MORGAN STANLEY INSTITUTIONAL FUND INC, 497, 1997-09-26

MORGAN STANLEY INSTITUTIONAL FUND INC
497, 1997-09-26

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

ASIAN EQUITY PORTFOLIO
JAPANESE EQUITY PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

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

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

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under "Prospectus Summary" below. The Fund
currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL EQUITY
- -- Active Country Allocation, Asian Equity, Asian Real Estate, Emerging Markets,
European Equity, European Real Estate, Global Equity, Gold, International
Equity, International Magnum, International Small Cap, Japanese Equity and Latin
American Portfolios; (ii) U.S. EQUITY -- Aggressive Equity, Emerging Growth,
Equity Growth, Small Cap Value Equity, Technology, U.S. Equity Plus, U.S. Real
Estate and Value Equity Portfolios; (iii) EQUITY AND FIXED INCOME -- Balanced
Portfolio; (iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income, Global
Fixed Income, High Yield and Municipal Bond Portfolios; and (v) MONEY MARKET --
Money Market and Municipal Money Market Portfolios. Additional information about
the Fund is contained in a "Statement of Additional Information," dated May 1,
1997 as supplemented through September 26, 1997, which is incorporated herein by
reference. The Statement of Additional Information and the prospectuses
pertaining to the other portfolios of the Fund are available upon request and
without charge by writing or calling the Fund at the address and telephone
number set forth above.

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

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
AS SUPPLEMENTED THROUGH SEPTEMBER 26, 1997
<PAGE>
FUND EXPENSES

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

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

<TABLE>
<CAPTION>
ASIAN
EQUITY JAPANESE EQUITY
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO
- ------------------------------------------------ ----------- ---------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C>
Management Fee (Net of Fee Waivers)*
Class A....................................... 0.55% 0.73%
Class B....................................... 0.55% 0.73%
12b-1 Fees
Class A....................................... None None
Class B....................................... 0.25% 0.25%
Other Expenses
Class A....................................... 0.45% 0.27%
Class B....................................... 0.45% 0.27%
----------- -------
Total Operating Expenses (Net of Fee Waivers)
Class A....................................... 1.00% 1.00%
Class B....................................... 1.25% 1.25%
----------- -------
----------- -------
</TABLE>

* The Adviser has agreed to waive its management fees and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolios to exceed a specified percentage of their
respective average daily net assets. As a result of these reductions, the
Management Fees stated above are lower than the contractual fees stated under
"Management of the Fund." The Adviser reserves the right to terminate any of
its fee waivers and/or expense reimbursements at any time in its sole
discretion. For further information on Fund expenses, see "Management of the
Fund." Set forth below, for each Portfolio, as applicable, are the management
fees and total operating expenses absent such fee waivers and/or expense
reimbursements as a percent of average daily net assets of the Class A and
Class B shares of the Portfolios.

<TABLE>
<CAPTION>
TOTAL
OPERATING EXPENSES
ABSENT
MANAGEMENT FEE WAIVERS
FEES ABSENT FEE --------------------------
PORTFOLIO WAIVERS CLASS A CLASS B
- -------------------------------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Asian Equity.................................................. 0.80% 1.25% 1.52%
Japanese Equity............................................... 0.80% 1.07% 1.31%
</TABLE>

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<PAGE>
The purpose of the table is to assist the investor in understanding the
various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. Due to the continuous nature of Rule 12b-1 fees,
long-term Class B shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by the National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

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

<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Asian Equity Portfolio
Class A.......................... $ 10 $ 32 $ 55 $ 122
Class B.......................... 13 40 69 151
Japanese Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
</TABLE>

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

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

4
<PAGE>
ASIAN EQUITY PORTFOLIO

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

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

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

** Annualized

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

+ Amount is less than $0.01 per share.

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

charged was 0.52% of the trade amount.

5
<PAGE>
JAPANESE EQUITY PORTFOLIO

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

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

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

* Commencement of operations.

** Annualized

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

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

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

6
<PAGE>
PROSPECTUS SUMMARY

THE FUND

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

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

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

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

GLOBAL AND INTERNATIONAL EQUITY:

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

-The ASIAN REAL ESTATE PORTFOLIO seeks to provide long-term capital
appreciation by investing primarily in equity securities of companies in
the Asian real estate industry.

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

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

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

-The EUROPEAN REAL ESTATE PORTFOLIO seeks to provide current income and
long-term capital appreciation by investing primarily in equity securities
of companies in the European real estate industry.

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

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

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

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

7
<PAGE>
-The INTERNATIONAL SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing primarily in equity securities of non-U.S. issuers with equity
market capitalizations of less than $1 billion.

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

U.S. EQUITY:

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

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

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

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

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued equity securities of small- to medium-sized
companies.

-The TECHNOLOGY PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of companies that, in the opinion of the
Portfolio's investment adviser, are expected to benefit from their
involvement in technology and technology-related industries.

-The U.S. EQUITY PLUS PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of issuers included in the S&P 500
Index ("S&P 500").

-The U.S. REAL ESTATE PORTFOLIO seeks to provide above average current
income and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.

-The VALUE EQUITY PORTFOLIO seeks high total return by investing in equity
securities which the Adviser believes to be undervalued relative to the
stock market in general at the time of purchase.

EQUITY AND FIXED INCOME:

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

FIXED INCOME:

-The EMERGING MARKETS DEBT PORTFOLIO seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

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

-The GLOBAL FIXED INCOME PORTFOLIO seeks to produce an attractive real rate
of return while preserving capital by investing in fixed income securities
of issuers throughout the world, including U.S. issuers.

8
<PAGE>
-The HIGH YIELD PORTFOLIO seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services.

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

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

MONEY MARKET:

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

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

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

INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc., a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., acts as investment adviser to the Fund and
each of its portfolios. As of August 31, 1997, Morgan Stanley Asset Management
Inc. and its affiliated asset management companies (exclusive of Miller Anderson
& Sherrerd, LLP, Van Kampen American Capital, Inc. and Dean Witter InterCapital
Inc.) managed assets of approximately $80.9 billion. See "Management of the Fund
- -- Investment Adviser" and "Management of the Fund -- Administrator."

HOW TO INVEST

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

HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of shares of the applicable class next determined
after receipt of the redemption request. The redemption price may be more or
less than the purchase price. Certain redemptions that cause the value of an
account to remain for a continuous 60-day period below the minimum investment
amount for Class A shares or for Class B shares

9
<PAGE>
may result in involuntary redemption or automatic conversion. For additional
information on how to redeem shares and involuntary redemption or conversion,
see "Purchase of Shares -- Minimum Account Sizes and Involuntary Redemption of
Shares" and "Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio will invest
in securities of foreign issuers, which are subject to certain risks not
typically associated with domestic securities. Each Portfolio may invest in
securities of issuers located in emerging markets. These securities may impose
greater liquidity risks and other risks not typically associated with investing
in more established markets. In addition, each Portfolio may invest in
repurchase agreements, lend its portfolio securities, purchase securities on a
when-issued or delayed delivery basis and invest in foreign currency forward
contracts. The Portfolios may invest in certain derivatives, including options,
futures and options on futures, caps, floors and collars, swaps and structured
investments. These investments entail certain costs and risks, including
imperfect correlation between the value of securities held by the Portfolio and
the value of the particular derivative instrument, and the risk that the
Portfolio could not close out a derivatives position when it would be most
advantageous to do so. The Asian Equity Portfolio may invest in securities that
are neither listed on a stock exchange nor traded over-the-counter, including
private placement securities. The Portfolios may also invest indirectly in
securities through sponsored or unsponsored Depositary Receipts. Each of these
investment strategies involves specific risks which are described under
"Investment Objectives and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.

10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

THE ASIAN EQUITY PORTFOLIO

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

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

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

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

11
<PAGE>
issuers, the Adviser will evaluate costs of labor and raw materials, access to
technology, export of products and government regulation. Although the Portfolio
seeks to invest in larger companies, it may invest in medium-sized and small
companies that, in the Adviser's view, have potential for growth.

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

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

THE JAPANESE EQUITY PORTFOLIO

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

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

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

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

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

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

ADDITIONAL INVESTMENT INFORMATION

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

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The Portfolios may use such contracts to protect against a decline in a foreign
currency against the U.S. dollar between the trade date and settlement date when
the Portfolio purchases or sells securities, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. While forward contracts may limit losses as a result
of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account in an amount equal to the
value of the Portfolio's total assets committed to the consummation of forward
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will be at least equal to the amount of
the Portfolio's commitments with respect to such contracts.

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

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

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

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

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

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The Asian Equity Portfolio may invest in securities that are
neither listed on a stock exchange nor traded over-the-counter, including
privately placed securities. Such unlisted equity securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio or less than what may be considered the fair value of such securities.
Further, companies whose securities are not publicly traded may not be subject
to the disclosure and other investor protection requirements which might be
applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, the Portfolio may be required to bear the expenses of
registration.

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

15
<PAGE>
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The Portfolio may not enter into
repurchase agreements with more than seven days to maturity if, as a result,
more than 15% of the market value of the Portfolio's net assets are invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid.

TEMPORARY INVESTMENTS. For temporary defensive purposes, when the Adviser
determines that market conditions warrant, each Portfolio may invest up to 100%
of its assets in dollar and non-dollar denominated money market instruments and
short- and medium-term debt securities that the Adviser believes to be of high
quality, or hold cash. The short- and medium-term debt securities in which a
Portfolio may invest consist of (a) obligations of the U.S. or foreign country
governments, their respective agencies or instrumentalities; (b) bank deposits
and bank obligations (including certificates of deposit, time deposits and
bankers' acceptances) of U.S. or foreign country banks denominated in any
currency; (c) floating rate securities and other instruments denominated in any
currency issued by international development agencies; (d) finance company and
corporate commercial paper and other short-term corporate debt obligations of
U.S. and foreign country corporations meeting the Portfolio's credit quality
standards; and (e) repurchase agreements with banks and broker-dealers with
respect to such securities.

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

DERIVATIVE INSTRUMENTS

The Portfolios are permitted to invest in various derivative instruments for
both hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured investments and structured notes,
caps, floors, collars and swaps. Additionally, the Portfolios may invest in
other derivative instruments that are developed over time if their use would be
consistent with the objectives of the Portfolios. Each Portfolio will limit its
use of derivative instruments to 33 1/3% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments. The Portfolios'
investments in forward foreign currency contracts and derivatives used for
hedging purposes are not subject to the limit described above.

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The Portfolios may use derivative instruments under a number of different
circumstances to further their investment objectives. The Portfolios may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Portfolio may
purchase derivatives to quickly gain exposure to a market in response to changes
in the Portfolio's investment strategy or upon the inflow of investable cash
when the derivative provides greater liquidity than the underlying securities
market. A Portfolio may also use derivatives when it is restricted from directly
owning the underlying securities due to foreign investment restrictions or other
reasons or when doing so provides a price advantage over purchasing the
underlying securities directly, either because of a pricing differential between
the derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Portfolio for hedging purposes and in other circumstances in which a Portfolio's
portfolio managers believe it advantageous to do so consistent with the
Portfolio's investment objective. The Portfolios will not, however, use
derivatives in a manner that creates leverage, except to the extent that the use
of leverage is expressly permitted by a particular Portfolio's investment
policies, and then only in a manner consistent with such policies.

Some of the derivative instruments in which the Portfolios may invest and
the risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS

The Portfolios may invest in caps, floors and collars, which are instruments
analogous to options. In particular, a cap is the right to receive the excess of
a reference rate over a given rate and is analogous to a put option. A floor is
the right to receive the excess of a given rate over a reference rate and is
analogous to a call option. Finally, a collar is an instrument that combines a
cap and a floor. That is, the buyer of a collar buys a cap and writes a floor,
and the writer of a collar writes a cap and buys a floor. The risks associated
with caps, floors and collars are similar to those associated with options. In
addition, caps, floors and collars are subject to risk of default by the
counterparty because they are privately negotiated instruments.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Portfolios may purchase and sell futures contracts and options on
futures contracts, including but not limited to securities index futures,
foreign currency exchange futures, interest rate futures and other financial
futures. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specific security, instrument or basket
thereof, at a specific future date and at a specified price. An option on a
futures contract is a legal contract that gives the holder the right to buy or
sell a specified amount of futures contracts at a fixed or determinable price
upon the exercise of the option.

The Portfolios may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or purchase securities
index futures in order to gain market exposure. Subject to applicable laws, the
Portfolios may engage in transactions in securities index futures contracts (and
options thereon) which are traded on a recognized securities or futures
exchange, or may purchase or sell such instruments in the over-the-counter
market. There currently are limited securities index futures and options on such
futures in many countries, particularly emerging countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.

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The Portfolios may engage in transactions involving foreign currency
exchange futures contracts. Such contracts involve an obligation to purchase or
sell a specific currency at a specified future date and at a specified price.
The Portfolios may engage in such transactions to hedge their respective
holdings and commitments against changes in the level of future currency rates
or to adjust their exposure to a particular currency.

The Portfolios may engage in transactions in interest rate futures
transactions. Interest rate futures contracts involve an obligation to purchase
or sell a specific debt security, instrument or basket thereof at a specified
future date at a specified price. The value of the contract rises and falls
inversely with changes in interest rates. The Portfolios may engage in such
transactions to hedge their holdings of debt instruments against future changes
in interest rates.

Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies, and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The
Portfolios may engage in financial futures contracts for hedging and non-hedging
purposes.

Under rules adopted by the Commodity Futures Trading Commission, each
Portfolio may enter into futures contracts and options thereon for both hedging
and non-hedging purposes, provided that not more than 5% of such Portfolio's
total assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to
non-hedging activities.

Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Portfolio and the prices of futures and
options relating to investments purchased or sold by the Portfolio, and (ii)
possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position. The risk that a Portfolio will
be unable to close out a futures position or options contract will be minimized
by only entering into futures contracts or options transactions for which there
appears to be a liquid exchange or secondary market. The risk of loss in trading
on futures contracts in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing.

OPTIONS TRANSACTIONS

The Portfolios may seek to increase their returns or may hedge their
portfolio investments through options transactions with respect to securities,
instruments, indices or baskets thereof in which such Portfolios may invest, as
well as with respect to foreign currency. Purchasing a put option gives a
Portfolio the right to sell a specified security, currency or basket of
securities or currencies at the exercise price until the expiration of the
option. Purchasing a call option gives a Portfolio the right to purchase a
specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the option.

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increase in the market value of the underlying security or instrument above the
exercise price of the option for as long as the Portfolio's obligation as writer
of the option continues. The Portfolios may only write options that are
"covered." A covered call option means that so long as the Portfolio is
obligated as the writer of the option, it will earmark or segregate sufficient
liquid assets to cover its obligations under the option or own (i) the
underlying security or instrument subject to the option, (ii) securities or
instruments convertible or exchangeable without the payment of any consideration
into the security or instrument subject to the option, or (iii) a call option on
the same underlying security with a strike price no higher than the price at
which the underlying instrument was sold pursuant to a short option position.

By writing (or selling) a put option, a Portfolio incurs an obligation to
buy the security or instrument underlying the option from the purchaser of the
put at the option's exercise price at any time during the option period, at the
purchaser's election. The Portfolios may also write options that may be
exercised by the purchaser only on a specific date. A Portfolio that has written
a put option will earmark or segregate sufficient liquid assets to cover its
obligations under the option or will own a put option on the same underlying
security with an equal or higher strike price.

The Portfolios may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such options markets. The primary risks associated with the use of options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by a Portfolio and the prices of options relating to
such investments, and (ii) possible lack of a liquid secondary market for an
option.

STRUCTURED NOTES

Structured Notes are derivatives on which the amount of principal repayment
and/or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators. The Portfolios
may use structured notes to tailor their investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.

SWAPS -- SWAP CONTRACTS

Swaps and Swap Contracts are derivatives in the form of a contract or other
similar instrument in which two parties agree to exchange the returns generated
by a security, instrument, basket or index thereof for the returns generated by
another security, instrument, basket thereof or index. The payment streams are
calculated by reference to a specific security, index or instrument and an
agreed upon notional amount. The relevant indices include but are not limited
to, currencies, fixed interest rates, prices and total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Portfolio may agree to swap the return generated by a fixed income index for the
return generated by a second fixed income index. The currency swaps in which the
Portfolios may enter will generally involve an agreement to pay interest streams
in one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.

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A Portfolio will usually enter into swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued, but unpaid, net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities. A Portfolio will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Fund's Board of Directors.

Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Portfolio is contractually obligated to make. If
the other party to an interest rate or total rate of return swap defaults, a
Portfolio's risk of loss consists of the net amount of payments that a Portfolio
is contractually entitled to receive. In contrast, currency swaps may involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap may be subject to the risk that the other party to the
swap will default on its contractual delivery obligations. If there is a default
by the counterparty, a Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The swaps market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swaps market has become relatively liquid. Swaps that include caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than "traditional" swaps.

The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolios would be less favorable than it would have been if this
investment technique were not used.

INVESTMENT LIMITATIONS

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

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

MANAGEMENT OF THE FUND

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

<TABLE>
<CAPTION>
MAXIMUM TOTAL ANNUAL
OPERATING
MANAGEMENT FEES EXPENSES AFTER FEE WAIVERS
ABSENT FEE --------------------------
PORTFOLIO WAIVERS CLASS A CLASS B
- ------------------------------------------ ------------------- ------------ ------------
<S> <C> <C> <C>
Asian Equity 0.80% 1.00% 1.25%
Japanese Equity 0.80% 1.00% 1.25%
</TABLE>

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to customers in the
United States and abroad. The Adviser and Morgan Stanley are subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co. At August 31, 1997, the Adviser
(exclusive of Miller Anderson & Sherrerd, LLP, Van Kampen American Capital, Inc.
and Dean Witter InterCapital Inc.) managed assets of approximately $80.9
billion. See "Management of the Fund" in the Statement of Additional
Information.

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

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

JAPANESE EQUITY PORTFOLIO -- JOHN R. ALKIRE AND KUNIHIKO SUGIO. John R.
Alkire is a Managing Director of Morgan Stanley. He has been primarily
responsible for managing the Portfolio's assets since June 1997. Mr. Alkire
joined the Adviser in 1981 to initiate foreign equity sales and trading to
Pacific basin institutions. He was appointed President of Morgan Stanley
Investment Advisory, Japan in October 1993. Prior to 1993, he specialized in
Japanese warrants and cash equity sales and trading to Japanese financial
institutions in the Tokyo office. Mr. Alkire is a graduate of University of
Victoria Canada. Kunihiko Sugio, a Principal of Morgan Stanley, joined the
Adviser in December 1993 and manages dedicated Japanese equity portfolios. He
has been primarily responsible for managing the Portfolio's assets since its
inception. Prior to joining Morgan Stanley, he worked with Baring International
Investment Management, Tokyo, where he was a Director and fund manager. He
graduated from Wakayama Kokuritsu University.

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<PAGE>
corporate existence of the Fund, maintenance of its records, preparation of
reports, supervision of the Fund's arrangements with its custodian and
assistance in the preparation of the Fund's registration statements under
federal laws. The Administration Agreement also provides that the Administrator,
through its agents, will provide dividend disbursing and transfer agent services
to the Fund. For its services under the Administration Agreement, the Fund pays
the Adviser a monthly fee which on an annual basis equals 0.15% of the average
daily net assets of each Portfolio.

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

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

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

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

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

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

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

PURCHASE OF SHARES

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<PAGE>
Shares." Shareholders of the International Small Cap Portfolio may be charged a
1.00% transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. The transaction fee is intended to allocate transaction costs
associated with purchases and redemptions of shares of the Portfolio to
investors actually making such purchases and redemptions rather than to the
Portfolio's other shareholders. The 1.00% fee represents the Adviser's estimate
of such transaction costs, which include the costs of acquiring and disposing of
Portfolio securities. The transaction fee is not a sales charge or load, and is
retained by the Portfolio. The fee does not apply to Portfolios of the Fund
other than the International Small Cap Portfolio and is not charged in
connection with the reinvestment of dividends or capital gain distributions. The
fee will not be charged with respect to purchases and redemptions that do not
result in actual transaction costs to the Portfolio.

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

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

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

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

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

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<PAGE>
plans, including, but not limited to, those defined in Section 401(a), 403(b) or
457 of the Code and "rabbi trusts." The Fund reserves the right to modify or
terminate the conversion features of the shares as stated above at any time upon
60-days notice to shareholders.

The Adviser reserves the right in its sole discretion to determine which of
such advisory or asset allocation accounts shall be Managed Accounts. For
information regarding Managed Accounts, please contact your Morgan Stanley
account representative or the Fund at the telephone number provided on the cover
of this Prospectus.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

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

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

CONVERSION FROM CLASS B TO CLASS A SHARES

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

INITIAL PURCHASES DIRECTLY FROM THE FUND

The Fund's determination of an investor's eligibility to purchase shares of
a given class will take precedence over the investor's selection of a class.

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

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

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<PAGE>
Form. For purchases by check, the Fund is ordinarily credited with Federal Funds
within one business day. Thus, your purchase of shares by check is ordinarily
credited to your account at the net asset value per share of the relevant
Portfolio determined on the next business day after receipt.

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

A. Telephone the Fund (toll free: 1-800-548-7786) and provide us with your
name, address, telephone number, Social Security or Tax Identification
Number, the portfolio(s) selected, the class selected, the amount being
wired, and by which bank. We will then provide you with a Fund account
number. (Investors with existing accounts should also notify the Fund prior
to wiring funds.)

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

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

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

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

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

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

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

25
<PAGE>
ADDITIONAL INVESTMENTS

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

OTHER PURCHASE INFORMATION

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

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

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

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

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of a Portfolio and raise its expenses. Consequently, in the interest
of all the stockholders of the Portfolios and the Portfolios' performance, the
Fund may in its discretion bar a stockholder that engages in excessive trading
of shares of any class of a portfolio from further purchases of shares of the
Fund for an indefinite period. The Fund considers excessive trading to be more
than one purchase and sale involving shares of the same class of a Portfolio of
the Fund within any 120-day period. As an example, exchanging shares of
portfolios of the Fund as follows amounts to excessive trading: exchanging
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. Two types of transactions are

26
<PAGE>
exempt from these excessive trading restrictions: (1) trades exclusively between
money market portfolios; and (2) trades done in connection with an asset
allocation service, such as TFM Accounts or accounts managed or advised by the
Adviser and/or any of its affiliates.

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

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

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

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

27
<PAGE>
REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that redemption proceeds for purchases
made by check may not be received until the payment of the purchase price has
been collected, which may take up to eight business days after purchase. The
Fund will redeem Class A shares of each Portfolio or Class B shares of each
Multiclass Portfolio at the next determined net asset value of shares of the
applicable class. On days that both the NYSE and the Custodian Bank are open for
business, the net asset value per share of each of the Portfolios is determined
at the regular close of trading of the NYSE (currently 4:00 p.m. Eastern Time).
Shares of each Portfolio may be redeemed by mail or telephone. No charge is made
for redemptions, except for the imposition of the 1% transaction fee described
under "Purchase of Shares" above, which may be assessed in connection with
redemptions of shares of the International Small Cap Portfolio. Any redemption
proceeds may be more or less than the purchase price of your shares depending
on, among other factors, the market value of the investment securities held by a
Portfolio.

BY MAIL

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

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

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

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

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

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

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of the Fund's representatives for further
details. In times of drastic market conditions, the telephone redemption option
may be difficult to implement. If you experience difficulty in making a
telephone redemption, your request may be made by regular mail or express mail
and it will be implemented at the net asset value next determined after it is
received. Redemption requests sent to the Fund through express mail must be
mailed to the address of the Dividend Disbursing and Transfer Agent listed under
"General Information." The Fund and the Fund's transfer agent (the "Transfer
Agent") will employ reasonable procedures to confirm that the instructions
communicated by telephone are genuine. These procedures include requiring the
investor to provide certain personal identification information at the time an
account is opened and prior to effecting each transaction requested by
telephone. In addition, all telephone

28
<PAGE>
transaction requests will be recorded and investors may be required to provide
additional telecopied written instructions regarding transaction requests.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for following instructions received by telephone that
either of them reasonably believes to be genuine.

To change the commercial bank or account designated to receive redemption
proceeds, a written request must be sent to the Fund at the address above.
Requests to change the bank or account must be signed by each shareholder and
each signature must be guaranteed.

FURTHER REDEMPTION INFORMATION

Normally the Fund will make payment for all shares redeemed within one
business day of receipt of the request, but in no event will payment be made
more than seven days after receipt of a redemption request in good order.
However, payments to investors redeeming shares which were purchased by check
will not be made until payment for the purchase has been collected, which may
take up to eight days after the date of purchase. The Fund may suspend the right
of redemption or postpone the date upon which redemptions are effected at times
when the NYSE is closed, or under any emergency circumstances as determined by
the Securities and Exchange Commission (the "Commission").

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

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

SHAREHOLDER SERVICES

EXCHANGE FEATURES

You may exchange shares that you own in any Portfolio for shares of any
other available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares." Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available without shareholder election. Before you make an exchange, you should
read the prospectus of the portfolio(s) in which you seek to invest. Because an
exchange transaction is treated as a redemption followed by a purchase, an
exchange would be considered a taxable event for shareholders subject to tax.
The exchange privilege may be modified or terminated by the Fund at any time
upon 60-days notice to shareholders.

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<PAGE>
BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name, class of shares and account number of your current Portfolio,
the name(s) of the portfolio(s) and class(es) of shares into which you intend to
exchange shares, and the signatures of all registered account holders. Send the
exchange request to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798.

BY TELEPHONE

When exchanging shares by telephone, have ready the name, class of shares
and account number of your current Portfolio, the name(s) of the portfolio(s)
and class(es) of shares into which you intend to exchange shares, your Social
Security number or Tax I.D. number, and your account address. Requests for
telephone exchanges received prior to 4:00 p.m. (Eastern Time) are processed at
the close of business that same day based on the net asset value of the
class(es) of the portfolios involved in the exchange of shares at the close of
business. Requests received after 4:00 p.m. (Eastern Time) are processed the
next business day based on the net asset value determined at the close of
business on such day. For additional information regarding responsibility for
the authenticity of telephoned instructions, see "Redemption of Shares -- By
Telephone" above.

TRANSFER OF REGISTRATION

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

VALUATION OF SHARES

The net asset value per share of a class of shares of each of the Portfolios
is determined by dividing the total market value of the Portfolio's investments
and other assets attributable to such class, less any liabilities attributable
to such class, by the total number of outstanding shares of each class of the
Portfolio. Net asset value is calculated separately for each class of the
Portfolios. Net asset value per share is determined as of the regular close of
the NYSE on each day that the NYSE is open for business. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a U.S. securities exchange for which market
quotations are available are valued at the last quoted sale price on the day the
valuation is made. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at a
price within a range not exceeding the current asked price nor less than the
current bid price. The current bid and asked prices are determined based on the
average of the bid and asked prices quoted on such valuation date by reputable
brokers.

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<PAGE>
specific securities. Securities not priced in this manner are valued at the most
recently quoted bid price or, when securities exchange valuations are used, at
the latest quoted sale price on the day of valuation. If there is no such
reported sale, the latest quoted bid price will be used. Securities purchased
with remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. In the event that amortized cost does not approximate
market value, market prices as determined above will be used.

The value of other assets and securities for which quotations are not
readily available (including restricted and unlisted foreign securities) and
those securities for which it is inappropriate to determine the prices in
accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be translated into U.S. dollars at the mean
of the bid and asked price for such currencies against the U.S. dollar last
quoted by any major bank.

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

PERFORMANCE INFORMATION

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

Each of the Portfolios may advertise "total return" which shows what an
investment in a class of a Portfolio would have earned over a specified period
of time (such as one, five or ten years) assuming that all distributions and
dividends by the Portfolio were reinvested in the same class on the reinvestment
dates during the period. Total return does not take into account any federal or
state income taxes that may be payable on dividends and distributions or on
redemption. The Fund may also include comparative performance information in
advertising or marketing the Portfolios' shares, including data from Lipper
Analytical Services, Inc., other industry publications, business periodicals,
rating services and market indices.

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

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

31
<PAGE>
Undistributed net investment income is included in a Portfolio's net assets
for the purpose of calculating net asset value per share. Therefore, on the
"ex-dividend" date, the net asset value per share excludes the dividend (i.e.,
is reduced by the per share amount of the dividend). Dividends paid shortly
after the purchase of shares by an investor, although in effect a return of
capital, are taxable to shareholders subject to income tax.

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

TAXES

The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action.

No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolios or their shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.

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

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

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

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

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

32
<PAGE>
The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any dividends, capital gains distributions and redemption proceeds paid to any
individual or certain other non-corporate shareholder (1) who has failed to
provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Application Form, (2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that such shareholder
is not subject to backup withholding. This backup withholding is not an
additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.

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

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

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

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

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

PORTFOLIO TRANSACTIONS

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

It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the applicable portfolio to
their clients or who act as agents in the purchase of shares of the portfolio
for their clients.

33
<PAGE>
remuneration paid to Morgan Stanley or other affiliates must be fair and
reasonable in comparison to those of other broker-dealers for comparable
transactions involving similar securities being purchased or sold during a
comparable time period.

PORTFOLIO TURNOVER

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

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Fund was organized as a Maryland corporation on June 16, 1988. The
Articles of Incorporation, as amended and restated, permit the Fund to issue up
to 38 billion shares of common stock, with $.001 par value per share. Pursuant
to the Fund's Articles of Incorporation, the Board of Directors may increase the
number of shares the Fund is authorized to issue without the approval of the
shareholders of the Fund. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of common stock of each
Portfolio are currently classified into two classes, the Class A shares and the
Class B shares, except for the International Small Cap, Money Market and
Municipal Money Market Portfolios, which offer only Class A shares.

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

REPORTS TO SHAREHOLDERS

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

In addition, the Adviser or its agent, as Transfer Agent, will send to each
shareholder having an account directly with the Fund a monthly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid.

34
<PAGE>
CUSTODIAN

Chase is the Fund's custodian for domestic and certain foreign assets. Chase
is not an affiliate of the Adviser or the Distributor. Morgan Stanley Trust
Company, Brooklyn, New York ("MSTC"), an affiliate of the Adviser and the
Distributor, acts as the Fund's custodian for assets held outside the United
States and employs sub-custodians approved by the Board of Directors of the Fund
in accordance with regulations of the Securities and Exchange Commission for the
purpose of providing custodial services for such assets. MSTC may also hold
certain domestic assets for the Fund. For more information on the custodians,
see "General Information -- Custody Arrangements" in the Statement of Additional
Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as Dividend Disbursing and Transfer Agent for the
Fund.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as independent accountants for the Fund and
audits its annual financial statements.

LITIGATION

The Fund is not involved in any litigation.

35
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
ASIAN EQUITY AND JAPANESE EQUITY PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

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

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

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

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

/ / TRUST ________________________ / / OTHER (Specify) ________________________

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

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

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

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

<PAGE>

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

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

Payment by:

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

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

<TABLE>
<C> <S> <C>
F) DISTRIBUTION Income dividends and capital gains distributions (if any) to
OPTION be reinvested in additional shares unless either box below
is checked.
/ / Income dividends to be paid in cash, capital gains
distributions (if any) in shares.
/ / Income dividends and capital gains distributions (if
any) to be paid in cash.
</TABLE>

<TABLE>
<C> <S> <C> <C>
G) TELEPHONE / / I/we hereby authorize the Fund and
REDEMPTION its agents to honor any telephone Name of COMMERCIAL Bank (Not Savings
AND EXCHANGE requests to wire redemption proceeds to Bank)
OPTION the commercial bank indicated at right Bank Account No.
Please select at time of and/or mail redemption proceeds to the
initial application if you name and address in which my/our fund
wish to redeem or exchange account is registered if such requests Bank
shares by telephone. A are believed to be authentic. ABA
SIGNATURE GUARANTEE IS The Fund and the Fund's Transfer Agent No.
REQUIRED IF BANK ACCOUNT IS will employ reasonable procedures to
NOT REGISTERED IDENTICALLY TO confirm that instructions communicated Name(s) in which your Bank Account is
YOUR FUND ACCOUNT. by telephone are genuine. These Established
TELEPHONE REQUESTS FOR procedures include requiring the
REDEMPTIONS OR EXCHANGE WILL investor to provide certain personal Bank's Street
NOT BE HONORED UNLESS THE BOX identification information at the time Address
IS CHECKED. an account is opened and prior to
effecting each transaction requested by City State Zip
telephone. In addition, all telephone
transaction requests will be recorded
and investors may be required to provide
additional telecopied written
instructions of transaction requests.
Neither the Fund nor the Transfer Agent
will be responsible for any loss,
liability, cost or expense for following
instructions received by telephone that
it reasonably believes to be genuine.
</TABLE>

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

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

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

<TABLE>
<S> <C>
The undersigned certify that I/we have full authority and legal capacity
to purchase and redeem shares of the Fund and affirm that I/we have
received a current Prospectus of the Morgan Stanley Institutional Fund,
Inc. and agree to be bound by its terms.
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF
PERJURY THAT THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT
AND THAT AS REQUIRED BY FEDERAL LAW (PLEASE CHECK APPLICABLE BOXES
BELOW):

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

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

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

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

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

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 7
Investment Objectives and Policies................ 11
Additional Investment Information................. 13
Investment Limitations............................ 20
Management of the Fund............................ 20
Purchase of Shares................................ 22
Redemption of Shares.............................. 28
Shareholder Services.............................. 29
Valuation of Shares............................... 30
Performance Information........................... 31
Dividends and Capital Gains Distributions......... 31
Taxes............................................. 32
Portfolio Transactions............................ 33
General Information............................... 34
Account Registration Form
</TABLE>

ASIAN EQUITY PORTFOLIO
JAPANESE EQUITY PORTFOLIO

PORTFOLIOS OF THE

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)
-------------
PROSPECTUS
-------------

Investment Adviser

Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

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

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

EMERGING MARKETS PORTFOLIO
EMERGING MARKETS DEBT PORTFOLIO
LATIN AMERICAN PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

Morgan Stanley Institutional Fund, Inc. (the "Fund") is a no-load, open-end
management investment company, or mutual fund, which offers redeemable shares in
a series of diversified and non-diversified investment portfolios
("portfolios"). The Fund is designed to provide clients with attractive
alternatives for meeting their investment needs. The Fund currently consists of
thirty-two portfolios representing a broad range of investment choices. This
prospectus (the "Prospectus") pertains to the Class A and the Class B shares of
the Emerging Markets, Emerging Markets Debt and Latin American Portfolios (each,
a "Portfolio" and collectively, the "Portfolios"). The Emerging Markets
Portfolio is currently closed to new investors with the exception of certain
Morgan Stanley & Co. Incorporated ("Morgan Stanley") customers, employees of
Morgan Stanley, certain tax-qualified retirement plans and other investment
companies advised by Morgan Stanley Asset Management Inc. and its affiliates.
The Class A and Class B shares currently offered by the Portfolios have
different minimum investment requirements and fund expenses. Shares of the
portfolios are offered with no sales charge, exchange fee or redemption fee,
(except that the International Small Cap Portfolio may impose a transaction
fee).

THE EMERGING MARKETS PORTFOLIO MAY INVEST IN EQUITY SECURITIES OF RUSSIAN
COMPANIES. RUSSIA'S SYSTEM OF SHARE REGISTRATION AND CUSTODY INVOLVES CERTAIN
RISKS OF LOSS THAT ARE NOT NORMALLY ASSOCIATED WITH INVESTMENTS IN OTHER
SECURITIES MARKETS. SEE "ADDITIONAL INVESTMENT INFORMATION -- RUSSIAN SECURITIES
TRANSACTIONS."

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

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under the "Prospectus Summary" below. The
Fund currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Active Country Allocation, Asian Equity, Asian Real Estate, Emerging
Markets, European Equity, European Real Estate, Global Equity, Gold,
International Equity, International Magnum, International Small Cap, Japanese
Equity and Latin American Portfolios; (ii) U.S. EQUITY -- Aggressive Equity,
Emerging Growth, Equity Growth, Small Cap Value Equity, Technology, U.S. Equity
Plus, U.S. Real Estate and Value Equity Portfolios; (iii) BALANCED -- Balanced
Portfolio; (iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income, Global
Fixed Income, High Yield and Municipal Bond Portfolios; and (v) MONEY MARKET --
Money Market and Municipal Money Market Portfolios. Additional information about
the Fund is contained in a "Statement of Additional Information," dated May 1,
1997, as supplemented through September 26, 1997, which is incorporated herein
by reference. The Statement of Additional Information and the prospectuses
pertaining to the other portfolios of the Fund are available upon request and
without charge by writing or calling the Fund at the address and telephone
number set forth above.

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

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
AS SUPPLEMENTED THROUGH SEPTEMBER 26, 1997
<PAGE>
FUND EXPENSES

The following table illustrates the expenses and fees that a shareholder of
the Portfolios indicated below will incur:
<TABLE>
<CAPTION>
EMERGING
EMERGING MARKETS LATIN
MARKETS DEBT AMERICAN
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A.......................................................... None None None
Class B.......................................................... None None None
Maximum Sales Load Imposed on Reinvested Dividends
Class A.......................................................... None None None
Class B.......................................................... None None None
Deferred Sales Load
Class A.......................................................... None None None
Class B.......................................................... None None None
Redemption Fees
Class A.......................................................... None None None
Class B.......................................................... None None None
Exchange Fees
Class A.......................................................... None None None
Class B.......................................................... None None None

ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C>
Management Fee (Net of Fee Waivers)*
Class A.......................................................... 1.25% 1.00% 0.62%
Class B.......................................................... 1.25% 1.00% 0.62%
12b-1 Fees
Class A.......................................................... None None None
Class B.......................................................... 0.25% 0.25% 0.25%
Other Expenses
Class A.......................................................... 0.49% 0.40% 1.08%
Class B.......................................................... 0.49% 0.40% 1.08%
----------- ----------- -----------
Total Operating Expenses (Net of Fee Waivers)*
Class A.......................................................... 1.74% 1.40% 1.70%
Class B.......................................................... 1.99% 1.65% 1.95%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

- ------------------------------
*The Adviser has agreed to waive its management fees and/or reimburse the
Portfolios, if necessary, if such fees would cause total annual operating
expenses, as a percentage of average daily net assets, to exceed 1.75% for the
Class A shares and 2.00% for the Class B shares of the Emerging Markets and
Emerging Markets Debt Portfolios or to exceed 1.70% for the Class A shares and
1.95% for the Class B shares of the Latin American Portfolio. The management
fees are 1.25% for the Emerging Markets Portfolio and 1.00% for the Emerging
Markets Debt Portfolio. Absent the fee waiver and/or expense reimbursement, the
Latin American Portfolio's management fee would be 1.10% and total operating
expenses would be 2.18% of the average daily net assets of the Class A shares
and 2.43% of the average daily net assets of the Class B shares. As a result of
these reductions, the Management Fee for the Latin American Portfolio stated
above is lower than the contractual fee stated under "Management of the Fund."
The Adviser reserves the right to terminate any of its fee waivers and/or
expense reimbursements at any time in its sole discretion. The Adviser reserves
the right to terminate any of its fee waivers and/or expense reimbursements at
any time in its sole discretion. For further information on Fund expenses, see
"Management of the Fund."

2
<PAGE>
The purpose of the table above is to assist the investor in understanding
the various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees for the Portfolios are based on actual figures for
the fiscal year ended December 31, 1996. Due to the continuous nature of Rule
12b-1 fees, long-term Class B shareholders may pay more than the equivalent of
the maximum front-end sales charges otherwise permitted by the National
Association of Securities Dealers, Inc. ("NASD") Conduct Rules.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio
Class A.......................................................... $ 18 $ 55 $ 94 $ 205
Class B.......................................................... 20 62 107 232
Emerging Markets Debt Portfolio
Class A.......................................................... 27 84 143 303
Class B.......................................................... 28 87 148 314
Latin American Portfolio
Class A.......................................................... 17 54 92 201
Class B.......................................................... 20 61 105 227
</TABLE>

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

3
<PAGE>
FINANCIAL HIGHLIGHTS

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

4
<PAGE>
EMERGING MARKETS PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------------------------------------------- ------------
PERIOD FROM PERIOD FROM
TWO MONTHS SEPTEMBER 25, JANUARY 2,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1992* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1996
------------ ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 13.14 $ 16.30 $ 19.00 $ 10.22 $ 10.11 $ 10.00 $ 13.25
------------ ------------ ------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------ ------------ ------------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (1).............. 0.09 0.08 (0.04) (0.01) -- -- 0.04
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 1.51 (2.05) (1.69) 8.79 0.11 0.11 1.42
------------ ------------ ------------ ------------ ------------ ------------- ------------
Total from Investment
Operations............ 1.60 (1.97) (1.73) 8.78 0.11 0.11 1.46
------------ ------------ ------------ ------------ ------------ ------------- ------------
DISTRIBUTIONS
Net Investment Income.... (0.08) (0.06) -- -- -- -- (0.05)
Net Realized Gain........ -- (1.13) (0.97) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------- ------------
Total Distributions.... (0.08) (1.19) (0.97) -- -- -- (0.05)
------------ ------------ ------------ ------------ ------------ ------------- ------------
NET ASSET VALUE, END OF
PERIOD.................... $ 14.66 $ 13.14 $ 16.30 $ 19.00 $ 10.22 $ 10.11 $ 14.66
------------ ------------ ------------ ------------ ------------ ------------- ------------
TOTAL RETURN............... 12.19% (12.77)% (9.63)% 85.91% 1.09% 1.10% 11.04%
------------ ------------ ------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------ ------------ ------------- ------------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands)............. $1,304,006 $876,591 $929,638 $735,352 $74,219 $28,806 $14,213
Ratio of Expenses to
Average Net Assets
(1)..................... 1.74% 1.72% 1.75% 1.75% 1.75%** 1.75%** 1.99%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1).......... 0.69% 0.60% (0.26)% (0.06)% (0.33)%** (0.53)%** 0.33%**
Portfolio Turnover
Rate.................... 55% 54% 32% 52% 2% 0% 55%
Average Commission
Rate#................... $0.0006 N/A N/A N/A N/A N/A $0.0006
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income.............. N/A N/A N/A $0.01 $0.00 $0.02 N/A
Ratios before expense
limitation:
Expenses to Average
Net Assets.......... N/A N/A N/A 1.79% 2.48%** 4.82%** N/A
Net Investment Loss
to Average Net
Assets.............. N/A N/A N/A (0.10)% (1.06)%** (3.60)%** N/A
</TABLE>

* Commencement of Operations.

** Annualized

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

5
<PAGE>
EMERGING MARKETS DEBT PORTFOLIO

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------ ------------
PERIOD FROM PERIOD FROM
FEBRUARY 1, JANUARY 2,
YEAR ENDED YEAR ENDED 1994* TO 1996*** TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 8.59 $ 8.59 $ 10.00 $ 8.68
------------ ------------ ------------ ------
------------ ------------ ------------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 1.54 1.36 0.50 1.01
Net Realized and Unrealized Gain
(Loss) on Investments................ 2.79 0.91 (1.91) 3.20
------------ ------------ ------------ ------
Total from Investment Operations.... 4.33 2.27 (1.41) 4.21
------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income................. (1.17) (1.86) -- (1.15)
In Excess of Net Investment Income.... (0.01) -- -- (0.01)
Net Realized Gain..................... (4.20) (0.41) -- (4.20)
------------ ------------ ------------ ------
Total Distributions................. (5.38) (2.27) -- (5.36)
------------ ------------ ------------ ------
NET ASSET VALUE, END OF PERIOD.......... $ 7.54 $ 8.59 $ 8.59 $ 7.53
------------ ------------ ------------ ------
------------ ------------ ------------ ------
TOTAL RETURN............................ 50.52% 28.23% (14.10)% 48.52%
------------ ------------ ------------ ------
------------ ------------ ------------ ------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands).......................... $152,142 $181,878 $144,949 $4,253
Ratio of Expenses to Average Net
Assets............................... 2.70% 1.75% 1.49%** 2.81%**
Ratio of Expenses to Average Net
Assets (Excluding Dividend and
Interest Expense).................... 1.42% N/A N/A 1.65%**
Ratio of Net Investment Income to
Average Net Assets................... 11.66% 14.70% 9.97%** 11.09%**
Portfolio Turnover Rate............... 560% 406% 273% 560%
</TABLE>

- --------------
* Commencement of operations.

** Annualized

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

6
<PAGE>
LATIN AMERICAN PORTFOLIO

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

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

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

* Commencement of Operations.

** Annualized

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

7
<PAGE>
PROSPECTUS SUMMARY

THE FUND

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

-The EMERGING MARKETS DEBT PORTFOLIO seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

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

GLOBAL AND INTERNATIONAL EQUITY:

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

-The ASIAN REAL ESTATE PORTFOLIO seeks to provide long-term capital
appreciation by investing primarily in equity securities of companies in
the Asian real estate industry.

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

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

-The EUROPEAN REAL ESTATE PORTFOLIO seeks to provide current income and
long-term capital appreciation by investing primarily in equity securities
of companies in the European real estate industry.

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

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

8
<PAGE>
-The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers.

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

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

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

U.S. EQUITY:

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

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

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

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

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued equity securities of small- to medium-sized
companies.

-The U.S. EQUITY PLUS PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of issuers included in the S&P 500
Index ("S&P 500").

-The VALUE EQUITY PORTFOLIO seeks high total return by investing in equity
securities which the Adviser believes to be undervalued relative to the
stock market in general at the time of purchase.

BALANCED:

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

FIXED INCOME:

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

9
<PAGE>
-The HIGH YIELD PORTFOLIO seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services.

MONEY MARKET:

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

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

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

INVESTMENT MANAGEMENT

HOW TO INVEST

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of each
Portfolio are offered at net asset value with no sales commission, but with a
12b-1 fee, which is accrued daily and paid quarterly, equal to 0.25% of the
Class B shares' average daily net assets on an annualized basis. The minimum
initial investment, generally, is $500,000 for Class A shares of each Portfolio
and $100,000 for Class B shares of each Portfolio. The minimum initial
investment amount is reduced for certain categories of investors. For additional
information on how to purchase shares and minimum initial investments, see
"Purchase of Shares."

HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of shares of the applicable class next determined
after receipt of the redemption request. The redemption price may be more or
less than the purchase price. Certain redemptions that cause the value of an
account to remain for a continuous 60-day period below the minimum investment
amount for Class A shares or for Class B shares

10
<PAGE>
may result in involuntary redemption or conversion. For additional information
on how to redeem shares and involuntary redemption or conversion, see "Purchase
of Shares -- Minimum Account Sizes and Involuntary Redemption of Shares" and
"Redemption of Shares."

RISK FACTORS

Each Portfolio invests in securities of issuers located in emerging markets.
Investing in emerging country securities involves certain considerations not
typically associated with investing in securities of U.S. companies, including
(i) restrictions on foreign investment and on repatriation of capital invested
in emerging countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into U.S. dollars, (iv) potential price volatility and lesser
liquidity of shares traded on emerging country securities markets or lack of a
secondary trading market for such securities and (v) political and economic
risks, including the risk of nationalization or expropriation of assets and the
risk of war. In addition, accounting, auditing, financial and other reporting
standards in emerging countries are not equivalent to U.S. standards and
therefore, disclosure of certain material information may not be made and less
information may be available to investors investing in emerging countries than
in the United States. There is also generally less governmental regulation of
the securities industry in emerging countries than in the United States.
Moreover, it may be more difficult to obtain a judgment in a court outside the
United States. For temporary, defensive purposes, when the Adviser determines
that market conditions warrant, each Portfolio may invest up to 100% of its
assets in money market instruments and short-and medium-term debt securities
that the Adviser believes to be of high quality, or hold cash. See "Additional
Investment Information -- Temporary Investments." Each Portfolio may invest in
lower rated debt securities ("junk bonds"), which are considered speculative
with regard to the payment of interest and return of principal. The Portfolios
may invest in certain derivatives, including options, futures, options on
futures, caps, floors and collars, swaps and structured investments. These
investments entail certain costs and risks, including imperfect correlation
between the value of securities held by a Portfolio and the value of the
particular derivative instrument, and the risk that a Portfolio could not close
out a derivatives position when it would be most advantageous to do so. Each
Portfolio may invest in depositary receipts, investment funds, loan
participations and assignments, non-publicly traded securities, private
placements, restricted securities and repurchase agreements, lend its portfolio
securities and purchase securities on a when-issued or delayed delivery basis
and invest in foreign currency forward contracts. Each of these investment
strategies involves specific risks which are described under "Investment
Objectives and Policies" and "Additional Investment Information" herein.

The Emerging Markets Portfolio may invest in equity securities of Russian
companies. The registration, clearing and settlement of securities transactions
in Russia are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
See "Additional Investment Information -- Russian Securities Transactions."

11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

THE EMERGING MARKETS PORTFOLIO

The investment objective of the Portfolio is to provide long-term capital
appreciation by investing primarily in equity securities of emerging country
issuers. With respect to the Portfolio, equity securities include common and
preferred stocks, convertible securities and rights and warrants to purchase
common stocks. The Portfolio may also invest indirectly in equity securities of
emerging country issuers through depositary receipts. Under normal conditions,
at least 65% of the Portfolio's total assets will be invested in emerging
country equity securities. As used in this Prospectus, the term "emerging
country" applies to any country which, in the opinion of the Adviser, is
generally considered to be an emerging country by the international financial
community, including the International Bank for Reconstruction and Development
(more commonly known as the World Bank) and the International Finance
Corporation. There are currently over 130 countries which, in the opinion of the
Adviser, are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. These countries generally include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. Currently, investing in many emerging countries is
not feasible or may involve unacceptable political risks. The Portfolio will
focus its investments on those emerging market countries in which it believes
the economies are developing strongly and in which the markets are becoming more
sophisticated. The Portfolio intends to invest primarily in some or all of the
following countries:

<TABLE>
<S> <C> <C> <C>
Argentina Ghana Malaysia Singapore
Botswana Greece Mexico South Africa
Brazil Hong Kong Morocco South Korea
Bulgaria Hungary Nigeria Sri Lanka
Chile India Pakistan Taiwan
China Indonesia Peru Thailand
(mainland and Hong Israel Philippines Turkey
Kong) Jamaica Poland Venezuela
Colombia Jordan Portugal Zimbabwe
Egypt Kenya Russia
</TABLE>

As markets in other countries develop, the Portfolio expects to expand and
further diversify the emerging countries in which it invests. The Portfolio does
not intend to invest in any security in a country where the currency is not
freely convertible to U.S. dollars, unless the Portfolio has obtained the
necessary governmental

12
<PAGE>
licensing to convert such currency or other appropriately licensed or sanctioned
contractual guarantees to protect such investment against loss of that
currency's external value, or the Portfolio has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantees would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Portfolio.

An emerging country security is one issued by a company that, in the opinion
of the Adviser, has one or more of the following characteristics: (i) its
principal securities trading market is in an emerging country, (ii) alone, or on
a consolidated basis, the company derives 50% or more of its annual revenue from
either goods produced, sales made or services performed in emerging countries;
or (iii) the company is organized under the laws of, and has a principal office
in, an emerging country. The Adviser will base determinations as to eligibility
on publicly available information and inquiries made to the companies.

To the extent that the Portfolio's assets are not invested in emerging
country equity securities, the remainder of the assets may be invested in (i)
debt securities denominated in the currency of an emerging country or issued or
guaranteed by an emerging country company or the government of an emerging
country, (ii) equity or debt securities of corporate or governmental issuers
located in industrialized countries, and (iii) short- and medium-term debt
securities of the type described below under "Additional Investment Information
- -- Temporary Investments." The Portfolio's assets may be invested in debt
securities when the Portfolio believes that, based upon factors such as relative
interest rate levels and foreign exchange rates, such debt securities offer
opportunities for long-term capital appreciation. It is likely that many of the
debt securities in which the Portfolio will invest will be unrated and, whether
or not rated, such securities may have speculative characteristics. When deemed
appropriate by the Adviser, the Portfolio may invest up to 20% of its total
assets (measured at the time of the investment) in lower quality debt
securities. Lower quality debt securities, also known as "junk bonds," are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. As of the date of this
prospectus, less than 5% of the Portfolio's total assets were invested in junk
bonds. The market prices of these securities may fluctuate more than those of
higher quality securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates.
Securities in the lowest quality category may present the risk of default, or
may be in default.

THE EMERGING MARKETS DEBT PORTFOLIO

The investment objective of the Portfolio is to seek high total return. In
seeking to achieve this objective, the Portfolio will seek to invest at least
65% of its total assets in debt securities of government and government-related
issuers located in emerging countries (including participations in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. In addition, the Portfolio may
invest up to 35% of its total assets in debt securities of corporate issuers
located in or organized under the laws of emerging countries. See "The Emerging
Markets Portfolio" above for a definition of emerging countries.

13
<PAGE>
The Adviser intends to invest the Portfolio's assets in emerging country
debt securities that provide a high level of current income, while at the same
time holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic, financial,
political, social or other conditions in the country in which the issuer is
located. Currently, investing in many emerging country securities is not
feasible or may involve unacceptable political risks. Initially, the Portfolio
expects that its investments in emerging country debt securities will be made
primarily in some or all of the following emerging countries:

<TABLE>
<S> <C> <C>
Algeria Hungary Peru
Argentina India Philippine
Brazil Indonesia Poland
Bulgaria Ivory Coast Portugal
Chile Jamaica Russia
China Jordan Slovakia
Colombia Malaysia South Africa
Costa Rica Mexico Thailand
Czech Republic Morocco Trinidad & Tobago
Democratic Republic of
Congo Nicaragua Tunisia
Dominican Republic Nigeria Turkey
Ecuador Pakistan Uruguay
Egypt Panama Venezuela
Greece Paraguay
</TABLE>

As opportunities to invest in debt securities in other countries develop, the
Portfolio expects to expand and further diversify the emerging countries in
which it invests. While the Portfolio generally is not restricted in the portion
of its assets which may be invested in a single country or region, it is
anticipated that, under normal conditions, the Portfolio's assets will be
invested in issuers in at least three countries.

Emerging country debt securities that the Portfolio may invest in include
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage and other asset-backed securities, loan
participations, loan assignments and interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging country issuers. U.S. dollar-denominated emerging
country debt securities held by the Portfolio will generally be listed but not
traded on a securities exchange, and non-U.S. dollar-denominated securities held
by the Portfolio may or may not be listed or traded on a securities exchange.
The Portfolio will be subject to no restrictions on the maturities of the
emerging country debt securities it holds; those maturities may range from
overnight to 30 years.

The Portfolio is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Portfolio's assets may be invested in non-U.S. dollar-denominated
securities. The portion of the Portfolio's assets invested in securities
denominated in currencies other than the U.S. dollar will vary depending on
market conditions. Although the Portfolio is permitted to engage in a wide
variety of investment practices designed to hedge against currency exchange rate
risks with respect to its holdings of non-U.S. dollar-denominated debt
securities, the Portfolio may be limited in its ability to hedge against these
risks.

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In selecting particular emerging country debt securities for investment by
the Portfolio, the Adviser will apply a market risk analysis contemplating
assessment of factors such as liquidity, volatility, tax implications, interest
rate sensitivity, counterparty risks and technical market considerations.
Emerging country debt securities in which the Portfolio may invest will be
subject to high risk and will not be required to meet a minimum rating standard
and may not be rated for creditworthiness by any internationally recognized
credit rating organization. The Portfolio's investments are expected to be rated
in the lower and lowest rating categories of internationally recognized credit
rating organizations or are expected to be unrated securities of comparable
quality. These types of debt obligations are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and of volatility in
price than securities in higher rating categories. Ratings of non-U.S. debt
instruments, to the extent undertaken, are related to evaluations of the country
in which the issuer of the instrument is located and generally take into account
the currency in which a non-U.S. debt instrument is denominated. Instruments
issued by a foreign government in other than the local currency, typically have
a lower rating than local currency instruments due to the risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer.

The Portfolio's investments in government, government-related and
restructured debt securities will consist of (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or instrumentalities
and political subdivisions located in emerging countries including
participations in loans between governments and financial institutions, (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging countries, and (iii) issuers of
structured securities. Certain issuers of such structured securities may be
deemed to be "investment companies" as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). As a result, the Portfolio's investment in
such securities may be limited by certain investment restrictions contained in
the 1940 Act. The Portfolio's investments in government, government-related and
restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional
loan amounts. The Portfolio may have limited recourse in the event of default on
such debt instruments.

The Portfolio's investments in debt securities of corporate issuers in
emerging countries may include debt securities or obligations issued (i) by
banks located in emerging countries or by branches of emerging country banks
located outside the country or (ii) by companies organized under the laws of an
emerging country. Determinations as to eligibility will be made by the Adviser
based on publicly available information and inquiries made to the issuer. The
Portfolio may also invest in certain debt obligations customarily referred to as
"Brady Bonds," which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury
Nicholas F. Brady.

The Portfolio may also invest in zero coupon, pay-in-kind or deferred
payment securities and in securities that may be collateralized by zero coupon
securities (such as Brady Bonds). Zero coupon securities are securities

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

The Portfolio may also invest up to 5% of its total assets in
mortgage-backed securities and in other asset-backed securities issued by
non-governmental entities, such as banks and other financial institutions.
Mortgage-backed securities include mortgage pass-through securities and
collateralized mortgage obligations. Asset-backed securities are collateralized
by such assets as automobile or credit card receivables and are securitized
either in a pass-through structure or in a pay-through structure similar to a
CMO.

THE LATIN AMERICAN PORTFOLIO

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

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

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

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

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

The Portfolio will not invest more than 25% of its total assets in one
industry except, and to the extent, and only for such period of time, as the
Board of Directors determines that it is appropriate and in the best interests
of the Portfolio and its shareholders to invest more than 25% of the Portfolio's
total assets in companies involved in each of the telecommunications or
financial services industries. Concentration in these two industries may be
beneficial to the Portfolio because the securities markets of Latin American
countries are emerging markets characterized by a relatively small number of
issuers and it is possible that one or more markets may be dominated by issues
of companies in these industries. Also, it is possible that Privatizations in
certain Latin American countries which currently represent a primary source of
new issues in many Latin American markets and are often attractive investment
opportunities will occur in these two industries.

The Board of Directors has determined that, in light of the increased
presence of telecommunications companies in the Latin American markets, the
Portfolio's ability to achieve its investment objective would be materially
adversely affected if it were not permitted to invest more than 25% of its
assets in securities of companies in the telecommunications industries of the
Latin American countries in which the Portfolio invests.

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<PAGE>
In accordance with the Portfolio's investment restrictions and as a result of
the Board's action, the Portfolio is required to invest at least 25% of its
total assets in securities of Latin American issuers engaged in the
telecommunications industry. The Portfolio will remain so invested until the
Board determines that the Portfolio should invest less than 25% of its assets in
that industry. Because the Portfolio will have a more concentrated position in
the securities of a single sector within the Latin American securities markets,
the Portfolio will be subject to certain risks with respect to these portfolio
securities. Market price movements affecting telecommunications companies and
their securities will have a greater impact on the Portfolio's performance
because of the more concentrated position in such securities. Telecommunications
may be subject to greater government regulation than many other industries.
Changes in government policies and the need to obtain regulatory approvals may
have a material effect on products and services offered by telecommunications
companies. Technological and structural developments may adversely affect the
profitability of telecommunications companies. To better control the Portfolio's
exposure to such risks, the Board has limited investments in telecommunications
securities to not more than 40% of the Portfolio's assets.

The Board of Directors has not currently authorized the Portfolio to invest
more than 25% of its total assets in the financial services industry. The
Portfolio will notify shareholders of any decision by the Board of Directors to
permit investments of more than 25% in the financial services industry
including, if applicable, a discussion of any increased investment risks
particular to this industry to which the Portfolio may be exposed.

ADDITIONAL INVESTMENT INFORMATION

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

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

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

FOREIGN CURRENCY FORWARD CONTRACTS. The Portfolios may enter into foreign
currency forward contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. The Portfolios
may use such contracts to protect against a decline in a foreign currency
against the U.S. dollar between the trade date and settlement date when the
Portfolio purchases or sells securities, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. While forward contracts may limit losses as a result
of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account in an amount equal to the
value of the Portfolio's total assets committed to the consummation of forward
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will be at least equal to the amount of
the Portfolio's commitments with respect to such contracts.

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

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Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject to
limitation in other emerging countries. Foreign ownership limitations also may
be imposed by the charters of individual companies in emerging countries to
prevent, among other concerns, violation of foreign investment limitations.

Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
emerging countries. The Portfolios could be adversely affected by delays in, or
a refusal to grant, any required governmental registration or approval for such
repatriation. Any investment subject to such repatriation controls will be
considered illiquid if it appears reasonably likely that this process will take
more than seven days.

The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of emerging countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.

With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of each Portfolio's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.

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

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

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

LOAN PARTICIPATIONS AND ASSIGNMENTS. The Portfolios may invest in fixed
rate and floating rate loans ("Loans") arranged through private negotiations
between an issuer of sovereign debt obligations and one or more financial
institutions ("Lenders"). The Portfolios' investments in Loans are expected in
most instances to be in the form of participation in Loans ("Participations")
and assignments of all or a portion of Loans ("Assignments") from third parties.
The Portfolios will have the right to receive payments of principal, interest
and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In the event of the insolvency of the Lender selling a Participation,
the Portfolios may be treated as a general creditor of the Lender and may not
benefit from any set-off between the Lender and the borrower. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participation. Even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation may be impaired. The Portfolios will acquire
Participations only if the Lender interpositioned between the Portfolios and the
borrower is determined by the Adviser to be creditworthy.

When the Portfolios purchase Assignments from Lenders they will acquire
direct rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Portfolios as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Portfolios anticipate that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market may
have an adverse impact on the value of such securities and the Portfolios'
ability to dispose of particular Assignments or Participations when
necessary to meet the Portfolios' liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations also
may make it more difficult for the Portfolios to assign a value to these
securities for purposes of valuing the Portfolios' portfolio and calculating
their net asset value.

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

LOWER RATED DEBT SECURITIES. Each Portfolio may invest in lower rated or
unrated debt securities, commonly referred to as "junk bonds." In addition, the
emerging country debt securities in which the Portfolios may invest will not be
required to meet a minimum rating standard and may not be rated. Fixed income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to price volatility due to such factors as interest rate sensitivity, market

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perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The market values of fixed-income securities tend to vary inversely with
the level of interest rates. Yields and market values of lower rated and unrated
debt securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Fluctuations in the value of
the Portfolio's investments will be reflected in the Portfolio's net asset value
per share. The Adviser considers both credit risk and market risk in making
investment decisions for the Portfolios. Investors should carefully consider the
relative risks of investing in lower rated and unrated debt securities and
understand that such securities are not generally meant for short-term
investing.

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

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

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

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The Portfolios may invest in securities that are neither listed on
a stock exchange nor traded over-the-counter, including privately placed
securities. Investing in such unlisted emerging country equity securities,
including investments in new and early stage companies, may involve a high
degree of business and financial risk that can result in substantial

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losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolios or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements which
might be applicable if their securities were publicly traded. If such securities
are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Portfolios may be required to bear the
expenses of registration.

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

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week,
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The Portfolios may not enter into
repurchase agreements with more than seven days to maturity if, as a result,
more than 15% of the market value of the Portfolio's net assets would be
invested in such repurchase agreements and in other investments for which market
quotations are not readily available or which are otherwise illiquid.

REVERSE REPURCHASE AGREEMENTS. The Emerging Markets Debt Portfolio may
enter into reverse repurchase agreements with brokers, dealers, domestic and
foreign banks or other financial institutions. In a reverse repurchase
agreement, the Portfolio sells a security and agrees to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. It may also be viewed as the borrowing of money by
the Portfolio. The Portfolio's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The Portfolio
may enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is greater than the interest expense of the
transaction and the proceeds are invested for a period no longer than the term
of the agreement. The Portfolio will maintain with the Custodian a separate
account with a segregated portfolio of cash or other liquid securities in an
amount at least equal to its purchase obligations under these agreements.
Reverse repurchase agreements are considered to be borrowings and are subject to
the percentage limitations on borrowings set forth in "Borrowing and Other Forms
of Leverage."

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<PAGE>
RUSSIAN SECURITIES TRANSACTIONS. The Emerging Markets Portfolio may invest
in equity securities of Russian issuers. The registration, clearing and
settlement of securities transactions in Russia are subject to significant risks
not normally associated with securities transactions in the United States and
other more developed markets. Ownership of shares in Russian companies is
evidenced by entries in a company's share register (except where shares are held
through depositories that meet the requirements of the 1940 Act) and the
issuance of extracts from the register or, in certain limited cases, by formal
share certificates. However, Russian share registers are frequently unreliable
and the Portfolio could possibly lose its registration through oversight,
negligence or fraud. Moreover, Russia lacks a centralized registry to record
securities transactions and registrars located throughout Russia or the
companies themselves maintain share registers. Registrars are under no
obligation to provide extracts to potential purchasers in a timely manner or at
all and are not necessarily subject to effective state supervision. In addition,
while registrars are liable under law for losses resulting from their errors, it
may be difficult for the Portfolio to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration. Although Russian companies with more than 1,000 shareholders are
required by law to employ an independent company to maintain share registers, in
practice, such companies have not always followed this law. Because of this lack
of independence of registrars, management of a Russian company may be able to
exert considerable influence over who can purchase and sell the company's shares
by illegally instructing the registrar to refuse to record transactions on the
share register. Furthermore, these practices may prevent the Portfolio from
investing in the securities of certain Russian companies deemed suitable by the
Adviser and could cause a delay in the sale of Russian securities by the
Portfolio if the company deems a purchaser unsuitable, which may expose the
Portfolio to potential loss on its investment.

In light of the risks described above, the Board of Directors of the
Portfolio has approved certain procedures concerning the Portfolio's investments
in Russian securities. Among these procedures is a requirement that the
Portfolio will not invest in the securities of Russian issuers unless that
issuer's registrar has entered into a contract with the Portfolio's
sub-custodian containing certain protective conditions including, among other
things, the sub-custodian's right to conduct regular share confirmations on
behalf of the Portfolio. This requirement will likely have the effect of
precluding investments in certain Russian companies that the Portfolio would
otherwise make.

SHORT SALES. The Emerging Markets Debt and Latin American Portfolios may
from time to time sell securities short without limitation, but consistent with
applicable legal requirements. A short sale is a transaction in which the
Portfolio sells securities it owns or has the right to acquire at no added cost
(i.e., "against the box") or does not own (but has borrowed) in anticipation of
a decline in the market price of the securities. To deliver the securities to
the buyer, the Portfolio arranges through a broker to borrow the securities and,
in so doing, the Portfolio becomes obligated to replace the securities borrowed
at their market price at the time of replacement. When the Portfolio makes a
short sale, the proceeds it receives from the sale will be held on behalf of a
broker until the Portfolio replaces the borrowed securities. The Portfolio may
have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the securities until they are replaced.

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 or other liquid securities. In addition, the Portfolio will
place in a segregated account with its Custodian an amount of cash or other
liquid securities 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 or
other liquid securities deposited as collateral with the broker in connection
with the short sale. Short

24
<PAGE>
sales by the Portfolio involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.

STRUCTURED SECURITIES. The Emerging Markets Debt Portfolio may invest a
portion of its assets in entities organized and operated solely for the purpose
of restructuring the investment characteristics of sovereign debt obligations.
This type of restructuring involves the deposit with, or purchase by, an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured Securities to
create securities with different investment characteristics, such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because the type of
Structured Securities in which the Portfolio anticipates it will invest
typically involve no credit enhancement, their credit risk generally will be
equivalent to that of the underlying instruments. The Portfolio is permitted to
invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated Structured
Securities typically have higher yields and present greater risks than
unsubordinated Structured Securities. Certain issuers of Structured Securities
may be deemed to be "investment companies" as defined in the 1940 Act and, as a
result, the Portfolio's investment in Structured Securities may be limited by
the 1940 Act. Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities.

25
<PAGE>
rates has changed. It is a current policy of each Portfolio not to enter into
when-issued commitments or delayed delivery securities exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less
liabilities, other than the obligations created by these commitments.

DERIVATIVE INSTRUMENTS

The Portfolios may use derivative instruments under a number of different
circumstances to further their investment objectives. The Portfolios may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Portfolio may
purchase derivatives to quickly gain exposure to a market in response to changes
in the Portfolio's investment strategy, upon the inflow of investable cash or
when the derivative provides greater liquidity than the underlying securities
market. A Portfolio may also use derivatives when it is restricted from directly
owning the underlying securities due to foreign investment restrictions or other
reasons or when doing so provides a price advantage over purchasing the
underlying securities directly, either because of a pricing differential between
the derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Portfolio for hedging purposes and in other circumstances when a Portfolio's
portfolio managers believe it advantageous to do so consistent with the
Portfolio's investment objective. The Portfolios will not, however, use
derivatives in a manner that creates leverage, except to the extent that the use
of leverage is expressly permitted by a particular Portfolio's investment
policies, and then only in a manner consistent with such policies.

Some of the derivative instruments in which the Portfolios may invest and
the risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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<PAGE>
of a specific security, instrument or basket thereof, at a specific future date
and at a specified price. An option on a futures contract is a legal contract
that gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.

The Portfolios may engage in transactions involving foreign currency
exchange futures contracts. Such contracts involve an obligation to purchase or
sell a specific currency at a specified future date and at a specified price.
The Portfolios may engage in such transactions to hedge their respective
holdings and commitments against changes in the level of future currency rates
or to adjust their exposure to a particular currency.

27
<PAGE>
OPTIONS TRANSACTIONS

Each Portfolio also may write (i.e., sell) put and call options on
investments held in its portfolio, as well as with respect to foreign currency.
A Portfolio that has written an option receives a premium, which increases the
Portfolio's return on the underlying security or instrument in the event the
option expires unexercised or is closed out at a profit. However, by writing a
call option, a Portfolio will limit its opportunity to profit from an increase
in the market value of the underlying security or instrument above the exercise
price of the option for as long as the Portfolio's obligation as writer of the
option continues. The Portfolios may only write options that are "covered." A
covered call option means that so long as the Portfolio is obligated as the
writer of the option, it will earmark or segregate sufficient liquid assets to
cover its obligations under the option or own (i) the underlying security or
instrument subject to the option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the option, or (iii) a call option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short option position.

STRUCTURED NOTES

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<PAGE>
SWAPS -- SWAP CONTRACTS

A Portfolio will usually enter into swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued, but unpaid, net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities. A Portfolio will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Fund's Board of Directors.

29
<PAGE>
INVESTMENT LIMITATIONS

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

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

MANAGEMENT OF THE FUND

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. is the Adviser and
Administrator of the Fund and each Portfolio. The Adviser provides investment
advice and portfolio management services, pursuant to an Investment Advisory
Agreement and, subject to the supervision of the Fund's Board of Directors,
makes each of the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages each of the
Portfolio's investments. The Adviser is entitled to receive from each Portfolio
an annual management fee, payable quarterly, equal to the percentage of average
daily net assets set forth in the table below. However, the Adviser has agreed
to a reduction in the fees payable to it and to reimburse the Portfolio, if
necessary, if such fees would cause the total annual operating expenses of
either Portfolio to exceed the respective percentages of average daily net
assets set forth in the table below.

<TABLE>
<CAPTION>
MAXIMUM TOTAL ANNUAL
OPERATING
EXPENSES AFTER FEE
WAIVERS
MANAGEMENT -------------------------
PORTFOLIO FEE CLASS A CLASS B
- ------------------------------ ----------- --------- ---------
<S> <C> <C> <C>
Emerging Markets Portfolio 1.25% 1.75% 2.00%
Emerging Markets Debt
Portfolio 1.00% 1.75% 2.00%
Latin American Portfolio 1.10% 1.70% 1.95%
</TABLE>

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

EMERGING MARKETS PORTFOLIO -- MADHAV DHAR AND ROBERT L. MEYER. Madhav Dhar
joined the Adviser in 1984. He is a Managing Director of the Adviser and of
Morgan Stanley. He is a member of the Adviser's

30
<PAGE>
executive committee, head of the Adviser's emerging markets group and chief
investment officer of the Adviser's global emerging market equity portfolios. He
holds a B.S. (honors) from St. Stephen's College, Delhi University India and an
M.B.A. from Carnegie-Mellon University. Mr. Dhar has been primarily responsible
for managing the Portfolio's assets since it commenced operations. Robert L.
Meyer joined the Adviser in 1989. He is a Managing Director of the Adviser and
of Morgan Stanley and co-manager of the Adviser's emerging markets group and
head of the Adviser's Latin American team. He was born in Argentina and
graduated from Yale University with a B.A. in Economics and Political Science.
He received a J.D. from Harvard Law School. In addition, he is also a Chartered
Financial Analyst. Mr. Meyer has worked with Mr. Dhar in managing the
Portfolio's assets since its inception.

EMERGING MARKETS DEBT PORTFOLIO -- PAUL GHAFFARI. Paul Ghaffari is a
Managing Director of Morgan Stanley. He joined the Adviser in June 1993 as a
Vice President and Portfolio Manager for the Morgan Stanley Emerging Markets
Debt Fund (a closed-end investment company). Prior to joining the Adviser, Mr.
Ghaffari was a Vice President in the Fixed Income Division of the Emerging
Markets Sales and Trading Department at Morgan Stanley. From 1983 to 1992, he
worked in LDC Sales and Trading Department and the Mortgage-Backed Securities
Department at J.P. Morgan & Co. Inc. and worked in the Treasury Department at
the Morgan Guaranty Trust Co. He holds a B.A. in International Relations from
Pamona College and an M.S. in Foreign Service from Georgetown University. Mr.
Ghaffari has had primary responsibility for managing the Portfolio's assets
since inception.

LATIN AMERICAN PORTFOLIO -- ROBERT L. MEYER AND ANDY SKOV. Robert Meyer and
Andy Skov share primary responsibility for managing the Portfolio's assets.
Information about Mr. Meyer is included under the Emerging Markets Portfolio
above. Andy Skov joined the Adviser in 1994 as a Portfolio Manager. Currently,
he is a Vice President of the Adviser. Prior to joining the Adviser, he worked
in the Latin America group at Bankers Trust in corporate finance, research and
sales; two of those years he spent in Argentina. He graduated from the
University of California at Berkeley with a B.A. (Phi Beta Kappa) in Political
Science and Economics Development.

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

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

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

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

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

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

32
<PAGE>
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Emerging Markets Portfolio pursuant to the advice of
such financial institutions. These payments will be made directly by the Adviser
or its affiliates from their assets, and will not be made from the assets of the
Fund or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.

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

PURCHASE OF SHARES

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

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

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

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

33
<PAGE>
The minimum investment levels may be waived at the discretion of the Adviser
for (i) certain employees and customers of Morgan Stanley or its affiliates and
certain trust departments, brokers, dealers, agents, financial planers,
financial services firms or investment advisers that have entered into an
agreement with Morgan Stanley or its affiliates; and (ii) retirement and
deferred compensation plans and trusts, used to fund such plans, including, but
not limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"rabbi trusts". The Fund reserves the right to modify or terminate the
conversion features of the shares as stated above at any time upon 60-days
notice to shareholders.

MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

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

Grandfathered Class A Accounts, Grandfathered Class B Accounts and Managed
Accounts are not subject to involuntary redemption. The Fund reserves the right
to modify or terminate the involuntary redemption features of the shares as
stated above at any time upon 60-days notice to shareholders.

CONVERSION FROM CLASS B TO CLASS A SHARES

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

INITIAL PURCHASES DIRECTLY FROM THE FUND

The Fund's determination of an investor's eligibility to purchase shares of
a given class will take precedence over the investor's selection of a class.

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

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

34
<PAGE>
Payment will be accepted only in U.S. dollars, unless prior approval for
payment by other currencies is given by the Fund. The classes of shares of the
Portfolio(s) to be purchased should be designated on the Account Registration
Form. For purchases by check, the Fund is ordinarily credited with Federal
Funds within one business day. Thus, your purchase of shares by check is
ordinarily credited to your account at the net asset value per share of each
of the Portfolios determined on the next business day after receipt.

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

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

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

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

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

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

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

35
<PAGE>
ADDITIONAL INVESTMENTS

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

OTHER PURCHASE INFORMATION

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

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

EXCESSIVE TRADING

Frequent trades involving either substantial portfolio assets or a
substantial portion of your account or accounts controlled by you can disrupt
management of a portfolio and raise its expenses. Consequently, in the interest
of all the stockholders of each Portfolio and the Portfolios' performance, the
Fund may in its discretion bar a stockholder that engages in excessive trading
of shares of any class of a portfolio from further purchases of shares of the
Fund for an indefinite period. The Fund considers excessive trading to be more
than one purchase and sale involving shares of the same class of a portfolio of
the Fund within any 120-day period. As an example, exchanging shares of
portfolios of the Fund as follows amounts to excessive trading: exchanging
shares of Portfolio A for shares of Portfolio B, then exchanging shares of
Portfolio B for shares of Portfolio C and again exchanging shares of Portfolio C
for shares of Portfolio B within a 120-day period. Two types of transactions are

36
<PAGE>
exempt from these excessive trading restrictions: (1) trades exclusively between
money market portfolios; and (2) trades done in connection with an asset
allocation service, such as TFM Accounts or accounts managed or advised by the
Adviser and/or any of its affiliates.

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

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

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<PAGE>
REDEMPTION OF SHARES

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

BY MAIL

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

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

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

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

BY TELEPHONE

Provided you have previously elected the Telephone Redemption Option on the
Account Registration Form, you can request a redemption of your shares by
calling the Fund and requesting the redemption proceeds be mailed to you or
wired to your bank. Please contact one of the Fund's representatives for further
details. In times of drastic market conditions, the telephone redemption option
may be difficult to implement. If you experience difficulty in making a
telephone redemption, your request may be made by mail or express mail and will
be implemented at the net asset value next determined after it is received.
Redemption requests sent to the Fund through express mail must be mailed to the
address of the Dividend Disbursing and Transfer Agent listed under "General
Information." The Fund and the Fund's transfer agent (the "Transfer Agent") will
employ reasonable procedures to confirm that the instructions communicated by
telephone are genuine. These procedures include requiring the investor to
provide certain personal identification information at the time an account is
opened and prior to effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors may
be required to provide additional telecopied written instructions

38
<PAGE>
regarding transaction requests. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be genuine.

FURTHER REDEMPTION INFORMATION

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

SHAREHOLDER SERVICES

EXCHANGE FEATURES

You may exchange shares that you own in either portfolio for shares of any
other available portfolio(s) of the Fund (other than the International Equity
Portfolio, which is closed to new investors). In exchanging for shares of a
portfolio with more than one class, the class of shares you receive in the
exchange will be determined in the same manner as any other purchase of shares
and will not be based on the class of shares surrendered for the exchange.
Consequently, the same minimum initial investment and minimum account size for
determining the class of shares received in the exchange will apply. See
"Purchase of Shares" above. Shares of the portfolios may be exchanged by mail or
telephone. The privilege to exchange shares by telephone is automatic and made
available without shareholder election. Before you make an exchange, you should
read the prospectus of the portfolio(s) in which you seek to invest. Because an
exchange transaction is treated as a redemption followed by a purchase, an
exchange would be considered a taxable event for shareholders subject to tax.
The exchange privilege may be modified or terminated by the Fund at any time
upon 60-days notice to shareholders.

39
<PAGE>
BY MAIL

In order to exchange shares by mail, you should include in the exchange
request the name, class of shares and account number of your current Portfolio,
the names of the portfolio(s) and class(es) of shares into which you intend to
exchange shares, and the signatures of all registered account holders. Send the
exchange request to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798.

BY TELEPHONE

When exchanging shares by telephone, have ready the name, class of shares
and account number of your current portfolio, the name(s) of the portfolio(s)
and class(es) of shares into which you intend to exchange shares, your Social
Security number or Tax I.D. number, and your account address. Requests for
telephone exchanges received prior to 4:00 p.m. (Eastern Time) are processed at
the close of business that same day based on the net asset value of the class of
each of the portfolios involved in the exchange of shares at the close of
business. Requests received after 4:00 p.m. (Eastern Time) are processed the
next business day based on the net asset value determined at the close of
business on such day. For additional information regarding responsibility for
the authenticity of telephoned instructions, see "Redemption of Shares -- By
Telephone" above.

TRANSFER OF REGISTRATION

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

VALUATION OF SHARES

The net asset value per share of a class of shares of the Portfolios is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to such class, less any liabilities attributable to
such class, by the total number of outstanding shares of such class of the
Portfolio. Net asset value is calculated separately for each class of the
Portfolio. Net asset value per share is determined as of the regular close of
the NYSE on each day that the NYSE is open for business. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a U.S. securities exchange for which market
quotations are available are valued at the last quoted sale price on the day the
valuation is made. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at a
price within a range not exceeding the current asked price nor less than the
current bid price. The current bid and asked prices are determined based on the
average of the bid and asked prices quoted on such valuation date by reputable
brokers.

40
<PAGE>
specific securities. Securities not priced in this manner are valued at the most
recently quoted bid price, or when securities exchange valuations are used, at
the latest quoted sale price on the day of valuation. If there is no such
reported sale, the latest quoted bid price will be used. Securities purchased
with remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. In the event that amortized cost does not approximate
market value, market prices as determined above will be used.

The value of other assets and securities for which quotations are not
readily available (including restricted and unlisted foreign securities) and
those securities for which it is inappropriate to determined prices in
accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be translated into U.S. dollars at the mean
of the bid and asked price of such currencies against the U.S. dollar last
quoted by any major bank.

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

PERFORMANCE INFORMATION

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

"Total return" shows what an investment in a class of the Portfolio would
have earned over a specified period of time (such as one, five or ten years),
assuming that all distributions and dividends by the Portfolio were reinvested
in the same class on the reinvestment dates during the period. Total return does
not take into account any federal or state income taxes that may be payable on
dividends and distributions or upon redemption. The Fund may also include
comparative performance information in advertising or marketing the Portfolios'
shares, including data from Lipper Analytical Services, Inc., other industry
publications, business periodicals, rating services and market indices.

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

41
<PAGE>
Undistributed net investment income is included in each Portfolio's net
assets for the purpose of calculating net asset value per share. Therefore, on
the "ex-dividend" date, the net asset value per share excludes the dividend
(I.E., is reduced by the per share amount of the dividend). Dividends paid
shortly after the purchase of shares by an investor, although in effect a return
of capital, are taxable to shareholders subject to income tax.

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

TAXES

The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action.

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

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

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

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

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

42
<PAGE>
The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any dividends, capital gains distributions and redemption proceeds paid to any
individual or certain other non-corporate shareholder (1) who has failed to
provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Application Form, (2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that such shareholder
is not subject to backup withholding. This backup withholding is not an
additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.

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

PORTFOLIO TRANSACTIONS

43
<PAGE>
remuneration paid to Morgan Stanley or other affiliates must be fair and
reasonable in comparison to those of other broker-dealers for comparable
transactions involving similar securities being purchased or sold during a
comparable time period.

PORTFOLIO TURNOVER

The Portfolios generally do not invest for short-term trading purposes,
however, when circumstances warrant, each Portfolio may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or lower portfolio turnover
rate than expected and the Portfolios will not consider portfolio turnover rate
a limiting factor in making investment decisions consistent with their
respective objectives and policies. For the fiscal year ended December 31, 1996,
the Emerging Markets Debt and Latin American Portfolios had portfolio turnover
rates of 560% and 192%, respectively. As portfolio turnover increases, the
Portfolios may expect to pay correspondingly increased brokerage and trading
costs. In addition to transaction costs, higher portfolio turnover may result in
the realization of capital gains. As discussed under "Taxes," to the extent net
short-term capital gains are realized, any distributions resulting from such
gains are considered ordinary income for federal income tax purposes.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Fund was organized as a Maryland corporation on June 16, 1988. The
Articles of Incorporation, as amended and restated, permit the Fund to issue up
to 38 billion shares of common stock, with $.001 par value per share. Pursuant
to the Fund's Articles of Incorporation, the Board of Directors may increase the
number of shares the Fund is authorized to issue without the approval of the
shareholders of the Fund. The Board of Directors has the power to designate one
or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes. The shares of common stock of each
portfolio are currently classified into two classes, the Class A shares and the
Class B shares, except for the International Small Cap, Money Market and
Municipal Money Market Portfolios which offer only Class A shares.

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

REPORTS TO SHAREHOLDERS

In addition, the Adviser, or its agent, as Transfer Agent, will send to each
shareholder having an account directly with the Fund a monthly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid.

44
<PAGE>
CUSTODIAN

DIVIDEND DISBURSING AND TRANSFER AGENT

Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as Dividend Disbursing and Transfer Agent for the
Fund.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as independent accountants for the Fund and
audits its annual financial statements.

LITIGATION

The Fund is not involved in any litigation.

45
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
EMERGING MARKETS, EMERGING MARKETS DEBT AND LATIN AMERICAN PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

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

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

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

/ / TRUST ________________________ / / OTHER (Specify) ________________________

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

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

<PAGE>

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

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

Payment by:

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

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

<TABLE>
<C> <S> <C> <C>
G) TELEPHONE / / I/we hereby authorize the Fund and
REDEMPTION its agents to honor any telephone Name of Commercial Bank (Not Savings
AND EXCHANGE requests to wire redemption proceeds to Bank)
OPTION the commercial bank indicated at right Bank Account No.
Please select at time of and/or mail redemption proceeds to the
initial application if you name and address in which my/our fund
wish to redeem or exchange account is registered if such requests Bank
shares by telephone. A are believed to be authentic. ABA
SIGNATURE GUARANTEE IS The Fund and the Fund's Transfer Agent No.
REQUIRED IF BANK ACCOUNT IS will employ reasonable procedures to
NOT REGISTERED IDENTICALLY TO confirm that instructions communicated Name(s) in which your Bank Account is
YOUR FUND ACCOUNT. by telephone are genuine. These Established
TELEPHONE REQUESTS FOR procedures include requiring the
REDEMPTIONS OR EXCHANGE WILL investor to provide certain personal Bank's Street
NOT BE HONORED UNLESS THE BOX identification information at the time Address
IS CHECKED. an account is opened and prior to
effecting each transaction requested by City State Zip
telephone. In addition, all telephone
transaction requests will be recorded
and investors may be required to provide
additional telecopied written
instructions of transaction requests.
Neither the Fund nor the Transfer Agent
will be responsible for any loss,
liability, cost or expense for following
instructions received by telephone that
it reasonably believes to be genuine.
</TABLE>

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

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

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

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

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
Fund Expenses..................................... 2
Financial Highlights.............................. 4
Prospectus Summary................................ 8
Investment Objectives and Policies................ 12
Additional Investment Information................. 18
Investment Limitations............................ 30
Management of the Fund............................ 30
Purchase of Shares................................ 33
Redemption of Shares.............................. 38
Shareholder Services.............................. 39
Valuation of Shares............................... 40
Performance Information........................... 41
Dividends and Capital Gains Distributions......... 41
Taxes............................................. 42
Portfolio Transactions............................ 43
General Information............................... 44
Account Registration Form
</TABLE>

EMERGING MARKETS PORTFOLIO
EMERGING MARKETS DEBT PORTFOLIO
LATIN AMERICAN PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)

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

Investment Adviser
Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

MORGAN STANLEY
INSTITUTIONAL FUND, INC.
P.O. BOX 2798, BOSTON, MA 02208-2798
<PAGE>
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
- --------------------------------------------------------------------------------

GLOBAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL SMALL CAP PORTFOLIO
EUROPEAN EQUITY PORTFOLIO

PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC.

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

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

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

This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. The Fund offers additional portfolios which are
described in other prospectuses and under "Prospectus Summary" below. The Fund
currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL EQUITY
- -- Active Country Allocation, Asian Equity, Asian Real Estate, Emerging Markets,
European Equity, European Real Estate, Global Equity, Gold, International
Equity, International Magnum, International Small Cap, Japanese Equity and Latin
American Portfolios; (ii) U.S. EQUITY -- Aggressive Equity, Emerging Growth,
Equity Growth, Small Cap Value Equity, Technology, U.S. Equity Plus, U.S. Real
Estate and Value Equity Portfolios; (iii) EQUITY AND FIXED INCOME -- Balanced
Portfolio; (iv) FIXED INCOME -- Emerging Markets Debt, Fixed Income, Global
Fixed Income, High Yield and Municipal Bond Portfolios; and (v) MONEY MARKET --
Money Market and Municipal Money Market Portfolios. Additional information about
the Fund is contained in a "Statement of Additional Information," dated May 1,
1997, as supplemented through September 26, 1997, which is incorporated herein
by reference. The Statement of Additional Information and the prospectuses
pertaining to the other portfolios of the Fund are available upon request and
without charge by writing or calling the Fund at the address and telephone
number set forth above.

THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
AS SUPPLEMENTED THROUGH SEPTEMBER 26, 1997.
<PAGE>
FUND EXPENSES

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

<TABLE>
<CAPTION>
GLOBAL EQUITY INTERNATIONAL EQUITY INTERNATIONAL SMALL EUROPEAN EQUITY
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO CAP PORTFOLIO PORTFOLIO
- ---------------------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases
Class A......................... None None None* None
Class B......................... None None N/A None
Maximum Sales Load Imposed on
Reinvested Dividends
Class A......................... None None None None
Class B......................... None None N/A None
Deferred Sales Load
Class A......................... None None None None
Class B......................... None None N/A None
Redemption Fees
Class A......................... None None 1.00%* None
Class B......................... None None N/A None
Exchange Fees
Class A......................... None None None None
Class B......................... None None N/A None
</TABLE>

- --------------------------
* Shareholders of the International Small Cap Portfolio may be charged a 1.00%
transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. The transaction fee is intended to allocate transaction costs
associated with purchases and redemptions of shares of the Portfolio to
investors actually making such purchases and redemptions rather than to the
Portfolio's other shareholders. The 1.00% fee represents the Adviser's
estimate of such transaction costs, which include the costs of acquiring and
disposing of Portfolio securities. The transaction fee is not a sales charge
or load, and is retained by the Portfolio. The fee does not apply to
portfolios of the Fund other than the International Small Cap Portfolio and is
not charged in connection with the reinvestment of dividends or capital gain
distributions. The fee will not be charged with respect to purchases and
redemptions that do not result in actual transaction costs to the Portfolio.
Examples of such transactions include offsetting purchases and redemptions by
different shareholders occurring at the same time and in-kind purchases and
redemptions.

2
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY EQUITY INTERNATIONAL SMALL EUROPEAN EQUITY
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO CAP PORTFOLIO PORTFOLIO
- ------------------------------------------------ ------------------- ------------------- ------------------- ------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C> <C> <C>
Management Fee (Net of Fee Waivers)**
Class A....................................... 0.65% 0.78% 0.87% 0.64%
Class B....................................... 0.65% 0.78% N/A 0.64%
12b-1 Fees
Class A....................................... None None None None
Class B....................................... 0.25% 0.25% N/A 0.25%
Other Expenses
Class A....................................... 0.35% 0.22% 0.28% 0.36%
Class B....................................... 0.35% 0.22% N/A 0.36%
------- ------- ------- ----------
Total Operating Expenses (Net of Fee Waivers)
Class A....................................... 1.00% 1.00% 1.15% 1.00%
Class B....................................... 1.25% 1.25% N/A 1.25%
------- ------- ------- ----------
------- ------- ------- ----------
</TABLE>

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

** The Adviser has agreed to waive its management fees and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolios to exceed a specified percentage of their
respective average daily net assets. As a result of these reductions, the
Management Fees stated above are lower than the contractual fees stated
under "Management of the Fund." The Adviser reserves the right to terminate
any of its fee waivers and/or expense reimbursements at any time in its sole
discretion. For further information on Fund expenses, see "Management of the
Fund." Set forth below, for each Portfolio as applicable, are the management
fees and total operating expenses absent such fee waivers and/or expense
reimbursements as a percent of average daily net assets of the Class A
shares of the Portfolios and Class B Shares of the Multiclass Portfolios,
respectively.

<TABLE>
<CAPTION>
TOTAL
OPERATING EXPENSES
ABSENT
MANAGEMENT FEE WAIVERS
FEES ABSENT FEE --------------------------
PORTFOLIO WAIVERS CLASS A CLASS B
- ---------------------------------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Global Equity................................................... 0.80% 1.15% 1.39%
International Equity............................................ 0.80% 1.02% 1.27%
International Small Cap......................................... 0.95% 1.23% N/A
European Equity................................................. 0.80% 1.16% 1.40%
</TABLE>

The purpose of the table is to assist the investor in understanding the
various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996. Due to the continuous nature of Rule 12b-1 fees,
long-term Class B shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by the National Association of
Securities Dealers, Inc. ("NASD") Conduct Rules.

3
<PAGE>
The following example illustrates the expenses that you would pay on a
$1,000 investment assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the only fee charged
by the Fund upon purchase or redemption of Fund shares is the 1% transaction fee
that may be assessed on purchases and redemptions of shares of the International
Small Cap Portfolio, which charges are reflected in this example. The following
example is based on total operating expenses of the Portfolios after fee
waivers.

<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Global Equity Portfolio
Class A.......................... $ 10 $ 32 $ 55 $ 122
Class B.......................... 13 40 69 151
International Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
International Small Cap Portfolio
Class A.......................... 32 57 85 163
European Equity Portfolio
Class A.......................... 10 32 55 122
Class B.......................... 13 40 69 151
</TABLE>

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

4
<PAGE>
FINANCIAL HIGHLIGHTS

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

5
<PAGE>
GLOBAL EQUITY PORTFOLIO

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

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

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

* Commencement of operations.

** Annualized

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

6
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO

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

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

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

** Annualized

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

7
<PAGE>
INTERNATIONAL SMALL CAP PORTFOLIO

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

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

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

* Commencement of operations.

** Annualized

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

8
<PAGE>
EUROPEAN EQUITY PORTFOLIO

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

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

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

* Commencement of operations.

** Annualized

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

9
<PAGE>
PROSPECTUS SUMMARY

THE FUND

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

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

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

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

GLOBAL AND INTERNATIONAL EQUITY:

-The ASIAN REAL ESTATE PORTFOLIO seeks to provide long-term capital
appreciation by investing primarily in equity securities of companies in
the Asian real estate industry.

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

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

-The EUROPEAN REAL ESTATE PORTFOLIO seeks to provide current income and
long-term capital appreciation by investing primarily in equity securities
of companies in the European real estate industry.

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

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

10
<PAGE>

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

U.S. EQUITY:

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

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

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

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

-The SMALL CAP VALUE EQUITY PORTFOLIO seeks high long-term total return by
investing in undervalued equity securities of small- to medium-sized
companies.

-The U.S. EQUITY PLUS PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of issuers included in the S&P 500
Index ("S&P 500").

-The VALUE EQUITY PORTFOLIO seeks high total return by investing in equity
securities which the Adviser believes to be undervalued relative to the
stock market in general at the time of purchase.

EQUITY AND FIXED INCOME:

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

FIXED INCOME:

-The EMERGING MARKETS DEBT PORTFOLIO seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

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

11
<PAGE>
-The HIGH YIELD PORTFOLIO seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services.

MONEY MARKET:

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

INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc., a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., acts as investment adviser to the Fund and
each of its portfolios. As of August 31, 1997, Morgan Stanley Asset Management
Inc. and its affiliated asset management companies (exclusive of Miller Anderson
& Sherrerd, LLP, Van Kampen American Capital, Inc. and Dean Witter InterCapital
Inc.) managed assets of approximately $80.9 billion. See "Management of the
Fund--Investment Adviser" and "Management of the Fund--Administrator."

HOW TO INVEST

Class A shares of each Portfolio are offered directly to investors at net
asset value with no sales commission or 12b-1 charges. Class B shares of each
Multiclass Portfolio are offered at net asset value with no sales commission,
but with a 12b-1 fee, which is accrued daily and paid quarterly, equal to 0.25%
of the Class B shares' average daily net assets on an annualized basis.
Shareholders of the International Small Cap Portfolio may be charged a 1.00%
transaction fee, which is payable directly to the International Small Cap
Portfolio, in connection with each purchase and redemption of shares of the
Portfolio. Share purchases may be made by sending investments directly to the
Fund or through the Distributor. The minimum initial investment, generally, is
$500,000 for Class A shares of each Portfolio and $100,000 for Class B shares of
each Multiclass Portfolio. The minimum initial investment amount is reduced for
certain categories of investors. For additional information on how to purchase
shares and minimum initial investments, see "Purchase of Shares."

12
<PAGE>
HOW TO REDEEM

Shares of each Portfolio may be redeemed at any time, without cost, at the
net asset value per share of shares of the applicable class next determined
after receipt of the redemption request, (except that shareholders of the
International Small Cap Portfolio may be charged a 1.00% transaction fee, which
is payable directly to the International Small Cap Portfolio, in connection with
each purchase and redemption of shares of the Portfolio). The redemption price
may be more or less than the purchase price. Certain redemptions that cause the
value of an account to remain for a continuous 60-day period below the minimum
investment amount for Class A shares or for Class B shares may result in
involuntary redemption or automatic conversion. For additional information on
how to redeem shares and involuntary redemption or conversion, see "Purchase of
Shares -- Minimum Account Sizes and Involuntary Redemption of Shares" and
"Redemption of Shares."

RISK FACTORS

The investment policies of each of the Portfolios entail certain risks and
considerations of which an investor should be aware. Each Portfolio will invest
in securities of foreign issuers, which are subject to certain risks not
typically associated with domestic securities. Each Portfolio may invest in
securities of issuers located in emerging markets. These securities may pose
greater liquidity risks and other risks not typically associated with investing
in more established markets. In addition, each Portfolio may invest in
repurchase agreements, lend its portfolio securities, purchase securities on a
when-issued or delayed delivery basis and invest in foreign currency forward
contracts. The International Small Cap Portfolio may invest in securities that
are neither listed on a stock exchange nor traded over-the-counter, including
private placement securities. The Global Equity Portfolio may also invest
indirectly in securities through sponsored or unsponsored Depositary Receipts.
Each of these investment strategies involves specific risks which are described
under "Investment Objectives and Policies" and "Additional Investment
Information" herein and under "Investment Objectives and Policies" in the
Statement of Additional Information.

13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

THE GLOBAL EQUITY PORTFOLIO

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

THE INTERNATIONAL EQUITY PORTFOLIO

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

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

14
<PAGE>
issuers domiciled in emerging markets. The Portfolio will not, under normal
circumstances, invest in equity securities of U.S. issuers. Although the
Portfolio intends to invest primarily in equity securities listed on stock
exchanges, it will also invest in equity securities traded in over-the-counter
markets. Securities of companies in emerging countries may pose liquidity risks.
For a description of special considerations and certain risks associated with
investments in foreign issuers, see "Additional Investment Information."

THE INTERNATIONAL SMALL CAP PORTFOLIO

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

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

THE EUROPEAN EQUITY PORTFOLIO

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

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

15
<PAGE>
equity securities listed on stock exchanges, it will also invest in equity
securities traded in over-the-counter markets. For a description of special
considerations and certain risks associated with investments in foreign issuers,
see "Additional Investment Information."

ADDITIONAL INVESTMENT INFORMATION

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

FOREIGN CURRENCY FORWARD CONTRACTS. Each Portfolio may enter into foreign
currency forward contracts ("forward contracts") that provide for the purchase
or sale of an amount of a specified currency at a future date. The Portfolios
may use such contracts to protect against a decline in a foreign currency
against the U.S. dollar between the trade date and settlement date when the
Portfolio purchases or sells securities, lock in the U.S. dollar value of
dividends and interest on securities held by the Portfolio, and generally to
protect the U.S. dollar value of securities held by the Portfolio against
exchange rate fluctuation. While forward contracts may limit losses as a result
of exchange rate fluctuations, they will also limit any gains that might
otherwise have been realized. The Portfolio's Custodian may be required to place
cash or liquid securities in a segregated account in an amount equal to the
value of the Portfolio's total assets committed to the consummation of forward
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will be at least equal to the amount of
the Portfolio's commitments with respect to such contracts.

16
<PAGE>
national securities exchanges, and securities of some foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Portfolios by domestic companies, and it is
not expected that a Portfolio or its shareholders would be able to claim a
credit for U.S. tax purposes with respect to any such foreign taxes. Additional
risks include future political and economic developments, the possibility that a
foreign jurisdiction might impose or change withholding taxes on income payable
with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls. Many of
the emerging countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.

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

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The International Small Cap Portfolio may invest in securities that
are neither listed on a stock exchange nor traded over-the-counter, including
privately placed securities. Such unlisted equity securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio or less than what may be considered the fair value of such securities.
Further, companies whose securities are not publicly traded may not be subject
to the disclosure and other investor

17
<PAGE>
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Portfolio
may be required to bear the expenses of registration.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines established by
the Fund's Board of Directors. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. Repurchase agreements may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities with a market value at least equal to the purchase
price (including accrued interest) as collateral, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
collateral may be delayed or limited. The Portfolio may not enter into
repurchase agreements with more than seven days to maturity if, as a result,
more than 15% of the market value of the Portfolio's net assets are invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid.

18
<PAGE>
maintain with the Custodian a separate account with a segregated portfolio of
cash or liquid securities in an amount at least equal to these commitments. The
payment obligation and the interest rates that will be received are each fixed
at the time a Portfolio enters into the commitment and no interest accrues to
the Portfolio until settlement. Thus, it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if,
among other factors, the general level of interest rates has changed. It is a
current policy of each Portfolio not to enter into when-issued commitments or
delayed delivery securities exceeding in the aggregate 15% of the market value
of the Portfolio's total assets less liabilities, other than the obligations
created by these commitments.

INVESTMENT LIMITATIONS

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

MANAGEMENT OF THE FUND

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

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

19
<PAGE>
customers in the United States and abroad. The Adviser and Morgan Stanley are
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co. At August 31, 1997,
the Adviser (exclusive of Miller Anderson & Sherrerd, LLP, Van Kampen American
Capital, Inc. and Dean Witter InterCapital Inc.) managed assets of approximately
$80.9 billion. See "Management of the Fund" in the Statement of Additional
Information.

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

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

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

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

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

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

20
<PAGE>
Under an agreement between the Adviser and The Chase Manhattan Bank
("Chase"), Chase provides certain administrative services to the Fund through
its corporate affiliate, Chase Global Funds Services Company ("CGFSC"). The
Adviser supervises and monitors such administrative services provided by CGFSC.
Their services are also subject to the supervision of the Board of Directors of
the Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913.

PURCHASE OF SHARES

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

21
<PAGE>
charge or load, and is retained by the Portfolio. The fee does not apply to
Portfolios of the Fund other than the International Small Cap Portfolio and is
not charged in connection with the reinvestment of dividends or capital gain
distributions. The fee will not be charged with respect to purchases and
redemptions that do not result in actual transaction costs to the Portfolio.

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

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

The minimum investment levels may be waived at the discretion of the Adviser
for (i) certain employees and customers of Morgan Stanley or its affiliates and
certain trust departments, brokers, dealers, agents, financial planners,
financial services firms, or investment advisers that have entered into an
agreement with Morgan Stanley or its affiliates; and (ii) retirement and
deferred compensation plans and trusts used to fund such plans, including, but
not limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"rabbi trusts." The Fund reserves the right to modify or terminate the
conversion features of the shares as stated above at any time upon 60-days
notice to shareholders.

22
<PAGE>
MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES

CONVERSION FROM CLASS B TO CLASS A SHARES

INITIAL PURCHASES DIRECTLY FROM THE FUND

The Fund's determination of an investor's eligibility to purchase shares of
a given class will take precedence over the investor's selection of a class.

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

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

23
<PAGE>
2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Fund's bank account. In order to ensure prompt receipt
of your Federal Funds Wire, it is important that you follow these steps:

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

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

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

ADDITIONAL INVESTMENTS

24
<PAGE>
letter or wire to assure proper crediting to your account. In order to ensure
that your wire orders are invested promptly, you are requested to notify one of
the Fund's representatives (toll-free 1-800-548-7786) prior to the wire date.
Additional investments will be applied to purchase additional shares in the same
class held by a shareholder in a Portfolio account.

OTHER PURCHASE INFORMATION

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

EXCESSIVE TRADING

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

25
<PAGE>
by Morgan Stanley or its affiliates, including Morgan Stanley Asset Management
Inc. (each, a "TFM Adviser"), that allocates your investments across a
combination of either Class A or Class B shares of certain of the Portfolios
selected to meet your long-term investment objectives as well as, in certain
circumstances, your current income objectives.

REDEMPTION OF SHARES

26
<PAGE>
NYSE (currently 4:00 p.m. Eastern Time). Shares of each Portfolio may be
redeemed by mail or telephone. No charge is made for redemptions, except for the
imposition of the 1% transaction fee described under "Purchase of Shares" above,
which may be assessed in connection with redemptions of shares of the
International Small Cap Portfolio. Any redemption proceeds may be more or less
than the purchase price of your shares depending on, among other factors, the
market value of the investment securities held by a Portfolio.

BY MAIL

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

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

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

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

BY TELEPHONE

27
<PAGE>
FURTHER REDEMPTION INFORMATION

SHAREHOLDER SERVICES

EXCHANGE FEATURES

BY MAIL

BY TELEPHONE

28
<PAGE>
received prior to 4:00 p.m. (Eastern Time) are processed at the close of
business that same day based on the net asset value of the class(es) of the
portfolios involved in the exchange of shares at the close of business. Requests
received after 4:00 p.m. (Eastern Time) are processed the next business day
based on the net asset value determined at the close of business on such day.
For additional information regarding responsibility for the authenticity of
telephoned instructions, see "Redemption of Shares -- By Telephone" above.

TRANSFER OF REGISTRATION

VALUATION OF SHARES

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

29
<PAGE>
accordance with the above-stated procedures are determined in good faith at fair
value using methods determined by the Board of Directors. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies will be translated into U.S. dollars at the mean
of the bid and asked price for such currencies against the U.S. dollar last
quoted by any major bank.

PERFORMANCE INFORMATION

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

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

30
<PAGE>
attributable to and the dividends payable on Class A shares. As a result, the
net asset value per share of the classes of the Portfolios will differ at times.
Expenses of the Portfolios allocated to a particular class of shares will be
borne on a pro rata basis by each outstanding share of that class.

TAXES

The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action.

The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any dividends, capital gains distributions and redemption proceeds paid to any
individual or certain other non-corporate shareholder (i) who has failed to
provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Application Form, (ii) who is subject to backup

31
<PAGE>
withholding by the Internal Revenue Service, or (iii) who has not certified to
the Fund that such shareholder is not subject to backup withholding. This backup
withholding is not an additional tax, and any amounts withheld may be credited
against the shareholder's ultimate U.S. tax liability.

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

PORTFOLIO TRANSACTIONS

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

32
<PAGE>
PORTFOLIO TURNOVER

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

REPORTS TO SHAREHOLDERS

CUSTODIAN

33
<PAGE>
custodians approved by the Board of Directors of the Fund in accordance with
regulations of the Securities and Exchange Commission for the purpose of
providing custodial services for such assets. MSTC may also hold certain
domestic assets for the Fund. For more information on the custodians, see
"General Information -- Custody Arrangements" in the Statement of Additional
Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as Dividend Disbursing and Transfer Agent for the
Fund.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as independent accountants for the Fund and
audits its annual financial statements.

LITIGATION

The Fund is not involved in any litigation.

34
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
GLOBAL EQUITY, INTERNATIONAL EQUITY, INTERNATIONAL SMALL CAP AND
EUROPEAN EQUITY PORTFOLIOS
P.O. BOX 2798, BOSTON, MA 02208-2798

ACCOUNT REGISTRATION FORM

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

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

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

/ / TRUST ________________________ / / OTHER (Specify) ________________________

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

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

<PAGE>

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

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

Payment by:

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

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

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

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 5
Prospectus Summary................................ 10
Investment Objectives and Policies................ 14
Additional Investment Information................. 16
Investment Limitations............................ 19
Management of the Fund............................ 19
Purchase of Shares................................ 21
Redemption of Shares.............................. 26
Shareholder Services.............................. 28
Valuation of Shares............................... 29
Performance Information........................... 30
Dividends and Capital Gains Distributions......... 30
Taxes............................................. 31
Portfolio Transactions............................ 32
General Information............................... 33
Account Registration Form
</TABLE>

GLOBAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL SMALL CAP PORTFOLIO
EUROPEAN EQUITY PORTFOLIO

PORTFOLIOS OF THE

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

Common Stock
($.001 PAR VALUE)
-------------
PROSPECTUS
-------------

Investment Adviser

Morgan Stanley
Asset Management Inc.

Distributor
Morgan Stanley & Co.
Incorporated

MORGAN STANLEY
INSTITUTIONAL FUND, INC.

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

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