<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1997.
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. 32
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 33
--------------
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)
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
/ / ON ________________ PURSUANT TO PARAGRAPH (b)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)
/ / ON _______________ PURSUANT TO PARAGRAPH (a) OF RULE 485
------------------
Registrant has elected to register an indefinite number of shares pursuant
to Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant
filed its Rule 24f-2 notice for the period ended December 31, 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, Global Fixed Income,
- ----------- Municipal Bond, Mortgage-Backed Securities, High Yield, Money
Market and Municipal Money Market Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis-- Fund Expenses (Estimated for Mortgage-Backed Securities
Portfolio)
Item 3. Condensed Financial Information -- Financial Highlights (for the Fixed
Income, Global Fixed Income, Municipal Bond, High Yield, Money Market
and Municipal Money Market Portfolios only); Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Small Cap Value Equity, Value Equity
- ----------- and Balanced Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the Active Country Allocation
- ----------- Portfolio
---------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for Gold Portfolio
- ----------- -----------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A Location in Prospectus for the Global Equity, International Equity,
Item Number International Small Cap, Asian Equity, European Equity, Japanese
- ----------- Equity and Latin American Portfolios
-------------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Emerging Markets and Emerging
- ---------- Markets Debt Portfolios
------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the China Growth Portfolio
- ----------- -----------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the Equity Growth, Emerging Growth,
- ----------- Microcap and Aggressive Equity Portfolios
--------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated for the MicroCap Portfolio)
Item 3. Condensed Financial Information -- Financial Highlights (for the
Equity Growth, Emerging Growth and Aggressive Equity Portfolios only);
Performance Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item number Location in Prospectus for the U.S. Real Estate Portfolio
- ----------- ---------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number Location in Prospectus for the International Magnum Portfolio
- ----------- -------------------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
Form N-1A
Item Number Location in Prospectus for the Technology Portfolio
- ----------- ---------------------------------------------------
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses (Estimated)
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objective and Policies; Additional Investment Information; Investment
Limitations; General Information
Item 5. Management of the Fund -- Prospectus Summary; Management of the Fund;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance**
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Capital Gains Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Prospectus Summary; Cover
Page; Purchase of Shares; Shareholder Services; Valuation of Shares
Item 8. Redemption or Repurchase -- Prospectus Summary; Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings -- *
_______________________
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report
to Shareholders, except for the following portfolios which were not in
operation at December 31, 1995: Mortgage-Backed Securities, China
Growth, MicroCap, International Magnum and Technology Portfolios.
Information required by Item 5A for the aforementioned portfolios will
be contained in the next Report to Shareholders following commencement
of operations.
<PAGE>
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A
Item Number Location in Statement of Additional Information for the Fixed
- ----------- Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield, Money Market, Municipal Money Market,
Small Cap Value Equity, Value Equity, Balanced, Active Country
Allocation, Gold, Global Equity, International Equity,
International Magnum, International Small Cap, Asian Equity,
European Equity, Japanese Equity, Latin American, Emerging
Markets, Emerging Markets Debt, China Growth, Equity Growth,
Emerging Growth, MicroCap, Aggressive Equity and U.S. Real Estate
Portfolios
-----------------------------------------------------------------
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- *
Item 13. Investment Objective and Policies -- Investment Objectives and
Policies; Investment Limitations
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund
Item 17. Brokerage Allocation -- *
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Net Asset Value; General
Information
Item 20. Tax Status -- Federal Tax Treatment of Forward Currency and Futures
Contracts
Item 21. Underwriters -- *
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
_______________________
* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
Form N-1A
Item Number Location in Statement of Additional Information for the
- ----------- Technology Portfolio
----------------------------------------------------------------
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- *
Item 13. Investment Objective and Policies -- Investment Objective and
Policies; Investment Limitations
Item 14. Management of the Fund-- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services-- Management of the Fund
Item 17. Brokerage Allocation -- *
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Net Asset Value; General
Information
Item 20. Tax Status -- Federal Tax Treatment of Forward Currency and Futures
Contracts
Item 21. Underwriters -- *
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements
Part C Other Information
- ------ -----------------
Part C contains the information required by the terms contained
therein under the items set forth in the form.
_______________________
* Omitted since the answer is negative or the Item is not applicable.
The Prospectus for the Fixed Income, Global Fixed Income, Municipal Bond,
Mortgage-Backed Securities, High Yield, Money Market and Municipal Money Market
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Small Cap Value Equity, Value Equity and Balanced
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Active Country Allocation Portfolio, included as
part of Post-Effective Amendment No. 29 to the Registration Statement on Form N-
1A of Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on April 30, 1996 is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the Gold Portfolio, included as part of Post-Effective
Amendment No. 29 to the Registration Statement on Form N-1A of Morgan Stanley
Institutional Fund, Inc. (File No. 33-23166) filed with the Securities and
Exchange Commission on April 30, 1996 is hereby incorporated by reference as if
set forth in full herein.
The Prospectus for the Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity and Latin American
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996, and in final form under Rule 497(e) on May 3, 1996, is hereby
incorporated by reference as if set forth in full herein.
The Prospectus for the Emerging Markets and Emerging Markets Debt
Portfolios, included as part of Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc.
(File No. 33-23166) filed with the Securities and Exchange Commission on April
30, 1996 is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the China Growth Portfolio, included as part of Post-
Effective Amendment No. 25 to the Registration Statement on Form N-1A of Morgan
Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the Securities
and Exchange Commission on August 1, 1995 is hereby incorporated by reference as
if set forth in full herein.
The Prospectus for the Equity Growth, Emerging Growth, MicroCap and
Aggressive Equity Portfolios, included as part of Post-Effective Amendment No.
29 to the Registration Statement on Form N-1A of Morgan Stanley Institutional
Fund, Inc. (File No. 33-23166) filed with the Securities and Exchange Commission
on April 30, 1996 is hereby incorporated by reference as if set forth in full
herein.
The Prospectus for the U.S. Real Estate Portfolio, included as part of
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of
Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on April 30, 1996 is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the Technology Portfolio, included as part of
Post-Effecive Amendment No. 30 to the Registration Statement on Form N-1A of
Morgan Stanley Institutional Fund, Inc. (File No. 33-23166) filed with the
Securities and Exchange Commission on May 24, 1996 is hereby incorporated by
reference as if set forth in full herein.
<PAGE>
The Statement of Additional Information for the Technology Portfolio,
included as part of Post-Effective Amendment No. 30 to the Registration
Statement on Form N-1A of Morgan Stanley Institutional Fund, Inc. (File No.
33-23166) filed with the Securities and Exchange Commission on May 24, 1996
is hereby incorporated by reference as if set forth in full herein.
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
PART A
The Prospectus for the Technology Portfolio (the "Portfolio") dated
August 22, 1996, is incorporated herein by reference to Post-Effective
Amendment No. 30 to Registrant's Registration Statement on Form N-1A (File
No. 33-23166) filed with the Securities and Exchange Commission on May 24,
1996. The Prospectus is supplemented by its Financial Highlights as of
December 31, 1996 filed herein to comply with the Fund's undertaking to
file a post-effective amendment containing reasonably current financial
statements which need not be certified within four to six months of the
commencement date of the Portfolio.
<PAGE>
SUPPLEMENT DATED FEBRUARY 28, 1997
TO THE PROSPECTUS DATED AUGUST 22, 1996 OF
MORGAN STANLEY INSTITUTIONAL FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The prospectus dated August 22, 1996 (the "Prospectus") of the Technoloy
Portfolio of the Morgan Stanley Institutional Fund, Inc. (the "Fund") is hereby
amended and supplemented as follows:
The following section is added before the section under the heading
"PROSPECTUS SUMMARY:"
FINANCIAL HIGHLIGHTS
The following table provides financial highlights for the Technology
Portfolio for the period ended December 31, 1996 and is part of the Fund's
unaudited financial statements which are included in the Fund's Statement of
Additional Information (the "SAI"). The SAI is 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.
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------- -----------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 16, 1996* TO SEPTEMBER 16, 1996* TO
DECEMBER 31, 1996 DECEMBER 31, 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS...........................
Net Investment Loss (1)................................... (0.02) (0.02)
Net Realized and Unrealized Gain on Investments........... 0.73 0.73
------- -------
Total from Investment Operations.......................... 0.71 0.71
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $10.71 $10.71
------- -------
------- -------
TOTAL RETURN................................................ 7.10% 7.10%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)....................... $3,595 $1,487
Ratio of Expenses to Average Net Assets (1)................. 1.25%** 1.50%**
Ratio of Net Investment Income to Average Net Assets (1).... (0.70)%** (1.00)%**
Portfolio Turnover Rate..................................... 77% 77%
- ---------------------------------------------------------------------------------------------------------------
Average Commission Rate..................................... $0.0374 $0.0374
- ---------------------------------------------------------------------------------------------------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income............. $ 0.22 $ 0.19
Ratios before expense limitation:
Expenses to Average Net Assets......................... 8.51%** 9.14%**
Net Investment Income to Average Net Assets............ (7.96)%** (8.65)%**
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company with diversified and nondiversified series
("Portfolios"). The Fund currently consists of twenty-nine Portfolios offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of each
Portfolio are offered with no sales charge, exchange or (with the exception of
the International Small Cap Portfolio) redemption fee. The Class A shares and
Class B shares currently offered by the Portfolios have different minimum
investment requirements and fund expenses. This Statement of Additional
Information addresses information of the Fund applicable to Class A shares and
Class B shares of the Technology Portfolio (the "Portfolio"), one of the twenty-
nine portfolios.
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the prospectus of the Portfolio (the "Prospectus"). To
obtain the Prospectus or the prospectus and/or Statement of Additional
Information relating to any of the other Portfolios, please call the Morgan
Stanley Institutional Fund, Inc. Services Group at 1-800-548-7786.
TABLE OF CONTENTS
Page
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . . 2
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Special Tax Considerations Relating to Foreign Investments . . . . . . . . .10
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . .10
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . .14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . .26
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . .30
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 22, 1996, AS AMENDED OCTOBER
15, 1996, NOVEMBER 27, 1996, AND FEBRUARY 28, 1997. RELATING TO THE PROSPECTUS
OF THE TECHNOLOGY PORTFOLIO DATED AUGUST 22, 1996.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Portfolio's investment objective and
policies set forth in the Prospectus:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
To the extent the Portfolio invests in securities denominated in foreign
currencies, the assets of the Portfolio may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Portfolio may incur costs in connection with conversions between various
currencies. The Portfolio will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.
The Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. When the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract
for a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when the Portfolio anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
the Portfolio's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The Portfolio does not intend to enter
into such forward contracts to protect the value of portfolio securities on a
continuous basis. The Portfolio will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign currency
in excess of the value of its securities or other assets denominated in that
currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of the Portfolio will thereby be served. Except under circumstances where a
segregated account is not required under the 1940 Act or the rules adopted
thereunder, the Fund's Custodian will place cash, U.S. government securities, or
high-grade debt securities into a segregated account of the Portfolio in an
amount equal to the value of its total assets committed to the consummation of
forward currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will be equal to
the amount of the Portfolio's commitments with respect to such contracts.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, the Portfolio
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for the Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
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If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Portfolio entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent that the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio would suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Portfolio is not required to enter into such transactions with regard
to its foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
FUTURES CONTRACTS
The Portfolio may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and reducing transactions
costs and may also enter into futures contracts for hedging purposes. The
Portfolio will not enter into futures contracts or options thereon for
speculative purposes. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
at a specified future time and at a specified price. Futures contracts, which
are standardized as to maturity date and underlying financial instrument, are
traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Futures contracts on securities indices or other indices do not require the
physical delivery of securities, but merely provide for profits and losses
resulting from changes in the market value of a contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures position is simply closed out. Changes in the
market value of a particular futures contract reflect changes in the level of
the index on which the futures contract is based.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits. With respect to each
long position in a futures contract or option thereon, the underlying commodity
value of such contract will always be covered by cash and cash equivalents set
aside plus accrued profits held at the futures commission merchant.
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a U.S. Exchange and enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which
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the market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Portfolio will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Portfolio intends to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Portfolio require that all
futures transactions constitute bona fide hedging transactions except that the
Portfolio may engage in futures transactions that do not constitute bona fide
hedging to the extent that not more than 5% of the liquidation value of the
Portfolio's total assets are required as margin deposits or premiums for such
transactions. The Portfolio will only sell futures contracts to protect
securities owned against declines in price or purchase contracts to protect
against an increase in the price of securities intended for purchase. As
evidence of this hedging interest, the Portfolio expects that approximately 75%
of their futures contracts will be "completed"; that is, equivalent amounts of
related securities will have been purchased or are being purchased by the
Portfolio upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Portfolio will incur commission expenses in both opening and closing
out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Portfolio will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of its total assets. In addition, the Portfolio will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under futures contracts and options on futures contracts and, under
options, futures contracts and options on futures contracts would exceed 20% of
its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contracts at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, the Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Portfolio's ability
to effectively hedge.
The Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
Portfolio engages in futures strategies only for hedging purposes, the Adviser
does not believe that the Portfolio is subject to the risks of loss frequently
associated with futures transactions. The Portfolio would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying security or currency and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that
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the Portfolio could both lose money on futures contracts and also experience a
decline in value of its portfolio securities. There is also the risk of loss by
the Portfolio of margin deposits in the event of bankruptcy of a broker with
whom the Portfolio has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS TRANSACTIONS
GENERAL INFORMATION. As stated in the Prospectus, the Portfolio may purchase
and sell options on equity securities. Additional information with respect to
option transactions is set forth below. Call and put options on portfolio
securities are listed on various U.S. and foreign securities exchanges ("listed
options") and are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they
trade or by a clearing corporation, such as Options Clearing Corporation
("OCC") in the United States. Ownership of a listed call option gives the
fund the right to buy from the clearing corporation or exchange, the
underlying security covered by the option at the state exercise price (the
price per unit of the underlying security or currency) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of
the option would then have the obligation to sell to the clearing corporation
or exchange, the underlying security or currency at that exercise price prior
to the expiration date of the option, regardless of the current market price.
Ownership of a listed put option would give the Portfolio the right to sell
the underlying security or currency to the clearing corporation or exchange
at the state exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security from the clearing corporation or exchange at the exercise price.
OTC options are purchased from or sold (written) to dealers of financial
institutions which have entered into direct agreements with the Portfolio. With
OTC options, such variables as expiration date, exercise price and premium will
be agreed upon between the Portfolio and the transactions dealer, without the
intermediation of a third party such as a clearing corporation or exchange. If
the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that
option, the Portfolio would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. The Portfolio may write (i.e., sell) covered call options
on portfolio securities. By doing so, the Portfolio would become obligated
during the terms of the option to deliver the securities underlying the option
should the option holder choose to exercise the option before the option's
termination date. In return for the call it has written, the Portfolio will
receive from the purchaser (or option holder) a premium which is the price of
the option, less a commission charged by a broker. The Portfolio will keep the
premium regardless of whether the option is exercised. A call option is
"covered" if the Portfolio owns the security underlying the option it has
written or has an absolute or immediate right to acquire the security by holding
a call option on such security, or maintains a sufficient amount of cash, cash
equivalents or liquid securities to purchase the underlying security. When the
Portfolio writes covered call options, it augments its income by the premiums
received and is thereby hedged to the extent of that amount against a decline in
the price of the underlying securities and the premiums received will offset a
portion of the potential loss incurred by the Portfolio if the securities
underlying the options are ultimately sold by the Portfolio at a loss. However,
during the option period, the Portfolio has, in return for the premium on the
option, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
The size of premiums will fluctuate with varying market conditions.
COVERED PUT WRITING. The Portfolio may write covered put options on portfolio
securities. By doing so, the Portfolio incurs an obligation to buy the security
underlying the option from the purchaser of the put at the option's exercise
price at any time during the option period, at the purchaser's election (certain
listed and OTC options written by the Portfolio will be exercisable by the
purchaser only on a specific date). Generally, a put option is "covered" if the
Portfolio maintains cash, U.S. Government securities or other high grade debt
obligations equal to the exercise price of the option or if the Portfolio holds
a put option on the same underlying security with a similar or higher exercise
price.
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The Portfolio will write put options to receive the premiums paid by
purchasers; when the Adviser wishes to purchase the security underlying the
option at a price lower than its current market price, in which case it will
write the covered put at an exercise price reflecting the lower purchase price
sought; and to close out long put option positions.
PURCHASE OF PUT AND CALL OPTIONS. The Portfolio may purchase listed or OTC put
or call options on its portfolio securities in amounts exceeding no more than 5%
of its total assets. When the Portfolio purchases a call option it acquires the
right to purchase a designated security at a designated price (the "exercise
price"), and when the Portfolio purchases a put option it acquires the right to
sell a designated security at the exercise price, in each case on or before a
specified date (the "termination date"), usually not more than nine months from
the date the option is issued.
The Portfolio may purchase call options to close out a covered call
position or to protect against an increase in the price of a security it
anticipates purchasing. The Portfolio may purchase put options on securities
which it holds in its portfolio only to protect itself against a decline in the
value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Portfolio would incur no additional loss. The
Portfolio may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions.
The amount the Portfolio pays to purchase an option is called a "premium",
and the risk assumed by the Portfolio when it purchases an option is the loss of
this premium. Because the price of an option tends to move with that of its
underlying security, if the Portfolio is to make a profit, the price of the
underlying security must change and the change must be sufficient to cover the
premium and commissions paid. A price change in the security underlying the
option does not assure a profit since prices in the options market may not
always reflect such a change.
PORTFOLIO TURNOVER
The portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the Portfolio for the year, excluding U.S. Government securities and securities
with maturities of one year or less. The portfolio turnover rate for a year is
calculated by dividing the lesser of sales or the average monthly value of the
Portfolio's portfolio purchases of portfolio securities during that year by
securities, excluding money market instruments. The rate of portfolio turnover
will not be a limiting factor when the Portfolio deems it appropriate to
purchase or sell securities for the Portfolio. However, the U.S. federal tax
requirement that the Portfolio derive less than 30% of its gross income from the
sale or disposition of securities held less than three months may limit the
Portfolio's ability to dispose of its securities. See "Taxes."
SECURITIES LENDING
The Portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Portfolio attempts to increase its net investment income through
the receipt of interest on the loan. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Portfolio. The Portfolio may lend its investment securities
to qualified brokers, dealers, domestic and foreign banks or other financial
institutions, so long as the terms, structure and the aggregate amount of such
loans are not inconsistent with the Investment Company Act of 1940, as amended
(the "1940 Act"), or the Rules and Regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Portfolio at any
time, and (d) the Portfolio receive reasonable interest on the loan (which may
include the Portfolio investing any cash collateral in interest bearing
short-term investments), any distributions on the loaned securities and any
increase in their market value. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will only be made to borrowers
deemed by the Advisor to be of good standing and when, in the judgment of the
Advisor, the consideration which can be earned currently from such securities
loans justifies the attendant risk. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Board of Directors of the Fund.
At the present time, the staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's
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Board of Directors. Voting rights may pass with the loaned securities, provided
that if a material event occurs affecting a security on loan, the loan must be
called and the securities voted.
SHORT SALES
The Portfolio may from time to time sell securities short without
limitation but consistent with applicable legal requirements, although initially
the Portfolio does not intend to sell securities short. A short sale is a
transaction in which the Portfolio would sell securities it owns or has the
right to acquire at no added cost (i.e., "against the box") or does not own (but
has borrowed) in anticipation of a decline in the market price of the
securities. When the Portfolio makes a short sale of borrowed securities, the
proceeds it receives from the sale will be held on behalf of a broker until the
Portfolio replaces the borrowed securities. To deliver the securities to the
buyer, the Portfolio will need to arrange through a broker to borrow the
securities and, in so doing, the Portfolio will become obligated to replace the
securities borrowed at their market price at the time of replacement, whatever
that price may be. The Portfolio may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government Securities or other liquid, high grade debt
obligations. In addition, if the short sale is not "against the box," the
Portfolio will place in a segregated account with its custodian, or designated
sub-custodian, an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government Securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Portfolio will maintain the segregated account daily at a level
so that (1) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (2) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
SPECIAL RISKS ASSOCIATED WITH FORWARD CONTRACTS, FOREIGN CURRENCY FUTURES
CONTRACTS AND OPTIONS THEREON AND OPTIONS ON FOREIGN CURRENCIES
Transactions in forward contracts, as well as futures and options on
foreign currencies, are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Portfolio permitted to engage in such hedging
transactions. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors applicable
to the countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying forward contracts, futures contracts and options. As a
result, the available information on which the Portfolio's trading systems will
be based may not be as complete as the comparable data on which the Portfolio
makes investment and trading decisions in connection with securities and other
transactions. Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which will not be
reflected in the forward, futures or options markets until the following day,
thereby preventing the Portfolio from responding to such events in a timely
manner.
Settlements of over-the-counter forward contracts or of the exercise of
foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires parties to such contracts to accept
or make delivery of such currencies in conformity with any United States or
foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the Commission. In an over-the-counter trading environment, many of
the protections associated with transactions on exchanges will not be available.
For example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction
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costs, this entire amount could be lost. Moreover, an option writer could lose
amounts substantially in excess of its initial investment due to the margin and
collateral requirements associated with such option positions. Similarly, there
is no limit on the amount of potential losses on forward contracts to which the
Portfolio is a party.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and the Portfolio may be unable to close
out options purchased or written, or forward contracts entered into, until their
exercise, expiration or maturity. This in turn could limit the Portfolio's
ability to realize profits or to reduce losses on open positions and could
result in greater losses.
Furthermore, over-the-counter transactions are not backed by the guarantee
of an exchange's clearing corporation. The Portfolio will therefore be subject
to the risk of default by, or the bankruptcy of, the financial institution
serving as its counterparty. One or more of such institutions also may decide
to discontinue its role as market-maker in a particular currency, thereby
restricting the Portfolio's ability to enter into desired hedging transactions.
The Portfolio will enter into over-the-counter transactions only with parties
whose creditworthiness has been reviewed and found satisfactory by the Adviser.
Over-the-counter options on foreign currencies, like exchange-traded
commodity futures contracts and commodity option contracts, are within the
exclusive regulatory jurisdiction of the CFTC. The CFTC currently permits the
trading of such options, but only subject to a number of conditions regarding
the commercial purpose of the purchaser of such options.
Options on foreign currencies traded on a national securities exchange are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency options positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting the Portfolio to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures for
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on exercise.
TAXES
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's Prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio within the Fund is generally treated as a separate
corporation for federal income tax purposes, and thus the provisions of the Code
generally will be applied to each Portfolio separately, rather than to the Fund
as a whole.
The Portfolio intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Portfolio must, among other things, (a) derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
8
<PAGE>
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; (b) derive
less than 30% of its gross income each taxable year from the sale or other
disposition of the following items if held less than three months (A) stock or
securities, (B) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), and (C) foreign currencies
(or options, futures, or forward contracts on foreign currencies) that are not
directly related to the Portfolio's principal business of investing in stocks or
securities (or options or futures with respect to stock or securities) (the
"short-short test") and (c) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio's taxable year, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash and cash items,
United States Government securities, securities of other RICs, and other
securities, with such other securities limited, in respect to any one issuer, to
an amount not greater than 5% of the value of the Portfolio's total assets or
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities (other than
United States Government securities or securities of other RICs) of any one
issuer or two or more issuers which the Portfolio controls and which are engaged
in the same, similar, or related trades or business. For purposes of the 90% of
gross income requirement described above, foreign currency gains which are not
directly related to the Portfolio's principal business of investing in stock or
securities (or options or futures with respect to stock or securities) may be
excluded from income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, the Portfolio must distribute at least 90% of its net investment income
(which generally includes dividends, taxable interest, and the excess of net
short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax-exempt interest income, if any, to
shareholders. If the Portfolio meets all of the RIC requirements, it will not
be subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
If the Portfolio fails to qualify as a RIC for any year, all of its income
will be subject to tax at corporate rates, and its distributions (including
capital gains distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Portfolio's current and accumulated earnings
and profits, and will be eligible for the corporate dividends received deduction
for corporate shareholders.
The Portfolio will decide whether to distribute or to retain all or part of
any net capital gains (the excess of net long-term capital gains over net short-
term capital losses) in any year for reinvestment. If any such gains are
retained, the Portfolio will pay federal income tax thereon, and, if the
Portfolio makes an election, the shareholders will include such undistributed
gains in their income, will increase their basis in Portfolio shares by 65% of
the amount included in their income and will be able to claim their share of the
tax paid by the Portfolio as a refundable credit against their federal income
tax liability.
A gain or loss realized by a shareholder on the sale, exchange or exemption
of shares of the Portfolio held as a capital asset will be capital gain or loss,
and such gain or loss will be long-term if the holding period for the shares
exceeds one year, and otherwise will be short-term. Any loss realized on a
sale, exchange, or redemption of shares of the Portfolio will be disallowed to
the extent the shares disposed of are replaced within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
Any loss realized by a shareholder on the disposition of shares held 6 months or
less is treated as a long-term capital loss to the extent of any distributions
of net long-term capital gains received by the shareholder with respect to such
shares or any inclusion of undistributed capital gain with respect to such
shares.
The conversion of Class A shares to Class B shares should not be a taxable
event to the shareholder.
The Portfolio will generally be subject to a nondeductible 4% federal
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
The Portfolio is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions, and
redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Portfolio, that the
Social Security or Taxpayer Identification Number provided is correct and that
the shareholder is exempt from backup withholding or is not currently subject to
backup withholding.
For certain transactions, the Portfolio is required for federal income tax
purposes to recognize as gain or loss its net unrealized gains and losses on
forward currency and futures contracts as of the end of each taxable year, as
well as those actually realized during the year. In most cases, any such gain
or loss recognized with respect to a regulated futures contract is considered to
be 60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Realized gain or loss
attributable to a foreign currency forward contract is treated as 100% ordinary
income. Furthermore, foreign
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<PAGE>
currency futures contracts which are intended to hedge against a change in the
value of securities held by the Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
As discussed above, in order for the Portfolio to continue to qualify for
federal income tax treatment as a RIC, at least 90% of its gross income for a
taxable year must be derived from certain qualifying income, including
dividends, interest, income derived from loans of securities, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
related income, including gains from options, futures and forward contracts,
derived with respect to its business of investing in stock, securities or
currencies. Any net gain realized from the closing out of futures contracts
will therefore generally be qualifying income for purposes of the 90%
requirement. Qualification as a RIC also requires that less than 30% of the
Portfolio's gross income be derived from the sale or other disposition of stock,
securities, options, futures or forward contracts (including certain foreign
currencies not directly related to the Fund's business of investing in stock or
securities) held less than three months. In order to avoid realizing excessive
gains on futures contracts held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so.
Short sales engaged in by the Portfolio may reduce the holding property
held by the Portfolio which is substantially identical to the property sold
short. This rule may make it more difficult for the Portfolio to satisfy the
short-short test. This rule may also have the effect of converting capital
gains recognized by the Portfolio from long-term to short-term as well as
converting capital losses recognized by the Portfolio from short-term to long-
term.
SPECIAL TAX CONSIDERATIONS RELATING TO FOREIGN INVESTMENTS
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Portfolio accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Portfolio actually collects
such receivables or pays such liabilities are treated as ordinary income or
ordinary loss to the Portfolio. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss
to the Portfolio. These gains or losses increase or decrease the amount of the
Portfolio's net investment income available to be distributed to its
shareholders as ordinary income.
It is expected that the Portfolio will be subject to foreign withholding
taxes with respect to its dividend and interest income from foreign countries,
and the Portfolio may be subject to foreign income taxes with respect to other
income. So long as more than 50% in value of the Portfolio's total assets at
the close of the taxable year consists of stock or securities of foreign
corporations, the Portfolio may elect to treat certain foreign income taxes
imposed on it for United States federal income tax purposes as paid directly by
its shareholders. The Portfolio will make such an election only if it deems it
to be in the best interest of its shareholders and will notify shareholders in
writing each year if it makes an election and of the amount of foreign income
taxes, if any, to be treated as paid by the shareholders. If the Portfolio
makes the election, shareholders will be required to include in income their
proportionate shares of the amount of foreign income taxes treated as imposed on
the Portfolio and will be entitled to claim either a credit (subject to the
limitations discussed below) or, if they itemize deductions, a deduction, for
their shares of the foreign income taxes in computing their federal income tax
liability.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to a number of complex limitations regarding the
availability and utilization of the credit. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by the Portfolio.
Shareholders are urged to consult their tax advisors regarding the application
of these rules to their particular circumstances.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation, or a foreign
partnership ("Foreign Shareholder") depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Portfolio is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of net
investment income plus the excess of net short-term capital gains over net
long-term capital losses will be subject to U.S. withholding tax at the rate of
30% (or such lower treaty rate as may be applicable) upon the gross amount of
the dividend. Furthermore, Foreign Shareholders will generally be exempt from
U.S. federal income tax on gains realized on the
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<PAGE>
sale of shares of the Portfolio, distributions of net long-term capital gains,
and amounts retained by the Fund which are designated as undistributed capital
gains.
If the income from the Portfolio is effectively connected with a U.S. trade
or business carried on by a Foreign Shareholder, then distributions from the
Portfolio and any gains realized upon the sale of shares of the Portfolio, will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
The Portfolio may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Portfolio, including the potential application of the
provisions of the Foreign Investment in Real Estate Property Tax Act of 1980, as
amended.
PURCHASE OF SHARES
The following supplements the Purchase of Shares section in the Prospectus.
The purchase price of shares of the Portfolio is the net asset value next
determined after the order is received. An order received prior to the regular
close of the New York Stock Exchange (the "NYSE") will be executed at the price
computed on the date of receipt; and an order received after the regular close
of the NYSE will be executed at the price computed on the next day the NYSE is
open as long as the Fund's transfer agent receives payment by check or in
Federal Funds prior to the regular close of the NYSE on such day. Shares of the
Fund may be purchased on any day the NYSE is open. The NYSE will be closed on
the following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
The following supplements the Redemption of Shares section in the
Prospectus.
The Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the Commission, (ii) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for the Portfolio to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
No charge is made by the Portfolio for redemptions. Any redemption may be
more or less than the shareholder's cost depending on the market value of the
securities held by the Portfolio.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and
(2) share transfer requests.
A guarantor must be a bank, a trust company, a member firm of a domestic
stock exchange, or a foreign branch of any of the foregoing. Notaries public
are not acceptable guarantors.
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The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the Shareholder Services section in the
Prospectus.
EXCHANGE FEATURES
Shares of the Portfolio of the Fund may be exchanged for shares of any
other available Portfolio (other than the International Equity Portfolio, which
is closed to new investors). In exchanging for shares of a Portfolio with more
than one class, the class of shares a shareholder receives in exchange will be
determined in the same manner as any other purchase of shares and will not be
based on the class of shares surrendered for the exchange. Consequently, the
same minimum initial investment and minimum account size for determining the
class of shares received in the exchange will apply.
Any such exchange will be based on the respective net asset values of the
shares involved. There is no sales commission or charge of any kind. Before
making an exchange, a shareholder should consider the investment objectives of
the Portfolio to be purchased.
Exchange requests may be made either by mail or telephone. Exchange
requests by mail should be sent to Morgan Stanley Institutional Fund, Inc., P.O.
Box 2798, Boston, Massachusetts 02208-2798. Telephone exchanges will be accepted
only if the certificates for the shares to be exchanged are held by the Fund for
the account of the shareholder and the registration of the two accounts will be
identical. Requests for exchanges received prior to 4:00 p.m. (Eastern Time)
will be processed as of the close of business on the same day. Requests
received after these times will be processed on the next business day.
Exchanges may be subject to limitations as to amounts or frequency, and to other
restrictions established by the Board of Directors to assure that such exchanges
do not disadvantage the Fund and its shareholders.
For federal income tax purposes an exchange between Portfolios is a taxable
event for shareholders subject to tax, and, accordingly, a gain or loss may be
realized. The exchange privilege may be modified or terminated by the Fund at
any time upon 60 days' notice to shareholders.
TRANSFER OF SHARES
Shareholders may transfer shares of the Portfolio to another person by
making a written request to the Fund. The request should clearly identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions, the written request must be received
in good order before any transfer can be made. Transferring shares may affect
the eligibility of an account for a given class of the Portfolio's shares and
may result in involuntary conversion or redemption of such shares.
INVESTMENT LIMITATIONS
The Portfolio has adopted the following restrictions which are fundamental
policies and may not be changed without the approval of the lesser of: (1) at
least 67% of the voting securities of the Portfolio present at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented by proxy, or (2) more than 50% of the outstanding
voting securities of the Portfolio. The Portfolio will not:
(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling options or futures contracts or from
investing in securities or other instruments backed by physical commodities);
(2) purchase or sell real estate, although it may purchase and sell
securities of companies that deal in real estate and may purchase and sell
securities that are secured by interests in real estate;
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(3) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;
(4) issue senior securities;
(5) borrow, except the Portfolio may: borrow from banks in amounts up to
33 1/3% of its total assets (including the amount borrowed) less liabilities
in accordance with its investment objective and policies;
(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities;
(7) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the Portfolio's
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation on the purchase
of securities of companies in the technology or technology related industries,
or on the purchase of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; and
(8) write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
With respect to fundamental limitation (7) above, the Fund will determine
industry concentration in accordance with the classifications of industries
based on the Industry Numbers from the Standard Industrial Classification Manual
as prepared by the Office of Management and Budget, except that companies in
the technology and technology related industries will be deemed part of one
industry.
The Portfolio will diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the market value of the
Portfolio's total assets is represented by cash (including cash items and
receivables), U.S. Government securities, and other securities, with such other
securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Portfolio's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities);
In addition, the Portfolio has adopted nonfundamental investment
limitations as stated below and in the Prospectus. Such limitations may be
changed without shareholder approval. The Portfolio will not:
(1) purchase on margin or sell short, except that the Portfolio may enter
into short sales in accordance with its investment objective and policies;
(2) purchase or retain securities of an issuer if those Officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(3) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(6) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(7) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Portfolio's net assets (taken at market value) would be invested in
warrants, valued at the lower of cost or market. Included within this amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be warrants
that are not listed on a recognized stock exchange;
(8) invest in real estate limited partnership interests;
(9) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the Prospectus) that are publicly distributed, and (ii) by lending
its portfolio securities to
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banks, brokers, dealers and other financial institutions so long as such loans
are not inconsistent with the 1940 Act or the Rules and Regulations or
interpretations of the Commission thereunder;
(10) invest in oil, gas or other mineral leases; and
(11) purchase puts, calls, straddles, spreads and any combination thereof
if for any reason thereof the value of its aggregate investment in such classes
of securities will exceed 5% of its total assets, except that the Portfolio may
enter into option transactions to the extent that not more than 5% of the
Portfolio's total assets are required as deposits to secure obligations under
options and not more than 20% of its total assets are invested in options,
futures contracts and options on futures contracts at any time.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a
Government Obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be deemed to have
a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand;
(d) an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. Directors and officers of the
Fund are also directors and officers of some or all of the other investment
companies managed, administered, advised or distributed by Morgan Stanley Asset
Management Inc. or its affiliates. The other Directors have no affiliation with
the Fund's adviser, distributor or administrative services provider. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth
below:
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Principal Occupation During
Name, Address and Age Postion With Fund Past Five Years
--------------------- ----------------- -----------------------------
Barton M. Biggs* Chairman and Chairman, Director and Managing
1221 Avenue of the Director Director of Morgan Stanley Asset
Americas Management Inc. and Morgan
New York, NY 10020 Stanley Asset Management
(63) Limited; Managing Director of
Morgan Stanley & Co., Inc.;
Director of Morgan Stanley Group
Inc.; Member of Investment
Advisory Counsel of the Thailand
Fund; Director of the Rand
McNally Company; Member of the
Yale Development Board; Chairman
and Director of 16 U.S.
registered investment companies
managed by Morgan Stanley Asset
Management Inc.
Warren J. Olsen* Director and Principal of Morgan Stanley &
1221 Avenue of the President Co., Inc. and of Morgan Stanley
Americas Asset Management Inc.; President
New York, NY 10020 and Director of 16 U.S.
(39) registered investment companies
managed by Morgan Stanley Asset
Management Inc.
John D. Barrett, II Director Chairman and Director of Barrett
521 Fifth Avenue Associates, Inc. (investment
New York, NY 10135 counseling); Director of the
(60) Ashforth Company (real estate);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP
43 Arch Street (law firm); Director of the
Greenwich, CT 06830 Morgan Stanley Fund, Inc. and
(59) PCS Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive
8255 North Central Officer of Rand McNally
Park Avenue (publication); Director of
Skokie, IL 60076 Allendale Insurance Co., Mercury
(56) Finance (consumer finance);
Zenith Electronics, Hubbell,
Inc. (industrial electronics);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
Samuel T. Reeves Director Chairman of the Board and CEO,
8211 North Pinacle L.L.C. (investment
Fresno Street firm); Director, Pacific Gas and
Fresno, CA 93720 Electric and PG&E Enterprises
(61) (utilities); Director of the
Morgan Stanley Fund, Inc. and
PCS Cash Fund, Inc.
Fergus Reid Director Chairman and Chief Executive
85 Charles Colman Blvd Officer of LumeLite Corporation
Pawling, NY 12564 (injection molding firm);
(63) Trustee and Director of Vista
Mutual Fund Group; Director of
the Morgan Stanley Fund, Inc.
and PCS Cash Fund, Inc.
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law
2800 North Central Avenue firm); Previously associated
Phoenix, AZ 85004 with Copple, Chamberlin & Boehm,
(62) P.C. and Rake, Copple, Downey &
Black, P.C. (law firms);
Director of the Morgan Stanley
Fund, Inc. and PCS Cash Fund,
Inc.
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Principal Occupation During
Name, Address and Age Postion with Fund Past Five Years
--------------------- ----------------- -----------------------------
Frederick B. Whittemore* Director Advisory Director of Morgan
1251 Avenue of the Stanley & Co., Inc.; Vice-
Americas, 30th Flr. Chairman and Director of 15 U.S.
New York, NY 10020 registered investment companies
(65) managed by Morgan Stanley Asset
Management Inc.
James W. Grisham* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co., Inc. and of Morgan Stanley
Americas Asset Management Inc.; Vice
New York, NY 10020 President of 16 U.S. registered
(54) investment companies managed by
Morgan Stanley Asset Management
Inc.
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co. and of Morgan Stanley Asset
Americas Management Inc.; General Counsel
New York, NY 10020 and Secretary of Morgan Stanley
(35) Asset Management Inc.; Vice
President of 16 U.S. registered
investment companies managed by
Morgan Stanley Asset Management
Inc.
Joseph P. Stadler* Vice President Vice President of Morgan Stanley
1221 Avenue of the & Co. Inc. and Morgan Stanley
Americas Asset Management Inc.;
New York, NY 10020 Previously with Price Waterhouse
(41) LLP (accounting); Vice President
of 16 U.S. registered investment
companies managed by Morgan
Stanley Asset Management Inc.
Valerie Y. Lewis* Secretary Vice President of Morgan Stanley
1221 Avenue of the & Co. Inc. and Morgan Stanely
Americas Asset Management Inc.;
New York, NY 10020 Previously with Citicorp
(40) (banking); Secretary of 16 U.S.
registered investment companies
managed by Morgan Stanley Asset
Management Inc.
Karl O. Hartmann Assistant Senior Vice President, Secretary
73 Tremont Street Secretary and General Counsel of Chase
Boston, MA 02108-3913 Global Funds Services Company;
(41) Previously, Leland, O'Brien,
Rubinstein Associates, Inc.
(investments).
James R. Rooney Treasurer Vice President, Chase Global
73 Tremont Street Funds Services Company; Director
Boston, MA 02108-3913 of Fund Administration; Officer
(37) of various investment companies
managed by Morgan Stanley Asset
Management Inc.; Previously with
Scudder, Stevens & Clark, Inc.
(investments) and Ernst & Young
LLP (accounting); Treasurer of
16 U.S. registered investment
companies managed by Morgan
Stanley Asset Management Inc.
Joanna Haigney Assistant Supervisor of Fund
73 Tremont Street Treasurer Administration and Compliance,
Boston, MA 02108-3913 Chase Global Funds Services
(29) Company; Previously with Coopers
& Lybrand LLP; Assistant
Treasurer of 16 U.S. registered
investment companies managed by
Morgan Stanley Asset Management
Inc.
_______
* "Interested Person" within the meaning of the 1940 Act.
16
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
Effective June 28, 1995, the Open-end Fund Complex will pay each of the
nine Directors who is not an "interested person" an annual aggregate fee of
$55,000, plus out-of-pocket expenses. The Open-end Fund Complex will pay
each of the members of the Fund's Audit Committee, which consists of the
Fund's Directors who are not "interested persons," an additional annual
aggregate fee of $10,000 for serving on such a committee. The allocation of
such fees will be among the three funds in the Open-end Fund Complex in
direct proportion to their respective average net assets. For the fiscal
year December 31, 1995, the Fund paid approximately $244,000 in Directors'
fees and expenses. Directors who are also officers or affiliated persons
receive no remuneration for their services as Directors. The Fund's officers
and employees are paid by the Adviser or its agents. As of February 18,
1997, to Fund management's knowledge, the Directors and officers of the Fund,
as a group, owned more than 1% of the outstanding common stock of the
following Portfolios of the Fund: 1.9% Asian Equity Portfolio - Class A
shares; 2.9% Latin American Portfolio - Class A shares and 1.2% Technology
Portfolio - Class A shares. The following table shows aggregate compensation
paid to each of the Fund's Directors by the Fund and the Fund Complex,
respectively, in the fiscal year ended December 31, 1995.
17
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
PERSON, COMPENSATION RETIREMENT ANNUAL COMPENSATION
POSITION FROM BENEFITS ACCRUED BENEFITS FROM REGISTRANT
REGISTRANT AS PART OF FUND UPON AND FUND COMPLEX
EXPENSES RETIREMENT PAID TO DIRECTORS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barton M. Biggs, $ N/A $ N/A
Director and Chairman
of the Board
Warren J. Olsen, N/A N/A
Director and President
John D. Barrett, II 14,085 26,405
Director
Gerard E. Jones, 25,335 79,655
Director
Andrew McNally, IV 11,916 32,834
Director
Samuel T. Reeves 11,916 14,303
Director
Fergus Reid 14,085 48,517
Director
Frederick O. Robertshaw 11,916 36,055
Director
Frederick B. Whittemore 12,150 41,429
Director
John P. Britton* 11,250 11,250
Director
George R. Bunn* 12,900 12,900
Director
Peter E. deSvastich* 11,250 25,225
Director
</TABLE>
___________
* As of June 30, 1995, Messrs. Britton, Bunn and deSvastich resigned from the
Board of Directors.
18
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
Morgan Stanley Asset Management Inc. ("MSAM" or the "Adviser") is a
wholly-owned subsidiary of Morgan Stanley Group Inc. The principal offices of
Morgan Stanley Group Inc. are located at 1221 Avenue of the Americas, New York,
NY 10020. As compensation for advisory services for the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995, the Adviser earned
fees of approximately $17,539,000, $34,338,000 and $40,534,000, respectively,
and from such fees voluntarily waived fees of $3,037,000, $2,640,000 and
$3,526,000, respectively. For the fiscal years ended December 31, 1993,
December 31, 1994 and December 31, 1995, the Fund paid brokerage commissions of
approximately $5,827,000, $7,287,293 and $10,317,515, respectively. For the
fiscal years ended December 31, 1993, December 31, 1994 and December 31, 1995,
the Fund paid in the aggregate $797,000, $796,000 and $377,000, respectively, as
brokerage commissions to Morgan Stanley & Co. Incorporated, an affiliated
broker-dealer, which represented 13%, 11% and 4% of the total amount of
brokerage commissions paid in each respective period. For the fiscal years
ended December 31, 1993 , December 31, 1994 and December 31, 1995, the Fund paid
administrative fees to MSAM of approximately $4,662,000, $4,458,000 and
$5,238,000, respectively.
Pursuant to the MSAM Administration Agreement between the Adviser and the
Fund, the Adviser provides Administrative Services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.15 of 1% of the average daily net assets of the Portfolio.
Under the Agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase," successor in interest to United States Trust Company of New York),
Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds Service
Company and now a Chase subsidiary) provides certain administrative services to
the Fund. CGFSC provides operational and administrative services to investment
companies with approximately $62 billion in assets and having approximately
187,286 shareholder accounts as of March 31, 1996. CGFSC's business address is
73 Tremont Street, Boston, Massachusetts 02108-3913.
DISTRIBUTION OF FUND SHARES
Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Morgan Stanley Group Inc., serves as the Distributor of the Fund's
shares pursuant to a Distribution Agreement for the Fund and a Plan of
Distribution for the Class B shares of the Portfolio pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan the Distributor is entitled to
receive from the Portfolio a distribution fee, which is accrued daily and paid
quarterly, at an annual rate of up to 0.25% of the average daily net assets of
the Class B shares of the Portfolio. The Distributor expects to allocate most
of its fee to its investment representatives and investment dealers, banks or
financial service firms that provide distribution services ("Participating
Dealer"). The actual amount of such compensation is agreed upon by the Fund's
Board of Directors and by the Distributor. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
The Plan obligates the Portfolio to accrue and pay to the Distributor the
fee agreed to under its Distribution Agreement. The Plan does not obligate the
Portfolio to reimburse the Distributor for the actual expenses the Distributor
may incur in fulfilling its obligations under the Plan. Thus, under the Plan,
even if the Distributor's actual expenses exceed the fee payable to it
thereunder at any given time, the Portfolio will not be obligated to pay more
than that fee. If the Distributor's actual expenses are less than the fee it
receives, the Distributor will retain the full amount of the fee. The Plan for
the Class B shares were most recently approved by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of a Plan or in any agreements related thereto, on
September 20, 1995.
The Technology Portfolio was not in operation in the fiscal year ended
December 31, 1995.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Adviser and, as described below,
impose additional, more onerous, restrictions on the Fund's investment
personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in
19
<PAGE>
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Adviser. Furthermore, the Codes provide for trading "blackout periods" that
prohibit trading by investment personnel of the Fund within periods of trading
by the Fund in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of February 18, 1997 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
ACTIVE COUNTRY ALLOCATION PORTFOLIO: City of New York Deferred Compensation
Plan, 40 Rector Street, 3rd Floor, New York, NY 10006, owned 24% of such
Portfolio's total outstanding Class A shares.
The Trustees of Columbia University in the
City of New York, 475 Riverside Drive, Suite 401, New York, NY 10115, owned 15%
of such Portfolio's total outstanding Class A shares.
Oglebay Norton Company, 1100 Superior Avenue, Cleveland, OH 44114-2598, owned
11% of such Portfolio's total outstanding Class A shares.
The Flinn Foundation, Northern Trust Co., Master Trust Dept., P.O. Box 92984,
Chicago, IL 60675, owned 7% of such Portfolio's total outstanding Class A
shares.
Sahara Enterprises, Inc., 3 First National Plaza, Suite 2000, Chicago, IL 60602-
4260, owned 6% of such Portfolio's total outstanding Class A shares.
The Chase Manhattan Bank, N.A., Trustee Chubb Capital Accumulation Plan, 770
Broadway, New York, NY 10003, owned 6% of such Portfolio's total outstanding
Class A shares.
Fredric W. & Stephanie C. Harman, 21 Hillbrook, Portola Valley, CA 94028,
owned 54% of such Portfolio's total outstanding Class B shares.
David M. & Sharon M. Platter, 9 Palmer Lane, Riverside, CT 06878, owned 46% of
such Portfolio's total outstanding Class B shares.
AGGRESSIVE EQUITY PORTFOLIO: Ministers and Missionaries Benefit Board of the
American Baptist Churches, Attn: Morgan Stanley Asset Management, 1221 Avenue
of the Americas, New York, NY 10020, owned 13% of such Portfolio's total
outstanding Class A shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O.
Box 92956, Chicago, IL 60675-2956, owned 9% of such Portfolio's total
outstanding Class A shares.
Valassis Enterprises - Equity C/O Franklin Enterprises, 520 Lake Cook Road,
Suite 380, Deerfield, IL 60015, owned 7% of such Portfolio's total
outstanding Class A shares.
Kinghugh S.A., C/O Morgan Stanley Asset Management, 1221 Avenue of the Americas,
New York, NY 10020, owned 7% of such Portfolio's total outstanding Class A
shares.
20
<PAGE>
ASIAN EQUITY PORTFOLIO: Association De Bienfaisance Et De Retraite Des
Policiers De La Communaute Urbaine De Montreal, 480 Gilford Street, Montreal,
Quebec H2J1N3, owned 8% of such Portfolio's total outstanding Class A shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O.
Box 92956, Chicago, IL 60675-2956, owned 6% of such Portfolio's total
outstanding Class A shares.
BALANCED PORTFOLIO: Kinney Printing Co-Employees, 4801 S. Lawndale, Chicago,
IL 60632-3018, owned 15% of such Portfolio's total outstanding Class A shares.
H. Conrad & Sarah Meyer, One Woodland Avenue, Bronxville, NY 10708, owned 11%
of such Portfolio's total outstanding Class A shares.
Joan M. Hunt Trust, 8627 Madison Drive, Niles, IL 60648, owned 8% of such
Portfolio's total outstanding Class A shares.
Cascino Investment Company, 820 Burgess Hill, Naperville, IL 60565, owned
of such Portfolio's total outstanding Class A shares.
Guarantee & Trust Company, IRA Rollover, One Woodland Avenue, Bronxville, NY
10708, owned 7% of such Portfolio's total outstanding Class A shares.
William Guthrie, IRA Rollover, 435 Sheridan Road, Winnetka, IL 60093-2626,
owned 30% of such Portfolio's total outstanding Class B shares.
Ramakrishna Kothalanka M.D., Profit Sharing Plan, MSTC Custodian, 126 Bentley
Avenue, Jersey City, NJ 07304, owned 15% of such Portfolio's total outstanding
Class B shares.
Laverne M. Brownsey Trust, 135 S. LaSalle Street, Chicago, IL 60603-4403, owned
9% of such Portfolio's total outstanding Class B shares.
Sam G. Pitroda Custodian for Rajal Pitroda, 1480 Goldenbell Court, Downers
Grove, IL 60515-1301, owned 7% of such Portfolio's total outstanding Class B
shares.
Sam G. Pitroda Custodian for Salil Pitroda, 1480 Goldenbell Court, Downers
Grove, IL 60515-1301, owned 7% of such Portfolio's total outstanding Class B
shares.
Phyllis M. Mott IRA, MSTC Custodian, 120 West State Street, Rockford, IL 61101,
owned 7% of such Portfolio's total outstanding Class B shares.
EMERGING GROWTH PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 47% of such
Portfolio's total outstanding Class A shares.
Allendale Mutual Insurance Co., P.O. Box 7500, Johnston, RI 02919-0750, owned
16% of such Portfolio's total outstanding Class A shares.
NOAM/A/EC, C/O Philip Winters, Morgan Stanley Asset Management, 1221 6th Avenue,
New York, NY 10020, owned 7% of such Portfolio's total outstanding Class A
shares.
South Trust Estate & Trust Company of Georgia, Trustee U/A Southern Engineering
Company Retirement Plan, P.O. Box 1001, Atlanta, GA 30301, owned 7% of such
Portfolio's total outstanding Class A shares.
HVA Limited Partnership, C/O H L Van Arnem, 1301 W. Newport Center Drive,
Deerfield Beach, FL 33442-7734, owned 12% of such Portfolio's total outstanding
Class B shares.
Lawrence M. Howell, Howell Capital, One Maritime Plaza, San Francisco, CA 94101,
owned 8% of such Portfolio's total outstanding Class B shares.
Julian Eisner, 871 Oak Lane, North Woodmere, NY 11581, owned 7% of such
Portfolio's total outstanding Class B shares.
H. Conrad & Sarah Meyer, One Woodland Avenue, Bronxville, NY 10708, owned 7% of
such Portfolio's total outstanding Class B shares.
Bruce S. Ives, 163 Gallows Hill Road, West Redding, CT 06896, owned 7% of
such Portfolio's total outstanding Class B shares.
William B. O'Connor, 18 Montfort Road, Port Washington, NY 11050, owned 6% of
such Portfolio's total outstanding Class B shares.
James F. & Marlene Connors, 205 E. Joppa Road, Towson, MD 21286, owned 5% of
such Portfolio's total outstanding Class B shares.
Anthony E. & Rebecca S. Hull, 3405 Monterey Road, San Marino, CA 91108, owned
5% of such Portfolio's total outstanding Class B shares.
EMERGING MARKETS DEBT PORTFOLIO: Northwestern University, 633 Clark Street,
Evanston, IL 60208-1122, owned 19% of such Portfolio's total outstanding Class A
shares.
Valassis Enterprises - Equity, C/O Franklin Enterprises, 520 Lake Cook Road,
Deerfield, IL 60015, owned 7% of such Portfolio's total outstanding Class A
shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O. Box
92956, Chicago, IL 60675-2956, owned 7% of such Portfolio's total outstanding
Class A shares.
Swarthmore College, 500 College Avenue, Swarthmore, PA 19081-1110, owned 6% of
such Portfolio's total outstanding Class A shares.
Michael J. Fuchs, 9 West 57th Street, New York, NY 10019, owned 10% of such
Portfolio's total outstanding Class B shares.
Alice H. & Paul D. Bartlett, 4800 Main Street, Kansas City, MO 64112, owned
10% of such Portfolio's total outstanding Class B shares.
Daniel E. Winters, 1319 Mirror Terrace, Winter Haven, FL 33881, owned 7% of
such Portfolio's total outstanding Class B shares.
Bruce A. Drummond, 1847 Onaway SE, Grand Rapids, MI 49506, owned 6% of such
Portfolio's total outstanding Class B shares.
Eleanor S. Herkert Trustee of the Eleanor S. Herkert Trust, 2000 Diana Drive,
Lakeview West, Hallandale, FL 33009, owned 6% of such Portfolio's total
outstanding Class B shares.
David Brooks Gendron, 2 Montpelier Place, London SW7 1HJ England, UK, owned
5% of such Portfolio's total outstanding Class B shares.
Drs. Rosen & Baird Ltd., Employees Profit Sharing Trust, 2504 Washington
Street, Waokegan, IL 60085, owned 5% of such Portfolio's total outstanding
Class B shares.
EMERGING MARKETS PORTFOLIO: Ministers & Missionaries Benefit Board of the
American Baptist Churches, 475 Riverside Drive, New York, NY 10115, owned 7% of
such Portfolio's total outstanding Class A shares.
Ewing Marion Kauffman Foundation, 4900 Oak Street, Kansas City, MO 64112, owned
7% of such Portfolio's total outstanding Class A shares.
Neera Singh, 2300 Clarendon Boulevard, Arlington, VA 22201, owned 5% of such
Portfolio's total outstanding Class B shares.
EQUITY GROWTH PORTFOLIO: Fidelity Management Trust Company as Trustee for
GTE Master Savings Trust, 82 Devonshire Street, Boston, MA 02109, owned 26%
of such Portfolio's total outstanding Class A shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O.
Box 92956, Chicago, IL 60675, owned 18% of such Portfolio's total outstanding
Class A shares.
Fidelity Investments Institutional Operations Company, Agent for Certain
Employee Benefit Plans, 100 Magellan Way, Covington, KY 41015, owned 6% of such
Portfolio's total outstanding Class A shares.
St. Raymonds Cemetery Reserve Fund, P.O. Box 92800, Rochester, NY 14692, owned
5% of such Portfolio's total outstanding Class A shares.
Philip E. Asquith, 31 Lakeside Drive, Ramsey, NJ 07446, owned 6% of such
Portfolio's total outstanding Class B shares.
Thomas P. Joyce, Jr., 7621 Rainwater Road, Raleigh, NC 27615, owned 5% of such
Portfolio's total outstanding Class B shares.
21
<PAGE>
EUROPEAN EQUITY PORTFOLIO: Marc Andreessen Trustees, FBO Marc Andreessen,
16615 Lark Avenue, Los Gatos, CA 95030, owned 12% of such Portfolio's total
outstanding Class B shares.
Wayne Gretzky Trustee of the Gretzky Trust of 1989, 9100 Wilshire Boulevard,
Beverly Hills, CA 90210, owned 7% of such Portfolio's total outstanding
Class B shares.
Paul M. and Shirley F. Mathews, 25 West 706 Jerome Avenue, Wheaton, IL 60187,
owned 6% of such Portfolio's total outstanding Class B shares.
William & Brenda Castonguay, 9101 Hometown Drive, Raleigh, NC 27615, owned 6%
of such Portfolio's total outstanding Class B shares.
FIXED INCOME PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley
Profit Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 32% of such
Portfolio's total outstanding Class A shares.
Brooks School, C/O Mr. Frank Marino, North Andover, MA 01845, owned 7% of such
Portfolio's total outstanding Class A shares.
Dr. Kirk A. Patrick, Jr., 1923 Old Carriage Lane, Baton Rouge, LA 70806, owned
23% of such Portfolio's total outstanding Class B shares.
Trust for Descendents of David R. Jaffe, C/O David Jaffe, 45 Hemlock Ridge,
Weston, CT 06883, owned 13% of such Portfolio's total outstanding Class B
shares.
Laverne M. Brownsey Trust UA, 135 S. LaSalle Street, Chicago, IL 60603, owned
12% of such Portfolio's total outstanding Class B shares.
First United Methodist Church of Chicago - Endowment Fund, 77 West Washington,
Chicago, IL 60602, owned 12% of such Portfolio's total outstanding Class
B shares.
William M. Manager, Jr., 8 E. 81st Street, New York, NY 10028, owned 8% of such
Portfolio's total outstanding Class B shares.
Josephine F. Olsen, 550 E. 12th Avenue, Denver, CO 80203, owned 6% of such
Portfolio's total outstanding Class B shares.
Paul E. & H. Anthony Hellmers, 4 Colonial Lane, Larchmont, NY 10538, owned 6%
of such Portfolio's total outstanding Class B shares.
GLOBAL EQUITY PORTFOLIO: Robert College of Istanbul Turkey C/O Morgan Stanley
Asset Management, 25 Cabot Square, London, England E144QA, owned 48% of such
Portfolio's total outstanding Class A shares.
JM Kaplan Fund, Inc., 880 Third Avenue, 3rd floor, New York, NY 10022, owned
13% of such Portfolio's total outstanding Class A shares.
22
<PAGE>
Kaplan, Choate Value Partners, L.P., 880 Third Avenue, New York, NY 10022-4730,
owned 9% of such Portfolio's total outstanding Class A shares.
Gooss & Company, C/O Chase Manhattan Bank, 1211 6th Avenue, New York, NY 10036,
owned 7% of such Portfolio's total outstanding Class A shares.
Divtex and Company FBO, Pritchard Hubble and Herr C/O Texas Commerce Bank, P.O.
Box 2558, Houston, TX 77252, owned 7% of such Portfolio's total outstanding
Class A shares.
Bank of Mississippi, P.O. Box 1605, Jackson, MS 39215, owned 12% of such
Portfolio's total outstanding Class B shares.
Edward J. Prostic, 2225 Stratford Road, Mission Hills, KS 66208, owned 11% of
such Portfolio's total outstanding Class B shares.
V. Marc Droppert IRA, MSTC Custodian, 13106 184th NE, Redmond, WA 98052, owned
9% of such Portfolio's total outstanding Class B shares.
North American Trust Company, FBO Heller/Robert S. Venning, P.O. Box 84419, San
Diego, CA 92138, owned 8% of such Portfolio's total outstanding Class B
shares.
Janet Synder, IRA, Custodian MSTC, 3677 Sunsey Way, Sanford, MI 48657, owned 5%
of such Portfolio's total outstanding Class B shares.
North American Trust Company Trustee, FBO L&W/M. Levin 410540, P.O. Box 84419,
San Diego, CA 02138, owned 5% of such Portfolio's total outstanding
Class B shares.
David F. and Marcella T. Evans, 490 Country Club Road, Lake Oswego, OR 97034,
owned 5% of such Portfolio's total outstanding Class B shares.
Leslie E. Tiffany IRA, MSTC, 14312 173rd Place NE, Redmond, WA 98052, owned 5%
of such Portfolio's total outstanding Class B shares.
GLOBAL FIXED INCOME PORTFOLIO: Farm Credit Bank Retirement Plan, Columbia
District American Industries Trust Company Trustee, 5700 NW Central Drive, 4th
Floor, Houston, TX 77092, owned 14% of such Portfolio's total outstanding Class
A shares.
Northern Trust Company as Custodian FBO The Lund Foundation, P.O. Box 92956,
Chicago, IL 60675, owned 10% of such Portfolio's total outstanding Class A
shares.
The Northern Trust Customer FBO Resort Condominiums International, P.O. Box
92956, Chicago, IL 60675-2956, owned 6% of such Portfolio's total outstanding
Class A shares.
Divtex and Co., FBO Pritchard Hubble and Herr, c/o Texas Commerce Bank, P.O. Box
951405, Dallas, TX 75395-1405, owned 6% of such Portfolio's total outstanding
Class A shares.
David Brooks Gendron, 2 Montpelier Place, London SW7 1HJ, England, UK, owned 36%
of such Portfolio's total outstanding Class B shares.
Laverne M. Brownsey Trust UA, 135 S. LaSalle Street, Chicago, IL 60603, owned
17% of such Portfolio's total outstanding Class B shares.
George & Claudine Boutros, 11007 Branbrook, Houston, TX 77042, owned 11% of
such Portfolio's total outstanding Class B shares.
George N. and Susan P. Fugelsang, 17 Calhoun Drive, Greenwich, CT 06831, owned
10% of such Portfolio's total outstanding Class B shares.
Paul E. & H. Anthony Hellmers, 4 Colonial Lane, Larchmont, NY 10538, owned 7%
of such Portfolio's total outstanding Class B shares.
Anthony F. & Colette H. Rowland, C/O Cambrian Management, 1114 Avenue of the
Americas, New York, NY 10036, owned 6% of such Portfolio's total outstanding
Class B shares.
Dr. Kirk A. Patrick, Jr., 1923 Old Carriage Lane, Baton Rouge, LA 70806, owned
6% of such Portfolio's total outstanding Class B shares.
GOLD PORTFOLIO: William H. Ellis Trustee, Living Trust, Attn: Julie J. Laux,
2519 N. Bosworth, Chicago, IL 60614, owned 6% of such Portfolio's total
outstanding Class A shares.
23
<PAGE>
Marshall & Ilsley Trust Company, C/F John Morey, 1000 N. Water Street,
Milwaukee, WI 53202, owned 26% of such Portfolio's total outstanding
Class B shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 20% of such Portfolio's total outstanding Class B shares.
Chicago Methodist Episcopal Church Aid Society, C/O Gordon Worley, 4401 Gulf
Shore Boulevard North, Monaco Beach Club, Naples, FL 33940, owned 18% of such
Portfolio's total outstanding Class B shares.
Steven C. Olson, 505 Knollwood Road, Ridgewood, NJ 07450, owned 16% of such
Portfolio's total outstanding Class B shares.
Priscilla & John Privat, Community Property, 8852 N.E. 24th Street, Bellevue,
WA 98004, owned 6% of such Portfolio's total outstanding Class B shares.
HIGH YIELD PORTFOLIO: Northern Trust Company Trustee, FBO Morgan Stanley Profit
Sharing Plan, P.O. Box 92956, Chicago, IL 60675-2956, owned 19% of such
Portfolio's total outstanding Class A shares.
Valassis Enterprises - Equity, c/o Franklin Enterprises, 520 Lake Cook Road,
Suite 380, Deerfield, IL 60015, owned 11% of such Portfolio's total outstanding
Class A shares.
Adeliade L. Hinckley, C/O Jim Bell, Morgan Stanley/IIS Department, 1251 Avenue
of the Americas, New York, NY 10020, owned 7% of such Portfolio's total
outstanding Class B shares.
Alice H. & Paul D. Bartlett, 4800 Main Street, Kansas City, MO 64112, owned 5%
of such Portfolio's total outstanding Class B shares.
INTERNATIONAL EQUITY PORTFOLID: Ramakrishna Kothalanka M.D., IRA Rollover, MSTC
Custodian, 126 Bentley Avenue, Jersey City, NJ 07304, owned 6% of such
Portfolio's total outstanding Class B shares.
John G. & Kathleen E. Stimpson, 3371 Riviera Lakes Court, Bonita Springs, FL
33923, owned 5% of such Portfolio's total outstanding Class B shares.
Saxon & Company, FBO Bertil Hansen, P.O. Box 7780-1888, Philadelphia, PA 19182,
owned 5% of such Portfolio's total outstanding Class B shares.
John B. & Judy D. Morel, 28 Twelve Pines, The Woodlands, TX 77381, owned 5% of
such Portfolio's total outstanding Class B shares.
INTERNATIONAL MAGNUM PORTFOLIO: Bankers Trust Trustee, Harris Corporation
Retirement Plan & Harris Corporation Union Retirement Plan, 1025 W. Nasa
Boulevard, Melbourne, FL 32919, owned 54% of such Portfolio's total outstanding
Class A shares.
Ameritas Life Insurance Corporation, P.O. Box 81889, Lincoln, NE 68501, owned
6% of such Portfolio's total outstanding Class A shares.
Hampden-Sydney College, P.O. Box 127, Hampden-Sydney, VA 23943, owned 5% of
such Portfolio's total outstanding Class A shares.
24
<PAGE>
Fidelity Investments Institutional Operations Company, Agent for Certain
Employee Benefit Plans, 100 Magellan Way, Covington, KY 41015, owned 77%
of such Portfolio's total outstanding Class B shares.
INTERNATIONAL SMALL CAP PORTFOLIO: The Short Brothers Pension Fund, P.O. Box
241, Airport Road, Belfast, N. Ireland, owned 11% of such Portfolio's total
outstanding Class A shares.
Trustees of Boston College Attn: Paul Haran Associate Treasurer, St. Thomas
More Hall 310, Chestnut Hill, MA 02167, owned 7% of such Portfolio's total
outstanding Class A shares.
General Mills, Inc. Master Trust: Pooled International Fund, One General Mills
Blvd., Minneapolis, MN 55426, owned 7% of such Portfolio's total outstanding
Class A shares.
JAPANESE EQUITY PORTFOLIO: Barlett and Company, Profit Sharing Plan and Trust,
4800 Main Street, Kansas City, MO 64112, owned 13% of such Portfolio's total
outstanding Class B shares.
Paul M. & Shirley F. Mathews, 25 W. 706 Jerome Avenue, Wheaton, IL 60187,
owned 7% of such Portfolio's total outstanding Class B shares.
William & Brenda Castonguay, 9101 Hometown Drive, Raleigh, NC 27615, owned
6% of such Portfolio's total outstanding Class B shares.
Wayne Gretzky Trustee of the Gretzky Trust of 1989, 9100 Wilshire Boulevard,
Beverly Hills, CA 90210, owned 6% of such Portfolio's total outstanding
Class B shares.
Douglas E. Ebert, Trustee and Successor in Trust, 326 Vailwood Court,
Bloomfield Hills, MI 48302, owned 5% of such Portfolio's total outstanding
Class B shares.
LATIN AMERICAN PORTFOLIO: Jupiter & Company, C/O Investors Bank & Trust,
P.O. Box 1537, Attn: Income Collection, Boston, MA 02205, owned 5% of such
Portfolio's total outstanding Class A shares.
Marc Andreessen Trustees, FBO Marc Andreessen, 16615 Lark Avenue, Los Gatos, CA
95030, owned 18% of such Portfolio's total outstanding Class B shares.
Jay Peter Kaufman Trustee, Jay Peter Kaufman Revocable, 3213 University Court,
Las Vegas, NV 89121, owned 16% of such Portfolio's total outstanding
Class B shares.
Walter & Evelyn Graves Revocable Trust, Walter Graves Jr. Trustee, 5301 Bryant
Irvin Road, Fort Worth, TX 76132, owned 15% of such Portfolio's total
outstanding Class B shares.
Chicago Methodist Episcopal Church Aid Society, C/O Gordon Worley, 4401 Gulf
Shore Boulevard North, Monaco Beach Club, Naples, FL 33940, owned 11% of
such Portfolio's total outstanding Class B shares.
Henri Dyner, 232 Truman Drive, Cresskill, NJ 07626, owned 11% of such
Portfolio's total outstanding Class B shares.
Horizon Cons Ltd Profit Sharing Plan, Horizon Cons Ltd Money Purchase Plan,
615 Colonial Park Drive, Roswell, GA 30075, owned 6% of such Portfolio's
total outstanding Class B shares.
Frederick W. & Beryl S. Everett, 4220 Fairgreen Terrace, Marietta, GA 30068,
owned 5% of such Portfolio's total outstanding Class B shares.
BBJ Family Limited Partnership, 623 E. Bailey Road, Naperville, IL 60565,
owned 5% of such Portfolio's total outstanding Class B shares.
Joseph M. Haggar, Jr., 16000 Dallas Parkway, Dallas, TX 75248, owned 5% of
such Portfolio's total outstanding Class B shares.
MUNICIPAL BOND PORTFOLIO: Daniel F. and Maria J. McDonald, 8550 Old
Dominion Drive, McLean, VA 22102, owned 9% of such Portfolio's total
outstanding Class A shares.
Donna Karan, C/O Stephan Weiss, The Donna Karan Company, 550 Seventh Avenue,
New York, NY 10018, owned 7% of such Portfolio's total outstanding
Class A shares.
Frank R. Mori, 935 Park Avenue, New York, NY 10028, owned 7% of such
Portfolio's total outstanding Class A shares.
Cushman Trust, C/O Cambrian Services, 1114 Avenue of the Americas, Suite 2702,
New York, NY 10036, owned 6% of such Portfolio's total outstanding Class A
shares.
Arnold E. and Jill I. Bellowe Trustees, 915 Park Lane, Montecito, CA 93108-
1421, owned 6% of such Portfolio's total outstanding Class A shares.
Sevenson Environmental Services, P.O. Box 396, 2749 Lockport Road, Niagra Falls,
NY 14305, owned 5% of such Portfolio's total outstanding Class A shares.
Robert and Ellen Lieberman, 1136 5th Avenue, New York, NY 10128-0122, owned 100%
of such Portfolio's total outstanding Class B shares.
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SMALL CAP VALUE EQUITY PORTFOLIO: Valassis Enterprises - Equity, C/O Franklin
Enterprises, 520 Lake Cook Road, Deerfield, IL 60015, owned 7% of such
Portfolio's total outstanding Class A shares.
McMahan Furniture Company, Attn: Richard A. McMahan, P.O. Box 8000, Carlsbad, CA
92018, owned 7% of such Portfolio's total outstanding Class A shares.
William H. Ellis Trustee, William Ellis Living Trust, 2519 N. Bosworth,
Chicago, IL 60614, owned 5% of such Portfolio's total outstanding
Class A shares.
Barlett and Company, Profit Sharing Plan and Trust, 4800 Main Street, Kansas
City, MO 64112, owned 30% of such Portfolio's total outstanding Class B
shares.
David Brooks Gendron, 2 Montpelier Place, London SW7 1HJ England, UK,
owned 13% of such Portfolio's total outstanding Class B shares.
Robert R. Bennett IRA Rollover, MSTC Custodian, 18853 N. 88th Drive, Peoria,
AZ 85382, owned 10% of such Portfolio's total outstanding Class B shares.
Ramakrishna Kothalanka M.D., IRA Rollover, MSTC Custodian, 126 Bentley Avenue,
Jersey City, NJ 07304, owned 9% of such Portfolio's total outstanding
Class B shares.
Kinney Printing Co-Employees, Attn: Dolores M. Miklos, 4801 South Lawndale,
Chicago, IL 60632-3018, owned 8% of such Portfolio's total outstanding Class B
shares.
Frank E. Hunt Trust, 8627 Madison Drive, Niles, IL 60648, owned 5% of such
Portfolio's total outstanding Class B shares.
TECHNOLOGY PORTFOLIO: Goolock Associates, C/O Oppenheimer & Co. Inc., 200
Liberty Street, New York, NY 10281, owned 26% of such Portfolio's total
outstanding Class A shares.
Misty Investment Limited, N7776, Nassau, Bahamas, owned 13% of such
Portfolio's total outstanding Class A shares.
Peter Karmanos Jr., 4740 Dow Ridge, Orchard Lake, MI 48324, owned 13% of
such Portfolio's total outstanding Class A shares.
Robert F. Bernard, C/O Whittman-Hart, 311 S. Wacker Drive, Chicago, IL 60606,
owned 10% of such Portfolio's total outstanding Class A shares.
John Montelione, 619 Tremont Street, Sarasota, FL 34242, owned 7% of such
Portfolio's total outstanding Class A shares.
Trefoil Inc., 179 St. Paul Avenue, Brantford Ontario, Canada N3T4G5,
owned 6% of such Portfolio's total outstanding Class A shares.
William J. Connolly, 63 Blackhawk Club Court, Danville, CA 94506, owned 6%
of such Portfolio's total outstanding Class A shares.
HVA Limited Partnership, C/O H L Van Arnem, 1301 W. Newport Center Drive,
Deerfield Beach, FL 33442, owned 5% of such Portfolio's total outstanding
Class A shares.
Brian E. Bellows, 6133 Pasadena Point Boulevard, Gulfport, FL 33707,
owned 18% of such Portfolio's total outstanding Class B shares.
Robert J. Weinstein M.D., & Lois Weinstein, 875 N. Michigan Avenue, Chicago, IL
60611, owned 8% of such Portfolio's total outstanding Class B shares.
Paul Krieger, 23 Fairview Avenue, Great Neck, NY 11023, owned 7% of such
Portfolio's total outstanding Class B shares.
U.S. REAL ESTATE PORTFOLIO: Northwestern University, Attn: Investment
Department, 633 Clark Street, Evanston, IL 60208, owned 10% of such
Portfolio's total outstanding Class A shares.
Morgan, Stanley & Co. Pension Fund, C/O Northern Trust Company Cust, 770
Broadway, New York, NY 10003, owned 8% of such Portfolio's total outstanding
Class A shares.
European Patent Organization Pension Reserve Fund, Erhardtstrasse 27, Munich,
Germany 80331, owned 7% of such Portfolio's total outstanding Class A shares.
Northern Trust Company Trustee, FBO Morgan Stanley Profit Sharing Plan, P.O.
Box 92956, Chicago, IL 60675, owned 6% of such Portfolio's total outstanding
Class A shares.
VALUE EQUITY PORTFOLIO: McMahan Furniture Company, Attn: Richard A. McMahan,
P.O. Box 8000, Carlsbad, CA 92018, owned 7% of such Portfolio's total
outstanding Class A shares.
Alice H. & Paul D. Bartlett, Trustees, 4800 Main Street, Kansas City, MO 64112,
owned 21% of such Portfolio's total outstanding Class B shares.
Paul D. Bartlett Jr., 4800 Main Street, Kansas City, MO 64112, owned 14% of
such Portfolio's total outstanding Class B shares.
Neera Singh, 2300 Clarendon Boulevard, Arlington, VA 22201, owned 12% of such
Portfolio's total outstanding Class B shares.
David Brooks Gendron, 2 Montpelier Place, London SW7 1HJ England, UK, owned
9% of such Portfolio's total outstanding Class B shares.
Delaware Charter Guarantee & Trust Company, C/F Nelaura O. Lewis, IRA Rollover,
78 Cedar Cliff Road, Riverside, CT 06878, owned 7% of such Portfolio's total
outstanding Class B shares.
First United Methodist Church of Chicago - Endowment Fund, 77 West Washington,
Chicago, IL 60602, owned 7% of such Portfolio's total outstanding Class B
shares.
George N. and Susan P. Fugelsang, 17 Calhoun Drive, Greenwich, CT 06831,
owned 6% of such Portfolio's total outstanding Class B shares.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the Portfolio's past performance.
Performance quotations by investment companies are subject to rules adopted
by the Commission, which require the use of standardized performance quotations.
In the case of total return, non-standardized performance quotations may be
furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the Commission. Current yield
and average annual compounded total return quotations used by the Fund are based
on the standardized methods of computing performance mandated by the Commission.
An explanation of those and other methods used by the Fund to compute or express
performance follows.
TOTAL RETURN
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From time to time the Portfolio may advertise total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Portfolio) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10-year period (or
over the life of the Portfolio) and the deduction of all applicable Fund
expenses on an annual basis.
Total return figures are calculated according to the following formula:
P(1 + T) to the power of n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-,
or 10-year periods (or fractional portion thereof).
The cumulative total rate of return for the Technology Portfolio from
inception to the date of the financial statements included herein is 7.10% for
the Class A Shares and 7.10% for the Class B Shares.
COMPARISONS
To help investors better evaluate how an investment in the Portfolio might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages. The
following publications may be used:
(a) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. -- analyzes price, current yield, risk, total
return and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
(b) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest,
Financial Times, Global Investor, Investor's Daily, Lipper
Analytical Services, Inc., Morningstar, Inc., New York Times,
Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund
performance over specified time periods.
(c) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and
Bloomberg L.P.
(d) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed
Income Fund Performance Analysis -- measures total return and
average current yield for the mutual fund industry. Ranks
individual mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
(e) Mutual Fund Source Book, published by Morningstar, Inc. --
analyzes price, yield, risk and total return for equity funds.
(f) Savings and Loan Historical Interest Rates -- as published in the
U.S. Savings & Loan League Fact Book.
(g) Stocks, Bonds, Bills and Inflation, published by Hobson
Associates -- historical measure of yield, price and total return
for common and small company stock, long-term government bonds,
U.S. Treasury bills and inflation.
The following indices and averages may also be used:
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<PAGE>
(a) Composite Indices -- 70% Standard & Poor's 500 Stock Index and
30% NASDAQ Industrial Index; 35% Standard & Poor's 500 Stock
Index and 65% Salomon Brothers High Grade Bond Index; and 65%
Standard & Poor's 500 Stock Index and 35% Salomon Brothers High
Grade Bond Index.
(b) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of
change, over time, in the price of goods and services in major
expenditure groups.
(c) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company
stocks and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
(d) EMBI+ -- Expanding on the EMBI, which includes only Bradys, the
EMBI+ includes a broader group of Brady Bonds, loans, Eurobonds
and the U.S. Dollar local markets instruments. A more
comprehensive benchmark than the EMBI, the EMBI+ covers 49
instruments from 14 countries. At $96 billion, its market cap is
nearly 50% higher than the EMBI's. The EMBI+ is not, however,
intended to replace the EMBI but rather to complement it. The
EMBI continues to represent the most liquid, most easily traded
segment of the market, including more of the assets that
investors typically hold in their portfolios. Both of these
indices are published daily.
(e) IFC Global Total Return Composite Index -- an unmanaged index of
common stocks and includes 18 developing countries in Latin
America, East and South Asia, Europe, the Middle East and Africa
(net of dividends reinvested).
(e) Indata Equity-Median Stock Index -- an unmanaged index which
includes an average asset allocation of 5% cash and 95% equity
based on $30.6 billion in assets among 562 portfolios for the
year ended December 31, 1995.
(f) Lipper Capital Appreciation Index -- a composite of mutual funds
managed for maximum capital gains.
(g) Morgan Stanley Capital International Combined Far East Free ex-
Japan Index -- a market-capitalization weighted index comprising
stocks in Hong Kong, Indonesia, Korea, Malaysia, Philippines,
Singapore, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex Japan Index at 20% of its market
capitalization.
(h) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900
securities on the stock exchanges of countries in Europe,
Australia and the Far East.
(i) Morgan Stanley Capital International Emerging Markets Global
Latin American Index -- an unmanaged, arithmetic market value
weighted average of the performance of over 196 securities on the
stock exchanges of Argentina, Brazil, Chile, Colombia, Mexico,
Peru and Venezuela (assumes reinvestment of dividends).
(j) Morgan Stanley Capital International Europe Index -- an unmanaged
index of common stocks and includes 14 countries throughout
Europe.
(k) Morgan Stanley Capital International Japan Index -- an unmanaged
index of common stocks.
(l) Morgan Stanley Capital International Latin America Index -- a
broad-based market capitalization-weighted composite index
covering at least 60% of markets in Mexico, Argentina, Brazil,
Chile, Colombia, Peru and Venezuela (assumes dividends
reinvested).
(m) Morgan Stanley Capital International World Index -- an
arithmetic, market value-weighted average of the performance of
over 1,470 securities listed on the stock exchanges of countries
in Europe, Australia, the Far East, Canada and the United States.
(n) NASDAQ Composite Index -- an unmanaged index of common stocks.
(o) NASDAQ Industrial Index -- a capitalization-weighted index
composed of more than 3,000 domestic stocks taken from the
following industry sectors: agriculture, mining, construction,
manufacturing, electronic components, services and public
administration enterprises. It is a value-weighted index
calculated on price change only and does not include income.
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(p) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation
and finance company stocks listed on the New York Stock Exchange.
(q) Russell 2500 Index -- comprised of the bottom 500 stocks in the
Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the
stocks in the Russell 2000 Index. The largest security in the
index has a market capitalization of approximately 1.3 billion.
(r) Standard & Poor's 500 Stock Index or its component indices --
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(s) Standard & Poor's Small Cap 600 Index -- a capitalization-
weighted index of 600 domestic stocks having market
capitalizations which reside within the 50th and the 83rd
percentiles of the market capitalization of the entire stock
market, chosen for certain liquidity characteristics and for
industry representation.
(t) Wilshire 5000 Equity Index or its component indices -- represents
the return on the market value of all common equity securities
for which daily pricing is available. Comparisons of performance
assume reinvestment of dividends.
(u) Lipper Science and Technology Fund Index -- a composite index of
the mutual funds which invest at least 65% of their assets in
science and technology stocks.
(v) Hambrecht and Quist Technology Index is an index of computer and
chip makers, biotechnology concerns and other high-tech
companies.
(w) SoundView Technology Index is an unweighted index consisting of
more than 100 technology companies.
(x) Morgan Stanley High Tech 35 Index -- an index comprised of
thirty-five technology stocks chosen by Morgan Stanley.
(y) Pacific Stock Exchange Index -- an index consisting of
approximately 100 technology and healthcare technology concerns.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Portfolio,
that the averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its futures. In addition, there can be no assurance that the
Fund will continue this performance as compared to such other averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Articles of Incorporation, as amended and restated, permit the
Directors to issue 34 billion shares of common stock, par value $.001 per share,
from an unlimited number of classes ("Portfolios") of shares. Currently the
Fund consists of shares of twenty-nine Portfolios (the China Growth and
Mortgage-Backed Securities Portfolios are not currently offering shares).
The shares of each Portfolio of the Fund are fully paid and nonassessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Portfolio of the Fund have no pre-emptive
rights. The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so. A
shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his name on the books of
the Fund.
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<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of the Portfolio's net
investment income, if any. The Fund may also distribute any net realized
capital gains in the amount and at the times that will avoid both income
(including taxable gains) taxes on it and the imposition of the federal excise
tax on income and capital gains (see discussion under "Taxes" in this Statement
of Additional Information). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or capital gains distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares of
the Portfolio by an investor may have the effect of reducing the per share net
asset value of the Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect
a return of capital, are subject to income taxes for shareholders subject to tax
as set forth herein and in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and capital gains distributions for a class of shares are
automatically received in additional shares of such class of the Portfolio at
net asset value (as of the business day following the record date). This
automatic reinvestment of dividends and distributions will remain in effect
until the Fund is notified by the shareholder in writing at least three days
prior to the record date that either the Income Option (income dividends in cash
and capital gains distributions in additional shares at net asset value) or the
Cash Option (both income dividends and capital gains distributions in cash) has
been elected.
CUSTODY ARRANGEMENTS
Chase serves as the Fund's domestic custodian. Chase is not affiliated
with Morgan Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn,
NY, acts as the Fund's custodian for foreign assets held outside the United
States and employs subcustodians who were approved by the Directors of the Fund
in accordance with Rule 17f-5 adopted by the Commission under the 1940 Act.
Morgan Stanley Trust Company is an affiliate of Morgan Stanley & Co.
Incorporated. In the selection of foreign subcustodians, the Directors consider
a number of factors, including, but not limited to, the reliability and
financial stability of the institution, the ability of the institution to
provide efficiently the custodial services required for the Fund, and the
reputation of the institution in the particular country or region.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS: Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Aa -
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The
modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicates a mid-range rating and the modifier 3 indicates
that the issue ranks at the lower end of the rating category. A - Bonds which
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. Baa - Bonds
which are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Ba - Bonds which are rated Ba are judged
to have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B - Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Caa - Bonds which are rated
Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect
30
<PAGE>
to principal or interest. Ca - Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
EXCERPTS FROM STANDARD & POOR'S RATINGS GROUP ("S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest. AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only to a
small degree. A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. C - The rating C is reserved for income bonds
on which no interest is being paid. D - Debt rated D is in default, and payment
of interest and/or repayment of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows:
MIG-1 -- best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established broad-based access to the market
for refinancing, or both; MIG-2 -- high quality with margins of protection ample
although not so large as in the preceding group; MIG-3 - favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-2 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is very strong.
II. DESCRIPTION OF U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government.
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Associates, are, in effect, backed by
the full faith and credit of the United States through provisions in their
charters that they may make "indefinite and unlimited" drawings on the Treasury,
if needed to service debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institution in
meeting its debt obligations. However, the U.S. Treasury has no lawful
obligation to assume the financial liabilities of these agencies or others.
Finally, other agencies and instrumentalities, such as the Farm Credit System
and the Federal Home Loan Mortgage Corporation, are federally chartered
institutions under Government supervision, but their debt securities are backed
only by the creditworthiness of those institutions, not the U.S. Government.
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<PAGE>
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency organized
under Federal charter with Government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Immediate Credit
Banks, and the Federal National Mortgage Association.
III. DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds generally include debt obligations issued by states and
their political subdivisions, and duly constituted authorities and corporations,
to obtain funds to construct, repair or improve various public facilities such
as airports, bridges, highways, hospitals, housing, schools, streets and water
and sewer works. Municipal Bonds may also be issued to refinance outstanding
obligations as well as to obtain funds for general operating expenses and for
loans to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Municipal Bond Portfolio and the Municipal Money
Market Portfolio may also invest in tax-exempt industrial development bonds,
short-term municipal obligations, project notes, demand notes and tax-exempt
commercial paper in accordance with the Portfolio's investment objectives and
policies.
Industrial revenue bonds (i.e., private activity bonds) in most cases are
revenue bonds and generally do not have the pledge of the credit of the issuer.
The payment of the principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities financed by the
bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. Short-term
municipal obligations issued by states, cities, municipalities or municipal
agencies include Tax Anticipation Notes, Revenue Anticipation Notes, Bond
Anticipation Notes, Construction Loan Notes and Short-Term Discount Notes.
Project Notes are instruments guaranteed by the Department of Housing and Urban
Development but issued by a state or local housing agency. While the issuing
agency has the primary obligation on such Project notes, they are also secured
by the full faith and credit of the United States.
Note obligations with demand or put options may have a stated maturity in
excess of one year, but allow any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay in its discretion the
outstanding principal of the notes plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as a bank's prime rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. The demand notes in which the
Municipal Money Market Portfolio will invest are payable on not more than one
year's notice.
The yields of Municipal Bonds depend on, among other things, general money
market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's and S&P represent their opinions of the quality
of the Municipal Bonds. It should be emphasized that such ratings are general
and are not absolute standards of quality. Consequently, Municipal Bonds with
the same maturity, coupon and rating may have different yields, while Municipal
Bonds of the same maturity and coupon, but with different ratings, may have the
same yield. It will be the responsibility of the Adviser to appraise
independently the fundamental quality of the bonds held by the Municipal Bond
Portfolio and the Municipal Money Market Portfolio.
Municipal Bonds are sometimes purchased on a "when issued" basis meaning
the buyer has committed to purchasing certain specified securities at an
agreed-upon price when they are issued. The period between commitment date and
issuance date can be a month or more. It is possible that the securities will
never be issued and the commitment canceled.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of either the Municipal
Bond Portfolio or the Municipal Money Market Portfolio to achieve its investment
objective. In that event, the Fund's Directors and officers would reevaluate
its investment objective and policies and consider recommending to its
shareholders changes in such objective and policies.
32
<PAGE>
Similarly, from time to time proposals have been introduced before State
and local legislatures to restrict or eliminate the State and local income tax
exemption (to the extent such an exemption applies, which may not apply in all
cases) for interest on Municipal Bonds. Similar proposals may be introduced in
the future. If any such proposal were enacted, it might restrict or eliminate
the ability of either of the Municipal Bond Portfolio or the Municipal Money
Market Portfolio to achieve its investment objective. In that event, the Fund's
Directors and officers would reevaluate the Portfolio's investment objective and
policies and consider recommending to its shareholders changes in such objective
and policies.
IV. DESCRIPTION OF MORTGAGE-BACKED SECURITIES
"Mortgage-Backed Securities" are securities that, directly or indirectly,
represent a participation in, or are secured by and payable from, mortgage loans
on real property. Mortgage-backed securities include collateralized mortgage
obligations ("CMOs"), pass-through securities issued or guaranteed by agencies
or instrumentalities of the U.S. government or by private sector entities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. government or by private originators
or investors in mortgage loans. They are backed by Mortgage Pass-Through
Securities (discussed below) or whole loans (all such assets, the "Mortgage
Assets") and are evidenced by a series of bonds or certificates issued in
multiple classes or "tranches." The principal and interest on the underlying
Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways.
CMOs may be issued by agencies or instrumentalities of the U.S. government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity having
the credit status of a governmental agency or instrumentality are generally
structured with one or more types of credit enhancement as described below. An
issuer of CMOs may elect to be treated, for federal income tax purposes, as a
Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of CMOs issued
after 1991 must elect to be treated as a REMIC or it will be taxable as a
corporation under rules regarding taxable mortgage pools.
In a CMO, a series of bonds or certificates are issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued with a
specific fixed or floating coupon rate and has a stated maturity or final
scheduled distribution date. Principal prepayments on the underlying Mortgage
Assets may cause the CMOs to be retired substantially earlier than their stated
maturities or final scheduled distribution dates. Interest is paid or accrues
on CMOs on a monthly, quarterly or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
CMO in many ways. The general goal in allocating cash flows on Mortgage Assets
to the various classes of a CMO is to create certain tranches on which the
expected cash flows have a higher degree of predictability than the underlying
Mortgage Assets. As a general matter, the more predictable the cash flow is on
a particular CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on Assets.
As part of the process of creating more predictable cash flows on certain
tranches of a CMO, one or more tranches generally must be created that absorb
most of the changes in the cash flows on the underlying Mortgage Assets. The
yields on these tranches are generally higher than prevailing market yields on
Mortgage-Backed Securities with similar average lives. Because of the
uncertainty of the cash flows on these tranches, the market prices of and yields
on these tranches are more volatile.
Included within the category of CMOs are PAC Bonds. PAC Bonds are a type
of CMO tranche or series designed to provide relatively predictable payments of
principal provided that, among other things, the actual prepayment experience on
the underlying mortgage loans falls within a predefined range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the predefined range or if deviations from other assumptions occur,
principal payments on the PAC Bond may be earlier or later than predicted. The
magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risks of prepayment than are other types of
mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities in
which the Mortgage-Backed Securities Portfolio may invest include pass-through
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government or by private sector entities. Mortgage pass-through securities
issued or guaranteed by private sector originators of or investors in mortgage
loans and are structured similarly to governmental pass-through securities.
Because private pass-throughs typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality, they are generally
structured with one or more types of credit enhancement described below. FNMA
and FHLMC obligations are not backed by the full faith and credit of the U.S.
government as GNMA certificates are, but FNMA and FHLMC securities are supported
by the instrumentalities' right to borrow from the United States Treasury. Each
of GNMA, GNMA and FHLMC guarantees timely distributions of interest to
certificate holders.
33
<PAGE>
Each of GNMA and FNMA also guarantees timely distributions of scheduled
principal. FHLMC has in the past guaranteed only the ultimate collection of
principal of the underlying mortgage loan; however, FHLMC now issued Mortgage-
Backed Securities (FHLMC Gold Pcs) which also guarantee timely payment of
monthly principal reductions. REFCORP obligations are backed, as to principal
payments, by zero coupon U.S. Treasury bonds, and as to interest payment,
ultimately by the U.S. Treasury. Obligations issued by such U.S. governmental
agencies and instrumentalities are described more fully below.
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act, or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the
Department of Veterans Affairs under the Servicemen's Readjustment Act of 1944,
as amended ("VA Loans"), or by pools of other eligible mortgage loans. The
Housing Act provides that the full faith and credit of the United States
government is pledged to the payment of all amounts that may be required to be
paid under any guaranty. In order to meet its obligations under such guaranty,
Ginnie Mae is authorized to borrow from the United States Treasury with no
limitations as to amount.
Each Ginnie Mae Certificate will represent a pro rata interest in one or
more of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multi-family residential
properties under construction; (vi) mortgage loans on completed multi-family
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodical changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except as
otherwise specified above, will be fully-amortizing loans secured by first liens
on one- to four-family housing units.
FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed
by the full faith and credit of the United States government.
Each Fannie Mae Certificate will represent a pro rata interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.
FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations
solely of Freddie Mac and are not backed by the full faith and credit of the
U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
The mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
CREDIT ENHANCEMENT. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failure by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection generally refers to the provision of advances, typically by
the entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties (referred
to herein as "third party credit support), through various means of structuring
the transaction or through a combination of such approaches. The Mortgage-
Backed Securities Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price the
Portfolio pays for a security.
34
<PAGE>
The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with defaults on the underlying assets being borne first
by the holders of the most subordinated class), creation of "reserve funds"
(where cash or investments, sometimes funded from a portion of the payments on
the underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each security is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.
V. FOREIGN INVESTMENTS
The Portfolio may invest, in securities of foreign issuers. Investors
should recognize that investing in such foreign securities involves certain
special considerations which are not typically associated with investing in U.S.
issuers. For a description of the effect on the Portfolio of currency exchange
rate fluctuation, see "Investment Objective and Policies -- Forward Foreign
Currency Exchange Contracts" above. As foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards and
may have policies that are not comparable to those of domestic issuers, there
may be less information available about certain foreign companies than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed issuers than in the U.S. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. Foreign securities not listed
on a recognized domestic or foreign exchange are regarded as not readily
marketable and therefore such investments will be limited to 15% of the
Portfolio's net asset value at the time of purchase.
Although the Portfolio will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. It is not expected that
the Portfolio or its shareholders would be able to claim a credit for U.S. tax
purposes with respect to any such foreign taxes. However, these foreign
withholding taxes may not have a significant impact on the Portfolio, because
the Portfolio's investment objective is to seek long-term capital appreciation
and any dividend or interest income should be considered incidental.
FINANCIAL STATEMENTS
The following are unaudited Financial Statements for the period from
inception on September 16, 1996 to December 31, 1996 for the Technology
Portfolio.
35
<PAGE>
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
THE TECHNOLOGY PORTFOLIO
- --------------------------------------------------------------------------------
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCK (92.7%)
COMMUNICATION EQUIPMENT (27.5%)
COMPUTER INTEGRATED SYSTEMS DESIGN (10.7%)
(a)3,900 Cisco Systems, Inc. $248
(a)4,900 Retix, Inc. 33
(a)2,800 3Com Corp. 205
(a)1,400 VideoServer, Inc. 59
-------
545
-------
COMPUTER PERIPHERAL EQUIPMENT (4.4%)
(a)2,700 Adaptec, Inc. 108
(a)1,100 Black Box Corp. 45
(a)2,400 Quantum Corp. 69
-------
222
-------
ELECTRONIC COMPONENTS & ACCESSORIES (0.9%)
1,313 Molex, Inc., Class A 47
-------
ELECTRONIC PARTS & EQUIPMENT (3.3%)
2,700 Motorola, Inc. 166
-------
TELEPHONE & TELEGRAPH APPARATUS (8.2%)
(a)3,300 ADC Telecommunications, Inc. 103
1,200 Advanced Fibre Communications 67
600 Northern Telecommunications Ltd. 37
(a)2,300 Telco Systems, Inc. 44
3,100 Telefonaktiebolaget LM Ericsson ADR 94
(a)1,900 Tellabs, Inc. 72
-------
417
-------
TOTAL COMMUNICATION EQUIPMENT 1,397
-------
COMMUNICATION SERVICES (7.1%)
COMPUTER PROGRAMMING (4.0%)
1,000 ECsoft Group plc ADR 10
2,000 Electronic Data Systems Corp. 87
600 International Network Services 18
700 XLConnect Solutions, Inc. 20
2,600 Whittman-Hart, Inc. 67
-------
202
-------
DIRECT MAIL ADVERTISING SERVICE (0.2%)
1,000 May & Speh, Inc. 12
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
RADIO/TELEPHONE COMMUNICATIONS (1.4%)
800 LCC International, Inc., Class A $15
(a)3,800 Mobile Telecommunications Technologies Corp. 32
1,100 Orion Network Systems, Inc. 14
(a)600 WinStar Communications, Inc. 13
-------
74
-------
TELEPHONE COMMUNICATIONS (1.5%)
1,000 MCI Communications Corp. 33
1,400 Teleport Communications Group, Inc., Class A 43
-------
76
-------
TOTAL COMMUNICATION SERVICES 364
-------
OTHER TECHNOLOGY (41.0%)
BUSINESS SERVICES (7.6%)
1,000 Automatic Data Processing, Inc. 43
500 BA Merchant Services, Inc., Class A 9
(a)800 BISYS Group, Inc. 30
(a)500 CBT Group plc ADR 27
(a)1,400 Gartner Group, Inc., Class A 55
1,300 ONTRACK Data International, Inc. 19
1,200 Paychex, Inc. 62
1,600 Sterling Commerce, Inc. 56
(a)1,300 SunGuard Data Systems, Inc. 51
2,000 USCS International, Inc. 34
-------
386
-------
ELECTRONIC COMPUTERS (5.4%)
(a)1,400 Compaq Computer Corp. 104
(a)1,400 Dell Computer Corp. 74
(a)2,100 Network Computing Devices, Inc. 21
500 International Business Machines Corp. 76
-------
275
-------
MOTION PICTURE & VIDEO TAPE PRODUCTION (1.1%)
700 News Corp. Ltd., ADR 14
(a)700 Tele-Communications, Inc., Class A 20
300 The Walt Disney Co. 21
-------
55
-------
PERSONAL SERVICES (0.7%)
(a)1,550 CUC International, Inc. 37
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
SEMICONDUCTORS & RELATED SERVICES (25.7%)
(a)1,900 Altera Corp. $138
(a)1,500 ANADIGICS, Inc. 59
(a)2,000 Applied Materials, Inc. 72
(a)1,900 ESS Technology, Inc. 53
(a)1,400 Fusion Systems Corp. 30
2,000 Intel Corp. 262
(a)1,300 KLA Instruments Corp. 46
(a)1,000 Lattice Semiconductor Corp. 46
(a)1,000 Level One Communications, Inc. 36
3,100 Linear Technology Corp. 136
(a)2,500 Maxim Integrated Products, Inc. 108
(a)2,700 Microchip Technology, Inc. 137
2,000 Micron Technology, Inc. 58
(a)1,100 Semtech Corp. 19
(a)2,900 Xilinx, Inc. 107
-------
1,307
-------
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS (0.5%)
(a)400 Boston Scientific Corp. 24
-------
TOTAL OTHER TECHNOLOGY 2,084
-------
SOFTWARE (17.1%)
COMMUNICATIONS SOFTWARE (0.4%)
(a)900 Objective Systems Integrators, Inc. 21
-------
PREPACKAGED SOFTWARE (16.7%)
(a)1,100 Avant! Corp. 35
(a)1,000 BMC Software, Inc. 41
(a)1,000 Broderbund Software, Inc. 30
(a)500 Clarify, Inc. 24
(a)1,300 Compuware Corp. 65
100 CyberMedia, Inc. 2
(a)3,400 Microsoft Corp. 281
(a)200 Netscape Communications Corp. 11
(a)2,400 Oracle Corp. 100
(a)2,200 Peoplesoft, Inc. 105
(a)5,000 Proginet Corp. 18
(a)600 Remedy Corp. 32
600 Siebel Systems, Inc. 16
(a)1,700 Transaction Systems Architects, Inc., Class A 57
(a)1,000 Vantive Corp. 31
-------
848
-------
TOTAL SOFTWARE 869
-------
TOTAL COMMON STOCK (Cost $4,418) 4,714
-------
FACE
AMOUNT
(000)
- -------
SHORT-TERM INVESTMENT (2.0%)
U.S. TREASURY BILL (2.0%)
$100 U.S. Treasury Bill, 5.00%, 1/16/97 (Cost $99) 99
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
VALUE
(000)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (94.7%) (Cost $4,517) $4,813
-------
OTHER ASSETS (9.4%)
Receivable for Investments Sold $269
Receivable due from Broker 92
Receivable for Investment Advisory Fees 82
Other 33 476
--------
LIABILITIES (-4.1%)
Payable for Investments Purchased (143)
Bank Overdraft (48)
Custodian Fees Payable (2)
Adminstrative Fees Payable (1)
Distribution Fees Payable (1)
Other Liabilities (12) (207)
-------- -------
NET ASSETS (100%) $5,082
-------
-------
NET ASSETS CONSIST OF:
Paid in Capital $4,798
Accumulated Net Realized Loss (12)
Unrealized Appreciation on Investments 296
-------
NET ASSETS $5,082
-------
-------
CLASS A
NET ASSETS $3,595
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 335,562 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $10.71
-------
-------
CLASS B
NET ASSETS $1,487
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 138,936 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $10.71
-------
-------
- --------------------------------------------------------------------------------
(a) - Non-income producing security
ADR - American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
<PAGE>
Morgan Stanley
Institutional Fund, Inc.
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
TECHNOLOGY
PORTFOLIO
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PERIOD FROM
SEPTEMBER 16,
1996* TO
DECEMBER 31,
1996
(000)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $(11)
Net Realized Loss (11)
Change in Unrealized Appreciation 296
- ------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 274
- ------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 3,375
CLASS B:
Subscribed 1,485
Redeemed (52)
- ------------------------------------------------------------------------------
Net Increase in Capital Share Transactions 4,808
- ------------------------------------------------------------------------------
Total Increase in Net Assets 5,082
NET ASSETS:
Beginning of Period ---
- ------------------------------------------------------------------------------
End of Period $5,082
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 336
- ------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 336
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 144
Shares Redeemed (5)
- ------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 139
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
*Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Morgan Stanley
Institutional Fund, Inc.
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
TECHNOLOGY
PORTFOLIO
PERIOD ENDED
SEPTEMBER 16,
1996* TO
DECEMBER 31,
1996
(000)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1
Interest 6
------
Total Income 7
------
EXPENSES:
Investment Advisory Fees:
Basic Fees - Adviser 13
Less: Fees Waived (13)
------
Investment Advisory Fees - Net -
Administrative Fees 3
Custodian Fees 4
Filing and Registration Fees 14
Professional Fees 55
Shareholder Reports 27
Distribution Fees on Class B shares 1
Expenses Reimbursed by Adviser (86)
------
Total Expenses 18
------
NET INVESTMENT LOSS (11)
------
NET REALIZED LOSS:
Investments Sold (11)
------
Total Net Realized Loss (11)
------
CHANGE IN UNREALIZED APPRECIATION 296
------
TOTAL NET REALIZED LOSS AND CHANGE IN
UNREALIZED APPRECIATION 285
------
Net Increase in Net Assets Resulting from Operations $ 274
------
------
- ---------------
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Morgan Stanley
Institutional Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS :
- ------------------------------------------------------------------------------------------------------------------------------
THE TECHNOLOGY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------
PERIOD FROM
SEPTEMBER 16, 1996* TO
DECEMBER 31, 1996
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
----------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (1) (0.02)
Net Realized and Unrealized Gain on Investments 0.73
----------------------
Total from Investment Operations 0.71
----------------------
NET ASSET VALUE, END OF PERIOD $10.71
----------------------
----------------------
TOTAL RETURN 7.10%
----------------------
----------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,595
Ratio of Expenses to Average Net Assets (1) 1.25% **
Ratio of Net Investment Income to Average Net Assets (1) (0.70)% **
Portfolio Turnover Rate 77%
Average Commission Rate $0.0374
- --------------------------------------------------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.22
Ratios before expense limitation:
Expenses to Average Net Assets 8.51% **
Net Investment Income to Average Net Assets (7.96)% **
<CAPTION>
CLASS B
----------------------
PERIOD FROM
SEPTEMBER 16, 1996* TO
DECEMBER 31, 1996
S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
----------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (2) (0.02)
Net Realized and Unrealized Gain on Investments 0.73
----------------------
Total from Investment Operations 0.71
----------------------
NET ASSET VALUE, END OF PERIOD $10.71
----------------------
----------------------
TOTAL RETURN 7.10%
----------------------
----------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,487
Ratio of Expenses to Average Net Assets (2) 1.50% **
Ratio of Net Investment Income to Average Net Assets (2) (1.00)% **
Portfolio Turnover Rate 77%
Average Commission Rate $0.0374
- --------------------------------------------------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.19
Ratios before expense limitation:
Expenses to Average Net Assets 9.14% **
Net Investment Income to Average Net Assets (8.65)% **
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUND, INC
NOTES TO FINANCIAL STATEMENTS
TECHNOLOGY PORTFOLIO
December 31, 1996
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. As of December 31, 1996, the Fund was comprised of 26 separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios"). The Technology Portfolio, a
portfolio of the Fund, commenced operations on September 16, 1996. The
Portfolio offers two classes of shares - Class A and Class B. Both classes of
shares have identical voting rights (except shareholders of a Class have
exclusive voting rights regarding any matter relating solely to that Class of
shares), dividend, liquidation and other rights. The financial statements of
the remaining Portfolios are presented separately.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the mean between the current bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds
and other fixed income securities may be valued on the basis of prices provided
by a pricing service which are based primarily on institutional size trading in
similar groups of securities. Debt securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market value. All other securities and assets for which market values are not
readily available, including restricted securities, are valued at fair value as
determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. INCOME TAXES: It is the Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements. The
Portfolio may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized capital gains and net unrealized appreciation as the income and/or
capital gains is earned.
3. SHORT SALES: The Portfolio may sell securities short. A short sale is a
transaction in which the Portfolio sells securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolio is obligated to replace the borrowed securities at the
market price at the time of replacement. The Portfolio may have to pay a
premium to borrow the securities as well as pay any dividends or interest
payable on the securities until they are replaced. The Portfolio's obligation to
replace the securities borrowed in connection with a short sale will generally
be secured by collateral deposited with the broker that consists of cash, U.S.
government securities or other liquid, high grade debt obligations. In
addition, the Portfolio will place in a segregated account with its Custodian an
amount of cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (1) the market value of the
securities sold at the time they were sold short and (2) any cash, U.S.
government securities or other liquid high grade debt obligations deposited as
collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Short sales by the Portfolio involve certain risks
and special considerations. Possible losses from short sales differ from losses
that could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases cannot exceed the total
amount invested.
<PAGE>
4. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend date (except for certain foreign dividends which may
be recorded as soon as the Fund is informed of such dividends) net of applicable
withholding taxes where recovery of such taxes is not reasonably assured.
Interest income is recognized on the accrual basis except where collection is in
doubt. Discounts and premiums on securities purchased are amortized according to
the effective yield method over their respective lives. Most expenses of the
Fund can be directly attributed to a particular Portfolio. Expenses which
cannot be directly attributed are apportioned among the Portfolios based upon
relative net assets. Income, expenses (other than class specific expenses) and
realized and unrealized gains or losses are allocated to each class of shares
based upon their relative net assets. Distributions for the Portfolio are
recorded on the ex-distribution date.
The amount and character of income and capital gain distributions to be paid by
the Fund are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatment for the character and timing
of the deductibility of certain foreign taxes.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among undistributed net investment income
(loss), accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
accumulated net investment loss for the purpose of calculating net investment
income (loss) per share in the Financial Highlights.
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MSAM"),
a wholly-owned subsidiary of Morgan Stanley Group, Inc., provides the Fund with
investment advisory services under the terms of an Investment Advisory and
Management Agreement (the "Agreement") at the annual rate of 1.00% of average
daily net assets of the Portfolio. The MSAM has agreed to reduce advisory fees
payable to it and to reimburse the Portfolio, if necessary, if the annual
operating expenses, as defined, expressed as a percentage of average daily net
assets, exceed the maximum ratios of 1.25% for Class A shares and 1.50% for
Class B shares.
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an administrative agreement for a monthly fee which on an annual
basis equals 0.15% of the average daily net assets of each Portfolio, plus
reimbursement of out-of-pocket expenses. Under an agreement between MSAM and The
Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company, Chase provides certain administrative services to the Fund.
For such services, MSAM pays Chase a portion of the fee MSAM receives from the
Fund.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM,
serves as the distributor of the Fund and provides Class B shareholders of
applicable Portfolios with distribution services pursuant to a Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the Investment Company Act of
1940. Under the Plan, the Distributor is entitled to receive from the Portfolio
a distribution fee, which is accrued daily and paid quarterly, at an annual rate
of 0.25% of the Class B share's average daily net assets. The Distributor may
voluntarily waive from time to time all or any portion of its distribution fee.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly-owned
subsidiary of Morgan Stanley Group, Inc., acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian agreement.
Agreement. Custodian fees are computed and payable monthly based on assets
held, investment purchases and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses.
<PAGE>
F. PURCHASES AND SALES: During the year ended December 31, 1996, purchases
and sales of investment securities other than long-term U.S. Government
securities and short-term investments for the Portfolio were approximately
$7,117,000 and $2,682,000, respectively. There were no purchases and sales of
long-term U.S. Government securities during the year ended December 31, 1996.
G. OTHER: At December 31, 1996, cost and unrealized appreciation, unrealized
depreciation, and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of the Portfolio were:
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
PORTFOLIO (000) (000) (000) (000)
- --------- ----- ----- ----- -----
Technology . . . . . $4,525 $420 $(132) $288
At December 31, 1996, the Portfolio had available capital loss carryforward to
offset future net capital gains, to the extent provided by regulations in the
amount of approximately $4,000 through the expiration date 2004. To the extent
that capital loss carryovers are used to offset any future capital gains
realized during the carryover period as provided by U.S. Federal income tax
regulations, no capital gains tax liability will be incurred by a Portfolio for
gains realized and not distributed. To the extent that capital gains are
offset, such gains will not be distributed to shareholders.
From time to time, certain Portfolios of the Fund have shareholders that hold a
significant portion of a Portfolio's outstanding shares. Investment activities
of these shareholders could have a material impact on those Portfolios.
<PAGE>
PART C
Morgan Stanley Institutional Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
--------------------
1. INCLUDED IN PART A (PROSPECTUSES)
The Registrant's audited financial highlights for the Money
Market, Municipal Money Market, Aggressive Equity, Emerging
Growth, Equity Growth, Value Equity, Small Cap Value Equity, U.S.
Real Estate, Balanced, Active Country Allocation, Global Equity,
International Equity, International Small Cap, European Equity,
Asian Equity, Emerging Markets, Gold, Japanese Equity, Latin
American, Emerging Markets Debt, Fixed Income, Global Fixed
Income, High Yield and Municipal Bond Portfolios, respectively,
for the fiscal year ended December 31, 1995, are included in the
prospectuses of the foregoing portfolios which were filed with
the SEC as set forth in Part A and are incorporated herein by
reference. The Fund's Mortgage-Backed Securities, China Growth,
MicroCap, International Magnum and Technology Portfolios were not
operational as of December 31, 1995. Accordingly, no audited
financial highlights are included in the respective prospectus of
each of the foregoing portfolios.
The Registrant's unaudited financial highlights for the
International Magnum Portfolio for the period ended July 31,
1996 are included in the supplement to the prospectus of the
International Magnum Portfolio which was filed with the SEC
as set forth in Part A and are incorporated herein by reference.
The Registrant's unaudited financial highlights for the
Technology Portfolio for the period ended December 31, 1996
are included in the supplement to the prospectus of the
Technology Portfolio filed herewith.
2. INCLUDED IN PART B (STATEMENT OF ADDITIONAL INFORMATION)
The Registrant's audited financial statements for the Money
Market, Municipal Money Market, Aggressive Equity, Emerging
Growth, Equity Growth, Value Equity, Small Cap Value Equity, U.S.
Real Estate, Balanced, Active Country Allocation, Global Equity,
International Equity, International Small Cap, European Equity,
Asian Equity, Emerging Markets, Gold, Japanese Equity, Latin
American, Emerging Markets Debt, Fixed Income, Global Fixed
Income, High Yield and Municipal Bond Portfolios, respectively,
for the fiscal year ended December 31, 1995, including Price
Waterhouse LLP's report thereon are incorporated by reference
from the Statement of Additional Information from the
Registrant's December 31, 1995 Annual Report to Shareholders.
Included in such financial statements are the following:
1. Report of Independent Accountants
2. Statement of Net Assets at December 31, 1995
3. Statement of Operations for the period ended December 31,
1995
4. Statement of Changes in Net Assets for the respective
periods presented in the two year period ended December 31,
1995
5. Financial Highlights for the respective periods presented in
the five year period ended December 31, 1995
6. Notes to Financial Statements
The Fund's Mortgage-Backed Securities, China Growth, MicroCap,
International Magnum and Technology Portfolios were not
operational as of December 31, 1995. Accordingly, no audited
financial statements are included in the Statement of Additional
Information.
<PAGE>
The Registrant's unaudited financial statements for the
International Magnum Portfolio for the period ended July 31,
1996 are incorporated by reference in Part B (the Statement of
Additional Information). Post-Effective Amendment No. 31 was
filed to comply with the Registrant's undertaking to file a
Post-Effective Amendment containing reasonably current financial
statements, which need not be certified, within four to six
months of its commencement date. Included in such financial
statements are the following:
1. Statement of Net Assets at July 31, 1996
2. Statement of Operations for the period ended July 31, 1996
3. Statement of Changes in Net Assets for the period ended
July 31, 1996
4. Financial Highlights for the period ended July 31, 1996
5. Notes to Financial Statements
The Registrant's unaudited financial statements for the
Technology Portfolio for the period ended December 31, 1996
are included in Part B (the Statement of Additional
Information). This Post-Effective Amendment No. 32 is filed
to comply with the Registrant's undertaking to file a
Post-Effective Amendment containing reasonably current
financial statements, which need not be certified, within four
to six months of its commencement date. Included in such
financial statements are the following:
1. Statement of Net Assets as of December 31, 1996
2. Statement of Operations for the period ended
December 31, 1996
3. Statement of Changes in Net Assets for the period ended
December 31, 1996
4. Financial Highlights for the period ended December 31, 1996
5. Notes to Financial Statements
<PAGE>
(B) EXHIBITS
--------
1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post-Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on October 13, 1995.
(b) Articles Supplementary to Registrant's Articles of Incorporation
(reclassifying shares) is incorporated by reference to
Post-Effective Amendment No. 30 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on May 24, 1996.
(c) Articles Supplementary to Registrant's Articles of Incorporation
(adding new Technology Portfolio) is incorporated by reference
to Post-Effective Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on May 24, 1996.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the SEC
via EDGAR on August 1, 1995.
3 Not Applicable.
4 Registrant's Form of Specimen Security was previously filed and is
incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(b) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding Registrant's
Value Equity, Balanced and Fixed Income Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(c) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Global
Equity, Global Fixed Income, European Equity and Equity Growth
Portfolios) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(d) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Asian Equity
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(e) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Active
Country Allocation Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(f) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Emerging
Markets, High Yield and International Small Cap Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(g) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Small Cap
Value Equity Portfolio) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
C-2
<PAGE>
(h) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Emerging
Markets Debt, Mortgage-Backed Securities, Municipal Bond and
Japanese Equity Portfolios) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(i) Sub-Advisory Agreement among Registrant, Morgan Stanley Asset
Management Inc. and Sun Valley Gold Company (with respect to the
Gold Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(j) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the China Growth
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(k) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Latin
American Portfolio) is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(l) Withdrawn.
(m) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the Aggressive
Equity and U.S. Real Estate Portfolios) is incorporated by
reference to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on August 1, 1995.
(n) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the MicroCap
Portfolio) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(o) Supplement to Investment Advisory Agreement between Registrant
and Morgan Stanley Asset Management Inc. (adding the
International Magnum Portfolio) is incorporated by reference to
Post-Effective Amendment No. 28 to the Registrant's Registration
Statement on Form N1-A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on November 3, 1995.
(p) Form of Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding the
Technology Portfolio), is incorporated by reference to
Post-Effective Amendment No. 30 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624) as
filed with the SEC via EDGAR on May 24, 1996.
6 (a) Distribution Agreement between Registrant and Morgan Stanley &
Co. Incorporated is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
(b) Supplement to Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated is incorporated by reference to
Post-Effective Amendment No. 29 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on April 29, 1996.
8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New York
dated March 10, 1994 is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
(b) Registrant's Custody Agreement (International), dated July 31,
1989, as amended is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
C-3
<PAGE>
(c) Amendment dated April 22, 1996 to Registrant's Custody Agreement
(International), dated July 31, 1989, is incorporated by
reference to Post-Effective Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624) as filed with the SEC via EDGAR on May 24, 1996.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on August
1, 1995.
(b) U.S. Trust Administration Agreement is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-
5624), as filed with the SEC via EDGAR on August 1, 1995.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
11 Consent of Independent Accountants, is incorporated by reference to
Post-Effective Amendment No. 30 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624) as filed
with the SEC via EDGAR on May 24, 1996.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
15 Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(the "Class B Plan") of the Active Country Allocation Portfolio is
incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-23166
and 811-5624), as filed with the SEC via EDGAR on November 1, 1995.
The following Class B Plans have been omitted because they are
substantially identical to the one incorporated by reference herein.
The omitted Class B Plans differ from the Class B Plan incorporated by
reference herein only with respect to the portfolio to which the Class
B Plan relates: Fixed Income, Global Fixed Income, Municipal Bond,
Mortgage-Backed Securities, High Yield, Money Market, Municipal Money
Market, Small Cap Value Equity, Value Equity, Balanced, Gold, Global
Equity, International Equity, International Small Cap, Asian Equity,
European Equity, Japanese Equity, Latin American, Emerging Markets,
Emerging Markets Debt, China Growth, Equity Growth, Emerging Growth,
MicroCap, Aggressive Equity, U.S. Real Estate, International Magnum
and Technology Portfolios.
16 Schedule of Computation of Performance Information is incorporated by
reference to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-5624),
as filed with the SEC via EDGAR on August 1, 1995.
19 Registrant's Rule 18F-3 Multiple Class Plan is incorporated by
reference to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and 811-5624),
as filed with the SEC via EDGAR on November 1, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-
1A (File Nos. 33-23166 and 811-5624), as filed with the SEC via EDGAR
on August 1, 1995.
27 (a) Financial Data Schedules for the fiscal year ended December 31,
1995 for Registrant's portfolios in operation during such
periods (See Item 24(a)), are filed herewith.
(b) Financial Data Schedules for the period ended July 31, 1996
for the International Magnum Portfolio are filed herewith.
(c) Financial Data Schedules for the period ended December 31, 1996
for the Technology Portfolio are filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (ON JANUARY 31, 1997)
Active Country Allocation Portfolio
Class A. . . . . . . . . . . . . . . . . . . 77
Class B. . . . . . . . . . . . . . . . . . . 2
C-4
<PAGE>
Aggressive Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 319
Class B. . . . . . . . . . . . . . . . . . . 56
Asian Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 1,162
Class B. . . . . . . . . . . . . . . . . . . 89
Balanced Portfolio
Class A. . . . . . . . . . . . . . . . . . . 56
Class B. . . . . . . . . . . . . . . . . . . 15
Emerging Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 215
Class B. . . . . . . . . . . . . . . . . . . 33
Emerging Markets Portfolio
Class A. . . . . . . . . . . . . . . . . . . 1,457
Class B. . . . . . . . . . . . . . . . . . . 118
Equity Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 685
Class B. . . . . . . . . . . . . . . . . . . 46
Fixed Income Portfolio
Class A. . . . . . . . . . . . . . . . . . . 190
Class B. . . . . . . . . . . . . . . . . . . 23
Global Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 82
Class B. . . . . . . . . . . . . . . . . . . 19
Global Fixed Income Portfolio
Class A. . . . . . . . . . . . . . . . . . . 421
Class B. . . . . . . . . . . . . . . . . . . 12
High Yield Portfolio
Class A. . . . . . . . . . . . . . . . . . . 565
Class B. . . . . . . . . . . . . . . . . . . 49
International Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 418
Class B. . . . . . . . . . . . . . . . . . . 49
International Small Cap Portfolio
Class A. . . . . . . . . . . . . . . . . . . 150
Latin American Portfolio
Class A. . . . . . . . . . . . . . . . . . . 704
Class B. . . . . . . . . . . . . . . . . . . 28
Money Market Portfolio
Class A. . . . . . . . . . . . . . . . . . . 572
Municipal Money Market Portfolio
Class A. . . . . . . . . . . . . . . . . . . 308
Small Cap Value Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 468
Class B. . . . . . . . . . . . . . . . . . . 17
U.S. Real Estate Portfolio
Class A. . . . . . . . . . . . . . . . . . . 712
Class B. . . . . . . . . . . . . . . . . . . 60
Value Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 546
Class B. . . . . . . . . . . . . . . . . . . 18
European Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 762
Class B. . . . . . . . . . . . . . . . . . . 31
Municipal Bond Portfolio
Class A. . . . . . . . . . . . . . . . . . . 101
Class B. . . . . . . . . . . . . . . . . . . 1
Mortgage-Backed Securities Portfolio
C-5
<PAGE>
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
Japanese Equity Portfolio
Class A. . . . . . . . . . . . . . . . . . . 763
Class B. . . . . . . . . . . . . . . . . . . 34
Emerging Markets Debt Portfolio
Class A. . . . . . . . . . . . . . . . . . . 503
Class B. . . . . . . . . . . . . . . . . . . 28
Gold Portfolio
Class A. . . . . . . . . . . . . . . . . . . 566
Class B. . . . . . . . . . . . . . . . . . . 26
China Growth Portfolio
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
MicroCap Portfolio
Class A. . . . . . . . . . . . . . . . . . . 0
Class B. . . . . . . . . . . . . . . . . . . 0
International Magnum Portfolio
Class A. . . . . . . . . . . . . . . . . . . 27
Class B. . . . . . . . . . . . . . . . . . . 33
Technology Portfolio
Class A. . . . . . . . . . . . . . . . . . . 23
Class B. . . . . . . . . . . . . . . . . . . 19
ITEM 27. INDEMNIFICATION
Reference is made to Article TEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS WITH INVESTMENT ADVISER
Reference is made to the caption "The Investment Adviser" in the
Prospectus constituting Part A of this Registration Statement and "Investment
Advisory Services" in Part B of Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business, profession,
vocation, or employment of substantial nature engaged in by the Chairman,
President and Directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of Form ADV filed by MSAM pursuant to the
Advisers Act (SEC File No. 801-15757).
DIRECTORS:
----------
James M. Allwin Director
Barton M. Biggs Director
Gordon S. Gray Director
Peter A. Nadosy Director
Dennis G. Sherva Director
OFFICERS:
C-6
<PAGE>
Barton M. Biggs Chairman
Peter A. Nadosy Vice Chairman
James M. Allwin President - Managing Director
Barton M. Biggs Managing Director
P. Dominic Caldecott Managing Director (MSAM) - UK
A. Macdonald Caputo Managing Director
Ean Wah Chin Managing Director (MSAM) - Singapore
Garry B. Crowder Managing Director
Michael A. Crowe Managing Director
Madhav Dhar Managing Director
Kurt A. Feuerman Managing Director
Gordon S. Gray Managing Director
Gary D. Latainer Managing Director
Peter A. Nadosy Managing Director
Dennis G. Shorva Managing Director
Richard G. Woolworth, Jr. Managing Director
Warren Ackerman III Principal
John R. Alkire Principal (MSAM) - Tokyo
Robert E. Angevine Principal
Gerald P. Barth-Wehrenalp Principal
Francine J. Bovich Principal
Stuart J. M. Breslow Principal
Terence P. Carmichael Principal
Arthur Certosimo Principal
James K. K. Cheng Principal (MSAM) - Singapore
Stephen C. Cordy Principal
Jacqueline A. Day Principal (MSAM) - UK
Paul B. Ghaffari Principal
James Wayne Grisham Principal
Perry E. Hall II Principal
Marianne Laing Hay Managing Director (MSAM) - UK
Margaret Kinsley Johnson Principal
Kathryn Jonas Kasanoff Principal
Debra A. F. Kushma Principal
Marianne J. Lippmann Principal
Gary J. Mangino Principal
M. Paul Martin Principal
Walter Maynard, Jr. Principal
Robert L. Meyer Principal
Margaret P. Naylor Principal (MSAM) - UK
Warren Olsen Principal
Christopher G. Petrow Principal
Russell C. Platt Principal
Gail Hunt Reeke Principal
Christine I. Reilly Principal
Bruce R. Sandberg Principal
Robert A. Sargent Managing Director (MSAM) - UK
Harold J. Schaaff, Jr. Principal
Kiat Seng Scah Principal (MSAM) - Singapore
Vinod R. Sethl Managing Director
Stephen C. Sexauer Principal
Robert M. Smith Principal
Philip W. Winters Principal
Alford E. Zick, Jr. Principal
Marshall T. Bassett Vice President
L. Kenneth Brooks Vice President
Andrew C. Brown Principal (MSAM) - UK
Frances Campion Principal (MSAM) - UK
C-7
<PAGE>
Carl Kuo-Wei Chien Vice President (MSAM) - Hong Kong
Lori A. Cohane Vice President
James Colmenares Vice President
Kate Cornish-Bowden Vice President (MSAM) - UK
Raye L. Dube Vice President
Abigail Jones Feder Principal
Josephine M. Glass Vice President
Maureen A. Grover Vice President
Kenneth R. Holley Vice President
Valerie Y. Lewis Vice President
Gordon W. Loory Vice President
Yvonne Longley Vice President (MSAM) - UK
Jeffrey Margolis Principal
Paula J. Morgan Vice President (MSAM) - UK
Clare K. Mutone Vice President
Martin O. Pearce Vice President
Alexander A. Pena Vice President
Anthony J. Pesce Vice President
David J. Polansky Vice President
Donald P. Ryan Vice President
Michael James Smith Vice President (MSAM) - UK
Kim I. Spellman Vice President
Joseph P. Stadler Vice President
Christian K. Stadlinger Vice President
Catherine Steinhardt Vice President
Kunihiko Sugio Principal (MSAM) - Tokyo
Joseph Y.S. Tern Vice President (MSAM) - Singapore
Ann D. Thiviergo Principal
Richard Boon Hwee Toh Vice President (MSAM) - Singapore
K.N. Vaidyanathan Vice President (MSAM) - Bombay
Kevin V. Wasp Vice President
Harold J. Schaaff, Jr. General Counsel and Secretary
Madeline D. Barkhorn Assistant Secretary
Charlene R. Herzer Assistant Secretary
Charles R. Hintz Treasurer
Michael B. Kushma Principal
William S. Auslander Vice President
Johathan Paul Backeridge Vice President - (MSAM) Australia
Nikhil Dhaon Vice President
Daniel E. Fox Vice President
Thomas A. Funk Vice President
James A. Grasselino Vice President
Holly D. Happs Vice President
Peter L. Kirby Vice President
Daniel R. Lascano Vice President
Willam David Lack Vice President - (MSAM) London
Terumi Nagata Vice President - (MSAM) Tokyo
Akash Prakash Vice President - (MSAM) Bombay
Andy B. Skov Vice President
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity Fund;
The Brazilian Investment Fund, Inc.; certain portfolios of The Enterprise Group
of Funds, Inc.; Fountain Square International Equity Fund; General American
Capital Co.; The Latin American Discovery Fund, Inc., certain portfolios of The
Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa Investment
Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley Emerging
Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.; all funds
of the Morgan Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund,
Inc.; all funds of The Morgan Stanley High Yield Fund, Inc.; Morgan Stanley
India Investment Fund, Inc.; The Pakistan Investment
C-8
<PAGE>
Fund, Inc.; PCS Cash Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment
Fund, Inc.; Principal Aggressive Growth Fund, Inc.; Principal Asset Allocation
Fund, Inc.; certain portfolios of the SunAmerica Series Trust and certain
portfolios of the Fortis Series Fund.
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for Morgan
Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc. and PCS Cash Fund,
Inc. The information required by this Item 29 with respect to each Director and
officer of MS&Co. is incorporated by reference to Schedule A of Form BD filed by
MS&Co. pursuant to the Securities and Exchange Act of 1934 (SEC File No. 8-
15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of the Registrant; Registrant's
Transfer Agent, Chase Global Funds Services Company, formerly Mutual Funds
Service Company, P.O. Box 2798, Boston, Massachusetts 02208-2798; MSAM; MS&Co.;
and the Registrant's custodian banks, including sub-custodians.
ITEM 31. MANAGEMENT SERVICES
-------------------
The Registrant has entered into a Service Agreement with The Chase
Manhattan Bank, N.A., successor in interest to United States Trust Company of
New York, which was filed as Exhibit No. 9(b) to Post-Effective Amendment No. 25
to the Fund's Registration Statement and is incorporated herein by reference.
ITEM 32. UNDERTAKINGS
------------
1. Registrant hereby undertakes to file a post-effective amendment
containing reasonably current financial statements, which need not be
certified, for the China Growth, Mortgage-Backed Securities and MicroCap
Portfolios within four to six months of their effective date or the
commencement of operations, whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the Investment
Company Act of 1940 inform the Board of Directors of his or their desire to
communicate with other Shareholders of the Fund, the Directors will inform such
Shareholder(s) as to the approximate number of Shareholders of record and the
approximate costs of mailing or afford said Shareholders access to a list of
Shareholders.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on February 28, 1997
MORGAN STANLEY INSTITUTIONAL FUND, INC.
By: /s/ Warren J. Olsen
-------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Warren J. Olsen Director, President February 28, 1997
- ------------------------------- (Principal Executive
Warren J. Olsen Officer)
* /s/ Barton M. Biggs Director (Chairman) February 28, 1997
- -------------------------------
Barton M. Biggs
* /s/ Fergus Reid Director February 28, 1997
- -------------------------------
Fergus Reid
* /s/ Frederick D. Robertshaw Director February 28, 1997
- -------------------------------
Frederick O. Robertshaw
* /s/ Andrew McNally IV Director February 28, 1997
- -------------------------------
Andrew McNally IV
* /s/ John D. Barrett II Director February 28, 1997
- -------------------------------
John D. Barrett II
* /s/ Gerard E. Jones Director February 28, 1997
- -------------------------------
Gerard E. Jones
* /s/ Samuel T. Reeves Director February 28, 1997
- -------------------------------
Samuel T. Reeves
* /s/ Frederick B. Whittemore Director February 28, 1997
- -------------------------------
Frederick B. Whittemore
* /s/ James R. Rooney Treasurer February 28, 1997
- ------------------------------- (Principal
James R. Rooney Accounting
Officer)
*By: /s/ Warren J. Olsen
----------------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
-------------
EDGAR
Exhibit
Number Description
EX-99.B 1(a) Articles of Amendment and Restatement are incorporated by
reference to Post-Effective Amendment No. 26 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
October 13, 1995.
(b) Articles Supplementary to Registrant's Articles of
Incorporation (reclassifying shares) is incorporated by
reference to Post-Effective Amendment No. 30 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
May 24, 1996.
(c) Articles Supplementary to Registrant's Articles of
Incorporation (adding new Technology Portfolio) is
incorporated by reference to Post-Effective Amendment No.
30 to the Registrant's Registration Statement on Form N-1A
(File No. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on May 24, 1996.
EX-99.B 2 Amended and Restated By-laws are incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
4 Registrant's Form of Specimen Security was previously filed
and is incorporated herein by reference.
EX-99.B 5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (b) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Equity, Balanced and Fixed Income Portfolios)
is incorporated by reference to Post-Effective Amendment No.
25 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 5 (c) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Global Equity, Global Fixed Income, European Equity and
Equity Growth Portfolios) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (d) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Asian Equity Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (e) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Active Country Allocation Portfolio) is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form
<PAGE>
N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on August 1, 1995.
EX-99.B 5 (f) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Emerging Markets, High Yield and International Small Cap
Portfolios) is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed
with the SEC via EDGAR on August 1, 1995.
EX-99.B 5 (g) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Small Cap Value Equity Portfolio) is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
August 1, 1995.
EX-99.B 5 (h) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Emerging Markets Debt, Mortgage-Backed Securities,
Municipal Bond and Japanese Equity Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 5 (i) Sub-Advisory Agreement among Registrant, Morgan Stanley
Asset Management Inc. and Sun Valley Gold Company (with
respect to the Gold Portfolio) is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (j) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the China Growth Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (k) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Latin American Portfolio) is incorporated by reference
to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (l) Withdrawn.
EX-99.B 5 (m) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Aggressive Equity and U.S. Real Estate Portfolios) is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
2
<PAGE>
EX-99.B 5 (n) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the MicroCap Portfolio) is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 5 (o) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the International Magnum Portfolio) is incorporated by
reference to Post-Effective Amendment No. 28 to the
Registrant's Registration Statement of Form N1-A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
November 3, 1995.
EX-99.B 5 (p) Form of Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Technology Portfolio), is incorporated by reference
to Post-Effective Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on May 24, 1996.
EX-99.B 6 (a) Distribution Agreement between Registrant and Morgan Stanley
& Co. Incorporated is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 6 (b) Supplement to Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated is incorporated by
reference to Post-Effective Amendment No. 29 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
April 29, 1996.
EX-99.B 8 (a) Mutual Fund Custody Agreement (Domestic Custody Agreement)
between Registrant and United States Trust Company of New
York dated March 10, 1994 is incorporated by reference to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-23166 and
811-5624), as filed with the SEC via EDGAR on August 1,
1995.
EX-99.B 8 (b) Registrant's Custody Agreement (International), dated July
31, 1989, as amended is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 8 (c) Amendment dated April 22, 1996 to Registrant's Custody
Agreement (International), dated July 31, 1989, is
incorporated by reference to Post-Effective Amendment No.
30 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-23166 and 811-5624), as filed with the
SEC via EDGAR on May 24, 1996.
EX-99.B 9 (a) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. (the "MSAM Administration
Agreement") is incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-23166 and 811-5624), as filed
with the SEC via EDGAR on August 1, 1995.
EX-99.B 9 (b) U.S. Trust Administration Agreement is incorporated by
reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed
3
<PAGE>
with the SEC via EDGAR on August 1, 1995.
EX-99.B 10 Opinion of Counsel is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 11 Consent of Independent Accountants, is incorporated by
reference to Post-Effective Amendment No. 30 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC
via EDGAR on May 24, 1996.
EX-99.B 13 Purchase Agreement is incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 15 Form of Plan of Distribution Pursuant to Rule 12b-1 for
Class B Shares (the "Class B Plan") of the Active Country
Allocation Portfolio is incorporated by reference to Post-
Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on November 1, 1995. The
following Class B Plans have been omitted because they are
substantially identical to the one incorporated by reference
herein. The omitted Class B Plans differ from the Class B
Plan incorporated by reference herein only with respect to
the portfolio to which the Class B Plan relates: Fixed
Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield, Money Market, Municipal Money
Market, Small Cap Value Equity, Value Equity, Balanced,
Gold, Global Equity, International Equity, International
Small Cap, Asian Equity, European Equity, Japanese Equity,
Latin American, Emerging Markets, Emerging Markets Debt,
China Growth, Equity Growth, Emerging Growth, MicroCap,
Aggressive Equity, U.S. Real Estate, International Magnum
and Technology Portfolios.
EX-99.B 16 Schedule of Computation of Performance Information is
incorporated by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-23166 and 811-5624), as filed with the SEC via
EDGAR on August 1, 1995.
EX-99.B 19 Registrant's Rule 18F-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File Nos.
33-23166 and 811-5624), as filed with the SEC via EDGAR on
November 1, 1995.
EX-99.B 24 Powers of Attorney are incorporated by reference to Post-
Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-23166 and 811-5624), as
filed with the SEC via EDGAR on August 1, 1995.
EX-99.B 27 (a) Financial Data Schedules for the fiscal year ended
December 31, 1995 for Registrant's portfolios in
operation during such periods (See Item 24(a)), are
filed herewith.
(b) Financial Data Schedules for the period ended July
31, 1996 for the International Magnum Portfolio are
filed herewith.
(c) Financial Data Schedules for the period ended
December 31, 1996 for the Technology Portfolio are
filed herewith.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000836487
<NAME> MORGAN STANLEY INSTITUTIONAL FUND, INC.
<SERIES>
<NUMBER> 14
<NAME> ACTIVE COUNTRY ALLOCATION PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 149,711
<INVESTMENTS-AT-VALUE> 160,656
<RECEIVABLES> 857
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 9,417
<TOTAL-ASSETS> 170,944
<PAYABLE-FOR-SECURITIES> (23)
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (258)
<TOTAL-LIABILITIES> (281)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,244
<SHARES-COMMON-STOCK> 14,673
<SHARES-COMMON-PRIOR> 15,712
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (7,782)
<ACCUMULATED-NET-GAINS> 838
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,363
<NET-ASSETS> 170,663
<DIVIDEND-INCOME> 3,211
<INTEREST-INCOME> 179
<OTHER-INCOME> 0
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<NAME> MORGAN STANLEY INSTITUTIONAL FUND, INC.
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<NAME> THE TECHNOLOGY PORTFOLIO, CLASS B
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