE>
<C> <S> <C>
E) METHOD OF
INVESTMENT
Please indicate
portfolio, manner of
payment.
</TABLE>

Payment by:

/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY INSTITUTIONAL FUND,
INC.--PORTFOLIO NAME)

<TABLE>
<C> <S> <C>
I) DEALER
INFORMATION
Representative Name Representative No. Branch
No.
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C>
J) SIGNATURE OF
ALL HOLDERS
AND TAXPAYER
CERTIFICATION
Sign Here ,
</TABLE>

/ / U.S. CITIZEN(S)/TAXPAYER(S):

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 6
Prospectus Summary................................ 14
Investment Objectives and Policies................ 18
Additional Investment Information................. 24
Investment Limitations............................ 31
Management of the Fund............................ 32
Purchase of Shares................................ 35
Redemption of Shares.............................. 40
Shareholder Services.............................. 42
Valuation of Shares............................... 42
Performance Information........................... 43
Dividends and Capital Gains Distributions......... 44
Taxes............................................. 44
Portfolio Transactions............................ 46
General Information............................... 46
Account Registration Form
</TABLE>

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

PORTFOLIOS OF THE

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)
-------------
PROSPECTUS
-------------

Investment Adviser

Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

P.O. BOX 2798, BOSTON, MA 02208-2798

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

EMERGING MARKETS PORTFOLIO
EMERGING MARKETS DEBT PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

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

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company, or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund is designed to provide clients with attractive
alternatives for meeting their investment needs. The Fund currently consists of
twenty-nine portfolios representing a broad range of investment choices. This
prospectus (the "Prospectus") pertains to the Class A and the Class B shares of
the Emerging Markets Portfolio and the Emerging Markets Debt Portfolio (each, a
"Portfolio" and collectively, the "Portfolios"). The Class A and Class B shares
currently offered by the Portfolios have different minimum investment
requirements and fund expenses. Shares of the portfolios are offered with no
sales charge, exchange fee or redemption fee, (except that the International
Small Cap Portfolio may impose a transaction fee).

THE EMERGING MARKETS PORTFOLIO MAY INVEST IN EQUITY SECURITIES OF RUSSIAN
COMPANIES. RUSSIA'S SYSTEM OF SHARE REGISTRATION AND CUSTODY INVOLVES CERTAIN
RISKS OF LOSS THAT ARE NOT NORMALLY ASSOCIATED WITH INVESTMENTS IN OTHER
SECURITIES MARKETS. SEE "ADDITIONAL INVESTMENT INFORMATION -- RUSSIAN SECURITIES
TRANSACTIONS."

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under the "Prospectus Summary" 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 Small Cap,
Japanese Equity and Latin American Portfolios; (ii) U.S. EQUITY -- Aggressive
Equity, Emerging Growth, Equity Growth, Small Cap Value Equity, Technology, U.S.
Real Estate and Value Equity Portfolios; (iii) BALANCED -- Balanced Portfolio;
(iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income, Global Fixed Income,
High Yield and Municipal Bond Portfolios; and (v) MONEY MARKET -- Money Market
and Municipal Money Market Portfolios. Additional information about the Fund is
contained in a "Statement of Additional Information," dated May 1, 1997, 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, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
the Portfolios indicated below will incur:

<TABLE>
<CAPTION>
EMERGING
EMERGING MARKETS
MARKETS DEBT
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A..................................................................... None None
Class B..................................................................... None None
Maximum Sales Load Imposed on Reinvested Dividends
Class A..................................................................... None None
Class B..................................................................... None None
Deferred Sales Load
Class A..................................................................... None None
Class B..................................................................... None None
Redemption Fees
Class A..................................................................... None None
Class B..................................................................... None None
Exchange Fees
Class A..................................................................... None None
Class B..................................................................... None None

ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C>
Management Fee*
Class A..................................................................... 1.25% 1.00%
Class B..................................................................... 1.25% 1.00%
12b-1 Fees
Class A..................................................................... None None
Class B..................................................................... 0.25% 0.25%
Other Expenses
Class A..................................................................... 0.49% 0.42%
Class B..................................................................... 0.49% 0.40%
----------- -----------
Total Operating Expenses*
Class A..................................................................... 1.74% 1.42%
Class B..................................................................... 1.99% 1.65%
----------- -----------
----------- -----------
</TABLE>

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

*The Adviser has agreed to waive its management fees and/or reimburse the
Portfolios, if necessary, if such fees would cause the Portfolios' total annual
operating expenses, as a percentage of average daily net assets, to exceed
1.75% for the Class A shares and 2.00% for the Class B shares. The management
fees are 1.25% for the Emerging Markets Portfolio and 1.00% for the Emerging
Markets Debt Portfolio. The Adviser reserves the right to terminate any of its
fee waivers and/or expense reimbursements at any time in its sole discretion.
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 Fund expenses, see "Management of the Fund."

2
<PAGE>
The purpose of the table above is to assist the investor in understanding
the various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees for the Portfolios are based on actual figures for
the fiscal year ended December 31, 1996. 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 National
Association of Securities Dealers, Inc. ("NASD") Conduct Rules.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio
Class A.......................................................... $ 18 $ 55 $ 94 $ 205
Class B.......................................................... 20 62 107 232
Emerging Markets Debt Portfolio
Class A.......................................................... 27 84 143 303
Class B.......................................................... 28 87 148 314
</TABLE>

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A and Class
B shares for the Emerging Markets and Emerging Markets Debt Portfolios for each
of the periods presented. The audited financial highlights for the Portfolios'
shares for each of the periods presented are part of the Fund's financial
statements which appear in the Fund's December 31, 1996 Annual Report to
Shareholders and which are incorporated by reference in the Fund's Statement of
Additional Information. The Portfolios' financial highlights for each of the
periods presented have been audited by Price Waterhouse LLP, whose unqualified
report thereon is also incorporated by reference in the Statement of Additional
Information. Additional performance information is included in the Annual
Report. The Annual Report and the financial statements therein, along with the
Statement of Additional Information, are available at no cost from the Fund at
the address and telephone number noted on the cover page of this Prospectus.
After October 31, 1992, the Fund changed its fiscal year end to December 31. The
following information should be read in conjunction with the financial
statements and notes thereto.

4
<PAGE>
EMERGING MARKETS PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
PERIOD
TWO FROM
YEAR YEAR YEAR YEAR MONTHS SEPTEMBER
ENDED ENDED ENDED ENDED ENDED 25, 1992*
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER TO
31, 31, 31, 31, 31, OCTOBER
1996 1995 1994 1993 1992 31, 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 13.14 $ 16.30 $ 19.00 $ 10.22 $ 10.11 $ 10.00
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)................... 0.09 0.08 (0.04) (0.01) -- --
Net Realized and Unrealized Gain (Loss) on
Investments....................................... 1.51 (2.05) (1.69) 8.79 0.11 0.11
--------- --------- --------- --------- --------- ---------
Total from Investment Operations................. 1.60 (1.97) (1.73) 8.78 0.11 0.11
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income.............................. (0.08) (0.06) -- -- -- --
Net Realized Gain.................................. -- (1.13) (0.97) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions.............................. (0.08) (1.19) (0.97) -- -- --
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD....................... $ 14.66 $ 13.14 $ 16.30 $ 19.00 $ 10.22 $ 10.11
--------- --------- --------- --------- --------- ---------
TOTAL RETURN......................................... 12.19% (12.77)% (9.63)% 85.91% 1.09% 1.10%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............. $1,304,006 $876,591 $929,638 $735,352 $74,219 $28,806
Ratio of Expenses to Average Net Assets (1)........ 1.74% 1.72% 1.75% 1.75% 1.75%** 1.75%**
Ratio of Net Investment Income (Loss) to Average
Net Assets (1).................................... 0.69% 0.60% (0.26)% (0.06)% (0.33)%** (0.53)%**
Portfolio Turnover Rate............................ 55% 54% 32% 52% 2% 0%
Average Commission Rate#........................... $0.0006 N/A N/A N/A N/A N/A

<CAPTION>
CLASS B
---------
PERIOD
FROM
JANUARY
2,
1996***
TO
DECEMBER
31, 1996
---------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 13.25
---------
---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1)................... 0.04
Net Realized and Unrealized Gain (Loss) on
Investments....................................... 1.42
---------
Total from Investment Operations................. 1.46
---------
DISTRIBUTIONS
Net Investment Income.............................. (0.05)
Net Realized Gain.................................. --
---------
Total Distributions.............................. (0.05)
---------
NET ASSET VALUE, END OF PERIOD....................... $ 14.66
---------
TOTAL RETURN......................................... 11.04%
---------
---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............. $14,213
Ratio of Expenses to Average Net Assets (1)........ 1.99%**
Ratio of Net Investment Income (Loss) to Average
Net Assets (1).................................... 0.33%**
Portfolio Turnover Rate............................ 55%
Average Commission Rate#........................... $0.0006
</TABLE>

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

<TABLE>
<C><S> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income......... N/A N/A N/A $0.01 $0.00 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets..................... N/A N/A N/A 1.79 % 2.48 %** 4.82 %**
Net Investment Loss to Average Net Assets.......... N/A N/A N/A (0.10 )% (1.06 )%** (3.60 )%**

<CAPTION>
(1)
N/A

N/A
N/A

</TABLE>

* Commencement of Operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

5
<PAGE>
EMERGING MARKETS DEBT PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
CLASS A ---------
--------------------------------------- PERIOD
PERIOD FROM
FROM JANUARY
FEBRUARY 2,
1, 1996***
YEAR ENDED YEAR ENDED 1994* TO TO
DECEMBER 31, DECEMBER 31, DECEMBER DECEMBER
1996 1995 31, 1994 31, 1996
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 8.59 $ 8.59 $ 10.00 $ 8.68
------------- ------------- --------- ---------
------------- ------------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................... 1.54 1.36 0.50 1.01
Net Realized and Unrealized Gain (Loss) on
Investments............................................ 2.79 0.91 (1.91) 3.20
------------- ------------- --------- ---------
Total from Investment Operations...................... 4.33 2.27 (1.41) 4.21
------------- ------------- --------- ---------
DISTRIBUTIONS
Net Investment Income................................... (1.17) (1.86) -- (1.15)
In Excess of Net Investment Income...................... (0.01) -- -- (0.01)
Net Realized Gain....................................... (4.20) (0.41) -- (4.20)
------------- ------------- --------- ---------
Total Distributions................................... (5.38) (2.27) -- (5.36)
------------- ------------- --------- ---------
NET ASSET VALUE, END OF PERIOD............................ $ 7.54 $ 8.59 $ 8.59 $ 7.53
------------- ------------- --------- ---------
------------- ------------- --------- ---------
TOTAL RETURN.............................................. 50.52% 28.23% (14.10)% 48.52%
------------- ------------- --------- ---------
------------- ------------- --------- ---------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................... $152,142 $181,878 $144,949 $4,253
Ratio of Expenses to Average Net Assets................. 2.70% 1.75% 1.49%** 2.81%**
Ratio of Expenses to Average Net Assets (Excluding
Dividend and Interest Expense)......................... 1.42% N/A N/A 1.65%**
Ratio of Net Investment Income to Average Net Assets.... 11.66% 14.70% 9.97%** 11.09%**
Portfolio Turnover Rate................................. 560% 406% 273% 560%
</TABLE>

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

* Commencement of operations.

** Annualized

*** The Portfolio began offering Class B Shares on January 2, 1996.

6
<PAGE>
PROSPECTUS SUMMARY