<PAGE>
SUPPLEMENT DATED FEBRUARY 6, 1998
TO PROSPECTUS DATED MAY 1, 1997
PREVIOUSLY SUPPLEMENTED ON SEPTEMBER 26, 1997
SMALL CAP VALUE EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO
BALANCED PORTFOLIO
GLOBAL FIXED INCOME PORTFOLIO
HIGH YIELD PORTFOLIO
PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The Prospectus is being further amended and supplemented to: (i) reflect a
change in Portfolio Managers for the Value Equity and Balanced Portfolios; (ii)
reflect changes in certain non-fundamental investment limitations of the High
Yield Portfolio; and (iii) close the Small Cap Value Equity and Balanced
Portfolios to new investors.
--------------
Alford E. Zick, Jr. will no longer serve as Portfolio Manager for the Value
Equity and Balanced Portfolios. Stephen C. Sexauer and Philip W. Friedman now
share primary responsibility for managing the assets of the Value Equity and
Balanced Portfolios. Accordingly, the second paragraph on page 26 is hereby
deleted and replaced with the following:
VALUE EQUITY AND BALANCED PORTFOLIOS -- STEPHEN C. SEXAUER AND
PHILIP W. FRIEDMAN. Stephen C. Sexauer is a Principal of Morgan Stanley
and the Adviser and is a member of the investment management team of the
Adviser. In addition to portfolio management, his equity research
responsibilities include financials, energy, utilities and technology.
Mr. Sexauer joined the firm in July 1989 after three years as a Vice
President at Salomon Brothers. Previously, he was with Merrill Lynch
Economics and Wharton Econometrics. Mr. Sexauer received a B.S. in
Economics from the University of Illinois and an M.B.A. in Economics and
Statistics from the University of Chicago. Philip W. Friedman is a
Managing Director of Morgan Stanley and the Adviser and is a member of
the investment management team of the Adviser. In addition to portfolio
management, his equity research responsibilities include business
equipment and services, capital goods, consumer durables, multi-industry
and transportation. Prior to joining the Adviser in 1997, he was the
North American Director of Equity Research at Morgan Stanley. From 1990
to 1995, he was a member of Morgan Stanley's Equity Research team. Mr.
Friedman graduated from Rutgers University with a B.A. (PHI BETA KAPPA
AND SUMMA CUM LAUDE) in Economics. He also holds an M.B.A. from J.L.
Kellogg School of Management at Northwestern University. Mr. Sexauer and
Mr. Friedman have had primary responsibility for managing the Value
Equity Portfolio since January 1992 and July 1997, respectively.
<PAGE>
Mr. Sexauer and Mr. Friedman have had primary responsibility for
managing the Balanced Portfolio since February 1990 and July 1997,
respectively.
--------------
The last paragraph on page 17 is deleted and replaced with the following:
The Portfolio may acquire fixed income securities of both U.S. and
foreign issuers, including debt obligations (e.g., bonds, debentures,
notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts, commercial paper and obligations issued or
guaranteed by the U.S. Government, any foreign government with which the
United States maintains relations or any of their respective political
subdivisions, agencies or instrumentalities) and preferred stock. The
Portfolio's fixed income securities may have equity features such as
conversion rights or warrants, and the Portfolio may invest in equity
securities other than preferred stock (e.g., common stocks, warrants and
rights and limited partnership interests). The Portfolio may not invest
more than 5% of its total assets at time of acquisition in limited
partnership interests. The Portfolio may invest in fixed income
securities that are investment grade (i.e., rated in one of the top four
categories or comparable) and have maturities of one year or less. The
Portfolio may invest in or own securities of companies in various stages
of financial restructuring, bankruptcy or reorganization which are not
currently paying interest or dividends; the total value, at time of
purchase, of the sum of all such securities will not exceed 10% of the
value of the Portfolio's total assets
--------------
The following sentence is added to the end of the first paragraph on
the cover page of the Prospectus:
The Small Cap Value Equity and Balanced Portfolios are currently
closed to new investors with the exception of certain tax-qualified
retirement plans, other investment companies advised by Morgan Stanley
Asset Management Inc. and its affiliates and certain employees of the
Adviser and its affiliates.
The first sentence under "SHAREHOLDER SERVICES--EXCHANGE FEATURES"
is deleted and replaced with the following:
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, Emerging Markets, Small Cap Value Equity and
Balanced Portfolios, which are closed to new investors except as
described above).
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED FEBRUARY 6, 1998
TO PROSPECTUS DATED MAY 1, 1997
PREVIOUSLY SUPPLEMENTED ON SEPTEMBER 26, 1997
FIXED INCOME PORTFOLIO
MUNICIPAL BOND PORTFOLIO
MORTGAGE-BACKED SECURITIES PORTFOLIO
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIOS OF THE
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The Prospectus is being further amended and supplemented to reflect the
offering of Class B shares of the Money Market Portfolio. Accordingly, the
Prospectus is amended and supplemented as follows:
--------------
The Cover Page of the Prospectus is amended to indicate that the Prospectus
also relates to the offering of Class B shares of the Money Market Portfolio.
--------------
The tables and discussion under the heading "FUND EXPENSES" beginning on
page 2 are hereby deleted and replaced with the following:
<TABLE>
<CAPTION>
MORTGAGE- MUNICIPAL
FIXED MUNICIPAL BACKED MONEY MONEY
SHAREHOLDER TRANSACTION INCOME BOND SECURITIES MARKET MARKET
EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------ ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases
Class A..................... None None None None None
Class B..................... None None None None N/A
Maximum Sales Load Imposed on
Reinvested Dividends
Class A..................... None None None None None
Class B..................... None None None None N/A
Deferred Sales Load
Class A..................... None None None None None
Class B..................... None None None None N/A
Redemption Fees
Class A..................... None None None None None
Class B..................... None None None None N/A
Exchange Fees
Class A..................... None None None None None
Class B..................... None None None None N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE- MUNICIPAL
FIXED MUNICIPAL BACKED MONEY MONEY
INCOME BOND SECURITIES MARKET MARKET
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------ ---------- ---------- ---------- ----------- -----------
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
<S> <C> <C> <C> <C> <C>
Management Fee (Net of Fee
Waivers)*
Class A..................... 0.20% 0.07% 0.20%+ 0.30% 0.30%
Class B..................... 0.20% 0.07% 0.20%+ 0.30% N/A
12b-1 Fees
Class A..................... None None None None None
Class B..................... 0.15%** 0.25% 0.25% 0.25% N/A
Other Expenses
Class A..................... 0.25% 0.38% 0.25% 0.22% 0.23%
Class B..................... 0.25% 0.38% 0.25% 0.22% N/A
----- ----- ----- ----- -----
Total Operating Expenses (Net
of Fee Waivers)*
Class A..................... 0.45% 0.45% 0.45% 0.52% 0.53%
Class B..................... 0.60% 0.70% 0.70% 0.77% N/A
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- --------------
+ Estimated
* The Adviser has agreed to waive its management fee and/or reimburse each
Portfolio, if necessary, if such fees would cause the total annual operating
expenses of the Portfolio to exceed a specified percentage of its average
daily net assets. As a result of these reductions, the Management Fees stated
above for a Portfolio may be 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 Non-Money 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
Portfolios.
** The Distributor has agreed to waive 0.10% of the 0.25% distribution fee it is
entitled to receive from the Portfolio.
<TABLE>
<CAPTION>
TOTAL OPERATING
EXPENSES ABSENT FEE
WAIVERS AND/OR EXPENSE
MANAGEMENT FEES REIMBURSEMENTS
ABSENT FEE WAIVERS AND/OR --------------------------
PORTFOLIO EXPENSE REIMBURSEMENTS CLASS A CLASS B
- ------------------------------------------------------------- -------------------------------- ------------ ------------
<S> <C> <C> <C>
Fixed Income................................................. 0.35% 0.60% 0.74%
Municipal Bond............................................... 0.35% 0.73% 0.98%
Mortgage-Backed Securities................................... 0.35% 0.60% 0.85%
</TABLE>
The purpose of the tables above is to assist the investor in understanding
the various expenses that an investor in the Portfolios will bear directly or
indirectly. Expenses and fees are based on actual figures for the fiscal year
ended December 31, 1996, except that (i) expenses for Class B shares of the
Money Market Portfolio assume that expenses for Class A and Class B shares will
differ only by the distribution expense charged to Class B shares and (ii)
expenses for the Mortgage-Backed Securities Portfolio are based on estimates and
assume that the average daily net assets of the Mortgage-Backed Securities
Portfolio will be $50,000,000. Due to the
2
<PAGE>
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) an 5% annual rate of return and (2) redemption at
the end of each time period. As noted in the table above, the Portfolios charge
no redemption fees of any kind. The following example is based on total
operating expenses of the Portfolios after fee waivers.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Income Portfolio
Class A............................................................... $ 5 $ 14 $ 25 $ 57
Class B............................................................... 6 19 33 75
Municipal Bond Portfolio
Class A............................................................... 5 14 25 57
Class B............................................................... 7 22 39 87
Mortgage-Backed Securities Portfolio
Class A............................................................... 5 14 * *
Class B............................................................... 7 22 * *
Money Market Portfolio
Class A............................................................... 5 17 29 65
Class B............................................................... 8 25 * *
Municipal Money Market Portfolio
Class A............................................................... 5 17 30 66
</TABLE>
- --------------
* Because this Class or Portfolio was not operational as of the Fund's fiscal
year end, the Fund has not projected expenses beyond the three-year period
shown.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN
ABOVE.
--------------
The third to last sentence of the paragraph appearing under "FINANCIAL
HIGHLIGHTS" on page 4 of the prospectus is deleted and replaced with the
following:
No financial highlights appear for Class A and Class B shares of the
Mortgage-Backed Securities Portfolio and Class B shares of the Money
Market Portfolio because the Fund had not offered those classes of
shares as of December 31, 1996.
--------------
The second sentence of the first paragraph under the heading "PROSPECTUS
SUMMARY--THE FUND" on page 9 is hereby deleted and replaced with the following:
Each portfolio offers Class A shares and, except for the
International Small Cap and Municipal Money Market Portfolios, also
offers Class B shares.
--------------
3
<PAGE>
The paragraph under the heading "PROSPECTUS SUMMARY--HOW TO INVEST" on page
11 is hereby supplemented as follows:
Class B shares of the Money Market 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 annual basis. There is no minimum
investment for Class B shares of the Money Market Portfolio.
--------------
The table under the heading "MANAGEMENT OF THE FUND--INVESTMENT ADVISER" on
page 23 of the Prospectus is hereby deleted and replaced with the following:
<TABLE>
<CAPTION>
MAXIMUM TOTAL OPERATING
EXPENSES AFTER FEE
MANAGEMENT FEE WAIVERS AND/ OR EXPENSE
ABSENT FEE WAIVERS REIMBURSEMENTS
AND/OR EXPENSE ------------------------
PORTFOLIO REIMBURSEMENTS CLASS A CLASS B
- ----------------------------------------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
Fixed Income..................................................... 0.35% 0.45% 0.60%
Municipal Bond................................................... 0.35% 0.45% 0.70%
Mortgage-Backed Securities....................................... 0.35% 0.45% 0.70%
Money Market..................................................... 0.30% 0.55% 0.80%
Municipal Money Market........................................... 0.30% 0.57% N/A
</TABLE>
--------------
The third and fourth paragraphs under the heading "MANAGEMENT OF THE
FUND--DISTRIBUTOR" on page 26 of the Prospectus are deleted and replaced with
the following:
The Fund has adopted a Plan of Distribution with respect to the
Class B shares of each Non-Money Portfolio and the Money Market
Portfolio pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan").
Under each Plan, the Distributor is entitled to receive compensation
from each Portfolio offering Class B shares, which is accrued daily and
paid quarterly, equal to 0.25% of the Class B shares' average daily net
assets on an annualized basis. The Distributor may, in its discretion,
voluntarily waive from time to time all or a portion of its compensation
and each of the Distributor and the Adviser is free to make payments out
of its own assets to promote the sale of Fund shares, including payments
that compensate financial institutions for distribution services or
shareholder services. The Distributor has agreed to waive 0.10% of the
0.25% distribution fee it is entitled to receive from the Fixed Income
Portfolio.
--------------
The information under the heading "PURCHASE OF SHARES", "REDEMPTION OF
SHARES" and "SHAREHOLDER SERVICES" on pages 26 through 34 is hereby deleted and
replaced with the following:
PURCHASE OF SHARES
Class A shares of each Portfolio and Class B shares of each
Portfolio except the Municipal Money Market Portfolio may be purchased
at the net asset value per share next determined after receipt by
4
<PAGE>
the Fund of a purchase order as described under "Methods of Purchase."
CLASS B SHARES OF THE MONEY MARKET PORTFOLIO ARE AVAILABLE FOR PURCHASE
ONLY THROUGH FINANCIAL INTERMEDIARIES (AS DISCUSSED BELOW) THAT HAVE
MADE ARRANGEMENTS WITH THE FUND. The net asset value per share of each
Portfolio is calculated on days that the New York Stock Exchange
("NYSE") and Chase (the "Custodian Bank") are open for business. Net
asset value per share is determined (i) for each Non-Money Portfolio, as
of the close of trading of the NYSE (normally 4:00 p.m. Eastern Time),
(ii) for the Money Market Portfolio, as of 12:00 noon Eastern Time and
(iii) for the Municipal Money Market Portfolio, as of 11:00 a.m. Eastern
Time (for each Portfolio, the "Pricing Time"). For more information on
net asset value, see "Valuation of Shares."
MINIMUM INVESTMENT
For a Non-Money Portfolio account opened on or after January 2, 1996
(a "New Account"), the minimum initial investment is $500,000 for Class
A shares and $100,000 for Class B shares of each Non-Money Portfolio.
The minimum initial investment is $100,000 for Class A shares of each
Money Portfolio. There is no minimum initial investment for Class B
shares of the Money Market Portfolio. These minimums may be waived at
the discretion of the Adviser for (i) certain employees and customers of
Morgan Stanley or its affiliates; (ii) certain third parties, including
trust departments, brokers, dealers, agents, financial planners,
financial services firms, investment advisers or various retirement and
deferred compensation plans ("Financial Intermediaries"); and (iii) with
respect to Class A shares, certain advisory or asset allocation
accounts, such as Total Funds Management accounts, managed by Morgan
Stanley or its affiliates, including the Adviser ("Managed Accounts").
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 1-800-548-7786. 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.
METHODS OF PURCHASE
Shares may be purchased directly from the Fund by Federal Funds
wire, by bank wire or by check. Investors may also invest in the
Portfolios by purchasing shares through Financial Intermediaries that
have made arrangements with Morgan Stanley. Class B shares of the Money
Market Portfolio may be purchased only through Financial Intermediaries.
Some Financial Intermediaries may charge an additional service or
transaction fee. If a purchase is canceled due to nonpayment or because
your check does not clear, you will be responsible for any loss the Fund
or its agents incur. If you are already a shareholder, the Fund may
redeem shares from your account(s) to reimburse the Fund or its agents
for any loss. In addition, you may be prohibited or restricted from
making future investments in the Fund.
FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Fund's bank account. Federal Funds purchase orders
will be accepted only on a day on which the Fund and the Custodian Bank
are open for business. Your bank may charge a service fee for wiring
Federal
5
<PAGE>
Funds. In order to ensure proper handling of your purchase by Federal
Funds wire, please follow these steps:
1. Place your order by telephoning the Fund at 1-800-548-7786. A
Fund representative will request certain purchase information and
provide you with a confirmation number.
2. Instruct your bank to wire the specified amount to the Fund's
Wire Concentration Bank Account 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.
3. Complete and sign the Account Registration Form and mail it to
the address shown thereon.
Purchases for which an order is received prior to the Pricing Time
and for which Federal Funds are received prior to the regular close of
the Federal Funds Wire Control Center ("FFWCC"), which is currently 6:00
p.m. Eastern Time, will be executed at the net asset value computed on
the date of receipt. Purchases for which an order is received after the
Pricing Time or for which Federal Funds are received after the regular
close of the FFWCC will be executed at the net asset value next
determined. Certain institutional investors and financial institutions
have entered into an agreement with Morgan Stanley pursuant to which
they may place orders to purchase shares prior to the Pricing Time, but
make payment in Federal Funds for those shares the morning of the
following business day.
BANK WIRE. The same procedure outlined under "Federal Funds Wire"
above must be followed when purchasing shares by bank wire. However,
depending on the time the bank wire is sent and the bank handling the
wire, money transferred by bank wire may or may not be converted into
Federal Funds prior to the close of the FFWCC. Prior to conversion to
Federal Funds and receipt by the Fund, an investor's money will not be
invested.
CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check payable to
"Morgan Stanley Institutional Fund, Inc.--[portfolio name]" to:
Morgan Stanley Institutional Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
The Fund ordinarily is credited with Federal Funds within one
business day of deposit of a check. Thus, a purchase of shares by check
ordinarily will be credited to your account at the net asset value per
share of each of the Portfolios determined on the next business day
after receipt. Prior to crediting of Federal Funds, however, an
investor's money will not be invested.
6
<PAGE>
INVESTMENT THROUGH FINANCIAL INTERMEDIARIES. Certain Financial
Intermediaries have made arrangements with the Fund to receive purchase
and redemption orders from underlying beneficial owners, such as
retirement plan participants, generally on each business day. Each
business evening, the Financial Intermediary aggregates all orders
received from underlying beneficial owners prior to the Pricing Time on
that business day, and the Financial Intermediary places a net purchase
and/or redemption order(s) on the morning of the next business day.
These orders normally are executed at the net asset value that was
computed for each Portfolio as of the close of the previous business
day. For more information, please see "Valuation of Shares".
ADDITIONAL INVESTMENTS. You may purchase additional shares for your
account at any time by purchasing shares at net asset value by any of
the methods described above. The minimum additional investment,
generally, is $1,000 per Portfolio, except that there is no minimum for
Class B shares of the Money Market Portfolio. The minimum additional
investment may be lower for certain accounts described under "Minimum
Investment," above. For purchases directly from the Fund, 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.
INVOLUNTARY CONVERSION AND REDEMPTION OF NEW ACCOUNT SHARES
Class A and Class B shares of each Non-Money Portfolio held in a New
Account may be subject to certain involuntary conversion and redemption
features as described below. Class A and Class B shares of the Money
Market Portfolio are not subject to involuntary conversion or
redemption. The conversion and redemption features described below may
be waived at the discretion of the Adviser for shares held in a Managed
Account and shares purchased through a Financial Intermediary. The Fund
reserves the right to modify or terminate the conversion or redemption
features of the shares at any time upon 60 days notice to shareholders.
CONVERSION FROM CLASS A TO CLASS B SHARES. 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
Class B shares. The Fund 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, conversion between share classes
is not a taxable event to the shareholder.
CONVERSION FROM CLASS B TO CLASS A SHARES. If the value of a New
Account containing Class B shares increases to $500,000 or more, whether
due to shareholder share purchases or market activity, the Class B
shares generally will convert to Class A shares. Class B shares
purchased through a Financial Intermediary that has entered into an
arrangement with the Fund for the purchase of such shares may not be
converted. 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 as are applicable
to New Accounts containing Class A shares described above.
7
<PAGE>
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 will be
subject to redemption by the Fund. The Fund will not redeem shares based
solely upon changes in the market that reduce the net asset value of
shares. If redeemed, redemption proceeds will be promptly paid to the
shareholder.
GRANDFATHERED CLASS A AND GRANDFATHERED CLASS B ACCOUNTS
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 purchased
through a Financial Intermediary and 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 are not subject to
conversion from Class A shares to Class B shares. Grandfathered Class A
Accounts and Grandfathered Class B Accounts are not subject involuntary
redemption.
REDEMPTION OF SHARES
Class A shares of each Portfolio and Class B shares of each
Portfolio except the Municipal Money Market Portfolio may be redeemed at
any time and without charge at the net asset value per share next
determined after receipt by the Fund of a redemption order as described
under "Methods of Redemption." 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.
METHODS OF REDEMPTION
Shares may be redeemed directly from the Fund by mail or by
telephone. HOWEVER, SHARES PURCHASED THROUGH A FINANCIAL INTERMEDIARY
MUST BE REDEEMED THROUGH A FINANCIAL INTERMEDIARY. Certain Financial
Intermediaries may charge an additional service or transaction fee.
BY MAIL. Each Portfolio will redeem shares upon receipt of a
redemption request in "good order." Redemption requests may be sent by
regular mail to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798,
Boston, Massachusetts 02208-2798 or, by overnight courier, 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:
1. 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;
2. Any required signature guarantees (see "Further Redemption
Information" below); and
8
<PAGE>
3. Other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations, pension
and profit-sharing plans and other organizations.
Redemption requests received in "good order" prior to the Pricing
Time will be executed at the net asset value computed on the date of
receipt. Redemption requests received after the Pricing Time will be
executed at the next determined net asset value. Shareholders who are
uncertain of requirements for redemption by mail should consult with a
Fund representative.
BY TELEPHONE. Provided that you have previously elected the
Telephone Redemption Option on the Account Registration Form, you can
redeem Portfolio 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. 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. The telephone
redemption option may be difficult to implement at times, particularly
during volatile market conditions. If you experience difficulty in
making a telephone redemption, you may redeem shares by mail as
described above.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each telephone transaction. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied written instructions regarding transaction
requests. Neither the Fund nor the Transfer Agent will be responsible
for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be
genuine.
REDEMPTION THROUGH FINANCIAL INTERMEDIARIES. Certain Financial
Intermediaries have made arrangements with the Fund to accept redemption
requests from underlying beneficial owners. These redemptions may be
processed as described under "Purchase of Shares--Investment through
Financial Intermediaries."
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 in cash, the Fund may pay redemption proceeds in whole or in
part by a distribution-in-kind of portfolio securities in conformity
with
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applicable rules of the Commission. Distributions-in-kind will be made
in readily marketable securities. Shareholders may incur brokerage
charges on the sale of portfolio securities received in payment of
redemptions.
To protect your account, the Fund and its agents from fraud,
signature guarantees are required to verify the identity of the person
who has authorized certain redemptions. Please contact the Fund for
further information. See "Redemption of Shares" in the Statement of
Additional Information.
ACCOUNT POLICIES AND SERVICES
EXCHANGE FEATURES
You may exchange shares of each Portfolio that you own for shares of
any other available portfolio(s) of the Fund, subject to certain
limitations. The International Equity, Emerging Markets, Small Cap Value
Equity and Balanced Portfolios are closed to new investors and are not
eligible for exchange. In addition, certain portfolios may be
unavailable to shareholders who purchased portfolio shares through a
Financial Intermediary. Contact your Financial Intermediary to determine
which portfolios are available for exchange.
Before you make an exchange, you should read the prospectus of the
portfolio(s) in which you seek to invest. In exchanging for shares of a
portfolio with more than one class, the class of shares received in the
exchange will be determined in the same manner as any other purchases of
shares, including minimum initial investment and account size
requirements, and will not be based on the class of shares surrendered
for the exchange. See "Purchase of Shares." Exchange transactions are
treated as a redemption followed by a purchase and an exchange will be
considered a taxable event for shareholders subject to tax. Exchange
transactions will be processed at the net asset value per share next
determined after receipt of the request as described above under
"Purchase of Shares" and "Redemption of Shares." Shares of the
portfolios may be exchanged by mail or telephone. The telephone exchange
privilege is automatic and made available without shareholder election.
The exchange privilege may be modified or terminated by the Fund at any
time upon 60-days notice to shareholders.
BY MAIL. To exchange shares by mail, send a written exchange request
to Morgan Stanley Institutional Fund, Inc., P.O. Box 2798, Boston,
Massachusetts 02208-2798. Your written exchange request should include
(i) the name, class of shares and account number of your current
Portfolio, (ii) the name(s) and class(es) of shares of the portfolio(s)
into which you intend to exchange shares, and (iii) the signatures of
all registered account holders.
BY TELEPHONE. To exchange shares by telephone, call the Fund at the
phone number provided on the cover of this Prospectus. A Fund
representative will request (i) the name, class of shares and account
number of your current Portfolio and (ii) the name(s) and class(es) of
shares of the portfolio(s) into which you intend to exchange shares. For
additional information regarding responsibility for the authenticity of
telephoned instructions, see "Redemption of Shares" above.
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TRANSFER OF REGISTRATION
You may transfer the registration of any of your Portfolio shares to
another person by sending a written request to Morgan Stanley
Institutional Fund, Inc., P.O. Box 2798, Boston, Massachusetts
02208-2798. It may not be possible to transfer the registration of
certain shares purchased through a Financial Intermediary. As with
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 shares and
may result in involuntary conversion or redemption of your shares. See
"Purchase of Shares" above.
OTHER ACCOUNT INFORMATION
The Portfolios do not issue share certificates. 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.
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 shareholders of each portfolio and each Portfolio's
performance, the Fund may, in its discretion, bar a shareholder that
engages in excessive trading of shares of any class of a portfolio from
further share purchases 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.
For example, exchanging shares of portfolios of the Fund as follows
would amount 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 A within a 120-day period. Two types of transactions are
exempt from these excessive trading restrictions: (1) trades exclusively
between money market portfolios; and (2) trades made in connection with
an asset allocation service, such as TFM Accounts, managed or advised by
the Adviser and/or any of its affiliates.
INVESTMENT IN FUNDS THROUGH A TOTAL FUNDS MANAGEMENT ("TFM") ACCOUNT
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 clients' investments across
a combination of either Class A or Class B shares of certain of the
portfolios. 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 investment decisions made or
recommended by the TFM Adviser. These transactions will affect the
portfolios, since portfolios that experience significant redemptions may
have to sell portfolio securities and portfolios that receive additional
cash will have to invest it in additional portfolio securities. It is
impossible to predict the overall impact of these transactions over
time, however, there could be adverse effects on portfolio management.
These transactions also could have tax consequences if sales of
portfolio securities result in gains or could increase transaction
costs. The Adviser, representing the interests of the portfolios, is
committed to
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minimizing the impact of TFM Account transactions to 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. The Adviser will monitor the impact of TFM Account
transactions on the Portfolios.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
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