This change has been incorporated into the documentation in Release 2011a (R2011a). For previous releases, read below for any additional information:
The "Minimize Algebraic Loop occurrences" option is unchecked by default and it should be enabled only when algebraic loops are detected in the model, so that they can be minimized by Simulink.
This warning is displayed when the "Minimize Algebraic Loop occurrences" option is enabled and the Model Reference block contains direct feedthrough path. This error message is displayed to inform the user that if he uses the output of the Model Reference block to compute its input, an algebraic loop will occur and it will be impossible to minimize it.
This diagnostic can be set to 'none', 'warning' or 'error' in the diagnostic section of the model configuration pane.
In some cases, the referenced model does not contain any direct feedthrough path and the "Minimize Algebraic Loop occurrences" algorithm can fail. For an example of such situation, download the attached model "MainModel.mdl" and the model it refers to "RefModel.mdl"
For more details on algebraic loops and direct feedthrough blocks, you can click on the link below.
<http://www.mathworks.com/access/helpdesk/help/toolbox/simulink/ug/f7-8243.html#f7-19688>
