Morgan Stanley Institutional Fund Inc, et al. – ‘485APOS’ on 6/6/03

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Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485APOS     Post-Effective Amendment                             113    630K 
 2: EX-99.(A)(13)  Miscellaneous Exhibit                               5     21K 
 3: EX-99.(D)(6)  Miscellaneous Exhibit                                2±     7K 
 4: EX-99.(I)(2)  Miscellaneous Exhibit                                1      5K 
 5: EX-99.(J)   Miscellaneous Exhibit                                  1      6K 

485APOS   —   Post-Effective Amendment
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 2003

                                                              FILE NO. 033-23166
                                                                       811-05624

 U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM N-1A

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
 POST-EFFECTIVE AMENDMENT NO. 50 /X/

 AND

 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 51

 MORGAN STANLEY INSTITUTIONAL FUND, INC.
------------------------------------------------------------------
 (Exact name of Registrant as Specified in Trust Instrument)

 1221 Avenue of the Americas
New York, New York 10020
------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)

(800) 548-7786
------------------------------------------------------------------
(Area Code and Telephone Number)

Ronald E. Robison                     
   Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas           
New York, NY 10020                    
------------------------------------------------------------------
 (Name and Address of Agent for Service)

 Copy to

Stuart M. Strauss, Esq.               
Mayer, Brown, Rowe & Maw              
1675 Broadway New York, NY 10019      

It is proposed that this filing will become effective (check appropriate box)   

/ /      immediately upon filing pursuant to paragraph (b) of Rule 485.         
/ /      on ____, 2003 pursuant to paragraph (b) of Rule 485.                   
/ /      60 days after filing pursuant to paragraph (a)(1) of Rule 485.         
/X/      75 days after filing pursuant to paragraph (a)(2) of Rule 485.         
/ /      on [date] pursuant to paragraph (a) of Rule 485.                       

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 MORGAN STANLEY LOGO                                                  PROSPECTUS
                                                                __________, 2003

MORGAN STANLEY INSTITUTIONAL FUND, INC.                                         

LARGE CAP RELATIVE VALUE PORTFOLIO                                              
THE LARGE CAP RELATIVE VALUE PORTFOLIO SEEKS                                    
BOTH INCOME AND LONG-TERM GROWTH OF CAPITAL.                                    

INVESTMENT ADVISER            
           MORGAN STANLEY INVESTMENT MANAGEMENT INC.

DISTRIBUTOR                   
   MORGAN STANLEY & CO. INCORPORATED

                        Morgan Stanley Institutional Fund, Inc.(the "Fund") is
                    a no-load mutual fund that is designed to meet the
                      investment needs of discerning investors who place a
                         premium on quality and personal service. The Fund makes
                  available to institutional investors a series of
                        portfolios, which seeks to benefit from the investment
                        expertise and commitment to excellence associated with
                    Morgan Stanley Investment Management Inc. ("Morgan
                      Stanley Investment Management" or the "Adviser") and
                       its affiliates. This Prospectus offers Class A shares
                of the Large Cap Relative Value Portfolio (the
"Portfolio").                 

                         The Securities and Exchange Commission has not approved
                    or disapproved these securities or passed upon the
                        adequacy of this Prospectus. Any representation to the
 contrary is a criminal offense.

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 TABLE OF CONTENTS

                                                                [Download Table]

                                                                            PAGE
                                                                                
PORTFOLIO                                                                       
Large Cap Relative Value Portfolio                                              
Additional Risk Factors and Information                                         

FEES AND EXPENSES OF THE PORTFOLIO                                              
FUND MANAGEMENT                                                                 
SHAREHOLDER INFORMATION                                                         

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LARGE CAP RELATIVE VALUE PORTFOLIO                                              

OBJECTIVE                                                                       

THE PORTFOLIO'S INVESTMENT OBJECTIVE IS TO SEEK INCOME AND LONG-TERM GROWTH OF  
CAPITAL.                                                                        

APPROACH                                                                        

The Adviser seeks income and long-term growth of capital by investing in        
income-producing equity securities. The Portfolio may invest up to 25% of its   
total assets in securities of foreign issuers. This percentage limitation       
however, does not apply to securities of foreign companies that are listed in   
the United States on a national exchange. The Portfolio may purchase and sell   
certain derivative instruments, for various portfolio management purposes,      
including to earn income, facilitate portfolio management and mitigate risks.   
Under normal market conditions, no more than 5% of the Portfolio's assets will  
generally be invested in cash.                                                  

PROCESS                                                                         

In selecting securities for investment, the Adviser focuses primarily on the    
security's potential for income and capital growth. The Adviser focuses on      
large-capitalization (or large-cap) companies that it believes possess          
characteristics for improved valuation, but may invest in securities of small or
medium-sized companies.                                                         

The Adviser also looks for catalysts for change that may positively impact a    
company, such as new management, industry development or regulatory change. The 
aim is to uncover these catalysts for change, and then benefit from potential   
stock price appreciation of the change taking place at the company.             

Under normal circumstances, at least 80% of the assets of the Portfolio will be 
invested in equity securities of large-cap companies. This policy may be changed
without shareholder approval; however, you would be notified of any change. The 
Adviser considers a company to be a large-cap company if it has a market        
capitalization, at the time of purchase, no smaller than the smallest           
capitalized company included in the Russell 1000 Value Index during the most    
recent 11-month period (based on month-end data) plus the most recent data      
during the current month. The Russell 1000 Value Index measures performance of  
those Russell 1000 Index companies with lower price-to-book ratios and lower    
forecasted growth values. The Russell 1000 Index is a widely recognized,        
unmanaged index of common stocks that measures the performance of the 1,000     
largest companies in the Russell 3000 Index, which measures the performance of  
the 3,000 largest U.S. companies based on total market capitalization. The      
market capitalization limit is subject to adjustment annually based upon the    
Adviser's assessment as to the capitalization range of companies that possess   
the fundamental characteristics of large-cap companies.                         

The Portfolio may dispose of a security whenever, in the opinion of the Adviser,
factors indicate it is desirable to do so. Such factors include a change in     
economic or market factors in general or with respect to a particular industry, 
a change in the market trend or other factors affecting an individual security, 
changes in the relative market performance or appreciation possibilities        

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offered by individual securities and other circumstances bearing on the         
desirability of a given investment.                                             

RISKS                                                                           

An investment in the Portfolio is subject to risks, and you could lose money on 
your investment in the Portfolio. There can be no assurance that the Portfolio  
will achieve its investment objective.                                          

Investing in the Large Cap Relative Value Portfolio may be appropriate for you  
if you are willing to accept the risks and uncertainties of investing in        
income-producing equity securities. In general, prices of equity securities are 
more volatile than those of fixed income securities. The prices of equity       
securities will rise and fall in response to a number of different factors. In  
particular, prices of equity securities will respond to events that affect      
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the       
success or failure of a new product, for example). In addition, at times, large 
capitalization income-producing equity securities may underperform relative to  
the overall market.                                                             

Investing in foreign countries entails the risk that news and events unique to a
country or region will affect those markets and their issuers. These same events
will not necessarily have an effect on the U.S. economy or similar issuers      
located in the United States. In addition, the Portfolio's investments in       
foreign countries generally will be denominated in foreign currencies. As a     
result, changes in the value of a country's currency compared to the U.S. dollar
may affect the value of the Portfolio's investments. These changes may occur    
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country.                                   

The Adviser may invest in certain instruments, such as derivatives, and may use 
certain techniques, such as hedging, to manage risks. However, the Adviser      
cannot guarantee that it will be practical to hedge these risks in certain      
markets or under particular conditions or that it will succeed in doing so.     

While the Adviser focuses on large-cap companies, the Portfolio may invest in   
the equity securities of any size company. Market prices for small and          
medium-sized companies' equity securities tend to be more volatile than those of
larger more established companies. Such companies may themselves be more        
vulnerable to economic or company-specific problems.                            

There is no performance information for the Portfolio since it had not commenced
operations as of the date of this Prospectus.                                   

Please see "Additional Risk Factors and Information" for further information    
about these and other risks of investing in the Portfolio.                      

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ADDITIONAL RISK FACTORS AND INFORMATION                                         

[SIDENOTE]                                                                      

This section discusses additional risk factors and information relating to the  
Portfolio. The Portfolio's investment practices and limitations are described in
more detail in the Statement of Additional Information ("SAI"), which is        
incorporated by reference and legally is a part of this Prospectus. For details 
on how to obtain a copy of the SAI and other reports and information, see the   
back cover of this Prospectus.                                                  

[END SIDENOTE]                                                                  

PRICE VOLATILITY                                                                
The value of your investment in the Portfolio is based on the market prices of  
the securities the Portfolio holds. These prices change daily due to economic   
and other events that affect markets generally, as well as those that affect    
particular regions, countries, industries, companies or governments. These price
movements, sometimes called volatility, may be greater or lesser depending on   
the types of securities the Portfolio owns and the markets in which the         
securities trade. Over time, equity securities have generally shown gains       
superior to fixed income securities, although they have tended to be more       
volatile in the short term. Fixed income securities, regardless of credit       
quality, also experience price volatility, especially in response to interest   
rate changes. As a result of price volatility, there is a risk that you may lose
money by investing in the Portfolio.                                            

FOREIGN SECURITIES                                                              
Foreign issuers generally are subject to different accounting, auditing and     
financial reporting standards than U.S. issuers. There may be less information  
available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign          
countries, there is also the risk of government expropriation, excessive        
taxation, political or social instability, the imposition of currency controls, 
or diplomatic developments that could affect the Portfolio's investment. There  
also can be difficulty obtaining and enforcing judgments against issuers in     
foreign countries. Foreign stock exchanges, broker-dealers, and listed issuers  
may be subject to less government regulation and oversight. The cost of         
investing in foreign securities, including brokerage commissions and custodial  
expenses, can be higher than in the United States.                              

FOREIGN CURRENCY                                                                
In general, foreign securities are denominated in foreign currencies. The value 
of foreign currencies fluctuates relative to the value of the U.S. dollar. Since
the Portfolio may invest in such securities, and therefore may convert the value
of foreign securities into dollars, changes in currency exchange rates can      
increase or decrease the U.S. dollar value of the Portfolio's assets. The       
Adviser may use derivatives to reduce this risk. The Adviser may in its         
discretion choose not to hedge against currency risk. In addition, certain      
market conditions may make it impossible or uneconomical to hedge against       
currency risk.                                                                  

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DERIVATIVES AND OTHER INVESTMENTS                                               
The Portfolio may use various instruments that derive their values from those of
specified securities, indices, currencies or other points of reference for both 
hedging and non-hedging purposes. Derivatives include futures, options, forward 
contracts, swaps, and structured notes. These derivatives, including those used 
to manage risk, are themselves subject to risks of the different markets in     
which they trade and, therefore, may not serve their intended purposes.         

A forward contract is an obligation to purchase or sell a security or a specific
currency at a future date, which may be any fixed number of days from the date  
of the contract agreed upon by the parties, at a price set at the time of the   
contract. Forward foreign currency exchange contracts may be used to protect    
against uncertainty in the level of future foreign currency exchange rates or to
gain or modify exposure to a particular currency. A futures contract provides   
for the future sale by one party and purchase by another party of a specified   
amount of a specific security at a specified future time and at a specified     
price. The Portfolio may use futures contracts to gain exposure to an entire    
market (e.g., stock index futures) or to control their exposure to changing     
foreign currency exchange rates.                                                

RISKS OF DERIVATIVES                                                            
The primary risks of derivatives are: (i) changes in the market value of        
securities held by the Portfolio, and of derivatives relating to those          
securities, may not be proportionate, (ii) there may not be a liquid market for 
the Portfolio to sell a derivative, which could result in difficulty closing a  
position, and (iii) certain derivatives can magnify the extent of losses        
incurred due to changes in the market value of the securities to which they     
relate. In addition, some derivatives are subject to counterparty risk. To      
minimize this risk, the Portfolio may enter into derivatives transactions only  
with counterparties that meet certain requirements for credit quality and       
collateral. Also, the Portfolio may invest in certain derivatives that require  
the Portfolio to segregate some or all of its cash or liquid securities to cover
its obligations under those instruments. At certain levels, this can cause the  
Portfolio to lose flexibility in managing its investments properly, responding  
to shareholder redemption requests, or meeting other obligations. If the        
Portfolio is in that position, it could be forced to sell other securities that 
it wanted to retain.                                                            

Hedging the Portfolio's currency risks involves the risk of mismatching the     
Portfolio's obligations under a futures contract with the value of securities   
denominated in a particular currency.                                           

EXCHANGE TRADED FUNDS.                                                          
The Portfolio may invest up to 10% of its net assets in shares of various       
Exchange Traded Funds ("ETFs"). No more than 5% of the Portfolio's net assets   
will be invested in any one ETF. ETFs seek to track the performance of various  
portions or segments of the equity markets. Shares of ETFs have many of the same
risks as direct investments in common stocks or bonds and their market value is 
expected to rise and fall as the value of the underlying index or bond rises and
falls.                                                                          

INVESTMENT DISCRETION                                                           
In pursuing the Portfolio's investment objectives, the Adviser has considerable 
leeway in deciding which investments it buys, holds or sells on a day-to-day    
basis, and which trading                                                        

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strategies it uses. For example, the Adviser may determine to use some permitted
trading strategies while not using others. The success or failure of such       
decisions will affect the Portfolio's performance.                              

TEMPORARY DEFENSIVE INVESTMENTS                                                 
The Portfolio generally intends to be substantially fully invested in accordance
with its investment objectives and policies during most market conditions.      
Although the Adviser can take a temporary defensive position during adverse     
market conditions, it can be expected that a defensive posture will be adopted  
less frequently than would be by other mutual funds. This policy may impede the 
Adviser's ability to protect the Portfolio's capital during declines in the     
particular segment of the market to which the Portfolio's assets are committed. 

BANK INVESTORS                                                                  
An investment in the Portfolio is not a deposit of a bank and is not insured or 
guaranteed by the Federal Deposit Insurance Corporation or any other government 
agency.                                                                         

PORTFOLIO TURNOVER                                                              
Consistent with its investment policies, the Portfolio will purchase and sell   
securities without regard to the effect on portfolio turnover. Higher portfolio 
turnover (E.G., over 100% per year) will cause the Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to       
shareholders.                                                                   

FEES AND EXPENSES OF THE PORTFOLIO                                              

[SIDENOTE]                                                                      

The Commission requires that the Fund disclose in this table the fees and       
expenses that you may pay if you buy and hold shares of the Portfolio. The      
Portfolio does not charge any sales loads or similar fees when you purchase or  
redeem shares. The Annual Portfolio Operating Expenses in the table do not      
reflect voluntary fee waivers and/or expense reimbursements from the Adviser,   
which are described in the footnotes.                                           

[END SIDENOTE]                                                                  

ANNUAL PORTFOLIO OPERATING EXPENSES                                             

                                                                [Download Table]
                                                                          
MANAGEMENT FEES (expenses that are deducted from Portfolio assets)*       
Class A                                                              0.50%
Class B**                                                             N/A 
12b-1 FEE                                                                 
Class A                                                              None 
Class B                                                               N/A 
OTHER EXPENSES***                                                         
Class A                                                              0.25%
Class B                                                               N/A 

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                                                                [Download Table]
                                      
TOTAL ANNUAL OPERATING EXPENSES       
Class A                          0.75%
Class B                           N/A 

----------                                                                      
*    The Management Fees for the Portfolio shown in the table above are the     
    highest that could be charged. This table does not show the effects of the
    Adviser's voluntary fee waivers and/or expense reimbursements. The Adviser
  has voluntarily agreed to reduce its management fee and/or reimburse the
Portfolio so that total annual operating expenses, excluding certain  
investment related expenses described below, will not exceed 0.75%.   

    In determining the actual amount of voluntary management fee waiver and/or
     expense reimbursement for the Portfolio, if any, certain investment related
expenses, such as foreign country tax expense and interest expense on 
   borrowing, are excluded from annual operating expenses. If these expenses
     were included, the Portfolio's total operating expenses after voluntary fee
    waivers and/or reimbursements would exceed the expense ratios shown above.

 Fee waivers and/or expense reimbursements are voluntary and the Adviser
     reserves the right to terminate any waiver and/or reimbursement at any time
and without notice.                                                   

**   Class B shares of the Portfolio are not currently being offered.           

***  "Other Expenses" are based on estimates of the expenses that will be       
incurred for the current fiscal year.                                 

FEES AND EXPENSES OF THE PORTFOLIO (cont'd)                                     

[SIDENOTE]                                                                      

The example assumes that you invest $10,000 in the Portfolio for the time       
periods indicated and then redeem all of your shares at the end of those        
periods. The example assumes that your investment has a 5% return each year and 
that the Portfolio's operating expenses remain the same. Although your actual   
costs may be higher or lower, based on these assumptions your costs would be    
equal to the amounts reflected in the table to the right.                       

[END SIDENOTE]                                                                  

EXAMPLE                                                                         

                                                                [Download Table]

LARGE CAP RELATIVE VALUE PORTFOLIO                        1 YEAR        3 YEARS
                                                          ------        -------
                                                                               
Class A                                                    $ 77          $ 240 
Class B*                                                    N/A            N/A 

------------                                                                    
*    Class B shares of the Portfolio are not currently being offered.           

INVESTMENT ADVISER                                                              

Morgan Stanley Investment Management Inc., 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. Morgan Stanley is the direct      
parent of Morgan Stanley Investment Management Inc. and Morgan Stanley & Co.    
Incorporated ("Morgan Stanley & Co."), the Fund's Distributor.                  

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Morgan Stanley is a preeminent global financial services firm that maintains    
leading market positions in each of its three primary businesses --securities,  
asset management and credit services. Morgan Stanley is a full service          
securities firm engaged in securities trading and brokerage activities,         
investment banking, research and analysis, financing and financial advisory     
services. As of June 30, 2003, the Adviser, together with its affiliated asset  
management companies, had approximately $________ billion in assets under       
management with approximately $________ billion in institutional assets.        

MANAGEMENT FEES                                                                 

The Adviser is entitled to receive a fee of 0.50% for its management services.  

PORTFOLIO MANAGEMENT                                                            

The Portfolio's assets are managed by the Equity Income Team of the Adviser.    
Current members of the team include James A. Gilligan, Managing Director,       
James O. Roeder, Vice President, Vincent Vizachero, Associate, Thomas Bastian,  
Vice President and Sergio Marcheli, Vice President.                             

SHAREHOLDER INFORMATION                                                         

DISTRIBUTION OF PORTFOLIO SHARES                                                
This Prospectus offers Class A shares of the Large Cap Relative Value Portfolio.
Morgan Stanley & Co. is the exclusive Distributor of Class A shares of the      
Portfolio. Morgan Stanley & Co. receives no compensation from the Fund for      
distributing Class A shares of the Portfolio. The Fund has adopted a Plan of    
Distribution with respect to the Class B shares pursuant to Rule 12b-1 (the     
"Plan") under the Investment Company Act of 1940. Under the Plan, a Portfolio   
pays the Distributor a distribution fee of 0.25% of its Class B shares' average 
daily net assets on an annualized basis. The distribution fee compensates the   
Distributor for marketing and selling Class B shares. Currently, the Large Cap  
Relative Value Portfolio does not offer Class B shares. The Distributor may pay 
others for providing distribution-related and other services, including         
accounting maintenance services. Over time the distribution fees will increase  
the cost of your investment and may cost you more than paying other types of    
sales charges.                                                                  

ABOUT NET ASSET VALUE                                                           
The net asset value ("NAV") per share of a class of shares of the Portfolio is  
determined by dividing the total of the value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market 
price. If market prices are unavailable or may be unreliable because of events  
occurring after the close of trading, fair value prices may be determined in    
good faith using methods approved by the Board of Directors. The Portfolio may  
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolio does not calculate NAV.  
As a result, the value of these investments may change on days when you cannot  
purchase or sell shares.                                                        

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PRICING OF PORTFOLIO SHARES                                                     
You may buy or sell (redeem) Class A and Class B shares of the Portfolio at the 
NAV next determined for the class after receipt of your order. The Fund         
determines the NAV per share for the Portfolio as of the close of the New York  
Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the  
Portfolio is open for business (the "Pricing Time").                            

HOW TO PURCHASE SHARES                                                          
You may purchase Class A and Class B shares of the Portfolio directly from the  
Fund, from the Distributor or through certain third parties ("Financial         
Intermediaries") on each day that the Portfolio is open for business.           

Investors purchasing shares through a Financial Intermediary may be charged a   
transaction-based or other fee by the Financial Intermediary for its services.  
If you are purchasing Class A or Class B shares through a Financial             
Intermediary, please consult your Financial Intermediary for purchase           
instructions.                                                                   

The minimum initial investment generally is $500,000 for Class A shares and     
$100,000 for Class B shares. The minimum additional investment generally is     
$1,000 for each account that you have. If the value of your account falls below 
the minimum initial investment amount for Class A shares and Class B shares as a
result of share redemptions, and remains below the minimum initial investment   
amount for 60 consecutive days, your account may be subject to involuntary      
conversion or involuntary redemption. You will be notified prior to any such    
conversions or redemptions. The Adviser may waive the minimum initial investment
and involuntary conversion or redemption features for certain investors,        
including individuals purchasing through a Financial Intermediary.              

Shares may, in the Fund's discretion, be purchased with investment securities   
(in lieu of or, in conjunction with, cash) acceptable to the Fund. The          
securities would be accepted by the Fund at their market value in return for    
Portfolio shares of equal value.                                                

INITIAL PURCHASE BY MAIL                                                        
You may open an account, subject to acceptance by the Fund, by completing and   
signing an Account Registration Form provided by J.P. Morgan Investor Services  
Company ("J.P. Morgan"), the Fund's transfer agent, which you can obtain by     
calling J.P. Morgan at 1-800-548-7786 and mailing it to J.P. Morgan Investor    
Services Company, 73 Tremont Street, Boston, MA 02108-3916 together with a check
payable to Morgan Stanley Institutional Fund, Inc.                              

Please note that payments to investors who redeem shares purchased by check will
not be made until payment of the purchase has been collected, which may take up 
to eight business days after purchase. You can avoid this delay by purchasing   
shares by wire.                                                                 

INITIAL PURCHASE BY WIRE                                                        
You may purchase shares of the Portfolio by wiring Federal Funds to the         
Custodian. YOU SHOULD FORWARD A COMPLETED ACCOUNT REGISTRATION FORM TO J.P.     
MORGAN IN ADVANCE OF THE WIRE. NOTIFICATION MUST BE GIVEN TO J.P. MORGAN AT     
1-800-548-7786 PRIOR TO THE DETERMINATION OF NAV. See the section above entitled
"Pricing of Portfolio Shares." (Prior notification must also be                 

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received from investors with existing accounts.) Instruct your bank to send a   
Federal Funds wire in a specified amount to the Custodian using the following   
wire instructions:                                                              

J.P. MORGAN CHASE BANK                                                          
270 Park Avenue                                                                 
New York, NY 10017                                                              
ABA #021000021                                                                  
DDA #910-2-733293                                                               
Attn: Morgan Stanley Institutional Fund, Inc.                                   
Subscription Account                                                            
Ref: (Portfolio Name, Account Number,                                           
Account Name)                                                                   

SHAREHOLDER INFORMATION (cont'd)                                                

OTHER TRANSACTIONAL INFORMATION                                                 
Frequent trades in your account(s) can disrupt management of the Portfolio and  
raise its expenses. Therefore, the Fund may, in its sole discretion, bar a      
shareholder who trades excessively from making further exchanges or purchases.  

Shares redeemed within 60 days of purchase will be subject to a 2% redemption   
fee, payable to the Portfolio. The redemption fee is designed to protect the    
Portfolio and remaining shareholders from the effects of short-term trading. The
Fund may waive the redemption fee in certain instances, including when it       
determines that imposition of the redemption fee is not necessary to protect the
Portfolio from the effects of short-term trading. The redemption fee is         
calculated based on and deducted from the redemption proceeds.                  

HOW TO REDEEM SHARES                                                            
You may redeem Portfolio shares directly from the Fund, through the Distributor 
or through your Financial Intermediary, each as described above under "How To   
Purchase Shares." The redemption price will be the NAV per share calculated at  
the next Pricing Time, which may be more or less than the purchase price of your
shares.                                                                         

The Fund will ordinarily distribute redemption proceeds in cash within one      
business day of your redemption request, but it may take up to seven days.      
However, if you purchased shares by check, the Fund will not distribute         
redemption proceeds until it has collected your purchase payment, which may take
up to eight days. In certain circumstances, for example, if payment of          
redemption proceeds in cash would be detrimental to the remaining shareholders, 
the Portfolio may pay a portion of the redemption proceeds by a                 
distribution-in-kind of readily marketable portfolio securities.                

Shares of the Portfolio redeemed within 60 days of purchase will be subject to  
the 2% redemption fee described under the section "Other Transactional          
Information."                                                                   

EXCHANGE PRIVILEGE                                                              
You may exchange Portfolio shares for the same class of shares of other         
available portfolios of the Fund. In addition, you may exchange Class A shares  
for Institutional Class shares or Class B                                       

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shares for Adviser Class shares of available portfolios of Morgan Stanley       
Institutional Fund Trust. Exchanges are effected based on the respective NAVs of
the applicable portfolios. To obtain a prospectus for another portfolio, call   
the Fund at 1-800-548-7786 or contact your Financial Intermediary. If you       
purchased Portfolio shares through a Financial Intermediary, certain portfolios 
may be unavailable for exchange.                                                

You can process your exchange by contacting your Financial Intermediary.        
Otherwise, you should send exchange requests by mail to the Fund's Transfer     
Agent, J.P. Morgan Investor Services Company, 73 Tremont Street, Boston, MA     
02108-3916. Exchange requests can also be made by calling 1-800-548-7786.       

[TEXT BOX BOTTOM OF PAGE]                                                       

THE FUND CURRENTLY CONSISTS OF THE FOLLOWING PORTFOLIOS:                        

U.S. EQUITY                                                                     
Equity Growth Portfolio                                                         
Focus Equity Portfolio                                                          
Large Cap Relative Value Portfolio                                              
MicroCap Portfolio+                                                             
Small Company Growth Portfolio                                                  
Technology Portfolio                                                            
U.S. Equity Plus Portfolio+                                                     
U.S. Real Estate Portfolio                                                      
Value Equity Portfolio                                                          

GLOBAL AND INTERNATIONAL EQUITY                                                 
Active International Allocation Portfolio                                       
Asian Real Estate Portfolio                                                     
Asian Equity Portfolio                                                          
China Growth Portfolio+                                                         
Emerging Markets Portfolio                                                      
European Value Equity Portfolio                                                 
European Real Estate Portfolio                                                  
Global Franchise Portfolio                                                      
Global Value Equity Portfolio                                                   
Gold Portfolio+                                                                 
International Equity Portfolio*                                                 
International Magnum Portfolio                                                  
International Small Cap Portfolio                                               
Japanese Value Equity Portfolio                                                 
Latin American Portfolio                                                        

FIXED INCOME                                                                    
Emerging Markets Debt Portfolio                                                 
Mortgage-Backed Securities Portfolio+                                           
Municipal Bond Portfolio+                                                       

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MONEY MARKET                                                                    
Money Market Portfolio                                                          
Municipal Money Market Portfolio                                                

* Portfolio is currently closed to new investors                                
+ Portfolio is not operational                                                  

[END TEXT BOX]                                                                  

SHAREHOLDER INFORMATION (cont'd)                                                

When you exchange for shares of another portfolio, your transaction will be     
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you    
will not necessarily receive the same class of shares that you tendered for     
exchange. Your exchange price will be the price calculated at the next Pricing  
Time after the Fund receives your exchange order. The Fund, in its sole         
discretion, may waive the minimum initial investment amount in certain cases.   

DIVIDENDS AND DISTRIBUTIONS                                                     
The Portfolio's policy is to distribute to shareholders substantially all of its
net investment income, if any, in the form of a quarterly dividend and to       
distribute net realized capital gains, if any, at least annually.               

The Fund automatically reinvests all dividends and distributions in additional  
shares. However, you may elect to receive distributions in cash by giving       
written notice to the Fund or your Financial Intermediary or by checking the    
appropriate box in the Distribution Option section on the Account Registration  
Form.                                                                           

TAXES                                                                           
The dividends and distributions you receive from the Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax     
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends generally are taxed as ordinary income, long-term capital gains 
distributions to individuals are taxed at a maximum rate of 15% regardless of   
how long you have held your shares, and short-term capital gains distributions  
are taxed at ordinary income rates. Under recently enacted legislation, ordinary
income dividends may be taxed at the same rate as long-term capital gains.      
However, income received in the form of ordinary income dividends will not be   
considered long-term capital gains for other Federal income tax purposes,       
including the calculation of net capital losses. The Portfolio may be able to   
pass through to you a credit for foreign income taxes it pays. The Fund will    
tell you annually how to treat dividends and distributions.                     

If you redeem shares of the Portfolio, you may be subject to tax on any gains   
you earn based on your holding period for the shares and your marginal tax rate.
An exchange of shares of the Portfolio for shares of another portfolio is a sale
of Portfolio shares for tax purposes. Conversions of shares between classes will
not result in taxation.                                                         

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Because each investor's tax circumstances are unique and the tax laws may       
change, you should consult your tax advisor about your investment.              

WHERE TO FIND ADDITIONAL INFORMATION                                            

In addition to this Prospectus, the Fund has a Statement of Additional          
Information ("SAI"), dated May 1, 2003 as supplemented on ____________, 2003,   
which contains additional, more detailed information about the Fund and the     
Portfolio. The SAI is incorporated by reference into this Prospectus and,       
therefore, legally forms a part of this Prospectus.                             

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that  
contain additional information about the Portfolio's investments. In the Fund's 
annual report, you will find a discussion of the market conditions and the      
investment strategies that significantly affected the Portfolio's performance   
during the last fiscal year.                                                    

You may obtain the SAI and Shareholder Reports without charge by contacting the 
Fund at the toll-free number below. If you purchased shares through a Financial 
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.                                                    

Information about the Fund, including the SAI, and Shareholder Reports, may be  
obtained from the Securities and Exchange Commission in any of the following    
ways: (1) In person: you may review and copy documents in the Commission's      
Public Reference Room in Washington D.C. (for information call 1-202-942-8090); 
(2) On-line: you may retrieve information from the Commission's web site at     
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a   
duplicating fee, by writing to Securities and Exchange Commission, Public       
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may       
request documents, upon payment of a duplicating fee, by e-mailing the          
Securities and Exchange Commission at the following address: publicinfo@sec.gov.
To aid you in obtaining this information, the Fund's Investment Company Act     
registration number is 811-05624.                                               

Morgan Stanley Institutional Fund, Inc.                                         
c/o J.P. Morgan Investor Services Company                                       
73 Tremont Street                                                               
Boston, MA 02108-3916                                                           

For Shareholder Inquiries,                                                      
call 1-800-548-7786.                                                            

Prices and Investment Results are available at www.morganstanley.com/im.        

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 MORGAN STANLEY INSTITUTIONAL FUND, INC.
 P.O. BOX 2798
BOSTON, MASSACHUSETTS 02208-2798
 STATEMENT OF ADDITIONAL INFORMATION
 DATED MAY 1, 2003
 AND AS SUPPLEMENTED ON ____, 2003

This statement of additional information is not a prospectus. It should be read 
in conjunction with a prospectus for the applicable portfolio, which may be     
obtained by calling the Morgan Stanley Institutional Fund, Inc. (the "Fund") at 
1-800-548-7786.                                                                 

 TABLE OF CONTENTS

                                                                [Download Table]

                                                     PAGE
                                                     ----
                                                         
INVESTMENT POLICIES AND STRATEGIES                     1 
INVESTMENT LIMITATIONS                                35 
PURCHASE OF SHARES                                    37 
REDEMPTION OF SHARES                                  40 
ACCOUNT POLICIES AND FEATURES                         42 
MANAGEMENT OF THE FUND                                43 
COMPENSATION TABLE                                    52 
INVESTMENT ADVISORY AND OTHER SERVICES                52 
DISTRIBUTION OF SHARES                                55 
BROKERAGE PRACTICES                                   56 
VALUE OF PORTFOLIO HOLDING                            60 
GENERAL INFORMATION                                   61 
TAXES                                                 61 
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES   67 
PERFORMANCE INFORMATION                               74 
DESCRIPTION OF RATINGS                                82 
FINANCIAL STATEMENTS                                  84 

The Fund's audited financial statements for the fiscal year ended December 31,  
2002, including notes thereto and the report of Ernst & Young LLP, are          
incorporated by reference herein from the Fund's Annual Report. A copy of the   
Fund's Annual Report to Shareholders must accompany the delivery of this        
Statement of Additional Information. The China Growth, Gold, MicroCap,          
Mortgage-Backed Securities, Municipal Bond and U.S. Equity Plus Portfolios were 
not operational as of the date of this statement of additional information, and 
do not have a current prospectus. You may obtain the Fund's most recent Annual  
Report by calling the Morgan Stanley Institutional Fund, Inc. at 1-800-548-7786.

This Statement of Additional Information relates to the following prospectuses  
dated May 1, 2003: Active International Allocation Portfolio, Asian Equity      
Portfolio, Asian Real Estate Portfolio, Emerging Markets Portfolio, Emerging    
Markets Debt Portfolio, Equity Growth Portfolio, European Real Estate Portfolio,
European Value Equity Portfolio, Focus Equity Portfolio, Global Franchise       
Portfolio, Global Value Equity Portfolio, International Equity Portfolio,       
International Magnum Portfolio, International Small Cap Portfolio, Japanese     
Value Equity Portfolio, Latin American Portfolio, Money Market Portfolio,       
Municipal Money Market Portfolio, Small Company Growth Portfolio, Technology    
Portfolio, U.S. Real Estate Portfolio and Value Equity Portfolio; and dated     
______, 2003; Large Cap Relative Value Portfolio. Each Portfolio (with the      
exception of the Large Cap Relative Value, International Small Cap, Money Market
and Municipal Money Market Portfolios) offer both Class A and Class B shares.   
The Large Cap Relative Value, International Small Cap, Money Market and         
Municipal Money Market Portfolios only offer Class A shares.                    

INVESTMENT POLICIES AND STRATEGIES

This Statement of Additional Information provides additional information about  
the investment policies and operations of the Fund and its investment portfolios
(each a "Portfolio"). Morgan Stanley Investment Management Inc. (the "Adviser"  
or "Morgan Stanley Investment Management") acts as investment adviser to each   
Portfolio. Under the supervision of Morgan Stanley Investment Management, Morgan
Stanley Investment Advisors Inc.                                                

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("MSIA" or the "Sub-Adviser") acts as investment sub-adviser to the Money Market
and Municipal Money Market Portfolios. References to Morgan Stanley Investment  
Management, when used in connection with its activities as investment adviser,  
include the Sub-Adviser acting under its supervision.                           

The following table provides additional information about the Portfolios'       
investment policies. Capitalized items used below are described in more detail  
later in this section.                                                          

ACTIVE INTERNATIONAL ALLOCATION         Under normal circumstances, the         
PORTFOLIO                               Portfolio invests primarily in          
                                  accordance with country and sector
                                       weightings determined by the Adviser in
                                     Equity Securities of non-U.S. issuers
                                 that, in the aggregate, generally
                               replicate broad market indices.

ASIAN EQUITY PORTFOLIO                  Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                      Securities of Asian issuers (excluding
                  Japanese issuers).

ASIAN REAL ESTATE PORTFOLIO             Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                   Securities of companies principally
                                engaged in the Asian real estate
         industry.

CHINA GROWTH PORTFOLIO                  Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                     Securities of issuers in The People's
                                        Republic of China, Hong Kong and Taiwan.

EMERGING MARKETS PORTFOLIO              Under normal circumstances, the         
                              Portfolio invests primarily in
                                    growth-oriented Equity Securities of
                                     issuers in Emerging Market Countries.

EMERGING MARKETS DEBT PORTFOLIO         Under normal circumstances, the         
                                    Portfolio invests primarily in Fixed
                                   Income Securities of government and
                                    government-related issuers and, to a
                                   lesser extent, corporate issuers in
                          Emerging Market Countries.

EQUITY GROWTH PORTFOLIO                 Under normal circumstances, the         
                                     Portfolio invests primarily in growth
                                   oriented Equity Securities of large
                                     capitalization U.S. and, to a limited
                          extent, foreign companies.

EUROPEAN REAL ESTATE PORTFOLIO          Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                   Securities of companies principally
                                   engaged in the European real estate
         industry.

EUROPEAN VALUE EQUITY PORTFOLIO         Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                               Securities of European issuers.

FOCUS EQUITY PORTFOLIO                  Under normal circumstances, the         
                              Portfolio invests primarily in
                                    growth-oriented Equity Securities of
                                      U.S. and, to a limited extent, foreign
                                  companies. The Portfolio generally
                              concentrates its holdings in a
                                        relatively small number of companies and
                                       may invest up to 25% of its assets in a
              single issuer.

GLOBAL FRANCHISE PORTFOLIO              Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                        Securities of issuers located throughout
                                        the world that Morgan Stanley Investment
                                     Management believes have, among other
                                     things, resilient business franchises
                     and growth potential.

GLOBAL VALUE EQUITY PORTFOLIO           Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                        Securities of issuers located throughout
                                       the world, including issuers located in
                                       the United States. Ordinarily, at least
                                        20% of the Portfolio's total assets will
                                        be invested in Equity Securities of U.S.
        issuers.

GOLD PORTFOLIO                          Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                        Securities of U.S. and foreign companies
                                   engaged in gold-related activities.

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INTERNATIONAL EQUITY PORTFOLIO          Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                               Securities of non-U.S. issuers.

INTERNATIONAL MAGNUM PORTFOLIO          Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                        Securities of non-U.S. issuers domiciled
                                    in EAFE countries. The Portfolio may
                                      invest up to 5% of its total assets in
                                      the securities of issuers domiciled in
                                      non-EAFE countries, including Emerging
                 Market Countries.

INTERNATIONAL SMALL CAP PORTFOLIO       Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                       Securities of small non-U.S. companies.

JAPANESE VALUE EQUITY PORTFOLIO         Under normal circumstances, the         
                                        Portfolio invests in primarily in Equity
                                   Securities of Japanese issuers that
                                    Morgan Stanley Investment Management
                                    believes are undervalued relative to
                                     their intrinsic assets, cash flow and
                   earnings potential.

LARGE CAP RELATIVE VALUE                Under normal circumstances, the         
                                Portfolio invests primarily in a
                                    portfolio of income-producing Equity
           Securities.

LATIN AMERICAN PORTFOLIO                Under normal circumstances, the         
                              Portfolio invests primarily in
                                    growth-oriented Equity Securities of
                       Latin American issuers.

MICROCAP PORTFOLIO                      Under normal circumstances, the         
                              Portfolio invests primarily in
                                    growth-oriented Equity Securities of
                                        small growth-oriented domestic and, to a
                                      limited extent, foreign companies with
                               potential for long-term growth.

MONEY MARKET PORTFOLIO                  Under normal circumstances, the         
                                    Portfolio invests primarily in Money
                                 Market Instruments with effective
                               maturities of 397 days or less.

MORTGAGE-BACKED SECURITIES PORTFOLIO    Under normal circumstances, the         
                              Portfolio invests primarily in
                           investment grade short- and
                                  intermediate-term Mortgage-Related
                                       Securities. The Portfolio may invest up
                                     to 15% in Mortgage-Related Securities
                                 rated in the third highest rating
                                    category or, if unrated, believed by
                                       Morgan Stanley Investment Management to
                         be of equivalent quality.

MUNICIPAL BOND PORTFOLIO                Under normal circumstances, the         
                              Portfolio invests primarily in
                                        Municipals rated investment grade at the
                                 time of investment or futures and
                                    options on futures relating to these
                                        Municipals. The Portfolio invests 65% of
                                      its net assets in Municipals having an
                                       initial maturity of more than one year.
                                     The Portfolio may invest up to 20% of
                                     its net assets in Municipals that pay
                                       interest subject to alternative minimum
                               tax and up to 20% in cash, cash
                                       equivalents, U.S. Government securities
                                      and taxable investment grade corporate
                        Fixed Income Securities.

MUNICIPAL MONEY MARKET PORTFOLIO        Under normal circumstances, the         
                                        Portfolio invests primarily in Municipal
                                       Money Market Instruments with effective
                                       maturities of 397 days or less that pay
                                    interest that is exempt from federal
         taxation.

SMALL COMPANY GROWTH PORTFOLIO          Under normal circumstances, the         
                              Portfolio invests primarily in
                                    growth-oriented Equity Securities of
                                    small U.S. issuers and, to a limited
                        extent, foreign issuers.

TECHNOLOGY PORTFOLIO                    Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                   Securities of companies that Morgan
                                      Stanley Investment Management believes
                                      will benefit from their involvement in
                                 technology and technology-related
           industries.

U.S. EQUITY PLUS PORTFOLIO              Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                      Securities of U.S. issuers included in
                                the Standard & Poor's 500 Index.

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U.S. REAL ESTATE PORTFOLIO              Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                   Securities of companies principally
                               engaged in the U.S. real estate
                               industry, including real estate
                          investment trusts (REITs).

VALUE EQUITY PORTFOLIO                  Under normal circumstances, the         
                                     Portfolio invests primarily in Equity
                                    Securities of U.S. and, to a limited
                                   extent, foreign issuers that Morgan
                                      Stanley Investment Management believes
                                       to be undervalued relative to the stock
                                market in general at the time of
         purchase.

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The following tables summarize the permissible strategies and investments for   
each Portfolio. These tables should be used in conjunction with the investment  
summaries for each Portfolio contained in the Prospectus in order to provide a  
more complete description of such Portfolio's investment policies.              

GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS

                                                        [Enlarge/Download Table]

                                        ACTIVE                 ASIAN                     EUROPEAN  EUROPEAN             GLOBAL 
                                        INTERNATIONAL  ASIAN   REAL    CHINA   EMERGING  VALUE     REAL      GLOBAL     VALUE  
                                        ALLOCATION     EQUITY  ESTATE  GROWTH  MARKETS   EQUITY    ESTATE    FRANCHISE  EQUITY 
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               
EQUITY SECURITIES:                                                                                                             
   Common Stocks                              X           X       X       X       X         X         X           X        X   
   Depositary Receipts                        X           X       X       X       X         X         X           X        X   
   Preferred Stocks                           X           X       X       X       X         X         X           X        X   
   Rights                                     X           X       X       X       X         X         X           X        X   
   Warrants                                   X           X       X       X       X         X         X           X        X   
   Convertible Securities                     X           X       X       X       X         X         X           X        X   
   Limited Partnerships                                                                                                        
   Investment Company Securities              X           X       X       X       X         X         X           X        X   
   Real Estate Investing                      X           X       X       X       X         X         X           X        X   
   --REITS                                    X           X       X       X       X         X         X           X        X   
   --Specialized Ownership Vehicles           X           X       X       X       X         X         X           X        X   
FIXED INCOME SECURITIES:                                                                                                       
   High Yield Securities                                                          X                                            
   U.S. Government Securities                 X           X       X       X       X         *         X           *        *   
   Agencies                                   X           X       X       X       X         *         X           *        *   
   Corporates                                 X           X       X       X       X         *         X           *        *   
   Money Market Instruments                   X           X       X       X       X         X         X           X        X   
   Mortgage Related Securities                                                                                                 
   -MBSs                                                                                                                       
   -CMOs                                                                                                                       
   -SMBSs                                                                                                                      
   Repurchase Agreements                      X           X       X       X       X         X         X           X        X   
   Municipals                                                                                                                  
   Asset-Backeds                                                                                                               
   Loan Participations and                                                                                                     
      Assignments                                                                 X                                            
   Temporary Investments                      X           X       X       X       X         X         X           X        X   
   Zero Coupons, Pay-In-Kind                                                                                                   
      Securities or Deferred                                                                                                   
      Payment Securities                      X           X       X       X       X                   X                        
   Floaters                                                                                                                    


                                                                                            JAPANESE                           
                                               INTERNATIONAL  INTERNATIONAL  INTERNATIONAL  VALUE     LATIN                    
                                        GOLD   EQUITY         MAGNUM         SMALL CAP      EQUITY    AMERICAN                 
--------------------------------------------------------------------------------------------------------------                 
                                                                                                                               
EQUITY SECURITIES:                                                                                                             
   Common Stocks                          X         X               X             X             X        X                     
   Depositary Receipts                    X         X               X             X             X        X                     
   Preferred Stocks                       X         X               X             X             X        X                     
   Rights                                 X         X               X             X             X        X                     
   Warrants                               X         X               X             X             X        X                     
   Convertible Securities                 X         X               X             X             X        X                     
   Limited Partnerships                                                                                                        
   Investment Company Securities          X         X               X             X             X        X                     
   Real Estate Investing                            X               X             X             X        X                     
   --REITS                                          X               X             X             X        X                     
   --Specialized Ownership Vehicles                 X               X             X             X        X                     
FIXED INCOME SECURITIES:                                                                                                       
   High Yield Securities                                                                                 X                     
   U.S. Government Securities             X         *               X             *             X        X                     
   Agencies                               X         *               X             *             X        X                     
   Corporates                             X         *               X             *             X        X                     
   Money Market Instruments               X         X               X             X             X        X                     
   Mortgage Related Securities                                                                                                 
   -MBSs                                                                                                                       
   -CMOs                                                                                                                       
   -SMBSs                                                                                                                      
   Repurchase Agreements                  X         X               X             X             X        X                     
   Municipals                                                                                                                  
   Asset-Backeds                                                                                                               
   Loan Participations and                                                                                                     
      Assignments                                                                                        X                     
   Temporary Investments                  X         X               X             X             X        X                     
   Zero Coupons, Pay-In-Kind                                                                                                   
      Securities or Deferred                                                                                                   
      Payment Securities                  X                         X                           X        X                     
   Floaters                                                                                                                    

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                                                        [Enlarge/Download Table]

                                        ACTIVE                 ASIAN                     EUROPEAN  EUROPEAN             GLOBAL 
                                        INTERNATIONAL  ASIAN   REAL    CHINA   EMERGING  VALUE     REAL      GLOBAL     VALUE  
                                        ALLOCATION     EQUITY  ESTATE  GROWTH  MARKETS   EQUITY    ESTATE    FRANCHISE  EQUITY 
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               
   Inverse Floaters                                                                                                            
FOREIGN INVESTMENT:                                                                                                            
   Foreign Equity Securities                  X           X       X       X       X         X         X           X        X   
   Foreign Government Fixed Income                                                                                             
      Securities                              X           X       X       X       X                   X                        
   Foreign Corporate Fixed Income                                                                                              
      Securities                              X           X       X       X       X                   X                        
   Emerging Market Country                                                                                                     
      Securities                              X           X       X       X       X         X         X           X        X   
   Russian Equity Securities                                                      X                                            
   Foreign Currency Transactions              X           X       X       X       X         X         X           X        X   
   Brady Bonds                                X           X       X               X         X         X                    X   
   Investment Funds                           X           X       X       X       X         X         X           X        X   
OTHER SECURITIES AND INVESTMENT                                                                                                
TECHNIQUES:                                                                                                                    
   Loans of Portfolio Securities              X           X       X       X       X         X         X           X        X   
   Non-Publicly Traded Securities,                                                                                             
      Private Placements and                                                                                                   
      Restricted Securities                   X           X       X       X       X         X         X           X        X   
   When-Issued and Delayed Delivery                                                                                            
      Securities                              X           X       X       X       X         X         X           X        X   
   Borrowing for Investment Purposes                                                                                           
   Temporary Borrowing                        X           X       X       X       X         X         X           X        X   
   Reverse Repurchase Agreements                                                                                               
   Short Sales                                                                                                                 
   Structured Investments                     X           X       X       X       X         X         X           X        X   
DERIVATIVE PRODUCTS:                                                                                                           
   Foreign Currency Forward                                                                                                    
      Contracts                               X           X       X       X       X         X         X           X        X   
   Futures Contracts                          X           X       X       X       X         X         X           X        X   
   Forward Contracts                          X           X       X       X       X         X         X           X        X   
   Option Transactions                        X           X       X       X       X         X         X           X        X   
   Swaps                                      X           X       X       X       X         X         X           X        X   


                                                                                            JAPANESE                           
                                               INTERNATIONAL  INTERNATIONAL  INTERNATIONAL  VALUE     LATIN                    
                                        GOLD   EQUITY         MAGNUM         SMALL CAP      EQUITY    AMERICAN                 
--------------------------------------------------------------------------------------------------------------                 
                                                                                                                               
   Inverse Floaters                                                                                                            
FOREIGN INVESTMENT:                                                                                                            
   Foreign Equity Securities              X         X               X             X             X        X                     
   Foreign Government Fixed Income                                                                                             
      Securities                          X                         X                           X        X                     
   Foreign Corporate Fixed Income                                                                                              
      Securities                          X                         X                           X        X                     
   Emerging Market Country                                                                                                     
      Securities                          X         X               X             X                      X                     
   Russian Equity Securities                                                                                                   
   Foreign Currency Transactions          X         X               X             X             X        X                     
   Brady Bonds                            X                         X                           X        X                     
   Investment Funds                       X         X               X             X             X        X                     
OTHER SECURITIES AND INVESTMENT                                                                                                
TECHNIQUES:                                                                                                                    
   Loans of Portfolio Securities          X         X               X             X             X        X                     
   Non-Publicly Traded Securities,                                                                                             
      Private Placements and                                                                                                   
      Restricted Securities               X         X               X             X             X        X                     
   When-Issued and Delayed Delivery                                                                                            
      Securities                          X         X               X             X             X        X                     
   Borrowing for Investment Purposes                                                                     X                     
   Temporary Borrowing                    X         X               X             X             X        X                     
   Reverse Repurchase Agreements                                                                         X                     
   Short Sales                                                                                           X                     
   Structured Investments                 X         X               X             X             X        X                     
DERIVATIVE PRODUCTS:                                                                                                           
   Foreign Currency Forward                                                                                                    
      Contracts                           X         X               X             X             X        X                     
   Futures Contracts                      X         X               X             X             X        X                     
   Forward Contracts                      X         X               X             X             X        X                     
   Option Transactions                    X         X               X             X             X        X                     
   Swaps                                  X         X               X             X             X        X                     

----------                                                                      
*    This Portfolio may invest in certain Corporate Debt as described under     
Money Market Instruments and Temporary Investments.                   

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U.S. EQUITY PORTFOLIOS                                                          

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                                                                                 LARGE CAP            SMALL                U.S.  
                                                                 EQUITY  FOCUS   RELATIVE             COMPANY              EQUITY
                                                                 GROWTH  EQUITY  VALUE      MICROCAP  GROWTH   TECHNOLOGY  PLUS  
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 
EQUITY SECURITIES:                                                                                                               
   Common Stocks                                                   X        X        X          X         X         X        X   
   Depositary Receipts                                             X        X        X          X         X         X        X   
   Preferred Stocks                                                X        X        X          X         X         X        X   
   Rights                                                          X        X        X          X         X         X        X   
   Warrants                                                        X        X        X          X         X         X        X   
   Convertible Securities                                          X        X                   X         X         X        X   
   Limited Partnerships                                                                                                          
   Investment Company Securities                                   X        X        X          X         X         X        X   
   Real Estate Investing                                           X        X        X          X         X                  X   
   -REITS                                                          X        X        X          X         X                  X   
   -Specialized Ownership Vehicles                                 X        X        X          X         X                  X   
FIXED INCOME SECURITIES:                                                                                                         
   High Yield Securities                                                                                            X            
   U.S. Government Securities                                      X        X        X          X         X         X        X   
   Agencies                                                        X        X        X          X         X         X        X   
   Corporates                                                      X        X        X          X         X         X        X   
   Money Market Instruments                                        X        X        X          X         X         X        X   
   Mortgage Related Securities                                                                                                   
   -MBSs                                                                                                                         
   -CMOs                                                                                                                         
   -SMBSs                                                                                                                        
   Repurchase Agreements                                           X        X        X          X         X         X        X   
   Municipals                                                                                                                    
   Asset-Backeds                                                                                                                 
   Loan Participations and Assignments                                                                                           
   Temporary Investments                                           X        X        X          X         X         X        X   
   Zero Coupons, Pay-In-Kind Securities or Deferred Payment                                                                      
      Securities                                                   X        X        X          X         X         X        X   
   Floaters                                                                                                                      
   Inverse Floaters                                                                                                              
FOREIGN INVESTMENT:                                                                                                              
   Foreign Equity Securities                                       X        X        X          X         X         X        X   
   Foreign Bonds                                                                                                    X            
   Emerging Market Country Securities                                                                               X            
   Russian Equity Securities                                                                                                     
   Foreign Currency Transactions                                   X        X        X          X         X         X        X   
   Brady Bonds                                                                                                                   


                                                                 U.S.                                                            
                                                                 REAL                                                            
                                                                 ESTATE  VALUE EQUITY                                            
-------------------------------------------------------------------------------------                                            
                                                                                                                                 
EQUITY SECURITIES:                                                                                                               
   Common Stocks                                                    X          X                                                 
   Depositary Receipts                                              X          X                                                 
   Preferred Stocks                                                 X          X                                                 
   Rights                                                           X          X                                                 
   Warrants                                                         X          X                                                 
   Convertible Securities                                           X          X                                                 
   Limited Partnerships                                                                                                          
   Investment Company Securities                                    X          X                                                 
   Real Estate Investing                                            X          X                                                 
   -REITS                                                           X          X                                                 
   -Specialized Ownership Vehicles                                  X          X                                                 
FIXED INCOME SECURITIES:                                                                                                         
   High Yield Securities                                                                                                         
   U.S. Government Securities                                       X          X                                                 
   Agencies                                                         X          X                                                 
   Corporates                                                       X          X                                                 
   Money Market Instruments                                         X          X                                                 
   Mortgage Related Securities                                                                                                   
   -MBSs                                                                                                                         
   -CMOs                                                                                                                         
   -SMBSs                                                                                                                        
   Repurchase Agreements                                            X          X                                                 
   Municipals                                                                                                                    
   Asset-Backeds                                                                                                                 
   Loan Participations and Assignments                                                                                           
   Temporary Investments                                            X          X                                                 
   Zero Coupons, Pay-In-Kind Securities or Deferred Payment                                                                      
      Securities                                                    X          X                                                 
   Floaters                                                                                                                      
   Inverse Floaters                                                                                                              
FOREIGN INVESTMENT:                                                                                                              
   Foreign Equity Securities                                        X          X                                                 
   Foreign Bonds                                                    X                                                            
   Emerging Market Country Securities                               X                                                            
   Russian Equity Securities                                                                                                     
   Foreign Currency Transactions                                    X          X                                                 
   Brady Bonds                                                                                                                   

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                                                                                 LARGE CAP            SMALL                U.S.  
                                                                 EQUITY  FOCUS   RELATIVE             COMPANY              EQUITY
                                                                 GROWTH  EQUITY  VALUE      MICROCAP  GROWTH   TECHNOLOGY  PLUS  
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 
   Investment Funds                                                X        X        X          X         X         X        X   
OTHER SECURITIES AND INVESTMENT TECHNIQUES:                                                                                      
   Loans of Portfolio Securities                                   X        X        X          X         X         X        X   
   Non-Publicly Traded Securities, Private Placements and                                                                        
      Restricted Securities                                        X        X        X          X         X         X        X   
   When-Issued and Delayed Delivery Securities                     X        X        X          X         X         X        X   
   Borrowing for Investment Purposes                                                                                             
   Temporary Borrowing                                             X        X        X          X         X         X        X   
   Reverse Repurchase Agreements                                                                                    X        X   
   Short Sales                                                                                                                   
   Structured Investments                                          X        X        X          X         X         X        X   
DERIVATIVE PRODUCTS:                                                                                                             
   Foreign Currency Forward Contracts                              X        X        X          X         X         X        X   
   Futures Contracts                                               X        X        X          X         X         X        X   
   Forward Contracts                                               X        X        X          X         X         X        X   
   Option Transactions                                             X        X        X          X         X         X        X   
   Swaps                                                           X        X        X          X         X         X        X   


                                                                 U.S.                                                            
                                                                 REAL                                                            
                                                                 ESTATE  VALUE EQUITY                                            
-------------------------------------------------------------------------------------                                            
                                                                                                                                 
   Investment Funds                                                 X          X                                                 
OTHER SECURITIES AND INVESTMENT TECHNIQUES:                                                                                      
   Loans of Portfolio Securities                                    X          X                                                 
   Non-Publicly Traded Securities, Private Placements and                                                                        
      Restricted Securities                                         X          X                                                 
   When-Issued and Delayed Delivery Securities                      X          X                                                 
   Borrowing for Investment Purposes                                                                                             
   Temporary Borrowing                                              X          X                                                 
   Reverse Repurchase Agreements                                                                                                 
   Short Sales                                                                                                                   
   Structured Investments                                           X          X                                                 
DERIVATIVE PRODUCTS:                                                                                                             
   Foreign Currency Forward Contracts                               X          X                                                 
   Futures Contracts                                                X          X                                                 
   Forward Contracts                                                X          X                                                 
   Option Transactions                                              X          X                                                 
   Swaps                                                            X          X                                                 

FIXED INCOME AND MONEY MARKET PORTFOLIOS                                        

                                                        [Enlarge/Download Table]

                                                                       EMERGING                                      MUNICIPAL
                                                                       MARKETS   MONEY   MORTGAGE-BACKED  MUNICIPAL  MONEY    
                                                                       DEBT      MARKET  SECURITIES       BOND       MARKET   
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
EQUITY SECURITIES:                                                                                                            
   Common Stocks                                                                                                              
   Depositary Receipts                                                      X                                                 
   Preferred Stocks                                                         X                                                 
   Rights                                                                   X                                                 
   Warrants                                                                 X                                                 
   Convertible Securities                                                   X                                                 
   Limited Partnerships                                                                                                       
   Investment Company Securities                                            X       X           X             X          X    
   Real Estate Investing                                                                                                      
   -REITs                                                                                                                     
   -Specialized Ownership Vehicles                                                                                            

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                                                                       EMERGING                                      MUNICIPAL
                                                                       MARKETS   MONEY   MORTGAGE-BACKED  MUNICIPAL  MONEY    
                                                                       DEBT      MARKET  SECURITIES       BOND       MARKET   
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
FIXED INCOME SECURITIES:                                                                                                      
   High Yield Securities                                                    X                                                 
   U.S. Government Securities                                               X       X           X             X          X    
   Agencies                                                                 X       X           X             X          X    
   Corporates                                                               X       X           *             X          *    
   Money Market Instruments                                                 X       X           X             X          X    
   Mortgage Related Securities                                              X       X           X             X               
   -MBSs                                                                    X       X           X             X               
   -CMOs                                                                    X                   X                             
   -SMBSs                                                                                       X                             
   Repurchase Agreements                                                    X       X           X             X          X    
   Municipals                                                               X       X                         X          X    
   Asset-Backeds                                                            X       X                                         
   Loan Participations and Assignments                                      X                                                 
   Temporary Investments                                                    X       X           X             X          X    
   Zero Coupons, Pay-In-Kind Securities or Deferred Payment                 X       X           X             X          X    
   Floaters                                                                 X       X           X             X          X    
   Inverse Floaters                                                         X                   X             X               
FOREIGN INVESTMENT:                                                                                                           
   Foreign Equity Securities                                                X                                                 
   Foreign Bonds                                                            X                                                 
   Emerging Market Country Securities                                       X                                                 
   Russian Equity Securities                                                                                                  
   Foreign Currency Transactions                                            X                                                 
   Brady Bonds                                                              X                                                 
   Investment Funds                                                         X                                                 
OTHER SECURITIES AND INVESTMENT TECHNIQUES:                                                                                   
   Loans of Portfolio Securities                                            X                   X             X               
   Non-Publicly Traded Securities, Private Placements and Restricted                                                          
          Securities                                                        X       X           X             X          X    
   When-Issued and Delayed Delivery Securities                              X       X           X             X          X    
   Borrowing for Investment Purposes                                        X                                                 
   Temporary Borrowing                                                      X       X           X             X          X    
   Reverse Repurchase Agreements                                            X       X                                         
   Short Sales                                                              X                                                 
   Structured Investments                                                   X       X           X             X               
DERIVATIVE PRODUCTS:                                                                                                          
   Foreign Currency Forward Contracts                                       X                   X             X               

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                                                                       EMERGING                                      MUNICIPAL
                                                                       MARKETS   MONEY   MORTGAGE-BACKED  MUNICIPAL  MONEY    
                                                                       DEBT      MARKET  SECURITIES       BOND       MARKET   
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
   Futures Contracts                                                        X                   X             X               
   Forward Contracts                                                        X                   X             X               
   Option Transactions                                                      X                   X             X               
   Swaps                                                                    X                   X             X               

----------                                                                      
*  This Portfolio may invest in certain Corporate Debt as described under       
Money Market Instruments and Temporary Investments.                       

EQUITY SECURITIES                                                               

Equity Securities generally represent an ownership interest in an issuer, or may
be convertible into or represent a right to acquire an ownership interest in an 
issuer. While there are many types of Equity Securities, prices of all equity   
securities will fluctuate. Economic, political and other events may affect the  
prices of broad equity markets. For example, changes in inflation or consumer   
demand may affect the prices of all Equity Securities in the United States.     
Similar events also may affect the prices of particular equity securities. For  
example, news about the success or failure of a new product may affect the price
of a particular issuer's Equity Securities.                                     

The Portfolios may purchase equity securities issued as part of, or a short     
period after, a company's initial public offering ("IPOs"), and may at times    
dispose of those securities shortly after their acquisition. A Portfolio's      
purchase of securities issued in IPOs exposes it to the risks associated with   
companies that have little operating history as public companies, as well as to 
the risks inherent in those sectors of the market where these issuers operate.  
The market for IPO issuers has been volatile, and share prices of newly-public  
companies have fluctuated significantly over short periods of time.             

COMMON STOCKS. Common Stocks represent an ownership interest in a corporation,  
entitling the stockholder to voting rights and receipt of dividends paid based  
on proportionate ownership.                                                     

DEPOSITARY RECEIPTS. Depositary Receipts represent an ownership interest in     
securities of foreign companies (an "underlying issuer") that are deposited with
a depositary. Depositary Receipts are not necessarily denominated in the same   
currency as the underlying securities. Depositary Receipts include American     
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other     
types of Depositary Receipts (which, together with ADRs and GDRs, are           
hereinafter collectively referred to as "Depositary Receipts"). ADRs are        
dollar-denominated Depositary Receipts typically issued by a U.S. financial     
institution which evidence an ownership interest in a security or pool of       
securities issued by a foreign issuer. ADRs are listed and traded in the United 
States. GDRs and other types of Depositary Receipts are typically issued by     
foreign banks or trust companies, although they also may be issued by U.S.      
financial institutions, and evidence ownership interests in a security or pool  
of securities issued by either a foreign or a U.S. corporation. Generally,      
Depositary Receipts in registered form are designed for use in the U.S.         
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States.                                   

Depositary Receipts may be "sponsored" or "unsponsored." Sponsored Depositary   
Receipts are established jointly by a depositary and the underlying issuer,     
whereas unsponsored Depositary Receipts may be established by a depositary      
without participation by the underlying issuer. Holders of unsponsored          
Depositary Receipts generally bear all the costs associated with establishing   
unsponsored Depositary Receipts. In addition, the issuers of the securities     
underlying unsponsored Depository Receipts are not obligated to disclose        
material information in the                                                     

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United States and, therefore, there may be less information available regarding 
such issuers and there may not be a correlation between such information and the
market value of the Depositary Receipts. For purposes of a Portfolio's          
investment policies, a Portfolio's investments in Depositary Receipts will be   
deemed to be an investment in the underlying securities, except that ADRs may be
deemed to be issued by a U.S. issuer.                                           

PREFERRED STOCKS. Preferred Stocks are securities that evidence ownership in a  
corporation and pay a fixed or variable stream of dividends. Preferred Stocks   
have a preference over Common Stocks in the event of the liquidation of an      
issuer and usually do not carry voting rights. Because Preferred Stocks pay a   
fixed or variable stream of dividends they have many of the characteristics of a
Fixed Income Security and are, therefore, included in both the definition of    
Equity Security and Fixed Income Security.                                      

RIGHTS. Rights represent the right, but not the obligation, for a fixed period  
of time to purchase additional shares of an issuer's Common Stock at the time of
a new issuance, usually at a price below the initial offering price of the      
Common Stock and before the Common Stock is offered to the general public.      
Rights are usually freely transferrable. The risk of investing in a Right is    
that the Right may expire prior to the market value of the Common Stock         
exceeding the price fixed by the Right.                                         

WARRANTS. Warrants give holders the right, but not the obligation, to buy Common
Stock of an issuer at a given price, usually higher than the market price at the
time of issuance, during a specified period. Warrants are usually freely        
transferrable. The risk of investing in a Warrant is that the Warrant may expire
prior to the market value of the Common Stock exceeding the price fixed by the  
Warrant.                                                                        

CONVERTIBLE SECURITIES. Convertible Securities are securities that may be       
exchanged under certain circumstances for a fixed number of shares of Common    
Stock or other Equity Securities. Convertible Securities generally represent a  
feature of some other type of security, such as a Fixed Income Security or      
Preferred Stock, so that, for example, a Convertible Fixed Income Security would
be a Fixed Income Security that is convertible into Common Stock. Convertible   
Securities may be viewed as an investment in the current security or the        
security into which the Convertible Securities may be exchanged and, therefore, 
are included in both the definition of Equity Security and Fixed Income         
Security. Each of the U.S., Global, and International Equity Portfolios can     
invest up to 5% of its assets in convertible securities that have been rated    
below investment grade.                                                         

LIMITED PARTNERSHIPS. A limited partnership interest entitles a Portfolio to    
participate in the investment return of the partnership's assets as defined by  
the agreement among the partners. As a limited partner, a Portfolio generally is
not permitted to participate in the management of the partnership. However,     
unlike a general partner whose liability is not limited, a limited partner's    
liability generally is limited to the amount of its commitment to the           
partnership.                                                                    

INVESTMENT COMPANY SECURITIES. Investment Company Securities are securities of  
other open-end or closed-end investment companies, including exchange-traded    
funds ("ETFs"). The Investment Company Act of 1940, as amended (the "1940 Act"),
generally prohibits an investment company from acquiring more than 3% of the    
outstanding voting shares of an investment company and limits such investments  
to no more than 5% of a Portfolio's total assets in any one investment company  
and no more than 10% in any combination of investment companies. A Portfolio may
invest in Investment Company Securities of investment companies managed by      
Morgan Stanley Investment Management or its affiliates to the extent permitted  
under the 1940 Act or as otherwise authorized by the Securities and Exchange    
Commission ("SEC"). To the extent a Portfolio invests a portion of its assets in
Investment Company Securities, those assets will be subject to the risks of the 
purchased investment company's portfolio securities, and a shareholder in any   
such Portfolio will bear not only his proportionate share of the expenses of the
Portfolio, but also, indirectly the expenses of the purchased investment        
company.                                                                        

EXCHANGE TRADED FUNDS. The Portfolios may invest in shares of various           
exchange-traded funds ("ETFs"), including exchange-traded index and bond funds. 
Exchange-traded index funds seek to track the performance of various securities 
indices. Shares of ETFs have many of the same risks as direct investments in    
common stocks or bonds. In addition, their market value is expected to rise and 
fall as the value of the underlying index or bonds rises and falls. The market  
value of their shares may differ from the net asset value of the particular     
fund. As a shareholder in an investment company, the Portfolio would bear its   
ratable share of that entity's expenses, including its advisory and             
administration fees. At the same time, the Portfolio would continue to pay its  
own investment                                                                  

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management fees and other expenses. As a result, the Portfolio and its          
shareholders, in effect, will be absorbing duplicate levels of fees with respect
to investments in other investment companies.                                   

REAL ESTATE INVESTING. Investments in securities of issuers engaged in the real 
estate industry entail special risks and considerations. In particular,         
securities of such issuers may be subject to risks associated with the direct   
ownership of real estate. These risks include: the cyclical nature of real      
estate values, risks related to general and local economic conditions,          
overbuilding and increased competition, increases in property taxes and         
operating expenses, demographic trends and variations in rental income, changes 
in zoning laws, casualty or condemnation losses, environmental risks, regulatory
limitations on rents, changes in neighborhood values, changes in the appeal of  
properties to tenants, increases in interest rates and other real estate capital
market influences. Generally, increases in interest rates will increase the     
costs of obtaining financing, which could directly and indirectly decrease the  
value of a Portfolios' investments.                                             

REITS. Real Estate Investment Trusts ("REITs") pool investors' funds for        
investment primarily in income producing real estate or real estate related     
loans or interests. A REIT is not taxed on income distributed to its            
shareholders or unitholders if it complies with regulatory requirements relating
to its organization, ownership, assets and income, and with a regulatory        
requirement that it distribute to its shareholders or unitholders at least 95%  
of its taxable income for each taxable year. Generally, REITs can be classified 
as Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest the        
majority of their assets directly in real property and derive their income      
primarily from rents and capital gains from appreciation realized through       
property sales. Equity REITs are further categorized according to the types of  
real estate securities they own, e.g., apartment properties, retail shopping    
centers, office and industrial properties, hotels, health-care facilities,      
manufactured housing and mixed-property types. Mortgage REITs invest the        
majority of their assets in real estate mortgages and derive their income       
primarily from interest payments. Hybrid REITs combine the characteristics of   
both Equity and Mortgage REITs.                                                 

A shareholder in any of the Portfolios, by investing in REITs indirectly through
the Portfolio, will bear not only his proportionate share of the expenses of the
Portfolio, but also, indirectly, the management expenses of the underlying      
REITs. REITs may be affected by changes in the value of their underlying        
properties and by defaults by borrowers or tenants. Mortgage REITs may be       
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized management skills. Some REITs may have limited diversification   
and may be subject to risks inherent in investments in a limited number of      
properties, in a narrow geographic area, or in a single property type. REITs    
depend generally on their ability to generate cash flow to make distributions to
shareholders or unitholders, and may be subject to defaults by borrowers and to 
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income, or its failure to       
maintain exemption from registration under the 1940 Act.                        

SPECIALIZED OWNERSHIP VEHICLES. Specialized ownership vehicles pool investors'  
funds for investment primarily in income-producing real estate or real estate   
related loans or interests. Such specialized ownership vehicles in which the    
Portfolios may invest include property unit trusts, REITs and other similar     
specialized investment vehicles. Investments in such specialized ownership      
vehicles may have favorable or unfavorable legal, regulatory or tax implications
for a Portfolio and, to the extent such vehicles are structured similarly to    
investment funds, a shareholder in the Portfolio will bear not only his         
proportionate share of the expenses of the Portfolio, but also, indirectly the  
expenses of the specialized ownership vehicle.                                  

FIXED INCOME SECURITIES                                                         

Fixed Income Securities generally represent an issuer's obligation to repay to  
the investor (or lender) the amount borrowed plus interest over a specified time
period. A typical Fixed Income Security specifies a fixed date when the amount  
borrowed (principal) is due in full, known as the maturity date, and specifies  
dates when periodic interest (coupon) payments will be made over the life of the
Security.                                                                       

Fixed Income Securities come in many varieties and may differ in the way that   
interest is calculated, the amount and frequency of payments, the type of       
collateral, if any, and the presence of special features (e.g., conversion      
rights). Prices of Fixed Income Securities fluctuate and, in particular, are    
subject to several key risks including, but not limited to, interest-rate risk, 
credit risk, prepayment risk, and spread risk.                                  

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Interest-rate risk arises due to general changes in the level of market rates   
after the purchase of a Fixed Income Security. Generally, the values of Fixed   
Income Securities vary inversely with changes in interest rates. During periods 
of falling interest rates, the values of most outstanding Fixed Income          
Securities generally rise and during periods of rising interest rates, the      
values of most Securities generally decline. While Securities with longer final 
maturities often have higher yields than those with shorter maturities, they    
usually possess greater price sensitivity to changes in interest rates and other
factors. Traditionally, the remaining term to maturity has been used as a       
barometer of a Fixed Income Security's sensitivity to interest rate changes.    
This measure, however, considers only the time until the final principal payment
and takes no account of the pattern or amount of principal or interest payments 
prior to maturity. Duration combines consideration of yield, coupon, interest   
and principal payments, final maturity, and call (prepayment) features. Duration
measures the likely percentage change in a Security's price for a small parallel
shift in the general level of interest rates; it is also an estimate of the     
weighted average life of the remaining cash flows of a Security. In almost all  
cases, the duration of a Fixed Income Security is shorter than its term to      
maturity.                                                                       

Credit risk, also known as default risk, represents the possibility that an     
issuer may be unable to meet scheduled interest and principal payment           
obligations. It is most often associated with corporate bonds, although it can  
be present in other Securities, as well (note that the market generally assumes 
that obligations of the U.S. Treasury are free from credit risk). Credit ratings
and quantitative models attempt to measure the degree of credit risk in Fixed   
Income Securities, and provide insight as to whether prevailing yield spreads   
afford sufficient compensation for such risk. Other things being equal,         
Securities with high degrees of credit risk should trade in the market at lower 
prices (and higher yields) than Securities with low degrees of credit risk.     

Prepayment risk, also known as call risk, arises due to the issuer's ability to 
prepay all or most of the Security prior to the stated final maturity date.     
Prepayments generally rise in response to a decline in interest rates as debtors
take advantage of the opportunity to refinance their obligations. This risk is  
often associated with mortgage securities where the underlying mortgage loans   
can be refinanced, although it can also be present in corporate or other types  
of bonds with call provisions. When a prepayment occurs, a Portfolio may be     
forced to reinvest in lower yielding Fixed Income Securities. Quantitative      
models help assess the degree of prepayment risk, and provide insight as to     
whether prevailing yield spreads afford sufficient compensation for such risk.  

Spread risk is the potential for the value of a Portfolio's assets to fall due  
to the widening of spreads. Fixed income securities generally compensate for    
greater credit risk by paying interest at a higher rate. The difference (or     
"spread") between the yield of a security and the yield of a benchmark, such as 
a U.S. Treasury security with a comparable maturity, measures the additional    
interest paid for credit risk. As the spread on a security widens (or           
increases), the price (or value) of the security falls. Spread widening may     
occur, among other reasons, as a result of market concerns over the stability of
the market, excess supply, general credit concerns in other markets, security-  
or market-specific credit concerns or general reductions in risk tolerance.     

Economic, political, and, other events also may affect the prices of broad fixed
income markets, although the risks associated with such events are transmitted  
to the market via changes in the prevailing levels of interest rates, credit    
risk, prepayment risk, or spread risk.                                          

FIXED INCOME VALUE INVESTING: The Adviser employs a value investing philosophy  
in the management of certain Portfolios. Bond prices and yields reflect implicit
market forecasts regarding a variety of factors, such as inflation, economic    
growth, credit risk, and prepayment risk, to name a few. The Advisor uses a     
series of quantitative models and tools to assess and help identify situations  
where implicit market forecasts appear to be extremely optimistic or            
pessimistic. The Advisor then analyzes these findings and establishes the       
Portfolio's interest-rate, sector, and security selection positions so as to    
take advantage of the most attractive of these value opportunities.             

MATURITY AND DURATION MANAGEMENT: A component of the Adviser's fixed income     
investment strategy is maturity and duration management. The maturity and       
duration structure of a Portfolio investing in fixed income securities is       
actively managed, based upon the Adviser's assessment of the market's implied   
forecasts for inflation and economic growth. Adjustments to shorten portfolio   
maturity and duration are made to limit capital losses during periods when      
interest rates are expected to rise. Conversely, adjustments made to lengthen   
maturity are intended to produce capital appreciation in periods when interest  
rates are expected to fall.                                                     

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Duration is a measure of the expected life of a fixed income security on a      
present value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are scheduled
or, in the case of a callable bond, expected to be received, and weights them by
the present values of the cash to be received at each future point in time. For 
any fixed income security with interest payments occurring prior to the payment 
of principal, duration is always less than maturity. In general, all other      
factors being the same, the lower the stated or coupon rate of interest of a    
fixed income security, the longer the duration of the security; conversely, the 
higher the stated or coupon rate of interest of a fixed income security, the    
shorter the duration of the security.                                           

There are some situations where even the standard duration calculation does not 
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;  
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final   
maturity of such securities generally is thirty years, but current prepayment   
rates are more critical in determining the securities' interest rate exposure.  
In these and other similar situations, the Adviser will use sophisticated       
analytical techniques that incorporate the economic life of a security into the 
determination of its interest rate exposure.                                    

AGENCIES: The Term "Agencies" is used to refer to unsecured Fixed Income        
Securities which are not guaranteed by, or backed by the full faith and credit  
of the U.S. Government, but which are issued, sponsored or guaranteed by a      
federal agency or federally sponsored agency such as the Federal National       
Mortgage Association (FNMA), or any of several other agencies. The term is not  
used to refer to mortgage securities issued by such agencies of the U.S.        
government.                                                                     

INVESTMENT GRADE SECURITIES. Investment Grade Securities are Fixed Income       
Securities rated by one or more of the rating agencies in one of the four       
highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by   
Standard & Poor's Ratings Group "S&P") or Fitch, Inc. ("Fitch"), or Aaa, Aa, A  
or Baa by Moody's Investors Service, Inc. ("Moody's")) or determined to be of   
equivalent quality by Morgan Stanley Investment Management. Securities rated BBB
or Baa represent the lowest of four levels of Investment Grade Securities and   
are regarded as borderline between definitely sound obligations and those in    
which the speculative element begins to predominate. Ratings assigned to Fixed  
Income Securities represent only the opinion of the rating agency assigning the 
rating and are not dispositive of the credit risk associated with the purchase  
of a particular Fixed Income Security. Moreover, market risk also will affect   
the prices of even the highest rated Fixed Income Securities so that their      
prices may rise or fall even if the issuer's capacity to repay its obligations  
remains unchanged.                                                              

HIGH YIELD SECURITIES. High Yield Securities are generally considered to include
Fixed Income Securities rated below the four highest rating categories at the   
time of purchase (e.g., Ba through C by Moody's or BB through D by S&P) and     
unrated securities considered by Morgan Stanley Investment Management to be of  
equivalent quality. High Yield Securities are not considered investment grade   
and are commonly referred to as "junk bonds" or high yield, high risk           
securities.                                                                     

While High Yield Securities offer higher yields, they carry a high degree of    
credit risk and are considered speculative by the major credit rating agencies. 
High Yield Securities are often issued by smaller, less credit worthy issuers,  
or by highly leveraged (indebted) issuers that are generally less able than more
established or less leveraged issuers to make scheduled payments of interest and
principal. In comparison to Investment Grade Securities, the price movement of  
these securities is influenced less by changes in interest rates and more by the
financial and business position of the issuer. The values of High Yield         
Securities are more volatile and may react with greater sensitivity to market   
changes.                                                                        

U.S. GOVERNMENT SECURITIES. U.S. Government Securities are Fixed Income         
Securities that are backed by the full faith and credit of the U.S. Government  
as to the payment of both principal and interest. U.S. Government Securities may
include securities issued by the U.S. Treasury and securities issued by federal 
agencies and U.S. Government sponsored instrumentalities.                       

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CORPORATES. Corporates are Fixed Income Securities issued by private businesses.
Holders, as creditors, have a prior legal claim over holders of Equity          
Securities of the issuer as to both income and assets for the principal and     
interest due the holder.                                                        

MONEY MARKET INSTRUMENTS. Money Market Instruments are high quality short-term  
Fixed Income Securities. Money Market Instruments may include obligations of    
governments, government agencies, banks, corporations and special purpose       
entities and Repurchase Agreements relating to these obligations. Certain Money 
Market Instruments may be denominated in a foreign currency.                    

CASH EQUIVALENTS. Cash equivalents are short-term Fixed Income Securities       
comprising of:                                                                  

(1)  Time deposits, certificates of deposit (including marketable variable rate 
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits         
maintained in a banking institution for a specified period of time at a stated  
interest rate. Certificates of deposit are negotiable short-term obligations    
issued by commercial banks or savings and loan associations against funds       
deposited in the issuing institution. Variable rate certificates of deposit are 
certificates of deposit on which the interest rate is periodically adjusted     
prior to their stated maturity based upon a specified market rate. A bankers'   
acceptance is a time draft drawn on a commercial bank by a borrower usually in  
connection with an international commercial transaction (to finance the import, 
export, transfer or storage of goods).                                          

Each Portfolio may invest in obligations of U.S. banks, and, in foreign branches
of U.S. banks (Eurodollars) and U.S. branches of foreign banks (Yankee dollars).
Euro and Yankee dollar investments will involve some of the same risks of       
investing in international securities that are discussed in the foreign         
investing section of this SAI.                                                  

The Portfolios will not invest in any security issued by a commercial bank      
unless (i) the bank has total assets of at least $1 billion, or the equivalent  
in other currencies, or, in the case of domestic banks which do not have total  
assets of at least $1 billion, the aggregate investment made in any one such    
bank is limited to $100,000 and the principal amount of such investment is      
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case  
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and 
(iii) in the case of foreign branches of U.S. banks, the security is deemed by  
the Adviser to be of an investment quality comparable with other debt securities
which the Portfolio may purchase.                                               

(2)  Each Portfolio (except the Money Market and Municipal Money Market         
Portfolios) may invest in commercial paper rated at time of purchase by one or  
more Nationally Recognized Statistical Rating Organizations ("NRSRO") in one of 
their two highest categories, (E.G., A-l or A-2 by S&P or Prime 1 or Prime 2 by 
Moody's), or, if not rated, issued by a corporation having an outstanding       
unsecured debt issue rated high-grade by an NRSRO (E.G., A or better by Moody's,
S&P or Fitch). The Money Market Portfolio and Municipal Money Market Portfolio  
invest only in commercial paper rated in the highest category;                  

(3)  Short-term corporate obligations rated high-grade at the time of purchase  
by an NRSRO (E.G., A or better by Moody's, S&P or Fitch);                       

(4)  U.S. Government obligations including bills, notes, bonds and other debt   
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;  

(5)  Government Agency securities issued or guaranteed by U.S. Government       
sponsored instrumentalities and Federal agencies. These include securities      
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home          
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie Mae,
Federal Financing Bank, the Tennessee Valley Authority, and others; and         

(6)  Repurchase agreements collateralized by securities listed above.           

Commercial paper refers to short-term fixed income securities with maturities   
ranging from 1 to 270 days. They are primarily issued by corporations needing to
finance large amounts of receivables, but may be issued by banks and            

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other borrowers. Commercial paper is issued either directly or through          
broker-dealers, and may be discounted or interest-bearing. Commercial paper is  
unsecured, but is almost always backed by bank lines of credit. Virtually all   
commercial paper is rated by Moody's or S&P.                                    

Commercial paper rated A-1 by S&P has the following characteristics: (1)        
liquidity ratios are adequate to meet cash requirements; (2) long-term senior   
debt is rated "A" or better; (3) the issuer has access to at least two          
additional channels of borrowing; (4) basic earnings and cash flow have an      
upward trend with allowance made for unusual circumstances; (5) typically, the  
issuer's industry is well established and the issuer has a strong position      
within the industry; and (6) the reliability and quality of management are      
unquestioned. Relative strength or weakness of the above factors determine      
whether the issuer's commercial paper is A-1, A-2, or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors      
considered by Moody's in assigning ratings are the following: (1) evaluation of 
the management of the issuer; (2) economic evaluation of the issuer's industry  
or industries and the appraisal of speculative-type risks which may be inherent 
in certain areas; (3) evaluation of the issuer's products in relation to        
competition and customer acceptance; (4) liquidity; (5) amount and quality of   
long-term debt; (6) trend of earnings over a period of ten years; (7) financial 
strength of a parent company and the relationships that exist with the issuer;  
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such    
obligations.                                                                    

MORTGAGE RELATED SECURITIES. Mortgage related securities are securities that,   
directly or indirectly, represent a participation in, or are secured by and     
payable from, mortgage loans on real property. Mortgage related securities      
include collateralized mortgage obligations and mortgage-backed securities      
issued or guaranteed by agencies or instrumentalities of the U.S. Government or 
by private sector entities.                                                     

    MORTGAGE-BACKED SECURITIES. With mortgage-backed securities ("MBSs"), many
mortgagees' obligations to make monthly payments to their lending institution   
are pooled together and passed through to investors. The pools are assembled by 
various governmental, Government-related and private organizations. A Portfolio 
may invest in securities issued or guaranteed by GNMA, FHLMC or Fannie Mae      
(FNMA), private issuers and other government agencies. MBSs issued by non-agency
issuers, whether or not such securities are subject to guarantees, may entail   
greater risk, since private issuers may not be able to meet their obligations   
under the policies. If there is no guarantee provided by the issuer, a Portfolio
will purchase only MBSs that at the time of purchase are rated investment grade 
by one or more NRSROs or, if unrated, are deemed by the Adviser to be of        
comparable quality.                                                             

MBSs are issued or guaranteed by private sector originators of or investors in  
mortgage loans and structured similarly to governmental pass-through securities.
Because private pass-throughs typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality, however, they are    
generally structured with one or more of the types of credit enhancement        
described below. Fannie Mae and FHLMC obligations are not backed by the full    
faith and credit of the U.S. Government as GNMA certificates are. FHLMC         
securities are supported by the FHLMC's right to borrow from the U.S. Treasury. 
Each of GNMA, Fannie Mae and FHLMC guarantees timely distributions of interest  
to certificate holders. Each of GNMA and Fannie Mae also guarantees timely      
distributions of scheduled principal. Although FHLMC has in the past guaranteed 
only the ultimate collection of principal of the underlying mortgage loan, FHLMC
now issues MBSs (FHLMC Gold PCS) that also guarantee timely payment of monthly  
principal reductions. Resolution Funding Corporation ("REFCORP") obligations are
backed, as to principal payments, by zero coupon U.S. Treasury bonds and, as to 
interest payments, ultimately by the U.S. Treasury.                             

There are two methods of trading MBSs. A specified pool transaction is a trade  
in which the pool number of the security to be delivered on the settlement date 
is known at the time the trade is made. This is in contrast with the typical MBS
transaction, called a TBA (To Be Announced) transaction, in which the type of   
MBS to be delivered is specified at the time of trade but the actual pool       
numbers of the securities that will be delivered are not known at the time of   
the trade. The pool numbers of the pools to be delivered at settlement are      
announced shortly before settlement takes place. The terms of the TBA trade may 
be made more specific if desired. Generally, agency pass-through MBSs are traded
on a TBA basis.                                                                 

Like fixed income securities in general, MBSs will generally decline in price   
when interest rates rise. Rising interest rates also tend to discourage         
refinancings of home mortgages, with the result that the average life of MBSs   
held by a Portfolio may be lengthened. As average life extends, price volatility
generally increases. This extension of average                                  

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life causes the market price of the MBSs to decrease further when interest rates
rise than if their average lives were fixed. However, when interest rates fall, 
mortgages may not enjoy as large a gain in market value due to prepayment risk  
because additional mortgage prepayments must be reinvested at lower interest    
rates. Faster prepayment will shorten the average life and slower prepayments   
will lengthen it. However, it is possible to determine what the range of the    
average life movement could be and to calculate the effect that it will have on 
the price of the MBS. In selecting MBSs, the Adviser looks for those that offer 
a higher yield to compensate for any variation in average maturity. If the      
underlying mortgage assets experience greater than anticipated prepayments of   
principal, a Portfolio may fail to fully recoup its initial investment in these 
securities, even if the security is in one of the highest rating categories. A  
Portfolio may invest, without limit, in MBSs issued by private issuers when the 
Adviser deems that the quality of the investment, the quality of the issuer, and
market conditions warrant such investments. The Portfolios will purchase        
securities issued by private issuers that are rated investment grade at the time
of purchase by Moody's or S&P or are deemed by the Adviser to be of comparable  
investment quality.                                                             

  FANNIE MAE CERTIFICATES. Fannie Mae (i.e., the Federal National Mortgage
Association, or FNMA) is a federally chartered and privately owned corporation  
organized and existing under the Federal National Mortgage Association Charter  
Act of 1938. The obligations of Fannie Mae are not backed by the full faith and 
credit of the U.S. Government.                                                  

Each Fannie Mae certificate represents a pro rata interest in one or more pools 
of mortgage loans insured by the Federal Housing Administration under the       
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed 
by the Department of Veteran Affairs under the Servicemen's Readjustment Act of 
1944, as amended ("VA Loans") or conventional mortgage loans (i.e., mortgage    
loans that are not insured or guaranteed by any governmental agency) of the     
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate   
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage      
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate  
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by    
multi-family projects.                                                          

     FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as    
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the U.S.      
Government.                                                                     

Freddie Mac certificates represent a pro rata interest in a group of mortgage   
loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates consist of fixed rate or          
adjustable rate mortgage loans with original terms to maturity of between ten   
and thirty years, substantially all of which are secured by first liens on      
one-to-four-family residential properties or multi-family projects. Each        
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A  
Freddie Mac Certificate group may include whole loans, participation interests  
in whole loans and undivided interests in whole loans and participations        
comprising another Freddie Mac Certificate group.                               

GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate       
instrumentality of the United States within the Department of Housing and Urban 
Development. The National Housing Act of 1934, as amended (the "Housing Act"),  
authorizes Ginnie Mae to guarantee the timely payment of the principal and      
interest on certificates that are based on and backed by a pool of FHA Loans, VA
Loans or by pools of other eligible mortgage loans. The Housing Act provides    
that the full faith and credit of the U.S. Government is pledged to the payment 
of all amounts that may be required to be paid under any guaranty. In order to  
meet its obligations under such guaranty, Ginnie Mae is authorized to borrow    
from the U.S. Treasury with no limitations as to amount.                        

Each Ginnie Mae certificate represents a pro rata interest in one or more of the
following types of mortgage loans: (i) fixed rate level payment mortgage loans; 
(ii) fixed rate graduated payment mortgage loans; (iii) fixed rate growing      
equity mortgage loans; (iv) fixed rate mortgage loans secured by manufactured   
(mobile) homes; (v) mortgage loans on multi-family residential properties under 
construction; (vi) mortgage loans on completed multi-family projects; (vii)     
fixed rate mortgage loans as to which escrowed funds are used to reduce the     
borrower's monthly payments during the early years of the mortgage loans        
("buydown" mortgage loans); (viii) mortgage loans that provide for adjustments  
in payments based on periodic changes in interest rates or in other payment     
terms of the mortgage loans; and (ix) mortgage-backed serial notes. All of these
mortgage loans will be FHA Loans or VA loans                                    

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and, except as otherwise specified above, will be fully-amortizing loans secured
by first liens on one to four-family housing units.                             

  COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by 
agencies or instrumentalities of the U.S. Government or by private originators  
or investors in mortgage loans. They are backed by mortgage-backed securities   
(discussed above) or whole loans (all such assets, the "Mortgage Assets") and   
are evidenced by a series of bonds or certificates issued in multiple classes.  
Each class of a CMO, often referred to as a "tranche," may be issued with a     
specific fixed or floating coupon rate and has a stated maturity or final       
scheduled distribution date. The principal and interest on the underlying       
Mortgage Assets may be allocated among the several classes of a series of CMOs  
in many ways. Interest is paid or accrues on CMOs on a monthly, quarterly or    
semi-annual basis.                                                              

CMOs may be issued by agencies or instrumentalities of the U.S. Government, or  
by private originators of, or investors in, mortgage loans, including savings   
and loan associations, mortgage bankers, commercial banks, investment banks and 
special purpose subsidiaries of the foregoing. CMOs that are issued by private  
sector entities and are backed by assets lacking a guarantee of an entity having
the credit status of a governmental agency or instrumentality are generally     
structured with one or more types of credit enhancement as described below. An  
issuer of CMOs may elect to be treated for federal income tax purposes as a Real
Estate Mortgage Investment Conduit (a "REMIC"). An issuer of CMOs issued after  
1991 must elect to be treated as a REMIC or it will be taxable as a corporation 
under rules regarding taxable mortgage pools.                                   

The principal and interest on the Mortgage Assets may be allocated among the    
several classes of a CMO in many ways. The general goal in allocating cash flows
on Mortgage Assets to the various classes of a CMO is to create certain tranches
on which the expected cash flows have a higher degree of predictability than do 
the underlying Mortgage Assets. As a general matter, the more predictable the   
cash flow is on a particular CMO tranche, the lower the anticipated yield on    
that tranche at the time of issue will be relative to prevailing market yields  
on Mortgage Assets. As part of the process of creating more predictable cash    
flows on certain tranches of a CMO, one or more tranches generally must be      
created that absorb most of the changes in the cash flows on the underlying     
Mortgage Assets. The yields on these tranches are generally higher than         
prevailing market yields on other mortgage related securities with similar      
average lives. Principal prepayments on the underlying Mortgage Assets may cause
the CMOs to be retired substantially earlier than their stated maturities or    
final scheduled distribution dates. Because of the uncertainty of the cash flows
on these tranches, the market prices and yields of these tranches are more      
volatile. In addition, some inverse floating rate obligation CMOs exhibit       
extreme sensitivity to changes in prepayments. As a result, the yield to        
maturity of these CMOs is sensitive not only to changes in interest rates, but  
also to changes in prepayment rates on the related underlying Mortgage Assets.  

Included within the category of CMOs are PAC Bonds. PAC Bonds are a type of CMO 
tranche or series designed to provide relatively predictable payments, provided 
that, among other things, the actual prepayment experience on the underlying    
Mortgage Assets falls within a predefined range. If the actual prepayment       
experience on the underlying Mortgage Assets is faster or slower than the       
predefined range or if deviations from other assumptions occur, payments on the 
PAC Bond may be earlier or later than predicted and the yield may rise or fall. 
The magnitude of the predefined range varies from one PAC Bond to another; a    
narrower range increases the risk that prepayments on the PAC Bond will be      
greater or smaller than predicted. Because of these features, PAC Bonds         
generally are less subject to the risk of prepayment than are other types of    
mortgage related securities.                                                    

  STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBSs") are multi-class mortgage securities issued by agencies or             
instrumentalities of the U.S. Government and private originators of, or         
investors in, mortgage loans. SMBSs are usually structured with two classes that
receive different proportions of the interest and principal distributions on a  
pool of Mortgage Assets. In some cases, one class will receive all of the       
interest ("interest-only" or "IO class"), while the other class will receive all
of the principal ("principal-only" or "PO class"). The yield to maturity on IO  
classes and PO classes is extremely sensitive to the rate of principal payments 
(including prepayments) on the related underlying Mortgage Assets, and          
significant changes in the rate of principal repayments will have a             
corresponding effect on the SMBSs' yield to maturity.                           

    CREDIT ENHANCEMENT. Mortgage related securities are often backed by a pool
of assets representing the obligations of a number of parties. To lessen the    
effect of failure by obligors on underlying assets to make                      

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payments, these securities may have various types of credit support. Credit     
support falls into two primary categories: (i) liquidity protection, and (ii)   
protection against losses resulting from ultimate default by an obligor on the  
underlying assets. Liquidity protection generally refers to the provision of    
advances, typically by the entity administering the pool of assets, to ensure   
that the pass-through of payments due on the underlying pool occurs in a timely 
fashion. Protection against losses resulting from ultimate default enhances the 
likelihood of ultimate payment of the obligations on at least a portion of the  
assets in the pool. Such protection may be provided through guarantees,         
insurance policies or letters of credit obtained by the issuer or sponsor from  
third parties (referred to herein as "third party credit support"), through     
various means of structuring the transaction or through a combination of such   
approaches.                                                                     

The ratings of mortgage related securities for which third party credit         
enhancement provides liquidity protection or protection against losses from     
default are generally dependent upon the continued creditworthiness of the      
provider of the credit enhancement. The ratings of such securities could decline
in the event of deterioration in the creditworthiness of the credit enhancement 
provider even in cases where the delinquency and loss experience on the         
underlying pool of assets is better than expected.                              

Examples of credit support arising out of the structure of the transaction      
include "senior-subordinated securities" (multiple class securities with one or 
more classes subordinate to other classes as to the payment of principal and    
interest thereon, with defaults on the underlying assets being borne first by   
the holders of the most subordinated class), creation of "reserve funds" (where 
cash or investments, sometimes funded from a portion of the payments on the     
underlying assets, are held in reserve against future losses) and               
"over-collateralization" (where the scheduled payments on, or the principal     
amount of, the underlying assets exceed those required to make payment of the   
securities and pay any servicing or other fees). The degree of credit support   
provided for each security is generally based on historical information with    
respect to the level of credit risk associated with the underlying assets.      
Delinquency or loss in excess of that which is anticipated could adversely      
affect the return on an investment in such a security.                          

REPURCHASE AGREEMENTS. Repurchase Agreements are transactions in which a        
Portfolio purchases a security or basket of securities and simultaneously       
commits to resell that security or basket to the seller (a bank, broker or      
dealer) at a mutually agreed upon date and price. The resale price reflects the 
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or date of maturity of the purchased security. Repurchase       
Agreements may be viewed as a fully collateralized loan of money by the         
Portfolio to the seller at a mutually agreed upon rate and price. The term of   
these agreements is usually from overnight to one week, and never exceeds one   
year. Repurchase Agreements with a term of over seven days are considered       
illiquid.                                                                       

In these transactions, the Portfolio receives as collateral securities that have
a market value at least equal to the purchase price (including accrued interest)
of the Repurchase Agreement, and this value is maintained during the term of the
agreement. These securities are held by the Fund's custodian or an approved     
third party for the benefit of the Portfolio until repurchased. Repurchase      
Agreements permit a Portfolio to remain fully invested while retaining overnight
flexibility to pursue investments of a longer-term nature. 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.                      

It is the current policy of the Large Cap Relative Value Portfolio not to       
invest at the time of purchase more than 5% of its net assets in securities     
subject to repurchase agreements.                                               

Pursuant to an order issued by the SEC, the Portfolios may pool their daily     
uninvested cash balances in order to invest in Repurchase Agreements on a joint 
basis with other investment companies advised by Morgan Stanley Investment      
Management. By entering into Repurchase Agreements on a joint basis, the        
Portfolios expect to incur lower transaction costs and potentially obtain higher
rates of interest on such Repurchase Agreements. Each Portfolio's participation 
in the income from jointly purchased Repurchase Agreements will be based on that
Portfolio's percentage share in the total Repurchase Agreement.                 

MUNICIPALS: Municipal securities are FIXED INCOME SECURITIES issued by local,   
state and regional governments that provide interest income which is exempt from
federal income taxes. Municipals include both municipal bonds (those securities 
with maturities of five years or more) and municipal notes (those with          
maturities of less than five years).                                            

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Municipal bonds are issued for a wide variety of reasons: to construct public   
facilities, such as airports, highways, bridges, schools, hospitals, mass       
transportation, streets, water and sewer works; to obtain funds for operating   
expenses; to refund outstanding municipal obligations; and to loan funds to     
various public institutions and facilities. Certain industrial development bonds
are also considered municipal bonds if their interest is exempt from federal    
income tax. Industrial development bonds are issued by, or on behalf of, public 
authorities to obtain funds for various privately-operated manufacturing        
facilities, housing, sports arenas, convention centers, airports, mass          
transportation systems and water, gas or sewage works. Industrial development   
bonds are ordinarily dependent on the credit quality of a private user, not the 
public issuer.                                                                  

The two principal classifications of municipal bonds are "general obligation"   
and "revenue" or "special tax" bonds. General obligation bonds are secured by   
the issuer's pledge of its full faith, credit and taxing power for the payment  
of principal and interest. Revenue or special tax bonds are payable only from   
the revenues derived from a particular facility or class of facilities or, in   
some cases, from the proceeds of a special excise or other tax, but not from    
general tax revenues.                                                           

Industrial revenue bonds in most cases are revenue bonds and generally do not   
have the pledge of the credit of the issuer. The payment of the principal and   
interest on such industrial revenue bonds is dependent solely on the ability of 
the user of the facilities financed by the bonds to meet its financial          
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Short-term municipal obligations issued by states,   
cities, municipalities or municipal agencies, include tax anticipation notes,   
revenue anticipation notes, bond anticipation notes, construction loan notes and
short-term discount notes.                                                      

Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are    
short-term debt obligations issued by state and local governments to aid cash   
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the Portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments.                                          

Municipal bonds generally include debt obligations issued by states and their   
political subdivisions, and duly constituted authorities and corporations, to   
obtain funds to construct, repair or improve various public facilities such as  
airports, bridges, highways, hospitals, housing, schools, streets and water and 
sewer works. Municipal bonds may also be issued to refinance outstanding        
obligations as well as to obtain funds for general operating expenses and for   
loans to other public institutions and facilities.                              

Note obligations with demand or put options may have a stated maturity in excess
of one year, but permit any holder to demand payment of principal plus accrued  
interest upon a specified number of days' notice. Frequently, such obligations  
are secured by letters of credit or other credit support arrangements provided  
by banks. The issuer of such notes normally has a corresponding right, after a  
given period, to repay at its discretion the outstanding principal of the note  
plus accrued interest upon a specific number of days' notice to the bondholders.
The interest rate on a demand note may be based upon a known lending rate, such 
as the prime lending rate, and be adjusted when such rate changes, or the       
interest rate on a demand note may be a market rate that is adjusted at         
specified intervals. Each note purchased by the Portfolios will meet the quality
criteria set out in the prospectus for the Portfolios.                          

The yields of municipal bonds depend on, among other things, general money      
market conditions, conditions in the municipal bond market, the size of a       
particular offering, the maturity of the obligation, and the rating of the      
issue. The ratings of Moody's and S&P represent their opinions of the quality of
the municipal bonds rated by them. It should be emphasized that such ratings are
general and are not absolute standards of quality. Consequently, municipal bonds
with the same maturity, coupon and rating may have different yields, while      
municipal bonds of the same maturity and coupon, but with different ratings may 
have the same yield. It will be the responsibility of Morgan Stanley Investment 
Management to appraise independently the fundamental quality of the bonds held  
by the Portfolios.                                                              

Municipal bonds are sometimes purchased on a "when-issued" basis, meaning the   
Portfolio has committed to purchase certain specified securities at an agreed   
upon price when they are issued. The period between commitment                  

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date and issuance date can be a month or more. It is possible that the          
securities will never be issued and the commitment canceled.                    

From time to time proposals have been introduced before Congress to restrict or 
eliminate the federal income tax exemption for interest on municipal bonds.     
Similar proposals may be introduced in the future. If any such proposal were    
enacted, it might restrict or eliminate the ability of the Portfolios to achieve
their investment objectives. In that event, the Fund's Directors and officers   
would reevaluate investment objectives and policies and consider recommending to
shareholders changes in such objectives and policies.                           

Similarly, from time to time proposals have been introduced before state and    
local legislatures to restrict or eliminate the state and local income tax      
exemption for interest on municipal bonds. Similar proposals may be introduced  
in the future. If any such proposal were enacted, it might restrict or eliminate
the ability of a Portfolio to achieve its investment objective. In that event,  
the Fund's Directors and officers would reevaluate investment objectives and    
policies and consider recommending to shareholders changes in such objectives   
and policies.                                                                   

The Portfolios eligible to purchase municipal bonds may also purchase bonds the 
income on which is subject to the alternative minimum tax ("AMT bonds"). AMT    
bonds are tax-exempt private activity bonds issued after August 7, 1986, the    
proceeds of which are directed, at least in part, to private, for-profit        
organizations. While the income from AMT bonds is exempt from regular federal   
income tax, it is a tax preference item in the calculation of the alternative   
minimum tax. The alternative minimum tax is a special separate tax that applies 
to some taxpayers who have certain adjustments to income or tax preference      
items.                                                                          

ASSET-BACKED SECURITIES. Asset-Backed Securities ("Asset-Backeds") are          
securities collateralized by shorter-term loans such as automobile loans, home  
equity loans, equipment or computer leases or credit card receivables. The      
payments from the collateral are passed through to the security holder. The     
collateral underlying Asset-Backeds tends to have prepayment rates that usually 
do not vary with interest rates. In addition, the short-term nature of the loans
reduces the impact of any change in prepayment level. However, it is possible   
that prepayments (on automobile loans and other collateral) will alter the cash 
flow on Asset-Backeds and it is not possible to determine in advance the actual 
final maturity date or average life. Faster prepayment will shorten the average 
life and slower prepayment will lengthen it. However, it is possible to         
determine what the range of that movement could be and to calculate the effect  
that it will have on the price of the security. The maturity of Asset-Backeds   
will be based on the expected average life of the instrument. In selecting these
securities, Morgan Stanley Investment Management will look for those securities 
that offer a higher yield to compensate for any variation in average maturity.  

PREFERRED STOCKS. Preferred Stocks are securities that evidence ownership in a  
corporation and pay a fixed or variable stream of dividends. Preferred Stocks   
have a preference over Common Stocks in the event of the liquidation of an      
issuer and usually do not carry voting rights. Because Preferred Stocks         
represent an ownership interest in the issuer they have many of the             
characteristics of an Equity Security and are, therefore, included in both the  
definition of Fixed Income Security and Equity Security.                        

LOAN PARTICIPATIONS AND ASSIGNMENTS. Loan Participations are interests in loans 
or other direct debt instruments ("Loans") relating to amounts owed by a        
corporate, governmental or other borrower to another party. Loans may represent 
amounts owed to lenders or lending syndicates, to suppliers of goods or services
(trade claims or other receivables), or to other parties ("Lenders") and may be 
fixed rate or floating rate. Loans also may be arranged through private         
negotiations between an issuer of sovereign debt obligations and Lenders.       

A Portfolio's investments in Loans are expected in most instances to be in the  
form of a participation in Loans ("Participations") and assignments of all or a 
portion of Loans ("Assignments") from third parties. In the case of a           
Participation, a Portfolio 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 an insolvency of the Lender selling a Participation, a
Portfolio 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 a Lender's insolvency, the Lender's     
servicing of the Participation may be delayed and the assignability of the      
Participation may                                                               

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be impaired. A Portfolio will acquire Participations only if the Lender         
interpositioned between a Portfolio and the borrower is determined by Morgan    
Stanley Investment Management to be creditworthy.                               

When a Portfolio purchases Assignments from Lenders it 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 a Portfolio 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, it is  
likely 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 a Portfolio's ability to     
dispose of particular Assignments or Participations when necessary to meet a    
Portfolio's 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 a Portfolio to assign a value to these securities for purposes of 
valuing a Portfolio's securities and calculating its net asset value.           

Loan Participations and Assignments involve a risk of loss in case of default or
insolvency of the borrower. In addition, they may offer less legal protection to
a Portfolio in the event of fraud or misrepresentation and may involve a risk of
insolvency of the Lender. Certain Loan Participations and Assignments may also  
include standby financing commitments that obligate the investing Portfolio to  
supply additional cash to the borrower on demand. Participations involving      
emerging market country issuers may relate to Loans as to which there has been  
or currently exists an event of default or other failure to make payment when   
due, and may represent amounts owed to Lenders that are themselves subject to   
political and economic risks, including the risk of currency devaluation,       
expropriation, or failure. Such Loan Participations and Assignments present     
additional risk of default or loss.                                             

TEMPORARY INVESTMENTS. When Morgan Stanley Investment Management believes that  
changes in economic, financial or political conditions make it advisable, each  
Portfolio may invest up to 100% of its assets in cash and certain short- and    
medium-term Fixed Income Securities for temporary defensive purposes. These     
Temporary Investments may consist of obligations of the U.S. or foreign         
governments, their agencies or instrumentalities; Money Market Instruments; and 
instruments issued by international development agencies.                       

The Large Cap Relative Value Portfolio generally intends to be substantially    
fully invested in accordance with its investment objectives and policies during 
most market conditions. Under normal market conditions, no more than 5% of the  
Portfolio's assets will be invested in cash. Although the Adviser can take a    
temporary defensive position during adverse market conditions, it can be        
expected that a defensive posture will be adopted less frequently than would be 
by other mutual funds. This policy may impede the Adviser's ability to protect  
the Large Cap Relative Value Portfolio's capital during declines in the         
particular segment of the market to which the Large Cap Relative Value          
Portfolio's assets are committed.                                               

ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED PAYMENT SECURITIES. Zero       
Coupon, Pay-In-Kind and Deferred Payment Securities are all types of Fixed      
Income Securities on which the holder does not receive periodic cash payments of
interest or principal. Generally, these securities are subject to greater price 
volatility and lesser liquidity in the event of adverse market conditions than  
comparably rated securities paying cash interest at regular intervals. Although 
a Portfolio will not receive cash periodic coupon payments on these securities, 
the Portfolio may be deemed to have received interest income, or "phantom       
income" during the life of the obligation. The Portfolio may have to pay taxes  
on this phantom income, although it has not received any cash payment.          

 ZERO COUPONS. Zero Coupons are fixed income securities that do not make
regular interest payments. Instead, Zero Coupons are sold at a discount from    
their face value. The difference between a Zero Coupon's issue or purchase price
and its face value represents the imputed interest an investor will earn if the 
obligation is held until maturity. Zero Coupons may offer investors the         
opportunity to earn a higher yield than that available on ordinary              
interest-paying obligations of similar credit quality and maturity              

 PAY-IN-KIND SECURITIES. Pay-In-Kind Securities are securities that have
interest payable by delivery of additional securities. Upon maturity, the holder
is entitled to receive the aggregate par value of the securities.               

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 DEFERRED PAYMENT SECURITIES. Deferred Payment Securities are securities
that remain Zero Coupons until a predetermined date, at which time the stated   
coupon rate becomes effective and interest becomes payable at regular intervals.

FLOATERS. Floaters are Fixed Income Securities with a rate of interest that     
varies with changes in specified market rates or indices, such as the prime     
rate, or at specified intervals. Certain Floaters may carry a demand feature    
that permits the holder to tender them back to the issuer of the underlying     
instrument, or to a third party, at par value prior to maturity. When the demand
feature of certain Floaters represents an obligation of a foreign entity, the   
demand feature will be subject to certain risks discussed under "Foreign        
Investment."                                                                    

INVERSE FLOATERS. Inverse floating rate obligations ("Inverse Floaters") are    
Fixed Income Securities that have coupon rates that vary inversely at a multiple
of a designated floating rate, such as LIBOR (London Inter-Bank Offered Rate).  
Any rise in the reference rate of an Inverse Floater (as a consequence of an    
increase in interest rates) causes a drop in the coupon rate while any drop in  
the reference rate of an Inverse Floater causes an increase in the coupon rate. 
Inverse Floaters may exhibit substantially greater price volatility than fixed  
rate obligations having similar credit quality, redemption provisions and       
maturity, and Inverse Floater CMOs exhibit greater price volatility than the    
majority of other mortgage-related securities.                                  

EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS. The Portfolios may invest in          
Eurodollar and Yankee dollar obligations. Eurodollar bank obligations are       
dollar-denominated certificates of deposit and time deposits issued outside the 
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.    
Yankee dollar bank obligations are dollar-denominated obligations issued in the 
U.S. capital markets by foreign banks. The Portfolios may consider Yankee dollar
obligations to be domestic securities for purposes of their investment policies.

Eurodollar and Yankee dollar obligations are subject to the same risks as       
domestic issues but Eurodollar (and to a limited extent, Yankee dollar)         
obligations are also subject to certain sovereign risks. One such risk is the   
possibility that a sovereign country might prevent capital, in the form of      
dollars, from flowing across its borders. Other risks include adverse political 
and economic developments; the extent and quality of government regulations of  
financial markets and institutions; the imposition of foreign withholding taxes;
and the expropriation or nationalization of foreign issuers.                    

FOREIGN INVESTMENT                                                              

Investing in foreign securities involves certain special considerations which   
are not typically associated with investing in the Equity Securities or Fixed   
Income Securities of U.S. issuers. Foreign issuers are not generally subject to 
uniform accounting, auditing and financial reporting standards and may have     
policies that are not comparable to those of domestic issuers. As a result,     
there may be less information available about foreign issuers than about        
domestic issuers. Securities of some foreign issuers are generally less liquid  
and more volatile than securities of comparable domestic issuers. There is      
generally less government supervision and regulation of stock exchanges, brokers
and listed issuers than in the United States. In addition, with respect to      
certain foreign countries, there is a possibility of expropriation or           
confiscatory taxation, political and social instability, or diplomatic          
developments which could affect U.S. investments in those countries. The costs  
of investing in foreign countries frequently is higher than the costs of        
investing in the United States. Although Morgan Stanley Investment Management   
endeavors to achieve the most favorable execution costs in portfolio            
transactions, fixed commissions on many foreign stock exchanges are generally   
higher than negotiated commissions on U.S. exchanges.                           

Investments in securities of foreign issuers generally are denominated in       
foreign currencies. Accordingly, the value of a Portfolio's assets, as measured 
in U.S. dollars, may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. A Portfolio may incur costs 
in connection with conversions between various currencies.                      

Certain foreign governments may levy withholding or other taxes on dividend and 
interest income. Although in some countries a portion of these taxes are        
recoverable, the non-recovered portion of foreign withholding taxes will reduce 
the income received from investments in such countries. The Portfolios may be   
able to claim a credit for U.S. tax purposes with respect to any such foreign   
taxes.                                                                          

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Morgan Stanley Investment Management considers an issuer to be from a particular
country or geographic region if (i) its principal securities trading market is  
in that country or geographic region; (ii) alone or on a consolidated basis it  
derives 50% or more of its annual revenue from either goods produced, sales made
or services performed in that country or geographic region; or (iii) it is      
organized under the laws of, or has a principal office in that country or       
geographic region. By applying these tests, it is possible that a particular    
company could be deemed to be from more than one country or geographic region.  

FOREIGN EQUITY SECURITIES. Foreign Equity Securities are Equity Securities of an
issuer in a country other than the United States.                               

FOREIGN GOVERNMENT FIXED INCOME SECURITIES. Foreign Government Fixed Income     
Securities are Fixed Income Securities issued by a government other than the    
U.S. government or government-related issuer in a country other than the United 
States.                                                                         

FOREIGN CORPORATE FIXED INCOME SECURITIES. Foreign Corporate Fixed Income       
Securities are Fixed Income Securities issued by a private issuer in a country  
other than the United States.                                                   

EMERGING MARKET COUNTRY SECURITIES. An emerging market country security is one  
issued by a foreign government or private issuer that has one or more of the    
following characteristics: (i) its principal securities trading market is in an 
emerging market country, (ii) alone or on a consolidated basis it derives 50% or
more of its annual revenue from either goods produced, sales made or services   
performed in emerging markets, or (iii) it is organized under the laws of, or   
has a principal office in, an emerging market country.                          

Emerging market describes any country which is generally considered to be an    
emerging or developing country by major organizations in the international      
financial community, such as the International Bank for Reconstruction and      
Development (more commonly known as the World Bank) and the International       
Finance Corporation. Emerging markets can include every nation in the world     
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.                                                      

The economies of individual emerging market 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 developing 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. These economies also 
have been, and may continue to be, adversely affected by economic conditions in 
the countries with which they trade.                                            

Prior governmental approval for foreign investments may be required under       
certain circumstances in some emerging market countries, and the extent of      
foreign investment in certain fixed income securities and domestic companies may
be subject to limitation in other emerging market countries. Foreign ownership  
limitations also may be imposed by the charters of individual companies in      
emerging market 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. A Portfolio 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.                        

Investing in emerging market countries may entail purchasing securities issued  
by or on behalf of entities that are insolvent, bankrupt, in default or         
otherwise engaged in an attempt to reorganize or reschedule their obligations,  
and in entities that have little or no proven credit rating or credit history.  
In any such case, the issuer's poor or deteriorating financial condition may    
increase the likelihood that the investing Portfolio will experience losses or  
diminution in available gains due to bankruptcy, insolvency or fraud. Emerging  
market countries also pose the risk of nationalization, expropriation or        
confiscatory taxation, political changes, government regulation, social         
instability or diplomatic developments (including war) that could adversely     
affect the economies of such countries or the value of a Portfolio's investments
in those countries. In addition, it may be difficult to obtain and enforce a    
judgment in a court outside the United States.                                  

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Portfolios that invest in emerging markets may also be exposed to an extra      
degree of custodial and/or market risk, especially where the securities         
purchased are not traded on an official exchange or where ownership records     
regarding the securities are maintained by an unregulated entity (or even the   
issuer itself).                                                                 

RUSSIAN EQUITY SECURITIES. The registration, clearing and settlement of         
securities transactions involving Russian issuers are subject to significant    
risks not normally associated with securities transactions in the United States 
and other more developed markets. Ownership of Equity Securities 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 a 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 a 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 Russian law to employ an independent registrar, 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 a 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, a Portfolio will not invest in the Equity
Securities of a Russian company unless that issuer's registrar has entered into 
a contract with the Fund'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 a Portfolio would otherwise make.                                          

FOREIGN CURRENCY TRANSACTIONS. The U.S. dollar value of the assets of the       
Portfolios, to the extent they invest in securities denominated in foreign      
currencies, may be affected favorably or unfavorably by changes in foreign      
currency exchange rates and exchange control regulations, and the Portfolios may
incur costs in connection with conversions between various currencies. The      
Portfolios may conduct their foreign currency exchange transactions on a spot   
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange 
market. The Portfolios also may manage their foreign currency transactions by   
entering into foreign currency forward contracts to purchase or sell foreign    
currencies or by using other instruments and techniques described under         
"Derivatives" below.                                                            

Under normal circumstances, consideration of the prospect for changes in the    
values of currency will be incorporated into the long-term investment decisions 
made with regard to overall diversification strategies. However, Morgan Stanley 
Investment Management believes that it is important to have the flexibility to  
use such derivative products when it determines that it is in the best interests
of a Portfolio. It may not be practicable to hedge foreign currency risk in all 
markets, particularly emerging markets.                                         

FOREIGN CURRENCY WARRANTS. Portfolios may invest in foreign currency  
warrants,  which entitle the holder to receive from the issuer an amount of cash
(generally,  for  warrants  issued  in the  U.S.,  in  U.S.  dollars)  which  is
calculated  pursuant to a  predetermined  formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant.  Foreign currency warrants  generally are exercisable upon their
issuance and expire as of a specified date and time.                            

Foreign currency warrants have been issued in connection with U.S.              
dollar-denominated debt offerings by major corporate issuers in an attempt to   
reduce the foreign currency exchange risk which, from the point of view of      
prospective purchasers of the securities, is inherent in the international      
fixed-income marketplace. Foreign currency warrants may attempt to reduce the   
foreign exchange risk assumed by purchasers of a security by, for example,      
providing for a supplemental payment in the event that the U.S. dollar          
depreciates against the value of a major foreign currency such as the Japanese  
Yen or German Deutschmark. The formula used to determine the amount             

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payable upon exercise of a foreign currency warrant may make the warrant        
worthless unless the applicable foreign currency exchange rate moves in a       
particular direction (E.G., unless the U.S. dollar appreciates or depreciates   
against the particular foreign currency to which the warrant is linked or       
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges.                      

Foreign currency warrants may be exercisable only in certain minimum amounts,   
and an investor wishing to exercise warrants who possesses less than the minimum
number required for exercise may be required either to sell the warrants or to  
purchase additional warrants, thereby incurring additional transaction costs. In
the case of any exercise of warrants, there may be a delay between the time a   
holder of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could   
change significantly, thereby affecting both the market and cash settlement     
values of the warrants being exercised. The expiration date of the warrants may 
be accelerated if the warrants should be delisted from an exchange or if their  
trading should be suspended permanently, which would result in the loss of any  
remaining "time value" of the warrants (I.E., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the  
warrants.                                                                       

Foreign currency warrants are generally unsecured obligations of their issuers  
and are not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by the OCC, the     
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of  
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is      
generally considerably in excess of the price that a commercial user of foreign 
currencies might pay in the interbank market for a comparable option involving  
significantly larger amounts of foreign currencies. Foreign currency warrants   
are subject to complex political or economic factors.                           

   PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"     
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is        
adversely affected by increases in the foreign exchange value of the U.S.       
dollar; "reverse" principal exchange rate linked securities are like the        
"standard" securities, except that their return is enhanced by increases in the 
value of the U.S. dollar and adversely impacted by increases in the value of    
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or    
given up by the purchaser of the notes (I.E., at relatively higher interest     
rates if the purchaser has assumed some foreign currency risk).                 

BRADY BONDS. Brady Bonds are Fixed Income Securities that are created through   
the exchange of existing commercial bank loans to foreign entities for new      
obligations in connection with debt restructuring under a plan introduced by    
Nicholas F. Brady when he was the U.S. Secretary of the Treasury. They may be   
collateralized or uncollateralized and issued in various currencies (although   
most are U.S. dollar-denominated) and they are actively traded in the           
over-the-counter secondary market. The Portfolios will invest in Brady Bonds    
only if they are consistent with the Portfolio's quality specifications.        
However, Brady Bonds should be viewed as speculative in light of the history of 
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds.                                                  

INVESTMENT FUNDS. Some emerging market countries have laws and regulations that 
currently preclude direct investment or make it undesirable to invest directly  
in the securities of their companies. However, indirect investment in the       
securities of companies listed and traded on the stock exchanges in these       
countries is permitted by certain emerging market countries through Investment  
Funds that have been specifically authorized. A Portfolio may invest in these   
Investment Funds subject to the provisions of the 1940 Act, as applicable, and  
other applicable laws.                                                          

EUROPEAN CURRENCY TRANSITION. On January 1, 1999, certain members of the        
European Economic and Monetary Union ("EMU"), established a common European     
currency known as the "Euro" and each member's local currency became a          
denomination of the Euro. Each participating country (currently, Austria,       
Belgium, Finland, France,                                                       

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Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and     
Spain) has replaced its local currency with the Euro effective January 1, 2002. 

The transition to the Euro may continue to have an effect on the economic       
environment and behavior of investors, particularly in European markets. For    
example, the process of implementing the Euro may adversely affect financial    
markets world-wide and may result in changes in the relative strength and value 
of the U.S. dollar or other major currencies, as well as possible adverse tax   
consequences. The transition to the Euro may have a significant impact on fiscal
and monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could    
create increased volatility in financial markets world-wide.                    

OTHER SECURITIES                                                                

LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its investment securities
to qualified institutional investors that need to borrow securities in order to 
complete certain transactions, such as covering short sales, avoiding failures  
to deliver securities or completing arbitrage operations. By lending its        
investment securities, a Portfolio attempts to increase its net investment      
income through the receipt of interest on the loan. Any gain or loss in the     
market price of the securities loaned that might occur during the term of the   
loan would be for the account of the Portfolio. Each Portfolio may lend its     
investment securities to qualified brokers, dealers, domestic and foreign banks 
or other financial institutions, so long as the terms, structure and the        
aggregate amount of such loans are not inconsistent with the 1940 Act or the    
Rules and Regulations or interpretations of the SEC thereunder, which currently 
require that (i) the borrower pledge and maintain with the Portfolio collateral 
consisting of liquid, unencumbered assets having a value at all times not less  
than 100% of the value of the securities loaned; (ii) the borrower add to such  
collateral whenever the price of the securities loaned rises (I.E., the borrower
"marks to market" on a daily basis); (iii) the loan be made subject to          
termination by the Portfolio at any time; and (iv) the Portfolio receive        
reasonable interest on the loan (which may include the Portfolio investing any  
cash collateral in interest bearing short-term investments), any distributions  
on the loaned securities and any increase in their market value. There may be   
risks of delay in recovery of the securities or even loss of rights in the      
collateral should the borrower of the securities fail financially. However,     
loans will be made only to borrowers deemed by Morgan Stanley Investment        
Management to be of good standing and when, in the judgment of Morgan Stanley   
Investment Management, the consideration which can be earned currently from such
securities loans justifies the attendant risk. All relevant facts and           
circumstances, including the creditworthiness of the broker, dealer or          
institution, will be considered in making decisions with respect to the lending 
of securities, subject to review by the Board of Directors.                     

At the present time, the staff of the SEC does not object if an investment      
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the       
investment company's Board of Directors. In addition, voting rights may pass    
with the loaned securities, but if a material event will occur affecting an     
investment on loan, the loan must be called and the securities voted.           

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 and restricted 
securities. Such unlisted 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. Furthermore, 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 sold, a Portfolio may 
be required to bear the expenses of registration.                               

As a general matter, a Portfolio may not invest more than 15% (10% for the Large
Cap Relative Value, Money Market and Municipal Money Market Portfolios) of its  
net assets in illiquid securities, such as securities for which there is not a  
readily available secondary market or securities that are restricted from sale  
to the public without registration. However, certain Restricted Securities can  
be offered and sold to qualified institutional buyers under Rule 144A under the 
Securities Act of 1933 (the "1993 Act") ("Rule 144A Securities") and may be     
deemed to be liquid under guidelines adopted by the Fund's Board of Directors.  
The Portfolios may invest without limit in liquid                               

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Rule 144A Securities. Rule 144A Securities may become illiquid if qualified     
institutional buyers are not interested in acquiring the securities.            

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. When-Issued and Delayed Delivery   
Securities are securities purchased with payment and delivery taking place in   
the future in order to secure what is considered to be an advantageous yield or 
price at the time of the transaction. Delivery of and payment for these         
securities may take as long as a month or more after the date of the purchase   
commitment, but will take place no more than 120 days after the trade date. The 
payment obligation and the interest rates that will be received are each fixed  
at the time a Portfolio enters into the commitment and no interest accrues to   
the Portfolio until settlement. Thus, it is possible that the market value at   
the time of settlement could be higher or lower than the purchase price if the  
general level of interest rates has changed. An increase in the percentage of   
the Portfolio's assets committed to the purchase of securities on a When-Issued 
or Delayed Delivery basis may increase the volatility of its net asset value.   
When a Portfolio agrees to purchase When-Issued or Delayed Delivery Securities, 
it will earmark or segregate cash or liquid securities in an amount equal to the
Portfolio's commitment to purchase these securities.                            

BORROWING FOR INVESTMENT PURPOSES. Borrowing for investment purposes creates    
leverage which is a speculative characteristic. Portfolios authorized to borrow 
will do so only when Morgan Stanley Investment Management believes that         
borrowing will benefit the Portfolio after taking into account considerations   
such as the costs of borrowing and the likely investment returns on securities  
purchased with borrowed funds. Borrowing by a Portfolio will create the         
opportunity for increased net income but, at the same time, will involve special
risk considerations. Leverage that results from borrowing will magnify declines 
as well as increases in a Portfolio's net asset value per share and net yield.  
Each Portfolio that engages in borrowing expects that all of its borrowing will 
be made on a secured basis. The Portfolio 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, a Portfolio may be required to pledge additional collateral  
to the lender in the form of cash or securities to avoid liquidation of those   
assets.                                                                         

TEMPORARY BORROWING. Each Portfolio is permitted to borrow from banks in an     
amount up to 10% of its total assets for extraordinary or emergency purposes,   
except that the Technology, Emerging Markets Debt and Latin American Portfolios 
may borrow in accordance with fundamental investment limitation number (5)      
below. For example, the Portfolios may borrow for temporary defensive purposes  
or to meet shareholder redemptions when Morgan Stanley Investment Management    
believes that it would not be in the best interests of a Portfolio to liquidate 
portfolio holdings. Each Portfolio (other than the Emerging Markets Debt        
Portfolio) will not purchase additional securities while temporary borrowings   
exceed 5% of its total assets.                                                  

The Board of Directors of the Fund has approved procedures whereby the          
Portfolios together with other investment companies advised by Morgan Stanley   
Investment Management or its affiliates may enter into a joint line of credit   
arrangement with a bank. Each Portfolio would be liable only for its own        
temporary borrowings under the joint line of credit arrangements.               

REVERSE REPURCHASE AGREEMENTS. Under a Reverse Repurchase Agreement, a Portfolio
sells a security and promises to repurchase that security at an agreed upon     
future date and price. The price paid to repurchase the security reflects       
interest accrued during the term of the agreement. The Portfolio will earmark   
cash or liquid assets or establish a segregated account holding cash and other  
liquid assets in an amount not less than the purchase obligations of the        
agreement. Reverse Repurchase Agreements may be viewed as a speculative form of 
borrowing called leveraging. A Portfolio may invest in Reverse Repurchase       
Agreements if (i) interest earned from leveraging exceeds the interest expense  
of the original reverse repurchase transaction and (ii) proceeds from the       
transaction are not invested for longer than the term of the Reverse Repurchase 
Agreement.                                                                      

SHORT SALES. 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 selling short, the Portfolio      
intends to replace the securities at a lower price and therefore, profit from   
the difference between the cost to replace the securities and the proceeds      
received from the sale of the securities. When the Portfolio makes a short sale,
the proceeds it receives from the sale will be held on                          

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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    
earmark cash or liquid assets or place in a segregated account an amount of cash
or other liquid assets equal to the difference, if any, between (i) the market  
value of the securities sold at the time they were sold short, and (ii) any cash
or other liquid securities deposited as collateral with the broker in connection
with the short sale. Short sales by the Portfolio involve certain risks and     
special considerations. If Morgan Stanley Investment Management incorrectly     
predicts that the price of the borrowed security will decline, the Portfolio    
will have to replace the securities with securities with a greater value than   
the amount received from the sale. As a result, 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 INVESTMENTS. Structured Investments are securities that are          
convertible into, or the value of which is based upon the value of, other fixed 
income or equity securities or indices upon certain terms and conditions. The   
amount a Portfolio receives when it sells a Structured Investment or at maturity
of a Structured Investment is not fixed, but is based on the price of the       
underlying security or index. Particular Structured Investments may be designed 
so that they move in conjunction with or differently from their underlying      
security or index in terms of price and volatility. It is impossible to predict 
whether the underlying index or price of the underlying security will rise or   
fall, but prices of the underlying indices and securities (and, therefore, the  
prices of Structured Investments) will be influenced by the same types of       
political and economic events that affect particular issuers of fixed income and
equity securities and capital markets generally. Structured Investments also may
trade differently from their underlying securities. Structured Investments      
generally trade on the secondary market, which is fairly developed and liquid.  
However, the market for such securities may be shallow compared to the market   
for the underlying securities or the underlying index. Accordingly, periods of  
high market volatility may affect the liquidity of Structured Investments,      
making high volume trades possible only with discounting.                       

Structured Investments are a relatively new innovation and may be designed to   
have various combinations of equity and fixed income characteristics. The       
following sections describe four of the more common types of Structured         
Investments. The Portfolios may invest in other Structured Investments,         
including those that may be developed in the future, to the extent that the     
Structured Investments are otherwise consistent with a Portfolio's investment   
objective and policies.                                                         

   PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
is preferred stock with some characteristics of common stock. PERCS are         
mandatorily convertible into common stock after a period of time, usually three 
years, during which the investors' capital gains are capped, usually at 30%.    
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's    
common stock is trading at a specified price level or better. The redemption    
price starts at the beginning of the PERCS duration period at a price that is   
above the cap by the amount of the extra dividends the PERCS holder is entitled 
to receive relative to the common stock over the duration of the PERCS and      
declines to the cap price shortly before maturity of the PERCS. In exchange for 
having the cap on capital gains and giving the issuer the option to redeem the  
PERCS at any time or at the specified common stock price level, a Portfolio may 
be compensated with a substantially higher dividend yield than that on the      
underlying common stock. Investors that seek current income find PERCS          
attractive because PERCS provide a high dividend income than that paid with     
respect to a company's common stock.                                            

ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt     
securities, in that the principal amount received at maturity is not fixed but  
is based on the price of the issuer's common stock. ELKS are debt securities    
commonly issued in fully registered form for a term of three years under an     
indenture trust. At maturity, the holder of ELKS will be entitled to receive a  
principal amount equal to the lesser of a cap amount, commonly in the range of  
30% to 55% greater than the current price of the issuer's common stock, or the  
average closing price per share of the issuer's common stock, subject to        
adjustment as a result of certain dilution events, for the 10 trading days      
immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to   
redemption prior to maturity. ELKS usually bear interest during the three-year  
term at a substantially higher rate than the dividend yield on the underlying   
common stock. In exchange for having the cap on the return that might have been 
received as capital gains on the underlying common stock, a Portfolio may be    
compensated with the higher yield, contingent on                                

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how well the underlying common stock does. Investors that seek current income,  
find ELKS attractive because ELKS provide a higher dividend income than that    
paid with respect to a company's common stock. The return on ELKS depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The   
creditworthiness of such third party issuer of ELKS may, and often does, exceed 
the creditworthiness of the issuer of the underlying securities. The advantage  
of using ELKS over traditional equity and debt securities is that the former are
income producing vehicles that may provide a higher income than the dividend    
income on the underlying equity securities while allowing some participation in 
the capital appreciation of the underlying equity securities. Another advantage 
of using ELKS is that they may be used for hedging to reduce the risk of        
investing in the generally more volatile underlying equity securities.          

LYONS. Liquid Yield Option Notes ("LYONs") differ from ordinary debt  
securities, in that the amount received prior to maturity is not fixed but is   
based on the price of the issuer's common stock. LYONs are zero-coupon notes    
that sell at a large discount from face value. For an investment in LYONs, the  
Portfolio will not receive any interest payments until the notes mature,        
typically in 15 to 20 years, when the notes are redeemed at face, or par, value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of 
the same maturity, due in part to the fact that the LYONs are convertible into  
common stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by the issuer at any time after an initial   
period or if the issuer's common stock is trading at a specified price level or 
better or, at the option of the holder, upon certain fixed dates. The redemption
price typically is the purchase price of the LYONs plus accrued original issue  
discount to the date of redemption, which amounts to the lower-than-market      
yield. A Portfolio will receive only the lower-than-market yield unless the     
underlying common stock increases in value at a substantial rate. LYONs are     
attractive to investors when it appears that they will increase in value due to 
the rise in value of the underlying common stock.                               

    STRUCTURED NOTES. Structured Notes are derivative securities for 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. In some cases, the impact of the 
movements of these factors may increase or decrease through the use of          
multipliers or deflators. Structured Notes may be designed to have particular   
quality and maturity characteristics and may vary from money market quality to  
below investment grade. Depending on the factor used and the use of multipliers 
or deflators, however, changes in interest rates and movement of the factor may 
cause significant price fluctuations or may cause particular Structured Notes to
become illiquid. The Portfolios will use Structured Notes to tailor their       
investments to the specific risks and returns Morgan Stanley Investment         
Management wishes to accept while avoiding or reducing certain other risks.     

DERIVATIVES                                                                     

The Portfolios are permitted to utilize various exchange-traded and             
over-the-counter derivative instruments and derivative securities, both for     
hedging and non-hedging purposes. Permitted derivative products include, but are
not limited to futures contracts ("futures"); forward contracts ("forwards");   
options; swaps, caps, collars and floors; structured notes; and other derivative
products yet to be developed, so long as these new products are used in a manner
consistent with the objectives of the Portfolios. These derivative products may 
be based on a wide variety of underlying rates, indices, instruments, securities
and other products, such as interest rates, foreign currencies, foreign and     
domestic fixed income and equity securities, groups or "baskets" of securities  
and securities indices (for each derivative product, the "underlying"). Each    
Portfolio will limit its use of foreign currency forward contracts and other    
derivative products for non-hedging purposes to 33 1/3% of its total assets,    
measured by the aggregate notional amount of outstanding derivative products.   

The term hedging, generally, means that a Portfolio is using a derivative       
product as a way to reduce or limit risk. For example, a Portfolio may hedge in 
order to limit the effects of a change in the value of a particular foreign     
currency versus the U.S. dollar or a Portfolio could use a portion of its cash  
to buy securities futures in order to hedge the risk of not being fully         
invested. The Portfolios also may use certain complex hedging techniques. For   
example, a Portfolio may use a type of hedge known as a cross hedge or a proxy  
hedge, where the Portfolio hedges the risk associated with one underlying by    
purchasing or selling a derivative product with an underlying that is           

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different. There is no limit on the use of foreign currency forward contracts or
other derivative products for hedging purposes.                                 

The Portfolios may use derivative products under a number of different          
circumstances to further their investment objectives. For example, a Portfolio  
may purchase derivatives to gain exposure to a market or currency quickly 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 market. A Portfolio may also use derivatives when it is restricted   
from directly owning the "underlying" or when derivatives provide a pricing     
advantage or lower transaction costs. The Portfolios also may purchase          
combinations of derivatives in order to gain exposure to an investment in lieu  
of actually purchasing such investment. Derivatives may also be used by a       
Portfolio for hedging or risk management purposes and in other circumstances    
when Morgan Stanley Investment Management believes it advantageous to do so     
consistent with the Portfolio's investment objectives and policies. Except under
circumstances where a segregated account is not required under the 1940 Act or  
the rules adopted thereunder, the Portfolio will earmark cash or liquid assets  
or place them in a segregated account in an amount necessary to cover the       
Portfolio's obligations under such derivative transactions.                     

The use of derivative products is a highly specialized activity which involves  
investment techniques and risks different from those associated with ordinary   
portfolio securities transactions. If Morgan Stanley Investment Management is   
incorrect in forecasts of market values, interest rates, and currency exchange  
rates, the investment performance of the Portfolios will be less favorable than 
it would have been if these investment techniques had not been used.            

Some of the derivative products in which the Portfolios may invest and some of  
the risks related thereto are described in further detail below.                

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT: Forward foreign currency exchange   
contracts are derivatives which may be used to protect against uncertainty in   
the level of future foreign exchange rates. A forward foreign currency exchange 
contract is an obligation to purchase or sell a specific currency at a future   
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Such contracts 
do not eliminate fluctuations caused by changes in the local currency prices of 
the securities, but rather, they establish an exchange rate at a future date.   
Also, although such contracts can minimize the risk of loss due to a decline in 
the value of the hedged currency, at the same time they limit any potential gain
that might be realized.                                                         

A Portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.    
dollar value of portfolio positions (position hedge). In addition, the          
Portfolios may cross hedge currencies by entering into a transaction to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which a Portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into   
positions in one currency to hedge investments denominated in another currency, 
where the two currencies are economically linked. A Portfolio's entry into      
forward foreign currency exchange contract, as well as any use of cross or proxy
hedging techniques will generally require the Portfolio to hold liquid          
securities or cash equal to the Portfolio's obligations in a segregated account 
throughout the duration of the contract.                                        

A Portfolio may also combine forward foreign currency exchange contracts with   
investments in securities denominated in other currencies in order to achieve   
desired credit and currency exposures. Such combinations are generally referred 
to as synthetic securities. For example, in lieu of purchasing a foreign bond, a
Portfolio may purchase a U.S. dollar-denominated security and at the same time  
enter into a foreign currency forward contract to exchange U.S. dollars for the 
contract's underlying currency at a future date. By matching the amount of U.S. 
dollars to be exchanged with the anticipated value of the U.S.                  
dollar-denominated security, a Portfolio may be able to lock in the foreign     
currency value of the security and adopt a synthetic investment position        
reflecting the credit quality of the U.S. dollar-denominated security.          

Forward foreign currency exchange contracts are not traded on contract markets  
regulated by the SEC or the Commodity Futures Trading Commission ("CFTC"). They 
are traded through financial institutions acting as                             

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market-makers. Portfolios that trade foreign currency forward contracts could   
lose amounts substantially in excess of their initial investments, due to the   
margin and collateral requirements associated with them.                        

Forward foreign currency exchange contracts may be traded on foreign exchanges. 
These transactions are subject to the risk of governmental actions affecting    
trading in or the prices of foreign currencies or securities. The value of such 
positions also could be adversely affected by (i) other complex foreign         
political and economic factors, (ii) lesser availability than in the United     
States of data on which to make trading decisions, (iii) delays in a Portfolio's
ability to act upon economic events occurring in foreign markets during non     
business hours in the United States, (iv) the imposition of different exercise  
and settlement terms and procedures and margin requirements than in the United  
States, and (v) lesser trading volume.                                          

Currency hedging strategies involve certain other risks as well. There is a risk
in adopting a transaction hedge or position hedge to the extent that the value  
of a security denominated in foreign currency is not exactly matched with a     
Portfolio's obligation under the forward foreign currency exchange contract. On 
the date of maturity, a Portfolio may be exposed to some risk of loss from      
fluctuations in that currency. Although the Adviser will attempt to hold such   
mismatching to a minimum, there can be no assurance that the Adviser will be    
able to do so. For proxy hedges, cross hedges or a synthetic position, there is 
an additional risk in that these transactions create residual foreign currency  
exposure. When a Portfolio enters into a forward foreign currency exchange      
contract for purposes of creating a position hedge, transaction hedge, cross    
hedge or a synthetic security, it will generally be required to hold liquid     
securities or cash in a segregated account with a daily value at least equal to 
its obligation under the forward foreign currency exchange contract.            

The Portfolios generally will not enter into a forward contract with a term of  
greater than one year. At the maturity of a forward contract, a Portfolio may   
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver  
the foreign currency by purchasing an "offsetting" contract with the same       
currency trader obligating it to purchase, on the same maturity date, the same  
amount of the foreign currency.                                                 

It is impossible to forecast with absolute precision the market value of a      
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Portfolio to purchase additional foreign currency on the 
spot market (and bear the expense of such purchase) if the market value of the  
security is less than the amount of foreign currency that such Portfolio is     
obligated to deliver and if a decision is made to sell the security and make    
delivery of the foreign currency.                                               

If a Portfolio retains the portfolio security and engages in an offsetting      
transaction, such Portfolio will incur a gain or a loss (as described below) to 
the extent that there has been movement in forward contract prices. Should      
forward prices decline during the period between a Portfolio entering into a    
forward contract for the sale of a foreign currency and the date it enters into 
an offsetting contract for the purchase of the foreign currency, such Portfolio 
will realize a gain to the extent that the price of the currency it has agreed  
to sell exceeds the price of the currency it has agreed to purchase. Should     
forward prices increase, such Portfolio would suffer a loss to the extent that  
the price of the currency it has agreed to purchase exceeds the price of the    
currency it has agreed to sell. The Portfolios are not required to enter into   
such transactions with regard to their foreign currency-denominated securities. 
It also should be realized that this method of protecting the value of portfolio
securities against a decline in the value of a currency does not eliminate      
fluctuations in the underlying prices of the securities. It simply establishes a
rate of, exchange which one can achieve at some future point in time.           
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to     
limit any potential gain which might result should the value of such currency   
increase.                                                                       

FUTURES CONTRACTS (FUTURES) AND FORWARD CONTRACTS (FORWARDS). The Portfolios may
purchase and sell futures contracts, including futures on securities indices,   
baskets of securities, foreign currencies and interest rates of the type        
generally known as financial futures. These are standardized contracts that are 
bought and sold on organized exchanges. A futures contract obligates a party to 
buy or sell a specific amount of the "underlying," such as a particular foreign 
currency, on a specified future date at a specified price or to settle the value
in cash.                                                                        

The Portfolios may also purchase and sell forward contracts, such as forward    
rate agreements and other financial forward contracts. The Portfolios may also  
use forward foreign currency exchange contracts which are separately            

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discussed under "Forward Foreign Currency Exchange Contracts." These forward    
contracts are privately negotiated and are bought and sold in the               
over-the-counter market. Like a future, a forward contract obligates a party to 
buy or sell a specific amount of the underlying on a specified future date at a 
specified price. The terms of the forward contract are customized. Forward      
contracts, like other over-the-counter contracts that are negotiated directly   
with an individual counterparty, subject the Portfolio to the risk of           
counterparty default. Forward foreign currency exchange contracts may be used to
protect against uncertainty in the level of future foreign currency exchange    
rates or to gain or modify exposure to a particular currency.                   

In some cases, the Portfolios may be able to use either futures contracts,      
forward contracts or exchange-traded or over-the-counter options to accomplish  
similar purposes. In all cases, the Portfolios will uses these products only as 
permitted by applicable laws and regulations. Some of the ways in which the     
Portfolios may use futures contracts, forward contracts and related options     
follow.                                                                         

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 may purchase       
securities index futures or options in order to gain market exposure. There     
currently are limited securities index futures and options on such futures in   
many countries, particularly emerging markets. The nature of the strategies     
adopted by Morgan Stanley Investment Management, and the extent to which those  
strategies are used, may depend on the development of such markets. The         
Portfolios may also purchase and sell foreign currency futures to lock in rates 
or to adjust their exposure to a particular currency.                           

The Portfolio may engage in transactions in interest rate futures and related   
products. The value of these contracts 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 or for    
other purposes. The Portfolios may also use futures contracts to gain exposure  
to an entire market (e.g., stock index futures) or to control their exposure to 
changing foreign currency exchange rates.                                       

Gains and losses on futures contracts, forward contracts and related options    
depend on Morgan Stanley Investment Management's ability to predict correctly   
the direction of movement of securities prices, interest rates and other        
economic factors. Other risks associated with the use of these instruments      
include (i) imperfect correlation between the changes in market value of        
investments held by a Portfolio and the prices of derivative products relating  
to investments purchased or sold by the Portfolio, and (ii) possible lack of a  
liquid secondary market for a derivative product and the resulting inability to 
close out a position. A Portfolio will seek to minimize the risk by only        
entering into transactions for which there appears to be a liquid exchange or   
secondary market. In some strategies, the risk of loss in trading on futures and
related transactions can be substantial, due both to the low margin deposits    
required and the extremely high degree of leverage involved in pricing. Except  
under circumstances where a segregated account is not required under the 1940   
Act or the rules adopted thereunder, the Portfolio will earmark cash or liquid  
assets or place them in a segregated account in an amount necessary to cover the
Portfolio's obligations under such contracts.                                   

Under rules adopted by the CFTC, each Portfolio may, without registering with   
the CFTC as a Commodity Pool Operator, 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-bona fide hedging activities.                         

OPTIONS. The Portfolios may seek to increase their returns or may hedge their   
portfolio investments through options transactions with respect to individual   
securities, indices or baskets in which such Portfolios may invest; other       
financial instruments; and foreign currency. Various options may be purchased   
and sold on exchanges or over-the-counter markets.                              

Each Portfolio may purchase put and call options. Purchasing a put option gives 
a Portfolio the right, but not the obligation, to sell the underlying (such as a
securities index or a particular foreign currency) at the exercise price either 
on a specific date or during a specified exercise period. The purchaser pays a  
premium to the seller (also known as the writer) of the option.                 

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Each Portfolio also may write put and call options on investments held in its   
portfolio, as well as foreign currency options. A Portfolio that has written an 
option receives a premium that increases the Portfolio's return on the          
underlying 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    
above the exercise price of the option. By writing a put option, a Portfolio    
will be exposed to the amount by which the price of the underlying is less than 
the strike price.                                                               

By writing an option, a Portfolio incurs an obligation either to buy (in the    
case of a put option) or sell (in the case of a call option) the underlying from
the purchaser of the option at the option's exercise price, upon exercise by the
purchaser. Pursuant to guidelines established by the Board of Directors, the    
Portfolios may only write options that are "covered." A covered call option     
means that until the expiration of the option, the Portfolio will either earmark
or segregate sufficient liquid assets to cover its obligations under the option 
or will continue to own (i) the underlying; (ii) securities or instruments      
convertible or exchangeable without the payment of any consideration into the   
underlying; or (iii) a call option on the same underlying with a strike price no
higher than the price at which the underlying was sold pursuant to a short      
option position. In the case of a put option, the Portfolio will either earmark 
or segregate sufficient liquid assets to cover its obligations under the option 
or will own another put option on the same underlying with an equal or higher   
strike price.                                                                   

There currently are limited options markets in many countries, particularly     
emerging market countries, and the nature of the strategies adopted by Morgan   
Stanley Investment Management and the extent to which those strategies are used 
will depend on the development of these options markets. The primary risks      
associated with the Portfolios' use of options as described include (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. 

SWAPS, CAPS, COLLARS AND FLOORS. Swaps are privately negotiated over-the-counter
derivative products in which two parties agree to exchange payment streams      
calculated in relation to a rate, index, instrument or certain securities and a 
particular "notional amount." As with many of the other derivative products     
available to the Portfolios, the underlying may include an interest rate (fixed 
or floating), a currency exchange rate, a commodity price index, and a security,
securities index or a combination thereof. A great deal of flexibility is       
possible in the way the products may be structured, with the effect being that  
the parties may have exchanged amounts equal to the return on one rate, index or
group of securities for another. For example, in a simple fixed-to-floating     
interest rate swap, one party makes payments equivalent to a fixed interest     
rate, and the other makes payments equivalent to a specified interest rate      
index. A Portfolio may engage in simple or more complex swap transactions       
involving a wide variety of underlyings. The currency swaps that 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.                   

Caps, collars and floors are privately-negotiated option-based derivative       
products. A Portfolio may use one or more of these products in addition to or in
lieu of a swap involving a similar rate or index. As in the case of a put or    
call option, the buyer of a cap or floor pays a premium to the writer. In       
exchange for that premium, the buyer receives the right to a payment equal to   
the differential if the specified index or rate rises above (in the case of a   
cap) or falls below (in the case of a floor) a pre-determined strike level. As  
in the case of swaps, obligations under caps and floors are calculated based    
upon an agreed notional amount, and like most swaps (other than foreign currency
swaps), the entire notional amount is not exchanged and thus is not at risk. A  
collar is a combination product in which the same party, such as the Portfolio, 
buys a cap from and sells a floor to the other party. As with put and call      
options, the amount at risk is limited for the buyer, but, if the cap or floor  
in not hedged or covered, may be unlimited for the seller. Under current market 
practice, caps, collars and floors between the same two parties are generally   
documented under the same "master agreement." In some cases, options and forward
agreements may also be governed by the same master agreement. In the event of a 
default, amounts owed under all transactions entered into under, or covered by, 
the same master agreement would be netted and only a single payment would be    
made.                                                                           

Swaps, caps, collars and floors are credit-intensive products. A Portfolio that 
enters into a swap transaction bears the risk of default, I.E., nonpayment, by  
the other party. The guidelines under which each Portfolio enters derivative    
transactions, along with some features of the transactions themselves, are      
intended to reduce these risks to the extent                                    

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reasonably practicable, although they cannot eliminate the risks entirely. Under
guidelines established by the Board of Directors, a Portfolio may enter into    
swaps only with parties that meet certain credit rating guidelines. Consistent  
with current market practices, a Portfolio will generally enter into swap       
transactions on a net basis, and all swap transactions with the same party will 
be documented under a single master agreement to provide for net payment upon   
default. In addition, a Portfolio's obligations under an agreement will be      
accrued daily (offset against any amounts owing to the Portfolio) and any       
accrued, but unpaid, net amounts owed to the other party to a master agreement  
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities.                                                              

Interest rate and total rate of return (fixed income or equity) swaps generally 
do not involve the delivery of securities, other underlying assets, or          
principal. In such case, if the other party to an interest rate or total rate of
return swap defaults, a Portfolio's risk of loss will consist of the payments   
that a Portfolio is contractually entitled to receive from the other party. This
may not be true for currency swaps that require the delivery of the entire      
notional amount of one designated currency in exchange for the other. If there  
is a default by the other party, a Portfolio may have contractual remedies under
the agreements related to the transaction.                                      

CREDIT DEFAULT SWAPS: The Emerging Markets Debt Portfolio may enter into credit 
default swap contracts for hedging purposes or to add leverage to the portfolio.
As the seller in a credit default swap contract, the Portfolio would be required
to pay the par (or other agreed-upon) value of a referenced debt obligation to  
the counterparty in the event of a default by a third party, such as a U.S. or  
foreign corporate issuer, on the debt obligation. In return, the Portfolio would
receive from the counterparty a periodic stream of payments over the term of the
contract provided that no event of default has occurred. If no default occurs,  
the Portfolio would keep the stream of payments and would have no payment       
obligations. As the seller, the Portfolio would effectively add leverage to its 
portfolio because, in addition to its total net assets, the Portfolio would be  
subject to investment exposure on the notional amount of the swap.              

The Portfolio may also purchase credit default swap contracts in order to hedge 
against the risk of default of debt securities held in its portfolio, in which  
case the Portfolio would function as the counterparty referenced in the         
preceding paragraph. This would involve the risk that the investment may expire 
worthless and would generate income only in the event of an actual default by   
the issuer of the underlying obligation (as opposed to a credit downgrade or    
other indication of financial instability). It would also involve credit risk   
that the seller may fail to satisfy its payment obligations to the Portfolio in 
the event of a default.                                                         

The Portfolio will segregate assets in the form of cash and cash equivalents in 
an amount equal to the aggregate market value of the credit default swaps of    
which it is the seller, marked to market on a daily basis.                      

INVESTMENT LIMITATIONS

FUNDAMENTAL LIMITATIONS                                                         

Each current Portfolio has adopted the following restrictions, which are        
fundamental policies and may not be changed without the approval of the lesser  
of: (i) at least 67% of the voting securities of the Portfolio present at a     
meeting if the holders of more than 50% of the outstanding voting securities of 
the Portfolio are present or represented by proxy; or (ii) more than 50% of the 
outstanding voting securities of the Portfolio. Each Portfolio of the Fund will 
not:                                                                            

   (1)  purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the 
Portfolio from purchasing or selling options or futures contracts or from       
investing in securities or other instruments backed by physical commodities),   
and except that the Gold Portfolio may invest in gold bullion in accordance with
its investment objectives and policies;                                         

(2)  purchase or sell real estate, although it may purchase and sell  
securities of companies that deal in real estate and may purchase and sell      
securities that are secured by interests in real estate;                        

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  (3)  lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this limitation 
does not apply to purchases of debt securities or repurchase agreements;        

   (4)  except with respect to the Asian Real Estate, China Growth, Emerging
Markets, Emerging Markets Debt, European Real Estate, Focus Equity, Global      
Franchise, International Magnum, Latin American, MicroCap, Technology and U.S.  
Real Estate Portfolios, with respect to 75% of its total assets (i) purchase    
more than 10% of any class of the outstanding voting securities of any issuer   
and (ii) purchase securities of an issuer (except obligations of the U.S.       
Government and its agencies and instrumentalities) if as a result more than 5%  
of the Portfolio's total assets, at market value, would be invested in the      
securities of such issuer;                                                      

    (5)  issue senior securities and will not borrow, except from banks and as
a temporary measure for extraordinary or emergency purposes and then, in no     
event, in excess of 33 1/3% of its total assets (including the amount borrowed) 
less liabilities (other than borrowings), except that each of the Emerging      
Markets Debt and Latin American Portfolios may borrow from banks and other      
entities, and the Technology Portfolio may borrow from banks, in an amount not  
in excess of 33 1/3% of its total assets (including the amount borrowed) less   
liabilities in accordance with its investment objectives and policies;          

    (6)  underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities;                                       

(7)  acquire any securities of companies within one industry if, as a 
result of such acquisition, more than 25% of the value of the Portfolio's total 
assets would be invested in securities of companies within such industry;       
provided, however, that there shall be no limitation on the purchase of         
obligations issued or guaranteed by the U.S. Government, its agencies or        
instrumentalities, or (in the case of the Money Market Portfolio or the         
Municipal Money Market Portfolio) instruments issued by U.S. Banks, except that 
(i) the Latin American Portfolio may invest more than 25% of its total assets in
securities of companies involved in the telecommunications industry or financial
services industry; (ii) the Gold Portfolio will invest more than 25% of its     
total assets in securities of companies in the group of industries involved in  
gold-related or precious-metals-related activities, as described in its         
prospectus, and may invest more than 25% of its total assets in one or more of  
the industries that are a part of such group of industries, as described in its 
prospectus; (iii) each of the Asian Real Estate, European Real Estate and U.S.  
Real Estate Portfolios will invest more than 25% of its total assets in the     
Asian, European and U.S. real estate industries, respectively, as described in  
their prospectuses; and (iv) the Technology Portfolio will invest more than 25% 
of its assets in securities of companies in the technology or technology-related
industries;                                                                     

 (8)  write or acquire options or interests in oil, gas or other mineral
exploration or development programs.                                            

NON-FUNDAMENTAL LIMITATIONS                                                     

In addition, each current Portfolio of the Fund has adopted the following       
non-fundamental investment limitations, which may be changed by the Board       
without shareholder approval. Each current Portfolio of the Fund will not:      

     (1)  purchase on margin or sell short, except (i) that the Emerging Markets
Debt and Latin American Portfolios may from time to time sell securities short  
without limitation but consistent with applicable legal requirements as stated  
in its Prospectus; (ii) that each Portfolio, except the Money Market and        
Municipal Money Market Portfolios, may enter into option transactions and       
futures contracts as described in its Prospectus; and (iii) as specified above  
in fundamental investment limitation number (1) above;                          

   (2)  except for the Asian Real Estate, European Real Estate and U.S. Real
Estate Portfolios, invest in real estate limited partnership interests, and the 
Asian Real Estate, European Real Estate and U.S. Real Estate Portfolios may not 
invest in such interests that are not publicly traded;                          

(3)  make loans except (i) by purchasing bonds, debentures or similar 
obligations (including repurchase agreements, subject to the limitations as     
described in the respective Prospectuses) that are publicly distributed; (ii) by
lending its portfolio securities to banks, brokers, dealers and other financial 
institutions so long as                                                         

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such loans are not inconsistent with the 1940 Act or the Rules and Regulations  
or interpretations of the SEC thereunder; and (iii) in the case of the Large Cap
Relative Value Portfolio, will not lend any security or make any other loan if, 
as a result, more than 10% of its total assets would be lent to other parties,  
but this limitation does not apply to purchases of debt securities or repurchase
agreements;                                                                     

(4)  borrow money, except from banks for extraordinary or emergency   
purposes, and then only in amounts up to 10% of the value of the Portfolio's    
total assets (including, in each case, the amount borrowed less liabilities     
(other than borrowings)(or in the case of the Large Cap Relative Value Portfolio
up to 5% of the total net assets taken at cost and may pledge up to 15% of its  
total assets taken at cost)), or purchase securities while borrowings exceed 5% 
of its total assets, except that the Emerging Markets Debt Portfolio may borrow 
in accordance with fundamental investment limitation number (5) above; and      

Whether diversified or non-diversified, each Portfolio will diversify its       
holdings so that, at the close of each quarter of its taxable year or within 30 
days thereafter, (i) at least 50% of the market value of the Portfolio's total  
assets is represented by cash (including cash items and receivables), U.S.      
Government securities, and other securities, with such other securities limited,
in respect of any one issuer, for purposes of this calculation to an amount not 
greater than 5% of the value of the Portfolio's total assets and 10% of the     
outstanding voting securities of such issuer; and (ii) not more than 25% of the 
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities). Prior to the close of each quarter (or within 
30 days thereafter), the Portfolio's holdings may be less diversified and are   
not required to satisfy any diversification test.                               

With respect to fundamental investment limitation number (7), each Portfolio    
will determine industry concentration in accordance with the industry           
classifications used by its benchmark index, except that with respect to the    
Money Market and Municipal Money Market Portfolios, (a) financial service       
companies will be classified according to the end users of their services, for  
example, automobile finance, bank finance and diversified finance will each be  
considered a separate industry and (b) asset-backed securities will be          
classified according to the underlying assets securing such securities.         

In accordance with fundamental investment limitation number (7), the Latin      
American Portfolio will only invest more than 25% of its total assets in        
companies involved in the telecommunications industry or financial services     
industry if the Board of Directors determines that the Latin American markets   
are dominated by securities of issuers in such industries and that, in light of 
the anticipated return, investment quality, availability and liquidity of the   
issuers in such industries, the Portfolio's ability to achieve its investment   
objective would, in light of the investment policies and limitations, be        
materially adversely affected if the Portfolio was not able to invest greater   
than 25% of its total assets in such industries. As stated in the Prospectus,   
the Board of Directors has made the foregoing determination and, accordingly,   
the Latin American Portfolio will invest between 25% and 50% of its assets in   
securities of issuers engaged in the telecommunications industry.               

The percentage limitations contained in these restrictions apply at the time of 
purchase of securities. Future Portfolios of the Fund may adopt different       
limitations.                                                                    

PURCHASE OF SHARES

You may purchase shares of each Portfolio on any day the New York Stock Exchange
("NYSE") is open. Each Portfolio reserves the right in its sole discretion (i)  
to suspend the offering of its shares; (ii) to reject purchase orders when in   
the judgment of management such rejection is in the best interest of the Fund;  
and (iii) to reduce or waive the minimum for initial and subsequent investments 
for certain accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Portfolio's shares. The         
International Equity Portfolio is currently closed to new investors with the    
exception of certain Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co.") 
customers, employees of Morgan Stanley & Co. and its affiliates, certain        
tax-qualified retirement plans and other investment companies advised by Morgan 
Stanley Investment Management and its affiliates. The China Growth, Gold,       
MicroCap, Mortgage-Backed Securities, Municipal Bond and U.S. Equity Plus       
Portfolios currently are not operational.                                       

Shares of each Portfolio may be purchased at the net asset value per share next 
determined after receipt by the Fund or its designee of a purchase order as     
described under "Methods of Purchase" and "Investment through Financial         

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Intermediaries." Shares may, in the Fund's discretion, be purchased with        
investment securities (in lieu of or, in conjunction with cash) acceptable to   
the Fund. The securities would be accepted by the Fund at their market value in 
return for Portfolio Shares of equal value. 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 NYSE is open for     
business. Net asset value per share is determined (i) for each non-money market 
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").                                       

MINIMUM INVESTMENT                                                              

The minimum initial investment is $500,000 for Class A shares and $100,000 for  
Class B shares of each non-money market Portfolio, except that the minimum      
initial investment is $250,000 for Class A shares and $50,000 for Class B shares
of the Technology Portfolio. The minimum initial investment is $100,000 for     
Class A shares of each money market Portfolio. There is no minimum initial      
investment for Class B shares of the Money Market Portfolio. These minimums may 
be waived at Morgan Stanley Investment Management's discretion for: certain     
types of investors, including trust departments, brokers, dealers, agents,      
financial planners, financial services firms, investment advisers or various    
retirement and deferred compensation plans ("Financial Intermediaries"); certain
accounts managed by Morgan Stanley Investment Management and its affiliates     
("Managed Accounts"); and certain employees and customers of Morgan Stanley &   
Co. and its affiliates. 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                                                             

You may purchase shares directly from the Fund by Federal Funds wire, by bank   
wire or by check; however, on days that the NYSE is open but the custodian bank 
is closed, you may only purchase shares by check. Investors may also invest in  
the Portfolios by purchasing shares through Financial Intermediaries that have  
made arrangements with the Fund. Class B shares of the Money Market Portfolio   
may only be purchased through Financial Intermediaries. Some Financial          
Intermediaries may charge an additional service or transaction fee (see also    
"Investment through Financial Intermediaries.") 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 J.P. Morgan Chase Bank ("J.P. Morgan Chase") are 
open for business. Your bank may charge a service fee for wiring Federal Funds. 
In order to ensure proper handling of your purchase by Federal Funds wire,      
please follow these steps.                                                      

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

 2.   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.                             

 3.   Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account as follows:                      

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J.P. Morgan Chase Bank                                      
270 Park Avenue                                             
New York, New York  10017                                   
ABA# 021000021                                              
DDA# 910-2-733293                                           
Attn: Morgan Stanley Institutional Fund, Inc.               
Subscription Account                                        
      Ref: (Portfolio name, your account number, your account name, your
        confirmation number) Please call the Fund at 1-800-548-7786 prior to
wiring funds.                                               

When a purchase order is received prior to the Pricing Time and Federal Funds   
are received prior to the regular close of the Federal Funds Wire Control Center
("FFWCC") (normally 6:00 p.m. Eastern Time) the purchase 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 agreements with the Fund pursuant to which they may place orders   
prior to the Pricing Time, but make payment in Federal Funds for those shares   
the following business day.                                                     

BANK WIRE. A purchase of shares by bank wire must follow the same procedure as  
for a Federal Funds wire, described above. 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.                     
c/o J.P. Morgan Investor Services Co.                       
73 Tremont St.                                              
Boston, Massachusetts 02108-3919                            

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.                   

INVESTMENT THROUGH FINANCIAL INTERMEDIARIES. Certain Financial Intermediaries   
have made arrangements with the Fund so that an investor may purchase or redeem 
shares at the net asset value per share next determined after the Financial     
Intermediary receives the share order. In other instances, the Fund has also    
authorized such Financial Intermediaries to designate other intermediaries to   
receive purchase and redemption orders on the Fund's behalf at the share price  
next determined after such designees receive the share order. Under these       
arrangements, the Fund will be deemed to have received a purchase or redemption 
order when the Financial Intermediary or, if applicable, a Financial            
Intermediary's authorized designee, receives the share order from an investor.  

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 above under "Minimum Investment." For additional purchases directly   
from the Fund, your account name, the Portfolio name and the class selected must
be specified in the letter to assure proper crediting to your account. In       
addition, you may purchase additional shares by wire by following instructions 2
and 3 under "Federal Funds Wire" above.                                         

INVOLUNTARY CONVERSION AND REDEMPTION OF NEW ACCOUNT SHARES                     

Class A and Class B shares of each non-money market Portfolio may be subject to 
the involuntary conversion and redemption features described below. Shares of   
the money market Portfolios are not subject to involuntary                      

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conversion or redemption. The conversion and redemption features may be waived  
at Morgan Stanley Investment Management's discretion for shares held in a       
Managed Account and shares purchased through a Financial Intermediary. Accounts 
that were open prior to January 2, 1996 are not subject to involuntary          
conversion or redemption. 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 an account containing
Class A shares of a non-money market Portfolio falls below $500,000 ($250,000   
for the Technology Portfolio), but remains at or above $100,000 ($50,000 for the
Technology Portfolio), because of shareholder redemption(s), and if the account 
value remains below $500,000 ($250,000 for the Technology Portfolio), but       
remains at or above $100,000 ($50,000 for the Technology Portfolio) for a       
continuous 60-day period, the Class A shares in such account may, at the        
Adviser's discretion, 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.     
Shareholders will be notified prior to any such conversion.                     

CONVERSION FROM CLASS B TO CLASS A SHARES. If the value of an account containing
Class B shares of a non-money market Portfolio increases to $500,000 or more,   
($250,000 for the Technology Portfolio), whether due to shareholder purchases or
market activity, the Class B shares will convert to Class A shares. Conversions 
of Class B shares to Class A shares are processed on the last business day of   
each month. 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 accounts        
containing Class A shares described above.                                      

INVOLUNTARY REDEMPTION OF SHARES. If the value of an account falls below        
$100,000 ($50,000 for the Technology Portfolio), because of shareholder         
redemption(s), and if the account value remains below $100,000 ($50,000 for the 
Technology Portfolio), 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. Shareholders will be notified prior to any such redemption.        

REDEMPTION OF SHARES

The Fund normally makes payment for all shares redeemed within one business day 
of receipt of the request, and in no event 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 of  
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC; (ii) during any period when an emergency   
exists as defined by the rules of the SEC as a result of which it is not        
practicable for a Portfolio to dispose of securities it owns, or fairly to      
determine the value of its assets; and (iii) for such other periods as the SEC  
may permit.                                                                     

Class A shares of each Portfolio and Class B shares of each Portfolio, if       
offered, may be redeemed at any time at the net asset value per share next      
determined after receipt by the Fund or its designee of a redemption order as   
described under "Methods of Redemption" and "Investment through Financial       
Intermediaries," which may be more or less than the purchase price of your      
shares. Shares of the Active International Allocation, Asian Equity, Asian Real 
Estate, Emerging Markets, Emerging Markets Debt, European Real Estate, European 
Value Equity, Global Franchise, Global Value Equity, International Equity,      
International Magnum, International Small Cap and Japanese Value Equity         
Portfolios redeemed within 60 days of purchase will be subject to a 2%          
redemption fee, payable to the Portfolio. The redemption fee is designed to     
protect the Portfolio and remaining shareholders from the effects of short-term 
trading. The Fund may waive the redemption fee in certain instances, including  
when it determines that imposition of the redemption fee is not necessary to    
protect the Portfolio from the effects of short-term trading. The redemption fee
is calculated based on and deducted from the redemption proceeds. The redemption
fee does not apply to Portfolio shares acquired through reinvestment of         
dividends or distributions.                                                     

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METHODS OF REDEMPTION                                                           

You may redeem shares directly from the Fund or through the Distributor 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., c/o J.P. Morgan Investor Services Co., P.O.   
Box 2798, Boston, Massachusetts 02208-2798 or, by overnight courier, to Morgan  
Stanley Institutional Fund, Inc., c/o J.P. Morgan Investor Services Co., 73     
Tremont Street, Boston, Massachusetts 02108-3919.                               

"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; and                           

     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. If you have previously elected the Telephone Redemption Option on 
the Account Registration Form, you can redeem Portfolio shares by calling the   
Fund and requesting that 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, send a written request 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 transactions 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. These       
redemptions may be processed in the same way as purchases made through Financial
Intermediaries, as described above.                                             

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 in cash, 
the Fund may pay redemption proceeds in whole or in part by a                   
distribution-in-kind of readily marketable portfolio securities in accordance   
with applicable SEC rules. Shareholders may incur brokerage charges on the sale 
of securities received from a distribution-in-kind.                             

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The Fund has made an election with the SEC pursuant to Rule 18f-1 under the 1940
Act to commit to pay in cash all redemptions requested by any shareholder of    
record limited in amount during any 90-day period to the lesser of $250,000 or  
1% of the net assets of a Portfolio at the beginning of such period. Such       
commitment is irrevocable without the prior approval of the SEC. Redemptions in 
excess of the above limits may be paid in whole or in part in portfolio         
securities or in cash, as the Board of Directors may deem advisable as being in 
the best interests of the Fund. If redemptions are paid in portfolio securities,
such securities will be valued as set forth under "Valuation of Shares." Any    
redemption may be more or less than the shareholder's cost depending on the     
market value of the securities held by the Portfolio.                           

To protect your account and the Fund from fraud, signature guarantees are       
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.   
Signature guarantees are required in connection with: (i) all redemptions,      
regardless of the amount involved, when the proceeds are to be paid to someone  
other than the registered owner(s) and/or registered address; and (ii) share    
transfer requests. An "eligible guarantor institution" may include a bank, a    
trust company, a credit union or savings and loan association, a member firm of 
a domestic stock exchange, or a foreign branch of any of the foregoing. Notaries
public are not acceptable guarantors. The signature guarantees must appear      
either: (i) on the written request for redemption; (ii) on a separate instrument
for assignment ("stock power") which should specify the total number of shares  
to be redeemed; or (iii) on all stock certificates tendered for redemption and, 
if shares held by the Fund are also being redeemed, on the letter or stock      
power.                                                                          

 ACCOUNT POLICIES AND FEATURES

TRANSFER OF SHARES                                                              

Shareholders may transfer Portfolio shares to another person by making a written
request to the Fund. The request should clearly identify the account and number 
of shares to be transferred, and include the signature of all registered owners 
and all stock certificates, if any, which are subject to the transfer. It may   
not be possible to transfer shares purchased through a Financial Intermediary.  
The signature on the letter of request, the stock certificate or any stock power
must be guaranteed in the same manner as described under "Redemption of Shares."
As in the case of redemptions, the written request must be received in good     
order before any transfer can be made. Transferring shares may affect the       
eligibility of an account for a given class of a Portfolio's shares and may     
result in involuntary conversion or redemption of such shares. Under certain    
circumstances, the person who receives the transfer may be required to complete 
a new Account Registration Form.                                                

VALUATION OF SHARES                                                             

The net asset value per share of a class of shares of each of the non-money     
market Portfolios is determined by dividing the total market value of the       
Portfolio's investments and other assets attributable to such class, less all   
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 a Portfolio. Net asset value per share of the non-money market
Portfolios is determined as of the close of the NYSE (normally 4:00 p.m. Eastern
Time) 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. Portfolio securities are generally valued at their market value.        
Securities listed on a U.S. securities exchange for which market quotations are 
available generally are valued at the last quoted sale price on the day the     
valuation is made, or if there has been no sale that day, or for all other      
portfolio securities for which the over-counter market quotations are readily   
available, at the mean between the last reported bid and asked price. Equity    
securities listed or traded on NASDAQ for which market quotations are available 
are valued at the NASDAQ Official Closing Price, or if there has been no sale   
that day, at the mean between the last reported bid and asked price. In cases   
where a security is traded on more than one exchange, the security is valued on 
the exchange designated as the primary market pursuant to procedures adopted by 
the Board of Directors. For equity securities traded on foreign exchanges, the  
last reported sale price or the latest bid price may be used if there were no   
sales on a particular day. The current bid and asked prices are determined based
on the average of the bid and asked prices quoted on such valuation date by     
reputable brokers.                                                              

Bonds and other fixed income securities are valued according to the broadest and
most representative market, which will ordinarily be the over-the-counter       
market. Net asset value includes interest on fixed income securities, which is  

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

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

Generally, trading in foreign securities, as well as corporate bonds, U.S.      
Government securities and money market instruments, is substantially completed  
each day at various times prior to the close of the U.S. Stock Exchanges. The   
values of such securities used in computing the net asset value of the Fund's   
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the U.S. Stock Exchanges.            
Occasionally, events which may affect the values of such securities and such    
exchange rates may occur between the times at which they are determined and the 
close of the U.S. Stock Exchanges and will therefore not be reflected in the    
computation of the Fund's net asset value. If events that may affect the value  
of such securities occur during such period, then these securities may be valued
at their fair value as determined in good faith under procedures established by 
and under the supervision of the Directors.                                     

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

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

MANAGEMENT OF THE FUND

OFFICERS AND DIRECTORS                                                          

The Fund's officers, under the supervision of the Board of Directors, manage the
day-to-day operations of the Fund. The Directors set broad policies for the Fund
and choose its officers. Two Directors and all of the officers of the Fund are  
directors, officers or employees of Morgan Stanley Investment Management, Morgan
Stanley & Co. or J.P. Morgan. The other Directors have no affiliation with      
Morgan Stanley Investment Management, Morgan Stanley & Co. or J.P. Morgan and   
are not "Interested Persons" as defined under Section 2(a)(19) of the 1940 Act  
(the "Independent Directors"). Directors and officers of the Fund are also      
directors and officers of some or all of the funds in the Fund Complex (defined 
below) or other investment companies managed, administered, advised or          

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distributed by Morgan Stanley Investment Management or its affiliates. The Fund 
Complex includes all funds advised by Morgan Stanley Investment Management and  
any funds that have an investment adviser that is an affiliated person of Morgan
Stanley Investment Management.                                                  

INDEPENDENT DIRECTORS                                                           

The Independent Directors of the Fund, their term of office and length of time  
served, their principal business occupations during the past five years, the    
number of funds in the Fund Complex (defined below) overseen by each Independent
Director and other directorships, if any, held by the Director, are shown below.

                                                        [Enlarge/Download Table]

                                                                                 NUMBER OF                          
                                           TERM OF                               PORTFOLIOS IN                      
                                           OFFICE AND                            FUND                               
                             POSITION(S)   LENGTH OF      PRINCIPAL              COMPLEX         OTHER              
NAME, AGE AND ADDRESS        HELD WITH     TIME           OCCUPATION(S)          OVERSEEN BY     DIRECTORSHIPS      
OF INDEPENDENT DIRECTOR      REGISTRANT    SERVED*        DURING PAST 5 YEARS    DIRECTOR**      HELD BY DIRECTOR   
---------------------------  ------------  -------------  ---------------------  --------------  -------------------
                                                                                                                    
John D. Barrett II (67)      Director      Director       Chairman, Director     92              Director of the    
Barrett Associates, Inc.                   since May      and Chief Executive                    Ashforth Company   
565 Fifth Avenue                           1995           Officer of Barrett                     (real estate).     
New York, NY 10017                                        Associates, Inc.                                          
                                                          (investment advisory                                      
                                                          firm). Chairman, and                                      
                                                          Director Emeritas of                                      
                                                          the Barrett Growth                                        
                                                          Fund; Limited                                             
                                                          Partner, Long Meadow                                      
                                                          Holdings, LP;                                             
                                                          Limited Partner,                                          
                                                          Barrett Capital                                           
                                                          Growth Partners, LP.                                      

Thomas P. Gerrity (61)       Director      Director       Professor of           92              Director of Sunoco 
Wharton School University                  since          Management, and                        (oil refining),    
of Pennsylvania                            October 2001   formerly Dean,                         Fannie Mae         
Philadeiphia, PA                                          Wharton School of                      (mortgage          
19104-6370                                                Business, University                   finance), CVS      
                                                          of Pennsylvania;                       Corporation        
                                                          formerly Director of                   (retail pharmacy), 
                                                          IKON Office                            Knight-Ridder,     
                                                          Solutions, Inc.                        Inc. and Internet  
                                                          (office equipment),                    Capital Group      
                                                          Fiserv (financial                      (newspapers).      
                                                          services), Digital                                        
                                                          Equipment Corporation                                     
                                                          (computer equipment),                                     
                                                          ICG Commerce, Inc.                                        
                                                          (internet commerce),                                      
                                                          Investor Force                                            
                                                          Holdings, Inc.                                            
                                                          (institutional                                            
                                                          investment                                                
                                                          information services),                                    

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor elected.

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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                                                                                 NUMBER OF                          
                                           TERM OF                               PORTFOLIOS IN                      
                                           OFFICE AND                            FUND                               
                             POSITION(S)   LENGTH OF      PRINCIPAL              COMPLEX         OTHER              
NAME, AGE AND ADDRESS        HELD WITH     TIME           OCCUPATION(S)          OVERSEEN BY     DIRECTORSHIPS      
OF INDEPENDENT DIRECTOR      REGISTRANT    SERVED*        DURING PAST 5 YEARS    DIRECTOR**      HELD BY DIRECTOR   
---------------------------  ------------  -------------  ---------------------  --------------  -------------------
                                                                                                                    
                                                          Union Carbide                                             
                                                          Corporation                                               
                                                          (chemicals), and                                          
                                                          Reliance Group                                            
                                                          Holdings (insurance).                                     

Gerard E. Jones (66)         Director      Director       Of Counsel, Shipman    94              Director of        
Shipman & Goodwin LLP                      since          & Goodwin LLP (law                     Tractor Supply     
43 Arch Street                             September      firm).                                 Company, Tiffany   
Greenwich, CT 06830                        1988                                                  Foundation and     
                                                                                                 Fairfield County   
                                                                                                 Foundation.        

Joseph J. Kearns (60)        Director      Director       President, Kearns &    92              Director of        
6287 Via Escondido                         since          Associates LLC                         Electro Rent       
Malibu, CA 90265                           October 2001   (investment                            Corporation        
                                                          consulting);                           (equipment         
                                                          formerly CFO of the                    leasing), The Ford 
                                                          J. Paul Getty Trust.                   Family Foundation, 
                                                                                                 and the UCLA       
                                                                                                 Foundation.        

Vincent R. McLean (71)       Director      Director       Formerly Executive     92              Director of Legal  
702 Shackamaxon Dr.                        since          Vice President,                        and General        
Westfield, NJ 07090                        October 2001   Chief Financial                        America Inc. (life 
                                                          Officer, Director                      insurance), Banner 
                                                          and Member of the                      Life Insurance Co. 
                                                          Executive Committee                    and William Penn   
                                                          of Sperry                              Life Insurance     
                                                          Corporation (now                       Company of New     
                                                          part of Unisys                         York.              
                                                          Corporation).                                             

C. Oscar Morong, Jr. (68)    Director      Director       Managing Director of   92              Trustee of the     
1385 Outlook Drive West                    since          Morong Capital                         mutual funds in    
Mountainside, NJ 07092                     October 2001   Management; formerly                   the Smith Barney   
                                                          Senior Vice                            CitiFunds fund     
                                                          President and                          complex.           
                                                          Investment Manager                                        
                                                          for CREF, TIAA-CREF                                       
                                                          Investment                                                
                                                          Management, Inc.;                                         
                                                          formerly Director of                                      
                                                          the Indonesia Fund,                                       
                                                          the Landmark Funds                                        
                                                          and the Ministers                                         
                                                          and Missionaries                                          
                                                          Benefit Board of                                          
                                                          American Baptist                                          
                                                          Churches.                                                 

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor elected.

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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                                                        [Enlarge/Download Table]

                                                                                 NUMBER OF                          
                                           TERM OF                               PORTFOLIOS IN                      
                                           OFFICE AND                            FUND                               
                             POSITION(S)   LENGTH OF      PRINCIPAL              COMPLEX         OTHER              
NAME, AGE AND ADDRESS        HELD WITH     TIME           OCCUPATION(S)          OVERSEEN BY     DIRECTORSHIPS      
OF INDEPENDENT DIRECTOR      REGISTRANT    SERVED*        DURING PAST 5 YEARS    DIRECTOR**      HELD BY DIRECTOR   
---------------------------  ------------  -------------  ---------------------  --------------  -------------------
                                                                                                                    
William G. Morton, Jr. (65)  Director      Director       Formerly Chairman      92              Director of Radio  
100 Franklin Street                        since          and Chief Executive                    Shack Corporation  
Boston, MA 02110                           February       Officer of Boston                      (electronics);     
                                           2000           Stock Exchange.                        Director of the    
                                                                                                 Griswold Company   
                                                                                                 (securities        
                                                                                                 brokerage).        

Michael E. Nugent (66)       Director      Director       General Partner of     215             Director of        
c/o Triumph Capital, L.P.                  since July     Triumph Capital,                       various business   
445 Park Avenue                            2001           L.P., (a private                       organizations.     
New York, NY 10022                                        investment                                                
                                                          partnership);                                             
                                                          formerly Vice                                             
                                                          President, Bankers                                        
                                                          Trust Company and BT                                      
                                                          Capital Corporation;                                      
                                                          Director or Trustee                                       
                                                          of the Morgan                                             
                                                          Stanley Funds and                                         
                                                          TCW/DW Term Trust.                                        

Fergus Reid (69)             Director      Director       Chairman and Chief     94              Trustee and        
85 Charles Colman Blvd.                    since          Executive Officer of                   Director of        
Pawling, NY 12564                          May 1995       Lumelite Plastics                      certain investment 
                                                          Corporation.                           companies in the   
                                                                                                 JPMorgan Funds     
                                                                                                 complex managed by 
                                                                                                 JP Morgan          
                                                                                                 Investment         
                                                                                                 Management Inc.    

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor is      
elected.                                                                

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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INTERESTED DIRECTORS                                                            

The Interested Directors and executive officers of the Fund, their term of      
office and length of time served, their principal business occupations during   
the past five years, the number of funds in the Fund Complex overseen by each   
Interested Director and the other directorships, if any, held by the Director,  
are shown below.                                                                

                                                        [Enlarge/Download Table]

                                                                                 NUMBER OF                          
                                           TERM OF                               PORTFOLIOS IN                      
                                           OFFICE AND                            FUND            OTHER              
                             POSITION(S)   LENGTH OF      PRINCIPAL              COMPLEX         DIRECTORSHIPS      
NAME, AGE AND ADDRESS        HELD WITH     TIME           OCCUPATION(S)          OVERSEEN BY     HELD BY            
OF MANAGEMENT DIRECTOR       REGISTRANT    SERVED*        DURING PAST 5 YEARS    DIRECTOR**      DIRECTOR           
---------------------------  ------------  -------------  ---------------------  --------------  -------------------
                                                                                                                    
Ronald E. Robison (64)       President     President      Chief Global           95              None               
1221 Avenue of the Americas  and Director  (since March   Operations Officer                                        
New York, NY 10020                         2001)          and Managing                                              
                                           Director       Director of Morgan                                        
                                           since          Stanley Investment                                        
                                           October 2001   Management Inc.;                                          
                                                          Managing Director of                                      
                                                          Morgan Stanley and                                        
                                                          Morgan Stanley & Co.                                      
                                                          Incorporated;                                             
                                                          Managing Director,                                        
                                                          Chief Administrative                                      
                                                          Officer and Director                                      
                                                          of Morgan Stanley                                         
                                                          Investment Advisors                                       
                                                          Inc. and Morgan                                           
                                                          Stanley Services                                          
                                                          Company Inc.; Chief                                       
                                                          Executive Officer and                                     
                                                          Director of Morgan                                        
                                                          Stanley Trust; Vice                                       
                                                          President of the                                          
                                                          Morgan Stanley Funds                                      
                                                          and TCW/DW Term Trust                                     
                                                          2003; formerly,                                           
                                                          Managing Director and                                     
                                                          Chief Operating                                           
                                                          Officer of TCW                                            
                                                          Investment Management                                     
                                                          Company; formerly                                         
                                                          Managing Director of                                      
                                                          The Trust Company of                                      
                                                          the West.                                                 

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor is      
elected.                                                                

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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                                                        [Enlarge/Download Table]
                                                                                        
Mitchell M. Merin (49)       Chairman      Chairman and  President and Chief    92  None
1221 Avenue of the Americas  and Director  Director      Operating Officer of           
New York, NY                               since         Morgan Stanley                 
                                           February      Investment Management          
                                           2003          Inc.; President,               
                                                         Director and Chief             
                                                         Executive Officer of           
                                                         Morgan Stanley                 
                                                         Investment Advisors            
                                                         Inc. and Morgan                
                                                         Stanley Services               
                                                         Company Inc.;                  
                                                         Chairman, Chief                
                                                         Executive Officer and          
                                                         Director of Morgan             
                                                         Stanley Distributors           
                                                         Inc.; Chairman and             
                                                         Director of Morgan             
                                                         Stanley Trust;                 
                                                         Director of various            
                                                         Morgan Stanley                 
                                                         subsidiaries;                  
                                                         President of the               
                                                         Morgan Stanley Funds           
                                                         and TCW/DW Term Trust          
                                                         2003; Trustee,                 
                                                         President and Chief            
                                                         Executive Officer of           
                                                         the Van Kampen                 
                                                         Open-End Funds,                
                                                         President and Chief            
                                                         Executive Officer of           
                                                         the Van Kampen                 
                                                         Closed-End Funds;              
                                                         Chairman, Chief                
                                                         Executive Officer,             
                                                         President and                  
                                                         Director of Van                
                                                         Kampen Asset                   
                                                         Management and Van             
                                                         Kampen Investment              
                                                         Advisory Corp.;                
                                                         formerly Vice                  
                                                         President (May 1997 -          
                                                         April 1999) and Chief          
                                                         Executive Officer              
                                                         (September 2002 -              
                                                         April 2003) of Morgan          
                                                         Stanley Distributors           
                                                         Inc.; formerly Vice            
                                                         President of the               
                                                         Morgan Stanley Funds           
                                                         and TCW/DW                     

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor is      
elected.                                                                

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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                                                                [Download Table]
                                          
Term Trust 2003;                          
Executive Vice                            
President of Morgan                       
Stanley.                                  

---------                                                                       
*   Each Director serves an indefinite term, until his or her successor is      
elected.                                                                

**  The Fund Complex includes all funds advised by Morgan Stanley Investment    
Management Inc. and any funds that have an investment advisor that is an
  affiliated person of Morgan Stanley Investment Management Inc. (including,
    but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment
  Advisors Inc., Van Kampen Asset Management Inc., and Van Kampen Investment
Advisory Corp.).                                                        

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OFFICERS:                                                                       

                                                        [Enlarge/Download Table]

NAME, AGE AND ADDRESS OF       POSITION(S) HELD WITH                             PRINCIPAL OCCUPATION(S)       
EXECUTIVE OFFICER              REGISTRANT*              LENGTH OF TIME SERVED    DURING PAST 5 YEARS           
-----------------------------  -----------------------  -----------------------  ------------------------------
                                                                                                               
James Garrett (34)             Treasurer                Treasurer since          Executive Director of Morgan  
Morgan Stanley Investment                               February 2002            Stanley & Co. Incorporated    
Management Inc.                                                                  and Morgan Stanley            
1221 Avenue of the Americas                                                      Investment Management;        
New York, NY 10020                                                               Treasurer of various U.S.     
                                                                                 registered investment         
                                                                                 companies managed by Morgan   
                                                                                 Stanley Investment            
                                                                                 Management Inc.; Previously   
                                                                                 with PriceWaterhouse LLP      
                                                                                 (now PricewaterhouseCoopers   
                                                                                 LLP).                         

Stefanie V. Chang (36)         Vice President           Vice President since     Executive Director of Morgan  
Morgan Stanley Investment                               1997                     Stanley & Co. Incorporated    
Management Inc.                                                                  and Morgan Stanley            
1221 Avenue of the Americas                                                      Investment Management Inc.;   
New York, NY 10020                                                               Vice President or Assistant   
                                                                                 Secretary of various funds    
                                                                                 in the Fund Complex;          
                                                                                 formerly, practiced law with  
                                                                                 the New York law firm of      
                                                                                 Rogers & Wells (now Clifford  
                                                                                 Chance US LLP).               

Mary E. Mullin (36)            Secretary                Secretary since 1999     Vice President of Morgan      
Morgan Stanley Investment                                                        Stanley & Co. Incorporated    
Management Inc.                                                                  and Morgan Stanley            
1221 Avenue of the Americas                                                      Investment Management Inc.;   
New York, NY 10020                                                               Secretary or Assistant        
                                                                                 Secretary of various funds    
                                                                                 in the Fund Complex;          
                                                                                 formerly practiced law with   
                                                                                 the New York law firms of     
                                                                                 McDermott, Will & Emery and   
                                                                                 Skadden, Arps, Slate,         
                                                                                 Meagher & Flom LLP.           

Lorraine Truten (41)           Vice President           Vice President since     Executive Director of Morgan  
One Tower Bridge                                        2001                     Stanley Investment            
100 Front Street, Suite 1100                                                     Management Inc.; President,   
West Conshohocken, PA 19428-                                                     Morgan Stanley Fund           
2881                                                                             Distribution, Inc.;           
                                                                                 formerly, President of        
                                                                                 Morgan Stanley Institutional  
                                                                                 Fund Trust; Vice President    
                                                                                 of various funds in the Fund  
                                                                                 Complex.                      

Michael Leary (37)             Assistant Treasurer      Assistant Treasurer      Assistant Director and Vice   
J.P. Morgan Investor Services                           since 2003               President of Fund             
Co.                                                                              Administration, J.P. Morgan   
73 Tremont Street                                                                Investor Services Co.;        
Boston, MA 02108-3913                                                            formerly Audit Manager at     
                                                                                 Ernst & Young, LLP.           

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For each Director, the dollar range of equity securities beneficially owned by  
the Director is shown below.                                                    

                                                        [Enlarge/Download Table]

                                                                      AGGREGATE DOLLAR RANGE OF EQUITY   
                                                                      SECURITIES IN ALL REGISTERED       
                                                                      INVESTMENT COMPANIES OVERSEEN BY   
                                     DOLLAR RANGE OF EQUITY           DIRECTOR IN FAMILY OF INVESTMENT   
                                     SECURITIES IN THE FUND           COMPANIES                          
NAME OF DIRECTOR                     (AS OF DECEMBER 31, 2002)*       (AS OF DECEMBER 31, 2002)**        
-----------------------------------  -------------------------------  -----------------------------------
                                                                                                         
John D. Barrett II                   over $100,000                    over $100,000                      

Mitchell M. Merin                    None                             None                               

Thomas P. Gerrity                    None                             $10,001-$50,000                    

Gerard E. Jones                      None                             over $100,000                      

Joseph J. Kearns                     None                             $10,001-$50,000                    

Vincent R. McLean                    None                             $1-$10,000                         

C. Oscar Morong, Jr.                 None                             $10,001-$50,000                    

William G. Morton, Jr.               None                             $50,001-$100,000                   

Michael E. Nugent                    None                             $10,000-$50,000                    

Fergus Reid                          over $100,000                    over $100,000                      

Ronald E. Robison                    None                             None                               

----------                                                                      
*   The following ranges should be used: none; $1-$10,000; $10,001-$50,000;     
$50,001-$100,000; or over $100,000.                                             

**  Family of Investment Companies includes all funds advised by Morgan Stanley 
Investment Management Inc. (including but not limited to Morgan Stanley         
Institutional Fund, Inc., The Universal Institutional Funds, Inc. and various   
closed-end funds advised by Morgan Stanley Investment Management Inc.).         

As to each Independent Director and his immediate family members, no person     
owned beneficially or of record securities in an investment advisor or principal
underwriter of the Fund, or a person (other than a registered investment        
company) directly or indirectly controlling, controlled by or under common      
control with an investment adviser or principal underwriter of the Fund.        

As of May 16, 2003, the Directors and Officers of the Fund, as a group, owned   
less than 1% of the outstanding common stock of the Fund.                       

COMMITTEES                                                                      

The Board of Directors of the Fund has an Audit Committee, a Valuation Committee
and a Nominating and Compensation Committee. The Audit Committee is composed    
entirely of Directors who are not "interested persons" ("Interested Directors") 
as defined under the 1940 Act, of the Fund ("Independent Directors"). Currently,
the Audit Committee is composed of Messrs. Jones, Barrett, Kearns, McLean and   
Morong. The Audit Committee makes recommendations to the full Board of Directors
with respect to the engagement of independent accountants and reviews with the  
independent accountants the plan and results of the audit engagement and matters
having a material effect on the Fund's financial operations.                    

The Valuation Committee of the Board meets from time to time as necessary to    
value any securities or currency held by the Fund for which market quotations   
are not available through the Fund's usual pricing procedures or when           
adjustments to the price may be necessary due to events that occur subsequent to
the close of trading on a foreign market. Prior to September 2002, the Valuation
Committee could include one or more Independent Directors. No Independent       
Directors are currently members of the Valuation Committee.                     

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The Nominating and Compensation Committee of the Board currently consists of    
Messrs. Gerrity, Morton, Nugent and Reid and is responsible for evaluating and  
recommending nominees for election to the Board, such nominees being either     
interested persons or non-interested persons of the Fund. The committee will not
consider nominees recommended by securities holders.                            

During the Fund's fiscal year ended December 31, 2002, there were three meetings
of the Audit Committee, twenty seven meetings of the Valuation Committee, and no
meeting of the Nominating and Compensation Committee.                           

COMPENSATION OF DIRECTORS AND OFFICERS                                          

The Fund, together with other funds in the Fund Complex advised by Morgan       
Stanley Investment Management Inc. or Morgan Stanley Investments LP for which a 
Director serves as director or trustee, pays each Independent Director an annual
retainer fee of $75,000, as well as the following additional amounts to         
Directors for performing certain services for all of the funds in the Fund      
Complex; $5,000 annually for performing the duties of Chairman of the Audit     
Committee, $5,000 annually for performing the duties of Chairman of the         
Nominating and Compensation Committee, $2,500 for each in-person Board meeting  
attended, and $1,000 for each telephonic Board meeting attended. Each Director  
receives an additional $3000 retainer fee for service on the board of a         
registered investment company managed by an affiliated investment adviser. For  
the fiscal year ended December 31, 2002, the Fund paid approximately $254,000 in
Directors' fees and expenses. Directors who are also officers or affiliated     
persons receive no remuneration from the Fund for their services as Directors.  
The Fund's officers and employees are paid by Morgan Stanley Investment         
Management or its agents.                                                       

The Fund maintains an unfunded Deferred Compensation Plan which allows each     
Independent Director to defer payment of all, or a portion, of the fees he or   
she receives for serving on the Board of Directors throughout the year. Each    
eligible Director generally may elect to have the deferred amounts credited with
a return equal to either of the following: (i) a rate equal to the prevailing   
rate for 90-day U.S. Treasury Bills, or (ii) a rate equal to the total return on
one or more portfolios of the Fund or other funds in the Fund Complex selected  
by the Director. At the Director's election, distributions are either in one    
lump sum payment, or in the form of equal annual installments over a period of  
five years. The Fund intends that the Deferred Compensation Plan shall be       
maintained at all times on an unfunded basis for federal income tax purposes    
under the Internal Revenue Code of 1986, as amended (the "Code"). The rights of 
an eligible Director and the beneficiaries to the amounts held under the        
Deferred Compensation Plan are unsecured and such amounts are subject to the    
claims of the creditors of the Fund.                                            

The following table shows aggregate compensation received by each of the Fund's 
Directors from the Fund and the Fund Complex for the fiscal year ended December 
31, 2002, a portion of which will be paid in 2003.                              

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COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                       AGGREGATE    TOTAL COMPENSATION FROM
                                                     COMPENSATION    FUND AND FUND COMPLEX 
NAME OF PERSON                                        FROM FUND(4)    PAYABLE TO DIRECTORS 
---------------------------------------------------  -------------  -----------------------
                                                                                           
John D. Barrett II(3)                                  $  29,432           $   90,000      

Mitchell M. Merin*(4)                                  $       0           $        0      

Thomas P. Gerrity(1),(2)                               $  29,089           $   89,000      

Gerard E. Jones(3)                                     $  30,007           $   93,500      

Joseph J. Kearns(1),(3)                                $  31,279           $   95,500      

Vincent R. McLean(1),(3)                               $  29,626           $   90,000      

C. Oscar Morong, Jr.(1),(3)                            $  29,626           $   90,000      

William G. Morton, Jr.(2)                              $  29,086           $   89,000      

Michael Nugent(2)                                      $  29,425           $  296,475      

Fergus Reid(1),(2)                                     $  31,104           $   95,500      

Ronald E. Robison*                                     $       0           $        0      

----------                                                                      
(*)  Directors Robinson and Merin are deemed to be "interested persons" of the  
Fund as that term is defined in the 1940 Act.                         
(1)  Aggregate compensation from the Fund includes amounts deferred at the      
election of Directors under the Deferred Compensation Plan. The total 
    amount of deferred compensation (including interest) payable or accrued by
    Messrs Reid, Morong, McLean and Kearns are $224,082, $89,236, $191,571 and
$83,503, respectively.                                                
(2)  Member of Nominating/Compensation Committee of the Board of Directors of   
the Fund.                                                             
(3)  Member of the Audit Committee of the Board of Directors of the Fund.       
(4)  Mr. Merin was elected a Director of the Fund in 2003.                      

CODE OF ETHICS                                                                  

Pursuant to Rule 17j-1 under the 1940 Act, the Board of Directors has adopted a 
Code of Ethics for the Fund and approved Codes of Ethics adopted by Morgan      
Stanley Investment Management, Morgan Stanley & Co. and Morgan Stanley          
Investment Advisors (collectively the "Codes"). The Codes are intended to ensure
that the interests of shareholders and other clients are placed ahead of any    
personal interest, that no undue personal benefit is obtained from the person's 
employment activities and that actual and potential conflicts of interest are   
avoided.                                                                        

The Codes apply to the personal investing activities of Directors and officers  
of the Fund, Morgan Stanley Investment Management, Morgan Stanley & Co. and     
Morgan Stanley Investment Advisors ("Access Persons"). Rule 17j-1 and the Codes 
are designed to prevent unlawful practices in connection with the purchase or   
sale of securities by Access Persons. Under the Codes, Access Persons are       
permitted to engage in personal securities transactions, but are required to    
report their personal securities transactions for monitoring purposes. In       
addition, certain Access Persons are required to obtain approval before         
investing in initial public offerings or private placements. The Codes are on   
file with the SEC, and are available to the public.                             

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER                                                              

Morgan Stanley Investment Management is a wholly-owned subsidiary of Morgan     
Stanley. The principal offices of Morgan Stanley are located at 1585 Broadway,  
New York, NY 10036, and the principal offices of Morgan Stanley Investment      
Management are located at 1221 Avenue of the Americas, New York, NY 10020. As of
June 30, 2003, Morgan Stanley Investment Management, together with its          
affiliated asset management companies, had approximately $____ billion in assets
under management with approximately $_____ billion in institutional assets.     

Morgan Stanley Investment Management 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                 

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the Portfolio's day-to-day investment decisions, arranges for the execution of  
portfolio transactions and generally manages each of the Portfolio's            
investments. In managing the Portfolios, Morgan Stanley Investment Management   
may use the services of associated investment personnel employed by its         
affiliated institutional asset management companies. Pursuant to the Investment 
Advisory Agreement, Morgan Stanley Investment Management is entitled to receive 
from the Class A and Class B shares of each Portfolio an annual management fee, 
payable quarterly, equal to the percentage of average daily net assets set forth
in the table below. Morgan Stanley Investment Management has voluntarily agreed 
to a reduction in the fees payable to it and to reimburse the Portfolios, if    
necessary, if such fees would cause the total annual operating expenses of each 
Portfolio to exceed the percentage of average daily net assets set forth in the 
table below. In determining the actual amount of voluntary fee waiver and/or    
expense reimbursement for a Portfolio, if any, Morgan Stanley Investment        
Management excludes from annual operating expenses certain investment related   
expenses, such as foreign country tax expense and interest expense on borrowing.
Morgan Stanley Investment Management reserves the right to terminate any of its 
fee waivers and/or expense reimbursements at any time in its sole discretion.   

The following tables show for each of the Class A and Class B shares (as        
applicable) of each Portfolio (i) the contractual advisory fee as a percentage  
of average daily net assets; (ii) the maximum expense ratios for each of the    
Class A and Class B shares (as applicable) and (iii) the advisory fee paid for  
each of the past three fiscal years ended December 31, 2000, 2001 and 2002.     

                                                        [Enlarge/Download Table]

                                                                                ADVISORY FEE PAID        
                                                                          (AFTER VOLUNTARY FEE WAIVERS)  
                                                                       ----------------------------------
                                                                       YEAR ENDED  YEAR ENDED  YEAR ENDED
                                               EXPENSE      EXPENSE     DECEMBER    DECEMBER    DECEMBER 
                              CONTRACTUAL        CAP          CAP       31, 2002    31, 2001    31, 2000 
PORTFOLIO                     ADVISORY FEE     CLASS A      CLASS B      (000)       (000)       (000)   
---------------------------  --------------  -----------  -----------  ----------  ----------  ----------
                                                                                                         
Active International                                                                                     
  Allocation                      0.65%         0.80%        1.05%      $    1,653  $    2,616  $   3,107

Asian Equity                      0.80%         1.00%        1.25%      $       42  $       80  $     504

Asian Real Estate                 0.80%         1.00%        1.25%      $        0  $        0  $       0

China Growth*                     1.25%         1.75%         N/A       $       --  $      ---  $      --

Emerging Markets                  1.25%         1.75%        2.00%      $   10,036  $   10,608  $  16,777

Emerging Markets Debt             0.75%         1.75%        2.00%      $      397  $      367  $     463

Equity Growth                     0.60%         0.80%        1.05%      $    4,104  $    6,487  $   8,235

European Real Estate              0.80%         1.00%        1.25%      $       42  $       35  $       0

European Value Equity             0.80%         1.00%        1.25%      $      104  $      317  $     643

Focus Equity                      0.80%         1.00%        1.25%      $      529  $      820  $   1,292

Global Franchise                  0.80%         1.00%        1.25%      $      307  $        0  $      --

Global Value Equity               0.80%         1.00%        1.25%      $      451  $      410  $     514

Gold*                             1.00%                                 $       --  $      ---  $      --

International Equity              0.80%         1.00%        1.25%      $   33,864  $   35,698  $  36,891

International Magnum              0.80%         1.00%        1.25%      $      417  $    1,107  $   1,547

International Small Cap           0.95%         1.15%         N/A       $    3,884  $    3,418  $   3,352

Japanese Value Equity             0.80%         1.00%        1.25%      $      135  $      239  $     534

Latin American                    1.10%         1.70%        1.95%      $      231  $      262  $     176

MicroCap                          1.25%         1.50%        1.75%      $       --  $      ---  $      --

Money Market                      0.30%         0.55%         N/A       $    5,400  $    9,440  $   9,300

Mortgage-Backed Securities*       0.35%         0.45%        0.70%      $       --  $      ---  $      --

Municipal Bond*                   0.35%         0.45%        0.70%      $       --  $      ---  $      --

Municipal Money Market            0.30%         0.57%         N/A       $    3,433  $    4,332  $   5,246

Small Company Growth              1.00%         1.10%        1.35%      $    2,405  $    1,752  $   1,570

Technology                        1.00%         1.25%        1.50%      $      218  $      602  $   1,317

U.S. Equity Plus*                 0.45%         0.80%        1.05%      $           $      ---  $      31

U.S. Real Estate                  0.80%         1.00%        1.25%      $    6,355  $    5,157  $   3,748

Large Cap Relative Value*                                     N/A       $       --  $      ---  $      --

Value Equity                      0.50%         0.70%        0.95%      $      593  $      443  $     241

* Not operational during the fiscal year ended December 31, 2002.               

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INVESTMENT SUB-ADVISER                                                          

MSIA, with principal offices at 1221 Avenue of the Americas, New York, New York 
10020, serves as the investment sub-adviser to the Money Market and Municipal   
Money Market Portfolios pursuant to an investment sub-advisory agreement with   
Morgan Stanley Investment Management. As compensation for managing the          
day-to-day investments of the Money Market and Municipal Money Market           
Portfolios, Morgan Stanley Investment Management pays MSIA 40% of the investment
advisory fee that Morgan Stanley Investment Management receives from each of    
those Portfolios (net of applicable fee waivers).                               

APPROVAL OF THE ADVISORY AGREEMENTS                                             

In approving the investment advisory agreements, and the investment sub-advisory
agreements, the Board of Directors, including the Independent Directors,        
considered the nature, quality and scope of the services provided by the Adviser
and the sub-adviser, the performance, fees and expenses of each Portfolio       
compared to other similar investment companies, the Adviser's and the           
sub-adviser's expenses in providing the services, the profitability of the      
Adviser and the sub-adviser and their affiliated companies and other benefits   
they derive from their relationship with the Fund and the extent to which       
economies of scale are shared with each Portfolio. The Independent Directors    
reviewed reports from third parties and management about the foregoing factors  
and changes, if any, in such items since the preceding year's deliberations. The
Independent Directors noted their confidence in the capability and integrity of 
the senior management and staff of the Adviser and the sub-adviser and the      
financial strength of the Adviser and the sub-adviser and their affiliated      
companies. The Independent Directors weighed the foregoing factors in light of  
the advice given to them by legal counsel to the Fund as to the law applicable  
to the review of investment advisory contracts. Based upon its review, the Board
of Directors, including all of the Independent Directors, determined, in the    
exercise of its business judgment that approval of the investment advisory      
agreement (and the sub-advisory agreement respecting the Money Market and       
Municipal Money Market Portfolios only) were in the best interests of each      
Portfolio and its shareholders.                                                 

PRINCIPAL UNDERWRITER                                                           

Morgan Stanley & Co., with principal offices at 1585 Broadway, New York, NY     
10036, serves as principal underwriter to the Fund. For information relating to 
the services provided by Morgan Stanley & Co. see "Distribution of Shares."     

FUND ADMINISTRATION                                                             

Morgan Stanley Investment Management 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 records, 
preparation of reports, supervision of the Fund's arrangements with its         
custodian, and assistance in the preparation of the Fund's registration         
statement under federal laws. The Administration Agreement also provides that   
Morgan Stanley Investment Management, through its agents, will provide dividend 
disbursing and transfer agent services to the Fund. For its services under the  
Administration Agreement, the Fund pays Morgan Stanley Investment Management a  
monthly fee which on an annual basis equals 0.15% of the average daily net      
assets of each Portfolio. Morgan Stanley Investment Management may compensate   
other service providers for performing shareholder servicing and administrative 
services.                                                                       

SUB-ADMINISTRATOR. Under an agreement between Morgan Stanley Investment         
Management and J.P. Morgan Investor Services Co. ("J.P. Morgan"), J.P. Morgan, a
corporate affiliate of J.P. Morgan Chase Bank, provides certain administrative  
services to the Fund. Morgan Stanley Investment Management supervises and       
monitors the administrative services provided by J.P. Morgan. Their services are
also subject to the supervision of the officers and Board of Directors of the   
Fund. J.P. Morgan provides operational and administrative services to investment
companies with approximately $132 billion in assets and having approximately    
135,631 shareholder accounts as of December 31, 2002. J.P. Morgan's business    
address is 73 Tremont Street, Boston, Massachusetts 02108-3913.                 

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CUSTODIAN                                                                       

J.P. Morgan Chase, located at 270 Park Avenue, New York, New York 10017, acts as
the Fund's custodian. J.P. Morgan Chase is not an affiliate of the Adviser or   
the Distributor. In maintaining custody of foreign assets held outside the      
United States, J.P. Morgan Chase employs sub-custodians approved by the Board of
Directors of the Fund in accordance with regulations of the SEC for the purpose 
of providing custodial services for such assets.                                

In the selection of foreign sub-custodians, the Directors or their delegates    
consider a number of factors, including, but not limited to, the reliability and
financial stability of the institution, the ability of the institution to       
provide efficiently the custodial services required for the Fund, and the       
reputation of the institution in the particular country or region.              

DIVIDEND DISBURSING AND TRANSFER AGENT                                          

J.P. Morgan, 73 Tremont Street, Boston, MA 02108-3913, provides dividend        
disbursing and transfer agency services for the Fund pursuant to a              
Sub-Administration Agreement.                                                   

INDEPENDENT AUDITORS                                                            

Ernst & Young LLP, located at 200 Clarendon Street, Boston, Massachusetts,      
serves as independent auditors for the Fund and audits the annual financial     
statements of each Portfolio.                                                   

FUND COUNSEL                                                                    

Mayer, Brown, Rowe & Maw, located at 1675 Broadway, New York, NY 10019, acts as 
the Fund's legal counsel.                                                       

DISTRIBUTION OF SHARES

Morgan Stanley & Co., a wholly-owned subsidiary of Morgan Stanley, serves as the
Fund's exclusive distributor of Portfolio shares pursuant to a Distribution     
Agreement. In addition, to promote the sale of Fund shares, the Fund has adopted
a Plan of Distribution with respect to the Class B shares of each Portfolio     
(except the Municipal Money Market and International Small Cap Portfolios which 
do not offer Class B shares) under Rule 12b-1 of the 1940 Act (each, a "Plan"). 
Under each Plan, Morgan Stanley & Co. is entitled to receive as compensation    
from each Portfolio a fee, which is accrued daily and paid quarterly, at an     
annual rate of 0.25% of the average daily net assets of the Class B shares. Each
Plan is designed to compensate Morgan Stanley & Co. for its services in         
connection with distributing shares of all Portfolios. Morgan Stanley & Co. may 
retain any portion of the fees it does not expend in meeting its obligations to 
the Fund. Morgan Stanley & Co. may compensate financial intermediaries, plan    
fiduciaries and administrators for providing distribution-related services,     
including account maintenance services, to shareholders (including, where       
applicable, underlying beneficial owners) of the Fund. Morgan Stanley & Co. and 
Morgan Stanley Investment Management also may compensate third parties out of   
their own assets.                                                               

The Plans for the Class B shares were most recently approved by the Fund's Board
of Directors, including the Independent Directors, none of whom has a direct or 
indirect financial interest in the operation of a Plan or in any agreements     
related thereto, on June 6, 2002.                                               

The following table describes the 12b-1 fees paid by each Portfolio with respect
to its Class B shares pursuant to the Plan and the distribution-related expenses
for each Portfolio with respect to its Class B shares for the fiscal year ended 
December 31, 2002. To the extent that expenditures on distribution-related      
activities exceed the fees paid by a Portfolio, the excess amounts were paid by 
Morgan Stanley Investment Management or Morgan Stanley & Co. out of their own   
resources.                                                                      

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                                                                                                               12b-1 FEES   
                                                                                                               RETAINED BY  
                                                     PRINTING AND                                                 MORGAN    
                                           TOTAL      MAILING OF                                                STANLEY &   
                                       DISTRIBUTION  PROSPECTUSES                                                  CO./     
                                       (12b-1) FEES  TO OTHER THAN                              COMPENSATION  (EXPENDITURES 
                                          PAID BY       CURRENT      SHAREHOLDER      SUB-        TO SALES     IN EXCESS OF 
             PORTFOLIO                   PORTFOLIO   SHAREHOLDERS     SERVICING   DISTRIBUTION    PERSONNEL    12b-1 FEES)  
-------------------------------------  ------------  -------------  ------------  ------------  ------------  ------------- 
                                                                                                                            
Active International Allocation        $     23,768   $     26,410  $        ---  $     13,384  $      3,064   $    (18,858)

Asian Equity                           $      1,971   $     14,572  $        ---  $        ---  $      1,044   $    (13,616)

Asian Real Estate                      $      1,074   $     18,737  $        ---  $        ---  $        ---   $        --- 

Emerging Markets                       $     48,008   $    111,924  $        ---  $    121,724  $        ---   $   (185,648)

Emerging Markets Debt                  $      1,099   $      6,502  $        ---  $        ---  $        480   $     (5,982)

Equity Growth                          $    459,479   $     43,094  $        ---  $    691,049  $      7,084   $   (281,227)

European Real Estate                   $      2,929   $     36,472  $        ---  $        ---  $      2,064   $    (35,536)

European Value Equity                  $      2,641   $      6,576  $        ---  $        ---  $      2,116   $     (5,692)

Focus Equity                           $     22,638   $     36,550  $        ---  $        452  $     20,042   $    (34,044)

Global Franchise                       $      2,875   $        253  $        ---  $        ---  $      2,059   $        688 

Global Value Equity                    $     71,021   $    145,992  $        ---  $     72,089  $      2,392   $   (149,473)

International Equity                   $    640,171   $      6,145  $        ---  $    380,911  $     18,124   $    234,820 

International Magnum                   $     23,938   $     26,353  $        ---  $     23,887  $      3,269   $    (29,509)

Japanese Value Equity                  $      2,406   $      8,049  $        ---  $        880  $      1,138   $     (8,067)

Latin American                         $      1,027   $      6,502  $        ---  $        ---  $        ---   $     (5,502)

Small Company Growth                   $    496,127   $      5,993  $        ---  $    588,843  $      4,904   $   (103,740)

Technology                             $      4,845   $      5,993  $        ---  $      3,770  $      1,931   $     (6,694)

U.S. Real Estate                       $     73,186   $      5,915  $        ---  $     86,737  $      5,097   $    (24,749)

Value Equity                           $    112,396   $      6,026  $        ---  $    120,599  $      2,889   $    (17,514)

----------                                                                      
-   No information is provided for the Large Cap Relative Value, China  
      Growth, MicroCap, Mortgage-Backed Securities, U.S. Equity Plus or Gold
        Portfolios because they were not operational during the last fiscal year
ended December 31, 2002.                                        

 BROKERAGE PRACTICES

PORTFOLIO TRANSACTIONS                                                          

Morgan Stanley Investment Management, as each Portfolio's investment adviser, is
responsible for decisions to buy and sell securities for each Portfolio, for    
broker-dealer selection and for negotiation of commission rates. Purchases and  
sales of securities on a stock exchange are effected through brokers who charge 
a commission for their services. In the over-the-counter market, securities may 
be traded as agency transactions through broker dealers or traded on a "net"    
basis with dealers acting as principal for their own accounts without a stated  
commission, although the price of the security usually includes profit to the   
dealer. In underwritten offerings, securities are purchased at a fixed price    
which includes an amount of compensation to the underwriter, generally referred 
to as the underwriter's concession or discount. When securities are purchased or
sold directly from or to an issuer, no commissions or discounts are paid.       

On occasion, a Portfolio may purchase certain money market instruments directly 
from an issuer without payment of a commission or concession. Money market      
instruments are generally traded on a "net" basis with dealers acting as        
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer.                        

The Fund anticipates that certain of its transactions involving foreign         
securities will be effected on securities exchanges. Fixed commissions on such  
transactions are generally higher than negotiated commissions on domestic       
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.          

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Morgan Stanley Investment Management serves as investment adviser to a number of
clients, including other investment companies. Morgan Stanley Investment        
Management attempts to equitably allocate purchase and sale transactions among  
the Portfolios of the Fund and other client accounts. To that end, Morgan       
Stanley Investment Management considers various factors, including respective   
investment objectives, relative size of portfolio holdings of the same or       
comparable securities, availability of cash for investment, size of investment  
commitments generally held and the opinions of the persons responsible for      
managing the Portfolios of the Fund and other client accounts.                  

Morgan Stanley Investment Management selects the brokers or dealers that will   
execute the purchases and sales of investment securities for each Portfolio.    
Morgan Stanley Investment Management seeks the best execution for all portfolio 
transactions. A Portfolio may pay higher commission rates than the lowest       
available when Morgan Stanley Investment Management 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. In seeking to determine the   
reasonableness of brokerage commissions paid in any transaction, Morgan Stanley 
Investment Management relies upon its experience and knowledge regarding        
commissions generally charged by various brokers and on its judgment in         
evaluating the brokerage and research services received from the broker         
effecting the transaction. Morgan Stanley Investment Management is unable to    
ascertain the value of these services due to the subjective nature of their     
determinations.                                                                 

In cases where suitable price and execution are obtainable from more than one   
broker or dealer, Morgan Stanley Investment Management may place portfolio      
transactions with those who also furnish research and other services to the Fund
and Morgan Stanley Investment Management. Such services may include information 
as to the availability of securities for purchase or sale, statistical or       
factual information or opinions pertaining to investment, wire services, and    
appraisals or evaluations of portfolio securities. The information and services 
received by Morgan Stanley Investment Management from brokers and dealers may be
utilized by Morgan Stanley Investment Management or any of its affiliates in the
management of accounts of some of their other clients and may not in all cases  
benefit the Portfolios directly. While the receipt of such information and      
services would generally reduce the amount of research or services otherwise    
performed by Morgan Stanley Investment Management and thus reduce its expenses, 
the value of such reduction is indeterminable and therefore will not reduce the 
fees paid to Morgan Stanley Investment Management.                              

It is not the Fund's practice to direct brokerage or principal business on the  
basis of sales of Portfolio shares which may be made through intermediary       
brokers or dealers. However, Morgan Stanley Investment Management 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.                      

Subject to the overriding objective of obtaining the best execution of orders,  
the Fund may use broker-dealer affiliates of Morgan Stanley Investment          
Management to effect Portfolio brokerage transactions under procedures adopted  
by the Fund's Board of Directors. Pursuant to these procedures, Morgan Stanley  
Investment Management uses two broker-dealer affiliates, Morgan Stanley & Co.   
(including Morgan Stanley International Limited) and Morgan Stanley DW, Inc.    
("Morgan Stanley DW"), each of which is wholly owned by Morgan Stanley, for such
transactions, the commission rates and other remuneration paid to Morgan Stanley
& Co. or Morgan Stanley DW 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. This standard would    
allow the affiliated broker or dealer to receive no more than the remuneration  
which would be expected to be received by an unaffiliated broker.               

During the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid   
brokerage commissions of approximately $22,052,131, $175,215,886 and            
$19,274,045, respectively. During the fiscal years ended December 31, 2000, 2001
and 2002, the Fund paid in the aggregate $763,458, $292,117 and $347,308,       
respectively, in brokerage commissions to Morgan Stanley & Co. During the fiscal
year ended December 31, 2002, the brokerage commissions paid to Morgan Stanley &
Co. represented approximately 1.80% of the total brokerage commissions paid by  
the Fund during the year 2002 and were paid on account of transactions having an
aggregate dollar value equal to approximately 0.04% of the aggregate dollar     
value of all portfolio transactions of the Fund during the year 2002 for which  
commissions were paid.                                                          

During the fiscal years ended December 31, 2000, 2001 and 2002, the Fund paid no
brokerage commissions to Morgan Stanley DW.                                     

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     BROKERAGE COMMISSIONS PAID DURING FISCAL YEAR ENDED DECEMBER 31, 2002

                                                        [Enlarge/Download Table]

                                                               COMMISSIONS PAID TO MORGAN STANLEY & CO.     
                                                           ------------------------------------------------ 
                                                                                               PERCENT OF   
                                                TOTAL                          PERCENT OF        TOTAL      
                                             COMMISSIONS        TOTAL            TOTAL          BROKERED    
PORTFOLIO                                       PAID         COMMISSIONS      COMMISSIONS     TRANSACTIONS  
-----------------------------------------  --------------  --------------   --------------   -------------- 
                                                                                                            
Active International   Allocation          $      155,769  $            0             0.00%            0.00%

Asian Equity                               $      167,890  $       18,789            11.19%           23.40%

Asian Real Estate                          $        4,808  $          550            11.44%           11.36%

Emerging Markets                           $    3,363,427  $      227,261             6.76%            0.02%

Emerging Markets Debt                      $        1,492  $            0             0.00%            0.00%

Equity Growth                              $    2,876,230  $       34,248             1.19%            1.37%

European Real Estate                       $       48,497  $            0             0.00%            0.00%

European Value Equity                      $       94,126  $            0             0.00%            0.00%

Focus Equity                               $      352,066  $       10,479             2.98%            3.65%

Global Franchise                           $      129,398  $            0             0.00%            0.00%

Global Value Equity                        $       70,521  $        4,212             5.97%            4.17%

International Equity                       $    6,934,948  $            0             0.00%            0.00%

International Magnum                       $      155,244  $          527             0.34%            0.14%

International Small Cap                    $      586,897  $            0             0.00%            0.00%

Japanese Value Equity                      $       41,400  $        2,636             6.37%            5.36%

Latin American                             $       78,155  $          476             0.61%            0.85%

Money Market                               $            0  $            0             0.00%            0.00%

Municipal Money Market                     $            0  $            0             0.00%            0.00%

Small Company Growth                       $    2,163,315  $       22,489             1.04%            1.96%

Technology                                 $      201,719  $        1,295             0.64%            0.75%

U.S. Real Estate                           $    1,472,363  $            0             0.00%            0.00%

Value Equity                               $      375,780  $       24,346             6.48%           10.16%

----------                                                                      
Note: No information is provided for the Large Cap Relative Value, China Growth,
      MicroCap, Mortgage-Backed Securities, Gold, U.S. Equity Plus, or Municipal
    Bond Portfolios because they were not operational during the fiscal year
ended December 31, 2002.                                            

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BROKERAGE COMMISSION PAID DURING FISCAL YEARS ENDED DECEMBER 31, 2001 AND 2000

                                                        [Enlarge/Download Table]

                                              FISCAL YEAR ENDED DECEMBER    FISCAL YEAR ENDED DECEMBER 31, 
                                                       31, 2001                         2000               
                                           -------------------------------  -------------------------------
                                                                MORGAN                          MORGAN     
                                                               STANLEY &                       STANLEY     
PORTFOLIO                                      TOTAL             CO.            TOTAL            & CO.     
-----------------------------------------  --------------   --------------  --------------   --------------
                                                                                                           
Active International Allocation            $      152,047   $          487  $      454,901   $          813

Asian Equity                               $      276,486   $       39,256  $      521,333   $       92,990

Asian Real Estate                          $        6,074   $          144  $       17,456   $        4,092

Emerging Markets                           $    3,911,969   $      167,516  $    6,331,994   $      203,281

Emerging Markets Debt                      $            0   $            0  $            0   $            0

Equity Growth                              $    1,954,841   $       53,030  $    1,426,900   $        1,725

European Real Estate                       $       38,440   $            0  $       36,761   $          239

European Value Equity                      $       85,798   $            4  $      185,744   $       11,071

Focus Equity                               $      217,339   $        5,726  $      246,770   $          873

Global Value Equity                        $       89,935   $        4,136  $      188,877   $       21,842

International Equity                       $  154,804,989   $            0  $    9,697,862   $      408,855

International Magnum                       $    1,237,447   $        1,664  $      326,452   $       14,264

International Small Cap                    $   10,387,749   $            0  $      937,256   $            0

Japanese Value Equity                      $       61,174   $        1,972  $       51,517   $          170

Latin American                             $       75,900   $        7,971  $      129,926   $          649

Money Market                               $            0   $            0  $            0   $            0

Municipal Money Market                     $            0   $            0  $            0   $            0

Small Company Growth                       $      700,695   $            0  $      262,305   $          212

Technology                                 $       99,160   $            0  $      130,908   $          366

U.S. Real Estate                           $      902,106   $            0  $      998,700   $          987

U.S. Equity Plus                           $       11,726   $            0  $       38,144   $            0

Value Equity                               $      213,738   $       10,211  $      102,987   $        1,029

----------                                                                      
Note: No information is provided for the Large Cap Relative Value, China Growth,
MicroCap, Mortgage-Backed Securities, Gold, Municipal Bond or Global
    Franchise Portfolios because they were not operational during the fiscal
years ended December 31, 2000 and 2001                              

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DIRECTED BROKERAGE. During the fiscal year ended December 31, 2002, the         
Portfolios paid brokerage commissions to brokers because of research services   
provided as follows:                                                            

                                                        [Enlarge/Download Table]

                                                           BROKERAGE COMMISSIONS         AGGREGATE DOLLAR AMOUNT OF  
                                                        DIRECTED IN CONNECTION WITH     TRANSACTIONS FOR WHICH SUCH  
                                                         RESEARCH SERVICES PROVIDED      COMMISSIONS WERE PAID FOR   
                                                           FOR FISCAL YEAR ENDED             FISCAL YEAR ENDED       
PORTFOLIO                                                    DECEMBER 31, 2002               DECEMBER 31, 2002       
----------------------------------------------------- ------------------------------- -------------------------------
                                                                                                                     
Active International Allocation                                $    127,860                    $   127,860           

Asian Equity                                                   $    152,551                    $   168,947           

Asian Real Estate                                              $      4,719                    $     4,805           

Emerging Markets                                               $  3,036,007                    $ 3,194,645           

Emerging Markets Debt                                          $        ---                    $       ---           

Equity Growth                                                  $  2,833,659                    $ 3,131,598           

European Real Estate                                           $     43,308                    $    43,308           

European Value Equity                                          $     94,232                    $    94,284           

Focus Equity                                                   $  1,477,375                    $   372,855           

Global Value Equity                                            $     70,562                    $    70,586           

Global Franchise                                               $    142,810                    $   142,903           

International Equity                                           $  6,955,615                    $ 6,960,459           

International Magnum                                           $    134,467                    $   134,551           

International Small Cap                                        $    595,206                    $   595,549           

Japanese Value Equity                                          $     41,530                    $    41,530           

Latin American                                                 $     13,541                    $    13,618           

Small Company Growth                                           $    643,289                    $   835,404           

Technology                                                     $    193,024                    $   230,387           

U.S. Real Estate                                               $    345,415                    $ 1,785,800           

Value Equity                                                   $    999,500                    $ 1,976,076           

----------                                                                      
Note: No information is provided for the Large Cap Relative Value, China Growth,
      Gold, MicroCap, Mortgage-Backed Securities, U.S. Equity Plus, or Municipal
    Bond Portfolios because they were not operational during the last fiscal
  year ended December 31, 2002. No information is provided for the Money
    Market and Municipal Money Market Portfolios during the last fiscal year
ended December 31, 2002, because they did not pay any brokerage     
commissions in connection with research.                            

REGULAR BROKER-DEALERS. The Fund's regular broker-dealers are (i) the ten       
broker-dealers that received the greatest dollar amount of brokerage commissions
from the Fund; (ii) the ten broker-dealers that engaged as principal in the     
largest dollar amount of portfolio transactions; and (iii) the ten              
broker-dealers that sold the largest dollar amount of Portfolio shares. During  
the fiscal year ended December 31, 2002, the following Portfolios purchased     
securities issued by the Fund's regular broker-dealers:                         

VALUE OF PORTFOLIO HOLDING

                                                        [Enlarge/Download Table]

                                                                                         VALUE OF PORTFOLIO HOLDING
PORTFOLIO                                                      REGULAR BROKER-DEALER      AS OF DECEMBER 31, 2002  
-----------------------------------------------------------  --------------------------  --------------------------
                                                                                                                   
Active International Allocation                              HSBC Holdings PLC                   $  4,370,000      

European Value Equity                                        HSBC Holdings PLC                   $    411,000      

Global Value Equity                                          Merrill Lynch & Co., Inc.           $    691,000      

International Equity                                         HSBC Holdings PLC                   $ 62,052,000      

International Magnum                                         HSBC Holdings PLC                   $    865,000      

Equity Growth                                                Citigroup, Inc.                     $ 16,412,000      

Focus Equity                                                 Citigroup, Inc.                     $  1,894,000      

Value Equity                                                 Citigroup, Inc.                     $  5,637,000      

                                                             Bank of America Corp.               $  5,326,000      

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 investment objectives and policies. Higher portfolio turnover (e.g., over 
100%) necessarily will                                                          

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cause the Portfolios 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

FUND HISTORY                                                                    

The Fund was incorporated pursuant to the laws of the State of Maryland on June 
16, 1988 under the name Morgan Stanley Institutional Fund, Inc. The Fund filed a
registration statement with the SEC registering itself as an open-end management
investment company offering diversified and non-diversified series under the    
1940 Act and its shares under the 1933 Act, as amended, and commenced operations
on November 15, 1988. On December 1, 1998, the Fund changed its name to Morgan  
Stanley Dean Witter Institutional Fund, Inc. Effective May 1, 2001, the Fund    
changed its name to Morgan Stanley Institutional Fund, Inc.                     

DESCRIPTION OF SHARES AND VOTING RIGHTS                                         

The Fund's Amended and Restated Articles of Incorporation permit the Directors  
to issue 40.5 billion shares of common stock, par value $.001 per share, from an
unlimited number of classes or series of shares. The shares of each Portfolio of
the Fund, when issued, are fully paid and nonassessable, and have no preference 
as to conversion, exchange, dividends, retirement or other features. Portfolio  
shares have no pre-emptive rights. The shares of the Fund have non-cumulative   
voting rights, which means that the holders of more than 50% of the shares      
voting for the election of Directors can elect 100% of the Directors if they    
choose to do so. Shareholders are entitled to one vote for each full share held 
(and a fractional vote for each fractional share held), then standing in their  
name on the books of the Fund.                                                  

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS                                       

The Fund's policy is to distribute substantially all of each Portfolio's net    
investment income, if any. The Fund may also distribute any net realized capital
gains in the amount and at the times that will avoid both income (including     
taxable gains) taxes on it and the imposition of the federal excise tax on      
income and capital gains (see "Taxes"). However, the Fund may also choose to    
retain net realized capital gains and pay taxes on such gains. The amounts of   
any income dividends or capital gains distributions cannot be predicted.        

Any dividend or distribution paid shortly after the purchase of shares of a     
Portfolio by an investor may have the effect of reducing the per share net asset
value of that Portfolio by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of    
capital, are subject to income taxes for shareholders subject to tax as set     
forth herein and in the applicable Prospectus.                                  

As set forth in the Prospectuses, unless you elect otherwise in writing, all    
dividends and capital gains distributions for a class of shares are             
automatically reinvested in additional shares of the same class of the Portfolio
at net asset value (as of the business day following the record date). This     
automatic reinvestment of dividends and distributions will remain in effect     
until you notify the Fund in writing that either the Income Option (income      
dividends in cash and capital gains distributions reinvested in shares at net   
asset value) or the Cash Option (both income dividends and capital gains        
distributions in cash) has been elected.                                        

 TAXES

The following is only a summary of certain additional federal income tax        
considerations generally affecting the Fund, Portfolios and their shareholders  
that are not described in the Prospectuses. No attempt is made to present a     
detailed explanation of the federal, state or local tax treatment of the Fund,  
Portfolios or shareholders, and the discussion here and in the Prospectuses is  
not intended to be a substitute for careful tax planning.                       

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The following general discussion of certain federal income tax consequences is  
based on the Internal Revenue Code of 1986, as amended (the "Code") and the     
regulations issued thereunder as in effect on the date of this Statement of     
Additional Information. New legislation, as well as administrative changes or   
court decisions, may significantly change the conclusions expressed herein, and 
may have a retroactive effect with respect to the transactions contemplated     
herein.                                                                         

Each Portfolio within the Fund is generally treated as a separate corporation   
for federal income tax purposes. Thus, the provisions of the Code generally will
be applied to each Portfolio separately, rather than to the Fund as a whole.    

REGULATED INVESTMENT COMPANY QUALIFICATION                                      

Each Portfolio intends to qualify and elect to be treated for each taxable year 
as a regulated investment company ("RIC") under Subchapter M of the Code. In    
order to so qualify, each Portfolio must, among other things, (i) derive at     
least 90% of its gross income each taxable year from dividends, interest,       
payments with respect to securities loans, gains from the sale or other         
disposition of stock, securities or foreign currencies, and other income derived
with respect to its business of investing in such stock securities or           
currencies, including, generally, certain gains from options, futures and       
forward contracts; and (ii) diversify its holdings so that, at the end of each  
fiscal quarter of the Portfolio's taxable year, (a) at least 50% of the market  
value of the Portfolio's total assets is represented by cash and cash items,    
U.S. Government securities, securities of other RICs, and other securities, with
such other securities limited, in respect to any one issuer, to an amount not   
greater than 5% of the value of the Portfolio's total assets or 10% of the      
outstanding voting securities of such issuer, and (b) not more than 25% of the  
value of its total assets are invested in the securities (other than U.S.       
Government securities or securities of other RICs) of any one issuer or two or  
more issuers which the Portfolio controls and which are engaged in the same,    
similar, or related trades or businesses. For purposes of the 90% of gross      
income requirement described above, foreign currency gains which are not        
directly related to a Portfolio's principal business of investing in stock or   
securities (or options or futures with respect to stock or securities) may be   
excluded from income that qualifies under the 90% requirement. For purposes of  
the diversification requirement described above, the Portfolio will not be      
treated as in violation of such requirement as a result of a discrepancy between
the value of its various investments and the diversification percentages        
described above, unless such discrepancy exists immediately following the       
acquisition of any security or other property and is wholly or partly the result
of such acquisition. Moreover, even in the event of noncompliance with the      
diversification requirement as of the end of any given quarter, the Portfolio is
permitted to cure the violation by eliminating the discrepancy causing such     
noncompliance within a period of 30 days from the close of the relevant quarter.

In addition to the requirements described above, in order to qualify as a RIC, a
Portfolio must distribute at least 90% of its net investment income (which      
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at 
least 90% of its net tax-exempt interest income, for each tax year, if any, to  
its shareholders. If a Portfolio meets all of the RIC requirements, it will not 
be subject to federal income tax on any of its net investment income or capital 
gains that it distributes to shareholders.                                      

If a Portfolio fails to qualify as a RIC for any taxable year, all of its net   
income will be subject to tax at regular corporate rates (whether or not        
distributed to shareholders), and its distributions (including capital gains    
distributions) will be taxable as ordinary income dividends to its shareholders 
to the extent of the Portfolio's current and accumulated earnings and profits,  
and will be eligible for the corporate dividends-received deduction for         
corporate shareholders.                                                         

GENERAL TAX TREATMENT OF QUALIFYING RICS AND SHAREHOLDERS                       

Each Portfolio intends to distribute substantially all of its net investment    
income (including, for this purpose, net short-term capital gains) to           
shareholders. Dividends from a Portfolio's net investment income generally are  
taxable to shareholders as ordinary income, whether received in cash or in      
additional shares. Such dividends paid by a Portfolio generally will only       
qualify for the dividends-received deduction for corporate shareholders to the  
extent of the Portfolio's qualifying dividend income and to the extent          
designated by the Portfolio. Each Portfolio will report annually to its         
shareholders the amount of dividend income qualifying for such treatment. Under 
recently enacted legislation, ordinary income dividends may be taxed at the same
rates as long-term capital gains. However, income received in the form of       
ordinary income dividends will not be considered long-term capital gains for    
other federal                                                                   

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income tax purposes, including the calculation of net capital losses. Short-term
capital gain distributions will continue to be taxed at ordinary income rates.  

Each Portfolio will decide whether to distribute or to retain all or part of any
net capital gains (the excess of net long-term capital gains over net short-term
capital losses) in any year for reinvestment. Distributions of net capital gains
are taxable to shareholders as a long-term capital gain regardless of how long  
shareholders have held their shares. Each Portfolio will send reports annually  
to shareholders regarding the federal income tax status of all distributions    
made for the preceding year. If any such gains are retained, the Portfolio will 
pay federal income tax thereon, and, if the Portfolio makes an election, the    
shareholders will include such undistributed gains in their income, and will    
increase their tax basis in Portfolio shares by the difference between the      
amount of the includable gains and the tax deemed paid by the shareholder in    
respect of such shares. The shareholder will be able to claim their share of the
tax paid by the Portfolio as a refundable credit.                               

Shareholders are generally taxed on any ordinary dividend or capital gain       
distributions from a Portfolio in the year they are actually distributed.       
However, 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 received by shareholders on December  
31 of that year if such distributions are paid by the Portfolio at any time     
during the following January.                                                   

A gain or loss realized by a shareholder on the sale, exchange or redemption of 
shares of a Portfolio held as a capital asset will be capital gain or loss, and 
such gain or loss will be long-term if the holding period for the shares exceeds
12 months and otherwise will be short-term. Any loss realized on a sale,        
exchange or redemption of shares of a Portfolio will be disallowed to the extent
the shares disposed of are replaced within the 61-day period beginning 30 days  
before and ending 30 days after the shares are disposed of. Any loss realized by
a shareholder on the disposition of shares held 6 months or less is treated as a
long-term capital loss to the extent of any distributions of net long-term      
capital gains received by the shareholder with respect to such shares or any    
inclusion of undistributed capital gain with respect to such shares.            

Each Portfolio will generally be subject to a nondeductible 4% federal excise   
tax to the extent it fails to distribute by the end of any calendar year at     
least 98% of its ordinary income for that year and 98% of its capital gain net  
income (the excess of short- and long-term capital gains over short- and        
long-term capital losses) for the one-year period ending on October 31 of that  
year, plus certain other amounts. Each Portfolio intends to make sufficient     
distributions or deemed distributions of its ordinary income and capital gain   
net income (the excess of short-term and long-term capital gains over short-term
and long-term capital losses, including any available capital loss              
carryforwards), prior to the end of each calendar year to avoid liability for   
federal excise tax, but can give no assurances that all such liability will be  
eliminated.                                                                     

The Fund may be required to withhold and remit to the U.S. Treasury             
approximately 28% currently on 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 Account Registration Form; (ii) who is   
subject to backup 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. 

As discussed above, in order for each Portfolio to continue to qualify for      
federal income tax treatment as a RIC, at least 90% of its gross income for a   
taxable year must be derived from certain qualifying income, including          
dividends, interest, income derived from loans of securities, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other  
related income, including gains from options, futures and forward contracts,    
derived with respect to its business of investing in stock, securities or       
currencies. Any net gain realized from the closing out of futures contracts will
therefore generally be qualifying income for purposes of the 90% requirement.   

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SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY AND DERIVATIVES TRANSACTIONS         

In general, gains from foreign currencies and from foreign currency options,    
foreign currency futures and forward foreign exchange contracts relating to     
investments in stock, securities or foreign currencies are currently considered 
to be qualifying income for purposes of determining whether the Portfolio       
qualifies as a RIC.                                                             

Under Section 988 of the Code, special rules are provided for certain           
transactions in a foreign currency other than the taxpayer's functional currency
(I.E., unless certain special rules apply, currencies other than the U.S.       
dollar). In general, foreign currency gains or losses from forward contracts,   
from futures contracts that are not "regulated futures contracts", and from     
unlisted options will be treated as ordinary income or loss under Section 988 of
the Code. Also, certain foreign exchange gains or losses derived with respect to
foreign fixed-income securities are also subject to Section 988 treatment. In   
general, therefore, Section 988 gains or losses will increase or decrease the   
amount of the Portfolio's investment company taxable income available to be     
distributed to shareholders as ordinary income, rather than increasing or       
decreasing the amount of the Portfolio's net capital gain.                      

A Portfolio's investment in options, swaps and related transactions, futures    
contracts and forward contracts, options on futures contracts and stock indices 
and certain other securities, including transactions involving actual or deemed 
short sales or foreign exchange gains or losses are subject to many complex and 
special tax rules. For example, over-the-counter options on debt securities and 
equity options, including options on stock and on narrow-based stock indexes,   
will be subject to tax under Section 1234 of the Code, generally producing a    
long-term or short-term capital gain or loss upon exercise, lapse or closing out
of the option or sale of the underlying stock or security. By contrast, a       
Portfolio's treatment of certain other options, futures and forward contracts   
entered into by a Portfolio is generally governed by Section 1256 of the Code.  
These "Section 1256" positions generally include listed options on debt         
securities, options on broad-based stock indexes, options on securities indexes,
options on futures contracts, regulated futures contracts and certain foreign   
currency contracts and options thereon.                                         

When a Portfolio holds options or futures contracts which substantially diminish
their risk of loss with respect to other positions (as might occur in some      
hedging transactions), this combination of positions could be treated as a      
"straddle" for tax purposes, resulting in possible deferral of losses,          
adjustments in the holding periods of Portfolio securities and conversion of    
short-term capital losses into long-term capital losses. Certain tax elections  
exist for mixed straddles (I.E., straddles comprised of at least one Section    
1256 position and at least one non-Section 1256 position) which may reduce or   
eliminate the operation of these straddle rules.                                

A Section 1256 position held by a Portfolio will generally be marked-to-market  
(I.E., treated as if it were sold for fair market value) on the last business   
day of the Fund's fiscal year, and all gain or loss associated with fiscal year 
transactions and mark-to-market positions at fiscal year end (except certain    
currency gain or loss covered by Section 988 of the Code) will generally be     
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The effect of Section 1256 mark-to-market rules may be to accelerate      
income or to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital    
losses within a Portfolio. The acceleration of income on Section 1256 positions 
may require a Portfolio to accrue taxable income without the corresponding      
receipt of cash. In order to generate cash to satisfy the distribution          
requirements of the Code, a Portfolio may be required to dispose of portfolio   
securities that it otherwise would have continued to hold or to use cash flows  
from other sources. Any or all of these rules may, therefore, affect the amount,
character and timing of income earned and, in turn, distributed to shareholders 
by a Portfolio.                                                                 

SPECIAL TAX CONSIDERATIONS RELATING TO MUNICIPAL BOND AND MUNICIPAL MONEY MARKET
PORTFOLIOS                                                                      

Each of the Municipal Bond Portfolio and the Municipal Money Market Portfolio   
will qualify to pay "exempt-interest dividends" to its shareholders, provided   
that, at the close of each quarter of its taxable year, at least 50% of the     
value of its total assets consist of obligations the interest on which is exempt
from federal income tax. Current federal tax law limits the types and volume of 
bonds qualifying for federal income tax exemption of interest, which may have an
effect on the ability of these Portfolios to purchase sufficient amounts of     
tax-exempt securities to satisfy this requirement. Any loss on the sale or      
exchange of shares of the Municipal Bond Portfolio or the Municipal Money Market
Portfolio held for six months or less will be disallowed to the extent of any   
exempt-interest dividends received by the selling shareholder with respect to   
such shares.                                                                    

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In addition, for the Municipal Bond Portfolio and the Municipal Money Market    
Portfolio, exempt-interest dividends are excludable from a shareholder's gross  
income for regular federal income tax purposes. Exempt-interest dividends may,  
nevertheless, be subject to the alternative minimum tax imposed by Section 55 of
the Code (the "Alternative Minimum Tax"). The Alternative Minimum Tax is imposed
at the rate of up to 28% in the case of non-corporate taxpayers and at the rate 
of 20% in the case of corporate taxpayers, to the extent it exceeds the         
taxpayer's regular tax liability. The Alternative Minimum Tax may be affected by
the receipt of exempt-interest dividends in two circumstances. First,           
exempt-interest dividends derived from certain "private activity bonds" issued  
after August 7, 1986, will generally be an item of tax preference and therefore 
potentially subject to the Alternative Minimum Tax. The Portfolios intend, when 
possible, to avoid investing in private activity bonds. Second, in the case of  
exempt-interest dividends received by corporate shareholders, all               
exempt-interest dividends, regardless of when the bonds from which they are     
derived were issued or whether they are derived from private activity bonds,    
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum 
taxable income for purposes of determining the Alternative Minimum Tax.         

The percentage of income that constitutes exempt-interest dividends will be     
determined for each year for the Municipal Bond Portfolio and the Municipal     
Money Market Portfolio and will be applied uniformly to all dividends declared  
with respect to the Portfolios during that year. This percentage may differ from
the actual percentage for any particular day.                                   

The deductibility of interest on indebtedness incurred or continued by          
shareholders to purchase or carry shares of the Municipal Bond Portfolio or the 
Municipal Money Market Portfolio will be limited for federal income tax purposes
to the extent that any portion of such Portfolio's distributions consist of     
exempt-interest dividends. The deduction otherwise allowable to property and    
casualty insurance companies for "losses incurred" will be reduced by an amount 
equal to a portion of exempt-interest dividends received or accrued during any  
taxable year. Foreign corporations engaged in a trade or business in the United 
States will be subject to a "branch profits tax" on their "dividend equivalent  
amount" for the taxable year, which will include exempt-interest dividends.     
Certain Subchapter S corporations may also be subject to taxes on their "passive
investment income," which could include exempt-interest dividends. Up to 85% of 
the Social Security benefits or railroad retirement benefits received by an     
individual during any taxable year will be included in the gross income of such 
individual if the individual's "modified adjusted gross income" (which includes 
exempt-interest dividends) plus one-half of the Social Security benefits or     
railroad retirement benefits received by such individual during that taxable    
year exceeds the base amount described in Section 86 of the Code.               

Entities or persons who are "substantial users" (or persons related to          
"substantial users") of facilities financed by industrial development bonds or  
private activity bonds should consult their tax advisors before purchasing      
shares of the Municipal Bond Portfolio or the Municipal Money Market Portfolio. 
"Substantial user" is defined generally for these purposes as including a       
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.                                       

Issuers of bonds purchased by the Municipal Bond Portfolio (or the beneficiary  
of such bonds) may have made certain representations or covenants in connection 
with the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Investors should be 
aware that exempt-interest dividends derived from such bonds may become subject 
to federal income taxation retroactively to the date thereof if such            
representations are determined to have been inaccurate or if the issuer of such 
bonds (or the beneficiary of such bonds) fails to comply with such covenants.   

The state and local tax consequences of an investment in either the Municipal   
Bond or Municipal Money Market Portfolios may differ from the federal           
consequences described above and shareholders are urged to consult their tax    
advisors with respect to such aspects.                                          

SPECIAL TAX CONSIDERATIONS RELATING TO FOREIGN INVESTMENTS                      

Gains or losses attributable to foreign currency contracts, or to fluctuations  
in exchange rates that occur between the time a Portfolio accrues interest or   
other receivables or accrues expenses or other liabilities denominated in a     
foreign currency and the time the Portfolio actually collects such receivables  
or pays such liabilities are treated as ordinary                                

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income or ordinary loss to the Portfolio. Similarly, gains or losses on         
disposition of debt securities denominated in a foreign currency attributable to
fluctuations in the value of the foreign currency between the date of           
acquisition of the security and the date of disposition also are treated as     
ordinary gain or loss to the Portfolio. These gains or losses increase or       
decrease the amount of a Portfolio's net investment income available to be      
distributed to its shareholders as ordinary income.                             

It is expected that each Portfolio will be subject to foreign withholding taxes 
with respect to its dividend and interest income from foreign countries, and a  
Portfolio may be subject to foreign income taxes with respect to other income.  
So long as more than 50% in value of a Portfolio's total assets at the close of 
the taxable year consists of stock or securities of foreign corporations, the   
Portfolio may elect to treat certain foreign income taxes imposed on it for U.S.
federal income tax purposes as paid directly by its shareholders. A Portfolio   
will make such an election only if it deems it to be in the best interest of its
shareholders and will notify shareholders in writing each year if it makes an   
election and of the amount of foreign income taxes, if any, to be treated as    
paid by the shareholders. If a Portfolio makes the election, shareholders will  
be required to include in income their proportionate share of the amount of     
foreign income taxes treated as imposed on the Portfolio and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they  
itemize deductions, a deduction, for their shares of the foreign income taxes in
computing their federal income tax liability.                                   

Certain foreign governments levy withholding or other taxes on dividend and     
interest income. Although in some countries a portion of these taxes are        
recoverable, the non-recovered portion of foreign withholding taxes will reduce 
the income received from investments in such countries. Except in the case of   
the Active International Allocation, Asian Equity, Asian Real Estate, China     
Growth, Emerging Markets Debt, Emerging Markets, European Real Estate, European 
Value Equity, Global Franchise, Global Value Equity, Japanese Value Equity,,    
International Equity, International Magnum, International Small Cap and Latin   
American Portfolios, 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. However, these foreign withholding taxes may not have a          
significant impact on such Portfolios, considering that each Portfolio's        
investment objective is to seek long-term capital appreciation and any dividend 
or interest income should be considered incidental.                             

Shareholders who choose to utilize a credit (rather than a deduction) for       
foreign taxes will be subject to a number of complex limitations regarding the  
availability and utilization of the credit. Because of these limitations,       
shareholders may be unable to claim a credit for the full amount of their       
proportionate shares of the foreign income taxes paid by a Portfolio.           
Shareholders are urged to consult their tax advisors regarding the application  
of these rules to their particular circumstances.                               

TAXES AND FOREIGN SHAREHOLDERS                                                  

Taxation of a shareholder who, as to the United States, is a nonresident alien  
individual, a foreign trust or estate, a foreign corporation, or a foreign      
partnership ("Foreign Shareholder") depends on whether the income from the      
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.                                                               

If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, distributions of net investment   
income plus the excess of net short-term capital gains over net long-term       
capital losses will be subject to U.S. withholding tax at the rate of 30% (or   
such lower treaty rate as may be applicable) upon the gross amount of the       
dividend. Furthermore, Foreign Shareholders will generally be exempt from U.S.  
federal income tax on gains realized on the sale of shares of a Portfolio,      
distributions of net long-term capital gains, and amounts retained by the Fund  
that are designated as undistributed capital gains.                             

If the income from a Portfolio is effectively connected with a U.S. trade or    
business carried on by a Foreign Shareholder, then distributions from the       
Portfolio and any gains realized upon the sale of shares of the Portfolio, will 
be subject to U.S. federal income tax at the rates applicable to U.S. citizens  
and residents or domestic corporations.                                         

A Portfolio may be required to withhold U.S. federal income tax on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty  
rate) unless the Foreign Shareholder complies with Internal Revenue Service     
certification requirements.                                                     

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The tax consequences to a Foreign Shareholder entitled to claim the benefits of 
an applicable tax treaty may differ from those described here. Furthermore,     
Foreign Shareholders are strongly urged to consult their own tax advisors with  
respect to the particular tax consequences to them of an investment in a        
Portfolio, including the potential application of the provisions of the Foreign 
Investment in Real Estate Property Tax Act of 1980, as amended.                 

STATE AND LOCAL TAX CONSIDERATIONS                                              

Rules of U.S. state and local taxation of dividend and capital gains from       
regulated investment companies often differ from the rules for U.S. federal     
income taxation described above. Shareholders are urged to consult their tax    
advisors as to the consequences of these and other U.S. state and local tax     
rules regarding an investment in the Fund.                                      

 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

CONTROL PERSONS                                                                 

The following shareholders may be deemed to control the following Portfolios    
because they are record owners of 25% or more of the outstanding shares of that 
Portfolio of the Fund as of May 16, 2003. For each control person, the following
provides the name, address and percentage of outstanding shares of such         
Portfolio owned. On _____, 2003, the Adviser purchased $______ of the Large Cap 
Relative Value Portfolio at an initial subscription price of $___ per share and 
was the sole shareholder as of that date. The Adviser will control the Portfolio
until public shareholders begin investing in the Portfolio thereby diluting the 
ownership of Portfolio shares by the Adviser.                                   

GLOBAL FRANCHISE PORTFOLIO: Mount Cuba Center Inc., Suite 1109, 100 West 10th   
Street, Wilmington, DE 19801, owned 34.04% of such Portfolio's total outstanding
Class A shares.                                                                 

EUROPEAN REAL ESTATE PORTFOLIO: United Jewish Appeal Federation of Jewish       
Philanthropies New York, Inc., 130 East 59th Street, New York, NY 10022-1302,   
owned 32.24% of such Portfolio's total outstanding Class A shares.              

Morgan Stanley & Co., FBO The Cathryn R. Fortune Char., 5505 Lake Washington    
Blvd. NE, Unit 1D, Kirkland, WA 98033, owned 35.39% of such Portfolio's total   
outstanding Class B shares.                                                     

Morgan Stanley & Co., FBO Irene R. Miller, 186 Riverside Drive, Apt. 10E, New   
York, NY 10024, owned 27.84% of such Portfolio's total outstanding Class B      
shares.                                                                         

INTERNATIONAL MAGNUM PORTFOLIO: Morgan Stanley DW. Inc. 825 Third Ave., New     
York, New York, owned 42.21% of such Portfolio's total outstanding Class A      
shares.                                                                         

Thrivent Financial for Lutherans, Attn: Paul McCullough, 625 4th Avenue,        
Minneapolis, MN 5514, owned 29.62% of such Portfolio's total outstanding Class A
shares.                                                                         

Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 92.10% of such Portfolio's total 
outstanding Class B shares.                                                     

ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO: Morgan Stanley DW. Inc. 825 Third    
Ave., New York, New York 10022, owned 26.04% of such Portfolio's total          
outstanding Class A shares.                                                     

IMS & Co., P.O. Box 3865, Englewood,  CO 80155, owned 59.02% of such Portfolio's
total outstanding Class B shares.                                               

EQUITY GROWTH PORTFOLIO: Mac & Co., P.O. Box 3198, Pittsburgh, PA 15230-3198,   
owned 28.35% of such Portfolio's total outstanding Class A shares.              

Manufacturers Life Insurance Co. USA, 250 Bloor Street East, 7th Floor, Toronto,
Ontario, M4W 1E5 Canada, owned 60.47% of such Portfolio's total outstanding     
Class B shares.                                                                 

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SMALL COMPANY GROWTH PORTFOLIO: Fidelity Investments Institutional Operations   
Co. FIIOC as Benefit Plans, 100 Magellan Way, KW1C, Covington, KY 41015, owned  
63.80% of such Portfolio's total outstanding Class B shares.                    

INTERNATIONAL EQUITY PORTFOLIO: National Financial Services, 200 Liberty Street,
New York, NY 10281, owned 63.90% of such Portfolio's total outstanding Class B  
shares.                                                                         

VALUE EQUITY PORTFOLIO: Fidelity Investments Institutional Operations Co. FIIOC 
as Benefit Plans, 100 Magellan Way, KW1C, Covington, KY 41015, owned 76.97% of  
such Portfolio's total outstanding Class B shares.                              

Mac & Co., Mutual Funds Operations, P.O. Box 3198, Pittsburgh, PA 15230-3198,   
owned 36.37% of such Portfolio's total outstanding Class A shares.              

GLOBAL VALUE EQUITY PORTFOLIO: Fidelity Investments Institutional Operations Co.
FIIOC as Benefit Plans, 100 Magellan Way, KW1C, Covington, KY 41015, owned      
45.68% of such Portfolio's total outstanding Class A shares.                    

Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 78.97% of such Portfolio's total 
outstanding Class B shares.                                                     

EUROPEAN VALUE EQUITY PORTFOLIO: Morgan Stanley & Co., FBO Martin Chalk, 3      
Queens Avenue, NSW 2030 FF 00000, Vaucluse, Australia, owned 31.87% of such     
Portfolio's total outstanding Class B shares.                                   

EMERGING MARKETS PORTFOLIO: Fidelity Investments Institutional Operations Co.   
FIIOC as Benefit Plans, 100 Magellan Way, KW1C, Covington, KY 41015, owned      
74.67% of such Portfolio's total outstanding Class B shares.                    

EMERGING MARKETS DEBT PORTFOLIO: Mac & Co., Mutual Funds Operations, P.O. Box   
3198, Pittsburgh, PA 15230-3198, owned 43.33% of such Portfolio's total         
outstanding Class A shares.                                                     

Brenton D. Anderson, P.O. Box 663, Norwich, VT 05055, owned 49.27% of such      
Portfolio's total outstanding Class B shares.                                   

Morgan Stanley & Co., FBO FFP Investments Ltd., Suite 101, San Antonio, TX      
78209, owned 38.28% of such Portfolio's total outstanding Class B shares.       

ASIAN REAL ESTATE PORTFOLIO: Morgan Stanley Asset Management Inc., Controllers  
Dept., 3rd Floor, 1221 Avenue of the Americas, New York, NY 10020, owned 88.97% 
of such Portfolio's total outstanding Class A shares.                           

Ned McCarthy Trust, 3 Sugar Maple Lane, Hanover, NH 03755, owned 29.28% of such 
Portfolio's total outstanding Class B shares.                                   

Morgan Stanley & Co., FBO The Cathryn R. Fortune Char, 5505 Lake Washington     
Blvd. NE, Kirkland, WA 98033, owned 68.35% of such Portfolio's total outstanding
Class B shares.                                                                 

JAPANESE VALUE EQUITY PORTFOLIO: National Investor Services, 55 Water Street,   
32nd Floor, New York, NY 10041, owned 33.60% of such Portfolio's total          
outstanding Class A shares.                                                     

Morgan Stanley & Co., FBO The Gretzky Trust of 1989, 650 North Sepulveda Blvd,  
Los Angeles, CA 90049, owned 34.62% of such Portfolio's total outstanding Class 
B shares.                                                                       

Morgan Stanley & Co., FBO Fred Middleton, 545 El Cerrito Ave., Hillsborough, CA 
94010, owned 31.37% of such Portfolio's total outstanding Class B shares.       

LATIN AMERICAN PORTFOLIO: Morgan Stanley & Co., FBO PH Investments LLC, The     
Pilot House, Lewis Wharf, Boston, MA 02110, owned 78.29% of such Portfolio's    
total outstanding Class A shares.                                               

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Morgan Stanley & Co., FBO Fred Middleton, 545 El Cerrito Ave., Hillsborough, CA 
94010, owned 93.02% of such Portfolio's total outstanding Class B shares.       

FOCUS EQUITY PORTFOLIO: Mac & Co., Mutual Fund Operations, P.O. Box 3198,       
Pittsburgh, PA 15230-3198, owned 51.80% of such Portfolio's total outstanding   
Class A shares.                                                                 

US REAL ESTATE PORTFOLIO: Merrill Lynch Trust Co., FBO Qualified Retirement     
Plans, 265 Davidson Ave., 4th Flr., Somerset, NJ 08873, owned 41.93% of such    
Portfolio's total outstanding Class B shares.                                   

The Union Central Life Insurance Co., 1876 Waycross Rd., Cincinnati, OH 45240,  
owned 25.45% of such Portfolio's total outstanding Class B shares.              

TECHNOLOGY PORTFOLIO: Fidelity Investments Institutional Operations Co. FIIOC as
Benefit Plans, 100 Magellan Way, KWIC, Covington, KY 41015, owned 30.16% of such
Portfolio's total outstanding Class A shares.                                   

The Northern Trust as Trustee FBO Nestle 401K Savings Plan, P.O. Box 92994,     
Chicago, IL 60675, owned 40.16% of such Portfolio's total outstanding Class B   
shares.                                                                         

PRINCIPAL HOLDERS                                                               

The following shareholders are record owners of 5% or more of the outstanding   
shares of any class of Portfolio shares as of May 16, 2003. For each principal  
holder, the following table provides the name, address and percentage of        
outstanding shares of such classes owned.                                       

GLOBAL FRANCHISE PORTFOLIO: KeyBank NA, TTEE FBO WRA-Morgan Stanley, P.O. Box   
94871, Cleveland, OH 44101-4871, owned 8.02% of such Portfolio's total          
outstanding Class A shares.                                                     

Bireley's Orange Japan SA, P.O. Box 1134, Panama 1 Republic of Panama, owned    
11.81% of such Portfolio's total outstanding Class A shares.                    

Morgan Stanley & Co., FBO Ecological Trust Fund of The Nature Conservancy, 4245 
North Fairfax Drive 100, Arlington, VA 22203, owned 7.71% of such Portfolio's   
total outstanding Class A shares.                                               

Morgan Stanley & Co., FBO 444M Partners LP, 444 Madison Avenue, 18th Fl., New   
York, NY 10022, owned 14.10% of such Portfolio's total outstanding Class B      
shares.                                                                         

Morgan Stanley & Co., FBO Henry Gross, 444 Madison Avenue, 18th Fl., New York,  
NY 10022, owned 8.99% of such Portfolio's total outstanding Class B shares.     

Morgan Stanley & Co., FBO Julie Revson, 9702 Gayton Road, Richmond, VA 23233,   
owned 6.04% of such Portfolio's total outstanding Class B shares.               

Morgan Stanley & Co., FBO Martin Chalk, 3 Queens Avenue, NSW 2030 FF 00000,     
Vaucluse, Australia, owned 10.59% of such Portfolio's total outstanding Class B 
shares.                                                                         

Morgan Stanley & Co., FBO David Ormsby IRA, 825 8th Avenue, New York, NY 10019, 
owned 7.80% of such Portfolio's total outstanding Class B shares.               

Morgan Stanley & Co., FBO Edward S. Weil Jr., 66 Locust Rd., Winnetka, IL 60093,
owned 5.36% of such Portfolio's total outstanding Class B shares.               

Morgan Stanley & Co., FBO Robert Krauss, Trustee of FBO Michael Veloric Ballard,
1165 Norsam Rd., Gladwyne, PA 19035, owned 5.40% of such Portfolio's total      
outstanding Class B shares.                                                     

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Morgan Stanley & Co., FBO Stephen J. Lurito, 15 Stony Wylde Lane, Greenwich, CT 
06830, owned 5.73% of such Portfolio's total outstanding Class B shares.        

Morgan Stanley & Co., FBO Elizabeth G. Monnas, 16 Aubrey Walk, London, England, 
owned 5.79% of such Portfolio's total outstanding Class B shares.               

Morgan Stanley & Co., FBO Ronald G. Assaf, IRA RO, 21095 Hamlin Drive, Boca     
Raton, FL 33433, owned 17.48% of such Portfolio's total outstanding Class B     
shares.                                                                         

Morgan Stanley & Co., FBO Theodore P. DeSloge Jr. Trustee, FBO Theodore P.      
DeSloge Jr., 39 Picardy Lane, St. Louis, MO 63124, owned 7.79% of such          
Portfolio's total outstanding Class B shares.                                   

EUROPEAN REAL ESTATE PORTFOLIO: Trustees of Dartmouth College, 7 Lebanon St.,   
Suite 305, P.O. Box 31, Hanover, NH 03755, owned 23.31% of such Portfolio's     
total outstanding Class A shares.                                               

Plum Coulee Partnership, 499 Park Ave., 26th Floor, New York, NY 10022, owned   
10.89% of such Portfolio's total outstanding Class A shares.                    

Retirement Plan for Employees of United Jewish Appeal Federation of Jewish      
Affiliated Institutions & Agencies, 130 East 59th Street, New York, NY          
10022-1302, owned 9.67% of such Portfolio's total outstanding Class A shares.   

Northstar Advisors LLC, 1000 Winter Street, Waltham, MA 02451-1443, owned 8.83% 
of such Portfolio's total outstanding Class A shares.                           

Nora Effron, 1070 Park Avenue, New York, NY 10128, owned 13.40% of such         
Portfolio's total outstanding Class B shares.                                   

Morgan Stanley & Co., FBO C. Robert Kidder Mary G. Kidder, 1991 Kidder Family   
Trust Dated, 900 Knollwood Drive, Santa Barbara, CA 93108, owned 7.38% of such  
Portfolio's total outstanding Class B shares.                                   

Morgan Stanley & Co., FBO C. Robert Kidder Mary G. Kidder, 1991 Kidder Family   
Trust Dated, 900 Knollwood Drive, Santa Barbara, CA 93108, owned 9.46% of such  
Portfolio's total outstanding Class B shares.                                   

Morgan Stanley & Co., FBO The Gretzky Trust of 1989, 650 North Sepulveda Blvd., 
Los Angeles, CA 90049, owned 5.02% of such Portfolio's total outstanding Class B
shares.                                                                         

INTERNATIONAL MAGNUM PORTFOLIO: SBLI USA Mutual Life Insurance, 460 W. 34th St.,
Suite 800, New York, NY 10001, owned 16.41% of such Portfolio's total           
outstanding Class A shares.                                                     

Ameritas Life Insurance Corp., P.O. Box 81889, Lincoln, NE 68501, owned 7.02% of
such Portfolio's total outstanding Class A shares.                              

ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO: The Trustees of Columbia University  
in the City of New York, Attn: Anil Jaisinghani, 475 Riverside Dr., Suite 401,  
New York, NY 10115, owned 14.63% of such Portfolio's total outstanding Class A  
shares.                                                                         

CMBL MS Ferron Equity, Attn.: Josephine Glass, 22nd Floor, 1221 Avenue of the   
Americas, New York, NY 10020, owned 9.03% of such Portfolio's total outstanding 
Class A shares                                                                  

Saxon & Co., P.O. Box 7780-1888, Philadelphia, PA 19182, owned 5.01% of such    
Portfolio's total outstanding Class A shares.                                   

Sahara Investments LLC, 70 W. Madison, Suite 2000, Chicago, IL 60602, owned     
5.06% of such Portfolio's total outstanding Class A shares.                     

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Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 23.30% of such Portfolio's total 
outstanding Class B shares.                                                     

ASIAN EQUITY PORTFOLIO: The Donald Fisher 1991, c/o Pisces Inc., One Martime    
Plaza, Suite 1300, San Francisco, CA 94111, owned 10.42% of such Portfolio's    
total outstanding Class A shares.                                               

The Doris Fisher 1991, c/o Pisces Inc., One Martime Plaza, Suite 1300, San      
Francisco, CA 94111 owned 10.42% of such Portfolio's total outstanding Class A  
shares.                                                                         

Morgan Stanley & Co., FBO Donald A. Pels, 375 Park Avenue, Suite 3305, New York,
NY 10152, owned 11.69% of such Portfolio's total outstanding Class A shares.    

Morgan Stanley & Co., FBO Frank Mori, 60 East 42nd Street, New York, NY 10165,  
owned 5.56% of such Portfolio's total outstanding Class A shares.               

Morgan Stanley & Co., FBO Theodore P. DeSloge Jr. Trustee, FBO Theodore P.      
DeSloge Jr., 39 Picardy Lane, St. Louis, MO 63124, owned 22.28% of such         
Portfolio's total outstanding Class B shares.                                   

Lisa H. Bergman, 1111 Park Ave., New York, NY 10128, owned 14.87% of such       
Portfolio's total outstanding Class B shares.                                   

Berl Bernhard & Karen Bernhard TTEE, FBO The Berl Bernhard, 1693 Epping Farms   
Ln., Annapolis, MD 21401, owned 11.38% of such Portfolio's total outstanding    
Class B shares.                                                                 

Morgan Stanley & Co., FBO Martin Chalk, 3 Queens Avenue, NSW 2030 FF 00000,     
Vaucluse, Australia, owned 17.48% of such Portfolio's total outstanding Class B 
shares.                                                                         

Morgan Stanley & Co., FBO Peter A. Fasseas, 1555 North Astor, Chicago, IL 60610,
owned 5.94% of such Portfolio's total outstanding Class B shares.               

Morgan Stanley & Co., FBO Joseph A. Hafner, Jr., Box 2636, Houston, TX 77252,   
owned 5.73% of such Portfolio's total outstanding Class B shares.               

Steve Gerhardt & Julie Gerhardt, 6030 Quail Hill Dr., Cincinnati, OH 45233,     
owned 5.59% of such Portfolio's total outstanding Class B shares.               

EQUITY GROWTH PORTFOLIO: Wilmington Trust Co. FBO Enron Corporation Savings 401K
c/o Mutual Funds, P.O. Box 8971, Wilmington, DE 19899-8971, owned 9.33% of such 
Portfolio's total outstanding Class A shares.                                   

T. Rowe Price Retirement Plan Services, Cust Marriott Employees PS & Ret Sving  
Plan, 4515 Painters Mill Road, Owings Mills, MD 21117, owned 12.83% of such     
Portfolio's total outstanding Class A shares.                                   

Morgan Stanley DW. Inc. 825 Third Ave., New York, New York, owned 15.80% of such
Portfolio's total outstanding Class A shares.                                   

Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 21.13% of such Portfolio's total 
outstanding Class B shares.                                                     

SMALL COMPANY GROWTH PORTFOLIO: Factory Mutual Insurance Company, Attn.:        
Kimberly Adams, 225 Wyman Street, P.O. Box 9198, Waltham, MA 02454-9198, owned  
22.11% of such Portfolio's total outstanding Class A shares.                    

Trust Company of Illinois, 45 South Park Blvd., Suite 300, Glen Ellyn, IL 60137,
owned 9.95% of such Portfolio's total outstanding Class A shares.               

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Putnam Fiduciary Trust Co., TTEE FBO American Maritime Officers 401K Plan, One  
Investors Way, Norwood, MA 02062, owned 5.55% of such Portfolio's total         
outstanding Class A shares.                                                     

Charles Schwab & Co., Inc., Attn.: Mutual Funds, 101 Montgomery Street, San     
Francisco, CA 94104, owned 8.28% of such Portfolio's total outstanding Class A  
shares.                                                                         

MCB Trust Services as Trustee for the Asset Mgmt. Plan for Aff G.E. Co., 700    
17th Street, Suite 300, Denver, CO 80202, owned 7.13% of such Portfolio's total 
outstanding Class B shares.                                                     

INTERNATIONAL EQUITY PORTFOLIO: Charles Schwab & Co., Inc., Attn.: Mutual Funds,
101 Montgomery Street, San Francisco, CA 94104, owned 6.52% of such Portfolio's 
total outstanding Class A shares.                                               

Wendel & Co., A/C 203597, Attn: Mutual Funds Reorganization Dept., P.O. Box     
1066, Wall Street Station, New York, NY 10286, owned 6.04% of such Portfolio's  
total outstanding Class A shares.                                               

Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 11.82% of such Portfolio's total 
outstanding Class B shares.                                                     

State Street Bank and Trust Co., as Trustee for the Sodexho 401K EES Retirement 
Savings & Trust, 105 Rosemont Avenue, Westwood, MA 02169, owned 5.44% of such   
Portfolio's total outstanding Class B shares.                                   

VALUE EQUITY PORTFOLIO: Morgan Stanley Asset Mgmt. For The Account Of Hubbell   
Inc., Attn.: John Lam 22nd Floor, 1221 Avenue of the Americas, New York, NY     
10020, owned 23.95% of such Portfolio's total outstanding Class A shares.       

Fidelity Investments Institutional Operations Co. FIIOC as Benefit Plans, 100   
Magellan Way, KW1C, Covington, KY 41015, owned 8.71% of such Portfolio's total  
outstanding Class A shares.                                                     

FNB Nominee Co., c/o First Commonwealth Trust, 614 Philadelphia St., Indiana, PA
15701, owned 5.79% of such Portfolio's total outstanding Class B shares.        

Brown and Caldwell Savings Plan, c/o JP Morgan Chase as Directed Trustee, P.O.  
Box 419784, Kansas City, MO 64141-6784, owned 5.47% of such Portfolio's total   
outstanding Class B shares.                                                     

GLOBAL VALUE EQUITY PORTFOLIO: Jupiter & Co., c/o Investors Bank & Trust, P.O.  
Box 9130FPG90, Boston, MA 02117-9130, owned 20.20% of such Portfolio's total    
outstanding Class A shares.                                                     

IMS & Co., P.O. Box 3865, Englewood, CO 80155, owned 12.71% of such Portfolio's 
total outstanding Class B shares.                                               

EUROPEAN VALUE EQUITY PORTFOLIO: Morgan Stanley & Co., FBO RVP Development      
Corporation, 20 Monroe Ave. NW, Suite 450, Grand Rapids, MI 49503, owned 9.31%  
of such Portfolio's total outstanding Class A shares.                           

Morgan Stanley & Co., FBO Corestates Bank TTEE for Defined Benefit Master Plan, 
1525 W. Wt. Harris Blvd., CMG1151, Charlotte, NC 28262, owned 6.13% of such     
Portfolio's total outstanding Class A shares.                                   

Barry & Lisa Bergman, 1111 Park Ave., New York, NY 10128, owned 9.63% of such   
Portfolio's total outstanding Class B shares.                                   

Karen Zateslo Gray Cust. for John David Gray under IL UGMA, 301 N. Sheridan Rd.,
Lake Forest, IL 60045, owned 13.63% of such Portfolio's total outstanding Class 
B shares.                                                                       

Dr. Martin B. Meyerson Acct. II International, 1601 Landfall Dr., Wilmington, NC
28405-4255, owned 11.14% of such Portfolio's total outstanding Class B shares.  

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Morgan Stanley & Co., FBO Sandra Titus McKinstry, 7135 S. Locust Circle,        
Englewood, CO 80112, owned 10.06% of such Portfolio's total outstanding Class B 
shares.                                                                         

Morgan Stanley & Co., FBO Theodore P. DeSloge Jr. Trustee, FBO Theodore P.      
DeSloge Jr., 39 Picardy Lane, St. Louis, MO 63124, owned 13.08% of such         
Portfolio's total outstanding Class B shares.                                   

EMERGING MARKETS PORTFOLIO: Charles Schwab & Co., Inc., Attn.: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, owned 7.10% of such Portfolio's     
total outstanding Class A shares.                                               

Mac & Co., Mutual Funds Operations, P.O. Box 3198, Pittsburgh, PA 15230-3198,   
owned 9.20% of such Portfolio's total outstanding Class A shares.               

Global Opportunistic Fund, Inc., 1221 Avenue of the Americas, New York, NY      
10020, owned 5.89% of such Portfolio's total outstanding Class A shares         

Charles Schwab & Co., Inc. Attn: Mutual Funds, 101 Montgomery Street, San       
Francisco, CA 94104, owned 17.37% of such Portfolio's total outstanding Class B 
shares.                                                                         

EMERGING MARKETS DEBT PORTFOLIO: Bell Atlantic Master Trust, 695 Main Street,   
Suite 600, Stamford, CT 06901-2138, owned 16.68% of such Portfolio's total      
outstanding Class A shares.                                                     

National Investors Services Corp. Exclusive Benefit Customers, 55 Water Street  
New York, NY 10041, owned 11.81% of such Portfolio's total outstanding Class A  
shares.                                                                         

Charles Schwab & Co., Inc., Attn.: Mutual Funds, 101 Montgomery Street, San     
Francisco, CA 94104, owned 10.23% of such Portfolio's total outstanding Class A 
shares.                                                                         

Paul E. Hellmers & H. Anthony Hellmers, c/o Centre Solutions, One Chase         
Manhattan Plaza, New York, NY 10005, owned 7.22% of such Portfolio's total      
outstanding Class B shares.                                                     

ASIAN REAL ESTATE PORTFOLIO: Morgan Stanley DW. Inc. 825 Third Ave., New York,  
New York 10022, owned 10.29% of such Portfolio's total outstanding Class A      
shares.                                                                         

JAPANESE VALUE EQUITY PORTFOLIO: Retired Staff Benefits Investment Accts. of The
International Monetary Fund, 700 19th St. NW, Washington, DC 20431, owned 7.43% 
of such Portfolio's total outstanding Class A shares.                           

FTC & Co. Datalynx House Account, P.O. Box 173736, Denver, CO 80217-3736, owned 
9.81% of such Portfolio's total outstanding Class A shares.                     

Morgan Stanley & Co., FBO Edward J. Prostic IRA, 2225 Stratford Road, Shawnee   
MSN, KS 66208, owned 12.29% of such Portfolio's total outstanding Class B       
shares.                                                                         

Morgan Stanley & Co., FBO Marjorie Prostic IRA, 2225 Stratford Road, Shawnee    
MSN, KS 66208, owned 10.84% of such Portfolio's total outstanding Class B       
shares.                                                                         

INTERNATIONAL SMALL CAP PORTFOLIO: Charles Schwab & Co., Inc., Attn.: Mutual    
Funds, 101 Montgomery Street, San Francisco, CA 94104, owned 14.53% of such     
Portfolio's total outstanding shares.                                           

General Mills Inc., 3 SW Treasury Nate Meadows, 1 General Mills Blvd.,          
Minneapolis, MN 55426, owned 5.14% of such Portfolio's total outstanding shares.

Morgan Stanley DW. Inc. 825 Third Ave., New York, New York 10022, owned 13.76%  
of such Portfolio's total outstanding shares.                                   

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LATIN AMERICAN PORTFOLIO: Davio G. Scarffe, 50 Central Park West, New York, NY  
10023, owned 6.23% of such Portfolio's total outstanding Class B shares.        

FOCUS EQUITY PORTFOLIO: Morgan Stanley & Co., FBO Hullbridge                    
Investments-Pledgor, Attn: Abdulaziz S. Al-Saleh, P.O. Box 94697, Riyadh 11614  
FF 00000, owned 5.81% such Portfolio's total outstanding Class A shares.        

The Vanguard Fiduciary Trust Co., P.O. Box 2600, VM 613 Outside Funds, Valley   
Forge, PA 19482, owned 14.65% of such Portfolio's total outstanding Class B     
shares.                                                                         

US REAL ESTATE PORTFOLIO: Charles Schwab & Co., Inc., Attn: Mutual Funds, 101   
Montgomery Street, San Francisco, CA 94104, owned 17.12% of such Portfolio's    
total outstanding Class A shares.                                               

National Financial Services, 200 Liberty Street, New York, NY 10281, owned      
14.39% of such Portfolio's total outstanding Class A shares.                    

Morgan Stanley DW. Inc. 825 Third Ave., New York, New York 10022, owned 5.88% of
such Portfolio's total outstanding Class A shares.                              

Lumina Foundation for Education Inc., 30 S. Meridian St., Indianapolis, IN      
46204-3503, owned 5.38% of such Portfolio's total outstanding Class A shares.   

MAC & Co., Attn: Mutual Funds Operation, P.O. Box 3198, Pittsburgh, PA          
15230-3198, owned 5.03% of such Portfolio's total outstanding Class A shares.   

National Gallery of Art, Attn: James E. Duff - Treasurer, Washington DC 20565,  
owned 5.29% of such Portfolio's total outstanding Class A shares.               

Putnam Fiduciary Trust Company, FBO Ball Horticultural Co., Inc., Attn: DC Plan 
Admin. Team, One Investors Way, Norwood, MA 02062, owned 6.87% of such          
Portfolio's total outstanding Class B shares.                                   

Putnam Fiduciary Trust Company, FBO Coca Cola Enterprises MESIP, Attn: DC Plan  
Admin Team, One Investors Way, Norwood, MA 02062, owned 7.00% of such           
Portfolio's total outstanding Class B shares.                                   

TECHNOLOGY PORTFOLIO: Bank of New York, Attn: Ellie Whalen, One Wall Street,    
12th Floor, New York, NY 10286, owned 14.35% of such Portfolio's total          
outstanding Class A shares.                                                     

Emily H. Fisher, 517 Kelsey Road, Sheffield, MA 01257, owned 13.59% of such     
Portfolio's total outstanding Class A shares.                                   

Putnam Fiduciary Trust Company, FBO Coca Cola Enterprises MESIP, Attn: DC Plan  
Admin Team, One Investors Way, Norwood, MA 02062, owned 23.37% of such          
Portfolio's total outstanding Class B shares.                                   

T. Rowe Price Trust Co., P.O. Box 17215, Baltimore, MD 21297, owned 7.61% of    
such Portfolio's total outstanding Class B shares.                              

MONEY MARKET PORTFOLIO: APEX Foundation, P.O. Box 1607, Bellevue, WA 98009-1607,
owned 6.91% such Portfolio's total outstanding shares.                          

 PERFORMANCE INFORMATION

The Fund may from time to time quote various performance figures to illustrate  
the Portfolios' past performance.                                               

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Performance quotations by investment companies are subject to rules adopted by  
the SEC, which require the use of standardized performance quotations. In the   
case of total return, non-standardized performance quotations may be furnished  
by the Fund but must be accompanied by certain standardized performance         
information computed as required by the SEC. Current yield and average annual   
compounded total return quotations used by the Fund are based on the            
standardized methods of computing performance mandated by the SEC. An           
explanation of those and other methods used by the Fund to compute or express   
performance follows.                                                            

TOTAL RETURN                                                                    

From time to time each Portfolio may advertise total return, including after tax
return, for each class of shares of the Portfolio. Total return figures are     
based on historical earnings and are not intended to indicate future            
performance. The average annual total return is determined by finding the       
average annual compounded rates of return over 1-, 5-, and 10-year periods (or  
over the life of the Portfolio) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all     
dividends and distributions are reinvested when paid. The quotation assumes the 
amount was completely redeemed at the end of each 1-, 5-, and 10-year period (or
over the life of the Portfolio) and the deduction of all applicable Fund        
expenses on an annual basis.                                                    

The average annual compounded rates of return (unless otherwise noted) for the  
Fund's Portfolios for the 1-, 5-, and 10-year periods ended December 31, 2002   
and for the period from inception through December 31, 2002 are as follows:     

                                                        [Enlarge/Download Table]

                                                                          AVERAGE         AVERAGE     AVERAGE ANNUAL
                                                                        ANNUAL FIVE      ANNUAL TEN       SINCE     
NAME OF PORTFOLIO+                   INCEPTION DATE      ONE YEAR          YEARS           YEARS        INCEPTION   
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
Active International Allocation                                                                                     
   Class A                               1/17/92         -13.11%           -1.35%           4.82%           3.99%   
   Class B                               1/02/96         -13.29%           -1.51%            N/A            1.33%   

Asian Equity                                                                                                        
   Class A                               7/01/91         -10.03%           -3.78%          -2.00%           0.63%   
   Class B                               1/02/96         -10.16%           -4.02%            N/A          -11.30%   

Asian Real Estate                                                                                                   
   Class A                              10/01/97         -11.55%           -3.13%            N/A           -7.00%   
   Class B                              10/01/97         -11.72%           -3.25%            N/A           -7.27%   

Emerging Markets                                                                                                    
   Class A                               9/25/92          -6.24%           -3.50%           3.13%           3.27%   
   Class B                               1/02/96          -6.24%           -4.79%            N/A           -2.77%   

Emerging Markets Debt                                                                                               
   Class A                               2/01/94          11.29%            2.89%            N/A            9.59%   
   Class B                               1/02/96          10.34%            2.63%            N/A           10.38%   

Equity Growth                                                                                                       
   Class A                               4/02/91         -27.64%           -2.00%           9.28%           9.61%   
   Class B                               1/02/96         -27.75%           -2.24%            N/A            6.17%   

European Real Estate                                                                                                
   Class A                              10/01/97          24.52%            6.16%            N/A            4.89%   
   Class B                              10/01/97          24.11%            5.89%            N/A            4.62%   

European Value Equity                                                                                               
   Class A                               4/02/93          -9.24%           -0.02%            N/A            8.95%   
   Class B                               1/02/96          -9.48%           -0.28%            N/A            4.95%   

Focus Equity                                                                                                        
   Class A                               3/08/95         -28.81%           -2.07%            N/A           11.79%   
   Class B                               1/02/96         -28.92%           -2.29%            N/A            7.46%   

Global Franchise                                                                                                    
   Class A                              11/28/01           8.10%              N/A            N/A           12.12%   
   Class B                              11/28/01           7.82%              N/A            N/A           11.66%   

Global Value Equity                                                                                                 
   Class A                               7/15/92         -17.34%            0.18%          10.87%          10.10%   
   Class B                               1/02/96         -17.63%           -0.11%            N/A            5.94%   
International Equity                                                                                                

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                                                                          AVERAGE         AVERAGE     AVERAGE ANNUAL
                                                                        ANNUAL FIVE      ANNUAL TEN       SINCE     
NAME OF PORTFOLIO+                   INCEPTION DATE      ONE YEAR          YEARS           YEARS        INCEPTION   
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
   Class A                               8/04/89          -4.02%            5.54%          12.63%           9.67%   
   Class B                               1/02/96          -4.25%            5.33%            N/A            8.29%   

International Magnum                                                                                                
   Class A                               3/15/96         -13.36%           -3.32%            N/A           -0.38%   
   Class B                               3/15/96         -13.49%           -3.53%            N/A           -0.62%   

International Small Cap                                                                                             
   Class A                              12/15/92          -2.99%            5.17%           8.90%           8.96%   

Japanese Value Equity                                                                                               
   Class A                               4/25/94         -11.22%           -3.30%            N/A           -3.76%   
   Class B                               1/02/96         -11.39%           -3.57%            N/A           -4.20%   

Latin American                                                                                                      
   Class A                               1/18/95         -20.55%           -6.69%            N/A            3.92%   
   Class B                               1/02/96         -20.83%           -6.85%            N/A            4.97%   

Money Market                                                                                                        
   Class A                              11/15/88           1.30%            4.23%           4.34%           5.02%   

Municipal Money Market                                                                                              
   Class A                               2/10/89           0.90%            2.49%           2.64%           3.14%   

Small Company Growth                                                                                                
   Class A                              11/01/89         -22.28%            9.81%           9.34%          11.10%   
   Class B                               1/02/96         -22.44%            9.51%            N/A            8.88%   

Technology                                                                                                          
   Class A                               9/16/96         -47.57%           -3.26%            N/A            3.56%   
   Class B                               9/16/96         -47.62%           -3.40%            N/A            3.37%   

U.S. Real Estate                                                                                                    
   Class A                               2/24/95           0.18%            4.16%            N/A           13.19%   
   Class B                               1/02/96          -0.07%            3.88%            N/A           11.38%   

Value Equity                                                                                                        
   Class A                               1/31/90         -24.22%            1.36%           9.66%           9.46%   
   Class B                               1/02/96         -24.32%            1.12%            N/A            7.08%   

----------                                                                      
+    The Large Cap Relative Value, China Growth, Mortgage-Backed Securities and 
   MicroCap Portfolios had not commenced operations as of December 31, 2002.
   The Gold Portfolio ceased operations effective March 11, 1998 for Class A
 shares and May 6, 1998 for Class B shares. The Municipal Bond Portfolio
    ceased operations effective March 14, 2000. The U.S. Equity Plus Portfolio
ceased operations effective February 14, 2001.                        

These figures were calculated according to the following formula:               

P(1+T)(TO THE POWER OF n)   =    ERV                              
where:                                                                          

P          =     a hypothetical initial payment of $1,000 

T          =     average annual total return              

n          =     number of years                          

     ERV        =     ending redeemable value of hypothetical $1,000
                       payment made at the beginning of the 1-, 5-, or
                            10-year periods at the end of the 1-, 5-, or 10-year
                periods (or fractional portion thereof).

The average annual compounded rates of return (after taxes on distributions)    
(unless otherwise noted) for the Fund's Portfolios for the 1-, 5- and 10- year  
periods ended December 31, 2002 and for the period from inception through       
December 31, 2002 are as follows:                                               

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                                                                          AVERAGE         AVERAGE     AVERAGE ANNUAL
                                                                        ANNUAL FIVE      ANNUAL TEN       SINCE     
NAME OF PORTFOLIO+                   INCEPTION DATE      ONE YEAR          YEARS           YEARS        INCEPTION   
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
Active International Allocation                                                                                     
   Class A                               1/17/92         -13.91%           -3.02%           2.48%           1.87%   

Asian Equity                                                                                                        
   Class A                               7/01/91         -10.31%           -4.23%          -3.15%          -0.40%   

Asian Real Estate                                                                                                   
   Class A                              10/01/97         -12.67%           -4.45%            N/A           -8.27%   

Emerging Markets                                                                                                    
   Class A                               9/25/92          -6.13%           -3.69%           2.22%           2.38%   

Emerging Markets Debt                                                                                               
   Class A                               2/01/94           6.93%           -3.00%            N/A            1.06%   

Equity Growth                                                                                                       
   Class A                               4/02/91         -27.70%           -2.96%           6.39%           7.08%   

European Real Estate                                                                                                
   Class A                              10/01/97          22.14%            5.10%            N/A            3.89%   

European Value Equity                                                                                               
   Class A                               4/02/93          -9.63%           -2.39%            N/A            6.76%   

Focus Equity                                                                                                        
   Class A                               3/08/95         -28.81%           -4.96%            N/A            6.94%   

Global Franchise                                                                                                    
   Class A                              11/28/01           8.16%              N/A            N/A           12.18%   

Global Value Equity                                                                                                 
   Class A                               7/15/92         -17.93%           -1.77%           8.51%           7.86%   

International Equity                                                                                                
   Class A                               8/04/89          -4.77%            3.45%          10.36%           7.93%   

International Magnum                                                                                                
   Class A                               3/15/96         -13.46%           -3.87%            N/A           -1.11%   

International Small Cap                                                                                             
   Class A                              12/15/92          -3.28%            3.35%           7.47%           7.53%   

Japanese Value Equity                                                                                               
   Class A                               4/25/94         -11.23%           -3.75%            N/A           -5.50%   

Latin American                                                                                                      
   Class A                               1/18/95         -20.86%           -7.20%            N/A            1.16%   

Small Company Growth                                                                                                
   Class A                              11/01/89         -22.28%            6.31%           4.72%           7.49%   

Technology                                                                                                          
   Class A                               9/16/96         -47.57%           -5.56%            N/A            0.38%   

U.S. Real Estate                                                                                                    
   Class A                               2/24/95          -2.08%            1.87%            N/A            9.83%   

Value Equity                                                                                                        
   Class A                               1/31/90         -24.72%           -2.36%           5.52%           5.95%   

----------                                                                      
+    The Large Cap Relative Value, China Growth, Mortgage-Backed Securities and 
   MicroCap Portfolios had not commenced operations as of December 31, 2002.
   The Gold Portfolio ceased operations effective March 11, 1998 for Class A
 shares and May 6, 1998 for Class B shares. The Municipal Bond Portfolio
    ceased operations effective March 14, 2000. The U.S. Equity Plus Portfolio
ceased operations effective February 14, 2001.                        

These figures were calculated according to the following formula:               

P(1+T)(TO THE POWER OF n) = ATV(SUB D)                            
where:                                                                          

P          =     a hypothetical initial payment of $1,000 

  T          =     average annual total return (after taxes on
distributions)          

n          =     number of years                          

         ATVD       =     ending value of a hypothetical $1,000 payment made
       at the beginning of the 1-, 5-,

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                       or 10-year periods at the end of the 1-, 5-, or
                        10-year periods (or fractional portion thereof),
                       after taxes on fund distributions but not after
                           taxes on redemption, and assuming all dividends and
                 distributions, less the taxes due on such
                           distributions, are reinvested. Taxes are calculated
                            using the highest individual marginal federal income
                     tax rates in effect on the reinvestment date.

The average annual compounded rates of return (after taxes on distributions and 
redemption) (unless otherwise noted) for the Fund's Portfolios for the one year,
five year and ten year periods ended December 31, 2002 and for the period from  
inception through December 31, 2002 are as follows:                             

                                                        [Enlarge/Download Table]

                                                                          AVERAGE         AVERAGE     AVERAGE ANNUAL
                                                                        ANNUAL FIVE      ANNUAL TEN       SINCE     
NAME OF PORTFOLIO+                   INCEPTION DATE      ONE YEAR          YEARS           YEARS        INCEPTION   
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
Active International Allocation                                                                                     
   Class A                               1/17/92          -7.87%           -1.37%           3.25%           2.63%   

Asian Equity                                                                                                        
   Class A                               7/01/91          -5.99%           -3.14%          -1.48%           0.59%   

Asian Real Estate                                                                                                   
   Class A                              10/01/97          -6.98%           -3.02%            N/A           -5.92%   

Emerging Markets                                                                                                    
   Class A                               9/25/92          -3.70%           -2.70%           2.36%           2.48%   

Emerging Markets Debt                                                                                               
   Class A                               2/01/94           6.92%           -0.97%            N/A            3.25%   

Equity Growth                                                                                                       
   Class A                               4/02/91         -16.97%           -1.43%           6.65%           7.16%   

European Real Estate                                                                                                
   Class A                              10/01/97          15.38%            4.58%            N/A            3.55%   

European Value Equity                                                                                               
   Class A                               4/02/93          -5.47%           -0.01%            N/A            7.17%   

Focus Equity                                                                                                        
   Class A                               3/08/95         -17.69%           -2.08%            N/A            8.06%   

Global Franchise                                                                                                    
   Class A                              11/28/01           5.18%             N/A             N/A            9.84%   

Global Value Equity                                                                                                 
   Class A                               7/15/92         -10.44%           -0.01%           8.56%           7.92%   

International Equity                                                                                                
   Class A                               8/04/89          -2.32%            4.18%          10.12%           7.75%   

International Magnum                                                                                                
   Class A                               3/15/96          -8.07%           -2.50%            N/A           -0.33%   

International Small Cap                                                                                             
   Class A                              12/15/92          -1.68%            3.82%           7.14%           7.19%   

Japanese Value Equity                                                                                               
   Class A                               4/25/94          -6.89%           -2.73%            N/A           -3.53%   

Latin American                                                                                                      
   Class A                               1/18/95         -12.53%           -5.36%            N/A            2.17%   

Small Company Growth                                                                                                
   Class A                              11/01/89         -13.68%            6.85%           5.87%           8.03%   

Technology                                                                                                          
   Class A                               9/16/96         -29.21%           -0.80%            N/A            3.85%   

U.S. Real Estate                                                                                                    
   Class A                               2/24/95           0.83%            2.33%            N/A            9.38%   

Value Equity                                                                                                        
   Class A                               1/31/90         -14.85%            0.27%           6.70%           6.76%   

----------                                                                      
+    The Large Cap Relative Value, China Growth, Mortgage-Backed Securities and 
   MicroCap Portfolios had not commenced operations as of December 31, 2002.
   The Gold Portfolio ceased operations effective March 11, 1998 for Class A
 shares and May 6, 1998 for Class B shares. The Municipal Bond Portfolio
    ceased operations effective March 14, 2000. The U.S. Equity Plus Portfolio
ceased operations effective February 14, 2001.                        

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These figures were calculated according to the following formula:               

P(1+T)(TO THE POWER OF n) = ATV(SUB DR)                       
where:                                                                          

P            =   a hypothetical initial payment of $1,000 

  T            =   average annual total return (after taxes on
     distributions and redemption)

n            =   number of years                          

        ATV(SUB DR) =   ending value of a hypothetical $1,000 payment made
                          at the beginning of the 1-, 5-, or 10-year periods
                        at the end of the 1-, 5-, or 10-year periods (or
                        fractional portion thereof), after taxes on fund
                         distributions and after taxes on the sale of fund
                         shares, assuming all dividends and distributions,
                     less the taxes due on such distributions, are
                 reinvested. Ending value is calculated by
                          subtracting capital gains taxes resulting from the
                     redemption and by adding the tax benefit from
                           capital losses resulting from the redemption. Taxes
                            are calculated using the highest individual marginal
                 federal income tax rates in effect on the
                            reinvestment date and the highest federal individual
                         capital gains tax rate for gains in effect on the
redemption date.        

CALCULATION OF YIELD FOR NON-MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS 

From time to time certain of the Fund's Portfolios may advertise yield.         

Current yield reflects the income per share earned by a Portfolio's investments.

Current yield is determined by dividing the net investment income per share     
earned during a 30-day base period by the maximum offering price per share on   
the last day of the period and annualizing the result. Expenses accrued for the 
period include any fees charged to all shareholders during the base period.     

The current yields for the Emerging Markets Debt Portfolio for the 30-day period
ended December 31, 2002 were as follows:                                        

                                                                [Download Table]

                                                      CLASS A      CLASS B
PORTFOLIO NAME                                        SHARES        SHARES
--------------------------------------------------------------------------
                                                                          
Emerging Markets Debt                                  7.49%        6.77% 

These figures were obtained using the following formula:                        

Yield    =   2[(a - b + 1)(TO THE POWER OF 6) - 1]            
 -------------------------------------
cd    

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CALCULATION OF YIELD FOR MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS     

The current yield of the Money Market and Municipal Money Market Portfolios is  
calculated daily on a base period return for a hypothetical account having a    
beginning balance of one share for a particular period of time (generally 7     
days). The return is determined by dividing the net change (exclusive of any    
capital changes in such account) by its average net asset value for the period, 
and then multiplying it by 365/7 to determine the annualized current yield. The 
calculation of net change reflects the value of additional shares purchased with
the dividends by the Portfolio, including dividends on both the original share  
and on such additional shares. The current yields of the Money Market and       
Municipal Money Market Portfolios for the 7-day period ended December 31, 2002  
were 1.02% and 0.93%, respectively. An effective yield, which reflects the      
effects of compounding and represents an annualization of the current yield with
all dividends reinvested, may also be calculated for each Portfolio by dividing 
the base period return by 7, adding 1 to the quotient, raising the sum to the   
365th power, and subtracting 1 from the result. The effective yields of the     
Money Market and Municipal Money Market Portfolios for the 7-day period ended   
December 31, 2002 were 1.03% and 0.93%, respectively.                           

The yield of a Portfolio will fluctuate. The annualization of a week's dividend 
is not a representation by the Portfolio as to what an investment in the        
Portfolio will actually yield in the future. Actual yields will depend on such  
variables as investment quality, average maturity, the type of instruments the  
Portfolio invests in, changes in interest rates on instruments, changes in the  
expenses of the Fund and other factors. Yields are one basis investors may use  
to analyze the Portfolios of the Fund, and other investment vehicles; however,  
yields of other investment vehicles may not be comparable because of the factors
set forth in the preceding sentence, differences in the time periods compared,  
and differences in the methods used in valuing portfolio instruments, computing 
net asset value and calculating yield.                                          

TAXABLE EQUIVALENT YIELDS FOR THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET     
PORTFOLIOS                                                                      

It is easy to calculate your own taxable equivalent yield if you know your tax  
bracket. The formula is:                                                        

Tax Free Yield         =    Your Taxable Equivalent Yield     
--------------                                                
1 -- Your Tax Bracket                                         

For example, if you are in the 28% tax bracket and can earn a tax-free yield of 
7.5%, the taxable equivalent yield would be 10.42%.                             

The table below indicates the advantages of investments in Municipal Bonds for  
certain investors. Tax-exempt rates of interest payable on a Municipal Bond     
(shown at the top of each column) are equivalent to the taxable yields set forth
opposite the respective income tax levels, based on income tax rates effective  
for the tax year 2002 under the Internal Revenue Code. There can, of course, be 
no guarantee that the Municipal Money Market Portfolio will achieve a specific  
yield. Also, it is possible that some portion of the Portfolio's dividends may  
be subject to federal income taxes. A substantial portion, if not all, of such  
dividends may be subject to state and local taxes.                              

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TAXABLE EQUIVALENT YIELD TABLE

                                                        [Enlarge/Download Table]

                                     FEDERAL                                                                                    
                                     INCOME                                                                                     
          SAMPLE LEVEL OF            TAX                                                                                        
          TAXABLE INCOME             BRACKETS                TAXABLE EQUIVALENT RATES BASED ON TAX-EXEMPT YIELD OF:             
------------------------------------------------------------------------------------------------------------------------------- 
   JOINT RETURN      SINGLE RETURN                 3%      4%     5%       6%       7%       8%        9%        10%       11%  
------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                                                
$0-12,000           $0-6,000              10%     3.33%   4.44%  5.56%    6.67%    7.78%     8.89%    10.00%    11.11%    12.22%

$12,000,-46,700     $6,000-23,350         15%     3.53%   4.71%  5.88%    7.06%    8.24%     9.41%    10.59%    11.76%    12.94%

$46,700-112,800     $23,350-56,425        27%     4.11%   5.48%  6.85%    8.22%    9.59%    10.96%    12.33%    13.70%    15.07%

$112,850-171,950    $56,425-85,975        30%     4.29%   5.71%  7.14%    8.57%   10.00%    11.43%    12.86%    14.29%    15.71%

$171,950-307,050    $85,975-153,525       35%     4.62%   6.15%  7.69%    9.23%   10.77%    12.31%    13.85%    15.38%    16.92%

over $307,050       over $153,525       38.6%     4.89%   6.52%  8.14%    9.77%   11.40%    13.03%    14.66%    16.29%    17.92%

----------                                                                      
Note: Net amount subject to 2002 Federal Income Tax after deductions and        
exemptions, not indexed for 2001 income tax rates.                              

The taxable equivalent effective yield for the Municipal Money Market for the   
seven days ended December 31, 2002, assuming the same tax rate, was 1.51%. No   
information is provided for the Municipal Bond Portfolio because it was not     
operational for the fiscal year ended December 31, 2002.                        

GENERAL PERFORMANCE INFORMATION                                                 

Each Portfolio's performance will fluctuate, unlike bank deposits or other      
investments which pay a fixed yield for a stated period of time. Past           
performance is not necessarily indicative of future return. Actual performance  
will depend on such variables as portfolio quality, average portfolio maturity, 
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to       
analyze a Portfolio as compared to other funds and other investment vehicles.   
However, performance of other funds and other investment vehicles may not be    
comparable because of the foregoing variables, and differences in the methods   
used in valuing their portfolio instruments, computing net asset value and      
determining performance.                                                        

From time to time, a Portfolio's performance may be compared to other mutual    
funds tracked by financial or business publications and periodicals. For        
example, Morningstar, Inc. may be quoted in advertising materials. Morningstar, 
Inc. is a mutual fund rating service that rates mutual funds on the basis of    
risk-adjusted performance. Rankings that compare the performance of funds to one
another in appropriate categories over specific periods of time may also be     
quoted in advertising.                                                          

Portfolio advertising may include data on historical returns of the capital     
markets in the United States compiled or published by Ibbotson Associates of    
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small       
capitalization stocks, long-term corporate bonds, intermediate-term government  
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation   
(based on the Consumer Price Index), and combinations of various capital        
markets. The performance of these capital markets is based on the returns of    
different indices to which the performance of the Portfolios may also be        
compared. The Portfolios may use the performance of these capital markets in    
order to demonstrate general risk-versus-reward investment scenarios.           
Performance comparisons may also include the value of a hypothetical investment 
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the           
Portfolios. The Portfolios may also compare their performance to that of other  
compilations or indices that may be developed and made available in the future. 

The Portfolios may include in advertisements, charts, graphs or drawings which  
illustrate the potential risks and rewards of investment in various investment  
vehicles, including but not limited to, foreign securities, stocks, bonds,      
treasury bills and shares of a Portfolio. In addition, advertisements may       
include a discussion of certain attributes or benefits to be derived by an      
investment in a Portfolio and/or other mutual funds, shareholder profiles and   
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and various investment alternatives. Advertisements may 
include lists of representative Morgan Stanley & Co. clients. The Portfolios may
also from time to time include discussions or illustrations of the effects of   
compounding in advertisements. "Compounding" refers to the fact that, if        
dividends or other distributions on a Portfolio investment are reinvested by    
being paid in additional Portfolio shares, any future income or capital         
appreciation of a Portfolio                                                     

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would increase the value, not only of the original investment in the Portfolio, 
but also of the additional Portfolio shares received through reinvestment.      

The Portfolios may include in their advertisements, discussions or illustrations
of the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,        
diversification, risk tolerance, goal setting, questionnaires designed to help  
create a personal financial profile, worksheets used to project savings needs   
based on assumed rates of inflation and hypothetical rates of return and action 
plans offering investment alternatives), investment management techniques,      
policies or investment suitability of a Portfolio (such as value investing,     
market timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in 
tax-deferred and taxable investments). Advertisements and sales materials       
relating to a Portfolio may include information regarding the background and    
experience of its portfolio managers; the resources, expertise and support made 
available to the portfolio managers by Morgan Stanley & Co.; and the portfolio  
manager's goals, strategies and investment techniques.                          

The Portfolios' advertisements may discuss economic and political conditions of 
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global   
economy as a whole and the effects of inflation. The Portfolios' advertisements 
may include discussions and illustrations of the growth potential of various    
global markets including, but not limited to, Africa, Asia, Europe, Latin       
America, North America, South America, Emerging Markets and individual          
countries. These discussions may include the past performance of the various    
markets or market sectors; forecasts of population, gross national product and  
market performance; and the underlying data which supports such forecasts. From 
time to time, advertisements, sales literature, communications to shareholders  
or other materials may summarize the substance of information contained in the  
Portfolios' shareholder reports (including the investment composition of a      
Portfolio), as well as the views of Morgan Stanley & Co. as to current market,  
economic, trade and interest rate trends, legislative, regulatory and monetary  
developments, investment strategies and related matters believed to be of       
relevance to a Portfolio.                                                       

The Portfolios may quote various measures of volatility and benchmark           
correlation in advertising. The Portfolios may compare these measures to those  
of other funds. Measures of volatility seek to compare the historical share     
price fluctuations or total returns to those of a benchmark. Measures of        
benchmark correlation indicate how valid a comparative benchmark may be.        
Measures of volatility and correlation may be calculated using averages of      
historical data. A Portfolio may also advertise its current interest rate       
sensitivity, duration, weighted average maturity or similar maturity            
characteristics.                                                                

The Portfolios may advertise examples of the effects of periodic investment     
plans, including the principle of dollar cost averaging. In such a program, an  
investor invests a fixed dollar amount in a Portfolio at periodic intervals,    
thereby purchasing fewer shares when prices are high and more shares when prices
are low. While such a strategy does not assure a profit or guard against loss in
a declining market, the investor's average cost per share can be lower than if  
fixed numbers of shares are purchased at the same intervals. In evaluating such 
a plan, investors should consider their ability to continue purchasing shares   
during periods of low price levels.                                             

DESCRIPTION OF RATINGS

DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS                                

EXCERPTS FROM MOODY'S DESCRIPTION OF BOND RATINGS: Aaa -- Bonds which are rated 
Aaa are judged to be of the best quality. They carry the smallest degree of     
investment risk and are generally referred to as "gilt-edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is  
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong       
position of such issues. Aa-- Bonds which are rated Aa are judged to be of high 
quality by all standards. Together with the Aaa group they comprise what are    
generally known as high-grade bonds. They are rated lower than the best bonds   
because margins of protection may not be as large as in Aaa securities or       
fluctuation of protective elements may be of greater amplitude or there may be  
other elements present which make the long-term risks appear somewhat larger    
than Aaa securities. A -- Bonds which are rated A possess many favorable        
investment attributes and are to be considered as upper-medium-grade            
obligations. Factors giving security to                                         

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principal and interest are considered adequate, but elements may be present     
which suggest a susceptibility to impairment some time in the future. Baa --    
Bonds which are rated Baa are considered as medium-grade obligations, I.E., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be 
lacking or may be characteristically unreliable over any great length of time.  
Such bonds lack outstanding investment characteristics and in fact have         
speculative characteristics as well. Ba -- Bonds which are rated Ba are judged  
to have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate,   
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B -- Bonds which are 
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Moody's applies numerical modifiers  
1, 2 and 3 in each generic voting classification from Aa through B. The modifier
1 indicates that the security ranks at a higher end of the rating category;     
modifier 2 indicates a mid-range rating; and the modifier 3 indicates that the  
issue ranks at the lower end of the rating category. Caa -- Bonds which are     
rated Caa are of poor standing. Such issues may be in default or there may be   
present elements of danger with respect to principal or interest. Ca -- Bonds   
which are rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. C -- Bonds  
which are rated C are the lowest rated class of bonds, and issues so rated can  
be regarded as having extremely poor prospects of ever attaining any real       
investment standing.                                                            

EXCERPTS FROM S&P'S DESCRIPTION OF BOND RATINGS: AAA -- Bonds rated AAA have the
highest rating assigned by Standard & Poor's to a debt obligation and indicate  
an extremely strong capacity to pay principal and interest. AA -- Bonds rated AA
have a very strong capacity to pay interest and repay principal and differ from 
the highest rated issues only to a small degree. A -- Bonds rated A have a      
strong capacity to pay interest and repay principal although they are somewhat  
more susceptible to the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories. BBB -- Bonds rated BBB are    
regarded as having an adequate capacity to pay interest and repay principal.    
Whereas they normally exhibit adequate protection parameters, adverse economic  
conditions or changing circumstances are more likely to lead to a weakened      
capacity to pay interest and repay principal for debt in this category than for 
debt in higher rated categories. BB, B, CCC, CC -- Debt rated BB, B, CCC, CC and
C is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the         
obligation. BB indicates the lowest degree of speculation and C the highest     
degree of speculation. While such debt will likely have some quality and        
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. C -- The rating C may be used to cover a  
situation where a bankruptcy petition has been filed or similar action has been 
taken, but payments on this obligation are being continued. D -- Debt rated D is
in default, and payment of interest and/or repayment of principal is in arrears.

DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's ratings for
state and municipal notes and other short-term obligations are designated       
Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1 -- best    
quality, enjoying strong protection from established cash flows of funds for    
their servicing or from established broad-based access to the market for        
refinancing, or both; MIG-2 -- high quality with margins of protection ample    
although not so large as in the preceding group; MIG-3 -- favorable quality,    
with all security elements accounted for but lacking the undeniable strength of 
the preceding grades.                                                           

DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("Pl") -Judged  
to be of the best quality. Their short-term debt obligations carry the smallest 
degree of investment risk.                                                      

EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: SP-l+ -- very strong        
capacity to pay principal and interest; SP-2 -- strong capacity to pay principal
and interest.                                                                   

DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-l+ -- this designation 
indicates the degree of safety regarding timely payment is extremely strong. A-1
-- this designation indicates the degree of safety regarding timely payment is  
strong.                                                                         

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FINANCIAL STATEMENTS

The Fund's audited financial statements for the fiscal year ended December 31,  
2002, including notes thereto and the report of Ernst & Young LLP are herein    
incorporated by reference from the Fund's Annual Report. A copy of the Fund's   
Annual Report to Shareholders must accompany the delivery of this Statement of  
Additional Information. The Large Cap Relative Value, China Growth, Gold,       
MicroCap, Mortgage-Backed Securities, Municipal Bond and U.S. Equity Plus       
Portfolios were not operational as of December 31, 2002.                        

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 MORGAN STANLEY INSTITUTIONAL FUND, INC.

 PART C. OTHER INFORMATION

ITEM. 23. EXHIBITS                                                              

     (a)(1)   Articles of Amendment and Restatement is incorporated by reference
to Exhibit 1(a) to Post-Effective Amendment No. 26 to the Registrant's          
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-95-008594) on October 13, 1995.                                      

   (a)(2)   Articles Supplementary to Registrant's Articles of Amendment and
Restatement (reclassifying shares) is incorporated by reference to Exhibit 1(b) 
to Post-Effective Amendment No. 30 to Registrant's Registration Statement on    
Form N-1A (File No. 33-23166), as filed with the Securities and Exchange        
Commission via EDGAR (Accession No. 0000912057-96-010828) on May 24, 1996.      

   (a)(3)   Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding new Technology Portfolio) is incorporated by reference to   
Exhibit 1(c) to Post-Effective Amendment No. 30 to Registrant's Registration    
Statement on Form N-1A (File No. 33-23166), as filed with the Securities and    
Exchange Commission via EDGAR (Accession No. 0000912057-96-010828) on May 24,   
1996.                                                                           

   (a)(4)   Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding U.S. Equity Plus Portfolio) is incorporated by reference to 
Exhibit 1(d) to Post-Effective Amendment No. 38 to Registrant's Registration    
Statement on Form N-1A (File No. 33-23166), as filed with the Securities and    
Exchange Commission via EDGAR (Accession No. 0001047469-98-008051) on February  
27, 1998.                                                                       

   (a)(5)   Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding European Real Estate and Asian Real Estate Portfolios) is   
incorporated by reference to Exhibit 1(e) to Post-Effective Amendment No. 38 to 
Registrant's Registration Statement on Form N-1A (File No. 33-23166), as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
00001047469-98-008051) on February 27, 1998.                                    

   (a)(6)   Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding Class B shares to the Money Market Portfolio) is            
incorporated by reference to Exhibit 1(f) to Post-Effective Amendment No. 38 to 
Registrant's Registration Statement on Form N-1A (File No. 33-23166), as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
00001047469-98-008051) on February 27, 1998.                                    

  (a)(7)   Articles of Amendment to Registrant's Articles of Amendment and
Restatement (Active Country Allocation Portfolio name changed to Active         
International Portfolio) is incorporated by reference to Exhibit (a)(7) to      
Post-Effective Amendment No. 40 to the Registrant's Registration Statement on   
Form N-1A (File No. 33-23166), as filed with the Securities and Exchange        
Commission via EDGAR (Accession No. 0001047469-99-002378) on January 27, 1999.  

  (a)(8)   Articles of Amendment to Registrant's Articles of Amendment and
Restatement (Active International Portfolio name changed to Active International
Allocation Portfolio) is incorporated by reference to Exhibit (a)(8) to         
Post-Effective Amendment No. 40 to the Registrant's Registration Statement on   
Form N-1A (File No. 33-23166), as filed with the Securities and Exchange        
Commission via EDGAR (Accession No. 0001047469-99-002378) on January 27, 1999.  

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  (a)(9)   Articles of Amendment to Registrant's Articles of Amendment and
Restatement (changing corporate name to Morgan Stanley Dean Witter Institutional
Fund, Inc.) is incorporated by reference to Exhibit (a)(9) to Post-Effective    
Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File  
No. 33-23166), as filed with the Securities and Exchange Commission via EDGAR   
(Accession No. 0001047469-99-002378) on January 27, 1999.                       

  (a)(10)  Articles of Amendment to Registrant's Articles of Amendment and
Restatement (Aggressive Equity Portfolio name changed to Focus Equity Portfolio 
and Emerging Growth Portfolio name changed to Small Company Growth Portfolio) is
incorporated by reference to Exhibit (a)(10) to Post-Effective Amendment No. 43 
to Registrant's Registration Statement on Form N-1A (File No. 33-23166), as     
filed with the Securities and Exchange Commission via EDGAR (Accession No.      
0000912057-00-02610) on May 1, 2000.                                            

  (a)(11)  Articles of Amendment to Registrant's Articles of Amendment and
Restatement (changing corporate name to Morgan Stanley Institutional Fund, Inc.,
Global Equity Portfolio name changed to Global Value Equity Portfolio, European 
Equity Portfolio named changed to European Value Equity Portfolio and Japanese  
Equity Portfolio name changed to Japanese Value Equity Portfolio) is            
incorporated herein by reference to Exhibit (a)(11) to Post-Effective Amendment 
No. 45 to Registrant's Registration Statement on Form N-1A (File No. 33-23166), 
as filed with the Securities and Exchange Commission via EDGAR (Accession No.   
0000912057-01-511512) on April 30, 2001.                                        

   (a)(12)  Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding new Global Franchise Portfolio) is incorporated herein by   
reference to Exhibit (a)(7) to Post-Effective Amendment No. 48 to Registrant's  
Registration Statement on Form N-1A (Registration No. 33-23166), as filed with  
the Securities and Exchange Commission via EDGAR (Accession No.                 
0000912057-01-540924) on November 26, 2001.                                     

   (a)(13)  Articles Supplementary to Registrant's Articles of Amendment and
Restatement (adding Large Cap Relative Value Portfolio) is filed herewith.      

(b)      Amended and Restated By-Laws is incorporated by reference to 
Exhibit (b) to Post-Effective Amendment No. 48 to Registrant's Registration     
Statement on Form N-1A (File No. 33-23166), as filed with the Securities and    
Exchange Commission via EDGAR (Accession No. 0000912057-01-540924) on November  
26, 2001.                                                                       

 (c)(1)   Specimen Security with respect to Morgan Stanley Institutional
Fund, Inc. Class A shares is incorporated by reference to Exhibit 1(a) (Amended 
and Restated Articles of Incorporation), as amended to date to Post-Effective   
Amendment No. 26 to Registrant's Registration Statement (File No. 33-23166), as 
filed with the Securities and Exchange Commission via EDGAR (Accession No.      
0000912057-95-008594) on October 13, 1995 and is incorporated by reference to   
Exhibit 2 (Amended and Restated By-Laws), as amended to date to Post-Effective  
Amendment No. 33 to Registrant's Registration Statement (File No. 33-01-540924),
as filed with the Securities and Exchange Commission via EDGAR (Accession No.   
0000912057-97-007488) on February 28, 1997.                                     

 (c)(2)   Specimen Security with respect to Morgan Stanley Institutional
Fund, Inc. Class B shares is incorporated by reference to Exhibit 1(a) (Amended 
and Restated Articles of Incorporation), as amended to date to Post-Effective   
Amendment No. 26 to Registrant's Registration Statement (Registration No.       
33-23166), as filed with the Securities and Exchange Commission via EDGAR       
(Accession No. 0000912057-95-008594) on October 13, 1995 and is incorporated by 
reference to Exhibit 2 (Amended and Restated By-Laws), as amended to date to    
Post-Effective Amendment No. 33 to                                              

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Registrant's Registration Statement (File No. 33-01-540924), as filed with the  
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-97-007488) on February 28, 1997.                                     

(d)(1)   Investment Advisory Agreement between Registrant and Morgan  
Stanley Investment Management Inc. (formerly Morgan Stanley Asset Management    
Inc.), is incorporated by reference to Exhibit (d)(1) to Post-Effective         
Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File  
No. 33-23166), as filed with the Securities and Exchange Commission via EDGAR   
(Accession No. 0001047469-99-002378) on January 27, 1999.                       

     (d)(2)   Supplement to Investment Advisory Agreement between Registrant and
Morgan Stanley Investment Management Inc. (formerly Morgan Stanley Asset        
Management Inc.)(adding the U.S. Equity Plus Portfolio) is incorporated by      
reference to Exhibit 5(q) to Post-Effective Amendment No. 38 to Registrant's    
Registration Statement on Form N-1A (Registration No. 33-23166), as filed with  
the Securities and Exchange Commission via EDGAR (Accession No.                 
0001047469-98-008051) on February 27, 1998.                                     

     (d)(3)   Supplement to Investment Advisory Agreement between Registrant and
Morgan Stanley Investment Management Inc. (formerly Morgan Stanley Asset        
Management Inc.)(adding the Asian and European Real Estate Portfolios) is       
incorporated by reference to Exhibit 5(r) to Post-Effective Amendment No. 38 to 
Registrant's Registration Statement on Form N-1A (File No. 33-23166), as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
0001047469-98-008051) on February 27, 1998.                                     

    (d)(4)   Amendment to Investment Advisory Agreement between Registrant and
Morgan Stanley Investment Management Inc. (formerly Morgan Stanley Asset        
Management Inc.) (reducing the annual advisory fee payable by the Emerging      
Markets Debt Portfolio of the Fund from 1.00% to 0.75%) is incorporated by      
reference to Exhibit (d)(5) to Post-Effective Amendment No. 43 to Registrant's  
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-00-020610) on May 1, 2000.                                           

     (d)(5)   Supplement to Investment Advisory Agreement between Registrant and
Morgan Stanley Investment Management Inc. (formerly Morgan Stanley Asset        
Management Inc.) (adding Global Franchise Portfolio) is incorporated by         
reference to Exhibit (d)(5) to Post-Effective Amendment No. 48 to Registrant's  
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-01-540924) on November 26, 2001.                                     

     (d)(6)   Supplement to Investment Advisory Agreement between Registrant and
Morgan Stanley Investment Management Inc. (formerly Morgan Stanley Asset        
Management Inc.) (adding Large Cap Relative Value Portfolio) is filed herewith. 

(d)(7)   Sub-Advisory Agreement between Morgan Stanley Investment     
Management Inc. and Morgan Stanley Investment Advisors Inc. (formerly Morgan    
Stanley Dean Witter Investment Advisors Inc.) (with respect to the Money Market 
and Municipal Money Market Portfolios) is incorporated by reference to Exhibit  
(d)(6) to Post-Effective Amendment No. 43 to Registrant's Registration Statement
on Form N-1A (File No. 33-23166), as filed with the Securities and Exchange     
Commission via EDGAR (Accession No. 0000912057-00-020610) on May 1, 2000.       

  (e)(1)   Amended and Restated Distribution Agreement, between Registrant
and Morgan Stanley & Co. Incorporated, is incorporated by reference to Exhibit  
(e)(3) to Post-Effective Amendment No. 49 to Registrant's Registration Statement
on Form N-1A (File. No. 33-23166 as filed with the Securities and Exchange      
Commission via EDGAR (Accession No. 0001047469-03-014676) on April 25, 2003.    

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(f)      Not applicable.                                              

     (g)(1)   Mutual Fund Domestic Custody Agreement between Registrant and J.P.
Morgan Investor Services Co. (formerly United States Trust Company), is         
incorporated by reference to Exhibit 8(a) to Post-Effective Amendment No. 25 to 
Registrant's Registration Statement on Form N-1A (File No. 33-23166), as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
0000912057-95-005830) on August 1, 1995.                                        

   (g)(2)   Amendment to the Custody Fee Schedule effective October 1, 2002,
is incorporated by reference to Exhibit (g)(2) to Post-Effective Amendment No.  
49 to Registrant's Registration Statement on Form N-1A (File. No. 33-23166 as   
filed with the Securities and Exchange Commission via EDGAR (Accession No.      
0001047469-03-014676) on April 25, 2003.                                        

     (g)(3)   International Custody Agreement between Registrant and J.P. Morgan
Investor Services Co. (formerly Morgan Stanley Trust Company) , is incorporated 
by reference to Exhibit 8(b) to Post-Effective Amendment No. 25 to Registrant's 
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-95-005830) on August 1, 1995.                                        

  (g)(4)   Amendment to International Custody Agreement between Registrant
and J.P. Morgan Investor Services Co. (formerly Morgan Stanley Trust Company),  
is incorporated by reference to Exhibit 8(c) to Post-Effective Amendment No. 30 
to Registrant's Registration Statement on Form N-1A (File No. 33-23166), as     
filed with the Securities and Exchange Commission via EDGAR (Accession No.      
0000912057-96-010828) on May 24, 1996.                                          

  (g)(5)   Amendment to International Custody Agreement between Registrant
and J.P. Morgan Investor Services Co. (formerly The Chase Manhattan Bank), is   
incorporated by reference to Exhibit (g)(4) to Post-Effective Amendment No. 43  
to Registrant's Registration Statement on Form N-1A (File No. 33-23166), as     
filed with the Securities and Exchange Commission via EDGAR (Accession No.      
0000912057-00-02610) on May 1, 2000.                                            

 (h)(1)   Administration Agreement between Registrant and Morgan Stanley
Investment Management Inc. (formerly Morgan Stanley Asset Management Inc.), is  
incorporated by reference to Exhibit 9(a) to Post-Effective Amendment No. 25 to 
Registrant's Registration Statement on Form N-1A (File No. 33-23166), as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
0000912057-95-005830) on August 1, 1995.                                        

(h)(2)   Administration Agreement between Registrant and J.P. Morgan  
Investor Services Co. (formerly United States Trust Company) , is incorporated  
by reference to Exhibit 9(b) to Post-Effective Amendment No. 25 to Registrant's 
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-95-005830) on August 1, 1995.                                        

    (i)(1)   Opinion of Morgan Lewis & Bokius LLP is incorporated by reference
to Exhibit (i) to Post-Effective Amendment No. 45 to the Registrant's           
Registration Statement on Form N-1A (File No. 33-23166) as filed with the       
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-01-511512) on April 30, 2001.                                        

(i)(2)   Consent of Mayer, Brown, Rowe & Maw, filed herewith.         

(j)      Consent of Accountants, filed herewith.                      

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(k)      Not applicable.                                              

    (l)      Purchase Agreement, is incorporated by reference to Exhibit 13 to
Post-Effective Amendment No. 25 to Registrant's Registration Statement on Form  
N-1A (File No. 33-23166), as filed with the Securities and Exchange Commission  
via EDGAR (Accession No. 0000912057-95-005830) on August 1,1995.                

  (m)(1)   12b-1 Distribution Plan with respect to the Class B shares (the
"Class B Plan") of the Active Country Allocation Portfolio, is incorporated by  
reference to Exhibit 15 to Post-Effective Amendment No. 33 to Registrant's      
Registration Statement on Form N-1A (File No. 33-23166), as filed with          
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-97-007488) on November 1, 1995. The following Class B Plans have been
omitted because they are substantially identical to the one incorporated by     
reference herein. The omitted Class B Plans differ from the Class B Plan        
incorporated by reference herein only with respect to the portfolio to which the
Class B Plan relates: Fixed Income, Global Fixed Income, Municipal Bond,        
Mortgage-Backed Securities, High Yield, Value Equity, Gold, Global Equity,      
International Equity, Asian Equity, European Equity, Japanese Equity, Latin     
American, Emerging Markets, Emerging Markets Debt, China Growth, Equity Growth, 
Emerging Growth, MicroCap, Aggressive Equity, U.S. Real Estate, International   
Magnum, Technology, U.S. Equity Plus, European Real Estate, Asian Real Estate,  
Money Market, and Large Cap Relative Value Portfolios.                          

(n)      Not applicable.                                              

     (o)      Multi-Class 18f-3 Plan, is incorporated by reference to Exhibit 19
to Post-Effective Amendment No. 33 to Registrant's Registration Statement on    
Form N-1A (File No. 33-23166) is filed with the Securities and Exchange         
Commission via EDGAR (Accession No. 0000912057-97-007488) on February 28, 1997. 

   (p)(1)   Code of Ethics for the Fund, dated June 6, 2002, is incorporated
by reference to Exhibit p(1) to Post-Effective Amendment No. 49 to Registrant's 
Registration Statement on Form N-1A (File. No. 33-23166 as filed with the       
Securities and Exchange Commission via EDGAR (Accession No.                     
0001047469-03-014676) on April 25, 2003.                                        

    (p)(2)   Code of Ethics for Morgan Stanley Investment Management Inc. (the
"Adviser") and Morgan Stanley & Co. Incorporated (the "Distributor"), dated     
August 16, 2002, is incorporated by reference to Exhibit (p)(2) to              
Post-Effective Amendment No. 49 to Registrant's Registration Statement on Form  
N-1A (File. No. 33-23166 as filed with the Securities and Exchange Commission   
via EDGAR (Accession No. 0001047469-03-014676) on April 25, 2003.               

 (q)      Powers of Attorney for Messrs. Jones, Barrett, Morton, Nugent,
Reid, Gerrity, McLean, Morong, Kearns, and Robison are incorporated herein by   
reference to Exhibit (9) to Post-Effective Amendment No. 48 to Registrant's     
Registration Statement on Form N-1A (File No. 33-23166), as filed with the      
Securities and Exchange Commission via EDGAR (Accession No.                     
0000912057-02-017496) on April 30, 2002; and Power of Attorney for Mr. Merin is 
incorporated by reference to Exhibit (q) to Post- Effective Amendment No. 49 to 
Registrant's Registration Statement on Form N-1A (File. No. 33-23166, as filed  
with the Securities and Exchange Commission via EDGAR (Accession No.            
0001047469-03-014676) on April 25, 2003.                                        

ITEM. 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT         

    Provide a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant. For any person controlled by    
another person, disclose the percentage of                                      

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voting securities owned by the immediately controlling person or other basis of 
that person's control. For each company, also provide the state or other        
sovereign power under the laws of which the company is organized.               

None.                                                                 

ITEM. 25. INDEMNIFICATION                                                       

 State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant 
is insured or indemnified against any liability incurred in their official      
capacity, other than insurance provided by any director, officer, affiliated    
person, or underwriter for their own protection.                                

Reference is made to Article Seven of the Registrant's Articles of    
Incorporation which is incorporated by reference herein:                        

Insofar as indemnification for liability may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing    
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public   
policy as expressed in the Act and is, therefore, unenforceable. In the event   
that a claim for indemnification against such liabilities (other than the       
payment by the Registrant of expenses incurred or paid by a trustee, officer or 
controlling person of the Registrant in the successful defense of any action,   
suit or proceeding) is asserted by such director, officer or controlling person 
in connection with the securities being registered, the Registrant will, unless 
in the opinion of its counsel the matter has been settled by controlling        
precedent, submit to a court of appropriate jurisdiction the question whether   
such indemnification by it is against public policy as expressed in the Act and 
will be governed by the final adjudication of such issue.                       

ITEM. 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER              

   (a)  Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser and each director, officer or
partner of the investment adviser, is or has been, engaged within the last two  
fiscal years for his or her own account or in the capacity of director, officer,
employee, partner or trustee. (Disclose the name and principal business address 
of any company for which a person listed above serves in the capacity of        
director, officer, employee, partner or trustee, and the nature of the          
relationship.)                                                                  

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Listed below are the officers and Directors of Morgan Stanley Investment        
Management Inc.:                                                                

                                                        [Enlarge/Download Table]

NAME AND POSITION WITH                           OTHER SUBSTANTIAL BUSINESS, PROFESSION OR VOCATION           
MORGAN STANLEY INVESTMENT                                                                                     
MANAGEMENT INC.                                                                                               
--------------------------------------------------------------------------------------------------------------
                                                                                                              
Mitchell M. Merin                                President and Chief Operating Officer of Morgan              
President and Chief Operating Officer            Stanley Investment Management Inc.; President,               
                                                 Director and Chief Executive Officer of Morgan               
                                                 Stanley Investment Advisors Inc. and Morgan Stanley          
                                                 Services Company Inc.; Chairman, Chief Executive             
                                                 Officer and Director of Morgan Stanley Distributors          
                                                 Inc.; Chairman and Director of Morgan Stanley                
                                                 Trust; Director of various Morgan Stanley                    
                                                 subsidiaries; President of the Morgan Stanley Funds          
                                                 and TCW/DW Term Trust 2003; Trustee, President and           
                                                 Chief Executive Officer of the Van Kampen Open-End           
                                                 Funds, President and Chief Executive Officer of the          
                                                 Van Kampen Closed-End Funds; Chairman, Chief                 
                                                 Executive Officer, President and Director of Van             
                                                 Kampen Asset Management and Van Kampen Investment            
                                                 Advisory Corp.                                               

Ronald E. Robison                                Chief Global Operations Officer and Managing                 
Managing Director and Chief Global Operations    Director of Morgan Stanley Investment Management             
Officer                                          Inc.; Managing Director of Morgan Stanley and                
                                                 Morgan Stanley & Co. Incorporated; Chief                     
                                                 Administrative Officer and Director of Morgan                
                                                 Stanley Investment Advisors Inc. and Morgan Stanley          
                                                 Services Company Inc.; Chief Executive Officer and           
                                                 Director of Morgan Stanley Trust; Vice President of          
                                                 the Morgan Stanley Funds and TCW/DW Term Trust               
                                                 2003.                                                        

Joseph J. McAlinden                              Managing Director and Chief Investment Officer of            
Managing Director and Chief Investment Officer   Morgan Stanley Investment Advisers Inc. and Morgan           
                                                 Stanley Investments LP. Director of Morgan Stanley           
                                                 Trust. Chief Investment Officer of the Van Kampen            
                                                 Open-End and Closed-End Funds.                               

Rajesh K. Gupta                                  Managing Director and Chief Administrative Officer           
Managing Director and Chief Administrative       - Investments of Morgan Stanley Investment Advisers          
Officer-Investments                              Inc. and Morgan Stanley Investments LP.                      

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                                                        [Enlarge/Download Table]
                                                                                            
Barry Fink                                Managing Director of Morgan Stanley Investment    
General Counsel and Managing Director     Advisers Inc. and Morgan Stanley Services Company 
                                          Inc. Assistant Secretary of Morgan Stanley DW Inc.
                                          Vice President and Secretary of Morgan Stanley    
                                          Distributors Inc. Secretary and General Counsel of
                                          the Morgan Stanley Funds and TCW/DW Term Trust    
                                          2003.                                             

Jeffrey Hiller                            None.                                             
Managing Director and Global Director of                                                    
Compliance                                                                                  

Alexander C. Frank                        Global Treasurer of Morgan Stanley.               
Managing Director and Treasurer                                                             

   In addition, Morgan Stanley Investment Management Inc. acts as investment
adviser or sub-adviser to the following registered investment companies: Morgan 
Stanley Institutional Fund, Inc.; Morgan Stanley Institutional Fund Trust; The  
Universal Institutional Funds, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.;    
Morgan Stanley Emerging Markets Fund, Inc.; Morgan Stanley Emerging Markets Debt
Fund, Inc.; Morgan Stanley Eastern Europe Fund, Inc.; Morgan Stanley Global     
Opportunity Bond Fund, Inc.; Morgan Stanley High Yield Fund, Inc.; Morgan       
Stanley India Investment Fund, Inc.; The Latin American Discovery Fund, Inc.;   
The Malaysia Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment Fund, Inc.;
Morgan Stanley Growth Fund ("The India Growth Fund"); The India Magnum Fund;    
Morgan Stanley Institutional Liquidity Fund Trust; AEGON/Transamerica Series    
Fund, Inc.; USAllianz Variable Insurance Products Trust; LSA Variable Series    
Trust; AAdvantage Funds; CDC Nvest Funds; CIGNA Funds Group; Equitable Advisors 
Trust; Fifth Third Funds; Frank Russell Investment Company; Gartmore Variable   
Insurance Trust; The Hirtle Callaghan Trust; ING Investors Trust; ING Partners, 
Inc.; John Hancock Variable Series Trust; Manufacturers Investment Trust; M.S.D.
& T. Funds; Pacific Select Funds; Pacific Funds; Principal Variable Contracts   
Fund; Principal Partners Equity Growth Fund, Inc.; Principal Investors Fund; SEI
Institutional International (SIT) Trust; SEI Institutional Investments (SIIT)   
Trust; SEI Insurance Products Trust; Travelers Series Fund; SunAmerica Series   
Trust; WM Trust II; WM Trust I; ABS Finance Fund; Alternative Investment        
Partners Funds; Asian Equity Index Fund; Global Opportunistic Fund, LLC; Global 
Technology Growth Fund Limited; Green Line Latin American Growth Fund; India    
Investment AG; Jade CBO Limited; Magnum Passive Fund LP; MAS Offshore Leveraged 
Fixed Income Fund Ltd.; Mediolanum Top Managers Emerging Markets Alpha Fund;    
Morgan Stanley Asian Growth Fund; Morgan Stanley Canadian Pooled Funds; Morgan  
Stanley Fixed Income Partnership II LP; Morgan Stanley Global Franchise L.P.;   
Morgan Stanley Growth Fund (India); Morgan Stanley Institutional Trust - Global 
Equity Trust; Morgan Stanley Money Market Family (FCP); Morgan Stanley Offshore 
Advisory Mortgage Fund; Morgan Stanley Offshore Emerging Markets Fund; Morgan   
Stanley Offshore International Equity Fund; Morgan Stanley SICAV, Morgan Stanley
Stable Value Fund; Morgan Stanley Taiwan Portfolio; Morgan Stanley Investment   
Management Active Country Allocation Trust; Morgan Stanley Investment Management
Active International Allocation Trust; Morgan Stanley Investment Management     
Asian Equity Trust; Morgan Stanley Investment Management Emerging Markets Debt  
Trust; Morgan Stanley Investment Management Equity Growth Trust; Morgan Stanley 
Investment Management International Equity Trust II; Morgan Stanley Investment  
Management International Magnum Pooled Trust; Morgan Stanley Investment         
Management International Small Cap Trust; Morgan Stanley Investment Management  
International Small Company Growth Trust; Morgan Stanley Investment Management  
International Equity Trust MRM Reserve Fund; Oasis CBO Limited; Pinnacle CBO    
Limited; Taj Investments Ltd.; The India Magnum Fund, Ltd./India Magnum Fund    
N.V.; Zodiac Fund (FCP).                                                        

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   (b)  Describe any other business, profession, vocation or employment of a
substantial nature in which the investment sub-adviser, and each director,      
officer or partner of the investment sub-adviser, is or has been, engaged within
the last two fiscal years, for his or her own account or in the capacity of     
director, officer, employee, partner or trustee. (Disclose the name and         
principal business address of any company for which a person listed above serves
in the capacity of director, officer, employee, partner or trustee, and the     
nature of the relationship.)                                                    

    During the last two fiscal years, no director or officer of Morgan Stanley
Investment Advisors Inc., the Registrant's investment sub-adviser, has engaged  
in any other business, profession, vocation or employment of a substantial      
nature other than that of the business of investment management and, through    
affiliates, investment banking.                                                 

ITEM. 27. PRINCIPAL UNDERWRITERS                                                

    (a)  State the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the   
Registrant also acts as a principal underwriter, depositor or investment        
adviser.                                                                        

 Morgan Stanley & Co. Incorporated acts as distributor for The Universal
Institutional Funds, Inc., a registered open-end management investment company. 

   (b)  Provide the information required by the following table with respect
to each director, officer or partner of each principal underwriter named in     
answer to Item 27.                                                              

                                                        [Enlarge/Download Table]

NAME AND PRINCIPAL                          POSITION AND OFFICES WITH                         
BUSINESS ADDRESS*                           MORGAN STANLEY & CO. INCORPORATED                 
----------------------------------------------------------------------------------------------
                                                                                              
Zoe Cruz                                    Director                                          

Bruce D. Fiedorek                           Director and Vice Chairman                        

John P. Havens                              Director                                          

Donald G. Kempf, Jr.                        Director                                          

Tarek F. Abdel-Meguid                       Director                                          

Stephan F. Newhouse                         Director, Co-President and Chief Operating Officer

Vikram S. Pandit                            Director, Co-President and Chief Operating Officer

Joseph R. Perella                           Director, Chairman and Chief Executive Officer    

Thierry G. Porte                            Director                                          

Philip J. Purcell                           Director                                          

Robin Roger                                 Director, General Counsel and Secretary           

Alexander C. Frank                          Treasurer                                         

Robert G. Scott                             Chief Financial Officer                           

* Morgan Stanley & Co. Incorporated, 1585 Broadway New York, NY 10036           

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ITEM. 28. LOCATION OF ACCOUNTS AND RECORDS                                      

    State the name and address of each person maintaining principal possession
of each account, book or other document required to be maintained by section    
31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that section.   

     J.P. Morgan Investor Services Co., Registrant's transfer agent and dividend
disbursing agent, P.O. Box 2798, Boston, Massachusetts, 02208-2798, maintains   
physical possession of each such account, book or other document of the Fund.   

  In particular, with respect to the records required by Rule 31a-1(b)(1),
J.P. Morgan Investor Services Co. maintains physical possession of all journals 
containing itemized daily records of all purchases and sales of securities,     
including sales and redemptions of Fund securities, and also maintains physical 
possession all receipts and deliveries of securities (including certificate     
numbers if such detail is not recorded by custodian or transfer agent), all     
receipts and disbursements of cash, and all other debts and credits.            

In addition, Morgan Stanley Investment Management Inc., Registrant's  
investment adviser and administrator, 1221 Avenue of the Americas, New York, New
York 10020, maintains possession of the Fund's corporate organizational records,
in addition to certain other records required by Rule 31a-1(b).                 

ITEM. 29. MANAGEMENT SERVICES                                                   

   Provide a summary of the substantive provisions of any management-related
service contract not discussed in part A or part B, disclosing the parties to   
the contract and the total amount paid and by whom, for the fund's last three   
fiscal years.                                                                   

Not applicable.                                                       

ITEM. 30. UNDERTAKINGS                                                          

Not Applicable.                                                       

  Registrant hereby undertakes that whenever a Shareholder or Shareholders
who meet the requirements of Section 16(c) of the 1940 Act inform the Board of  
Directors of his or their desire to communicate with other Shareholders of the  
Fund, the Directors will inform such Shareholder(s) as to the approximate number
of Shareholders of record and the approximate costs of mailing or afford said   
Shareholders access to a list of Shareholders.                                  

     Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's annual report to shareholders, upon   
request and without charge.                                                     

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for the effectiveness of this Registration Statement 
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused    
this Post-Effective Amendment No. 50 to Registration Statement No. 811-056241 to
be signed on its behalf by the undersigned, thereunto duly authorized in the    
City of New York and State of New York on the 6th day of June, 2003.            

                                   MORGAN STANLEY INSTITUTIONAL FUND, INC.

                     By: /s/ RONALD E. ROBISON
                                            --------------------------------
                                        Ronald E. Robison, President

    Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in 
the capacity and on the dates indicated.                                        

                                                                [Download Table]

              SIGNATURE              TITLE              DATE    
              ---------              -----              ----    
                                                                
/s/ Ronald E. Robison              President        June 6, 2003
---------------------------                                     
Ronald E. Robison                                               

*/s/ Mitchell M. Merin       Chairman and Director  June 6, 2003
---------------------------                                     
Mitchell M. Merin                                               

*/s/ John D. Barrett                Director        June 6, 2003
---------------------------                                     
John D. Barrett                                                 

*/s/ Gerard E. Jones                Director        June 6, 2003
---------------------------                                     
Gerard E. Jones                                                 

*/s/ Joseph J. Kearns               Director        June 6, 2003
---------------------------                                     
Joseph J. Kearns                                                

*/s/ Vincent R. McLean              Director        June 6, 2003
---------------------------                                     
Vincent R. McLean                                               

*/s/ C. Oscar Morong                Director        June 6, 2003
---------------------------                                     
C. Oscar Morong                                                 

*/s/ William G. Morton              Director        June 6, 2003
---------------------------                                     
William G. Morton                                               

*/s/ Michael Nugent                Treasurer        June 6, 2003
---------------------------                                     
Michael Nugent                                                  

*/s/ Fergus Reid                    Director        June 6, 2003
------------------                                              
Fergus Reid                                                     

*/s/ Thomas P. Gerrity              Director        June 6, 2003
----------------------                                          
Thomas P. Gerrity                                               

*/s/ Ronald E. Robison          Attorney-In-Fact    June 6, 2003
----------------------                                          
Ronald E. Robison                                               

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EXHIBIT INDEX 

EX-99 (a)(13) Articles Supplementary to Articles of Amendment and Restatement.  

EX-99 (d)(6) Supplement to Investment Advisory Agreement.                       

EX-99 (i)(2) Consent of Counsel.                                                

EX-99 (j)  Consent of Accountants.                                              

12

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘485APOS’ Filing		Date		First		Last			Other Filings
		6/30/03		10		69			N-CSRS,  NSAR-A
Filed on:		6/6/03		1		112
		5/16/03		67		86
		5/1/03		15		16
		4/25/03		104		106			485BPOS
		12/31/02		16		101			24F-2NT,  24F-2NT/A,  N-30D,  NSAR-B
		10/1/02		105
		8/16/02		106
		6/6/02		72		106
		4/30/02		106					485BPOS
		1/1/02		42
		12/31/01		70		76			24F-2NT,  N-30D,  NSAR-B
		11/26/01		103		104			485BPOS
		5/1/01		78
		4/30/01		103		105			485BPOS
		2/14/01		93		95
		12/31/00		70		76			24F-2NT,  N-30D,  NSAR-B,  NT-NSAR
		5/1/00		103		105			485BPOS
		3/14/00		93		95			NSAR-A
		1/27/99		102		104			485APOS
		1/1/99		41
		12/1/98		78
		5/6/98		93		95
		3/11/98		93		95
		2/27/98		102		104			485APOS
		2/28/97		103		106			485APOS,  485BPOS,  NSAR-B,  NSAR-B/A
		5/24/96		102		105			485APOS
		1/2/96		55
		11/1/95		106					485APOS
		10/13/95		102		103			485BPOS
		8/1/95		105		106			485APOS
									List all Filings

24 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/01/24  Morgan Stanley Inst’l Fund Inc.   485APOS                4:9.3M                                   Broadridge Fin’l… Inc/FA
 2/28/24  Morgan Stanley Inst’l Fund Inc.   485APOS                4:9.3M                                   Broadridge Fin’l… Inc/FA
 4/28/23  Morgan Stanley Inst’l Fund Inc.   485BPOS     4/28/23   29:58M                                    Broadridge Fin’l… Inc/FA
 7/13/22  Morgan Stanley Inst’l Fund Inc.   485BPOS     7/13/22   16:4.4M                                   Broadridge Fin’l… Inc/FA
 7/13/22  Morgan Stanley Inst’l Fund Inc.   485BPOS     7/13/22   23:5.3M                                   Broadridge Fin’l… Inc/FA
 5/04/22  Morgan Stanley Inst’l Fund Inc.   485BPOS     5/04/22   15:9.5M                                   Broadridge Fin’l… Inc/FA
 4/29/22  Morgan Stanley Inst’l Fund Inc.   485APOS                1:3M                                     Broadridge Fin’l… Inc/FA
 4/29/22  Morgan Stanley Inst’l Fund Inc.   485APOS                2:2.9M                                   Broadridge Fin’l… Inc/FA
 4/29/22  Morgan Stanley Inst’l Fund Inc.   485BPOS     4/29/22   28:55M                                    Broadridge Fin’l… Inc/FA
12/21/21  Morgan Stanley Inst’l Fund Inc.   485BPOS    12/21/21   26:5.1M                                   Broadridge Fin’l… Inc/FA
10/07/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:2.6M                                   Broadridge Fin’l… Inc/FA
 9/13/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     9/13/21   23:4.8M                                   Broadridge Fin’l… Inc/FA
 8/31/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     8/31/21   19:5.1M                                   Broadridge Fin’l… Inc/FA
 7/14/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     7/14/21   22:4.6M                                   Broadridge Fin’l… Inc/FA
 6/30/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:3.4M                                   Broadridge Fin’l… Inc/FA
 6/30/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:2.5M                                   Broadridge Fin’l… Inc/FA
 6/30/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     6/30/21   18:5.3M                                   Broadridge Fin’l… Inc/FA
 6/11/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     6/11/21   18:3.8M                                   Broadridge Fin’l… Inc/FA
 6/02/21  Morgan Stanley Inst’l Fund Inc.   N-14¶       6/02/21    7:19M                                    Toppan Merrill/FA
 4/30/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:2.5M                                   Broadridge Fin’l… Inc/FA
 4/30/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:3.5M                                   Broadridge Fin’l… Inc/FA
 4/30/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     4/30/21   28:55M                                    Broadridge Fin’l… Inc/FA
 4/06/21  Morgan Stanley Inst’l Fund Inc.   485BPOS     4/06/21   20:4.2M                                   Broadridge Fin’l… Inc/FA
 2/05/21  Morgan Stanley Inst’l Fund Inc.   485APOS                1:2.3M                                   Broadridge Fin’l… Inc/FA