MORGAN STANLEY FUND INC
497, 1995-08-01
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<PAGE>
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                              P R O S P E C T U S
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                  MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
                    MORGAN STANLEY GLOBAL FIXED INCOME FUND
                        MORGAN STANLEY ASIAN GROWTH FUND
                      MORGAN STANLEY EMERGING MARKETS FUND
                       MORGAN STANLEY LATIN AMERICAN FUND
                      MORGAN STANLEY EUROPEAN EQUITY FUND
                       MORGAN STANLEY AMERICAN VALUE FUND
                   MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
                     MORGAN STANLEY GROWTH AND INCOME FUND
                        MORGAN STANLEY MONEY MARKET FUND

                               PORTFOLIOS OF THE
                           MORGAN STANLEY FUND, INC.
                P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
                      FOR INFORMATION CALL 1-800-282-4404
                               ------------------
    Morgan  Stanley Fund, Inc. (the "Fund") is an open-end management investment
company, or  mutual  fund,  which  offers  redeemable  shares  in  a  series  of
diversified  and  nondiversified  investment  portfolios  (each,  an "Investment
Fund"). The Fund  offers the shares  of its Investment  Funds, except the  Money
Market Fund, in three classes (Class A, Class B and Class C) designed to provide
investors a choice of three ways to pay distribution costs. (The current Class C
shares were named Class B shares until May 1, 1995 when such shares were renamed
Class  C shares  and thereafter new  Class B  shares were created).  The Fund is
designed to make available to retail  investors the expertise of Morgan  Stanley
Asset  Management  Inc., the  Investment Adviser  and Administrator.  Shares are
available through  Morgan Stanley  & Co.  Incorporated ("Morgan  Stanley"),  the
Distributor,  and investment  dealers, banks  and financial  services firms that
provide distribution,  administrative  or shareholder  services  ("Participating
Dealers").  The Fund currently  consists of ten Investment  Funds, nine of which
offer the following range of investment choices:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
    Morgan Stanley Global Equity Allocation Fund (the "Global Equity Allocation
Fund")
    Morgan Stanley Asian Growth Fund (the "Asian Growth Fund")
    Morgan Stanley Emerging Markets Fund (the "Emerging Markets Fund")
    Morgan Stanley Latin American Fund (the "Latin American Fund")
    Morgan Stanley European Equity Fund (the "European Equity Fund")
    Morgan Stanley Growth and Income Fund (the "Growth and Income Fund")
UNITED STATES EQUITY FUND:
    Morgan Stanley American Value Fund (the "American Value Fund")
GLOBAL FIXED INCOME FUNDS:
    Morgan Stanley Global Fixed Income Fund (the "Global Fixed Income Fund")
    Morgan Stanley Worldwide High Income Fund (the "Worldwide High Income Fund")
    The tenth Investment Fund, the Morgan Stanley Money Market Fund (the  "Money
Market Fund") is not currently offering shares.
    THE MORGAN STANLEY WORLDWIDE HIGH INCOME FUND INVESTS PREDOMINANTLY IN LOWER
RATED  AND UNRATED BONDS,  COMMONLY REFERRED TO  AS "JUNK BONDS."  BONDS OF THIS
TYPE ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND
RETURN OF PRINCIPAL AND  ARE SUBJECT TO  GREATER RISK OF  LOSS OF PRINCIPAL  AND
INTEREST.  PURCHASERS  SHOULD  CAREFULLY  ASSESS THE  RISKS  ASSOCIATED  WITH AN
INVESTMENT IN THIS  INVESTMENT FUND. SEE  "ADDITIONAL INVESTMENT INFORMATION  --
RISK FACTORS RELATING TO INVESTING IN LOWER RATED SECURITIES."
    Certain  Investment Funds invest  in emerging markets  securities, which are
subject to special risks. See "Foreign Investment Risk Factors."
    INVESTORS SHOULD NOTE THAT AN  INVESTMENT FUND MAY INVEST  UP TO 15% OF  ITS
NET  ASSETS (10% OF THE NET ASSETS OF THE MONEY MARKET FUND) IN ILLIQUID ASSETS,
INCLUDING RESTRICTED  SECURITIES  (OTHER  THAN RULE  144A  SECURITIES  THAT  ARE
DETERMINED TO BE LIQUID). SEE "ADDITIONAL INVESTMENT INFORMATION -- NON-PUBLICLY
TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES." INVESTMENTS IN
RESTRICTED  SECURITIES IN EXCESS OF 5% OF  AN INVESTMENT FUND'S TOTAL ASSETS MAY
BE CONSIDERED A SPECULATIVE ACTIVITY, MAY INVOLVE GREATER RISK AND MAY  INCREASE
THE INVESTMENT FUND'S EXPENSES.
    INVESTMENTS  IN THE INVESTMENT  FUNDS ARE NEITHER  INSURED NOR GUARANTEED BY
THE UNITED STATES  GOVERNMENT. THERE  IS NO  ASSURANCE THAT  THE MORGAN  STANLEY
MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
    This Prospectus is designed to set forth concisely the information about the
Investment Funds that a prospective investor should know before investing and it
should  be retained for future reference.  Additional information about the Fund
is contained in a "Statement of  Additional Information," dated August 1,  1995,
which   is  incorporated  herein  by  reference.  The  Statement  of  Additional
Information is available upon request and  without charge by writing or  calling
the Fund at the address and telephone number set forth above.

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

                 THE DATE OF THIS PROSPECTUS IS AUGUST 1, 1995.
<PAGE>
                                 FUND EXPENSES

    The  following table illustrates all expenses and fees that a shareholder of
an Investment Fund may incur:

<TABLE>
<CAPTION>
                                            GLOBAL      GLOBAL
                                            EQUITY      FIXED      ASIAN     EMERGING
                                          ALLOCATION    INCOME     GROWTH    MARKETS
SHAREHOLDER TRANSACTION EXPENSES             FUND        FUND       FUND       FUND
----------------------------------------  ----------   --------   --------   --------
<S>                                       <C>          <C>        <C>        <C>
Maximum Sales Load Imposed on Purchases
    Class A.............................   4.75%(1)    4.75%(1)   4.75%(1)   4.75%(1)
    Class B.............................     None        None       None       None
    Class C.............................     None        None       None       None
Maximum Sales Load Imposed on Reinvested
 Dividends
    Class A.............................     None        None       None       None
    Class B.............................     None        None       None       None
    Class C.............................     None        None       None       None
Deferred Sales Load
  For Purchases up to $999,999
    Class A.............................     None        None       None       None
    Class B.............................   5.00%(2)    5.00%(2)   5.00%(2)   5.00%(2)
    Class C.............................   1.00%(3)    1.00%(3)   1.00%(3)   1.00%(3)
  For Purchases of $1,000,000 or more
    Class A.............................   1.00%(1)    1.00%(1)   1.00%(1)   1.00%(1)
    Class B.............................   5.00%(2)    5.00%(2)   5.00%(2)   5.00%(2)
    Class C.............................   1.00%(3)    1.00%(3)   1.00%(3)   1.00%(3)
Redemption Fees (4)
    Class A.............................     None        None       None       None
    Class B.............................     None        None       None       None
    Class C.............................     None        None       None       None
Exchange Fees
    Class A.............................     None        None       None       None
    Class B.............................     None        None       None       None
    Class C.............................     None        None       None       None
<FN>
--------------
(1) Percentage shown is the maximum  sales load. Certain large purchases may  be
    subject  to a reduced sales load. Purchases  of Class A shares of the Global
    Equity Allocation  Fund,  Global  Fixed  Income  Fund,  Asian  Growth  Fund,
    Emerging  Markets Fund, Latin American  Fund, European Equity Fund, American
    Value Fund,  Worldwide High  Income Fund  and Growth  and Income  Fund  (the
    "Non-Money  Funds") which,  when combined  with the  net asset  value of the
    purchaser's existing investment in Class A shares of these Funds,  aggregate
    $1  million  or more  are not  subject to  a sales  load (an  "initial sales
    charge"). A  contingent deferred  sales  charge ("CDSC")  of 1.00%  will  be
    imposed,  however, on shares from any such purchase that are redeemed within
    one year  following  such  purchase. Any  such  CDSC  will be  paid  to  the
    Distributor.  Certain other  purchases are not  subject to  an initial sales
    charge. See "Purchase of Shares."
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
LATIN AMERICAN   EUROPEAN EQUITY   AMERICAN VALUE   WORLDWIDE HIGH   GROWTH AND    MONEY MARKET
     FUND             FUND              FUND         INCOME FUND     INCOME FUND     FUND (5)
--------------   ---------------   --------------   --------------   -----------   ------------

<S>              <C>               <C>              <C>              <C>           <C>
 4.75  %(1)         4.75%(1)          4.75%(1)         4.75%(1)       4.75%(1)         None
     None             None              None             None           None
     None             None              None             None           None

     None             None              None             None           None           None
     None             None              None             None           None
     None             None              None             None           None

     None             None              None             None           None           None
 5.00  %(2)         5.00%(2)          5.00%(2)         5.00%(2)       5.00%(2)
 1.00  %(3)         1.00%(3)          1.00%(3)         1.00%(3)       1.00%(3)

 1.00  %(1)         1.00%(1)          1.00%(1)         1.00%(1)       1.00%(1)         None
 5.00  %(2)         5.00%(2)          5.00%(2)         5.00%(2)       5.00%(2)
 1.00  %(3)         1.00%(3)          1.00%(3)         1.00%(3)       1.00%(3)

     None             None              None             None           None           None
     None             None              None             None           None
     None             None              None             None           None

     None             None              None             None           None           None
     None             None              None             None           None
     None             None              None             None           None
<FN>
--------------

(2) Percentage shown is  the maximum CDSC.  Purchases of Class  B shares of  the
    Non-Money  Funds are subject to  a maximum CDSC of  5.00% which decreases in
    steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
    will be paid to the Distributor.

(3) Purchases of Class C shares of the Non-Money Funds are subject to a CDSC  of
    1.00%  for redemptions made within one year  of purchase. Any such CDSC will
    be paid to the Distributor.

(4) A charge of  $8.00 may be  imposed on redemptions  by wire which  is not  an
    expense of the Fund.

(5) The  Money Market Fund has only one class of shares, which is not designated
    Class A, Class B or Class C.
</TABLE>

                                       3
<PAGE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
------------------------------              GLOBAL     GLOBAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS      EQUITY     FIXED    ASIAN    EMERGING
AFTER EXPENSE                             ALLOCATION   INCOME   GROWTH   MARKETS
 REIMBURSEMENT AND/OR FEE WAIVER)            FUND       FUND     FUND      FUND
                                          ----------   ------   ------   --------
<S>                                       <C>          <C>      <C>      <C>
Investment Advisory Fee and
 Administrative and Shareholder Account
 Costs (6)
    Class A.............................       0.25%      0.25%    1.25%     1.50%
    Class B.............................       0.25%      0.25%    1.25%     1.50%
    Class C.............................       0.25%      0.25%    1.25%     1.50%
12b-1 Fees
    Class A.............................       0.25%      0.25%    0.25%     0.25%
    Class B.............................       1.00%      1.00%    1.00%     1.00%
    Class C.............................       1.00%      1.00%    1.00%     1.00%
Custody Fees
    Class A.............................       0.42%      0.16%    0.30%     0.30%
    Class B.............................       0.42%      0.16%    0.30%     0.30%
    Class C.............................       0.42%      0.16%    0.30%     0.30%
Other Expenses
    Class A.............................       0.78%      0.79%    0.10%     0.10%
    Class B.............................       0.78%      0.79%    0.10%     0.10%
    Class C.............................       0.78%      0.79%    0.10%     0.10%
Total Operating Expenses (6)
    Class A.............................       1.70%      1.45%    1.90%     2.15%
    Class B.............................       2.45%      2.20%    2.65%     2.90%
    Class C.............................       2.45%      2.20%    2.65%     2.90%
<FN>
------------------
(6) The  Adviser has  agreed to  waive  its advisory  fees and/or  to  reimburse
    expenses of the Investment Funds, if necessary, if such fees would cause the
    total  annual operating expenses of the Investment Funds, as a percentage of
    average daily net assets, to exceed  the percentages set forth in the  table
    above. Absent the fee waivers, investment advisory fees are as follows:
</TABLE>

<TABLE>
<S>                                                                           <C>
Global Equity Allocation Fund...............................................      1.00%
Global Fixed Income Fund....................................................      0.75%
Asian Growth Fund...........................................................      1.00%
Emerging Markets Fund.......................................................      1.25%
Latin American Fund.........................................................      1.25%
European Equity Fund........................................................      1.00%
American Value Fund.........................................................      0.85%
Worldwide High Income Fund..................................................      0.75%
Growth and Income Fund......................................................      0.75%
</TABLE>

   If  such advisory fees were not  waived and/or expenses reimbursed, the total
   operating expenses of such Investment Funds except for the Money Market  Fund
   would  be estimated to be a percentage  of their respective average daily net
   assets as follows:

<TABLE>
<CAPTION>
                                                                CLASS A      CLASS B      CLASS C
                                                              -----------  -----------  -----------
<S>                                                           <C>          <C>          <C>
Global Equity Allocation Fund...............................       2.58%        3.34%        3.34%
Global Fixed Income Fund....................................       2.48%        3.29%        3.29%
Asian Growth Fund...........................................       2.17%        2.92%        2.92%
Emerging Markets Fund.......................................       2.50%        3.25%        3.25%
Latin American Fund.........................................       2.40%        3.15%        3.15%
European Equity Fund........................................       1.90%        2.65%        2.65%
American Value Fund.........................................       2.48%        3.28%        3.28%
Worldwide High Income Fund..................................       3.23%        4.00%        4.00%
Growth and Income Fund......................................       1.50%        2.25%        2.25%
</TABLE>

   These reductions became or will become effective as of the inception of  each
   Investment  Fund. As  a result of  these reductions,  the Investment Advisory
   Fees stated above are lower than contractual fees stated under "Management of
   the Fund." The Adviser reserves the right to terminate any of its fee waivers
   at any time in its sole discretion. For further information on Fund  expenses
   see "Management of the Fund."

                                       4
<PAGE>

<TABLE>
<CAPTION>
LATIN AMERICAN   EUROPEAN EQUITY   AMERICAN VALUE   WORLDWIDE HIGH   GROWTH AND    MONEY MARKET
     FUND             FUND              FUND         INCOME FUND     INCOME FUND     FUND (7)
--------------   ---------------   --------------   --------------   -----------   ------------

<S>              <C>               <C>              <C>              <C>           <C>
  1.50  %                1.25%            1.10%            1.00%           1.00%         0.60%
  1.50  %                1.25%            1.10%            1.00%           1.00%
  1.50  %                1.25%            1.10%            1.00%           1.00%

  0.25  %                0.25%            0.25%            0.25%           0.25%         0.25%
  1.00  %                1.00%            1.00%            1.00%           1.00%
  1.00  %                1.00%            1.00%            1.00%           1.00%

  0.25  %                0.10%            0.05%            0.20%           0.10%         0.01%
  0.25  %                0.10%            0.05%            0.20%           0.10%
  0.25  %                0.10%            0.05%            0.20%           0.10%

  0.10  %                0.10%            0.10%            0.10%           0.10%         0.04%
  0.10  %                0.10%            0.10%            0.10%           0.10%
  0.10  %                0.10%            0.10%            0.10%           0.10%

  2.10  %                1.70%            1.50%            1.55%           1.45%         0.90%
  2.85  %                2.45%            2.25%            2.30%           2.20%
  2.85  %                2.45%            2.25%            2.30%           2.20%
<FN>
--------------
(7)  The Money Market Fund has only one class of shares, which is not designated
    Class A, Class B or Class C.
</TABLE>

    The purpose of the  above table is to  assist the investor in  understanding
the  various expenses that an investor in  any of the Investment Funds will bear
directly or indirectly. The Class A and Class C expenses and fees for the Global
Equity Allocation, Global Fixed  Income, American Value  and Asian Growth  Funds
are  based on actual  figures for the one  year period ended  June 30, 1994. The
Class A and Class C expenses and fees for the Emerging Markets, Latin  American,
European  Equity, Worldwide High Income and Growth and Income Funds are based on
estimates. The Class B expenses  and fees for all  Non-Money Funds are based  on
estimates.  The  expenses  and fees  for  the  Money Market  Fund  are  based on
estimates. For purposes of calculating the estimated expenses and fees set forth
above, the table assumes  that each Investment Fund's  average daily net  assets
will be $50,000,000. "Other Expenses" include, among others, Directors' fees and
expenses,  amortization of organizational costs, filing fees, professional fees,
and the costs for reports to shareholders. Due to the continuous nature of  Rule
12b-1  fees,  long-term shareholders  may pay  more than  the equivalent  of the
maximum front-end  sales  charges  otherwise  permitted by  the  Rules  of  Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD").

                                       5
<PAGE>
    The  following  example illustrates  the expenses  that you  would pay  on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each of the Non-Money
Funds, including the maximum 4.75% sales charge, (ii) Class B shares of each  of
such

<TABLE>
<CAPTION>
                                                                        GLOBAL EQUITY    GLOBAL
                                                                         ALLOCATION       FIXED        ASIAN       EMERGING
                                                                            FUND       INCOME FUND  GROWTH FUND  MARKETS FUND
                                                                        -------------  -----------  -----------  -------------
<S>                                                                     <C>            <C>          <C>          <C>
Class A shares
    1 Year............................................................   $      64(1)  $      62(1) $      66(1)  $      68(1)
    3 Years...........................................................          99            91          104           112
    5 Years...........................................................         135           123          145          *
    10 Years..........................................................         239           213          259          *
Class B shares
 (Assuming complete redemption at end of period)
    1 Year............................................................          75            72           77            79
    3 Years...........................................................         106            99          112           120
    5 Years...........................................................         153           141          163          *
    10 Years..........................................................         279           253          298          *
(Assuming no redemption)
    1 Year............................................................          25            22           27            29
    3 Years...........................................................          76            69           82            90
    5 Years...........................................................         131           118          141          *
    10 Years..........................................................         279           253          298          *
Class C shares
 (Whether or not complete redemption occurs at end of period)
    1 Year............................................................          25(2)         22(2)        27(2)         29(2)
    3 Years...........................................................          76            69           82            90
    5 Years...........................................................         131           118          141          *
    10 Years..........................................................         279           253          298          *
<FN>
--------------

 *  Because  the  Emerging Markets,  Latin  American, European  Equity, American
    Value, Worldwide High Income, Growth and Income and Money Market Funds  were
    either  not  operational or  had just  become operational  as of  the Fund's
    fiscal year end, the Fund has  not projected expenses beyond the  three-year
    period shown.

(1) Reduced  sales charges apply to purchases of $100,000 or more of the Class A
    shares of the Non-Money Funds. See "Purchase of Shares." For Class A  shares
    of  the Non-Money Funds,  generally purchases of  $1 million or  more may be
    accomplished at net asset value without an initial sales charge, but may  be
    subject to a 1.00% CDSC if liquidated within one year of purchase.
</TABLE>

                                       6
<PAGE>
Non-Money  Funds, which have a CDSC, but  no initial sales charge, (iii) Class C
shares of each of such Non-Money Funds, which have a CDSC, but no initial  sales
charge, and (iv) shares of the Money Market Fund. (If it is assumed there are no
redemptions, the expenses are the same.)

<TABLE>
<CAPTION>
 LATIN AMERICAN       EUROPEAN EQUITY      AMERICAN VALUE      WORLDWIDE HIGH      GROWTH AND      MONEY MARKET
      FUND                 FUND                 FUND            INCOME FUND       INCOME FUND        FUND (3)
-----------------  ---------------------  -----------------  ------------------  --------------  ----------------

<S>                <C>                    <C>                <C>                 <C>             <C>
   $      68(1)         $      64(1)         $      62(1)       $      63(1)      $      62(1)     $       9
         110                   99                   93                 94                91               29
           *                    *                    *                  *                 *                *
           *                    *                    *                  *                 *                *

          79                   75                   73                 73                72              N/A
         118                  106                  100                102                99              N/A
           *                    *                    *                  *                 *              N/A
           *                    *                    *                  *                 *              N/A

          29                   25                   23                 23                22              N/A
          88                   76                   70                 72                69              N/A
           *                    *                    *                  *                 *              N/A
           *                    *                    *                  *                 *              N/A

          29(2)                25(2)                23(2)              23(2)             22(2)           N/A
          88                   76                   70                 72                69              N/A
           *                    *                    *                  *                 *              N/A
           *                    *                    *                  *                 *              N/A
<FN>
--------------
(2)  If  Class C shares of  the Non-Money Funds are  redeemed within one year of
     purchase, the expense figures in the  first year increase to the  following
     amounts  for each of  the Investment Funds:  Global Equity Allocation Fund,
     $35; Global  Fixed  Income Fund,  $32;  Asian Growth  Fund,  $37;  Emerging
     Markets  Fund, $39;  Latin American Fund,  $39; European  Equity Fund, $35;
     American Value Fund, $33; Worldwide High  Income Fund, $33; and Growth  and
     Income Fund, $32.

(3)  The Money Market Fund has only one class of shares, which is not designated
     Class A, Class B or Class C.
</TABLE>

    THIS  EXAMPLE SHOULD  NOT BE CONSIDERED  A REPRESENTATION OF  PAST OR FUTURE
EXPENSES OR  PERFORMANCE. ACTUAL  EXPENSES MAY  BE GREATER  OR LESS  THAN  THOSE
SHOWN.  The Adviser in its discretion may terminate voluntary fee waivers and/or
reimbursements at  any time.  Absent  the waiver  of  fees or  reimbursement  of
expenses, the amounts in the example above would be greater.

                                       7
<PAGE>
                              FINANCIAL HIGHLIGHTS

    The  following tables provide financial highlights for the Class A and Class
C shares  (named  Class  B shares  until  May  1, 1995)  of  the  Global  Equity
Allocation, Global Fixed Income, Asian Growth, Emerging Markets, Latin American,
American  Value  and Worldwide  High  Income Funds  for  each of  the respective
periods presented. The audited financial  highlights for the periods ended  June
30,  1994 and the  unaudited financial highlights for  the period ended December
31, 1994 for such Investment Funds are part of the Fund's financial  statements,
which  appear in  the Fund's  June 30,  1994 Annual  Report to  Shareholders and
December 31, 1994  Semi-Annual Report to  Shareholders, respectively, which  are
incorporated  by reference into the  Fund's Statement of Additional Information.
The Fund's  financial highlights  for the  year ended  June 30,  1994 have  been
audited by Price Waterhouse LLP, whose report thereon (which was unqualified) is
also incorporated by reference into the Statement of Additional Information. The
Fund's  financial  highlights  for  the  period  ended  December  31,  1994  are
unaudited. Additional performance information about the Fund is contained in the
Fund's Annual Report. The  Annual Report, Semi-Annual  Report and the  financial
statements   contained  therein,   along  with   the  Statement   of  Additional
Information, are available at no cost from the Fund at the address and telephone
number noted on the cover page  of this Prospectus. The Emerging Markets,  Latin
American, European Equity and Growth and Income Funds were not operational as of
the  date of  the Annual Report  and the  European Equity and  Growth and Income
Funds were not operational as of the  date of the Semi-Annual Report. The  Money
Market  Fund ceased operations and the offering  of shares as of August 6, 1993.
The new Class  B shares  were not  being offered as  of December  31, 1994.  The
following   information  should  be  read  in  conjunction  with  the  financial
statements and notes thereto.

                                       8
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                         GLOBAL EQUITY ALLOCATION FUND

<TABLE>
<CAPTION>
                                                                                                     CLASS C
                                                CLASS A                                    (CLASS B UNTIL MAY 1, 1995)
                          ---------------------------------------------------  ----------------------------------------------------
                                                            SIX MONTHS ENDED                                      SIX MONTHS ENDED
SELECTED PER SHARE DATA   JANUARY 4, 1993**   YEAR ENDED    DECEMBER 31, 1994  JANUARY 4, 1993**    YEAR ENDED    DECEMBER 31, 1994
 AND RATIOS               TO JUNE 30, 1993   JUNE 30, 1994     (UNAUDITED)     TO JUNE 30, 1993   JUNE 30, 1994      (UNAUDITED)
------------------------- -----------------  -------------  -----------------  -----------------  --------------  -----------------
<S>                       <C>                <C>            <C>                <C>                <C>             <C>
NET ASSET VALUE,
 BEGINNING OF PERIOD.....      $10.00           $11.09           $11.99             $10.00            $11.05           $11.90
                             --------           ------           ------           --------        --------------     --------
INCOME FROM INVESTMENT
 OPERATIONS
  Net Investment
   Income................        0.04             0.10             0.03               0.01              0.06             0.00
  Net Realized and
   Unrealized Gain On
   Investments...........        1.05             0.90             0.18               1.04              0.86             0.15
                             --------           ------           ------           --------        --------------     --------
    Total From Investment
     Operations..........        1.09             1.00             0.21               1.05              0.92             0.15
                             --------           ------           ------           --------        --------------     --------

DISTRIBUTIONS
  Net Investment
   Income................          --            (0.03)           (0.05)                --                --            (0.03)
  Net Realized Gain......          --            (0.07)           (0.13)                --             (0.07)           (0.13)
                             --------           ------           ------           --------        --------------     --------
    Total
     Distributions.......          --            (0.10)           (0.18)                --             (0.07)           (0.16)
                             --------           ------           ------           --------        --------------     --------
NET ASSET VALUE, END OF
 PERIOD..................      $11.09           $11.99           $12.02             $11.05            $11.90           $11.89
                             --------           ------           ------           --------        --------------     --------
                             --------           ------           ------           --------        --------------     --------
TOTAL RETURN (1).........      10.90%***         9.02%            1.78%***          10.50%***          8.34%            1.24%***
                             --------           ------           ------           --------        --------------     --------
                             --------           ------           ------           --------        --------------     --------
RATIOS AND SUPPLEMENTAL
 DATA
  Net Assets, End of
   Period (Thousands)....     $10,434          $33,425          $40,022             $6,995           $29,892          $37,461
  Ratio of Expenses to
   Average Net Assets....       1.70%*           1.70%            1.70%*             2.45%*            2.45%            2.45%*
  Ratio of Net Investment
   Income/ (Loss) to
   Average Net Assets....       1.04%*           0.98%            0.59%*             0.29%*            0.23%          (0.16)%*
  Portfolio Turnover
   Rate..................         14%***           30%               3%***             14%***            30%               3%***
--------------------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE LIMITATION
 DURING THE PERIOD
  Per Share Benefit to
   Net Investment
   Income................      $ 0.08           $ 0.09           $ 0.02             $ 0.07            $ 0.23           $ 0.02
RATIOS BEFORE EXPENSE
 LIMITATION:
  Expenses to Average Net
   Assets................       3.65%*           2.58%            2.03%*             4.40%*            3.34%            2.78%*
  Net Investment Income
   (Loss) to Average Net
   Assets................     (0.91)%*           0.10%            0.26%*           (1.66)%*          (0.66)%          (0.49)%*
--------------------------------------------------------------------------------------------------------------------------------
<FN>
  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total Return is  calculated exclusive  of sales charges  or deferred  sales
     charges.
 (2) Under  the  terms  of  an Investment  Advisory  Agreement,  the  Adviser is
     entitled to receive an investment advisory fee calculated at an annual rate
     of 1.00% of the  average daily net assets  of the Global Equity  Allocation
     Fund.  The  Adviser  has agreed  to  waive  a portion  of  this  fee and/or
     reimburse expenses of  the Investment  Fund to  the extent  that the  total
     operating expenses of the Investment Fund exceed 1.70% of the average daily
     net  assets relating to the  Class A shares and  2.45% of the average daily
     net assets relating  to the Class  C shares. For  the fiscal periods  ended
     June  30, 1993 and June  30, 1994, the Adviser  waived advisory fees and/or
     reimbursed  expenses   totalling  approximately   $130,000  and   $353,000,
     respectively, for the Global Equity Allocation Fund.
</TABLE>

                                       9
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                            GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
                                                                                                     CLASS C
                                                CLASS A                                    (CLASS B UNTIL MAY 1, 1995)
                          ---------------------------------------------------  ----------------------------------------------------
                                                            SIX MONTHS ENDED                                      SIX MONTHS ENDED
SELECTED PER SHARE DATA   JANUARY 4, 1993**   YEAR ENDED    DECEMBER 31, 1994  JANUARY 4, 1993**    YEAR ENDED    DECEMBER 31, 1994
 AND RATIOS               TO JUNE 30, 1993   JUNE 30, 1994     (UNAUDITED)     TO JUNE 30, 1993   JUNE 30, 1994      (UNAUDITED)
------------------------- -----------------  -------------  -----------------  -----------------  --------------  -----------------
<S>                       <C>                <C>            <C>                <C>                <C>             <C>
NET ASSET VALUE,
 BEGINNING OF PERIOD.....      $10.00           $10.55           $ 9.53             $10.00            $10.56           $ 9.54
                               ------           ------           ------             ------            ------           ------
INCOME FROM INVESTMENT
 OPERATIONS
  Net Investment
   Income................        0.25             0.52             0.28               0.21              0.43             0.24
  Net Realized and
   Unrealized Gain/(Loss)
   On Investments........        0.55            (0.42)           (0.27)              0.55             (0.40)           (0.28)
                               ------           ------           ------             ------            ------           ------
    Total From Investment
     Operations..........        0.80             0.10             0.01               0.76              0.03            (0.04)
                               ------           ------           ------             ------            ------           ------

DISTRIBUTIONS
  Net Investment
   Income................       (0.25)           (0.50)           (0.19)             (0.20)            (0.44)           (0.16)
  In Excess of Net
   Investment Income.....          --            (0.12)              --                 --             (0.11)              --
  Net Realized Gain......          --            (0.47)              --                 --             (0.47)              --
  In Excess of Net
   Realized Gain.........          --            (0.03)              --                 --             (0.03)              --
                               ------           ------           ------             ------            ------           ------
    Total
     Distributions.......       (0.25)           (1.12)           (0.19)             (0.20)            (1.05)           (0.16)
                               ------           ------           ------             ------            ------           ------
NET ASSET VALUE, END OF
 PERIOD..................      $10.55           $ 9.53           $ 9.35             $10.56            $ 9.54           $ 9.34
                               ------           ------           ------             ------            ------           ------
                               ------           ------           ------             ------            ------           ------
TOTAL RETURN (1).........       8.02%***         0.41%            0.11%***           7.61%***          (0.25)%          (0.47)%***
                               ------           ------           ------             ------            ------           ------
                               ------           ------           ------             ------            ------           ------
RATIOS AND SUPPLEMENTAL
 DATA
  Net Assets, End of
   Period (Thousands)....      $6,633          $10,369           $9,063             $6,120            $5,407           $5,615
  Ratio of Expenses to
   Average Net Assets....       1.45%*           1.45%            1.45%*             2.20%*            2.20%            2.20%*
  Ratio of Net Investment
   Income to Average Net
   Assets................       5.00%*           4.70%            5.79%*             4.25%*            3.95%            5.04%*
  Portfolio Turnover
   Rate..................         55%***          168%              45%***             55%***           168%              45%***
--------------------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE
 LIMITATION DURING THE
 PERIOD
  Per Share Benefit to
 Net
   Investment Income.....      $ 0.07           $ 0.11           $ 0.03             $ 0.07            $ 0.12           $ 0.04
RATIOS BEFORE EXPENSE
 LIMITATION:
  Expenses to Average Net
   Assets................       2.88%*           2.48%            2.10%*             3.63%*            3.29%            3.00%*
  Net Investment Income
   to Average Net
   Assets................       3.57%*           3.67%            5.14%*             2.82%*            2.86%            4.24%*
--------------------------------------------------------------------------------------------------------------------------------
<FN>
  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total  return is  calculated exclusive of  sales charges  or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  0.75% of the average daily net  assets of the Global Fixed Income Fund.
     The Adviser has  agreed to  waive a portion  of this  fee and/or  reimburse
     expenses  of the  Investment Fund  to the  extent that  the total operating
     expenses of  the Investment  Fund exceed  1.45% of  the average  daily  net
     assets  relating to the Class  A shares and 2.20%  of the average daily net
     assets relating to the  Class C shares. For  the fiscal periods ended  June
     30,  1993  and  June 30,  1994,  the  Adviser waived  advisory  fees and/or
     reimbursed  expenses   totalling   approximately  $77,000   and   $150,000,
     respectively, for the Global Fixed Income Fund.
</TABLE>

                                       10
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                               ASIAN GROWTH FUND

<TABLE>
<CAPTION>
                                                                                                     CLASS C
                                                CLASS A                                    (CLASS B UNTIL MAY 1, 1995)
                          ----------------------------------------------------  --------------------------------------------------
                                                             SIX MONTHS ENDED   JUNE 23, 1993**                  SIX MONTHS ENDED
SELECTED PER SHARE DATA   JUNE 23, 1993** TO   YEAR ENDED    DECEMBER 31, 1994    TO JUNE 30,      YEAR ENDED    DECEMBER 31, 1994
 AND RATIOS                 JUNE 30, 1993     JUNE 30, 1994     (UNAUDITED)          1993        JUNE 30, 1994      (UNAUDITED)
------------------------- ------------------  -------------  -----------------  ---------------  --------------  -----------------
<S>                       <C>                 <C>            <C>                <C>              <C>             <C>
NET ASSET VALUE,
 BEGINNING OF PERIOD.....      $ 12.00            $12.00         $  15.50           $ 12.00          $12.00           $ 15.40
                                ------        -------------        ------            ------         -------            ------
INCOME FROM INVESTMENT
 OPERATIONS
  Net Investment Loss....           --             (0.03)           (0.05)               --           (0.10)            (0.10)
  Net Realized and
   Unrealized Gain On
   Investments...........           --              3.53             0.32                --            3.50              0.32
                                ------        -------------        ------            ------         -------            ------
    Total From Investment
     Operations..........           --              3.50             0.27                --            3.40              0.22
                                ------        -------------        ------            ------         -------            ------

DISTRIBUTIONS
  Net Realized Gain......           --                --            (0.51)               --              --             (0.51)
                                ------        -------------        ------            ------         -------            ------

NET ASSET VALUE, END OF
 PERIOD..................      $ 12.00            $15.50         $  15.26           $ 12.00          $15.40           $ 15.11
                                ------        -------------        ------            ------         -------            ------
                                ------        -------------        ------            ------         -------            ------
TOTAL RETURN (1).........        0.00%***         29.17%            1.77%***          0.00%***       28.33%             1.46%***
                                ------        -------------        ------            ------         -------            ------
                                ------        -------------        ------            ------         -------            ------
RATIOS AND SUPPLEMENTAL
 DATA
  Net Assets, End of
   Period (Thousands)....      $11,770          $138,212         $158,178            $8,491        $116,889          $128,673
  Ratio of Expenses to
   Average Net Assets....        1.90%*            1.90%            1.85%*            2.65%*          2.65%             2.61%*
  Ratio of Net Investment
   Loss to Average Net
   Assets................      (0.81)%*          (0.24)%          (0.54)%*          (1.56)%*        (0.99)%           (1.30)%*
  Portfolio Turnover
   Rate..................           0%***            34%              15%***             0%***          34%               15%***
--------------------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE
 LIMITATION DURING THE
 PERIOD
  Per Share Benefit to
 Net
   Investment Loss.......      $  0.01          $   0.03               --           $  0.02         $  0.03                --
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net
   Assets................       11.83%*            2.17%            1.85%*           12.64%*          2.92%             2.61%*
  Net Investment Loss to
   Average Net Assets....     (10.74)%*          (0.51)%          (0.54)%*         (11.55)%*        (1.26)%           (1.30)%*
--------------------------------------------------------------------------------------------------------------------------------
<FN>
  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total return is calculated exclusive of sales charges or deferred sales
     charges.
 (2) Under  the  terms  of  an Investment  Advisory  Agreement,  the  Adviser is
     entitled to receive an investment advisory fee calculated at an annual rate
     of 1.00% of  the average daily  net assets  of the Asian  Growth Fund.  The
     Adviser  has  agreed to  waive  a portion  of  this fee  and/  or reimburse
     expenses of the  Investment Fund  to the  extent that  the total  operating
     expenses  of  the Investment  Fund exceed  1.90% of  the average  daily net
     assets relating to the Class  A shares and 2.65%  of the average daily  net
     assets  relating to the Class  C shares. For the  fiscal periods ended June
     30, 1993  and  June 30,  1994,  the  Adviser waived  advisory  fees  and/or
     reimbursed   expenses   totalling  approximately   $29,000   and  $464,000,
     respectively, for the Asian Growth Fund.
</TABLE>

                                       11
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                             EMERGING MARKETS FUND

<TABLE>
<CAPTION>
                                                                                               CLASS C (CLASS B
                                                                               CLASS A        UNTIL MAY 1, 1995)
                                                                         -------------------  -------------------
                                                                          JULY 6, 1994** TO    JULY 6, 1994** TO
                                                                          DECEMBER 31, 1994    DECEMBER 31, 1994
SELECTED PER SHARE DATA AND RATIOS                                           (UNAUDITED)          (UNAUDITED)
-----------------------------------------------------------------------  -------------------  -------------------
<S>                                                                      <C>                  <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................       $   12.00            $   12.00
                                                                                -------              -------
LOSS FROM INVESTMENT OPERATIONS
  Net Investment Loss..................................................           (0.01)               (0.03)
  Net Realized and Unrealized Loss On Investments......................           (0.94)               (0.96)
                                                                                -------              -------
    Total From Investment Operations...................................           (0.95)               (0.99)
                                                                                -------              -------
NET ASSET VALUE, END OF PERIOD.........................................       $   11.05            $   11.01
                                                                                -------              -------
                                                                                -------              -------
TOTAL RETURN (1).......................................................         (7.92)%***           (8.25)%***
                                                                                -------              -------
                                                                                -------              -------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)................................         $15,899               $11,946
  Ratio of Expenses to Average Net Assets..............................            2.76%*+              3.51%*+
  Ratio of Net Investment Loss to Average Net Assets...................          (0.25)%*             (1.00)%*
  Portfolio Turnover Rate..............................................               8%***                8%***
----------------------------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
  Per Share Benefit to Net Investment Loss.............................  $          0.03      $          0.03

RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets (Including Brazilian Tax Expense).....            3.76%*               4.55%*
  Net Investment Loss to Average Net Assets............................          (1.25)%*             (2.04)%*
----------------------------------------------------------------------------------------------------------------
<FN>
  + The ratio of expenses to average net assets includes Brazilian tax  expense.
    Without  the effect of the  Brazilian tax expense, the  ratio of expenses to
    average net assets would have been 2.15%* and 2.90%*, for Class A and  Class
    C, respectively.
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1)  Total Return  is calculated exclusive  of sales charges  or deferred sales
     charges.
 (2) Under  the  terms of  an  Investment  Advisory Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  1.25% of the average daily net assets of the Emerging Markets Fund. The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of the Investment Fund to the  extent that the total operating expenses  of
     the  Investment Fund exceed 2.15% of  the average daily net assets relating
     to the Class A shares and 2.90% of the average daily net assets relating to
     the Class C  shares. For the  period ended December  31, 1994, the  Adviser
     waived  advisory  fees and/or  reimbursed expenses  totalling approximately
     $115,000 for the Emerging Markets Fund.
</TABLE>

                                       12
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                              LATIN AMERICAN FUND

<TABLE>
<CAPTION>
                                                                                                  CLASS C (CLASS B
                                                                                CLASS A          UNTIL MAY 1, 1995)
                                                                         ---------------------  ---------------------
                                                                           JULY 6, 1994** TO      JULY 6, 1994** TO
                                                                           DECEMBER 31, 1994      DECEMBER 31, 1994
SELECTED PER SHARE DATA AND RATIOS                                            (UNAUDITED)            (UNAUDITED)
-----------------------------------------------------------------------  ---------------------  ---------------------
<S>                                                                      <C>                    <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................        $   12.00              $   12.00
                                                                                  ------                 ------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Loss..................................................            (0.06)                 (0.10)
  Net Realized and Unrealized Gain On Investments......................            0.12#                  0.10#
                                                                                  ------                 ------
    Total From Investment Operations...................................             0.06                   0.00
                                                                                  ------                 ------
DISTRIBUTIONS
  Net Realized Gain....................................................            (0.20)                 (0.20)
                                                                                  ------                 ------
NET ASSET VALUE, END OF PERIOD.........................................        $   11.86              $   11.80
                                                                                  ------                 ------
                                                                                  ------                 ------
TOTAL RETURN (1).......................................................            0.48%***               (0.02)%***
                                                                                    ------                 ------
                                                                                    ------                 ------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)................................             $7,522                 $3,256
  Ratio of Expenses to Average Net Assets..............................              2.77%*+                3.52%*+
  Ratio of Net Investment Loss to Average Net Assets...................            (1.68)%*               (2.37)%*
  Portfolio Turnover Rate..............................................                45%***                 45%***
--------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
  Per Share Benefit to Net Investment Loss.............................  $            0.08      $            0.11
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets (Including Brazilian Tax Expense).....              5.04%*                 6.11%*
  Net Investment Loss to Average Net Assets............................            (3.95)%*               (4.96)%*
--------------------------------------------------------------------------------------------------------------------
<FN>
  + The ratio of expenses to average net assets includes Brazilian tax  expense.
    Without  the effect of the  Brazilian tax expense, the  ratio of expenses to
    average net assets would have been 2.10%* and 2.85%*, for Class A and  Class
    C, respectively.
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
  # The amount shown for the period ended December 31, 1994 for a Latin American
    Fund  share  outstanding  throughout  the period  does  not  agree  with the
    aggregate net  loss  for the  period  because of  the  timing of  sales  and
    repurchases  of Latin American Fund shares in relation to fluctuating market
    value of investments of the Latin American Fund.
 (1) Total Return  is calculated exclusive  of sales charges  or deferred  sales
     charges.
 (2)  Under  the  terms of  an  Investment  Advisory Agreement,  the  Adviser is
     entitled to receive an investment advisory fee calculated at an annual rate
     of 1.25% of the average  daily net assets of  the Latin American Fund.  The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of  the Investment Fund to the extent  that the total operating expenses of
     the Investment Fund exceed 2.10% of  the average daily net assets  relating
     to the Class A shares and 2.85% of the average daily net assets relating to
     the  Class C shares.  For the period  ended December 31,  1994, the Adviser
     waived advisory  fees and/or  reimbursed expenses  totalling  approximately
     $86,000 for the Latin American Fund.
</TABLE>

                                       13
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                              AMERICAN VALUE FUND

<TABLE>
<CAPTION>
                                                              CLASS A                    CLASS C (CLASS B UNTIL MAY 1, 1995)
                                               --------------------------------------  ---------------------------------------
                                               OCTOBER 18, 1993**   SIX MONTHS ENDED   OCTOBER 18, 1993**   SIX MONTHS ENDED
                                                       TO          DECEMBER 31, 1994           TO           DECEMBER 31, 1994
SELECTED PER SHARE DATA AND RATIOS               JUNE 30, 1994        (UNAUDITED)        JUNE 30, 1994         (UNAUDITED)
---------------------------------------------  ------------------  ------------------  ------------------  -------------------
<S>                                            <C>                 <C>                 <C>                 <C>
NET ASSET VALUE, BEGINNING OF PERIOD.........       $   12.00           $   11.70           $   12.00           $   11.69
                                                       ------              ------              ------              ------
INCOME FROM INVESTMENT OPERATIONS............
  Net Investment Income......................            0.17                0.13                0.11                0.08
  Net Realized and Unrealized Gain/(Loss) On
   Investments...............................           (0.30)               0.26               (0.31)               0.26
                                                       ------              ------              ------              ------
    Total From Investment Operations.........           (0.13)               0.39               (0.20)               0.34
                                                       ------              ------              ------              ------
DISTRIBUTIONS
  Net Investment Income......................           (0.17)              (0.15)              (0.11)              (0.09)
  Net Realized Gain..........................              --               (0.23)                 --               (0.23)
                                                       ------              ------              ------              ------
    Total Distributions......................           (0.17)              (0.38)              (0.11)              (0.32)
                                                       ------              ------              ------              ------
NET ASSET VALUE, END OF PERIOD...............       $   11.70           $   11.71           $   11.69           $   11.71
                                                       ------              ------              ------              ------
                                                       ------              ------              ------              ------
TOTAL RETURN (1).............................         (1.12)%***            3.39%***          (1.70)%***             2.95%***
                                                       ------              ------              ------               ------
                                                       ------              ------              ------               ------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)......         $10,717             $13,090              $7,237               $8,533
  Ratio of Expenses to Average Net Assets....           1.50%*              1.50%*              2.25%*               2.25%*
  Ratio of Net Investment Income to Average
   Net Assets................................           2.14%*              2.24%*              1.39%*               1.50%*
  Portfolio Turnover Rate....................             17%                  9%***              17%                   9%***
-----------------------------------------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE
 LIMITATION DURING THE PERIOD
  Per Share Benefit to Net
   Investment Income.........................           $0.08               $0.03               $0.08                $0.03
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets.............           2.48%*              2.00%*              3.28%*               2.80%*
  Net Investment Income to Average Net
   Assets....................................           1.16%*              1.74%*              0.36%*               0.95%*
-----------------------------------------------------------------------------------------------------------------------------
<FN>
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1)  Total Return  is calculated exclusive  of sales charges  or deferred sales
     charges.
 (2) Under  the  terms of  an  Investment  Advisory Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  0.85% of the average  daily net assets of  the American Value Fund. The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of the Investment Fund to the  extent that the total operating expenses  of
     the  Investment Fund exceed 1.50% of  the average daily net assets relating
     to the Class A shares and 2.25% of the average daily net assets relating to
     the Class C shares. For the fiscal period ended June 30, 1994, the  Adviser
     waived  advisory  fees and/or  reimbursed expenses  totalling approximately
     $102,000 for the American Value Fund.
</TABLE>

                                       14
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                           WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
                                                           CLASS A                      CLASS C (CLASS B UNTIL MAY 1, 1995)
                                           ----------------------------------------  ------------------------------------------
                                                                 SIX MONTHS ENDED                           SIX MONTHS ENDED
                                            APRIL 21, 1994**     DECEMBER 31, 1994   APRIL 21, 1994** TO    DECEMBER 31, 1994
SELECTED PER SHARE DATA AND RATIOS          TO JUNE 30, 1994        (UNAUDITED)         JUNE 30, 1994          (UNAUDITED)
-----------------------------------------  -------------------  -------------------  -------------------  ---------------------
<S>                                        <C>                  <C>                  <C>                  <C>
NET ASSET VALUE, BEGINNING OF PERIOD.....       $   12.00            $   12.17            $   12.00             $   12.16
                                                   ------              -------               ------                ------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income..................            0.18                 0.57                 0.17                  0.52
  Net Realized and Unrealized Gain/
   (Loss) On Investments.................            0.16                (0.74)                0.15                 (0.73)
                                                   ------              -------               ------                ------
    Total From Investment Operations.....            0.34                (0.17)                0.32                 (0.21)
                                                   ------              -------               ------                ------
DISTRIBUTIONS
  Net Investment Income..................           (0.17)               (0.61)               (0.16)                (0.56)
  Net Realized Gain......................              --                (0.12)                  --                 (0.12)
                                                   ------              -------               ------                ------
    Total Distributions..................           (0.17)               (0.73)               (0.16)                (0.68)
                                                   ------              -------               ------                ------
NET ASSET VALUE, END OF PERIOD...........       $   12.17            $   11.27            $   12.16             $   11.27
                                                   ------              -------               ------                ------
                                                   ------              -------               ------                ------
TOTAL RETURN (1).........................           2.86%***            (1.49)%***             2.62%***            (1.90)%***
                                                    ------              -------               ------                ------
                                                    ------              -------               ------                ------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period
   (Thousands)...........................           $6,857              $10,031               $6,081                $9,427
  Ratio of Expenses to Average Net
   Assets................................            1.55%*               1.55%*               2.30%*                2.30%*
  Ratio of Net Investment Income to
   Average Net Assets....................            8.29%*               9.72%*               7.54%*                8.96%*
  Portfolio Turnover Rate................              19%                  74%***               19%                   74%***
-----------------------------------------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE
 LIMITATION DURING THE PERIOD
  Per Share Benefit to Net
   Investment Income.....................            $0.02                $0.03                $0.06                 $0.03
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets.........            3.23%*               2.07%*               4.00%*                2.85%*
  Net Investment Income to Average Net
   Assets................................            6.61%*               9.20%*               5.84%*                8.41%*
-----------------------------------------------------------------------------------------------------------------------------
<FN>
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1) Total Return is calculated exclusive of sales charges or deferred sales
     charges.
 (2) Under  the  terms of  an  Investment  Advisory Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of 0.75% of the average daily net assets of the Worldwide High Income Fund.
     The  Adviser has  agreed to  waive a portion  of this  fee and/or reimburse
     expenses of the  Investment Fund  to the  extent that  the total  operating
     expenses  of  the Investment  Fund exceed  1.55% of  the average  daily net
     assets relating to the Class  A shares and 2.30%  of the average daily  net
     assets relating to the Class C shares. For the fiscal period ended June 30,
     1994, the Adviser waived advisory fees and/or reimbursed expenses totalling
     approximately $39,000, for the Worldwide High Income Fund.
</TABLE>

                                       15
<PAGE>
                               PROSPECTUS SUMMARY

THE FUND

    The  Fund currently consists  of ten Investment  Funds, offering investors a
range of investment choices with  Morgan Stanley providing services as  Adviser,
Administrator  and  Distributor. Each  Investment  Fund has  its  own investment
objectives and policies  designed to  meet its specific  goals. This  prospectus
pertains  to the Class A, Class B and Class C shares of the following Investment
Funds (the  Money Market  Fund  has only  one class  of  shares, which  are  not
currently being offered):

    -The  GLOBAL EQUITY ALLOCATION FUND  seeks long-term capital appreciation by
     investing in common stocks of U.S. and non-U.S. issuers in accordance  with
     country  weightings  determined by  the  Adviser and  with  stock selection
     within each country designed to replicate a broad market index.

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

    -The ASIAN GROWTH  FUND seeks  long-term capital  appreciation by  investing
     primarily in the common stocks of Asian issuers, excluding Japan.

    -The EMERGING MARKETS FUND seeks long-term capital appreciation by investing
     primarily in common stocks of emerging country issuers.

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

    -The EUROPEAN EQUITY FUND seeks long-term capital appreciation by  investing
     primarily in the common stocks of European issuers.

    -The  AMERICAN VALUE FUND seeks high  long-term total return by investing in
     undervalued common stocks of small- to medium-sized corporations.

    -The WORLDWIDE HIGH INCOME  FUND seeks high  current income consistent  with
     relative  stability of principal and, secondarily, capital appreciation, by
     investing primarily in a portfolio of high yielding fixed income securities
     of issuers throughout the world.

    -The GROWTH AND INCOME FUND seeks capital appreciation and current income by
     investing primarily in equity and equity-linked securities.

    -The MONEY MARKET FUND seeks to maximize current income and preserve capital
     while maintaining  high  levels  of liquidity  through  investing  in  high
     quality  money market instruments with remaining  maturities of 397 days or
     less.

INVESTMENT MANAGEMENT

    Morgan   Stanley   Asset   Management   Inc.   (the   "Adviser"   and    the
"Administrator"), a wholly owned subsidiary of Morgan Stanley Group Inc., which,
together    with    its    affiliated    asset    management    companies,   had

                                       16
<PAGE>
approximately $48.7 billion in assets under management as an investment  manager
or  as a fiduciary adviser  at December 31, 1994,  acts as investment adviser to
the Fund  and each  of its  Investment Funds.  See "Management  of the  Fund  --
Investment Adviser" and "-- Administrator."

HOW TO INVEST

    Class  A shares of the Global  Equity Allocation, Global Fixed Income, Asian
Growth, Emerging  Markets,  Latin  American, European  Equity,  American  Value,
Worldwide  High Income and  Growth and Income Funds  (the "Non-Money Funds") are
offered at  net asset  value plus  an initial  sales charge  of up  to 4.75%  in
graduated  percentages  based on  the  investor's aggregate  investments  in the
Non-Money Funds. Shares of the Money Market Fund and Class B shares and Class  C
shares of the Non-Money Funds are offered at net asset value. Class B shares are
subject  to a contingent  deferred sales charge  ("CDSC") for redemptions within
six years and are  subject to higher  annual distribution-related expenses  than
the  Class A shares. Class C shares are subject to a CDSC for redemptions within
one year and are subject to higher annual distribution-related expenses than the
Class A shares.  Share purchases  may be  made through  Morgan Stanley,  through
Participating  Dealers or by sending payments  directly to the Transfer Agent on
behalf of the Fund. The minimum initial investment is $1,000 for each Investment
Fund,  except  that  the  minimum  initial  investment  amount  for   individual
retirement  accounts ("IRAs") is $250. The minimum for subsequent investments is
$100, except that  the minimum for  subsequent investments for  IRAs is $50  and
there  is no minimum for automatic  reinvestment of dividends and distributions.
See "Purchase of Shares."

HOW TO REDEEM

    Shares of each Investment Fund may be redeemed at any time at the net  asset
value  per share  of the  Investment Fund next  determined after  receipt of the
redemption request. The redemption price may  be more or less than the  purchase
price.  A Class  A shareholder of  a Non-Money Fund  who did not  pay an initial
sales charge due to the size of the purchase and redeems shares within one  year
of  purchase will be subject  to a contingent deferred  sales charge ("CDSC") of
1.00% on the lesser of  the current market value of  the shares redeemed or  the
total  cost of such shares. Certain Class  B shares that are redeemed within six
years of purchase  are subject to  a maximum  CDSC of 5.00%  which decreases  in
steps to 0% after six years. Certain Class C shares that are redeemed within one
year  of purchase  are subject  to a  CDSC of  1.00%. The  CDSC in  each case is
applicable to the lesser of the current  market value of the shares redeemed  or
the  total cost of such  shares. In determining whether  either of such CDSCs is
payable, and, if so,  the amount of  the charge, it is  assumed that shares  not
subject  to such charge are the first redeemed followed by other shares held for
the longest period of time. If a shareholder reduces his/her total investment in
shares of an Investment Fund to less  than $1,000, the entire investment may  be
subject to involuntary redemption. See "Redemption of Shares."

RISK FACTORS

    The  investment policies  of each Investment  Fund entail  certain risks and
considerations of which an investor should be aware. The American Value,  Growth
and  Income and Money Market Funds may, and the remaining Investment Funds will,
invest in  securities of  foreign  issuers. Securities  of foreign  issuers  are
subject  to  certain risks  not typically  associated with  domestic securities,
including, among other risks, changes in currency rates and in exchange  control
regulations,  costs in  connection with conversions  between various currencies,
limited publicly  available  information  regarding  foreign  issuers,  lack  of
uniformity in accounting,

                                       17
<PAGE>
auditing  and financial  standards and requirements,  potential price volatility
and lesser liquidity  of shares  traded on securities  markets, less  government
supervision  and regulation of securities markets, changes in taxes on income on
securities, possible seizure,  nationalization or expropriation  of the  foreign
issuer  or foreign deposits, the risk  of war and potentially greater difficulty
in obtaining a judgment in a court  outside the U.S. The Asian Growth,  Emerging
Markets,  Latin American, European Equity and Worldwide High Income Funds invest
in securities of issuers located  in developing countries and emerging  markets.
These  securities  may  impose  greater  liquidity  risks  and  other  risks not
typically associated with  investing in more  established markets. The  American
Value Fund seeks high long-term total return by investing primarily in small- to
medium-sized corporations which are more vulnerable to financial risks and other
risks  than larger  corporations, and therefore  may involve a  higher degree of
risk  and  price  volatility  than  investments  in  the  securities  of  larger
corporations.  The Emerging  Markets, Latin  American and  Worldwide High Income
Funds' investments in  emerging markets may  also be in  small- to  medium-sized
companies.  The Non-Money  Funds, except for  the American Value  and Growth and
Income Funds,  may  invest  in  sovereign  debt.  The  Emerging  Markets,  Latin
American,  Growth and Income and Worldwide High Income Funds may invest in lower
rated and unrated debt securities (including  in the case of the Latin  American
Fund,  sovereign  debt)  which are  considered  speculative with  regard  to the
payment of interest and return of  principal. In addition, each Investment  Fund
may   invest  in  repurchase  agreements,   borrow  money,  lend  its  portfolio
securities, and purchase securities on a when-issued or delayed delivery  basis.
The  Latin American, Worldwide  High Income, Growth and  Income and Money Market
Funds may  invest in  reverse  repurchase agreements.  The Non-Money  Funds  may
invest  in forward foreign  currency exchange contracts,  and the Worldwide High
Income, Emerging Markets, American Value, European Equity, Growth and Income and
Latin American  Funds  may  invest  in foreign  currency  exchange  futures  and
options,  to hedge  the currency  risks associated  with investment  in non-U.S.
dollar denominated securities.  The Emerging Markets,  Latin American,  European
Equity, Growth and Income and Worldwide High Income Funds may invest in options.
The  Worldwide High  Income Fund  may invest  in structured  investments and the
Emerging Markets,  Latin American,  European Equity  and Worldwide  High  Income
Funds  may engage  in short selling.  The Growth  and Income Fund  may invest in
PERCS, ELKS, LYONs  and similar  securities which are  convertible upon  various
terms and conditions into equity securities. Each of these investment strategies
involves  specific risks  which are  described under  "Investment Objectives and
Policies" and "Additional Investment  Information" herein and under  "Investment
Objectives  and  Policies"  in  the  Statement  of  Additional  Information. See
"Investment Limitations"  for a  description of  the risks  associated with  the
non-diversified  status of the  Global Fixed Income,  Emerging Markets and Latin
American Funds.

                                       18
<PAGE>
                       INVESTMENT OBJECTIVES AND POLICIES

    The investment  objectives  of each  Investment  Fund are  described  below,
together  with the  policies the  Fund employs in  its efforts  to achieve these
objectives.  Each  Investment  Fund's  investment  objectives  are   fundamental
policies  which may not be changed by an Investment Fund without the approval of
a majority of the Investment Fund's  outstanding voting securities. There is  no
assurance  that an  Investment Fund will  attain its  objectives. The investment
policies described below are not fundamental policies and may be changed without
shareholder approval.

THE GLOBAL EQUITY ALLOCATION FUND

    The investment objective of the Global Equity Allocation Fund is to  provide
long-term  capital  appreciation  by  investing in  common  stocks  of  U.S. and
non-U.S. issuers in accordance with country weightings determined by the Adviser
and with  stock selection  within each  country designed  to replicate  a  broad
market  index. The Investment Fund will,  under normal market conditions, invest
at least 65% of the value of its total assets in equity securities of issuers in
at least three different countries. The Adviser utilizes a top-down approach  in
selecting  investments for the Investment Fund that emphasizes country selection
and weighting rather than individual stock selection. This approach reflects the
Adviser's philosophy  that a  diversified selection  of securities  representing
exposure  to world markets based upon the economic outlook and current valuation
levels for each country is an effective way to maximize the return and  minimize
the risk associated with global investment.

    The  Adviser determines  country allocations for  the Investment  Fund on an
ongoing  basis  within   policy  ranges  dictated   by  each  country's   market
capitalization  and liquidity.  The Investment  Fund will  invest in  the United
States and other industrialized countries throughout the world that comprise the
Morgan Stanley Capital International World Index. These countries currently  are
Australia,  Austria, Belgium,  Canada, Denmark,  Finland, France,  Germany, Hong
Kong, Italy, Japan, the Netherlands,  New Zealand, Norway, Singapore/  Malaysia,
Spain,  Sweden,  Switzerland,  the  United Kingdom  and  the  United  States. In
addition, the Investment  Fund may invest  a portion of  its assets in  emerging
country  equity securities, which  are described in detail  in the discussion of
the Emerging Markets Fund, below. The  Adviser intends to use the same  criteria
as  used for the  Emerging Markets Fund in  selecting emerging market securities
for investment. The Investment Fund currently  intends to invest in some or  all
of the following countries:

<TABLE>
<CAPTION>
                                   South
Argentina  Indonesia  Portugal     Africa
<S>        <C>        <C>          <C>
Brazil     Malaysia   Philippines  Thailand
India      Mexico     South Korea  Turkey
</TABLE>

    By  analyzing a variety of macroeconomic  and political factors, the Adviser
develops  fundamental  projections  on  interest  rates,  currencies,  corporate
profits and economic growth for each country. These country projections are then
used  to determine what  the Adviser believes to  be a fair  value for the stock
market of each country.  Discrepancies between actual value  and fair value,  as
determined by the Adviser, provide an expected return for each stock market. The
expected  return is  adjusted by currency  return expectations  derived from the

                                       19
<PAGE>
Adviser's purchasing-power parity exchange rate  model to arrive at an  expected
total  return in  U.S. dollars.  The final  country allocation  decision is then
reached by considering  the expected total  return in light  of various  country
specific  considerations such as market  size, volatility, liquidity and country
risk.

    Within a particular country,  investments are made  through the purchase  of
common  stocks which, in the aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International Index for the  given
country.  The Morgan Stanley Capital  International ("MSCI") Indices measure the
performance of stock markets  worldwide. The various MSCI  Indices are based  on
the  share  prices  of companies  listed  on  the local  stock  exchange  of the
specified country or countries  within a specified  region. The combined  market
capitalization  of companies in these indices represent approximately 60 percent
of the aggregate market value of the covered stock exchanges. Companies included
in the MSCI country index replicate the industry composition of the local market
and are a representative sampling of large, medium and small companies,  subject
to liquidity. Non-domiciled companies traded on the local exchange and companies
with  restricted  float  due  to dominant  shareholders  or  cross-ownership are
avoided. The Adviser  may overweight  or underweight  an industry  segment of  a
particular  index if it  concludes this would be  advantageous to the Investment
Fund. Common stocks purchased for the Investment Fund include common stocks  and
equivalents,  such as securities  convertible into common  stocks and securities
having common stock  characteristics, such  as rights and  warrants to  purchase
common stocks. Debt securities convertible into common stocks will be investment
grade  (rated  in one  of the  four  highest rating  categories by  a nationally
recognized statistical rating organization ("NRSRO")) or, if unrated, will be of
comparable quality as  determined by the  Adviser under the  supervision of  the
Board  of Directors. Indexation of the Investment Fund's stock selection reduces
stock-specific risk  through diversification  and minimizes  transaction  costs,
which can be substantial in foreign markets.

    The  Investment Fund may, to a limited extent, invest in non-publicly traded
securities,  private  placements  and  restricted  securities.  See  "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities."

    The  Investment Fund will normally purchase  common stocks listed on a major
stock  exchange  in  the   subject  country.  For   a  description  of   special
considerations and certain risks associated with investments in foreign issuers,
see  "Additional Investment  Information." The  Investment Fund  may temporarily
reduce its equity holdings for defensive purposes in response to adverse  market
conditions  and  invest in  domestic,  Eurodollar and  foreign  short-term money
market instruments.  See  "Additional  Investment Information  --  Money  Market
Instruments"  in this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information.

THE GLOBAL FIXED INCOME FUND

    The investment objective of  the Global Fixed Income  Fund is to produce  an
attractive  real rate of  return while preserving capital  by investing in fixed
income securities of U.S. and foreign issuers denominated in U.S. Dollars and in
other currencies.  The Investment  Fund will,  under normal  market  conditions,
invest  at least 65% of the value of its total assets in fixed income securities
of issuers in at least three  different countries. The Investment Fund seeks  to
achieve  its  objectives by  investing in  United States  government securities,
foreign government securities, securities of supranational entities,  Eurobonds,
and  corporate bonds with varying  maturities denominated in various currencies.
In   selecting    portfolio    securities,    the    Adviser    evaluates    the

                                       20
<PAGE>
currency, market, and individual features of the securities being considered for
investment.  For  a  description  of special  considerations  and  certain risks
associated with  investments  in  foreign issuers,  see  "Additional  Investment
Information."

    The Adviser seeks to minimize investment risk by investing in a high quality
portfolio  of debt securities, the majority of which will be rated in one of the
two highest rating categories by an NRSRO or, if unrated, will be of  comparable
quality  as determined  by the  Adviser under  the supervision  of the  Board of
Directors. U.S. Government securities  in which the  Investment Fund may  invest
include  obligations issued or  guaranteed by the U.S.  Government, such as U.S.
Treasury securities, as well as those backed by the full faith and credit of the
United  States,  such  as  obligations  of  the  Government  National   Mortgage
Association  and The Export-Import Bank. The  Investment Fund may also invest in
obligations   issued   or   guaranteed   by   U.S.   Government   agencies    or
instrumentalities where the Investment Fund must look principally to the issuing
or guaranteeing agency for ultimate repayment. The Investment Fund may invest in
obligations  issued  or guaranteed  by foreign  governments and  their political
subdivisions, authorities, agencies or  instrumentalities, and by  supranational
entities  (such as  the World Bank,  The European Economic  Community, The Asian
Development Bank  and the  European  Coal and  Steel Community).  Investment  in
foreign  government securities  will be  limited to  those of  developed nations
which the  Adviser  believes  to  pose  limited  credit  risk.  These  countries
currently include Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany,  Ireland,  Italy,  Japan,  Luxembourg,  the  Netherlands,  New Zealand,
Norway, Spain,  Sweden,  Switzerland  and  The  United  Kingdom.  Corporate  and
supranational  obligations  in which  the Investment  Fund  will invest  will be
limited to  those  rated  "A"  or better  by  Moody's  Investors  Service,  Inc.
("Moody's"),  Standard & Poor's Corporation ("Standard  & Poor's") or IBCA Ltd.,
or if unrated,  of comparable  quality as determined  by the  Adviser under  the
supervision of the Fund's Board of Directors.

    The   Adviser's  approach  to  multi-currency,  fixed-income  management  is
strategic and value-based  and designed to  produce an attractive  real rate  of
return.  The Adviser's assessment of the bond markets and currencies is based on
an analysis of  real interest rates.  Current nominal yields  of securities  are
adjusted  for inflation prevailing in each  currency sector using an analysis of
past and projected inflation  rates. The Investment Fund's  aim is to invest  in
bond markets which offer the most attractive real returns relative to inflation.

    Under  normal  circumstances,  the  Investment  Fund  will  have  a  neutral
investment position  in medium-term  securities (i.e.,  those with  a  remaining
maturity of between three and seven years) and will respond to changing interest
rate  levels by shortening or  lengthening portfolio maturity through investment
in longer- or shorter-term  instruments. For example,  the Investment Fund  will
respond to high levels of real interest rates through a lengthening in portfolio
maturity.  Current  and historical  yield spreads  among  the three  main market
segments -- the  Government, Foreign  and Euro  markets --  guide the  Adviser's
selection  of  markets  and  particular  securities  within  those  markets. The
analysis of currencies is made independent of the analysis of markets. Value  in
foreign  exchange is determined  by relative purchasing power  parity of a given
currency.  The  Investment  Fund  seeks   to  invest  in  currencies   currently
undervalued  based  on purchasing  power  parity. The  Adviser  analyzes current
account and capital account  performance and real interest  rates to adjust  for
shorter-term currency flows.

                                       21
<PAGE>
    For temporary defensive purposes, the Investment Fund may invest part or all
of  its total assets in cash or in short-term securities, including certificates
of deposit, commercial  paper, notes,  obligations issued or  guaranteed by  the
U.S.  Government or  any of  its agencies  or instrumentalities,  and repurchase
agreements involving such government securities.

    The Investment Fund may, to a limited extent, invest in non-publicly  traded
securities,  private  placements  and  restricted  securities.  See  "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities."

    The Investment Fund  will occasionally enter  into forward foreign  currency
exchange  contracts. These are used to hedge foreign currency exchange exposures
when  required.  See  "Additional  Investment  Information  --  Forward  Foreign
Currency  Exchange  Contracts  and  Futures Contracts"  in  this  Prospectus and
"Investment Objectives and  Policies -- Forward  Foreign Currency Contracts"  in
the Statement of Additional Information.

THE ASIAN GROWTH FUND

    The  investment  objective of  the Asian  Growth  Fund is  long-term capital
appreciation through investment  primarily in  common stocks  of Asian  issuers,
excluding  Japan. The  production of  any current  income is  incidental to this
objective. The Investment Fund seeks to achieve its objective by investing under
normal market conditions at least 65% of the value of its total assets in common
stocks which are traded on recognized  stock exchanges of the countries in  Asia
described below and in common stocks of companies organized under the laws of an
Asian  country whose business  is conducted principally  in Asia. The Investment
Fund does not  intend to invest  in securities  which are traded  in markets  in
Japan or in companies organized under the laws of Japan. The Investment Fund may
also  invest in sponsored  or unsponsored American  Depositary Receipts of Asian
issuers that are traded on stock exchanges in the United States. See "Additional
Investment Information."

    The Investment Fund will invest in countries having more established markets
in the Asian  region. The Asian  countries to be  represented in the  Investment
Fund  will  consist of  three or  more  of the  following countries:  Hong Kong,
Singapore, Malaysia,  Thailand, the  Philippines and  Indonesia. The  Investment
Fund  may also invest in common stocks traded on markets in China, Taiwan, South
Korea, India, Pakistan, Sri Lanka and other developing markets that are open  to
foreign  investment. There  is no requirement  that the Investment  Fund, at any
given time, invest  in any one  particular country  or in all  of the  countries
listed  above or in  any other Asian  countries. The Investment  Fund has no set
policy for allocating investments among the several Asian countries.  Allocation
of  investments  among  the  various  countries  will  depend  on  the  relative
attractiveness of the stocks of issuers in the respective countries.  Government
regulation  and restrictions in many of the  countries of interest may limit the
amount, mode and extent of investment in companies in such countries.

    At least 65% of the total assets of the Investment Fund will be invested  in
common  stocks of  issuers in  Asian countries  under normal  circumstances. The
remaining portion of the Investment Fund will be kept in any combination of debt
instruments, bills and bonds of governmental  entities in Asia and the U.S.,  in
notes,  debentures,  and  bonds  of  companies  in  Asia  and  in  money  market
instruments in the U.S. Common stocks for this purpose include common stocks and
equivalents such as  securities convertible  into common  stocks and  securities
having  common stock  characteristics, such as  rights and  warrants to purchase
common stocks. Debt

                                       22
<PAGE>
securities convertible into common stocks will be investment grade (rated in one
of the four  highest rating categories  by a NRSRO)  or, if unrated  will be  of
comparable  quality as  determined by the  Adviser under the  supervision of the
Board of Directors.

    The Adviser's approach in selecting  investments for the Investment Fund  is
oriented  to individual stock selection and is value driven. In selecting stocks
for the Investment Fund, the Adviser initially identifies those stocks which  it
believes  to  be undervalued  in  relation to  the  issuer's assets,  cash flow,
earnings and revenues,  and then evaluates  the future value  of such stocks  by
running  the  results of  an in-depth  study  of the  issuer through  a dividend
discount model.  The Adviser  utilizes  the research  of  a number  of  sources,
including  its  affiliate in  Geneva, Morgan  Stanley Capital  International, in
identifying attractive securities, and applies a number of proprietary screening
criteria to identify those securities it believes to be undervalued.  Investment
Fund  holdings are regularly  reviewed and subjected  to fundamental analysis to
determine whether  they continue  to conform  to the  Adviser's value  criteria.
Those  which  no  longer conform  are  sold.  The Adviser  will  analyze assets,
revenues and  earnings of  an  issuer. In  selecting industries  and  particular
issuers,  the Adviser will evaluate costs of  labor and raw materials, access to
technology,  export  of  products   and  government  regulation.  Although   the
Investment Fund seeks to invest in larger companies, it may invest in small- and
medium-sized companies that, in the Adviser's view, have potential for growth.

    The  Investment Fund may invest in  equity securities of smaller capitalized
companies, which are more  vulnerable to financial and  other risks than  larger
companies.  Investment in securities  of smaller companies  may involve a higher
degree of risk and price volatility than in securities of larger companies.  The
Investment  Fund's  investments will  include securities  of issuers  located in
developing countries  and  traded in  emerging  markets. These  securities  pose
greater  liquidity risks and other risks than securities of companies located in
developed countries and traded in more established markets. For a description of
special considerations and certain risks  associated with investment in  foreign
issuers,   see  "Additional   Investment  Information."   See  also  "Investment
Objectives and Policies" in the Statement of Additional Information.

    Although the  Investment  Fund intends  to  invest primarily  in  securities
listed  on  stock  exchanges,  it  may  also  invest  in  securities  traded  in
over-the-counter markets  and,  to  a limited  extent,  in  non-publicly  traded
securities.  Securities  traded  in  over-the-counter  markets  and non-publicly
traded securities pose liquidity  risks. See "Additional Investment  Information
-- Non-Publicly Traded Securities, Private Placements and Restricted Securities"
in this Prospectus.

    Pending investment or settlement, and for liquidity purposes, the Investment
Fund  may invest  in domestic,  Eurodollar and  foreign short-term  money market
instruments. As determined by the Adviser, the Investment Fund may also purchase
such instruments to temporarily reduce the Investment Fund's equity holdings for
defensive purposes in response to adverse market conditions.

    Because of the lack of hedging  facilities in the currency markets of  Asia,
no  active  currency hedging  strategy is  anticipated currently.  Instead, each
investment will be considered on a total currency adjusted basis with the United
States dollar as  a base  currency. The Investment  Fund may  engage in  foreign
currency  exchange contracts. See "Additional  Investment Information -- Forward
Foreign Currency Exchange Contracts and Futures Contracts" in this Prospectus.

                                       23
<PAGE>
THE EMERGING MARKETS FUND

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

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

As markets in other countries develop, the Investment Fund expects to expand and
further diversify the  emerging countries  in which it  invests. The  Investment
Fund  does not intend to invest in any  security in a country where the currency
is not  freely convertible  to  U.S. dollars,  unless  the Investment  Fund  has
obtained  the necessary governmental licensing to convert such currency or other
appropriately licensed  or  sanctioned  contractual guarantee  to  protect  such
investment  against loss  of that currency's  external value,  or the Investment
Fund has a reasonable expectation at the  time the investment is made that  such
governmental  licensing or other appropriately  licensed or sanctioned guarantee
would be obtained or that the currency in which the security is quoted would  be
freely  convertible at  the time  of any  proposed sale  of the  security by the
Investment Fund.

    An emerging country security is one issued by a company that, in the opinion
of the  Adviser, has  one or  more  of the  following characteristics:  (i)  its
principal  securities trading market is in an emerging country; (ii) alone or on
a consolidated basis it derives  50% or more of  its annual revenue from  either
goods produced, sales made or services performed in emerging countries; or (iii)
it is organized under the laws of, and has a

                                       24
<PAGE>
principal  office in, an emerging country.  The Adviser will base determinations
as to eligibility on  publicly available information and  inquiries made to  the
companies. (See "Foreign Investment Risk Factors" for a discussion of the nature
of information publicly available for non-U.S. companies).

    To the extent that the Investment Fund's assets are not invested in emerging
country  common stocks, the remainder of the  assets may be invested in (i) debt
securities denominated  in the  currency of  an emerging  country or  issued  or
guaranteed  by  an emerging  country company  or the  government of  an emerging
country; (ii) equity  or debt  securities of corporate  or governmental  issuers
located  in industrialized countries; and  (iii) short-term and medium-term debt
securities of  the  type  described below  under  "Temporary  Instruments."  The
Investment  Fund's assets may be invested in debt securities when the Investment
Fund believes that, based upon factors such as relative interest rate levels and
foreign exchange rates, such debt  securities offer opportunities for  long-term
capital appreciation. It is likely that many of the debt securities in which the
Investment  Fund will  invest will  be unrated, and  whether or  not rated, such
securities may have speculative characteristics. When deemed appropriate by  the
Adviser,  the Investment Fund may invest up to 10% of its total assets (measured
at the time of the investment)  in lower quality debt securities. Lower  quality
debt  securities,  also  known  as  "junk bonds,"  are  often  considered  to be
speculative and involve greater risk of default or price changes due to  changes
in  the issuer's  creditworthiness. The  market prices  of these  securities may
fluctuate  more  than  those  of  higher  quality  securities  and  may  decline
significantly  in  periods  of  general economic  difficulty,  which  may follow
periods of rising interest rates. Securities in the lowest quality category  may
present  the risk  of default,  or may  be in  default. For  temporary defensive
purposes, the Investment Fund may  invest less than 65%  of its total assets  in
emerging country equity securities, in which case the Investment Fund may invest
in  other  equity  securities or  may  invest  in debt  securities  of  the kind
described under "Temporary Investments" below.

    The Investment Fund may invest indirectly in securities of emerging  country
issuers  through sponsored or unsponsored American Depositary Receipts ("ADRs").
ADRs may not necessarily be denominated  in the same currency as the  underlying
securities  into which they  may be converted.  In addition, the  issuers of the
stock of unsponsored ADRs are not obligated to disclose material information  in
the  United States and, therefore,  there may not be  a correlation between such
information and the  market value  of the  ADR. The  Investment Fund  may, to  a
limited extent, invest in non-publicly traded securities, private placements and
restricted  securities. See  "Additional Investment  Information -- Non-Publicly
Traded Securities, Private Placements and Restricted Securities."

    The Investment Fund intends  to purchase and  hold securities for  long-term
capital  appreciation and does not expect to trade for short-term gain. The rate
of portfolio turnover  will not be  a limiting factor  when the Investment  Fund
deems  it appropriate to purchase or  sell securities. However, the U.S. federal
tax requirement  that the  Investment Fund  derive less  than 30%  of its  gross
income  from the sale or  disposition of securities held  less than three months
may limit the Investment Fund's ability to dispose of its securities.

THE LATIN AMERICAN FUND

    The investment objective  of the  Latin American Fund  is long-term  capital
appreciation.  The Investment Fund seeks to  achieve this objective by investing
primarily in equity securities  (i) of companies organized  in or for which  the
principal  securities trading market is in  Latin America, (ii) denominated in a
Latin American  currency issued  by  companies to  finance operations  in  Latin
America, or (iii) of companies that alone or on a

                                       25
<PAGE>
consolidated basis derive 50% or more of their annual revenues from either goods
produced,  sales  made or  services  performed in  Latin  America (collectively,
"Latin American  issuers")  and  by  investing,  from  time  to  time,  in  debt
securities  issued or guaranteed by a  Latin American government or governmental
entity  ("Sovereign  Debt").  Income  is   not  a  consideration  in   selecting
investments or an investment objective.

    The  securities  markets  of  Latin  American  countries  are  substantially
smaller, less liquid and more volatile than the major securities markets in  the
United  States. A high proportion  of the shares of  many Latin American issuers
may be held by a limited number of persons, which may limit the number of shares
available for investment by the  Fund. A limited number  of issuers in most,  if
not  all, Latin American  securities markets may  represent a disproportionately
large percentage  of  market  capitalization  and  trading  value.  The  limited
liquidity  of  Latin  American securities  markets  may also  affect  the Fund's
ability to acquire or dispose of securities  at the price and time it wishes  to
do  so. In addition, certain Latin  American securities markets, including those
of Argentina, Brazil, Chile and Mexico,  are susceptible to being influenced  by
large   investors  trading  significant   blocks  of  securities   or  by  large
dispositions of securities resulting from the failure to meet margin calls  when
due.

    In  addition to their smaller size, lesser liquidity and greater volatility,
Latin American  securities  markets  are less  developed  than  U.S.  securities
markets. Disclosure and regulatory standards are in many respects less stringent
than  U.S.  standards.  Furthermore, there  is  a  low level  of  monitoring and
regulation of the markets and the  activities of investors in such markets,  and
enforcement  of existing  regulations has been  extremely limited. Consequently,
the prices at which the  Fund may acquire investments  may be affected by  other
market participants' anticipation of the Fund's investing, by trading by persons
with  material non-public information and  by securities transactions by brokers
in  anticipation  of  transactions  by   the  Fund  in  particular   securities.
Commissions  and other  transaction costs  on most,  if not  all, Latin American
securities exchanges are generally  higher than in  the United States,  although
the  Fund  will  endeavor to  achieve  the  most favorable  net  results  on its
portfolio transactions.

    The economies of individual Latin American countries may differ favorably or
unfavorably from the  U.S. economy in  such respects  as the rate  of growth  of
gross  domestic product, the  rate of inflation,  capital reinvestment, resource
self-sufficiency and balance  of payments  position. Governments  of many  Latin
American countries have exercised and continue to exercise substantial influence
over  many aspects of the private sector.  In some cases, the government owns or
controls  many  companies,  including  some  of  the  largest  in  the  country.
Accordingly, government actions in the future could have a significant effect on
economic  conditions in  a Latin  American country,  which could  affect private
sector companies and the  Fund, and on market  conditions, prices and yields  of
securities  in  the  Fund's  portfolio.  Expropriation,  confiscatory  taxation,
nationalization, political, economic or social instability or other developments
could adversely affect the assets of the Fund held in particular Latin  American
countries.

    Currently,  Brazil is the largest  debtor among developing countries, Mexico
is the second largest and Argentina the third. Beginning in 1982, certain  Latin
American  countries experienced  difficulty in  servicing their  sovereign debt.
Over the last few years, the  major Latin American countries, including  Brazil,
Mexico and Argentina, have successfully restructured and are now servicing their
external  debt.  Obligations  arising from  past  restructuring  agreements have
affected, and those arising from future restructuring agreements may affect, the
economic  performance  and  political   stability  of  certain  Latin   American
countries.

                                       26
<PAGE>
    Under  normal conditions, substantially  all, but not less  than 80%, of the
Investment Fund's  total  assets are  invested  in equity  securities  of  Latin
American  issuers and in Sovereign Debt. For purposes of this Prospectus, unless
otherwise indicated,  Latin  America  consists of  Argentina,  Bolivia,  Brazil,
Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador,
Guatemala,  Honduras,  Mexico, Nicaragua,  Panama,  Paraguay, Peru,  Uruguay and
Venezuela. See  "Additional Investment  Information --  Foreign Investment  Risk
Factors"  for a discussion  of the nature of  information publicly available for
non-U.S. companies. An equity security is defined as common or preferred  stocks
(including  convertible preferred stock), bonds, notes or debentures convertible
into common  or  preferred stock,  stock  purchase warrants  or  rights,  equity
interests  in  trusts or  partnerships  or American,  Global  or other  types of
Depositary  Receipts.  See  "Additional  Investment  Information  --  Depositary
Receipts."

    The  Investment Fund focuses its investments  in listed equity securities in
Argentina, Brazil, Chile and Mexico, the most developed capital markets in Latin
America. The Investment Fund expects, under normal market conditions, to have at
least 55% of its total assets invested in listed equity securities of issuers in
these four  countries. In  addition,  the Investment  Fund actively  invests  in
markets  in other Latin American countries such as Colombia, Peru and Venezuela.
The Investment Fund is not limited in the  extent to which it may invest in  any
Latin  American  country  and  intends to  invest  opportunistically  as markets
develop. The portion  of the Investment  Fund's holdings in  any Latin  American
country  will vary  from time  to time, although  the portion  of the Investment
Fund's assets invested in Chile may tend to vary less than the portions invested
in other  Latin American  countries because,  with limited  exceptions,  capital
invested  in Chile currently cannot be repatriated for one year. See "Additional
Investment Information --  Investment Procedures: Argentina,  Brazil, Chile  and
Mexico" in the Statement of Additional Information.

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

    Several Latin  American countries  have  adopted debt  conversion  programs,
pursuant  to which investors  may use Sovereign  Debt of a  country, directly or
indirectly, to make  investments in local  companies. The terms  of the  various
programs vary from country to country although each program includes significant
restrictions  on the application of the  proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital.  The
Investment  Fund may participate in Latin American debt conversion programs. The
Adviser will evaluate opportunities to  enter into debt conversion  transactions
as they arise.

                                       27
<PAGE>
    Securities  in which the  Investment Fund may invest  include those that are
neither listed on a stock exchange  nor traded over-the-counter. As a result  of
the  absence of a public  trading market for these  securities, they may be less
liquid than publicly traded  securities. See "Additional Investment  Information
--   Non-Publicly   Traded   Securities,  Private   Placements   and  Restricted
Securities."

    To the extent that the Investment  Fund's assets are not invested in  equity
securities  of Latin American issuers or in Sovereign Debt, the remainder of the
assets may be invested  in (i) debt securities  of Latin American issuers,  (ii)
equity  or  debt  securities of  corporate  or governmental  issuers  located in
countries outside  Latin  America, and  (iii)  short-term and  medium-term  debt
securities  of  the  type  described below  under  "Temporary  Investments." The
Investment Fund's assets may be invested in debt securities when the  Investment
Fund believes that, based upon factors such as relative interest rate levels and
foreign  exchange rates, such debt  securities offer opportunities for long-term
capital appreciation. It is likely that many of the debt securities in which the
Investment Fund will invest will  be unrated. The Fund may  invest up to 20%  of
its  total  assets  in securities  that  are  determined by  the  Adviser  to be
comparable to securities rated  below investment grade by  Standard & Poor's  or
Moody's.  Such  lower-quality  securities are  regarded  as  being predominantly
speculative  and   involve  significant   risks.  See   "Additional   Investment
Information   --  Risk  Factors  Relating  to  Investing  in  Lower  Rated  Debt
Securities."

    The Investment Fund's holdings of lower-quality debt securities will consist
predominantly of Sovereign Debt, much  of which trades at substantial  discounts
from  face value and  which may include Sovereign  Debt comparable to securities
rated as low as D by Standard & Poor's or C by Moody's. The Investment Fund  may
invest in Sovereign Debt to hold and trade in appropriate circumstances, as well
as  to use to participate in debt for equity conversion programs. The Investment
Fund will invest in Sovereign Debt  only when the Investment Fund believes  such
investments  offer opportunities for  long-term capital appreciation. Investment
in Sovereign  Debt  involves a  high  degree of  risk  and such  securities  are
generally considered to be speculative in nature.

    For  temporary defensive purposes, the Investment  Fund may invest less than
80% of its total assets in Latin American equity securities and Sovereign  Debt,
in  which case the Investment Fund may invest in other equity or debt securities
or may invest in  certain short-term (less than  twelve months to maturity)  and
medium-term  (not greater than  five years to maturity)  debt securities or hold
cash. See "Additional Investment Information -- Temporary Investments."

    The Investment  Fund  may  enter  into  forward  foreign  currency  exchange
contracts  and foreign currency futures contracts, may purchase and write (sell)
put and call  options on securities,  foreign currency and  on foreign  currency
futures  contracts, and  may enter  into stock  index and  interest rate futures
contracts and options  thereon. See "Additional  Investment Information."  There
currently are limited options and futures markets for Latin American currencies,
securities  and indexes, and the nature of the strategies adopted by the Adviser
and the extent to which those strategies are used depends on the development  of
those  markets. The Investment Fund  may also from time  to time lend securities
(but not in excess of  20% of its total assets)  from its portfolio to  brokers,
dealers  and financial  institutions. See "Additional  Investment Information --
Loans of Portfolio Securities."

    The Latin American Fund will not invest more than 25% of its total assets in
one industry except and to the extent, and only for such period of time as,  the
Board    of    Directors   determines    in    view   of    the   considerations

                                       28
<PAGE>
discussed below  that  it  is  appropriate  and in  the  best  interest  of  the
Investment  Fund and its shareholders to invest  more than 25% of the Investment
Fund's total assets  in companies involved  in the telecommunications  industry.
Since  the securities markets  of Latin American  countries are emerging markets
characterized by a relatively small number of issues, it is possible that one or
more markets may on occasion be dominated by issues of companies engaged in that
industry. In addition, it is  possible that government privatization in  certain
Latin  American countries,  which currently  represent a  primary source  of new
issues in many Latin American markets and often represent attractive  investment
opportunities, will occur in that industry. As a result, the Investment Fund has
adopted  a policy under which it may invest more than 25% of its total assets in
securities of issuers in that industry. The Investment Fund would only take this
action if the Board of Directors determines that the Latin American markets  are
dominated  by securities of issuers  in such industry and  that, in light of the
anticipated return, investment quality, availability and liquidity of the issues
in the  industry,  the  Investment  Fund's ability  to  achieve  its  investment
objective  would,  in  light  of its  investment  policies  and  limitations, be
materially adversely affected if  the Investment Funds were  not able to  invest
greater  than 25% of  its total assets in  such industry. In  the event that the
Board of  Directors permits  greater than  25% of  the Investment  Fund's  total
assets  to be invested  in the telecommunications  industry, the Investment Fund
may be exposed  to increased  investment risks  peculiar to  that industry.  The
Investment  Fund will notify  its shareholders of  any decision by  the Board of
Directors to permit (or  cease) investments of more  than 25% of the  Investment
Fund's total assets in the telecommunications industry. Such notice will, to the
extent  applicable,  include  a  discussion of  any  increased  investment risks
peculiar to such industry to which the Investment Fund may be exposed.

    The Latin American Fund is authorized to  borrow up to 33 1/3% of its  total
assets  (including the amount  borrowed), less all  liabilities and indebtedness
other than the borrowing,  for investment purposes  to increase the  opportunity
for  greater  return  and  for  payment  of  dividends.  Such  borrowings  would
constitute leverage,  which is  a  speculative characteristic.  Leveraging  will
magnify  declines as well as increases in  the net asset value of the Investment
Fund's shares  and  in the  yield  on  the Investment  Fund's  investments.  See
"Additional Investment Information -- Borrowing and Other Forms of Leverage."

    The  Investment Fund intends  to purchase and  hold securities for long-term
capital appreciation and does not expect to trade for short-term gain. The  rate
of  portfolio turnover will  not be a  limiting factor when  the Investment Fund
deems it appropriate to purchase or  sell securities. However, the U.S.  federal
tax  requirement that  the Investment  Fund derive  less than  30% of  its gross
income from the sale  or disposition of securities  held less than three  months
may limit the Investment Fund's ability to dispose of its securities.

THE EUROPEAN EQUITY FUND

    The  European Equity Fund seeks  long-term capital appreciation by investing
primarily in the common stocks of  European issuers, including those located  in
Germany,  France, Switzerland, Belgium, Italy,  Finland, Sweden, Denmark, Norway
and the United Kingdom.  Investments may also  be made in  the common stocks  of
issuers located in the smaller and emerging markets of Europe. Common stocks for
this   purpose  include  common  stocks  and  equivalents,  such  as  securities
convertible  into   common   stocks   and   securities   having   common   stock
characteristics, such as rights and warrants to purchase common stocks. At least
65%  of  the total  assets of  the Investment  Fund will  be invested  in equity
securities of European issuers under normal circumstances.

                                       29
<PAGE>
    In  recent years there  have been two key  issues influencing the investment
environment and economic conditions of Europe: the creation of the single market
and the emergence  of Eastern  European economies.  Both of  these factors  have
helped European companies by opening up new markets for growth.

    As  a  result of  global recession,  European  economies and  companies have
embarked on radical structural change. Governments across Europe have  initiated
major  privatization programs shifting a greater share of economic activity into
the more  efficient private  sector. Private  companies have  sought  quotation,
following  the need to compete in the capital  markets, as much as in the market
place for their products and services. Those companies already quoted have begun
to appreciate the value of their being listed. To achieve a high rating on their
equity, companies need to produce transparent accounts, communicate  effectively
with  their  shareholders  and  manage  their  businesses  and  assets  to their
shareholders' advantage. The restructuring and rationalization of companies  has
lead to lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.

    Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance and the emergence of European mutual funds. All
of  these factors  together will  improve the  quality of  the markets  in which
European equities are traded.

    This process of evolution  has begun, but  has much further  to go. We  have
seen   companies  closed  to  foreign  investment  "open  up"  most  notably  in
Switzerland and Finland.  In Europe's largest  economy, Germany, gross  domestic
product  is still four times larger than  its stock market, but the move towards
an equity  culture is  gaining  momentum. Shareholders  in  Europe will  have  a
growing  role in a  widening range of expanding  companies whose operations will
become  increasingly  profitable.  Some  of  the  world's  most  attractive  and
successful  companies  have only  recently  discovered the  importance  of their
shareholders.

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

    Securities  in emerging markets may  not be as liquid  as those in developed
markets and pose greater risks. Although  the Investment Fund intends to  invest
primarily  in  securities listed  on  stock exchanges,  it  will also  invest in
securities traded in over-the-counter markets.

    While the  Investment  Fund  is  not  subject  to  any  specific  geographic
diversification  requirements,  it  currently intends  to  diversify investments
among countries to reduce currency risk.  Investments will be made primarily  in
common  stocks of companies domiciled in developed countries, but may be made in
the securities  of  companies in  developing  countries as  well.  Although  the
Investment  Fund  intends  to invest  primarily  in securities  listed  on stock
exchanges, it will also invest in securities traded in over-the-counter markets.
Securities of companies in  developing countries may  pose liquidity risks.  The
Investment  Fund will not,  under normal circumstances, invest  in the stocks of
U.S. issuers.  For a  description of  special considerations  and certain  risks

                                       30
<PAGE>
associated  with  investments  in foreign  issuers,  see  "Additional Investment
Information." The Investment Fund may temporarily reduce its equity holdings for
defensive purposes  in  response to  adverse  market conditions  and  invest  in
domestic,  Eurodollar  and  foreign  short-term  money  market  instruments. See
"Investment Objectives and Policies" in the Statement of Additional Information.

THE AMERICAN VALUE FUND

    The American  Value Fund's  investment objective  is to  provide high  total
return by investing in common stocks of small- to medium-sized corporations that
the  Adviser believes to be undervalued relative  to the stock market in general
at the time of purchase. The  Investment Fund invests primarily in  corporations
domiciled  in the United  States with equity  market capitalizations which range
generally from $70 million up to $1 billion, but may from time to time invest in
similar size foreign  corporations. Under normal  circumstances, the  Investment
Fund  will invest at least 65% of the  value of its total assets in corporations
whose equity market capitalization is up to $1 billion. The Investment Fund  may
invest  up to  35% of the  value of its  total assets in  corporations which are
generally smaller than the 500 largest corporations in the United States. Common
stocks for this purpose consist of common stocks and equivalents of any class or
series, such as securities convertible  into common stock and securities  having
common  stock characteristics,  such as rights  and warrants  to purchase common
stocks, and similar equity interests,  such as trusts or partnership  interests.
Debt  securities convertible into common stocks  will be investment grade (rated
in one of the four highest rating categories by a NRSRO) or, if unrated, will be
of comparable quality as determined by the Adviser under the supervision of  the
Board of Directors. These investments may or may not carry voting rights.

    The  Adviser invests  with the  philosophy that  a diversified  portfolio of
undervalued, small- to medium-sized companies will provide high total return  in
the long run.

    Companies considered attractive will have the following characteristics:

        1.   Stocks will most often have  yields distinctly above the average of
    companies with similar capitalizations.

        2.  The market prices of the stocks will be undervalued relative to  the
    normal earning power of the companies.

        3.   Stock  prices will be  low relative  to the intrinsic  value of the
    companies' assets.

        4.   Stocks will  be of  high  quality, in  the Adviser's  judgment,  as
    evaluated  by the  companies' balance sheets,  income statements, franchises
    and product competitiveness.

    The thrust  of this  approach is  to seek  investments in  stocks for  which
investor enthusiasm is currently low, as reflected in their valuation, but which
have  the financial and  fundamental features which,  according to the Adviser's
assessment, will  allow the  stocks  to achieve  a  higher valuation.  Value  is
achieved  and exposure  is reduced for  the Investment Fund  when the investment
community's perceptions  improve  and  the  stocks  approach  what  the  Adviser
believes is fair valuation. The Investment Fund will invest in equity securities
of  smaller capitalized  companies, which are  more vulnerable  to financial and
other risks than larger companies. Investment in securities of smaller companies
may involve a higher degree of risk  and price volatility than in securities  of
larger companies.

                                       31
<PAGE>
    The  Adviser takes a long-term approach by  placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market  fluctuations or  to  acquire securities  for the  purpose  of
short-term  trading. The Adviser may take advantage of short-term opportunities,
however, that  are consistent  with  its objective  of  high total  return.  The
Investment  Fund will maintain diversity among industries and does not expect to
invest more than 25%  of its total assets  in the stocks of  issuers in any  one
industry.

    For temporary defensive purposes, the Investment Fund may invest part or all
of  its total assets in cash or in short-term securities, including certificates
of deposit, commercial  paper, notes,  obligations issued or  guaranteed by  the
U.S.  Government or  any of  its agencies  or instrumentalities,  and repurchase
agreements involving such government securities.

    The Investment Fund  primarily invests in  small- to medium-sized  companies
domiciled  in the United States.  The Investment Fund may,  to a limited extent,
invest in  non-publicly traded  securities,  private placements  and  restricted
securities.  See  "Additional  Investment  Information  --  Non-Publicly  Traded
Securities, Private Placements and  Restricted Securities." The Investment  Fund
may  on occasion  invest in  common stocks  of foreign  issuers that  trade on a
United States exchange or  over-the-counter in the  form of American  Depositary
Receipts or common stocks. See "Additional Investment Information."

THE WORLDWIDE HIGH INCOME FUND

    The  investment objective of the Worldwide  High Income Fund is high current
income consistent with relative stability of principal and, secondarily, capital
appreciation, by  investing primarily  in  a portfolio  of high  yielding  fixed
income  securities of issuers located throughout  the world. The Investment Fund
seeks to achieve its investment objective by allocating its assets among any  or
all  of three  investment sectors: U.S.  corporate lower rated  and unrated debt
securities, emerging country debt securities and global fixed income  securities
offering  high real yields. The types of  securities in each of these investment
sectors in  which  the  Investment  Fund may  invest  are  described  below.  In
selecting  U.S.  corporate  lower  rated and  unrated  debt  securities  for the
Investment Fund's portfolio, the Adviser will consider, among other things,  the
price  of  the security,  and the  financial  history, condition,  prospects and
management of  an  issuer.  The Adviser  intends  to  invest a  portion  of  the
Investment Fund's assets in emerging country debt securities that provide a high
level  of  current income,  while at  the  same time  holding the  potential for
capital appreciation if  the perceived creditworthiness  of the issuer  improves
due  to improving economic, financial, political,  social or other conditions in
the country  in which  the issuer  is  located. In  addition, the  Adviser  will
attempt  to invest  a portion  of the Investment  Fund's assets  in fixed income
securities of  issuers  in global  fixed  income markets  displaying  high  real
(inflation  adjusted)  yields.  Under  normal  conditions,  the  Investment Fund
invests between  80% and  100% of  its  total assets  in some  or all  of  three
categories  of higher  yielding securities, some  of which  may entail increased
credit and market risk. Some or all  of such higher yielding securities will  be
lower  rated or unrated  debt securities, commonly referred  to as "junk bonds."
See "Additional Investment Information -- Risk Factors Relating to Investing  in
Lower  Rated  and  Unrated  Debt Securities"  and  "--  Foreign  Investment Risk
Factors."

    The  Adviser's  approach  to   multi-currency  fixed-income  management   is
strategic  and value-based  and designed to  produce an attractive  real rate of
return. The Adviser's assessment of the bond markets and currencies is based  on
an  analysis of  real interest rates.  Current nominal yields  of securities are
adjusted for inflation prevailing in each  currency sector using an analysis  of
past  and projected inflation rates.  The Investment Fund's aim  is to invest in
bond markets which offer the most attractive real returns relative to inflation.

                                       32
<PAGE>
    From time to time, a portion of the Investment Fund's investments, which may
be up to 100% of  the Investment Fund's investments,  may be considered to  have
credit   quality  below  investment  grade   as  determined  by  internationally
recognized credit rating agency  organizations, such as  Moody's and Standard  &
Poor's, or be unrated but determined to be of comparable quality by the Adviser.
Such  lower rated bonds are commonly referred  to as "junk bonds." Securities in
such lower rating categories may have predominantly speculative  characteristics
or  may be in default. Appendix A to this Prospectus sets forth a description of
Moody's and  Standard &  Poor's corporate  bond ratings.  Ratings represent  the
opinions of rating agencies as to the quality of bonds and other debt securities
they  undertake  to rate  at  the time  of  issuance. However,  ratings  are not
absolute standards  of  quality and  may  not  reflect changes  in  an  issuer's
creditworthiness.  Accordingly, while the Adviser will consider ratings, it will
perform its own  analysis and  will not  rely principally  on ratings.  Emerging
country  debt securities in which the Investment Fund may invest will be subject
to high risk and will not be required to meet a minimum rating standard and  may
not  be  rated for  creditworthiness  by any  internationally  recognized credit
rating organization. The Investment Fund's  investments in U.S. corporate  lower
rated  and  unrated debt  securities and  emerging  country debt  securities are
expected  to  be   rated  in  the   lower  and  lowest   rating  categories   of
internationally   recognized  credit  rating  organizations  or  to  be  unrated
securities of comparable quality. Ratings of a non-U.S. debt instrument, to  the
extent  that those  ratings are  undertaken, are  related to  evaluations of the
country in which the issuer of the instrument is located. Ratings generally take
into account the currency  in which a non-U.S.  debt instrument is  denominated;
instruments issued by a foreign government in other than the local currency, for
example,  typically have a  lower rating than local  currency instruments due to
the existence of an additional risk that the government will be unable to obtain
the required foreign currency to service its foreign currency-denominated  debt.
In  general, the ratings of debt securities  or obligations issued by a non-U.S.
public or private entity will not be  higher than the rating of the currency  or
the  foreign currency debt of the central government of the country in which the
issuer is located, regardless of  the intrinsic creditworthiness of the  issuer.
To   mitigate  the  risks  associated  with  investments  in  such  lower  rated
securities, the Investment Fund will  diversify its holdings by market,  issuer,
industry and credit quality. Investors should carefully review the section below
entitled   "Additional  Investment  Information  --  Risk  Factors  Relating  to
Investing in Lower Rated Debt Securities."

    The chart below indicates the Investment Fund's weighted average composition
of debt securities graded by  Standard & Poor's for  the period from the  Fund's
inception (April 7, 1994) through April 30, 1995.

<TABLE>
<CAPTION>
DEBT SECURITIES RATINGS                                                                      PERCENTAGE OF
 (STANDARD & POOR'S)                                                                          NET ASSETS
------------------------------------------------------------------------------------------  ---------------
<S>                                                                                         <C>
AA........................................................................................          0.29%
A.........................................................................................         26.68%
BB........................................................................................         15.13%
B.........................................................................................         23.03%
CCC.......................................................................................          3.03%
Unrated...................................................................................         31.83%
</TABLE>

    The  weighted average  indicated above was  calculated on  a dollar weighted
basis and was computed as at the end  of each month through April 30, 1995.  The
chart  does  not necessarily  indicate what  the  composition of  the Investment
Fund's portfolio  will be  in the  current and  subsequent fiscal  years. For  a
description  of  Standard  &  Poor's ratings  of  fixed  income  securities, see
Appendix A to this Prospectus.

                                       33
<PAGE>
    The Worldwide High Income Fund may invest in or own securities of  companies
in various stages of financial restructuring, bankruptcy or reorganization which
are  not currently paying interest or  dividends, provided that the total value,
at the time of purchase, of all such securities will not exceed 10% of the value
of the Investment  Fund's total  assets. The  Investment Fund  may have  limited
recourse  in the event of default on  such debt instruments. The Investment Fund
may invest  in loans,  assignments  of loans  and  participation in  loans.  See
"Additional  Investment Information -- Loan  Participation and Assignments." The
Investment Fund may also invest in depositary receipts issued by U.S. or foreign
financial institutions.  See "Additional  Investment Information  --  Depositary
Receipts."

    The  Worldwide High  Income Fund  is not  restricted in  the portion  of its
assets which may be invested in securities denominated in a particular  currency
and  a substantial portion  of the Investment  Fund's assets may  be invested in
non-U.S. dollar-denominated  securities. The  portion of  the Investment  Fund's
assets  invested in  securities denominated  in currencies  other than  the U.S.
dollar will vary depending on market  conditions. The analysis of currencies  is
made  independent  of the  analysis  of markets.  Value  in foreign  exchange is
determined by  relative  purchasing  power  parity  of  a  given  currency.  The
Investment  Fund seeks  to invest in  currencies currently  undervalued based on
purchasing power  parity.  The  Adviser analyzes  current  account  and  capital
account  performance and real interest rates to adjust for shorter-term currency
flows. Although the Investment Fund is permitted to engage in a wide variety  of
investment practices designed to hedge against currency exchange rate risks with
respect  to  its holdings  of non-U.S.  dollar-denominated debt  securities, the
Investment Fund may be limited in its ability to hedge against these risks.  See
"Additional Investment Information -- Foreign Currency Hedging Transactions" and
"--  Short Sales." The Investment Fund may  also write (i.e., sell) covered call
options and may  enter into futures  contracts and options  on futures and  sell
indexed  financial futures contracts. See  "Additional Investment Information --
Options Transactions" and "-- Futures and Options on Futures."

    The Worldwide High  Income Fund may  invest in zero  coupon, pay-in-kind  or
deferred  payment securities,  and in securities  that may  be collateralized by
zero coupon securities (such as Brady Bonds). Zero coupon securities are sold at
a discount to par  value and are  not entitled to  interest payments during  the
life  of the security. Upon maturity, the  holder is entitled to receive the par
value of the security. While interest payments are not made on such  securities,
holders  of such  securities are deemed  to receive "phantom  income," which the
Investment Fund will accrue prior to  the receipt of any cash payments.  Because
the  Investment  Fund  will  distribute  its  "phantom  income"  to shareholders
annually, and to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Investment Fund
will have fewer assets  with which to purchase  income producing securities.  In
addition,  in order to pay these cash  distributions, the Investment Fund may be
required to sell portfolio securities when  it might not otherwise choose to  do
so,  and the Investment Fund may incur capital losses on such sales. 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. Deferred payment securities are securities that  remain
zero  coupon securities  until a  predetermined date,  at which  time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Zero coupon,  pay-in-kind and  deferred  payment securities  may be  subject  to
greater fluctuation in value and lesser liquidity in the event of adverse market
conditions  than  comparably rated  securities paying  cash interest  at regular
interest payment periods.

                                       34
<PAGE>
    The Worldwide High Income Fund is authorized to borrow up to 33 1/3% of  its
total   assets  (including  the  amount  borrowed),  less  all  liabilities  and
indebtedness other than the borrowing,  for investment purposes to increase  the
opportunity  for greater  return and for  payment of  dividends. Such borrowings
would constitute  leverage, which  is a  speculative characteristic.  Leveraging
will  magnify  declines as  well  as increases  in the  net  asset value  of the
Investment Fund's shares and in the yield on the Investment Fund's  investments.
See   "Additional  Investment  Information  --  Borrowing  and  Other  Forms  of
Leverage."

    The average time to maturity of  the Investment Fund's securities will  vary
depending  upon  the  Adviser's  perception of  market  conditions.  The Adviser
invests in  medium-term securities  (i.e., those  with a  remaining maturity  of
approximately  five years)  in a  market neutral  environment. When  the Adviser
believes that  real  yields  are  high,  the  Adviser  lengthens  the  remaining
maturities  of securities held by the  Investment Fund and, conversely, when the
Adviser believes  real yields  are low,  it shortens  the remaining  maturities.
Thus,  the Investment Fund is not subject  to any restrictions on the maturities
of the debt securities it holds, and  the Adviser may vary the average  maturity
of the securities held in the Investment Fund's portfolio without limit.

    The  Investment Fund may, to a limited extent, invest in non-publicly traded
securities,  private  placements  and  restricted  securities.  See  "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities."

    For temporary defensive purposes, the Investment Fund may invest part or all
of  its total assets in cash or in short-term securities, including certificates
of deposit, commercial  paper, notes,  obligations issued or  guaranteed by  the
U.S.  Government or  any of  its agencies  or instrumentalities,  and repurchase
agreements involving such government securities.

    U.S. CORPORATE  HIGH  YIELD FIXED  INCOME  SECURITIES.   A  portion  of  the
Worldwide  High Income  Fund's assets  will be  invested in  U.S. corporate high
yield fixed  income  securities,  which  offer  a  yield  above  that  generally
available  on  U.S.  corporate  debt  securities  in  the  four  highest  rating
categories of the  recognized rating services  and are commonly  referred to  as
"junk  bonds." The Investment  Fund may buy unrated  securities that the Adviser
believes are  comparable  to  rated  securities that  are  consistent  with  the
Investment  Fund's objective and policies. The Investment Fund may acquire fixed
income securities  of U.S.  issuers, including  debt obligations  (e.g.,  bonds,
debentures,  notes, equipment lease  certificates, equipment trust certificates,
conditional  sales  contracts,  commercial  paper  and  obligations  issued   or
guaranteed by the U.S. Government or any of its political subdivisions, agencies
or  instrumentalities) and  preferred stock.  These fixed  income securities may
have equity features, such as conversion  rights or warrants and the  Investment
Fund  may invest up to  10% of its total assets  in equity securities other than
preferred  stock  (e.g.,  common  stocks,   warrants  and  rights  and   limited
partnership  interests). The Investment Fund may not  invest more than 5% of its
total assets  at  the time  of  acquisition in  either  of (1)  equipment  lease
certificates,  equipment trust  certificates and conditional  sales contracts or
(2) limited partnership interests.

    EMERGING COUNTRY FIXED INCOME SECURITIES.   A portion of the Worldwide  High
Income  Fund's  assets  will  be  invested  in  emerging  country  fixed  income
securities, which  are  debt  securities of  government  and  government-related
issuers  located in emerging countries (including participation in loans between
governments  and  financial   institutions),  and  of   entities  organized   to
restructure  outstanding debt of  such issuers and  debt securities of corporate
issuers located in or organized under the laws of emerging countries. As used in
this

                                       35
<PAGE>
Prospectus, an emerging country is any  country that the International Bank  for
Reconstruction  and  Development (more  commonly known  as  the World  Bank) has
determined to have a low or middle income economy. There are currently over  130
countries  which are  considered to be  emerging countries,  approximately 40 of
which currently have established  securities markets. These countries  generally
include  every  nation in  the world  except the  United States,  Canada, Japan,
Australia, New Zealand and most nations located in Western Europe.

    In  selecting  emerging  country  debt  securities  for  investment  by  the
Investment  Fund, the  Adviser will apply  a market  risk analysis contemplating
assessment of factors such as liquidity, volatility, tax implications,  interest
rate  sensitivity,  counterparty  risks  and  technical  market  considerations.
Currently, investing in many emerging country securities is not feasible or  may
involve  unacceptable political  risks. Initially,  the Investment  Fund expects
that its investments in emerging country debt securities will be made  primarily
in some or all of the following emerging countries:

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

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

    The Investment Fund's investments  in government and government-related  and
restructured  debt securities will consist of (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or  instrumentalities
and   political   subdivisions   located   in   emerging   countries  (including
participation in  loans between  governments and  financial institutions),  (ii)
debt  securities  or  obligations  issued  by  government  owned,  controlled or
sponsored entities located in emerging countries, and (iii) interests in issuers
organized  and  operated  for  the  purpose  of  restructuring  the   investment
characteristics  of instruments issued  by any of  the entities described above.
Such type of restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that  entity of one or more classes  of
securities  backed by, or representing interests in, the underlying instruments.
Certain issuers of such  structured securities may be  deemed to be  "investment
companies" as defined in the Investment Company Act of 1940 (the "1940 Act"). As
a  result, the Investment Fund's investment in such securities may be limited by
certain investment  restrictions  contained in  the  1940 Act.  See  "Additional
Investment Information -- Structured Investments."

                                       36
<PAGE>
    The Investment Fund's investments in debt securities of corporate issuers in
emerging  countries may  include debt  securities or  obligations issued  (i) by
banks located in  emerging countries or  by branches of  emerging country  banks
located  outside the country or (ii) by companies organized under the laws of an
emerging country. Determinations as to eligibility  will be made by the  Adviser
based  on publicly available  information and inquiries made  to the issuer. See
"Additional Investment Information  -- Foreign  Investment Risk  Factors" for  a
discussion of the nature of information publicly available for non-U.S. issuers.
The  Investment Fund  may also  invest in  certain debt  obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructuring  under a  plan introduced  by former  U.S. Secretary  of  the
Treasury  Nicholas  F.  Brady. See  "Description  of Securities  and  Ratings --
Emerging Country Debt Securities" in the Statement of Additional Information for
further information  about Brady  Bonds. The  Investment Fund's  investments  in
government  and government-related and restructured debt instruments are subject
to special risks, including  the inability or  unwillingness to repay  principal
and  interest,  requests  to  reschedule  or  restructure  outstanding  debt and
requests to extend additional loan amounts.

    Emerging country debt securities held by  the Investment Fund will take  the
form  of bonds, notes, bills, debentures, convertible securities, warrants, bank
debt obligations, short-term paper, mortgage- and other asset-backed securities,
loan participation, loan assignments and interests issued by entities  organized
and  operated for the purpose of restructuring the investment characteristics of
instruments issued  by emerging  country issuers.  The Investment  Fund may  buy
unrated  securities that the Adviser believes are comparable to rated securities
that are consistent  with the  Investment Fund's objectives  and policies.  U.S.
dollar-denominated  emerging country debt securities held by the Investment Fund
will generally be listed but not  traded on a securities exchange, and  non-U.S.
dollar-denominated  securities held  by the  Investment Fund  may or  may not be
listed or traded  on a securities  exchange. The Investment  Fund may invest  in
mortgage-backed  securities  and  in  other  asset-backed  securities  issued by
non-governmental entities  such  as  banks  and  other  financial  institutions.
Mortgage-backed   securities  include  mortgage   pass  through  securities  and
collateralized mortgage obligations. Asset-backed securities are  collateralized
by  such assets  as automobile  or credit  card receivables  and are securitized
either in a pass-through  structure or in a  pay-through structure similar to  a
CMO.  Investments in emerging country  debt securities entail special investment
risks.  See  "Additional  Investment  Information  --  Foreign  Investment  Risk
Factors."

    GLOBAL FIXED INCOME SECURITIES.  The global fixed income securities in which
a  portion of the Worldwide  High Income Fund's assets  may be invested are debt
securities denominated in currencies of  countries displaying high real  yields.
Such  securities include government obligations issued  or guaranteed by U.S. or
foreign governments and their  political subdivisions, authorities, agencies  or
instrumentalities,  and by supranational  entities (such as  the World Bank, The
European Economic Community, The  Asian Development Bank  and the European  Coal
and  Steel Community),  Eurobonds, and  corporate bonds  with varying maturities
denominated in  various currencies.  In this  portion of  the Investment  Fund's
portfolio,  the Adviser seeks to minimize investment risk by investing in a high
quality portfolio of debt securities, the majority of which will be rated in one
of the two  highest rating categories  by an NRSRO  or, if unrated,  will be  of
comparable  quality, as determined  by the Adviser under  the supervision of the
Board of Directors. U.S. Government securities in which the Investment Fund  may
invest  include obligations issued or guaranteed by the U.S. Government, such as
U.S. Treasury securities, as well as those  backed by the full faith and  credit
of  the United States,  such as obligations of  the Government National Mortgage
Association and The Export-Import Bank. The Investment

                                       37
<PAGE>
Fund may also  invest in  obligations issued  or guaranteed  by U.S.  Government
agencies or instrumentalities where the Investment Fund must look principally to
the  issuing or guaranteeing agency for  ultimate repayment. The Investment Fund
may invest in obligations issued or guaranteed by foreign governments and  their
political  subdivisions,  authorities,  agencies  or  instrumentalities,  and by
supranational entities (such as the World Bank, The European Economic Community,
The  Asian  Development  Bank  and  the  European  Coal  and  Steel  Community).
Investment  in foreign government securities for  this portion of the Investment
Fund's portfolio will be limited to those of developed nations which the Adviser
believes  to  pose  limited  credit  risk.  These  countries  currently  include
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain,
Sweden,   Switzerland  and  The  United  Kingdom.  Corporate  and  supranational
obligations in which  the Investment Fund  will invest for  this portion of  its
portfolio  will be limited to  those rated "A" or  better by Moody's, Standard &
Poor's or IBCA Ltd. or,  if unrated, determined to  be of comparable quality  by
the Adviser under the supervision of the Fund's Board of Directors.

    In selecting securities for this portion of the Investment Fund's portfolio,
the  Adviser  evaluates  the currency,  market  and individual  features  of the
securities being considered for investment. The Adviser believes that  countries
displaying  the highest real yields will over time generate a high total return,
and accordingly, the Adviser's focus for  this portion of the Investment  Fund's
portfolio  will be to analyze the relative  rates of real yield of twenty global
fixed income markets. In selecting  securities, the Adviser will first  identify
the  global markets in  which the Investment  Fund's assets will  be invested by
ranking such countries in order  of highest real yield.  In this portion of  its
portfolio,  the Investment Fund will invest its assets primarily in fixed income
securities denominated in the currencies of countries within the top quartile of
the Adviser's ranking.

    The Adviser's assessment of the global  fixed income markets is based on  an
analysis  of real  interest rates.  The Adviser  calculates real  yield for each
global market by  adjusting current nominal  yields of securities  in each  such
market  for inflation prevailing in  each country using an  analysis of past and
projected (one-year) inflation rates  for that country.  The Adviser expects  to
review  and update on  a regular basis  its real yield  ranking of countries and
market sectors and  to alter the  allocation of this  portion of the  Investment
Fund's  investments among markets  as necessary when changes  to real yields and
inflation estimates significantly alter the  relative rankings of the  countries
and market sectors.

    The  Investment Fund  seeks to maintain  portfolio turnover at  a low level.
Although the Investment Fund's primary objective is not to invest for short-term
trading,  the  Investment  Fund   will  seek  to   take  advantage  of   trading
opportunities  as they  arise to  the extent that  they are  consistent with the
Investment Fund's  objectives.  It is  anticipated  that the  Investment  Fund's
annual turnover rate will not exceed 100% in normal circumstances.

THE GROWTH AND INCOME FUND

    The  Growth and Income Fund seeks capital appreciation and current income by
investing primarily in equity and equity-linked securities. The Investment  Fund
seeks to achieve its investment objective, consistent with reasonable investment
risk,  by  investing  in  equity securities  of  rapidly  growing  companies, or
convertible securities  or  other  equity-linked,  income-generating  securities
(e.g.,  PERCS, ELKS,  LYONs) of  such companies.  The Investment  Fund will also
invest in slower-growth companies with  stable or accelerating earnings and/  or
dividend  growth. The equity securities of  the foregoing companies in which the
Investment Fund will invest consist of common stock (dividend-paying, and to the
extent it is consistent with the Investment Fund's

                                       38
<PAGE>
investment  objective,  nondividend-paying),  preferred  stock  and   securities
convertible  into common stock, such as convertible preferred stock, convertible
bonds and warrants. The  Investment Fund will,  under normal market  conditions,
invest  at least 65% of the value of its total assets in such equity securities.
The Investment Fund  is not subject  to any limit  on the size  of companies  in
which  it  may  invest,  but  intends to  be  primarily  invested,  under normal
circumstances, in companies with equity market capitalizations of  approximately
$750  million and above. The Investment Fund  is designed for investors who want
an actively managed  diversified portfolio  of selected  equity securities  that
seeks  to outperform the  total return of  the S&P 500  Index, while providing a
yield higher than the yield of the S&P 500 Index.

    The Investment  Fund  does  not  seek to  achieve  its  objective  with  any
individual  portfolio security, but rather it aims  to manage the portfolio as a
whole in such a way as to achieve its objective. The Investment Fund attempts to
reduce risk  by investing  in many  different economic  sectors, industries  and
companies.  The  Investment Fund's  Adviser may  under- or  over-weight selected
economic sectors  against the  S&P  500 Index's  sector  weightings to  seek  to
enhance  the Investment  Fund's total  return or  reduce fluctuations  in market
value relative to the S&P 500 Index. Investment Fund's primary objective is  not
to  invest  for  short-term  trading,  the Investment  Fund  will  seek  to take
advantage of trading  opportunities as they  arise to the  extent that they  are
consistent with the Investment Fund's objectives.

    Pending investment or settlement, and for liquidity purposes, the Investment
Fund  may invest  in domestic,  Eurodollar and  foreign short-term  money market
instruments. As determined by the Adviser, the Investment Fund may also purchase
such instruments to temporarily reduce the Investment Fund's equity holdings for
defensive purposes in response to adverse market conditions.

    The  Investment  Fund  may  invest  in  when-issued  and  delayed   delivery
securities.  See "Additional  Investment Information --  When-Issued and Delayed
Delivery Securities." The  Investment Fund  may invest up  to 34%  of its  total
assets  in securities that are  rated below investment grade  by an NRSRO (rated
below the four highest rating categories by the NRSRO) or that, if unrated,  are
determined  by the Adviser to be comparable to securities rated below investment
grade  by  an  NRSRO.  Such  lower-quality  securities  are  regarded  as  being
predominantly   speculative  and  involve  significant  risks.  See  "Additional
Investment Information -- Risk Factors Relating to Investing in Lower Rated Debt
Securities."

    The Investment Fund may, to a limited extent, invest in non-publicly  traded
securities,  private  placements  and  restricted  securities.  See  "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities." The Investment Fund may on occasion invest in securities
of foreign issuers, including equity securities of foreign issuers that trade on
a United States exchange or over-the-counter in the form of American  Depositary
Receipts or common stocks. See "Additional Investment Information."

THE MONEY MARKET FUND

    The Money Market Fund's investment objectives are to maximize current income
and  preserve  capital  while  maintaining  high  levels  of  liquidity  through
investing in the U.S. Dollar  denominated high quality money market  instruments
described  below. The Investment  Fund's average maturity  (on a dollar-weighted
basis) will  not  exceed  90  days.  The  Investment  Fund  will  purchase  only
securities  having a remaining maturity of 397 days or less. The Investment Fund
is expected to maintain a  net asset value of $1.00  per share. There can be  no
assurance, however, that the Investment Fund will be successful in maintaining a
net asset value of $1.00 per share. See "Valuation of Shares."

                                       39
<PAGE>
    UNITED  STATES GOVERNMENT OBLIGATIONS.  The  Money Market Fund may invest in
obligations issued  or guaranteed  by the  United States  Government,  including
United  States Treasury securities and other securities backed by the full faith
and credit of the United States, such as obligations of the Government  National
Mortgage   Association  ("GNMA"),  the  Farmers   Home  Administration  and  the
Export-Import Bank. The Investment Fund may also invest in obligations issued or
guaranteed by United  States Government agencies  or instrumentalities, such  as
the  Federal  Farm Credit  System and  the  Federal Home  Loan Banks,  where the
Investment Fund must look principally to the issuing or guaranteeing agency  for
ultimate repayment.

    MORTGAGE-BACKED  SECURITIES.  Mortgage-backed securities  in which the Money
Market Fund may invest, such as GNMA securities, differ from other fixed  income
securities in that principal is paid back by the borrower over the length of the
loan  rather than returned in  a lump sum at  maturity. When prevailing interest
rates rise, the  value of a  GNMA security  may decrease along  with other  debt
securities.  When prevailing interest rates decline,  however, the value of GNMA
securities may not rise on a comparable basis with other debt securities because
of  the  prepayment  feature  of  GNMA  securities.  Additionally,  if  a   GNMA
certificate  is purchased  at a  premium above  its principal  value because its
fixed rate of interest  exceeds the prevailing level  of yields, the decline  in
price  to par may  result in a loss  of the premium in  the event of prepayment.
Funds received from  prepayments may  be reinvested at  the prevailing  interest
rates,  which may be  lower than the  rate of interest  that had previously been
earned.

    BANK OBLIGATIONS.   The Money Market  Fund may invest  in high quality  U.S.
dollar-denominated  negotiable certificates  of deposit,  time deposits, deposit
notes and bankers' acceptances of (i)  banks, savings and loan associations  and
savings  banks which have more than $2 billion in total assets and are organized
under U.S. Federal or state law, (ii) foreign branches of these banks  ("Euros")
and  (iii) U.S.  branches of foreign  banks of equivalent  size ("Yankees"). See
"Additional  Investment  Information"   for  further   information  on   foreign
investments.  The  Investment  Fund  may  also  invest  in  obligations  of  the
International Bank  for Reconstruction  and  Development ("World  Bank").  These
obligations  are supported by  appropriated but unpaid  commitments of the World
Bank's member countries, and there is  no assurance that these commitments  will
be undertaken or met in the future.

    COMMERCIAL PAPER; CORPORATE BONDS.  The Money Market Fund may invest in high
quality  commercial paper and  corporate bonds issued  by U.S. corporations. The
Investment  Fund  may  also  invest  in  commercial  paper  issued  by   foreign
corporations  if  the  issuer  is  a  direct  parent  or  subsidiary  of  a U.S.
corporation, the obligation  is U.S.  dollar-denominated and is  not subject  to
foreign withholding tax, and the aggregate of these foreign investments does not
exceed  10%  of the  Investment Fund's  net assets.  For more  information about
foreign investments, see "Additional Investment Information."

    QUALITY INFORMATION.   The  Money Market  Fund utilizes  the amortized  cost
method  of  valuation in  accordance  with regulations  issued  by the  SEC. See
"Valuation of Shares." Accordingly, the Investment Fund will limit its portfolio
investments to those instruments  which present minimal  credit risks and  which
are  of eligible quality, as determined by  the Adviser under the supervision of
the Board of Directors and  in accordance with regulations  of the SEC, as  such
regulations  may from time to time be amended. Eligible quality for this purpose
means a security (i)  rated in one  of the two highest  rating categories by  at
least  two NRSROs assigning a  rating to the security or  issuer or, if only one
rating organization assigned a  rating, by that rating  organization or (ii)  if
unrated,  determined  to  be of  comparable  quality  by the  Adviser  under the
supervision of the Board of Directors. The Investment Fund will not invest  more
than   5%   of  its   total  assets   in  securities   of  issuers   having  the

                                       40
<PAGE>
second highest rating from any NRSRO. Among the criteria adopted by the Board of
Directors,  the  Investment  Fund  will  not  purchase  any  bank  or  corporate
obligation  unless it is rated at least Aa or Prime-1 by Moody's or AA or A-1 by
Standard & Poor's or, if unrated, it  is determined to be of comparable  quality
by  the  Adviser  under the  supervision  of  the Board  of  Directors. Ratings,
however, are not the only criteria utilized under the procedures adopted by  the
Board of Directors. For a more detailed discussion of other quality requirements
applicable  to  the Fund,  see "Description  of Securities  and Ratings"  in the
Statement of Additional Information.

    These quality standards must be satisfied at the time an investment is made.
In the event that an investment held by  the Fund is assigned a lower rating  or
ceases  to  be  rated,  the  Adviser, under  the  supervision  of  the  Board of
Directors, will promptly reassess whether such security presents minimal  credit
risks  and whether the Investment  Fund should continue to  hold the security in
its portfolio. If a portfolio security  no longer presents minimal credit  risks
or  is in default, the  Investment Fund will dispose of  the security as soon as
reasonably practicable unless the Board of Directors determines that to do so is
not in the best interests of the Investment Fund.

                       ADDITIONAL INVESTMENT INFORMATION

INVESTMENT FUNDS

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

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

DERIVATIVES

    Certain of  the  Investment  Funds  may invest  in  derivatives,  which  are
financial  products or instruments that derive their  value from the value of an
underlying asset,  reference rate  or  index. The  following may  be  considered
derivatives:  forward foreign  currency exchange contracts,  options (e.g., puts
and  calls),  futures  contracts,  options  on  futures  contracts,  convertible
securities,   warrants,   equity-linked   securities,   structured   securities,
when-issued  and  delayed  delivery  securities  and  depositary  receipts.  See
elsewhere  in this "Additional Investment  Information" section for descriptions
of these various instruments, and  see "Investment Objectives and Policies"  for
more  information regarding any investment policies or limitations applicable to
their use.

FOREIGN CURRENCY HEDGING TRANSACTIONS

    The Non-Money  Funds  may  enter  into  forward  foreign  currency  exchange
contracts  ("forward contracts"). Forward contracts  provide for the purchase or
sale  of  an  amount  of  a  specified  foreign  currency  at  a  future   date.

                                       41
<PAGE>
Purposes  for  which such  contracts may  be used  include protecting  against a
decline in a foreign currency against the U.S. dollar between the trade date and
settlement date  when  such  Investment Funds  purchases  or  sells  securities,
locking in the U.S. dollar value of dividends declared on securities held by the
Investment  Fund and  generally protecting the  U.S. dollar  value of securities
held by  the Investment  Fund  against exchange  rate fluctuations.  While  such
forward  contracts  may limit  losses  to the  Investment  Fund as  a  result of
exchange rate fluctuations, they  will also limit any  exchange rate gains  that
might  otherwise have been realized. The Global Equity Allocation, Asian Growth,
American Value, Growth  and Income and  Worldwide High Income  Funds will  enter
into  such contracts only to protect against the effects of fluctuating rates of
currency exchange and exchange control regulations.

    The Emerging Markets, Latin American, European Equity, Growth and Income and
Worldwide High  Income  Funds  may  also enter  into  foreign  currency  futures
contracts.  A foreign currency  futures contract is  a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time  of the contract. Foreign currency futures  contracts
traded  in the  United States  are traded on  regulated exchanges.  Parties to a
futures contract must make  initial "margin" deposits  to secure performance  of
the  contract, which generally range from 2%  to 5% of the contract price. There
also are requirements to  make "variation" margin deposits  as the value of  the
futures  contract fluctuates. Such  Investment Funds may  not enter into foreign
currency futures contracts if the aggregate amount of initial margin deposits on
the Investment Fund's futures positions, including stock index futures contracts
(which are discussed  below), would  exceed 5% of  the value  of the  Investment
Fund's  total assets.  The Investment  Fund also  will be  required to segregate
assets to cover its futures contracts obligations.

    At the maturity of  a forward or futures  contract, the Investment Fund  may
either  accept or make  delivery of the  currency specified in  the contract or,
prior to  maturity, enter  into  a closing  purchase transaction  involving  the
purchase  or sale of an offsetting  contract. Closing purchase transactions with
respect to forward contracts are usually  effected with the currency trader  who
is  a party to the original forward contract. Closing purchase transactions with
respect to futures contracts  are effected on an  exchange. The Investment  Fund
will  only enter into such a forward or  futures contract if it is expected that
there will be a liquid  market in which to close  out such contract. There  can,
however,  be no assurance that such a liquid market will exist in which to close
a forward or futures contract,  in which case the  Investment Fund may suffer  a
loss.

    The  Emerging  Markets,  American Value,  European  Equity,  Latin American,
Growth and Income  and Worldwide  High Income  Funds may  attempt to  accomplish
objectives  similar to those described above with respect to forward and futures
contracts for currency  by means of  purchasing put or  call options on  foreign
currencies  on exchanges. A put option gives  such Investment Funds the right to
sell a currency at the exercise price until the expiration of the option. A call
option gives  the  Investment Fund  the  right to  purchase  a currency  at  the
exercise price until the expiration of the option.

    The Investment Fund's Custodian will place cash, U.S. government securities,
or high-grade debt securities into a segregated account of an Investment Fund in
an amount equal to the value of such Investment Fund's total assets committed to
the consummation of forward foreign currency exchange contracts. If the value of
the  securities placed  in the segregated  account declines,  additional cash or
securities will be placed in the account on  a daily basis so that the value  of
the  account will  be at  least equal  to the  amount of  such Investment Fund's
commitments with  respect  to such  contracts.  See "Investment  Objectives  and
Policies  -- Forward  Foreign Currency Exchange  Contracts" in  the Statement of
Additional Information.

                                       42
<PAGE>
RISK FACTORS RELATING TO INVESTING IN LOWER RATED AND UNRATED DEBT SECURITIES

    The Worldwide High  Income, Emerging  Markets, Growth and  Income and  Latin
American  Funds may invest  in lower rated or  unrated debt securities, commonly
referred to as "junk bonds." In  addition, the emerging country debt  securities
in  which such Investment Funds  may invest are subject to  risk and will not be
required to meet a minimum  rating standard and may  not be rated. Fixed  income
securities  are subject to the  risk of an issuer's  inability to meet principal
and interest payments on the obligations  (credit risk) and may also be  subject
to  price volatility  due to such  factors as interest  rate sensitivity, market
perception of the creditworthiness  of the issuer  and general market  liquidity
(market  risk). Lower rated  or unrated securities  are more likely  to react to
developments affecting  market  and  credit  risk than  are  more  highly  rated
securities,  which react primarily to movements in the general level of interest
rates. The market values of fixed-income securities tend to vary inversely  with
the level of interest rates. Yields and market values of lower rated and unrated
debt  securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic  conditions appear  to be deteriorating,  medium to  lower
rated  securities may  decline in  value due  to heightened  concern over credit
quality, regardless of prevailing interest  rates. Fluctuations in the value  of
the Investment Fund's investments will be reflected in the Investment Fund's net
asset value per share. The Adviser considers both credit risk and market risk in
making  investment decisions for the Investment Fund. Investors should carefully
consider the  relative  risks of  investing  in  lower rated  and  unrated  debt
securities  and  understand that  such securities  are  not generally  meant for
short-term investing.

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

    Prices  for  lower rated  and  unrated debt  securities  may be  affected by
legislative and regulatory developments. These  laws could adversely affect  the
Investment Fund's net asset value and investment practices, the secondary market
for  lower rated and unrated debt securities, the financial condition of issuers
of such securities  and the value  of outstanding lower  rated and unrated  debt
securities.  For example, U.S. federal  legislation requiring the divestiture by
federally insured savings and  loan associations of  their investments in  lower
rated  and unrated debt securities and limiting the deductibility of interest by
certain corporate issuers of lower  rated and unrated debt securities  adversely
affected the market in recent years.

    Lower  rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the  Investment
Fund  may have to replace the security with a lower yielding security, resulting
in a  decreased  return  for  investors.  If  the  Investment  Fund  experiences
unexpected net

                                       43
<PAGE>
redemptions,  it may be forced to sell its higher rated securities, resulting in
a decline in  the overall  credit quality  of the  Investment Fund's  investment
portfolio  and increasing the  exposure of the  Investment Fund to  the risks of
lower rated and unrated debt securities.

LOAN PARTICIPATIONS AND ASSIGNMENTS

    The Worldwide High Income Fund may  invest in fixed and floating rate  loans
("Loans")  arranged through private negotiations  between an issuer of sovereign
or  corporate  debt   obligations  and  one   or  more  financial   institutions
("Lenders").  Such Investment Fund's  investments in Loans  are expected in most
instances to be  in the  form of  participation in  Loans ("Participation")  and
assignments  of all or a portion of Loans ("Assignments") from third parties. In
the case of Participation,  the Investment Fund will  have the right to  receive
payments  of principal, interest and any fees  to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of  the
payments from the borrower. In the event of the insolvency of the Lender selling
a Participation, the Investment Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
The   Investment   Fund  will   acquire   Participation  only   if   the  Lender
interpositioned between the Investment  Fund and the  borrower is determined  by
the  Adviser to be creditworthy. When  the Investment Fund purchases Assignments
from Lenders it  will acquire direct  rights against the  borrower on the  Loan.
Because  Assignments are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and obligations  acquired
by the Investment Fund as the purchaser of an Assignment may differ from, and be
more  limited than,  those held  by the  assigning Lender.  Because there  is no
liquid market for  such securities,  the Investment Fund  anticipates that  such
securities  could be sold  only to a limited  number of institutional investors.
The lack of a liquid secondary market may have an adverse impact on the value of
such securities  and the  Investment  Fund's ability  to dispose  of  particular
Assignments  or  Participation  when  necessary to  meet  the  Investment Fund'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  Participation also  may  make  it  more
difficult  for the  Investment Fund  to assign a  value to  these securities for
purposes of  valuing the  Investment Fund's  portfolio and  calculating its  net
asset value.

STRUCTURED INVESTMENTS

    The  Worldwide  High Income  Fund  may invest  a  portion of  its  assets in
entities organized  and operated  solely for  the purpose  of restructuring  the
investment   characteristics  of  sovereign  debt   obligations.  This  type  of
restructuring involves the  deposit with  or purchase by  an entity,  such as  a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady  Bonds)  and  the  issuance by  that  entity  of one  or  more  classes of
securities ("Structured Securities")  backed by, or  representing interests  in,
the  underlying instruments. The cash flow  on the underlying instruments may be
apportioned among the  newly issued Structured  Securities to create  securities
with  different investment characteristics, such  as varying maturities, payment
priorities and interest  rate provisions, and  the extent of  the payments  made
with  respect to Structured  Securities is dependent  on the extent  of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Investment Fund anticipates it will invest typically involve no credit
enhancement, their  credit risk  generally will  be equivalent  to that  of  the
underlying instruments. The Investment Fund is permitted to invest in a class of
Structured Securities that is either subordinated or unsubordinated to the right
of payment

                                       44
<PAGE>
of  another  class.  Subordinated Structured  Securities  typically  have higher
yields and  present greater  risks  than unsubordinated  Structured  Securities.
Structured  Securities are typically sold in private placement transactions, and
there currently is no active trading market for Structured Securities.

SHORT SALES

    The Emerging Markets,  Latin American,  European Equity  and Worldwide  High
Income  Funds may  from time to  time sell securities  short without limitation,
although initially such Investment Funds do not intend to sell securities short.
A short sale is a transaction in which the Investment Fund would sell securities
it does not own (but  has borrowed) in anticipation of  a decline in the  market
price  of  the securities.  When the  Investment  Fund makes  a short  sale, the
proceeds it receives from the sale will be held on behalf of a broker until  the
Investment  Fund replaces the borrowed securities.  To deliver the securities to
the buyer, the Investment Fund will need  to arrange through a broker to  borrow
the  securities and, in so  doing, the Investment Fund  will become obligated to
replace  the  securities  borrowed  at  their  market  price  at  the  time   of
replacement,  whatever that price may be. The  Investment Fund 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  Investment  Fund's obligation  to  replace the  securities  borrowed in
connection with a short  sale will be secured  by collateral deposited with  the
broker  that consists of cash, U.S.  Government Securities or other liquid, high
grade debt  obligations.  In addition,  the  Investment  Fund will  place  in  a
segregated  account  with  its  Custodian an  amount  of  cash,  U.S. Government
Securities or other liquid high grade debt obligations equal to the  difference,
if  any, between (1)  the market value of  the securities sold  at the time they
were sold short  and (2) any  cash, U.S. Government  Securities or other  liquid
high  grade  debt  obligations  deposited  as  collateral  with  the  broker  in
connection with the short sale (not  including the proceeds of the short  sale).
Short   sales  by  the  Investment  Fund   involve  certain  risks  and  special
considerations. Possible losses from short  sales differ from losses that  could
be  incurred from a purchase of a  security, because losses from short sales may
be unlimited, whereas  losses from  purchases can  equal only  the total  amount
invested.

OPTIONS TRANSACTIONS

    Each  of the Emerging  Markets, Latin American,  European Equity, Growth and
Income and Worldwide High Income  Funds may seek to  increase its return or  may
hedge all or a portion of its portfolio investments through options with respect
to  securities in  which such Investment  Funds may invest.  The Investment Fund
will engage only  in transactions in  options which are  traded on a  recognized
securities  or futures exchange. There currently  are limited options markets in
many  countries,  particularly  emerging   countries  such  as  Latin   American
countries,  and the  nature of  the strategies  adopted by  the Adviser  and the
extent to which those strategies are used will depend on the development of such
option markets.

    The Investment Fund may write (i.e.,  sell) covered call options which  give
the  purchaser the right  to buy the  underlying security covered  by the option
from the Investment Fund at the  stated exercise price. A "covered" call  option
means  that so  long as the  Investment Fund is  obligated as the  writer of the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the payment of any  consideration
into  the securities subject to the option. As a matter of operating policy, the
value of the underlying securities on which  options will be written at any  one
time will not exceed 5% of the total assets

                                       45
<PAGE>
of  the  Investment Fund.  In addition,  as  a matter  of operating  policy, the
Investment Fund will  neither purchase or  write put options  on securities  nor
purchase  call options on securities (except in connection with closing purchase
transactions).

    The Investment Fund will receive a premium from writing call options,  which
increases  the Investment Fund's return on  the underlying security in the event
the option expires unexercised or is closed out at a profit. By writing a  call,
the Investment Fund will limit its opportunity to profit from an increase in the
market  value of the underlying security above  the exercise price of the option
for as  long  as  the Investment  Fund's  obligation  as writer  of  the  option
continues.  Thus, in  some periods the  Investment Fund will  receive less total
return and  in other  periods greater  total return  from writing  covered  call
options  than it would have  received from its underlying  securities had it not
written call options.

    The Investment Fund  may also  write (i.e.,  sell) covered  put options.  By
selling  a covered put option,  the Investment Fund incurs  an obligation to buy
the security underlying the option from the purchaser of the put at the option's
exercise price at any time during the option period, at the purchaser's election
(certain options  written by  the Investment  Fund will  be exercisable  by  the
purchaser  only on a specific date). Generally, a put option is "covered" if the
Investment Fund maintains cash, U.S.  Government securities or other high  grade
debt  obligations equal to the exercise price of the option or if the Investment
Fund holds a put option on the same underlying security with a similar or higher
exercise price. The Investment Fund may sell put options to receive the premiums
paid by purchasers and  to close out  a long put  option position. In  addition,
when the Adviser wishes to purchase a security at a price lower than its current
market  price, the Investment Fund may write  a covered put at an exercise price
reflecting the lower purchase price sought.

    The Investment Fund  may also  purchase put  or call  options on  individual
securities  or baskets of securities. When  the Investment Fund purchases a call
option it acquires the right to buy a designated security at a designated  price
(the  "exercise price"), and when the Investment  Fund purchases a put option it
acquires the right to sell a designated security at the exercise price, in  each
case  on or before a  specified date (the "termination  date"), usually not more
than nine months from  the date the  option is issued.  The Investment Fund  may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing. The Investment
Fund  may purchase put options on securities  which it holds in its portfolio to
protect itself against a decline in the  value of the security. If the value  of
the  underlying  security were  to  fall below  the  exercise price  of  the put
purchased in  an  amount greater  than  the premium  paid  for the  option,  the
Investment  Fund would  incur no additional  loss. The Investment  Fund may also
purchase put options to close out written  put positions in a manner similar  to
call  option closing  purchase transactions.  There are  no other  limits on the
Investment Fund's ability to purchase call and put options.

    The primary  risks associated  with the  use of  options are  (i)  imperfect
correlation  between the change  in market value  of the securities  held by the
Investment Fund and the prices of  options relating to the securities  purchased
or  sold by the  Investment Fund; and  (ii) possible lack  of a liquid secondary
market for  an  option.  In the  opinion  of  the Adviser,  the  risk  that  the
Investment  Fund  will  be unable  to  close  out an  options  contract  will be
minimized by only entering into options transactions for which there appears  to
be a liquid secondary market.

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<PAGE>
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES

    The  Worldwide  High  Income  and  Growth and  Income  Funds  may  invest in
securities such as  convertible securities, preferred  stock, warrants or  other
securities  exchangeable under certain circumstances for shares of common stock.
Warrants are instruments giving  holders the right, but  not the obligation,  to
buy shares of a company at a given price during a specified period.

    The   Growth  and  Income  Fund  may  invest  in  equity-linked  securities,
including, among others,  PERCS, ELKS or  LYONs, which are  securities that  are
convertible  into or  based upon  the value  of, equity  securities upon certain
terms and conditions.  The amount received  by an investor  at maturity of  such
securities  is not  fixed but  is based  on the  price of  the underlying common
stock. It is impossible  to predict whether the  price of the underlying  common
stock  will rise or fall. Trading prices  of the underlying common stock will be
influenced  by  the  issuer's  operational  results,  by  complex,  interrelated
political,  economic, financial or other  factors affecting the capital markets,
the stock  exchanges on  which the  underlying common  stock is  traded and  the
market segment of which the issuer is a part. In addition, it is not possible to
predict  how  equity-linked securities  will trade  in  the secondary  market or
whether such market will be liquid or illiquid. The following are three examples
of equity-linked  securities. The  Growth  and Income  Fund  may invest  in  the
securities described below or other similar equity-linked securities.

    PERCS.   Preferred Equity Redemption  Cumulative Stock ("PERCS") technically
are 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, the  Investment
Fund  may be compensated with a substantially higher dividend yield than that on
the underlying common stock. Investors, such  as the Investment Fund, that  seek
current income, find PERCS attractive because a PERCS provides a higher 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, the Investment  Fund
may  be compensated with the higher yield, contingent on how well the underlying
common stock does.  Investors, such as  the Investment Fund,  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.

                                       47
<PAGE>
    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
Investment Fund 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.   The   Investment   Fund  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, like the Investment Fund,
when it appears that they will increase in value due to the rise in value of the
underlying common stock.

BORROWING AND OTHER FORMS OF LEVERAGE

    Each  of the Latin American and Worldwide High Income Funds is authorized to
borrow money from banks and other entities in  an amount equal to up to 33  1/3%
of  its total assets  (including the amount borrowed),  less all liabilities and
indebtedness other than the borrowing, and may use the proceeds of the borrowing
for investment purposes or to pay dividends. Borrowing creates leverage which is
a speculative characteristic. Although such  Investment Funds are authorized  to
borrow, it will do so only when the Adviser believes that borrowing will benefit
the  Investment Fund after taking into  account considerations such as the costs
of borrowing  and the  likely investment  returns on  securities purchased  with
borrowed  monies. Borrowing by  the Investment Fund  will create the opportunity
for increased  net income  but, at  the  same time,  will involve  special  risk
considerations.  Leveraging resulting  from borrowing  will magnify  declines as
well as increases in  the Investment Fund's  net asset value  per share and  net
yield.

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

    The  Investment Fund may also enter  into reverse repurchase agreements. See
"Additional Investment Information -- Reverse Repurchase Agreements" below.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

    Each Investment Fund  may purchase  securities on a  when-issued or  delayed
delivery  basis. In such  transactions, instruments are  bought with payment and
delivery taking place in the future in order to secure what is considered to  be
an  advantageous yield or price at the  time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the  date
of  the purchase commitment but will take place  no more than 120 days after the
trade date. Each  Investment Fund will  maintain with the  Custodian a  separate
account with a segregated portfolio of cash, U.S. Government securities or other
liquid  high  grade  debt obligations  in  an  amount at  least  equal  to these
commitments.   The   payment   obligation   and   the   interest   rates    that

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<PAGE>
will  be received are each fixed at the  time an Investment Fund enters into the
commitment, and no  interest accrues  to the Investment  Fund 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.

REPURCHASE AGREEMENTS

    The  Investment  Funds may  enter into  repurchase agreements  with brokers,
dealers or  banks  that  meet the  credit  guidelines  of the  Fund's  Board  of
Directors.  In a repurchase agreement, an Investment Fund buys a security from a
seller that has  agreed to  repurchase it  at a  mutually agreed  upon date  and
price, reflecting the interest rate effective for the term of the agreement. The
term of these agreements is usually from overnight to one week and never exceeds
one year. A repurchase agreement may be viewed as a fully collateralized loan of
money  by an Investment Fund to the  seller. The Investment Funds always receive
securities as collateral  with a  market value at  least equal  to the  purchase
price,  including accrued interest, and this value is maintained during the term
of the agreement. If the seller  defaults and the collateral value declines,  an
Investment Fund might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Investment Fund's realization upon the collateral may
be  delayed  or  limited. The  aggregate  of certain  repurchase  agreements and
certain  other  investments   is  limited   as  set   forth  under   "Investment
Limitations."

REVERSE REPURCHASE AGREEMENTS

    The  Worldwide  High Income,  Latin American,  Growth  and Income  and Money
Market Funds may enter into reverse repurchase agreements with brokers, dealers,
domestic and  foreign  banks or  other  financial institutions  that  have  been
determined by the Adviser to be creditworthy. In a reverse repurchase agreement,
such  Investment Funds sell a security and agrees to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the  term
of  the  agreement. It  may also  be viewed  as  the borrowing  of money  by the
Investment Fund. The Investment Fund's investment  of the proceeds of a  reverse
repurchase agreement is the speculative factor known as leverage. The Investment
Fund  will enter into a reverse repurchase agreement only if the interest income
from investment of  the proceeds  is expected to  be greater  than the  interest
expense  of the transaction and the proceeds are invested for a period no longer
than the  term of  the agreement.  The Investment  Fund will  maintain with  the
Custodian  a  separate  account  with  a  segregated  portfolio  of  cash,  U.S.
Government securities or other liquid high  grade debt obligations in an  amount
at  least equal  to its purchase  obligations under  these agreements (including
accrued interest). If interest rates rise during a reverse repurchase agreement,
it may adversely affect the Investment  Fund's ability to maintain a stable  net
asset  value.  In  the  event  that the  buyer  of  securities  under  a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the buyer or its
trustee or receiver  may receive an  extension of time  to determine whether  to
enforce  the Investment Fund's repurchase  obligation, and the Investment Fund's
use of proceeds  of the  agreement may  effectively be  restricted pending  such
decision.  The  aggregate of  these  agreements is  limited  as set  forth under
"Investment Limitations."  Reverse repurchase  agreements are  considered to  be
borrowings and are subject to the percentage limitations on borrowings set forth
in "Investment Limitations."

LOANS OF PORTFOLIO SECURITIES

    Each  of the Investment Funds may lend their securities to brokers, dealers,
domestic and foreign banks  or other financial institutions  for the purpose  of
increasing  its net investment income. These  loans must be secured continuously
by cash or equivalent collateral or by a letter of credit at least equal to  the
market  value of  the securities  loaned plus  accrued interest.  The Investment
Funds will not enter into securities loan transactions

                                       49
<PAGE>
exceeding in the aggregate 33% of the market value of an Investment Fund's total
assets (exceeding in the aggregate 20% of  such value with respect to the  Latin
American  Fund). As with other extensions of credit, there are risks of delay in
recovery or  even  loss of  rights  in collateral  should  the borrower  of  the
portfolio  securities  fail  financially. For  more  detailed  information about
securities lending, see "Investment Objectives and Policies" in the Statement of
Additional Information.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

    In order to  remain fully  invested, and  to reduce  transaction costs,  the
American  Value,  Emerging  Markets,  Latin  American,  Growth  and  Income  and
Worldwide High Income  Funds may  utilize appropriate  securities index  futures
contracts  and options on securities index futures contracts to a limited extent
and the  Latin  American Fund  may  utilize appropriate  interest  rate  futures
contracts  and options on  interest rate futures contracts  to a limited extent.
Because transaction costs associated with futures and options may be lower  than
the  costs of investing in  securities directly, it is  expected that the use of
index futures and  options to  facilitate cash  flows may  reduce an  Investment
Fund's  overall  transaction  costs. Each  of  these Investment  Funds  may sell
indexed financial  futures  contracts in  anticipation  of or  during  a  market
decline  to attempt to offset the decrease  in market value of securities in its
portfolio that might  otherwise result. When  the Investment Fund  is not  fully
invested  and  the  Adviser anticipates  a  significant market  advance,  it may
purchase stock index futures in order to gain rapid market exposure that may  in
part  or entirely offset increases in the  cost of securities that it intends to
purchase. In a substantial majority  of these transactions, the Investment  Fund
will  purchase such  securities upon  termination of  the futures  position but,
under unusual market conditions,  a futures position  may be terminated  without
the  corresponding purchase of  securities. The Investment  Funds will engage in
futures and options transactions only for hedging purposes.

    The American Value, Growth and Income  and Worldwide High Income Funds  will
engage only in transactions in securities index futures contracts, interest rate
futures  contracts  and  options  thereon  which  are  traded  on  a  recognized
securities or futures  exchange. There  currently are  limited securities  index
futures,  interest  rate futures  and options  on such  futures markets  in many
countries, particularly emerging countries such as Latin American countries, and
the nature of  the strategies adopted  by the  Adviser and the  extent to  which
those strategies are used will depend on the development of such markets.

    The  Emerging Markets, American Value, Growth  and Income and Worldwide High
Income Funds may enter into futures contracts and options thereon provided  that
not  more than 5%  of each such  Investment Fund's total  assets are required as
deposit to secure obligations  under such contracts,  and provided further  that
not  more than 20% of each Investment  Fund's total assets, in the aggregate are
invested in futures contracts and options transactions.

    The primary risks  associated with the  use of futures  and options are  (i)
imperfect  correlation between the change in market  value of the stocks held by
the Investment Fund and the prices of futures and options relating to the stocks
purchased or sold by  the Investment Fund,  and (ii) possible  lack of a  liquid
secondary  market for a futures contract and  the resulting inability to close a
futures position which  could have an  adverse impact on  the Investment  Fund's
ability  to hedge.  The risk  of loss  in trading  on futures  contracts in some
strategies can be substantial, due both to the low margin deposits required  and
the  extremely high  degree of leverage  involved in futures  pricing. Gains and
losses on  futures  and options  depend  on  the Adviser's  ability  to  predict
correctly  the direction  of stock  prices, interest  rates, and  other economic
factors.   In    the    opinion    of   the    Directors,    the    risk    that

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<PAGE>
the  Investment Fund will be  unable to close out  a futures position or options
contract will be minimized  by only entering into  futures contracts or  options
transactions  for which there appears to be  a liquid secondary market. For more
detailed information about futures  transactions see "Investment Objectives  and
Policies" in the Statement of Additional Information.

DEPOSITARY RECEIPTS

    The  Asian Growth, Emerging Markets,  Latin American, American Value, Growth
and Income and Worldwide  High Income Funds may  on occasion invest in  American
Depositary  Receipts ("ADRs"). The Latin American Fund and Worldwide High Income
Fund may also invest in  other Depositary Receipts, including Global  Depositary
Receipts  ("GDRs"), European  Depositary Receipts ("EDRs")  and other Depositary
Receipts (which, together with ADRs, GDRs and EDRs, are hereinafter collectively
referred to  as  "Depositary Receipts"),  to  the extent  that  such  Depositary
Receipts  become  available. ADRs  are securities,  typically  issued by  a U.S.
financial institution (a "depositary"), that  evidence ownership interests in  a
security  or a pool  of securities issued  by a foreign  issuer (the "underlying
issuer") and deposited  with the  depositary. ADRs  include American  Depositary
Shares  and New York  Shares and may be  "sponsored" or "unsponsored." Sponsored
ADRs are established jointly by a depositary and the underlying issuer,  whereas
unsponsored ADRs may be established by a depositary without participation by the
underlying  issuer.  GDRs,  EDRs  and other  types  of  Depositary  Receipts are
typically issued by foreign  depositaries, although they may  also be issued  by
U.S.  depositaries, and  evidence ownership interests  in a security  or pool of
securities issued by either a foreign or a U.S. corporation.

    Holders of  unsponsored Depositary  Receipts generally  bear all  the  costs
associated  with establishing the unsponsored Depositary Receipt. The depositary
of an  unsponsored  Depositary Receipt  is  under no  obligation  to  distribute
shareholder  communications  received  from  the underlying  issuer  or  to pass
through to the holders of the unsponsored Depositary Receipt voting rights  with
respect  to the deposited securities or  pool of securities. Depositary Receipts
are  not  necessarily  denominated  in  the  same  currency  as  the  underlying
securities  to which  they may be  connected. Generally,  Depositary Receipts in
registered form  are  designed  for  use  in  the  U.S.  securities  market  and
Depositary  Receipts in bearer  form are designed for  use in securities markets
outside the United States. The Asian  Growth, American Value, Growth and  Income
and  Worldwide  High  Income  Funds  may  invest  in  sponsored  and unsponsored
Depositary Receipts. For purposes of the Investment Fund's investment  policies,
the  Investment Fund's investments  in Depositary Receipts will  be deemed to be
investments in the underlying securities.

MONEY MARKET INSTRUMENTS

    The Non-Money Funds  are permitted  to invest in  money market  instruments,
although  such Investment Funds intend to stay invested in securities satisfying
their primary investment objective to the extent practical. The Investment Funds
may make money  market investments  pending other investment  or settlement  for
liquidity  or  in  adverse  market  conditions.  The  money  market  investments
permitted for the Investment  Funds include obligations  of the U.S.  Government
and  its agencies  and instrumentalities, obligations  of foreign sovereignties,
other debt securities, commercial paper including bank obligations, certificates
of  deposit  (including  Eurodollar  certificates  of  deposit)  and  repurchase
agreements.  For more detailed information about these money market investments,
see "Description  of Securities  and  Ratings" in  the Statement  of  Additional
Information.

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<PAGE>
TEMPORARY INVESTMENTS

    During  periods in which the Adviser believes changes in economic, financial
or political conditions make it advisable, for temporary defensive purposes each
of the Emerging Markets Fund and Latin American Fund may reduce its holdings  in
equity  and other  securities and  may invest  in certain  short-term (less than
twelve months  to maturity)  and medium-term  (not greater  than five  years  to
maturity)  debt securities or may hold cash. The short-term and medium-term debt
securities in which such Investment Funds may invest consist of (a)  obligations
of the United States or emerging country governments (Latin American governments
with  respect  to  the  Latin  American  Fund),  their  respective  agencies  or
instrumentalities;  (b)   bank   deposits  and   bank   obligations   (including
certificates  of  deposit, time  deposits  and bankers'  acceptances)  of United
States or emerging country banks (Latin American banks with respect to the Latin
American Fund) denominated  in any  currency; (c) floating  rate securities  and
other   instruments  denominated   in  any  currency   issued  by  international
development agencies; (d)  finance company  and corporate  commercial paper  and
other  short-term  corporate  debt  obligations of  United  States  and emerging
country corporations  (Latin American  corporations with  respect to  the  Latin
American  Fund) meeting the Investment Fund's  credit quality standards; and (e)
repurchase agreements  with  banks  and  broker-dealers  with  respect  to  such
securities.  See "Additional  Investment Information  -- Repurchase Agreements."
For temporary defensive purposes, the Investment Fund intends to invest only  in
short-term  and medium-term debt  securities that the Adviser  believes to be of
high quality,  i.e., subject  to relatively  low  risk of  loss of  interest  or
principal  (there  is currently  no rating  system for  debt securities  in most
emerging countries, including most Latin American countries.)

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES

    Each of the Non-Money Funds may invest in securities that are neither listed
on a stock exchange nor traded over the counter. Such unlisted equity securities
may involve a higher degree  of business and financial  risk that can result  in
substantial  losses. As a result  of the absence of  a public trading market for
these securities,  they may  be  less liquid  than publicly  traded  securities.
Although  these securities may  be resold in  privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
such Investment Funds or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded may  not
be  subject to the  disclosure and other  investor protection requirements which
might be applicable if their securities were publicly traded. If such securities
are required  to  be  registered  under  the securities  laws  of  one  or  more
jurisdictions  before being resold, the Investment  Fund may be required to bear
the expenses of registration. As a  general matter, the Investment Fund may  not
invest  more  than  15% of  its  net  assets in  illiquid  securities, including
securities for which there is no readily available secondary market.  Securities
that  are not registered under the Securities  Act of 1933, as amended, but that
can be offered and sold to qualified institutional buyers under Rule 144A  under
that  Act  will not  be included  within  the foregoing  15% restriction  if the
securities are  determined to  be liquid.  The Board  of Directors  has  adopted
guidelines and delegated to the Adviser, subject to the supervision of the Board
of  Directors, the daily function of determining and monitoring the liquidity of
Rule 144A  securities. Rule  144A securities  may become  illiquid if  qualified
institutional buyers are not interested in acquiring the securities.

NON-DIVERSIFICATION

    The  Global Fixed Income Fund, Emerging Markets Fund and Latin American Fund
are non-diversified portfolios, which means  that such Investment Funds are  not
limited  by the 1940 Act in the proportion of its assets that may be invested in
the obligations of  a single  issuer. Thus, each  Investment Fund  may invest  a
greater

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proportion  of its assets in the securities  of a smaller number of issuers and,
as a result,  will be  subject to  greater risk  with respect  to its  portfolio
securities.   Each  Investment  Fund,  however,   intends  to  comply  with  the
diversification  requirements  imposed   by  the  Internal   Revenue  Code   for
qualification  as a  regulated investment  company. See  "Taxes" and "Investment
Restrictions."

FOREIGN INVESTMENT RISK FACTORS

    Each of the Investment  Funds may invest in  securities of foreign  issuers.
Investment in securities of foreign issuers, especially in securities of issuers
in  emerging  countries,  and in  foreign  branches of  domestic  banks involves
somewhat different  investment risks  from those  affecting securities  of  U.S.
issuers.  There may  be limited publicly  available information  with respect to
foreign issuers,  and  foreign issuers  are  not generally  subject  to  uniform
accounting,   auditing,  and   financial  and  other   reporting  standards  and
requirements comparable to  those applicable to  domestic companies.  Therefore,
disclosure  of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the  United
States.  There may also be less government supervision and regulation of foreign
securities exchanges, brokers and  listed companies than  in the United  States.
Many  foreign  securities  markets  have  substantially  less  volume  than U.S.
national securities exchanges, and securities  of some foreign issuers are  less
liquid  and subject  to greater price  volatility than  securities of comparable
domestic issuers. Brokerage commissions and  other transaction costs on  foreign
securities  exchanges are generally higher than  in the United States. Dividends
and interest paid  by foreign issuers  may be subject  to withholding and  other
foreign  taxes,  which may  decrease the  net return  on foreign  investments as
compared to dividends  and interest  paid to  the Investment  Funds by  domestic
companies.  See "Taxes." Additional  risks include future  adverse political and
economic developments, the possibility that a foreign jurisdiction might  impose
or   change  withholding  taxes  on  income  payable  with  respect  to  foreign
securities, possible seizure,  nationalization or expropriation  of the  foreign
issuer  or foreign deposits,  and the possible  adoption of foreign governmental
restrictions such as exchange  controls. Many of  the emerging countries  listed
above may have less stable political environments than more developed countries.
Also,  it may  be more  difficult to obtain  a judgment  in a  court outside the
United States.

    Investments in securities of foreign  issuers are frequently denominated  in
foreign   currencies,  and  each  Investment  Fund  may  also  temporarily  hold
uninvested reserves in bank deposits in foreign currencies. Therefore, the value
of an Investment Fund's assets measured in United States Dollars may be affected
favorably or  unfavorably by  changes in  currency exchange  rates and  exchange
control  regulations.  Each Investment  Fund will  also  incur certain  costs in
connection with conversions between various currencies.

                             INVESTMENT LIMITATIONS

    Each Investment Fund, except the  Global Fixed Income, Emerging Markets  and
Latin  American Funds, is  a diversified investment company  under the 1940 Act,
and is subject to the following limitations: (a) as to 75% of its total  assets,
the  Investment Fund  may not  invest more than  5% of  its total  assets in the
securities of any one issuer, except obligations of the U.S. Government and  its
agencies  and instrumentalities,  and (b) the  Investment Fund may  not own more
than 10% of  the outstanding  voting securities of  any one  issuer. The  Global
Fixed  Income,  Emerging Markets  and  Latin American  Funds  are nondiversified
investment companies  under  the  1940  Act,  which  means  that  each  of  such
Investment  Funds is not limited by the 1940  Act in the proportion of its total
assets that may be invested in the obligations of a single issuer. Thus, each of
such Investment Funds may invest a greater proportion of its total assets in the
securities  of  a   smaller  number   of  issuers   and,  as   a  result,   will

                                       53
<PAGE>
be  subject to greater  risk with respect  to its portfolio  securities. Each of
such Investment  Funds,  however, intends  to  comply with  the  diversification
requirements  imposed  by the  Internal Revenue  Code of  1986, as  amended, for
qualification as a regulated investment company. See "Taxes."

    The Investment Funds also operate under certain investment restrictions that
are deemed fundamental policies  and may be changed  by an Investment Fund  only
with  the  approval  of the  holders  of  a majority  of  the  Investment Fund's
outstanding shares. In addition to other restrictions listed in the Statement of
Additional Information, an  Investment Fund  may not (i)  enter into  repurchase
agreements  with more than seven days to maturity if, as a result, more than 15%
of the market  value of the  Investment Fund's  total assets (or  for the  Money
Market  Fund, 10% of  the market value of  its net assets)  would be invested in
these agreements  and other  investments  for which  market quotations  are  not
readily available or which are otherwise illiquid; (ii) borrow money except from
banks for extraordinary or emergency purposes and then only in amounts up to 10%
of the value of the Investment Fund's total assets, taken at cost at the time of
borrowing,  or  purchase  securities while  borrowings  exceed 5%  of  its total
assets, or mortgage, pledge or hypothecate any assets except in connection  with
any  such borrowing in amounts  up to 10% of the  value of the Investment Fund's
total assets at the time  of borrowing; except that  each of the Latin  American
and  Worldwide High Income Funds may borrow, and mortgage, pledge or hypothecate
its assets to secure such borrowings, in amounts  equal to up to 33 1/3% of  its
assets  (including the amount  borrowed), less all  liabilities and indebtedness
other than the  borrowing; and except  that the Latin  American, Worldwide  High
Income,  Growth  and  Income  and  Money Market  Funds  may  enter  into reverse
repurchase  agreements  in  accordance  with  their  investment  objectives  and
policies;  (iii) invest  in fixed  time deposits with  a duration  of over seven
calendar days; (iv) invest in  fixed time deposits with  a duration of from  two
business  days to seven  calendar days if more  than 10% (5% in  the case of the
Money Market Fund) of  the Investment Fund's total  assets would be invested  in
these  deposits; or (v) except for the Latin American Fund, invest more than 25%
of the Investment  Fund's total  assets in securities  of companies  in any  one
industry,  except that for the  Money Market Fund there  is no limitation on the
purchase of instruments issued by U.S. banks.

                                       54
<PAGE>
                             MANAGEMENT OF THE FUND

    INVESTMENT ADVISER.  Morgan Stanley Asset Management Inc. (the "Adviser") is
the Investment Adviser and Administrator of the Fund and each of its  Investment
Funds.  The Adviser provides investment advice and portfolio management services
pursuant to an Investment Advisory Agreement and, subject to the supervision  of
the  Fund's Board of  Directors, makes each of  the Investment Fund's investment
decisions, arranges for  the execution of  portfolio transactions and  generally
manages  each of the Investment Fund's investments. Set forth below as an annual
percentage of average daily net assets are the advisory fees paid to the Adviser
quarterly by each Investment Fund. The investment advisory fees of the Non-Money
Funds, which involve international  investments, are higher  than those of  most
investment  companies  but  comparable  to those  of  investment  companies with
similar objectives.

<TABLE>
<S>                         <C>
Global Equity Allocation
Fund                            1.00%
Global Fixed Income Fund        0.75%
Asian Growth Fund               1.00%
Emerging Markets Fund           1.25%
Latin American Fund             1.25%
European Equity Fund            1.00%
American Value Fund             0.85%
Worldwide High Income Fund      0.75%
Growth and Income Fund          0.75%
Money Market Fund               0.35%
</TABLE>

    The Adviser, with  principal offices  at 1221  Avenue of  the Americas,  New
York,  NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At December 31, 1994, the Adviser together with its affiliated asset
management companies managed investments  totaling approximately $48.7  billion,
including  approximately $35.6 billion under active management and $13.1 billion
as Named  Fiduciary  or  Fiduciary  Adviser. See  "Management  of  the  Fund  --
Investment   Advisory  and  Administrative  Agreements"   in  the  Statement  of
Additional Information.

    The Money Market Fund  and each class  of each of  the Non-Money Funds  have
adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act
(each,  a "Plan"). Under the applicable Plan,  which is described in more detail
under "Distributor" below, the Distributor is entitled to receive from the Money
Market Fund, and from each  of the Non-Money Funds with  respect to the Class  A
shares,  payments of 0.25%  of such Investment Fund's  or class's annual average
net assets, and from each of the Non-Money Funds with respect to the Class B and
Class C shares,  payments of 0.75%  of such class's  annual average net  assets.
Each Plan recognizes that, in addition to such payments, the Adviser may use its
advisory  fees or  other resources  to pay  expenses associated  with activities
which might be  construed to be  financing the sale  of these Investment  Funds'
shares. Each Plan provides that the Adviser may make payments from these sources
to   third  parties,  such  as  consultants   that  provide  assistance  in  the
distribution effort (in  addition to  selling shares  and providing  shareholder
services).  As part of such distribution fees  for the Money Market Fund and the
Class A shares  of the Non-Money  Funds, up to  0.25% of the  net assets of  the
Investment    Fund    or    class    will   be    used    to    compensate   the

                                       55
<PAGE>
Distributor for shareholder services provided. In addition to such  distribution
fees  for the Class  B shares and  Class C shares,  the Rule 12b-1  plan of each
class of each Investment Fund authorizes the payment of 0.25% of the net  assets
of such class to compensate the Distributor for shareholder services provided.

    PORTFOLIO  MANAGERS  --  The following  individuals  have  primary portfolio
management responsibility for the portfolios noted below:

    GLOBAL EQUITY ALLOCATION FUND -- BARTON  M. BIGGS, MADHAV DHAR, FRANCINE  J.
BOVICH  AND ANN D. THIVIERGE.  Barton Biggs has been  Chairman and a director of
the Adviser since 1980 and a Managing Director of Morgan Stanley since 1975.  He
is  also a director of  Morgan Stanley Group Inc. and  a director and officer of
six registered investment  companies to  which the  Adviser and  certain of  its
affiliates  provide investment  advisory services. Mr.  Biggs holds  a B.A. from
Yale University  and  an M.B.A.  from  New York  University.  Madhav Dhar  is  a
Managing  Director of Morgan Stanley. He joined  the Adviser in 1984 to focus on
global asset  allocation and  investment strategy  and now  heads the  Adviser's
emerging  markets group and  serves as the  group's principal portfolio manager.
Mr. Dhar also coordinates the Adviser's developing country funds effort and  has
been  involved  in the  launching  of the  Adviser's  country funds.  He  is the
portfolio manager of the Fund's Emerging Markets Fund, the Emerging Markets  and
Active  Country Allocation Portfolios of  the Morgan Stanley Institutional Fund,
Inc.,  and  the  Morgan  Stanley  Emerging  Markets  Fund,  Inc.  (a  closed-end
investment  company listed on the  New York Stock Exchange).  Mr. Dhar is also a
director of  the Morgan  Stanley Emerging  Markets Fund,  Inc. He  holds a  B.S.
(honors) from St. Stephens College, Delhi University (India), and an M.B.A. from
Carnegie-Mellon University. Francine Bovich joined the Adviser as a Principal in
1993.  She  is responsible  for  product development,  portfolio  management and
communication of  the  Adviser's  asset  allocation  strategy  to  institutional
investor  clients. Previously,  Ms. Bovich  was a  Principal and  Executive Vice
President of  Westwood Management  Corp. ('Westwood'),  a registered  investment
adviser.  Before  joining  Westwood, she  was  a Managing  Director  of Citicorp
Investment Management, Inc. (now Chancellor  Capital Management), where she  was
responsible  for the Institutional Investment Management group. Ms. Bovich began
her investment career with Banker's Trust Company. She holds a B.A. in Economics
from Connecticut College and an M.B.A. in Finance from New York University.  Ann
Thivierge  is a Vice President of the Adviser.  She is a member of the Adviser's
asset allocation  committee, primarily  representing the  Total Fund  Management
team  since its  inception in 1991.  Prior to  joining the Adviser  in 1986, she
spent two  years at  Edgewood Management  Company, a  privately held  investment
management  firm. Ms.  Thivierge holds  a B.A.  in International  Relations from
James Madison College, Michigan State University, and an M.B.A. in Finance  from
New York University.

    GLOBAL  FIXED INCOME FUND --  MICHAEL J. SMITH AND  ROBERT M. SMITH. Michael
Smith joined the Adviser  as a fixed-income  manager in 1990  and became a  Vice
President   of  Morgan   Stanley  in  1992.   He  has   had  primary  management
responsibility for the Investment  Fund since its  inception. He was  previously
employed   by   Gartmore  Investment   Management,   where  he   had  day-to-day
responsibility for the management of global and European fixed-income and  money
market  funds. Prior to his three years  at Gartmore, Mr. Smith spent four years
with Legal & General Investment as  an analyst and fund manager responsible  for
the  fixed-income  portion of  several large  segregated funds.  Mr. Smith  is a
graduate of Exeter University, England. Robert Smith joined the Adviser as  Vice
President  in  June 1994  and has  been primarily  responsible for  managing the
Portfolio's assets since July 1994. Prior to joining the Adviser he spent  eight
years as Senior Portfolio Manager - Fixed Income at the State of Florida Pension
Fund.   Mr.  Smith's   responsibilities  included   active  total-rate-of-return
management

                                       56
<PAGE>
of  long  term portfolios  and  supervision of  other  fixed income  managers. A
graduate of  Florida State  University with  a BS  in Business.  Mr. Smith  also
received  an MBA -  finance from Florida  State and holds  a Chartered Financial
Analyst (CFA) designation.

    ASIAN GROWTH FUND -- EAN WAH CHIN, JAMES CHENG, AND SEAH KIAT SENG. Ean  Wah
Chin  is  a Managing  Director  of Morgan  Stanley  and is  responsible  for the
Adviser's regional  Asia ex-Japan  operations based  in Singapore.  She has  had
primary  management responsibility for the  Investment Fund since its inception.
Prior to joining Morgan  Stanley in 1986,  Ms. Chin spent  eight years with  the
Monetary  Authority  of Singapore  and  the Government  of  Singapore Investment
Corporation, where she was a portfolio manager on one of the largest  portfolios
in  Asia. Ms. Chin was an ASEAN scholar educated at the University of Singapore.
James Cheng is a Principal  of Morgan Stanley. Mr.  Cheng joined the Adviser  in
1988  as a portfolio  manager for Asian markets  and is a  Vice President of the
Adviser, currently responsible for investments in Hong Kong, China, Taiwan,  and
South  Korea. He  has had primary  management responsibility  for the Investment
Fund since its  inception. Prior to  joining Morgan Stanley,  he was  affiliated
with American Express and with Arthur Andersen, where he spent three years as an
auditor/consultant.  Mr. Cheng holds an M.B.A.  from the University of Michigan,
Ann Arbor. Seah Kiat  Seng joined the  Adviser's Singapore office  in 1990 as  a
portfolio  manager/analyst specializing  in the  Southeast Asian  markets. He is
currently a Vice President, responsible for investments in Thailand. He has  had
primary  management responsibility for the  Investment Fund since its inception.
Previously, Kiat Seng worked  at Barclays de  Zoete Wedd (BZW),  where he was  a
senior investment analyst who helped pioneer BZW's research effort in Singapore.
Kiat  Seng is a Chartered  Financial Analyst and a  qualified real estate valuer
who has worked  for the Singapore  Ministry of  Finance. He was  a Colombo  Plan
Scholar educated in New Zealand.

    EMERGING  MARKETS  FUND --  MADHAV DHAR.  Information  about Madhav  Dhar is
included under the Global Equity Allocation Fund above. Mr. Dhar has had primary
responsibility for managing the Investment Fund's assets since inception.

    LATIN AMERICAN FUND -- ROBERT L.  MEYER. Robert Meyer joined the Adviser  in
1989  and is now a Principal of Morgan Stanley. He is responsible for all of the
Adviser's equity investments in Latin America and has had primary responsibility
for managing the Investment Fund since its inception.

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

    AMERICAN VALUE FUND  -- MICHAEL A.  CROWE AND CHRISTIAN  K. STADLINGER.  Mr.
Crowe  is a Managing Director of Morgan  Stanley and head of its Chicago office.
He also has overall responsibility  for the Adviser's U.S. large  capitalization
value  equity,  U.S.  small  capitalization  value  equity  and  value  balanced
products. He has had primary  management responsibility for the Investment  Fund
since  its  inception.  Mr.  Crowe's  equity  research  responsibilities include
energy, banking  and financial  diversified sectors.  Mr. Stadlinger  is a  Vice
President  of the Adviser and manages the  small-cap value equity product of the
Adviser's Chicago affiliate. He is also a member of the Adviser's Chicago  large
cap   value  portfolio   management  team,  specializing   in  quantitative  and
fundamental research.  He  has had  primary  management responsibility  for  the
Investment Fund since its

                                       57
<PAGE>
inception.  Upon completion of his Ph.D., Mr. Stadlinger was the catalyst in the
development of the  small-cap value product,  and he continues  to research  and
develop  structured valuation techniques in  small cap investing. Mr. Stadlinger
has a degree in  Computer Science and Economics  from the University of  Vienna,
Austria,  and a Ph.D.  in Economics from Northwestern  University, where he also
taught statistics and economics.

    WORLDWIDE HIGH  INCOME FUND  -- ROBERT  ANGEVINE AND  PAUL GHAFFARI.  Robert
Angevine  is a Principal of the Adviser and the portfolio manager for high yield
investments. He has  had primary  management responsibility  for the  Investment
Fund since its inception. Prior to joining the Adviser in October 1988, he spent
over  eight  years at  Prudential Insurance,  where he  was responsible  for the
largest open-end  high yield  mutual  fund in  the  country. Mr.  Angevine  also
manages  high yield assets for one of the largest corporate pension funds in the
country. His other  experience includes international  treasury operations at  a
major  pharmaceutical company and  commercial banking. Mr.  Angevine received an
M.B.A. from  Fairleigh  Dickinson  University  and  a  B.A.  in  Economics  from
Lafayette  College. He served two  years as a Lieutenant  in the U.S. Army. Paul
Ghaffari is a Principal of Morgan  Stanley and portfolio manager for the  Morgan
Stanley Emerging Markets Debt Fund, Inc. (a closed-end investment company listed
on  the NYSE). He  has had primary management  responsibility for the Investment
Fund since its inception. Prior to joining the Adviser, he was a Vice  President
in  the  Fixed  Income  Division  of  the  Emerging  Markets  Sales  and Trading
Department at Morgan Stanley. From 1983 to 1992, Mr. Ghaffari worked in the  LDC
Sales  and Trading Department  and the Mortgage-Backed  Securities Department at
J.P. Morgan &  Co., Inc. and  worked in  the Treasury Department  at the  Morgan
Guaranty  Trust  Co. He  holds  a B.A.  in  International Relations  from Pomona
College and a M.S. in Foreign Service from Georgetown University.

    GROWTH AND INCOME  FUND -- KURT  A. FEUERMAN AND  MARGARET KINSLEY  JOHNSON.
Kurt  Feuerman  is  a Managing  Director  of  the Adviser  and  has  had primary
management responsibility for the Investment Fund since its inception. Prior  to
joining  the Adviser in July 1993, he spent over three years in Morgan Stanley's
Research Department where he was responsible for restaurant, gaming and emerging
growth stocks.  Before  joining Morgan  Stanley,  Mr. Feuerman  was  a  Managing
Director  at Drexel Burnham Lambert,  where he had been  an equity analyst since
1984. From 1982 to 1984, Mr. Feuerman was at the Bank of New York, following the
auto and auto parts  industries. Mr. Feuerman earned  a B.A. degree from  McGill
University,  an  M.A.  from Syracuse  University,  and an  M.B.A.  from Columbia
University. Margaret Johnson is a Principal  of the Adviser and has had  primary
management  responsibility  for the  Investment  Fund since  its  inception. She
joined Morgan  Stanley in  1984 as  a marketing  analyst. She  became an  equity
analyst  in  1986 and  a  portfolio manager  in  1989. Prior  to  joining Morgan
Stanley, Ms. Johnson worked for the  New York City PBS affiliate, WNET,  Channel
13.  She holds  a B.A.  degree from  Yale College  and is  a Chartered Financial
Analyst.

    MONEY MARKET FUND --  ABIGAIL JONES FEDER, GERALD  P. BARTH, AND KENNETH  R.
HOLLEY.  Abigail Feder  is a  Vice President  of the  Adviser and  a short-term,
fixed-income  portfolio  manager  responsible  for  taxable  and  tax-advantaged
portfolios.  She has  had primary  management responsibility  for the Investment
Fund since its inception. Prior  to joining the group  in 1990, she spent  three
years  in the marketing area, where she worked  first as an analyst and was then
promoted to a  marketing director in  1988. Ms. Feder  originally joined  Morgan
Stanley  in 1985 as an analyst in  the corporate finance department. She holds a
B.A. from  Vassar  College.  Gerald P.  Barth  joined  the Adviser  in  1987  to
establish  the short  to intermediate-term taxable  cash management  area and to
manage the tax-exempt municipal  bond portfolio. He became  a Vice President  in
1989  and a Principal in 1991. He  has had primary management responsibility for
the Investment Fund since its inception.

                                       58
<PAGE>
Prior to joining the Adviser, Mr. Barth was Director of Investments at Subaru of
America for five years,  where he managed both  the short and  intermediate-term
corporate  cash portfolios. He began his career  at Arthur Andersen in the audit
department and  spent two  years in  the tax  department. He  earned a  B.S.  in
Accounting  from LaSalle  College and  became a  Certified Public  Accountant in
1977. Kenneth  R.  Holley joined  the  Adviser  as a  short-term,  fixed  income
portfolio  manager in August 1993. He  has had primary management responsibility
for the Investment Fund since its inception. Previously, he worked for more than
two  years  as  a  finance  officer  for  the  African  Development  Bank  (ADB)
implementing  trading strategies for the bank's $1 billion short to intermediate
U.S. dollar portfolio. Prior to joining the ADB, Mr. Holley was a Vice President
at Ward and Associates Asset Management for  a year and a half, responsible  for
fixed  income strategy. He  holds a B.S.  in Engineering from  the University of
Pennsylvania and a M.B.A. from the Wharton School.

    ADMINISTRATION.   The Adviser  also provides  the Fund  with  administrative
services  pursuant to a separate Administration Agreement. The services provided
under the  Administration  Agreement  are  subject to  the  supervision  of  the
officers   and  Board   of  Directors  of   the  Fund   and  include  day-to-day
administration of  matters  related to  the  corporate existence  of  the  Fund,
maintenance  of its records,  preparation of reports,  supervision of the Fund's
arrangements with its custodian and assistance in the preparation of the  Fund's
registration  statements  under  Federal  and  State  laws.  The  Administration
Agreement also provides  that the Adviser  through its agents  will provide  the
Fund dividend disbursing and transfer agent services. For its services under the
Administration  Agreement, the Fund pays  the Adviser a monthly  fee which on an
annual basis equals  0.25% of the  average daily net  assets of each  Investment
Fund.

    Under  the United States Trust  Administration Agreement between the Adviser
and United  States Trust  Company of  New York  ("U.S. Trust"),  U.S. Trust  has
agreed  to provide  certain administrative services  to the Fund.  Pursuant to a
delegation clause  in  the U.S.  Trust  Administration Agreement,  Mutual  Funds
Service  Company ("MFSC" or  the "Transfer Agent"), a  subsidiary of U.S. Trust,
provides these services to  the Fund. The Adviser  supervises and monitors  such
administrative  services  provided  by  MFSC. The  services  provided  under the
Administration Agreement and  the U.S. Trust  Administration Agreement are  also
subject  to the supervision of the Board of  Directors of the Fund. The Board of
Directors of the  Fund has approved  the provision of  services described  above
pursuant  to  the Administration  Agreement  and the  U.S.  Trust Administration
Agreement as being in the best interests of the Fund. MFSC's business address is
73 Tremont Street, Boston, Massachusetts 02108-3913. For additional  information
on the Administration Agreement and the U.S. Trust Administration Agreement, see
"Management of the Fund" in the Statement of Additional Information.

    ADMINISTRATORS FOR THE LATIN AMERICAN FUND.  The Investment Fund is required
under Brazilian law to have a local administrator in Brazil. Unibanco-Uniao (the
"Brazilian  Administrator"),  a Brazilian  corporation,  acts as  the Investment
Fund's Brazilian administrator pursuant to an agreement with the Investment Fund
(the "Brazilian Administration Agreement").  Under the Brazilian  Administration
Agreement,  the  Brazilian  Administrator  performs  various  services  for  the
Investment Fund, including effecting the  registration of the Investment  Fund's
foreign  capital with the Central Bank of Brazil, effecting all foreign exchange
transactions  related  to  the  Investment  Fund's  investments  in  Brazil  and
obtaining  all approvals required for the Investment Fund to make remittances of
income and capital  gains and  for the  repatriation of  the Fund's  investments
pursuant to Brazilian law. For its services, the Brazilian Administrator is paid
an  annual fee equal to .125% of the Investment Fund's average weekly net assets
invested in  Brazil,  paid  monthly.  The  principal  office  of  the  Brazilian
Administrator is

                                       59
<PAGE>
located  at Avenida Eusebio Matoso, 891,  Sao Paulo, S.P., Brazil. The Brazilian
Administration Agreement is terminable upon six months' notice by either  party;
the  Brazilian Administrator may be replaced only by an entity authorized to act
as a  joint  manager  of a  managed  portfolio  of bonds  and  securities  under
Brazilian law.

    The  Investment  Fund  is  required  under Colombian  law  to  have  a local
administrator in  Colombia. CitiTrust  S.A. (the  "Colombian Administrator"),  a
Colombian  Trust Company, acts as  the Investment Fund's Colombian administrator
pursuant to an agreement with  the Investment Fund (the "Colombian  Agreement").
Under  the  Colombian Agreement,  the  Colombian Administrator  performs various
services for the Investment  Fund, including effecting  the registration of  the
Investment  Fund's foreign capital with the  Central Bank of Colombia, effecting
all foreign exchange transactions related  to the Investment Fund's  investments
in Colombia and obtaining all approvals required for the Investment Fund to make
remittances  of income and capital gains and  for the repatriation of the Fund's
investments  pursuant  to  Colombian  law.  For  its  services,  the   Colombian
Administrator  is paid  an annual  fee of $1000  plus .20%  per transaction. The
principal  office  of  the  Colombian  Administrator  is  located  at   Sociedad
Fiduciaria  International S.A., 8-89, Piso 2,  Santa Fe de Bogota, Colombia. The
Colombian Agreement is  terminable upon  30 days'  notice by  either party;  the
Colombian Administrator may be replaced only by an entity authorized to act as a
joint  manager of  a managed portfolio  of bonds and  securities under Colombian
law.

    DIRECTORS AND OFFICERS.  Pursuant  to the Fund's Articles of  Incorporation,
the  Board of Directors  decides upon matters  of general policy  and review the
actions of the Fund's Adviser,  administrators and Distributor. The Officers  of
the Fund conduct and supervise its daily business operations.

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

    The Fund  currently  offers only  the  classes  of shares  offered  by  this
Prospectus.  The Fund may in the future offer  one or more classes of shares for
each of the  Investment Funds  that may have  different CDSCs  or initial  sales
charges  or other distribution charges or a combination thereof than the classes
currently offered.

    The Board of Directors of the Fund has approved and adopted the Distribution
Agreement for the Fund and  a Plan for the Money  Market Fund and each class  of
the  Non-Money Funds pursuant to Rule 12b-1 under the 1940 Act. Under each Plan,
the  Distributor  is  entitled  to   receive  from  these  Investment  Funds   a
distribution  fee, which is accrued  daily and paid quarterly,  of 0.25% for the
Money Market Fund and  the Class A  shares of each of  the Non-Money Funds,  and
0.75%  of the Class B shares and Class  C shares of each of the Non-Money Funds,
on an annualized basis of the average  daily net assets of such Investment  Fund
or  classes. The Distributor expects to reallocate most of its fee to investment
dealers,  banks  or   financial  services  firms   that  provide   distribution,
administrative  or  shareholder  services ("Participating  Dealer").  The actual
amount of such compensation is agreed upon by the Fund's Board of Directors  and
by  the Distributor. The  Distributor may, in  its discretion, voluntarily waive
from time to time all or any portion of its distribution fee and the Distributor
is free to make additional payments out of its own assets to promote the sale of
Fund shares. Class B shares and Class C shares are also subject to a service fee
at an annual  rate of  0.25% on  an annualized basis  of the  average daily  net
assets of such class of shares of an Investment Fund.

                                       60
<PAGE>
    In  addition to  the distribution  and shareholder  servicing fees described
above, Morgan Stanley also receives a sales  charge of up to 4.75% of the  sales
price of Class A shares of the Non-Money Funds. Morgan Stanley may reallow up to
the  full applicable sales charge, as shown in the table in "Purchase of Shares"
below, to  certain Participating  Dealers during  periods and  for  transactions
specified  in  "Purchase of  Shares"  and such  reallowances  may be  based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge  is  reallowed,  certain  Participating  Dealers  may  be  deemed  to  be
underwriters  as that term is defined in the Securities Act of 1933, as amended.
Morgan Stanley may receive a CDSC of up to 1.00% of the sales price of the Class
A shares  and  Class C  shares  of Non-Money  Funds,  as described  below  under
"Purchase  of Shares." Morgan Stanley may also receive  a CDSC of up to 5.00% of
the sales price  of shares  of the  Class B shares  of the  Non-Money Funds,  as
described  below under  "Purchase of Shares."  In addition to  the sales charges
described above, Morgan Stanley may from time to time and from its own resources
pay or allow additional discounts or promotional incentives, in the form of cash
or other  compensation,  to  Participating  Dealers.  In  some  instances,  such
discounts  or  other incentives  may be  offered  only to  certain Participating
Dealers that sell or are expected to sell during specified time periods  certain
minimum  amounts of shares  of the Fund,  or other funds  underwritten by Morgan
Stanley. In some  instances, these  incentives may  be offered  only to  certain
Participating  Dealers that have sold or may sell significant amounts of shares.
In addition,  Morgan Stanley  pays ongoing  trail commissions  to  Participating
Dealers.  At  the option  of  the Participating  Dealer,  such bonuses  or other
incentives may take the form of  payment for travel expenses, including  lodging
incurred  in  connection  with  trips  taken  by  persons  associated  with  the
Participating Dealer and members of their  families to places within or  outside
of  the  United  States.  The Distributor  or  Participating  Dealers  and their
investment  representatives  may  receive   different  levels  of   compensation
depending on which class of shares they sell.

    The Plans obligate the Investment Funds to accrue and pay to the Distributor
the  fee agreed to under  its Distribution Agreement. The  Plans do not obligate
the Investment Funds to reimburse Morgan Stanley for the actual expenses  Morgan
Stanley may incur in fulfilling its obligations under the Plan. Thus, under each
Plan,  even if  Morgan Stanley's  actual expenses exceed  the fee  payable to it
thereunder at any given time, the Investment Funds will not be obligated to  pay
more than that fee. If Morgan Stanley's actual expenses are less than the fee it
receives, Morgan Stanley will retain the full amount of the fee.

    Each  Plan of Distribution  for a class  of Fund shares,  under the terms of
Rule 12b-1, will  remain in effect  only if  approved at least  annually by  the
Fund's  Board of  Directors, including those  directors who  are not "interested
persons" of the Fund  as that term is  defined in the 1940  Act and who have  no
direct  or indirect  financial interest  in the  operation of  a Plan  or in any
agreements related thereto ("12b-1 Directors").  Each Plan may be terminated  at
any  time by  a vote  of a majority  of the  12b-1 Directors or  by a  vote of a
majority of the  outstanding voting  securities of  the applicable  class of  an
Investment  Fund. The fee set forth above will be paid by the Investment Fund or
class thereof to Morgan  Stanley unless and  until a Plan  is terminated or  not
renewed.  The Fund intends to operate each Plan in accordance with its terms and
the NASD Rules concerning sales charges.

    PAYMENTS TO  FINANCIAL INSTITUTIONS.    The Adviser  or its  affiliates  may
compensate  certain financial institutions for the continued investment of their
customers' assets in the Portfolios of the  Fund pursuant to the advice of  such
financial  institutions. These payments will be  made directly by the Adviser or
its affiliates from their assets,  and will not be made  from the assets of  the
Fund   or   by   the   assessment   of   a   sales   charge   on   shares.  Such

                                       61
<PAGE>
financial institutions  may also  perform certain  shareholder or  recordkeeping
services  that would otherwise  be performed by  MFSC. The Adviser  may elect to
enter into a contract to pay the financial institutions for such services.

    EXPENSES.  The Investment Funds are responsible for payment of certain other
fees and expenses (including professional fees, custodial fees and printing  and
mailing costs) specified in the Administration and Distribution Agreements.

                             PORTFOLIO TRANSACTIONS

    The  Investment  Advisory Agreement  authorizes  the Adviser  to  select the
brokers or  dealers that  will execute  the purchases  and sales  of  investment
securities  for each of the Investment Funds  and directs the Adviser to use its
best efforts to  obtain the best  available price and  most favorable  execution
with  respect  to  all  transactions  for the  Investment  Funds.  The  Fund has
authorized the Adviser  to pay  higher commissions in  recognition of  brokerage
services which, in the opinion of the Adviser, are necessary for the achievement
of  better  execution, provided  the Adviser  believes  this to  be in  the best
interest of the Fund.

    Shares of the  Investment Funds are  marketed through Participating  Dealers
and  the Fund may allocate brokerage or principal business on the basis of sales
of shares of  the Investment Funds  which may  be made through  such firms.  The
Adviser  may place portfolio orders  with qualified broker-dealers who recommend
the Investment Funds  or who  act as  agents in the  purchase of  shares of  the
Investment Funds for their clients.

    In purchasing and selling securities for each of the Investment Funds, it is
the  Fund's policy  to seek  to obtain quality  execution at  the most favorable
prices, through  responsible  broker-dealers.  In  selecting  broker-dealers  to
execute the securities transactions for the Investment Funds, consideration will
be  given  to  such factors  as  the price  of  the  security, the  rate  of the
commission, the size and  difficulty of the  order, the reliability,  integrity,
financial condition, general execution and operational capabilities of competing
broker-dealers,  and the brokerage  and research services  which they provide to
the Fund. Some securities  considered for investment by  each of the  Investment
Funds  may  also be  appropriate for  other  clients served  by the  Adviser. If
purchase or sale  of securities consistent  with the investment  policies of  an
Investment  Fund and one or more of such  other clients served by the Adviser is
considered at or about  the same time, transactions  in such securities will  be
allocated  among the Investment Fund  and other clients in  a manner deemed fair
and reasonable  by the  Adviser.  Although there  is  no specified  formula  for
allocating  such  transactions,  the  various  allocation  methods  used  by the
Adviser, and the results of such allocations, are subject to periodic review  by
the Fund's Board of Directors.

    Subject to the overriding objective of obtaining the best possible execution
of  orders, the Adviser may allocate a portion of the Fund's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley. In  order
for  Morgan Stanley or  its affiliates to effect  any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by Morgan Stanley
or such affiliates must be reasonable and fair compared to the commissions, fees
or other  remuneration  paid to  other  brokers in  connection  with  comparable
transactions   involving  similar  securities  being  purchased  or  sold  on  a
securities exchange during a comparable  period of time. Furthermore, the  Board
of  Directors of  the Fund, including  a majority  of the Directors  who are not
"interested persons"  of the  Fund as  defined  in the  1940 Act,  have  adopted
procedures  which are reasonably designed to  provide that any commissions, fees
or other remuneration paid to Morgan  Stanley or such affiliates are  consistent
with the foregoing standard.

                                       62
<PAGE>
    Portfolio  securities will not be purchased from,  or through, or sold to or
through, the Adviser or Morgan Stanley  or any "affiliated persons," as  defined
in  the 1940 Act, of Morgan Stanley when such entities are acting as principals,
except to the extent permitted by law.

    Although the primary  objective of each  of the Investment  Funds is not  to
invest  for short-term trading, each  of the Investment Funds  will seek to take
advantage of  trading  opportunities  as  they arise  to  the  extent  they  are
consistent  with  the  Investment  Fund's  objectives.  Accordingly,  investment
securities may be sold from  time to time without regard  to the length of  time
they  have been held. Each of the Investment Funds, except the Growth and Income
Fund, anticipate that the Investment Fund's annual portfolio turnover rate  will
not  exceed 100% under  normal circumstances and the  Emerging Markets and Latin
American Fund anticipate  that the Investment  Fund's annual portfolio  turnover
rate  will not  exceed 50% under  normal circumstances.  Market conditions could
result in portfolio activity at a greater or lesser rate than anticipated. It is
expected that the annual turnover rate of the Growth and Income Fund may  exceed
100%,  which  will  accordingly  result in  higher  brokerage  commissions. High
portfolio turnover involves correspondingly greater transaction costs which will
be borne directly by the Investment  Fund. In addition, high portfolio  turnover
may  result in more capital gains which  would be taxable to the shareholders of
the Investment Fund.

                               PURCHASE OF SHARES

    Shares of  the  Investment  Funds may  be  purchased  through  Participating
Dealers  or directly from the Fund. Class A shares of the Non-Money Funds may be
purchased at the net asset value per share plus the applicable sales charge,  if
any,  next determined after receipt  of the purchase order  by the Fund. Class B
shares and Class C shares of the Non-Money Funds and shares of the Money  Market
Fund  may be purchased  at the net  asset value per  share next determined after
receipt of the purchase order by the Fund. Participating Dealers are responsible
for forwarding orders they receive to the Fund by the applicable times described
below on the  same day  as their  receipt of the  orders to  permit purchase  of
shares  as described above and the failure to do so will result in the investors
being unable to obtain that  day's net asset value.  Shares of the Money  Market
Fund  purchased  by check  will ordinarily  receive  dividends beginning  on the
business day following receipt of the check. See "Valuation of Shares."

    The Class A, Class B and Class  C alternatives permit an investor to  choose
the  method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and  other
circumstances. Investors should consider whether, during the anticipated life of
their  investment in the Fund, the combination of sales charge, distribution fee
and  CDSC  on  Class  A  shares  is  more  favorable  than  the  combination  of
distribution/service  fees and CDSC on Class B shares or Class C shares. In some
cases, investors planning to  purchase $100,000 or more  of Fund shares may  pay
lower  aggregate charges  and expenses by  purchasing Class A  shares. (See "Fee
Table.")

                                       63
<PAGE>
OFFERING PRICE OF CLASS A SHARES

    Class A shares  of the Non-Money  Funds may  be purchased at  the net  asset
value per share plus a sales charge (the "Offering Price") which is a percentage
of  the Offering Price that decreases as the amount of the purchase increases as
shown below:

<TABLE>
<CAPTION>
                         SALES CHARGE AS     SALES CHARGE AS     DEALER RETENTION
    CLASS A SHARES        PERCENTAGE OF     PERCENTAGE OF NET    AS PERCENTAGE OF
 AMOUNT OF PURCHASE +    OFFERING PRICE      AMOUNT INVESTED     OFFERING PRICE**
----------------------  -----------------  -------------------  -------------------
<S>                     <C>                <C>                  <C>
Less than $100,000              4.75%               4.99%                4.25%
$100,000 - $249,999             3.50%               3.63%                3.00%
$250,000 - $499,999             2.50%               2.56%                2.00%
$500,000 - $999,999             2.00%               2.04%                1.50%
$1,000,000 and over              None*               None***++
<FN>
--------------
 * Purchases of  $1 million or  more may be  subject to a  redemption fee.  (See
   below.)  Morgan Stanley may make payments to Participating Dealers in amounts
   up to 1.00% of the Offering Price.
** The  Distributor may,  in  its discretion,  permit Participating  Dealers  to
   retain the full amount of the sales charge in connection with certain sales.
 +  The amount  of purchase includes  net asset  value of the  purchase plus the
   sales charge.
++ Commission is payable by Morgan Stanley as discussed below.
</TABLE>

    Morgan Stanley may  in its  discretion compensate  Participating Dealers  in
connection  with  the  sale of  Class  A shares  of  the Non-Money  Funds  in an
aggregate amount of $1 million or more up to the following amounts: 1.00% of the
net asset value of shares sold on amounts up to $3 million, .50% on the next  $2
million  and .25% on  amounts over $5  million. For purposes  of determining the
appropriate commission percentage to be applied  to a particular sale under  the
foregoing  schedule, Morgan Stanley will consider the cumulative amount invested
by the purchaser in Class A shares of the Non-Money Funds.

    REDUCTION  OR  WAIVER  OF  SALES  CHARGES.    A  shareholder  who  purchases
additional  Class A shares of a Non-Money  Fund may obtain reduced sales charges
through a right  of accumulation of  current purchases  of Class A  shares of  a
Non-Money  Fund  with  concurrent  purchases  of Class  A  shares  of  the other
Non-Money Fund and  with existing  Class A  share investments  in all  Non-Money
Funds.  The applicable sales charge will be determined based on the total of (a)
the shareholder's current purchases  of Class A shares  of Non-Money Funds  plus
(b)  an amount equal to the greater of  the then current net asset value, or the
total purchase price of the investor's prior purchases of all Class A shares  of
Non-Money  Funds held  by the  shareholder. To  obtain the  reduced sales charge
through a right of accumulation, the shareholder must provide Morgan Stanley  at
the  time  of purchase,  either directly  or through  a Participating  Dealer or
shareholder servicing  agent,  as  applicable, with  sufficient  information  to
verify  that the shareholder has  such a right. The  Fund may amend or terminate
this right of accumulation at any time as to subsequent purchases.

    For purposes of reduced sales charges based on amount of purchase, the  term
"purchase"  refers  to purchases  made  at one  time  by any  "purchaser," which
includes an individual; a group composed of an individual and his or her  spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate  or single fiduciary account; an  organization exempt from federal income
tax under Section 501(c)(3)  or (13) of  the Internal Revenue  Code of 1986,  as
amended   (the   "Code");   a   pension,   profit-sharing   or   other  employee

                                       64
<PAGE>
benefit plan, whether or not qualified under  Section 401 of the Code; or  other
organized   group  of  persons,  whether   incorporated  or  not,  provided  the
organization has been in existence for at least six months and has some  purpose
other  than the  purchase of  redeemable securities  of a  registered investment
company at a discount. In order to qualify for a lower sales charge on purchases
of the Class A shares, all orders from an organized group will have to be placed
through a  single Participating  Dealer  and identified  as originating  from  a
qualifying purchaser.

    An  investor may also obtain reduced  sales charges shown above on purchases
of the Class A shares by executing  a written letter of intent which states  the
investor's  intention to invest not less  than $100,000 within a 13-month period
in Class A shares of  the Non-Money Funds ("Letter").  Each purchase of Class  A
shares  of a Non-Money  Fund under a Letter  will be made  at the Offering Price
applicable at the time of such purchase  to single purchases of the full  amount
indicated  on the  Letter. (See  Terms and  Conditions included  in the  form of
Letter in the New Account Application attached to this Prospectus.) An  investor
who  wishes to enter into  a Letter in connection with  an investment in Class A
shares of a Non-Money Fund  should use the form  in the New Account  Application
attached to this Prospectus. The Letter, which imposes no obligation to purchase
or  sell additional  Class A shares,  provides for a  price adjustment depending
upon the actual amount  purchased within such period.  The Letter provides  that
the  first purchase following execution of the Letter must be at least 5% of the
amount of the  intended purchase,  and that  5% of  the amount  of the  intended
purchase  normally  will  be  held  in escrow  in  the  form  of  shares pending
completion of the intended purchase. If  the total investments under the  Letter
are  less than the intended  amount and thereby qualify  only for a higher sales
charge than actually  paid, the appropriate  number of escrowed  Class A  shares
will  be redeemed and the proceeds used toward satisfaction of the obligation to
pay the increased sales charge. A shareholder may include the value of all Class
A shares of the Non-Money Funds held  of record as of the initial purchase  date
under  the Letter as an "accumulation credit" toward the completion of the terms
of the Letter, but no price adjustment will be made on such shares.

    Class A shares of the  Non-Money Funds may be  purchased at net asset  value
without  a sales charge by employee benefit plans, retirement plans and deferred
compensation plans  and trusts  used  to fund  such  plans, including,  but  not
limited  to, those  defined in  Section 401(a),  403(b) or  457 of  the Code and
"rabbi trusts." Morgan Stanley will not compensate Participating Dealers at  the
time of purchase for sales made to such plans and trusts.

    As  disclosed above, no sales charge will be payable at the time of purchase
of Class A shares on investments of $1 million or more. However, a CDSC will  be
imposed  on such investments in the event of a redemption of such Class A shares
of the Non-Money Fund within  12 months following the  purchase, at the rate  of
1.00%  of the lesser of  the current market value of  the shares redeemed or the
total cost of such shares. In determining whether a CDSC is payable, and, if so,
the amount of the fee or charge, it  is assumed that shares not subject to  such
fee  or charge  are the first  redeemed, followed  by other shares  held for the
longest period of time. The Fund may  also sell Class A shares of the  Non-Money
Funds  at net  asset value (without  a sales  charge) to Directors  of the Fund,
directors  and  employees  of  Morgan  Stanley,  Participating  Dealers,   their
respective  affiliates and their  immediate families and  employees of agents of
the Fund. In addition, Class  A shares may be sold  without a sales charge  when
purchased  (i) through bank trust departments;  (ii) for investors whose account
is managed  by  certain  investment advisers  registered  under  the  Investment
Advisers   Act  of  1940,  as  amended;  (iii)  for  investors  through  certain
broker/dealers and other financial services firms that have entered into certain
agreements with the  Fund which may  include a requirement  that such shares  be
sold for the benefit of clients participating in a

                                       65
<PAGE>
"wrap  account" or a similar program under which  such clients pay a fee to such
broker/dealer or other firm; (iv) with redemption proceeds from other investment
companies on which  the investor  had paid  a front-end  or contingent  deferred
sales charge; or (v) through a broker that maintains an omnibus account with the
Fund  and such purchases are  made by the following:  (1) investment advisers or
financial planners who place  trades for their own  accounts or the accounts  of
their  clients and who  charge a management,  consulting or other  fee for their
services, (2)  clients of  such investment  advisers or  financial planners  who
place  trades for their  own accounts if  the accounts are  linked to the master
account of such investment adviser or financial planner on the books and records
of the broker or  agent, or (3) retirement  and deferred compensation plans  and
trusts  used to fund such plans, including, but not limited to, those defined in
Section 401(a), 403(b)  or 457  of the Code  and "rabbi  trusts." Investors  who
purchase  or redeem  shares through a  trust department,  broker, dealer, agent,
financial planner, financial services firm, or investment adviser may be charged
an additional service or transaction fee by that institution.

PURCHASE OF CLASS B SHARES

    Class B shares of the  Non-Money Funds may be  purchased at net asset  value
without  an initial  sales charge.  However, a CDSC  will be  imposed on certain
Class B shares redeemed within six years of purchase. The charge is assessed  on
an  amount equal to the  lesser of the then-current market  value of the Class B
shares redeemed or the total cost of such shares. Accordingly, the CDSC will not
be applied to dollar  amounts representing an increase  in the net asset  values
above  the initial purchase price of the  shares being redeemed. In addition, no
charge is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.

    In  determining  whether  the  CDSC  is  applicable  to  a  redemption,  the
calculation  is made  in the  manner that results  in the  lowest possible rate.
Therefore, it is assumed that the redemption  is first of any Class B shares  in
the   shareholder's   account   that  represent   reinvested   dividends  and/or
distributions, and/or  of  Class B  shares  held  longer than  six  years  after
purchase,  and  next of  Class  B shares  held  the longest  during  the initial
six-year period  after purchase.  The amount  of the  contingent deferred  sales
charge,  if any,  will vary depending  on the number  of years from  the time of
purchase of Class  B shares until  the redemption of  such shares (the  "holding
period"). The following table sets forth the rates of the CDSC.

CONTINGENT DEFERRED SALES CHARGE

<TABLE>
<CAPTION>
                                                                              SALES CHARGE AS
                                                                               PERCENTAGE OF
                                                                                 THE DOLLAR
                                                                                   AMOUNT
YEAR SINCE PURCHASE                                                              SUBJECT TO
PAYMENT WAS MADE                                                                   CHARGE
----------------------------------------------------------------------------  ----------------
<S>                                                                           <C>
First.......................................................................        5.0%
Second......................................................................        4.0%
Third.......................................................................        3.0%
Fourth......................................................................        3.0%
Fifth.......................................................................        2.0%
Sixth.......................................................................        1.0%
Thereafter..................................................................       None*
<FN>
--------------
* As described more fully below, Class B shares automatically convert to Class A
  shares after the seventh year following purchase.
</TABLE>

                                       66
<PAGE>
    Proceeds  from the CDSC  are paid to  Morgan Stanley and  are used by Morgan
Stanley  to  defray  the  expenses  of  Morgan  Stanley  related  to   providing
distribution-related  services to  the Fund in  connection with the  sale of the
Class B shares. Morgan Stanley will  make payments to the Participating  Dealers
that  handle the purchases of  such shares at the rate  of 4.00% of the purchase
price of such shares at the time of purchase and expects to reallocate a portion
of its distribution fee, with respect to such shares, under the Rule 12b-1  Plan
for  such  class  of shares,  as  described  under "Management  of  the  Fund --
Distributor" above. The combination  of the CDSC  and the distribution  services
fee  facilitates the ability  of the Fund to  sell the Class  B shares without a
sales charge being deducted at the time of purchase.

    WAIVER OF CDSC.  The CDSC will be waived on the redemption of Class B shares
(i) following the death  or initial determination of  disability (as defined  in
the  Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution  from an  individual retirement  account or  other
retirement plan to a shareholder who has attained the age of 70 1/2; or (iii) to
the extent that shares redeemed have been withdrawn from a Systematic Withdrawal
Plan, up to a maximum amount of 12% per year from a shareholder account based on
the  value of the account at the  time the Plan is established, provided however
that all  dividends and  distributions are  reinvested in  Class B  Shares.  The
waiver  with  respect  to  (i)  above is  only  applicable  in  cases  where the
shareholder account is registered (a) in  the name of an individual person,  (b)
as a joint tenancy with rights of survivorship, (c) as community property or (d)
in  the name of  a minor child under  the Uniform Gifts  or Uniform Transfers to
Minors Act. A shareholder, or his or her representative, must notify the  Fund's
Transfer  Agent prior to the time of  redemption if such circumstances exist and
the shareholder is eligible for this waiver. The shareholder is responsible  for
providing sufficient documentation to the Transfer Agent to verify the existence
of such circumstances. For information on the imposition and waiver of the CDSC,
contact the Transfer Agent at 1-800-282-4404.

    AUTOMATIC  CONVERSION TO CLASS  A SHARES.  After  the seventh year following
purchase, Class B shares will automatically  convert to Class A shares and  will
no  longer  be  subject  to  the  higher  distribution  and  service  fees. Such
conversion will be  on the basis  of the relative  net asset values  of the  two
classes,  without the imposition of  any sales load, fee  or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.

    Class B shares may also be purchased through an Automatic Investment Plan as
described below.

PURCHASE OF CLASS C SHARES

    Class C shares  of the Non-Money  Funds may  be purchased at  the net  asset
value  per share and such shares are subject to  a CDSC at the the rate of 1.00%
of the lesser of the  current market value of the  shares redeemed or the  total
cost  of such shares for  shares that are redeemed  within one year of purchase.
Morgan Stanley will make payments to  the Participating Dealers that handle  the
purchases  of such  shares at the  rate of 1.00%  of the purchase  price of such
shares  at  the  time  of  purchase  and  expects  to  reallocate  most  of  its
distribution  fee, with respect  to such shares,  under the Rule  12b-1 Plan for
such class of shares, as described under "Management of the Fund -- Distributor"
above. In determining whether a CDSC is  payable, and, if so, the amount of  the
fee  or charge, it is assumed that shares  not subject to such fee or charge are
the first redeemed,  followed by  other shares held  for the  longest period  of
time.

                                       67
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

    No  initial  sales charge  or  CDSC will  be payable  on  the shares  of any
Investment Fund or class thereof purchased through the automatic reinvestment of
dividends and distributions on shares of the Investment Funds.

REINVESTMENT PRIVILEGE OF EACH CLASS

    A shareholder  who has  redeemed Class  A  shares of  a Non-Money  Fund  may
reinvest  up to the full  amount redeemed (less any  CDSC, if applicable) at net
asset value at the  time of the  reinvestment in Class A  shares of a  Non-Money
Fund  without payment of a sales charge.  A shareholder who has redeemed Class B
shares of a Non-Money Fund and paid a CDSC upon such redemption may reinvest  up
to the full amount received upon redemption in Class A shares at net asset value
with no initial sales charge. A shareholder who has redeemed Class C Shares of a
Non-Money  Fund and paid a CDSC upon such redemption may reinvest up to the full
amount received upon redemption in Class C shares at net asset value and not  be
subject  to a CDSC. Purchases through  the reinvestment privilege are subject to
the minimum applicable investment requirements. The reinvestment privilege as to
any specific Class A, Class B or Class C shares must be effected within 180 days
of
the redemption. The  Transfer Agent  must receive  from the  shareholder or  the
shareholder's Participating Dealer both a written request for reinvestment and a
check or wire which does not exceed the redemption proceeds. The written request
must  state  that  the  reinvestment  is  made  pursuant  to  this  reinvestment
privilege. If  a loss  is realized  on the  redemption of  Class A  shares,  the
reinvestment  may be subject to the "wash sale"  rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss  for
federal  income tax  purposes. The reinvestment  privilege may  be terminated or
modified at any time.

RETIREMENT PLANS

    Qualified  retirement  plans,  IRAs,  banks,  bank  trust  departments   and
registered  investment  advisory companies,  acting in  a fiduciary  or advisory
capacity for individual, institutional or  trust accounts, may purchase Class  A
shares of one or more of the Non-Money Funds at net asset value (without a sales
charge) provided that the initial order for such purchases is in an amount of $1
million  or more or is part of a series  of orders covered by a Letter to invest
$1 million or more in  Class A shares of  the Non-Money Funds. Certain  employee
benefit  plans, retirement plans and deferred compensation plans and trusts used
to fund such plans  may purchase Class  A shares of the  Non-Money Funds at  net
asset value without imposition of a sales charge. See "Offering Price of Class A
Shares."

    Morgan  Stanley  provides retirement  plan  services and  documents  and can
establish investor accounts in IRAs trusteed  by United States Trust Company  of
New  York, New  York ("U.S. Trust").  This includes  Simplified Employee Pension
Plan ("SEP") IRA  accounts and  prototype documents.  Brochures describing  such
plans and materials for establishing them are available from Morgan Stanley upon
request.  The brochures  for plans trusteed  by U.S. Trust  describe the current
fees payable to U.S. Trust for its services as trustee. Investors should consult
with their own tax advisers before establishing a retirement plan.

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<PAGE>
INITIAL PURCHASES DIRECTLY FROM THE FUND

1) BY CHECK.  An account may be  opened by completing and signing a New  Account
   Application  and mailing it,  together with a check  ($1,000 minimum for each
   Investment Fund, except for IRAs, for which the initial minimum is $250) made
   payable to "Morgan Stanley Fund, Inc. -- [Investment Fund name]," to:

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

  Payment will be accepted only by  check payable in U.S. Dollars, unless  prior
  approval  for payment by other currencies is given by the Fund. The Investment
  Fund(s) and the  class(es) to  be purchased should  be designated  on the  New
  Account  Application. For purchases by check,  the Fund is ordinarily credited
  with Federal Funds within  one business day. Thus  your purchase of shares  by
  check  is ordinarily credited to your account at the net asset value per share
  of the Investment Fund, other than  the Money Market Fund, next determined  on
  the  day of receipt. Your purchase of shares of the Money Market Fund by check
  is ordinarily credited to your account at the price next determined on the day
  of receipt and will begin receiving dividends the following day.

2) BY FEDERAL  FUNDS WIRE.   Purchases  may be  made by  having your  bank  wire
   Federal  Funds to the Fund's bank account ($1,000 minimum for each Investment
   Fund, except for IRAs, for which the initial minimum is $250). To help ensure
   prompt receipt of your  Federal Funds Wire, it  is important that you  follow
   these steps:

A.    Telephone the  Fund  (toll free:  1-800-282-4404)  and provide  your name,
    address, telephone number, Social Security or Tax Identification Number, the
    Investment Fund(s) and the class(es)  selected, the amount being wired,  and
    by  which bank.  The Fund  will then  provide you  with a  bank wire control
    number. (Investors with existing accounts must also notify the Fund prior to
    wiring funds.)

B.   Instruct  your  bank to  wire  the  specified amount  to  the  Fund's  Wire
    Concentration  Bank Account (be sure  to have your bank  include the name of
    the Investment Fund(s) selected and the bank wire control number assigned to
    you):

        US Trust Company of New York
        114 West 47th Street
        New York, New York 10036
        ABA# 021001318
        Credit DDA# 20-8702-2
        FFC to Fund Name/Class Name, if any/Bank Wire Control Number/Shareholder
    Name

    Please call before wiring funds: 1-800-282-4404

C.  Complete and  sign the New  Account Application and mail  it to the  address
    shown thereon.

    Purchase  orders for shares of the Money  Market Fund which are received and
    accepted no later than 12:00 noon (Eastern Time) on any day that the NYSE is
    open for business  (a "Business  Day") will be  effective as  of 12:00  noon
    (Eastern  Time) the same  day and will receive,  if applicable, the dividend
    declared on  the day  of purchase  as long  as the  Transfer Agent  receives
    payment  in Federal Funds  prior to the  close of trading  hours on the NYSE
    (currently 4:00 p.m.  Eastern Time.)  Purchase orders  received after  12:00
    noon  (Eastern Time) and prior to 4:00  p.m. (Eastern Time), on any Business
    Day for which payment in Federal Funds has been

                                       69
<PAGE>
    received by 4:00  p.m. (Eastern  Time), will be  effective as  of 4:00  p.m.
    (Eastern  Time)  the  same  day,  and  will  begin  receiving  dividends, if
    applicable, the following day. Purchase  orders for shares of the  Non-Money
    Funds  which are received prior to the  regular close of the NYSE (currently
    4:00 p.m. Eastern Time) will be executed  at the price computed on the  date
    of  receipt as long  as the Transfer  Agent receives payment  by check or in
    Federal Funds prior to the regular close of the NYSE on such day.

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

3) BY BANK WIRE.   The  same procedure outlined  under "By  Federal Funds  Wire"
   above  must be  followed in  purchasing shares  by bank  wire. However, money
   transferred by bank wire may or may  not be converted into Federal Funds  the
   same  day, depending on the time the  money is received and the bank handling
   the wire. With respect to investment in the Money Market Fund, prior to  such
   conversion, an investor's money will not be invested and, therefore, will not
   be  earning dividends. The timing of  effectiveness of purchase of shares and
   receipt of  dividends  is  subject  to  the  same  timing  considerations  as
   described above with respect to purchase by Federal Funds wire and depends on
   when payment in Federal Funds is received. Your bank may charge a service fee
   for wiring funds.

ADDITIONAL INVESTMENTS

    You may add to your account at any time (minimum additional investment $100,
except  for  IRAs,  for which  the  minimum  additional investment  is  $50, and
automatic reinvestment of dividends and  capital gains distributions, for  which
there  is no  minimum and  no sales  charge) by  purchasing shares  through your
Participating Dealer, by mailing a check to the Fund (payable to Morgan  Stanley
Fund,  Inc. -- Investment Fund name) at the above address or by wiring monies to
the Custodian Bank  as outlined above.  It is very  important that your  account
number  or wire  control number  be specified  in the  letter or  wire to better
assure proper  crediting to  your account.  In order  to ensure  that your  wire
orders  are invested  promptly, you  are requested to  notify one  of the Fund's
representatives (toll-free 1-800-282-4404) prior to the wire.

AUTOMATIC INVESTMENT PLAN

    After establishing an account with  the Fund, investors may purchase  shares
of  the  Fund  through  an  Automatic Investment  Plan,  under  which  an amount
specified by the  shareholder equal to  at least the  applicable minimum for  an
investment amount on a monthly basis will be sent to the Transfer Agent from the
investor's  bank for investment  in the Fund. Investors  who are participants in
the Fund's Systematic Withdrawal Plan should not at the same time participate in
the Automatic Investment Plan. Investors interested in the Automatic  Investment
Plan  or seeking  further information should  contact a  Participating Dealer or
fund representative.  Shares  to  be held  in  broker  street name  may  not  be
purchased through the Automatic Investment Plan.

OTHER PURCHASE INFORMATION

    The  purchase price for the  Class A shares of  the Non-Money Funds is based
upon the net asset  value per share  plus the applicable  sales charge, if  any,
next  determined after  the order is  received by the  Fund and for  the Class B
shares and Class C shares of the Non-Money Funds is based on the net asset value
per share next determined after the order is received by the Fund. Participating
Dealers are responsible for  forwarding orders they receive  to the Fund by  the
applicable  times described below on the same day as their receipt of the orders
to permit purchase of shares  as described above and the  failure to do so  will
result in the investors being unable

                                       70
<PAGE>
to  obtain  that day's  net asset  value.  See "Valuation  of Shares."  An order
received prior to the regular  close of the NYSE,  which is currently 4:00  p.m.
(Eastern Time), will be executed at the price computed on the date of receipt as
long  as the Transfer Agent receives payment  by check or in Federal Funds prior
to the  regular close  of the  NYSE on  such day.  An order  received after  the
regular close of the NYSE will be executed at the price computed on the next day
the  NYSE is open as long as the  Transfer Agent receives payment by check or in
Federal Funds prior to the regular close of the NYSE on such day. Orders for the
purchase of shares of the Money Market Fund become effective on the Business Day
Federal Funds are received, and the purchase  will be effected at the net  asset
value  next computed after receipt  of Federal Funds. Purchase  of shares of the
Money Market Fund by check is ordinarily  credited to your account at the  price
next  determined on the  day of receipt  and will begin  receiving dividends the
following day. If you purchase shares  of an Investment Fund directly, you  must
make payment by check or Federal Funds to effect your purchase of the shares and
obtain  the price  for the  shares as described  above. Purchasing  shares of an
Investment Fund is  different from  placing a trade  for securities  at a  given
price and having a certain number of days in which to make settlement or payment
for the securities.

    In  the interest  of economy  and convenience  and because  of the operating
procedures of the Fund, certificates representing shares of the Investment Funds
will normally  not  be issued.  Such  certificates  will be  made  available  to
investors,  however, upon written request to  the Fund. All shares purchased are
confirmed to you and credited to your account on the Fund's books maintained  by
the  Adviser or  its agents. You  will have  the same rights  and ownership with
respect to such shares as if certificates had been issued.

    To ensure that checks are collected by the Fund, withdrawals of  investments
made  by check are not presently permitted  until the Fund's depository bank has
made fully  available for  withdrawal the  check amount  used to  purchase  Fund
shares, which generally will be within 15 days. As a condition of this offering,
if  a purchase  is cancelled due  to nonpayment  or because your  check does not
clear, you will be responsible for any loss the Fund and/or its agents incur. If
you are already a shareholder, the  Fund may redeem shares from your  account(s)
to  reimburse the Fund and/or  its agents for any loss.  In addition, you may be
prohibited or restricted from making future purchases in the Fund.

    Investors who purchase Class  A shares of a  Non-Money Fund directly  rather
than through a Participating Dealer will pay the public offering price including
the  sales charge,  and the  sales charge  will be  payable, as  described under
"Purchase of  Shares  -- Offering  Price"  above,  to Morgan  Stanley  unless  a
Participating  Dealer is  designated on  the account  application. Investors may
also invest in the Investment  Funds by purchasing shares through  Participating
Dealers.

                              REDEMPTION OF SHARES

    You  may  withdraw all  or  any portion  of the  amount  in your  account by
redeeming shares at any time. Please note  that purchases made by check are  not
permitted  to  be  redeemed until  the  Fund's  depository bank  has  made fully
available for withdrawal the  check amount used to  purchase Fund shares,  which
generally  will be within  15 days. The Fund  will redeem shares  of each of the
Investment Funds at its next determined net asset value. A CDSC of 1.00% will be
imposed on certain  Class A shares  of the Non-Money  Funds that were  purchased
without  payment of the initial sales charge due to the size of the purchase and
are redeemed  within  one  year of  purchase.  A  maximum CDSC  of  5.00%  which
decreases  in steps to  0% after six years,  will be imposed  on certain Class B
shares of the Non-Money Funds that are redeemed within six years of purchase.  A
CDSC  of 1.00% will be imposed on certain  Class C shares of the Non-Money Funds
that are redeemed within one year of purchase.

                                       71
<PAGE>
See "Purchase of Shares." The CDSC will be imposed on the lesser of the  current
market  value or  the total  cost of the  shares being  redeemed. In determining
whether either of such CDSCs is payable,  and, if so, the amount of the  charge,
it  is assumed  that shares not  subject to  such charge are  the first redeemed
followed by other shares held for the longest period of time. On days that  both
the  NYSE and the Custodian Bank are open  for business, the net asset value per
share of the Non-Money Funds  is determined at the  regular close of trading  of
the NYSE (currently 4:00 p.m. Eastern Time) and the net asset value of the Money
Market  Fund is determined at 12:00 noon (Eastern Time). Shares of an Investment
Fund may be redeemed by  mail or telephone. Any redemption  may be more or  less
than  the purchase  price of your  shares depending  on the market  value of the
investment securities held by the Investment Fund at the time of purchase and of
redemption, among other factors.

    The CDSC may be waived on  redemptions of shares in connection with  certain
post-retirement  withdrawals from IRA or other retirement plans or following the
death or  disability  (as defined  in  the Internal  Revenue  Code of  1986,  as
amended) of a shareholder of the Fund.

    Redemption  of shares held in broker street  name may not be accomplished by
mail or telephone as described below. Shares  held in broker street name may  be
redeemed only by contacting your Participating Dealer.

BY MAIL

    The  Investment Funds will redeem  their shares at the  net asset value next
determined after your request is received, if your request is received in  "good
order"  by the  Transfer Agent.  If applicable,  a CDSC  will be  deducted. Your
request should be  addressed to  Mutual Funds  Service Company,  P.O. Box  2798,
Boston,  Massachusetts 02208-2798,  except that deliveries  by overnight courier
should be  addressed to  Morgan  Stanley Fund,  Inc.  c/o Mutual  Funds  Service
Company, 73 Tremont Street, Boston, Massachusetts 02108.

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

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

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

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

    Shareholders who are uncertain of requirements for redemption should consult
with their Participating Dealers or with a Fund representative.

BY TELEPHONE

    Unless you have elected on the New Account Application or on a separate form
supplied by  the Transfer  Agent not  to utilize  the telephone  redemption  and
exchange  privileges, you or your Participating  Dealer can request a redemption
of your shares  by calling the  Fund and requesting  the redemption proceeds  be
mailed  to  you  or  wired  to  your bank.  Please  contact  one  of  the Fund's
representatives for further details. In times of drastic market conditions,  the
telephone  redemption option  may be difficult  to implement.  If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier,  and it  will be  implemented  at the  net asset  value  next
determined  after  it  is  received  minus  the  CDSC,  if  any.  The  Fund  and

                                       72
<PAGE>
the Fund's  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 transaction  requested
by  telephone. In addition, all telephone  transaction requests will be recorded
and  investors  may  be  required  to  provide  additional  telecopied   written
instructions of such transaction requests. The Fund or the Transfer Agent may be
responsible for losses, liabilities, costs or expenses for acting upon telephone
transactions  if procedures are  not followed to  confirm that such transactions
are genuine.

    For shares  that  are  held  in  broker  street  name,  you  cannot  request
redemption  by  telephone  or by  mail;  such  shares may  be  redeemed  only by
contacting your Participating Dealer. The  Fund may impose a  fee of $8.00 on  a
wire  redemption of shares of the Fund that will be deducted from the redemption
proceeds.

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

SYSTEMATIC WITHDRAWAL PLAN

    A shareholder of $5,000 or more of  the Fund's shares at the Offering  Price
(net asset value plus the sales charge, if any) may provide for the payment from
the  owner's account of any requested dollar amount to be paid to the owner or a
designated payee  monthly,  quarterly,  semiannually or  annually.  The  minimum
periodic  payment is $100.  Shares are redeemed  so that the  payee will receive
payment on approximately  the first of  the month. Any  income and capital  gain
dividends   will  be  automatically  reinvested  at   net  asset  value  on  the
reinvestment date. A  sufficient number of  full and fractional  shares will  be
redeemed to make the designated payment. Depending upon the size of the payments
requested  and  fluctuations in  the  net asset  value  of the  shares redeemed,
redemptions for the purpose of making such payments may result in a gain or loss
for tax purposes and may reduce or even exhaust the shareholder's Fund  account.
To  protect shareholders and the Funds, if the Systematic Withdrawal Plan is not
established when an  account is  opened, a  signature guarantee  is required  to
establish  a Systematic Withdrawal Plan  subsequently if withdrawal payments are
directed to an  address other  than the  address of record,  or if  a change  of
address  request has  been submitted  in the  last 30  days. See  "Redemption of
Shares" in the Statement of Additional Information.

    The purchase of Class A shares of a Non-Money Fund while participating in  a
systematic  withdrawal plan ordinarily  will be disadvantageous  to the investor
because the investor will be paying a sales charge on the purchase of shares  at
the  same time that the  investor is redeeming shares  upon which a sales charge
may already have been paid.  The purchase of certain Class  B shares or Class  C
shares of a Non-Money Fund while participating in the Systematic Withdrawal Plan
may  be disadvantageous because the new shares will  be subject to up to a 5.00%
CDSC for up  to six years  after purchase, or  a 1.00% CDSC  for the first  year
after  purchase,  respectively. Therefore,  the Fund  will not  knowingly permit
additional investments of less than $2,000  in a Non-Money Fund if the  investor
is  at the  same time  making systematic withdrawals.  The right  is reserved to
amend the Systematic  Withdrawal Plan on  thirty days' notice.  The plan may  be
terminated at any time by the investor or the Fund.

    The  CDSC on Class B  shares is waived for  withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12%  annually,  of  a  shareholder's   investment  in,  and  any  dividends   or
distributions on, Class B shares of a Fund at the time the Systematic Withdrawal
Plan

                                       73
<PAGE>
commences,  provided  that  the shareholder  elects  to have  all  dividends and
distributions on the  shareholder's Class B  shares automatically reinvested  in
additional Class B shares. Under this CDSC waiver policy, amounts withdrawn each
month  will be  paid by  redeeming first Class  B shares  not subject  to a CDSC
because the shares were  purchased by the reinvestment  of dividends or  capital
gains  distributions, the CDSC  period has elapsed  or some other  waiver of the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
enough such shares are available, Class B shares having a CDSC will be  redeemed
next, beginning with such shares held for the longest period of time (having the
lowest  CDSC payable upon  redemption) and continuing with  shares held the next
longest period  of  time until  shares  held the  shortest  period of  time  are
redeemed.  Under  this  policy, the  least  amount  of CDSC  will  be  waived by
withdrawals under the Systematic Withdrawal Plan.

    See "Purchase of Shares" for a description of the circumstances under  which
a  CDSC on Class A shares, Class B  shares and Class C shares, respectively, may
be assessed on redemptions of such shares made through the Systematic Withdrawal
Plan as described above.

FURTHER REDEMPTION INFORMATION

    The  Fund  will  pay  for  shares  redeemed  through  broker-dealers   using
electronic  purchase and redemption systems within seven days after receipt of a
redemption request through such system.  In other situations, the Fund  normally
will  make  payment for  all  shares redeemed  under  this procedure  within one
business day of receipt  of the request,  but in no event  will payment be  made
more  than  seven days  after receipt  of  a redemption  request in  good order.
Payment for redeemed shares  will be sent to  the shareholder within seven  days
after  receipt of the request in proper form, except that the Fund may delay the
mailing of  the  redemption  check,  or a  portion  thereof,  until  the  Fund's
depository bank has made fully available for withdrawal the check amount used to
purchase  Fund shares,  which generally  will be  within 15  days. The  Fund may
suspend the right of redemption or postpone  the date at times when the NYSE  is
closed, or under any emergency circumstances as determined by the SEC.

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

    Due to the relatively  high cost of maintaining  smaller accounts, the  Fund
reserves  the right to  redeem shares in  any account invested  in an Investment
Fund having a  value of less  than $1,000.  The Fund, however,  will not  redeem
shares  based solely upon market  reductions in net asset  value. If at any time
your total investment does not equal or exceed the stated minimum value, you may
be notified of this  fact and you will  be allowed at least  60 days to make  an
additional investment before the redemption is processed.

    To  protect  your account,  the Fund  and its  agents from  fraud, signature
guarantees are required for  certain redemptions to verify  the identity of  the
person  who has  authorized a redemption  from your account.  Please contact the
Transfer Agent  for  further information.  See  "Redemption of  Shares"  in  the
Statement of Additional Information.

                                       74
<PAGE>
                              SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

    You  may exchange shares that you own in  a Non-Money Fund for shares of the
same class of another Non-Money  Fund and for shares  of the Money Market  Fund.
Shares  of the Money Market Fund may be exchanged for shares of any class of the
Non-Money Funds, except that Money Market Fund shares that were acquired through
exchange with Non-Money Market Fund shares  may be exchanged only for shares  of
the  same class of Non-Money Market Fund shares as the class of shares that were
redeemed in the exchange to acquire such Money Market Fund shares. Shares of the
Investment Funds may be  exchanged by mail or  telephone, except that no  shares
may be exchanged by telephone if you have elected on the New Account Application
or on a separate form supplied by the Transfer Agent not to accept the telephone
redemption  and exchange privilege. Before you make an exchange, you should read
the Prospectus of the new Investment Fund  in which you seek to invest.  Because
an  exchange transaction is treated  as a redemption followed  by a purchase, an
exchange would be considered  a taxable event for  shareholders subject to  tax.
The  exchange privilege is only available  with respect to Investment Funds that
are registered for  sale in  a shareholder's  state of  residence. The  exchange
privilege  may be modified or  terminated by the Fund at  any time upon 60 days'
notice to shareholders.

    No CDSC, if one is otherwise applicable, will be assessed at the time of the
exchange if the shareholder  exchanges from one class  of a Non-Money Fund  into
the  same class of another Non-Money Fund. For purposes of determining whether a
shareholder's redemption will be  subject to a  CDSC, the shareholder's  holding
period  of shares acquired through an exchange  will be related back to the time
the shareholder initially purchased the Fund shares that were exchanged so  long
as  the shares are held in the same class of the Non-Money Funds. An exchange of
shares into  the Money  Market Fund  from one  of the  Non-Money Funds  will  be
treated  as a redemption  at the time  of exchange and  the CDSC, if applicable,
will be imposed at the time of exchange if, for such shares, the holding  period
in such class of any of such Non-Money Funds, or the combined holding periods in
the  same class of  the Non-Money Funds,  is less than  the entire period during
which the applicable  CDSC applies, one  year for Class  A and Class  C and  six
years for Class B. As an example, Class A share purchases of $1,000,000 or more,
purchased  at net asset value, will not  be assessed the 1.00% CDSC if exchanged
into Class  A shares  of another  Non-Money  Fund during  the first  year  after
purchase.  Such Class A shares, however, will  be assessed the CDSC if exchanged
into the Money Market Fund  within one year from purchase.  Class B shares of  a
Non-Money  Fund will not be assessed the Class  B CDSC if exchanged into Class B
shares of another Non-Money Fund during the first six years after purchase,  but
will  be assessed the applicable Class B CDSC if exchanged into the Money Market
Fund within six years of purchase. Class  C shares of a Non-Money Fund will  not
be  subject to a  CDSC for the  first year if  exchanged into Class  C shares of
another Non-Money Fund,  but will be  subject to  a CDSC if  exchanged into  the
Money  Market  Fund within  one year  of purchase.  If the  initial shares  of a
Non-Money Fund purchased by the investor were  not subject to any sales load  or
CDSC  on such shares,  then no sales load  or CDSC for shares  of the same class
will be imposed on  any subsequent exchanges involving  such shares. No  initial
sales  charge will  be assessed,  however, and any  applicable CDSC  will not be
imposed when  shares  of  an Investment  Fund  are  exchanged for  shares  of  a
Non-Money  Fund where the purchase of shares  of the Investment Fund through the
exchange is of any of the types that benefit from a waiver of such initial sales
charge or CDSC.

    CLASS A SHARES.  As described above  and as permitted pursuant to any  rule,
regulation  or order promulgated by the SEC, shareholders of Non-Money Funds may
tender their Class A shares of any Non-Money Fund

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for exchange  into  the number  of  Class A  shares  of another  Non-Money  Fund
(including  fractions thereof) which have a  value equal to the total redemption
proceeds of  shares tendered  divided by  the  net asset  value per  share  next
determined  after such order  is received. Class A  shares purchased pursuant to
such exchange will not be assessed the initial sales charges described above  or
any  other charge at  purchase. A shareholder  of the Money  Market Fund will be
assessed the initial sales charge and be subject to the CDSC of a Non-Money Fund
if such shareholder exchanges shares of the Money Market Fund for Class A shares
of such Non-Money Fund, except that if such shares of the Money Market Fund  had
been  obtained by an earlier exchange of Class  A shares of a Non-Money Fund for
such Money Market  Fund shares, the  Money Market Fund  shareholder will not  be
assessed  such initial sales charge or be  subject to the CDSC upon the exchange
of such Money Market Fund shares for Class A shares of the Non-Money Fund.

    CLASS B SHARES.  As described above  and as permitted pursuant to any  rule,
regulation  or order promulgated by the SEC, shareholders of Non-Money Funds may
tender their Class B shares of any  Non-Money Fund for exchange into the  number
of  Class B shares of another Non-Money Fund (including fractions thereof) which
have a value equal to the  total redemption proceeds of shares tendered  divided
by  the net asset value per share  next determined after such order is received.
Class B shares redeemed pursuant to such exchange will not be assessed the  CDSC
described  above or  any other  charge at purchase.  A shareholder  of the Money
Market Fund will become subject to the CDSC of the Class B shares of a Non-Money
Fund if such shareholder exchanges shares of  the Money Market Fund for Class  B
shares of such Non-Money Fund. If such Money Market Fund shares were obtained by
an  earlier exchange of Class B shares of a Non-Money Fund for such Money Market
Fund shares, the Money Market Fund shareholder may exchange into Class A  Shares
without paying a sales charge upon shareholder request.

    CLASS  C SHARES.  As described above  and as permitted pursuant to any rule,
regulation or order promulgated by the SEC, shareholders of Non-Money Funds  may
tender  their Class C shares of any  Non-Money Fund for exchange into the number
of Class C shares of another Non-Money Fund (including fractions thereof)  which
have  a value equal to the total  redemption proceeds of shares tendered divided
by the net asset value per share  next determined after such order is  received.
Class  C shares redeemed pursuant to such exchange will not be assessed the CDSC
described above or  any other  charge at purchase.  A shareholder  of the  Money
Market Fund will become subject to the CDSC of the Class C shares of a Non-Money
Fund  if such shareholder exchanges shares of  the Money Market Fund for Class C
shares of such Non-Money Fund, except that if such Money Market Fund shares  had
been  obtained by an earlier exchange of Class  C shares of a Non-Money Fund for
such Money Market  Fund shares, the  Money Market Fund  shareholder will not  be
subject to the CDSC of the Class C shares upon the exchange of such Money Market
Fund shares for Class C shares of the Non-Money Fund.

    Morgan Stanley will tender the shares offered for exchange for redemption by
the  Fund  and  will use  the  proceeds  to purchase  shares  of  the designated
Investment Fund on the shareholder's behalf. Under normal circumstances,  Morgan
Stanley will use the proceeds from shares redeemed on any day to purchase shares
on  the same Business Day. Shares that are exchanged for the first time from the
Money Market Fund into Class A shares of a Non-Money Fund will be subject to the
initial sales charge applicable to such Class A shares of the Non-Money Fund for
the amount of Class  A shares of such  Non-Money Fund purchased, including  such
shares purchased under the right of accumulation as described under "Purchase of
Shares" above.

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    Exchanges may also be subject to limitations as to amounts or frequency, and
to  other restrictions established by the Board of Directors to assure that such
exchanges do not disadvantage the Fund and its shareholders.

    Exchange of Fund shares held in  broker street name may not be  accomplished
by  mail or telephone as described below.  Shares held in broker street name may
be exchanged only by contacting your Participating Dealer.

BY MAIL

    In order to  exchange shares  by mail, you  should include  in the  exchange
request the name and account number of your current Investment Fund, the name of
the  Investment Fund and class of such  Fund, if applicable, from which and into
which you  intend to  exchange  shares, and  the  signatures of  all  registered
account holders. Send the exchange request to the Transfer Agent, P.O. Box 2798,
Boston, Massachusetts 02208-2798.

BY TELEPHONE

    When  exchanging shares by  telephone, have ready the  name and your account
number with the  current Investment Fund,  the name of  the Investment Fund  and
class  of such  Fund, if  applicable, from  which and  into which  you intend to
exchange shares,  your Social  Security  number or  Tax  I.D. number,  and  your
account address. Requests for telephone exchanges from a Non-Money Fund received
prior  to 4:00 p.m. (Eastern  Time) are processed at  the close of business that
same day based on the net asset value of the applicable Investment Funds at such
time. Requests received after  4:00 p.m. (Eastern Time)  are processed the  next
Business Day based on the net asset value determined at the close of business on
such  day. Requests for telephone exchanges  from the Money Market Fund received
after 12:00 noon (Eastern Time) are processed the next Business Day based on the
price determined on such next Business Day.  For shares that are held in  broker
street  name, you cannot request  exchange by telephone or  by mail; such shares
may be exchanged only  by contacting your  Participating Dealer. For  additional
information   regarding  responsibility  for   the  authenticity  of  telephoned
instructions, see "Redemption of Shares -- By Telephone" above.

TRANSFER OF REGISTRATION

    You may transfer  the registration  of any of  your Fund  shares to  another
person  by writing to  the Transfer Agent, P.O.  Box 2798, Boston, Massachusetts
02208-2798. As in the case of redemptions, the written request must be  received
in  "good order" before any  transfer can be made.  Shares held in broker street
name may be transferred only by contacting your Participating Dealer.

                              VALUATION OF SHARES

    The net asset value per share of each Investment Fund, other than the  Money
Market  Fund, is determined by dividing the total market value of the Investment
Fund's investments and other assets, less  all liabilities, by the total  number
of  outstanding shares  of the  Investment Fund.  Net asset  value is calculated
separately for each class of the Non-Money  Funds. Net asset value per share  of
the  Non-Money Funds is determined  as of the regular close  of the NYSE on each
day that the NYSE  is open for  business. Securities listed  on a United  States
securities  exchange for which market quotations are available are valued at the
last quoted sale price on  the day the valuation  is made. Price information  on
listed  securities is  taken from the  exchange where the  security is primarily
traded. Securities listed  on a  foreign exchange  are valued  at their  closing
price. Unlisted securities and

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<PAGE>
listed  securities not traded on the  valuation date for which market quotations
are not readily available are valued at a price within a range not exceeding the
current asked price nor  less than the  current bid price.  The current bid  and
asked  prices are determined  either based on  the average bid  and asked prices
quoted on such  valuation date  by two  reputable brokers  or as  provided by  a
reliable pricing service.

    Bonds and other fixed income securities are valued according to the broadest
and  most representative market,  which will ordinarily  be the over-the-counter
market. Net asset value includes interest  on fixed income securities, which  is
accrued  daily 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
recent  quoted bid price,  or, when stock  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. Debt 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 no quotations are readily
available  (including  restricted  and unlisted  foreign  securities)  and those
securities for which it is inappropriate to determine prices in accordance  with
the  above procedures are determined  in good faith at  fair value using methods
determined by the  Board of  Directors. For  purposes of  calculating net  asset
value  per  share, all  assets and  liabilities  initially expressed  in foreign
currencies will be converted into United States dollars at the prevailing market
rate at 12:00 noon (Eastern Time) on the day of conversion.

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

    The net asset  value per share  of the  Money Market Fund  is determined  at
12:00 noon (Eastern Time) on the days on which the NYSE is open. For the purpose
of  calculating the Investment Fund'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 value, as determined  by amortized cost, is
higher or lower than the price the Investment Fund would receive if it sold  the
instrument.

                            PERFORMANCE INFORMATION

    The  Fund may  from time  to time  advertise total  return of  the Non-Money
Funds. THESE FIGURES ARE  BASED ON HISTORICAL EARNINGS  AND ARE NOT INTENDED  TO
INDICATE  FUTURE PERFORMANCE. The "total return"  shows what an investment in an
Investment Fund would have earned over a specified period of time (such as  one,
three,  five or ten years)  assuming that all distributions  and dividends by an
Investment Fund were reinvested on the

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<PAGE>
reinvestment dates during the  period. Total return does  not take into  account
any  federal  or state  income  taxes that  may  be payable  upon  redemption by
shareholders subject to tax. The  Fund may also include comparative  performance
information  in  advertising  or  marketing an  Investment  Fund's  shares. Such
performance information may include data  from Lipper Analytical Services,  Inc.
and Morgan Stanley Capital International.

    From  time to time  the Global Fixed Income,  American Value, Worldwide High
Income, Growth and Income and Money  Market Funds may advertise "yield" and  the
Money  Market Fund may  advertise "effective yield." Yield  figures are based on
historical performance and are not intended to indicate future performance.  The
"yield" of an Investment Fund refers to the income generated by an investment in
an  Investment Fund over a seven-day period in the case of the Money Market Fund
or over a  30-day period  in the  case of the  Global Fixed  Income, Growth  and
Income  and Worldwide  High Income  Funds (which  period will  be stated  in the
advertisement).  The  30-day  yield  is  further  described  under  "Performance
Information"  in the  Statement of Additional  Information. With  respect to the
seven-day yield in the case of the Money Market Fund, the income generated  over
the  seven-day  period  is then  "annualized."  That  is, the  amount  of income
generated by the  investment during that  week is assumed  to be generated  each
week  over a 52-week period and is shown  as a percentage of the investment. The
"effective yield"  is  calculated similarly  but,  when annualized,  the  income
earned  on an investment in an Investment  Fund is assumed to be reinvested. The
"effective yield"  will be  slightly  higher than  the  "yield" because  of  the
compounding  effect  of  this  assumed  reinvestment.  For  further  information
concerning these  figures, see  "Performance Information"  in the  Statement  of
Additional   Information.  The   Fund  may  also   use  comparative  performance
information from time  to time  in marketing  Fund shares,  including data  from
Lipper Analytical Services, Inc. and/or Donoghue's Money Fund Report.

    The  respective performance figures for Class B shares and Class C shares of
each Fund will generally  be lower than  those for Class A  shares of such  Fund
because  of the larger  distribution fee charged  to Class B  shares and Class C
shares.

                          DIVIDENDS AND DISTRIBUTIONS

    Shareholders  will  automatically  be   credited  with  all  dividends   and
distributions  in additional shares  at net asset value,  without payment of any
initial sales charge for Class A shares  of any of the Investment Funds,  except
that,  upon written notice to the Fund or by checking off the appropriate box in
the Distribution Option Section  on the New  Account Application, a  shareholder
may  elect to  receive dividends and/or  distributions in  cash. Shares received
through reinvestment of dividends  and/or distributions will  not be subject  to
any CDSC upon their redemption.

    Each  of the Global Equity Allocation, Asian Growth, Emerging Markets, Latin
American and European Equity  Funds expects to  distribute substantially all  of
its  net investment income in the form  of annual dividends. Net realized gains,
if any, after  reduction for any  available tax loss  carryforward, may also  be
distributed annually.

    Each  of the Global Fixed Income and  Worldwide High Income Funds expects to
distribute net investment income  monthly and will  distribute any net  realized
gains at least annually.

    Each  of the  American Value  Fund and  Growth and  Income Funds  expects to
distribute substantially  all  of its  net  investment  income in  the  form  of
quarterly dividends. Net realized gains, if any, will be distributed annually.

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<PAGE>
    Any  undistributed net  investment income  and undistributed  realized gains
increase an Investment  Fund's net  assets for  the purpose  of calculating  net
asset  value  per share.  Therefore, on  the "ex-dividend"  or "ex-distribution"
date, the net asset value per share excludes the dividend or distribution (i.e.,
is reduced by the per share  amount of the dividend or distribution).  Dividends
and  distributions paid  shortly after  the purchase  of shares  by an investor,
although in effect a return of  capital, are taxable to shareholders subject  to
tax.

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

    For the Money Market Fund, net  investment income is computed and  dividends
declared  as of 1:00 p.m. (Eastern Time) on each day. Such dividends are payable
to Investment Fund  shareholders of record  as of 12:00  noon (Eastern Time)  on
that  day, if the Fund and the Custodian  Bank are open for business. This means
that shareholders  whose  purchase orders  become  effective as  of  12:00  noon
(Eastern  Time)  receive  the  dividend for  that  day.  Dividends  declared for
Saturdays, Sundays and holidays are payable to shareholders of record as of 4:00
p.m. (Eastern Time) on the  last preceding day the  Fund and the Custodian  Bank
were  open for  business. Net  realized gains, if  any, after  reduction for any
available tax loss carry forward may be distributed annually.

    It is an  objective of management  to maintain  the price per  share of  the
Money  Market  Fund as  computed for  the  purpose of  sales and  redemptions at
exactly $1.00. In the  event the Directors determine  that a deviation from  the
$1.00 per share price may exist which may result in a material dilution or other
unfair  results to investors or existing shareholders, they will take corrective
action  they  regard  as  necessary  and  appropriate,  including  the  sale  of
instruments  from  the Investment  Fund prior  to maturity  to realize  gains or
losses, shortening average portfolio  maturity, withholding dividends, making  a
special capital distribution, or redemptions of shares in kind.

                                     TAXES

TAX STATUS OF THE INVESTMENT FUND

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

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

    Each  Investment Fund is generally treated  as a separate entity for Federal
income tax purposes,  and thus the  provisions of the  Internal Revenue Code  of
1986, as amended (the "Code"), generally will be applied to each Investment Fund
separately,  rather than to  the Fund as  a whole. Net  long-term and short-term
capital gains, net income, and  operating expenses therefore will be  determined
separately for each Investment Fund.

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<PAGE>
    Each  Investment Fund intends to  qualify and elects to  be treated for each
taxable year  for  the  special tax  treatment  afforded  "regulated  investment
companies"  ("RICs") under Subchapter M of the  Code so that it will be relieved
of Federal income tax on that part of its net investment income and net  capital
gain (the excess of net long-term capital gain over net short-term capital loss)
which is distributed to its shareholders.

TAX STATUS OF DISTRIBUTIONS

    Dividends  paid by an Investment Fund from its net investment income will be
taxable to the shareholders of such Investment Fund as ordinary income,  whether
received  in cash or reinvested in shares, if the shareholder is subject to tax.
Such dividends paid  by an Investment  Fund generally will  not qualify for  the
dividends-received deduction to corporations.

    Distributions  of net  capital gains (i.e.,  net long-term  capital gains in
excess  of  net  short-term  capital  losses  and  any  available  capital  loss
carryforward)  are taxable to  shareholders subject to  tax as long-term capital
gains, whether received in cash or reinvested in shares, regardless of how  long
the   shareholder  has  held   the  Investment  Fund's   shares.  Capital  gains
distributions are not eligible  for the corporate dividends-received  deduction.
Each  Investment Fund  will make annual  reports to shareholders  of the Federal
income tax status of all distributions.

    Shareholders may also be subject to  state and local taxes on  distributions
from  the Fund. Shareholders are advised to  consult their own tax advisers with
respect to tax consequences to them of an investment in the Fund.

    Dividends declared in October, November  and December by an Investment  Fund
payable as of a record date in such month and paid at any time during January of
the  following year are  treated as having  been paid by  an Investment Fund and
received by the shareholders on December 31 of the year declared.

GENERAL

    A gain or loss realized by a  shareholder on the sale or exchange of  shares
held  as a capital asset will be capital gain or loss and such gain or loss will
be long-term  if  the  holding period  for  the  shares exceeds  one  year,  and
otherwise  will be short-term. Any  loss realized on a  sale or exchange 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.

    Each Investment Fund will generally be subject to an excise tax of 4% to the
extent it fails to distribute  by the end of the  calendar year at least 98%  of
its  investment income for that  year and 98% of its  net realized gains for the
one-year period ending on October 31, plus certain other amounts.

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

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                              GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

    The  Fund was organized  as a Maryland  corporation on August  14, 1992. The
Amended Articles  of  Incorporation currently  permit  the Fund  to  issue  7.75
billion  shares of  common stock,  par value  $.001 per  share. Pursuant  to the
Fund's By-Laws, the  Board of Directors  may increase the  number of shares  the
Fund  is authorized  to issue  without the approval  of the  shareholders of the
Fund. The Board of Directors has the  power to designate one or more classes  of
shares  of common stock and to classify  and reclassify any unissued shares with
respect to such classes.

    The shares  of  the Investment  Funds,  when  issued, will  be  fully  paid,
nonassessable,  fully transferable and  redeemable at the  option of the holder.
The shares have no preference as to conversion, exchange, dividends,  retirement
or  other features and have  no preemptive rights. The  shares of the Investment
Funds 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. Under Maryland  law, the  Fund is  not
required  to hold an annual meeting of its shareholders unless required to do so
under the 1940  Act. A  Director may  be removed  by shareholders  at a  special
meeting  called upon written request of shareholders  owning at least 10% of the
outstanding shares of the Fund. Any person or organization owning 25% or more of
the outstanding shares of  an Investment Fund may  be presumed to "control"  (as
that  term is defined in  the 1940 Act) such Investment  Fund. As of October 13,
1994, The Morgan Stanley Group, Inc., 1221 Avenue of the Americas, New York, New
York 10020, was presumed to "control"  the Global Fixed Income, Latin  American,
American  Value and Worldwide High Income Funds based solely on its ownership of
25% or more of the outstanding voting shares of such funds.

REPORTS TO SHAREHOLDERS

    The Fund will send  to its shareholders annual  and semiannual reports;  the
financial  statements  appearing in  annual reports  are audited  by independent
accountants.

    In addition, the Fund or the  Transfer Agent, will send to each  shareholder
having  an  account  directly  with  the  Fund  a  quarterly  statement  showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Fund or the Transfer Agent will send the shareholder a confirmation
statement showing the same information.

CUSTODIAN

    Domestic securities and cash are held by United States Trust Company of  New
York,  New York ("U.S. Trust"), as the  Fund's domestic custodian. U.S. Trust is
not an  affiliate  of the  Adviser  or  the Distributor.  Morgan  Stanley  Trust
Company,  Brooklyn,  New  York  ("Morgan Stanley  Trust"),  acts  as  the Fund's
custodian for  foreign  assets  held  outside  the  United  States  and  employs
subcustodians  who were approved by the Directors of the Fund in accordance with
regulations of the SEC for the purpose of providing custodial services for  such
assets. Morgan Stanley Trust may also hold certain domestic assets for the Fund.
Morgan  Stanley Trust is  an affiliate of  the Adviser and  the Distributor. For
more  information  on  the  custodians,  see  "General  Information  --  Custody
Arrangements" in the Statement of Additional Information.

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<PAGE>
DIVIDEND DISBURSING AND TRANSFER AGENT

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

INDEPENDENT ACCOUNTANTS

    Price Waterhouse LLP, 1177 Ave. of the Americas, New York, NY 10036,  serves
as  independent  accountants  for  the  Fund  and  audits  its  annual financial
statements.

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<PAGE>
                                   APPENDIX A
                     DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:

    AAA  -- Bonds which  are rated Aaa are  judged to be  the best quality. They
carry the smallest degree  of investment risk and  are generally referred to  as
"gilt-edge."  Interest payments are protected by  a large or by an exceptionally
stable margin, and principal  is secure. While  the various protective  elements
are  likely to change,  such changes as  can be visualized  are most unlikely to
impair the fundamentally strong position of such issues.

    AA -- Bonds  which are  rated Aa are  judged to  be of high  quality by  all
standards. Together with the Aaa group they comprise what are generally known as
high  grade bonds. They are  rated lower than the  best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be  of greater  amplitude or there  may be  other elements  present
which make the long-term risks appear somewhat larger than in Aaa securities.

    Moody's  applies  numerical modifiers  1, 2  and 3  in the  Aa and  A rating
categories. The modifier 1 indicates that the security ranks at a higher end  of
the  rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.

    A -- Bonds which  are rated A possess  many favorable investment  attributes
and  are  to be  considered as  upper medium  grade obligations.  Factors giving
security to principal and interest are  considered adequate but elements may  be
present which suggest a susceptibility to impairment sometime in the future.

    BAA -- Bonds which are rated Baa are considered as medium grade obligations,
i.e.,  they are neither  highly protected nor  poorly secured. Interest payments
and principal security appear  adequate for the  present but certain  protective
elements  may be lacking or may  be characteristically unreliable over any great
length of time. Such  bonds lack outstanding  investment characteristics and  in
fact have speculative characteristics as well.

    BA  -- Bonds  which are  rated Ba are  judged to  have speculative elements;
their future  cannot be  considered as  well assured.  Often the  protection  of
interest  and  principal payments  may be  very moderate,  and thereby  not well
safeguarded during  both good  and bad  times over  the future.  Uncertainty  of
position characterizes bonds in this class.

    B -- Bonds which are rated B generally lack characteristics of the desirable
investment.  Assurance of interest  and principal payments  or of maintenance of
other terms of the contact over any long period of time may be small.

    CAA -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect 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.

                                      A-1
<PAGE>
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS:

    AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay  principal
and interest.

    AA  -- Bonds rated AA have a very  strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.

    A --  Bonds  rated A  have  a strong  capacity  to pay  interest  and  repay
principal  although they are somewhat more susceptible to the adverse effects of
changes in  circumstances and  economic conditions  than bonds  in higher  rated
categories.

    BBB  -- Debt  rated BBB is  regarded as  having an adequate  capacity to pay
interest and repay principal. Whereas  it normally exhibits adequate  protection
parameters,  adverse  economic  conditions or  changing  circumstances  are more
likely to lead to a  weakened capacity to pay  interest and repay principal  for
debt in this category than for debt in higher rated categories.

    BB,  B, CCC, CC -- Debt rated BB, B,  CCC and CC is regarded, on balance, as
predominantly speculative with  respect to  capacity to pay  interest and  repay
principal  in  accordance with  the terms  of the  obligation. BB  indicates the
lowest degree of  speculation and CC  the highest degree  of speculation.  While
such  debt will likely  have some quality  and protective characteristics, these
are outweighed  by  large  uncertainties  or major  risk  exposures  to  adverse
conditions.

    C -- The rating C is reserved for income bonds on which no interest is being
paid.

    D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

                                      A-2
<PAGE>
MORGAN STANLEY FUND, INC.
          P.O. BOX 2798, BOSTON, MA 02208-2798 (800-282-4404)        NEW ACCOUNT
APPLICATION
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                              ACCOUNT REGISTRATION
--------------------------------------------------------------------------------
    / /  Individual    / /  Joint Tenants    / /  Trust    / /  Gift/Transfer to
Minor                       / /  Other____________________

NOTE:  Joint  tenant  registration  will  be as  "joint  tenants  with  right of
survivorship"  and  not   as  "tenants  in   common"  unless  specified.   Trust
registrations  should specify  name of the  trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship  is created  (using the minor's  Social Security  Number
("SSN")).  For an Individual Retirement  Account ("IRA") a different application
is required. Please call Mutual  Funds Service Company ("MFSC") at  800-282-4404
or your investment dealer to obtain the IRA application.

<TABLE>
<S>                                                                         <C>
--------------------------------------------------------------------------  --------------------------------------------------------
Name(s) (PLEASE PRINT)                                                      Social Security Number(s) or Taxpayer Identification
                                                                            Number(s) ("TIN(s)")

--------------------------------------------------------------------------  --------------------------------------------------------
Name                                                                        Telephone Number

--------------------------------------------------------------------------
Address

--------------------------------------------------------------------------  / /  U.S. Citizen         / /  Other (specify
                                                                            citizenship) --------------------
City/State/Zip
</TABLE>

--------------------------------------------------------------------------------
CONSOLIDATED  MAILINGS: If you  or your family members  own multiple accounts in
the Morgan  Stanley Fund,  Inc.,  you can  prevent  duplicate mailings  to  your
address by completing this section.

<TABLE>
<S>                                                 <C>
ACCOUNT NUMBER(S)                                   NAME(S) IN WHICH ACCOUNT IS REGISTERED

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

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

-------------------------------------------------   --------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
                                 FUND SELECTION
--------------------------------------------------------------------------------

The  minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the  minimum amounts are $250 and $50,  respectively.
Attach a check payable to MORGAN STANLEY FUND, INC.--Investment Fund name.
<TABLE>
<S>                                            <C>              <C>                   <C>              <C>
Morgan Stanley Global Equity                   Class A (2600)   $ ------------------  Class B (2625)   $ ------------------
 Allocation Fund
Morgan Stanley Global Fixed                    Class A (2601)   $ ------------------  Class B (2626)   $ ------------------
 Income Fund
Morgan Stanley Asian Growth                    Class A (2602)   $ ------------------  Class B (2627)   $ ------------------
 Fund
Morgan Stanley Emerging                        Class A (2605)   $ ------------------  Class B (2630)   $ ------------------
 Markets Fund
Morgan Stanley Latin American                  Class A (2609)   $ ------------------  Class B (2633)   $ ------------------
 Fund
Morgan Stanley American Value                  Class A (2603)   $ ------------------  Class B (2628)   $ ------------------
 Fund
Morgan Stanley Worldwide High                  Class A (2604)   $ ------------------  Class B (2629)   $ ------------------
 Income Fund

<CAPTION>
Morgan Stanley Global Equity                   Class C (2650)   $ ------------------
 Allocation Fund
Morgan Stanley Global Fixed                    Class C (2651)   $ ------------------
 Income Fund
Morgan Stanley Asian Growth                    Class C (2652)   $ ------------------
 Fund
Morgan Stanley Emerging                        Class C (2655)   $ ------------------
 Markets Fund
Morgan Stanley Latin American                  Class C (2659)   $ ------------------
 Fund
Morgan Stanley American Value                  Class C (2653)   $ ------------------
 Fund
Morgan Stanley Worldwide High                  Class C (2654)   $ ------------------
 Income Fund

<CAPTION>
 Allocation Fund
</TABLE>

<TABLE>
<S>                                             <C>                       <C>
                                                                          Total Initial Investment: _______________________

<S>                                             <C>
</TABLE>

<TABLE>
<S>                          <C>
NOTE: IF INVESTING BY WIRE,  A.  By Mail: Enclosed is a check in the amount of $__________ payable to Morgan Stanley Fund, Inc.
YOU MUST OBTAIN A BANK WIRE  B.  By Wire: A bank wire in the amount of $__________has been sent to Morgan Stanley Fund, Inc.
CONTROL NUMBER. TO DO SO,        from ___________________           _______________________
PLEASE CALL 800-282-4404.               Name of Bank                   Wire Control Number
</TABLE>

CAPITAL   GAIN  AND  DIVIDEND  DISTRIBUTIONS:  All  capital  gain  and  dividend
distributions will be reinvested in additional  shares of the same class  unless
appropriate boxes below are checked:

<TABLE>
<S>                                     <C>                            <C>                            <C>
All Dividends are to be                 / /  reinvested                / /  paid in cash
All Capital Gains are to be             / /  reinvested                / /  paid in cash
</TABLE>

<PAGE>
--------------------------------------------------------------------------------
                               ACCOUNT PRIVILEGES
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                         <C>
TELEPHONE EXCHANGE AND REDEMPTION                                           AUTHORITY    TO   TRANSMIT    REDEMPTION   PROCEEDS   TO
You will automatically have  telephone exchange and redemption  privileges  PRE-DESIGNATED ACCOUNT.
for  yourself and your investment  dealer and appoint MFSC  to act as your  I/We hereby  authorize  MFSC to  act  upon  instructions
agent  to act upon  instructions received by telephone  in order to effect  received by telephone  to withdraw $1,000  or more  from
such privileges unless you mark one or more of the boxes below:             my/our account in Morgan Stanley Fund, Inc. and wire the
                                                                            amount   withdrawn  to  the  following  commercial  bank
                                                                            account. I/ We understand that MFSC charges an $8.00 fee
                                                                            for each wire  redemption, which will  be deducted  from
                                                                            the proceeds of the redemption.
                No, I/we do not want:                                       Title on Bank Account
                                                                            ----------------------------------------------------

                    / /  telephone exchange privileges                      Name of Bank
            / /  telephone redemption privileges                            -------------------------------------------------------
                                                                            Bank  A.B.A. Number -----------------     Account Number
                                                                            -----------------
            for myself/ourselves or my/our investment dealer.
                                                                            City/State/Zip
                                                                            --------------------------------------------------------
I/We further  acknowledge that  it is  my/our responsibility  to read  the
Prospectus of any Fund into which I/we exchange.
Morgan  Stanley Fund, Inc.  will mail redemption proceeds  to the name and
address in which  my/our fund  account is  registered unless  I check  the                 ATTACH A VOIDED CHECK HERE
following box and complete the information at right.  / /
A  corporation or partnership  must also submit  a "Corporate Resolution" or  "Certificate of Partnership"  indicating the names and
titles of officers authorized to act on its behalf.
The Fund and the Fund's 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 transaction requested by telephone.  In addition, all telephone transaction  requests
will  be recorded  and investors may  be required to  provide additional  telecopying written instructions  of transaction requests.
Neither the Fund nor the  Transfer Agent will be responsible  for any loss, liability, cost  or expenses for following  instructions
received by telephone that it reasonably believes to be genuine.
</TABLE>

--------------------------------------------------------------------------------
                       RIGHTS OF ACCUMULATION (OPTIONAL)
--------------------------------------------------------------------------------

Fund  shareholders together with  members of their families,  may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan  Stanley  Fund, Inc.  sold  with  an initial  sales  load  ("Non-Money
Funds"). You may also receive a reduced sales charge by completing the Letter of
Intent  as set forth below  as provided in the  Prospectus of the Morgan Stanley
Fund, Inc. (the "Prospectus"). See the Prospectus for details.

To qualify,  you  must complete  this  section,  listing all  of  your  accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.

I/We  qualify  for  the Rights  of  Accumulation initial  sales  charge discount
described in the Prospectus  and Statement of  Additional Information of  Morgan
Stanley Fund, Inc.
/ /  I/We  own Class A shares of more  than one Non-Money Fund of Morgan Stanley
     Fund, Inc.
/ /  The registration of some of my/our  Class A shares differs from that  shown
     on  this  application.  Listed below  are  the account  number(s)  and full
     registration(s) in each case.

LIST OF OTHER ACCOUNTS

<TABLE>
<S>                                                 <C>
ACCOUNT NUMBER(S)                                   NAME(S) IN WHICH ACCOUNT IS REGISTERED

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

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

-------------------------------------------------   --------------------------------------------------------------------------------
</TABLE>

<PAGE>
--------------------------------------------------------------------------------
                          LETTER OF INTENT (OPTIONAL)
--------------------------------------------------------------------------------

I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to  invest, within a  13-month period beginning  on the date  hereof
(initial  purchase  date) in  Class  A shares  of  the Non-Money  Fund purchased
hereunder and the other Non-Money Fund, an aggregate amount which, together with
the value of Class A shares of any  of the Non-Money Funds then owned by  me/us,
will equal or exceed the amount indicated below:

      / /  $100,000     / /  $250,000     / /  $500,000     / /  $1,000,000
--------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)   / /  Yes   / /  No     Not Available for
IRAs
--------------------------------------------------------------------------------

Available to shareholders with account balances of $5,000 or more.
I/We  hereby authorize MFSC to redeem the necessary number of shares from my/our
Morgan Stanley Fund, Inc. Account on the  designated dates in order to make  the
following periodic payments:

     / /  Monthly     / /  Quarterly     / /  Semiannually     / /  Annually

(This  request  for  participation in  the  Systematic Withdrawal  Plan  must be
received by the 18th day  of the month in which  you wish withdrawals to  begin.
Redemptions  of shares to make the payments elected above will occur on the 25th
day of the month prior to  payment, or if such day  is not a business day,  then
the next preceding business day.)

Withdrawal ($100 minimum) from:
<TABLE>
<CAPTION>
                                                                                                          Amount of
Fund Name                                                                                                 Each Check         Or

<S>                                                   <C>        <C>          <C>        <C>          <C>                 <C>
---------------------------------------------------   Class  :   ----------   Code  :    ----------   $ ----------------

---------------------------------------------------   Class  :   ----------   Code  :    ----------   $ ----------------

---------------------------------------------------   Class  :   ----------   Code  :    ----------   $ ----------------

                                                                 Recipient
Please make check payable to:                                    ---------------------------------------------------------
 (to be completed only if redemption proceeds to be              Street Address ---------------------------------------------------
 paid to other than account holder of record or                  City, State, Zip Code
 mailed to address other than address of record)
                                                                 ---------------------------------------------

*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts without being
 subject to a CDSC.

<CAPTION>
Fund Name                                                 %*
<S>                                                   <C>
---------------------------------------------------   --------%
---------------------------------------------------   --------%
---------------------------------------------------   --------%
Please make check payable to:
 (to be completed only if redemption proceeds to be
 paid to other than account holder of record or
 mailed to address other than address of record)
*With the systematic withdrawal plan, a maximum of 1
 subject to a CDSC.
</TABLE>

--------------------------------------------------------------------------------
                      AUTOMATIC INVESTMENT PLAN (OPTIONAL)
--------------------------------------------------------------------------------

I/We  hereby authorize  MFSC to  debit my/our  personal checking  account on the
designated dates in order to purchase shares in the Funds indicated below at the
applicable public offering price determined on that day.

         / /  Monthly on the 5th day        / /  Monthly on the 20th day

Amount of each debit (minimum $100) to be invested as follows:

<TABLE>
<CAPTION>
Fund Name

<S>                                       <C>        <C>          <C>        <C>          <C>
----------------------------------------  Class  :   ----------   Code  :    ----------   $ -------------------------------
----------------------------------------  Class  :   ----------   Code  :    ----------   $ -------------------------------
----------------------------------------  Class  :   ----------   Code  :    ----------   $ -------------------------------
</TABLE>

NOTE:  A  completed Bank Authorization  Form (see below)  and a voided  personal
check MUST accompany this Automatic Investment Plan application.

 -------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN--BANK AUTHORIZATION
--------------------------------------------------------------------------------

<TABLE>
<S>                                         <C>                                         <C>
-----------------------------------------   -----------------------------------------   -----------------------------------------
Bank Name                                   Bank Address                                Bank Account Number
</TABLE>

I/We  authorize you, the above  named bank, to debit  my/our account for amounts
drawn by Mutual Funds Service Company,  acting as my/our agent for the  purchase
of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in respect to
each  withdrawal shall  be the same  as if  it were a  check drawn  upon you and
signed by me/us. This authority shall remain in effect until revoked in  writing
and  received by you. I/We agree that you shall incur no liability when honoring
debits, except a  loss due to  payments drawn against  insufficient funds.  I/We
further  agree that you will  incur no liability to me  if you dishonor any such
withdrawal.  This  will  be  so  even  though  such  dishonor  results  in   the
cancellation of that purchase.

<TABLE>
<S>                                                               <C>
---------------------------------------------------------------   ---------------------------------------------------------------
Account Holder's Name                                             Joint Account Holder's Name

X -----------------------------------------      -------------    X -----------------------------------------      -------------
                       Signature                       Date       Signature                                             Date
</TABLE>

<PAGE>
--------------------------------------------------------------------------------
                           AGREEMENTS AND SIGNATURES
--------------------------------------------------------------------------------

By signing this application, I/we hereby certify under penalties of perjury that
the information on this application is complete and correct and that as required
by Federal law:

/ /  I/We  certify that (1)  the number(s) shown  above on this  form is/are the
     correct SSN(s)  or  TIN(s) and  (2)  I/we are  not  subject to  any  backup
     withholding  either because  I/we have  not been  notified by  the Internal
     Revenue Service ("IRS") that I/we are subject to backup withholding, or the
     IRS has  notified  me/us that  I  am/we are  no  longer subject  to  backup
     withholding.  (NOTE: IF ANY  OR ALL OF  CLAUSE (2) IS  NOT TRUE, STRIKE OUT
     THAT PART BEFORE SIGNING).

/ /  If no TIN(s) or SSN(s) has/have been provided above, I/we have applied,  or
     intend to apply, to the IRS or the Social Security Administration for a TIN
     or  a SSN, and I/we understand that if I/we do not provide either number to
     MFSC within 60  days of the  date of this  application or if  I/we fail  to
     furnish  my/our correct SSN or TIN, I/we may  be subject to a penalty and a
     31% backup withholding  on distributions and  redemption proceeds.  (Please
     provide  either  number on  IRS Form  W-9).  You may  request such  form by
     calling MFSC at 800-282-4404.

I/We represent that I am/we are of legal age and capacity to purchase shares  of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this  application, my/our investment dealer  and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund,  Inc.
and  MFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense incurred for acting upon instructions  believed
to  be  authentic  and  in  accordance with  the  procedures  set  forth  in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we  acknowledge
that neither the Fund nor the Distributor is a bank and that Fund shares are not
backed or guaranteed by any bank or insured by the FDIC.

<TABLE>
<S>                                                                                  <C>
X ---------------------------------------------------------------------------------  Date ---------------------
 Owner Signature
X ---------------------------------------------------------------------------------  Date ---------------------
 Owner Signature
</TABLE>

Sign  exactly as name(s) of registered owner(s) appear(s) above (including legal
title if signing for a corporation, trust custodial account, etc.)

NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
      MORGAN STANLEY FUND,  INC. THROUGH A  PARTICIPATING DEALER (AN  INVESTMENT
      DEALER).

FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY

We  hereby submit this application for the purchase of shares in accordance with
the terms of our  selling agreement with Morgan  Stanley & Co. Incorporated  and
with  the Prospectus  and Statement  of Additional  Information of  the Fund. We
agree to notify MFSC of any purchases made under the Letter of Intent or  Rights
of Accumulation.

<TABLE>
<S>                                                       <C>
-------------------------------------------------------   -------------------------------------------------------
Investment Dealer's Name                                  Representative's Name

-------------------------------------------------------   -------------------------------------------------------
Branch Number                                             Representative's Telephone Number

-------------------------------------------------------
Branch Address

-------------------------------------------------------
City/State/Zip Code

-------------------------------------------------------   -------------------------------------------------------
Branch Telephone Number                                   Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------

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

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

                               TABLE OF CONTENTS

<TABLE>
<S>                                                <C>
                                                      PAGE
                                                      -----
Fund Expenses....................................           2
Financial Highlights.............................           8
Prospectus Summary...............................          16
Investment Objectives and Policies...............          19
Additional Investment Information................          41
Investment Limitations...........................          53
Management of the Fund...........................          55
Portfolio Transactions...........................          62
Purchase of Shares...............................          63
Redemption of Shares.............................          71
Shareholder Services.............................          75
Valuation of Shares..............................          77
Performance Information..........................          78
Dividends and Distributions......................          79
Taxes............................................          80
General Information..............................          82
Appendix A.......................................         A-1
New Account Application
</TABLE>

                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND
                                 MORGAN STANLEY
                            GLOBAL FIXED INCOME FUND
                                 MORGAN STANLEY
                               ASIAN GROWTH FUND
                                 MORGAN STANLEY
                             EMERGING MARKETS FUND
                                 MORGAN STANLEY
                              LATIN AMERICAN FUND
                                 MORGAN STANLEY
                              EUROPEAN EQUITY FUND
                                 MORGAN STANLEY
                              AMERICAN VALUE FUND
                                 MORGAN STANLEY
                           WORLDWIDE HIGH INCOME FUND
                                 MORGAN STANLEY
                             GROWTH AND INCOME FUND
                                 MORGAN STANLEY
                               MONEY MARKET FUND

                               PORTFOLIOS OF THE

                                 MORGAN STANLEY
                                   FUND, INC.

                                  COMMON STOCK
                               ($.001 PAR VALUE)

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

                               INVESTMENT ADVISER

                                 MORGAN STANLEY
                             ASSET MANAGEMENT INC.

                                  DISTRIBUTOR

                              MORGAN STANLEY & CO.

                                  INCORPORATED

-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
<PAGE>

                           MORGAN  STANLEY  FUND, INC.
                     STATEMENT  OF  ADDITIONAL  INFORMATION


       Morgan Stanley Fund, Inc. (the "Fund") is an open-end management
investment company. The Fund currently consists of ten investment portfolios
(the "Investment Funds") offering a range of investment choices. The Fund is
designed to provide clients with attractive alternatives for meeting their
investment needs. This Statement of Additional Information addresses information
of the Fund applicable to each of the ten Investment Funds and to the Class A
shares, Class B shares and Class C shares of nine of such Investment Funds.

       This Statement is not a prospectus but should be read in conjunction with
the Fund's prospectus (the "Prospectus"). To obtain the Prospectus, please call
the Morgan Stanley Fund, Inc. Services Group:

                                 1-800-282-4404

                               TABLE  OF  CONTENTS

                                                                            Page
--------------------------------------------------------------------------------

Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Tax Treatment of Forward Currency Contracts and Exchange Rate Changes.10
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .11
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Money Market Fund Net Asset Value. . . . . . . . . . . . . . . . . . . . . . .23
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .40
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Statement of Additional Information dated August 1, 1995,  relating to the
Prospectus dated August 1, 1995 for:

          Morgan Stanley Global Equity Allocation Fund
          Morgan Stanley Global Fixed Income Fund
          Morgan Stanley Asian Growth Fund
          Morgan Stanley Emerging Markets Fund
          Morgan Stanley Latin American Fund
          Morgan Stanley European Equity Fund
          Morgan Stanley American Value Fund
          Morgan Stanley Worldwide High Income Fund
          Morgan Stanley Growth and Income Fund
          Morgan Stanley Money Market Fund (currently not offering shares)
<PAGE>


                       INVESTMENT OBJECTIVES AND POLICIES

       The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectus with respect to the Fund's ten Investment
Funds:  the Morgan Stanley Global Equity Allocation Fund, Morgan Stanley Global
Fixed Income Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging
Markets Fund, Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley American Value Fund, Morgan Stanley Worldwide High Income
Fund, Morgan Stanley Growth and Income Fund and Morgan Stanley Money Market Fund
(referred to herein respectively as the "Global Equity Allocation Fund," "Global
Fixed Income Fund," "Asian Growth Fund," "Emerging Markets Fund," "Latin
American Fund," "European Equity Fund," "American Value Fund," "Worldwide High
Income Fund", "Growth and Income Fund" and "Money Market Fund").

GLOBAL INVESTING

       Global investment diversification can lower the risk that occurs from
fluctuations in any one market. Global stock and bond markets often do not
parallel the performance of each other which means that, over time, diversifying
investments across several countries can help reduce portfolio volatility while
increasing returns.

       U.S. stock and bond markets now comprise less than half of the total
securities available worldwide and investors who limit their investments to the
U.S. ignore over 80% of the world's blue chip companies. Participating in global
markets helps the astute investor take advantage of opportunities worldwide.
Over the past 10 years, through 1994, the U.S. ranked in the top five performing
stock markets only two times according to Morgan Stanley Capital International.

SECURITIES LENDING

       Each Investment Fund may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, an Investment Fund 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 Investment Fund. Each Investment Fund may lend
its investment securities to qualified brokers, dealers, domestic and foreign
banks or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the Investment Company
Act of 1940, as amended (the "1940 Act"), or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "SEC")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Investment Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. Government having a value at all times not less than 100% of the value of
the securities loaned, including accrued interest, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Investment Fund at any time, and (d) the Investment Fund
receive reasonable interest on the loan (which may include the Investment Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by Morgan Stanley Asset
Management Inc. (the "Adviser" or "MSAM") to be of good standing and when, in
the judgment of the Adviser, 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 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 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.



                                        2
<PAGE>

EQUITY-LINKED SECURITIES

       The amount received by an investor at maturity of such securities is not
fixed but is based on the price of the underlying common stock.  It is
impossible to predict whether the price of the underlying common stock will rise
or fall.  Trading prices of the underlying common stock will be influenced by
the issuer's operational results, by complex, interrelated political, economic,
financial or other factors affecting the capital markets, the stock exchanges on
which the underlying common stock is traded and the market segment of which the
issuer is a part.  It is not possible to predict how equity-linked securities
will trade in the secondary market or whether such market will be liquid or
illiquid.  The following are three examples of equity-linked securities.  The
Investment Fund may invest in the securities described below or other similar
equity-linked securities.

       There are certain risks of loss of principal in connection with investing
in equity-linked securities, as described in the following examples of certain
equity-linked securities.  Preferred Equity Redemption Cumulative Stock
("PERCS") as described in "Additional Investment Information" in the Prospectus
will convert into common stock within three years no matter at what price the
common stock trades.  If the common stock is trading at a price that is at or
below the cap, the Investment Fund receives one share of common stock for each
PERCS share.  If the common stock is trading at a price that is above the cap,
the Investment Fund receives less than one share, with the conversion ratio
adjusted so that the market value of the common stock received by the Investment
Fund equals the cap.  Accordingly, the Investment Fund is subject to the risk
that if the price of the common stock is below the cap price at the maturity of
the PERCS, the Investment Fund will lose the amount of the difference between
the price of the common stock and the cap.  Such a loss could substantially
reduce the Investment Fund's initial investment in the PERCS and any dividends
that were paid on the PERCS.  PERCS also present risks based on payment
expectations.  If a PERCS issuer redeems the PERCS, the Investment Fund may have
to replace the PERCS with a lower yielding security, resulting in a decreased
return for investors.

       The principal amount that Equity-Linked Securities ("ELKS") holders
receive at maturity, as described in "Additional Investment Information" in the
Prospectus, is based on the price of underlying common stock.  If the common
stock is trading at a price that is at or below the cap, the Investment Fund
receives for each ELKS share an amount equal to the average price of the common
stock.  If the common stock is trading at a price that is above the cap, the
Investment Fund receives the cap amount.  Accordingly, the Investment Fund is
subject to the risk that if the price of the common stock is below the cap price
at the maturity of the ELKS, the Investment Fund will lose the amount of the
difference between the price of the common stock and the cap.  Such a loss could
substantially reduce the Investment Fund's initial investment in the ELKS and
any dividends that were paid on the ELKS.  An additional risk is that the issuer
may "reopen" the issue of ELKS and issue additional ELKS at a later time or
issue additional debt securities or other securities with terms similar to those
of the ELKS, and such issuances may affect the trading value of the ELKS.

       The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-marked yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based on
the price of underlying common stock.  If the common stock is trading at a price
that is at or below the purchase price of the LYONs plus accrued original issue
discount, the Investment Fund receives only the lower-than-market yield,
assuming the LYONs are not in default.  If the common stock is trading at a
price that is above the purchased price of the LYONs plus accrued original issue
discount, the Investment Fund will receive an amount above the lower-than-market
yield on the LYONs, based on how well the underlying common stock does.  LYONs
also present risks based on payment expectations.  If a LYONs issuer redeems the
LYONs, the Investment Fund may have to replace the LYONs with a lower yielding
security, resulting in a decreased return for investors.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

       The U.S. dollar value of the assets of the Global Equity Allocation,
Global Fixed Income, Asian Growth, Emerging Markets, Latin American, European
Equity, and to the extent they invest in foreign currencies, the American Value,
Growth and Income and Worldwide High Income Funds (the "Non-Money Funds") may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Investment Funds may incur costs in
connection with conversions between various currencies. The Investment Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract (a "forward contract")
involves an obligation to purchase or sell a specific currency


                                        3
<PAGE>


at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for such trades.

       The Investment Funds may enter into forward contracts in several
circumstances. When an Investment Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when an Investment
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Investment Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for a fixed amount of dollars, for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the
Investment Fund will be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.

       Additionally, when any of these Investment Funds anticipates that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value of
some or all of such Investment Fund's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. An Investment Fund will not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate such Investment Fund to
deliver an amount of foreign currency in excess of the value of such Investment
Fund securities or other assets denominated in that currency.

       Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Investment Fund will thereby be served. Except in circumstances where
segregated accounts are not required by the 1940 Act and the rules adopted
thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
high-grade debt securities into a segregated account of an Investment Fund in an
amount equal to the value of such Investment Fund's total assets committed to
the consummation of forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Investment Fund's commitments with respect to such
contracts.

       The Investment Funds generally will not enter into a forward contract
with a term of greater than one year. At the maturity of a forward contract, an
Investment Fund 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 an Investment Fund 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 Investment Fund is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency.

       If an Investment Fund retains the portfolio security and engages in an
offsetting transaction, such Investment Fund 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 an Investment
Fund 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 Investment Fund 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 Investment Fund


                                        4
<PAGE>


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 Investment Funds 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

       The Emerging Markets, Latin American, American Value, Growth and Income
and Worldwide High Income Funds may enter into securities index futures
contracts and options on securities index futures contracts to a limited extent
and the Latin American Fund may utilize appropriate interest rate futures
contracts and options on interest rate futures contracts to a limited extent. In
addition, the American Value, Emerging Markets, Latin American and Worldwide
High Income Funds may enter into foreign currency futures contracts and options
thereon.  Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security or a
specific currency at a specified future time and at a specified price. Futures
contracts, which are standardized as to maturity date and underlying financial
instrument, index or currency, traded in the United States are traded on
national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. government agency.

       Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.

       The American Value, Emerging Markets, Latin American and Worldwide High
Income Funds may purchase and sell indexed financial futures contracts.  An
index futures contract is an agreement to take or make delivery of an amount of
cash equal to the difference between the value of the index at the beginning and
at the end of the contract period.  Successful use of index futures will be
subject to the Adviser's ability to predict correctly movements in the direction
of the relevant securities market.  No assurance can be given that the Adviser's
judgment in this respect will be correct.

       The American Value, Emerging Markets, Latin American and Worldwide High
Income Funds may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result.  If the Adviser
believes that a portion of the Investment Fund assets should be invested in
emerging country securities but such investments have not been fully made and
the Adviser anticipates a significant market advance, the Investment Fund may
purchase index futures in order to gain rapid market exposure that may in part
or entirely offset increases in the cost of securities that it intends to
purchase.  In a substantial majority of these transactions, the Investment Fund
will purchase such securities upon termination of the futures position but,
under unusual market conditions, a futures position may be terminated without
the corresponding purchase of debt securities.

       Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.

       After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required


                                        5
<PAGE>


margin, resulting in a repayment of excess margin to the contract holder.
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. The Investment Fund expects to earn interest income
on its margin deposits.

       Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Investment Funds intend to use futures contracts only for
hedging purposes.

       Regulations of the CFTC applicable to the Investment Funds require that
all futures transactions constitute bona fide hedging transactions or
transactions for other purposes so long as the aggregate initial margin and
premiums required for such transaction will not exceed 5% of the liquidation
value of the Investment Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into. The
Investment Funds will only sell futures contracts to protect securities owned
against declines in price or purchase contracts to protect against an increase
in the price of securities intended for purchase. As evidence of this hedging
interest, the Investment Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Investment
Fund upon sale of open futures contracts.

       Although techniques other than the sale and purchase of futures contracts
could be used to control the Investment Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Investment Funds will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS.  The American Value, Emerging
Markets, Latin American, Growth and Income and Worldwide High Income Funds will
not enter into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the market value of its total assets. In addition, the Investment Fund will
not enter into futures contracts to the extent that its outstanding obligations
to purchase securities under futures contracts and options would exceed 20% of
its total assets.

RISK FACTORS IN FUTURES TRANSACTIONS.  Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, an Investment Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if an Investment
Fund has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, the Investment Fund may be required to make delivery of the
instruments underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the
Investment Fund's ability to effectively hedge.

       Each Investment Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures for which there
appears to be a liquid secondary market.

       The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Investment
Funds engage in futures strategies only for hedging purposes, the Adviser does
not believe that the Investment Funds are subject to the risks of loss
frequently associated with futures transactions. The Investment Fund would
presumably have sustained comparable losses if, instead of the futures contract,
the Investment Fund had invested in the underlying security or currency and sold
it after the decline.


                                        6
<PAGE>

       Utilization of futures transactions by the Investment Fund does involve
the risk of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the portfolio securities or currencies
being hedged. It is also possible that an Investment Fund could both lose money
on futures contracts and also experience a decline in value of its portfolio
securities. There is also the risk of loss by an Investment Fund of margin
deposits in the event of bankruptcy of a broker with whom the Investment Fund
has an open position in a futures contract or related option.

       Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.

OPTIONS ON FOREIGN CURRENCIES

       The Emerging Markets, Latin American, European Equity, Growth and Income
and Worldwide High Income Funds may attempt to accomplish objectives similar to
those described above with respect to forward foreign currency exchange
contracts and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges.  A put option gives the Investment
Fund the right to sell a currency at the exercise price until the expiration of
the option.  A call option gives the Investment Fund the right to purchase a
currency at the exercise price until the expiration of the option.

OPTIONS TRANSACTIONS

       The Emerging Markets, Latin American, European Equity, Growth and Income
and Worldwide High Income Funds may write (i.e., sell) covered call options
which give the purchaser the right to buy the underlying security covered by the
option from the Investment Fund at the stated exercise price.  A "covered" call
option means that so long as the Investment Fund is obligated as the writer of
the option, it will own (i) the underlying securities subject to the option, or
(ii) securities convertible or exchangeable without the payment of any
consideration into the securities subject to the option.  As a matter of
operating policy, the value of the underlying securities on which options will
be written at any one time will not exceed 5% of the total assets of the
Investment Fund.  In addition, as a matter of operating policy, the Investment
Fund will neither purchase or write put options on securities nor purchase call
options on securities (except in connection with closing purchase transactions).

       The Investment Fund will receive a premium from writing call options,
which increases the Investment Fund's return on the underlying security in the
event the option expires unexercised or is closed out at a profit.  By writing a
call, the Investment Fund will limit its opportunity to profit from an increase
in the market value of the underlying security above the exercise price of the
option for as long as the Investment Fund's obligation as writer of the option
continues.  Thus, in some periods the Investment Fund will receive less total
return and in other periods greater total return from writing covered call
options than it would have received from its underlying securities had it not
written call options.

LOAN PARTICIPATIONS AND ASSIGNMENTS

       The Worldwide High Income Fund may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions ("Lenders").
The Investment Fund's investments in Loans are expected in most instances to be
in the form of participations in Loans ("Participations") and assignments of all
or a portion of Loans ("Assignments") from third parties.  The Investment Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower.  In the event of
the insolvency of the Lender selling a Participation, the Investment Fund 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 the Participation being subject to
the credit risk of the Lender with respect to the Participation, but even under
such a structure, in the event of the Lender's


                                        7
<PAGE>

insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation impaired.  The Investment Fund will acquire a
Participation only if the Lender interpositioned between the Investment Fund and
the borrower is determined by the Adviser to be creditworthy.

       When the Investment Fund purchases Assignments from Lenders it will
acquire direct rights against the borrower on the Loan.  Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Investment Fund
as the purchaser of an Assignment may differ from, and be more limited than,
those held by the assigning Lender.  Because there is no liquid market for such
securities, the Investment Fund anticipates that such securities could be sold
only to a limited number of institutional investors.  The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Investment Fund's ability to dispose of particular Assignments or
Participation when necessary to meet the Investment Fund'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 Participation also may make it more difficult for the Investment
Fund to assign a value to these securities for purposes of valuing the
Investment Fund's portfolio and calculating its net asset value.

PORTFOLIO TURNOVER

       It is anticipated that the annual portfolio turnover rate for each of the
Investment Funds, except the Growth and Income Fund will not exceed 100%,
although in any particular year, market conditions could result in portfolio
activity at a greater or lesser rate than anticipated. The portfolio turnover
rate for a year is the lesser of the value of the purchases or sales for the
year divided by the average monthly market value of the Investment Fund for the
year, excluding U.S. Government securities and securities with maturities of one
year or less.  The portfolio turnover rate for a year is calculated by dividing
the lesser of sales or the average monthly value of the Investment Fund's
portfolio purchases of portfolio securities during that year by securities,
excluding money market instruments.  The rate of portfolio turnover will not be
a limiting factor when the Investment Fund deems it appropriate to purchase or
sell securities for the portfolio.  However, the U.S. federal tax requirement
that the Investment Fund derive less than 30% of its gross income from the sale
or disposition of securities held less than three months may limit the
Investment Fund's ability to dispose of its securities.  See "Federal Income
Tax."

MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX

       The investment objective of the Global Equity Allocation Fund is to
provide long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of United States and
non-United States issuers. The Adviser determines country allocations for the
Investment Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Investment Fund will invest
in the United States and industrialized countries throughout the world that
comprise the Morgan Stanley Capital International World Index (the "World
Index"). The World Index is one of seven International Indices, twenty National
Indices and thirty-eight International Industry Indices making up the Morgan
Stanley Capital International Indices.

       The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.

                               FEDERAL INCOME TAX

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

       The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Legislation and 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.



                                        8
<PAGE>

      In order to qualify for the special tax treatment afforded to regulated
investment companies ("RIC's") under Subchapter M of the Code, each Investment
Fund must, among other things, (a) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and certain other related income, including, generally, gains from
options, futures and forward contracts (the "90% Gross Income Test"); (b) derive
less than 30% of its gross income each taxable year from the sale or other
disposition of (i) stocks or securities, (ii) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currencies) and (iii) foreign currencies (or options, futures or forward
contracts on foreign currencies), but only if not directly related to the
Investment Fund's principal business of investing in stocks or securities (or
options and futures with respect to stocks or securities) held less than three
months (the "Short-Short Gain Test"), and (c) diversify its holdings so that, at
the end of each fiscal quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Investment Fund's total assets is represented by cash,
United States Government securities, securities of other RIC's, and other
securities and cash items, with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of the Investment
Fund's total assets or 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer or two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or businesses (other
than U.S. Government securities or the securities of other RIC's). For purposes
of the 90% gross income requirement described above, foreign currency gains may
be excluded by regulation from income that qualifies under the 90% requirement.

       In addition to the requirements described above, in order to qualify as a
RIC, an Investment Fund must  distribute at least 90% of its net investment
income (which generally includes dividends, taxable interest, and net short-term
capital gains less operating expenses) to shareholders. If an Investment Fund
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.

       Each Investment Fund will decide whether to distribute or to retain all
or part of any net capital gains (the excess of net long-term capital gains over
net short-term capital losses) in any year for reinvestment. If any such gains
are retained, the Investment Fund will pay federal income tax thereon, and, if
the Investment Fund makes an election, the shareholders will include such
undistributed gains in their income and shareholders subject to tax will be able
to claim their share of the tax paid by the Investment Fund as a credit against
their federal income tax liability.

       A gain or loss realized by a shareholder on the sale or exchange of
shares of an Investment Fund held as a capital asset will be capital gain or
loss, and such gain or loss will be long-term if the holding period for the
shares exceeds one year, and otherwise will be short-term. Any loss realized on
a sale or exchange 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 Investment Fund 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 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 Investment Fund is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital gains distributions,
and redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Investment Fund, that
the Social Security or Taxpayer Identification Number provided is correct and
that the shareholder is exempt from backup withholding or is not currently
subject to backup withholding.


FOREIGN INCOME TAX

       It is expected that each Investment Fund will be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, and the Investment Fund may be subject to foreign income or other
taxes with respect to other income. So long as more than 50% in value of each
Investment Fund's total assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Investment Fund may elect to


                                        9
<PAGE>

treat certain foreign income taxes imposed on it under U.S. federal income tax
law as paid directly by its shareholders. An Investment Fund 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 an Investment Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Investment Fund 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. (No deductions
will be allowed in computing alternative minimum tax liability.)

       Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determine without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by an Investment Fund from its
foreign source income will be treated as foreign source income. An Investment
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income," such as the portion of
dividends received from an Investment Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations as individuals. 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 an Investment
Fund.

       The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.

                        FEDERAL TAX TREATMENT  OF FORWARD
                  CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES

       Except for certain hedging transactions, each Investment Fund is required
for Federal income tax purposes to recognize as gain or loss for each taxable
year its net unrealized gains and losses on certain forward currency and futures
contracts as of the end of each taxable year, as well as those actually realized
during the year. In most cases, any such gain or loss recognized with respect to
a regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Gain or loss attributable to a foreign currency forward
contract is treated as 100% ordinary income. Furthermore, forward currency
futures contracts which are intended to hedge against a change in the value of
securities held by an Investment Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.

       Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, the Investment Fund will
have to avoid realizing gains on futures contracts and certain forward contracts
held less than three months and may be required to defer the closing out of
futures contracts beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains of such contracts that have been
open for less than three months as of the end of the Investment Fund's taxable
year and which are treated as recognized for tax purposes at the end of the
taxable year will not be considered gains on securities held less than three
months for purposes of the Short-Short Gain test.

       Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Investment Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Investment Fund actually
collects such receivables or pays such liabilities are treated as ordinary
income or ordinary loss. 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. These
gains or losses increase or decrease the amount of an Investment Fund's net
investment income, if any, available to be distributed to its shareholders as
ordinary income.


                                        10
<PAGE>

                         TAXES AND FOREIGN SHAREHOLDERS

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

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

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

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

       The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.

                               PURCHASE OF SHARES

       For Class A shares of the Non-Money Funds, the purchase price of shares
is based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Investment Funds an order received prior to the regular close of the New
York Stock Exchange (the "NYSE") will be executed at the price computed on the
date of receipt; and an order received after the regular close of the NYSE will
be executed at the price computed on the next day the NYSE is open. The purchase
price of shares of the Non-Money Funds is based on such price as further
described in the Prospectus under "Purchase of Shares." Class A shares of the
Non-Money Funds purchased without an initial sales charge that are redeemed
within one year of purchase are subject to a 1.00% contingent deferred sales
charge ("CDSC"), certain Class B shares of the Non-Money Funds that are redeemed
within six years of purchase are subject to a  CDSC of up to 5.00% and certain
Class C shares of the Non-Money Funds that are redeemed within one year of
purchase are subject to a 1.00% CDSC, as described in the Prospectus under
"Purchase of Shares." The initial sales charge and CDSC are not applicable to
shares of any class of any Investment Fund purchased through the automatic
reinvestment of dividends or distributions paid by any Investment Fund. The
price of shares of the Money Market Fund is the net asset value per share next
determined after Federal Funds are available to such Investment Fund. A purchase
of Money Market Fund shares by check is ordinarily credited to the shareholder's
account at the price next determined on the day of receipt and will begin
receiving dividends the following day. Shares of the Fund may be purchased on
any day the NYSE is open. The NYSE is closed on the following days: New Year's
Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving Day; and Christmas Day.

       Each Investment Fund reserves the right in its sole discretion (i) to
suspend the offering of its shares, (ii) to reject purchase orders when in the
judgment of management such rejection is in the best interest of the Fund, and
(iii) to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts such as employee benefit plans or under circumstances
where certain economies can be achieved in sales of an Investment Fund's shares.

                              REDEMPTION OF SHARES

       Each Investment Fund may suspend redemption privileges or postpone the
date of payment (i) during any period that the NYSE is closed, or trading on the
NYSE is restricted as determined by the 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 reasonably practicable for an


                                        11
<PAGE>

Investment Fund to dispose of securities owned by it, or fairly to determine the
value of its assets, and (iii) for such other periods as the SEC may permit.

       Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the
Investment Fund. Class A shares of the Non- Money Funds purchased without an
initial sales charge due to the size of the purchase that are redeemed within
one year of purchase are subject to a 1.00% CDSC, certain Class B shares of the
Non-Money Funds that are redeemed within six years of purchase are subject to a
CDSC of up to 5.00% that decreases to 0% after six years, and certain Class C
shares of the Non-Money Funds that are redeemed within one year of purchase are
subject to a 1.00% CDSC as described in the Prospectus under "Purchase of
Shares." Such initial sales charge and CDSC are not applicable to shares of any
class of any Investment Fund purchased through the automatic reinvestment of
dividends or distributions paid by any Investment Fund.

       To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with: (1) all redemptions,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (2) share
transfer requests.

       Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.

       The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.

       Redemption of shares held in broker street name may not be accomplished
by mail or telephone as described above. Shares held in broker street name may
be redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.

                             INVESTMENT  LIMITATIONS

       Each current Investment Fund of the Fund has adopted the following
restrictions which are fundamental policies and may not be changed without the
approval of the lesser of: (1) at least 67% of the voting securities of the
Investment Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Investment Fund are present or represented
by proxy, or (2) more than 50% of the outstanding voting securities of the
Investment Fund. Each current Investment Fund of the Fund will not:

       (1)   invest in commodities, except that each of the Emerging Markets
Fund, Latin American Fund, European Equity Fund, American Value Fund, Growth and
Income and Worldwide High Income Fund may invest in futures contracts and
options to the extent that not more than 5% of its total assets are required as
deposits to secure obligations under futures contracts and not more than 20% of
its total assets are invested in futures contracts and options at any time;

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

       (3)   make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (11) below) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;


                                        12
<PAGE>

       (4)   purchase on margin or sell short except as specified above in (1)
and except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund and Worldwide High Income Fund may enter into short sales in accordance
with its investment objectives and policies;

       (5)   with respect to all of the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund and Latin American Fund, purchase more than
10% of any class of the outstanding securities of any issuer;

       (6)   with respect to all the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund, Latin American Fund and Money Market Fund,
purchase securities of an issuer (except obligations of the U.S. Government and
its instrumentalities) if as the result, with respect to 75% of its total
assets, more than 5% of the Investment Fund's total assets, at market, would be
invested in the securities of such issuer;

       (7)   purchase or retain securities of an issuer if those officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;

       (8)   borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 10% of
the Investment Fund's total assets valued at the lower of market or cost and an
Investment Fund may not purchase additional securities when borrowings exceed 5%
of total assets except that the Worldwide High Income Fund, Latin American Fund,
Growth and Income Fund and Money Market Fund may enter into reverse repurchase
agreements in accordance with their investment objectives and policies and each
of the Latin American Fund and Worldwide High Income Fund may borrow amounts up
to 33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing;

       (9)   pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except that each of
the Latin American and Worldwide High Income Funds may pledge, mortgage or
hypothecate its assets to secure borrowings in amounts up to 33 1/3% of its
assets (including the amount borrowed);

       (10)  underwrite the securities of other issuers;

       (11)  invest more than an aggregate of 15% of the total assets of the
Investment Fund (10% of the net assets of the Money Market Fund), determined at
the time of investment, in illiquid assets, including repurchase agreements
having maturities of more than seven days; provided, however, that no Investment
Fund shall invest more than 10% of its total assets in securities subject to
legal or contractual restrictions on resale;

       (12)  invest for the purpose of exercising control over management of any
company;

       (13)  invest its assets in securities of any investment company, except
by purchase in the open market involving only customary brokers' commissions or
in connection with mergers, acquisitions of assets or consolidations and except
as may otherwise be permitted by the 1940 Act;

       (14)  invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;

       (15)  with respect to all the Investment Funds, except the Latin American
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Investment Fund'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 Fund) instruments issued
by U.S. banks;

       (16)  write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases; or

       (17)  issue senior securities.

       The Money Market Fund will not purchase securities of an issuer (except
obligations of the U.S. Government and instrumentalities) if more than 5% of its
total assets, at market, would be invested in the securities of one issuer,
except as permitted under applicable law.


                                        13
<PAGE>

       Each of the Global Fixed Income, Emerging Markets and Latin American
Funds will diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the market value of the Investment Fund'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 Investment Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities);

       In addition, the Fund has adopted the following limitations which are not
fundamental policies and may be changed without shareholder approval:

       (1)   no Investment Fund will purchase puts, calls, straddles, spreads
and any combination thereof if by reason thereof the value of its aggregate
investment in such derivative securities will exceed 5% of its respective total
assets except that the Emerging Markets, Latin American, European Equity, Growth
and Income and Worldwide High Income Funds may purchase puts and calls on
foreign currencies and may write covered call options in accordance with its
investment objective and policies;

       (2)   no Investment Fund may purchase warrants if, by reason of such
purchase, more than 5% of the value of the Investment Fund's net assets would be
invested in warrants valued at the lower of cost or market. Included in this
amount, but not to exceed 2% of the value of the Investment Fund's net assets
may be warrants that are not listed on a recognized stock exchange; and

       (3)   no Investment Fund will invest in oil, gas or other mineral leases;
and
       (4)   the Emerging Markets Fund may invest up to 25% of its total assets
in privately placed securities, provided that it may not invest more than 15% of
its total assets in illiquid securities, including securities for which there is
no readily available market, and provided further that it will not invest more
than 10% of its total assets in securities which are restricted from sale to the
public without registration under the Securities Act of 1933, except securities
that are not registered under the Securities Act of 1933 but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act.

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

                  DETERMINING MATURITIES OF CERTAIN INSTRUMENTS

       Generally, the maturity of a portfolio instrument shall be deemed to be
the period remaining until the date noted on the face of the instrument as the
date on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a Government
Obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.



                                        14
<PAGE>

                             MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS

       The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers.  Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. The other Directors have no
affiliation with the Fund's adviser, distributor or administrative services
provider. Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised or
distributed by Morgan Stanley Asset Management Inc. or its affiliates. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past 5 years is set forth below:


                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------


Barton M. Biggs*               Chairman and              Chairman and Director
1221 Avenue of the             Director                  of Morgan Stanley Asset
Americas                                                 Management Inc. and
New York, NY 10020                                       Morgan Stanley Asset
                                                         Management Limited;
                                                         Managing Director of
                                                         Morgan Stanley & Co.,
                                                         Inc.; Director of
                                                         Morgan Stanley Group
                                                         Inc.; Member of
                                                         International Advisory
                                                         Counsel of the Thailand
                                                         Fund; Chairman and
                                                         Director of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.

Warren J. Olsen*               Director and President    Principal of Morgan
1221 Avenue of the                                       Stanley & Co., Inc.;
Americas                                                 Vice President of
New York, NY 10020                                       Morgan Stanley Asset
                                                         Management Inc.;
                                                         President and Director
                                                         of The Brazilian
                                                         Investment Fund, Inc.,
                                                         The Latin American
                                                         Discovery Fund, Inc.,
                                                         The Malaysia Fund,
                                                         Inc., Morgan Stanley
                                                         Africa Investment Fund,
                                                         Inc., Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc., and The Turkish
                                                         Investment Fund, Inc.


                                        15
<PAGE>

                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------

John D. Barrett, II            Director                  Chairman and Director
521 Fifth Avenue                                         of Barrett Associates,
New York, NY 10135                                       Inc. (Investment
                                                         counseling); Director
                                                         of the Ashforth Company
                                                         (real estate); Director
                                                         of the Morgan Stanley
                                                         Fund, Inc., Morgan
                                                         Stanley Institutional
                                                         Fund, Inc. and PCS Cash
                                                         Fund, Inc.

Gerard E. Jones                Director                  Partner in Richards &
43 Arch Street                                           O'Neil L.L.P. (law
Greenwich, CT 06830                                      firm); Director of the
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Institutional Fund,
                                                         Inc. and PCS Cash Fund,
                                                         Inc.

Andrew McNally IV              Director                  Chairman and Chief
8255 North Central                                       Executive Officer of
Park Avenue                                              Rand McNally
Skokie, IL 60076                                         (Publication); Director
                                                         of Allendale Insurance
                                                         Co., Mercury Finance
                                                         (consumer finance);
                                                         Zenith Electronics,
                                                         Hubbell, Inc.
                                                         (industrial
                                                         electronics); Director
                                                         of the Morgan Stanley
                                                         Fund, Inc., Morgan
                                                         Stanley Institutional
                                                         Fund, Inc. and PCS Cash
                                                         Fund, Inc.; Director of
                                                         the Morgan Stanley
                                                         Fund, Inc., Morgan
                                                         Stanley Institutional
                                                         Fund, Inc. and PCS Cash
                                                         Fund, Inc.

Samuel T. Reeves               Director                  Chairman of the Board
8211 North                                               and CEO, Pinacle L.L.C.
Fresno Street                                            (investment firm);
Fresno, CA 93720                                         Director, Pacific Gas
                                                         and Electric and PG&E
                                                         Enterprises
                                                         (utilities); Director
                                                         of the Morgan Stanley
                                                         Fund, Inc., Morgan
                                                         Stanley Institutional
                                                         Fund, Inc. and PCS Cash
                                                         Fund, Inc.

Fergus Reid                    Director                  Chairman and Chief
85 Charles Colman Blvd                                   Executive Officer of
Pawling, NY 12564                                        LumeLite Corporation
                                                         (injection molding
                                                         firm); Trustee and
                                                         Director of Vista
                                                         Mutual Fund Group;
                                                         Director of the Morgan
                                                         Stanley Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc. and PCS Cash Fund,
                                                         Inc.

Frederick O. Robertshaw        Director                  Of Counsel, Bryan, Cave
2800 North Central Avenue                                (law firm); Previously
Phoenix, AZ 85004                                        associated with Copple,
                                                         Chamberlin & Boehm,
                                                         P.C. and Rake, Copple,
                                                         Downey & Black, P.C.
                                                         (law firms); Director
                                                         of the Morgan Stanley
                                                         Fund, Inc., Morgan
                                                         Stanley Institutional
                                                         Fund, Inc. and PCS Cash
                                                         Fund, Inc.


                                        16
<PAGE>

                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------

Frederick B. Whittemore*       Director                  Advisory Director of
1251 Avenue of the                                       Morgan Stanley & Co.,
Americas, 30th Flr.                                      Inc.; Vice-Chairman and
New York, NY 10020                                       Director of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund,Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.

James W. Grisham               Vice President            Principal of Morgan
1221 Avenue of the                                       Stanley & Co., Inc.;
Americas                                                 Vice President of
New York, NY 10020                                       Morgan Stanley Asset
                                                         Management Inc.; Vice
                                                         President of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.



                                        17
<PAGE>

                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------

Harold J. Schaaff, Jr.         Vice President            Principal of Morgan
1221 Avenue of the                                       Stanley & Co.; General
Americas                                                 Counsel and Secretary
New York, NY 10020                                       of Morgan Stanley Asset
                                                         Management Inc.; Vice
                                                         President of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.

Joseph P. Stadler              Vice President            Vice President of
1221 Avenue of the                                       Morgan Stanley Asset
Americas                                                 Management Inc.;
New York, NY 10020                                       Previously with Price
                                                         Waterhouse
                                                         (accounting); Vice
                                                         President of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.



                                        18
<PAGE>
                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------

Valerie Y. Lewis               Secretary                 Vice President of
1221 Avenue of the                                       Morgan Stanley Asset
Americas                                                 Management Inc.;
New York, NY 10020                                       Previously with
                                                         Citicorp (banking);
                                                         Secretary of The
                                                         Brazilian Investment
                                                         Fund, Inc., The Latin
                                                         American Discovery
                                                         Fund, Inc., The
                                                         Malaysia Fund, Inc.,
                                                         Morgan Stanley Africa
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The PCS Cash Fund,
                                                         Inc., The Thai Fund,
                                                         Inc. and The Turkish
                                                         Investment Fund, Inc.

Karl O. Hartmann               Assistant Secretary       Senior Vice President,
73 Tremont Street                                        Secretary and General
Boston, MA 02108-3913                                    Counsel of Mutual Funds
                                                         Service Company; Senior
                                                         Vice President,
                                                         Secretary and General
                                                         Counsel, Leland,
                                                         O'Brien, Rubinstein
                                                         Associates, Inc. (an
                                                         investment adviser)
                                                         from November 1990 to
                                                         November 1991.

James R. Rooney                Treasurer                 Assistant Vice
73 Tremont Street                                        President, Mutual Funds
Boston, MA 02108-3913                                    Service Company;
                                                         Manager of Fund
                                                         Administration; Officer
                                                         various investment
                                                         companies managed by
                                                         Morgan Stanley Asset
                                                         Management Inc.;
                                                         Previously with
                                                         Scudder, Stevens &
                                                         Clark, Inc.
                                                         (Investment); Treasurer
                                                         of The Brazilian
                                                         Investment Fund, Inc.,
                                                         The Latin American
                                                         Discovery Fund, Inc.,
                                                         The Malaysia Fund,
                                                         Inc., Morgan Stanley
                                                         Africa Investment Fund,
                                                         Inc., Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The Thai Fund, Inc. and
                                                         The Turkish Investment
                                                         Fund, Inc.


                                        19
<PAGE>
                                                         Principal Occupation
Name and Address               Position with Fund        During Past Five Years
----------------               ------------------        ----------------------

Joanna Haigney                 Assistant Treasurer       Supervisor of Fund
                                                         Administration and
                                                         Compliance, Mutual
                                                         Funds Service Company;
                                                         Previously with Coopers
                                                         & Lybrand L.L.P.;
                                                         Assistant Treasurer of
                                                         The Brazilian
                                                         Investment Fund, Inc.,
                                                         The Latin American
                                                         Discovery Fund, Inc.,
                                                         The Malaysia Fund,
                                                         Inc., Morgan Stanley
                                                         Africa Investment Fund,
                                                         Inc., Morgan Stanley
                                                         Asia-Pacific Fund,
                                                         Inc., Morgan Stanley
                                                         Emerging Markets Debt
                                                         Fund, Inc., Morgan
                                                         Stanley Emerging
                                                         Markets Fund, Inc.,
                                                         Morgan Stanley Fund,
                                                         Inc., Morgan Stanley
                                                         Global Opportunity Bond
                                                         Fund, Inc., Morgan
                                                         Stanley High Yield
                                                         Fund, Inc., Morgan
                                                         Stanley India
                                                         Investment Fund, Inc.,
                                                         Morgan Stanley
                                                         Institutional Fund,
                                                         Inc., The Pakistan
                                                         Investment Fund, Inc.,
                                                         The Thai Fund, Inc. and
                                                         The Turkish Investment
                                                         Fund, Inc.

_______

*     "Interested Person" within the meaning of the 1940 Act.


REMUNERATION OF DIRECTORS AND OFFICERS

       The Fund pays each Director who is not also an officer or affiliated
person an annual fee and reimburses all the Directors, including those who are
officers or affiliated persons, travel and other expenses incurred in attending
Board meetings. For the fiscal period ended June 30, 1994, the Fund paid
approximately $39,000 in Directors' fees and expenses.  Directors who are also
officers or affiliated persons receive no remuneration for their services as
Directors. The Fund's officers and employees are paid by the Adviser or its
agents. As of June 30, 1994, to Fund management's knowledge, the Directors and
officers of the Fund, as a group, owned less than 1% of the outstanding common
stock of each Investment Fund of the Fund.  The following table shows aggregate
compensation paid to each of the Fund's Directors by the Fund and the Fund
Complex, respectively, for the period from January 1, 1994 to December 31, 1994.

                                 COMPENSATION TABLE
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
(1)                           (2)              (3)                    (4)                           (5)
Name of                       Aggregate        Pension or             Estimated                   Total
Person,                       Compensation     Retirement             Annual               Compensation
Position                      From             Benefits Accrued       Benefits          From Registrant
                              Registrant       as Part of Fund        Upon             and Fund Complex
                                               Expenses               Retirement      Paid to Directors
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>                    <C>             <C>
Frederick B. Whittemore,*     $ 8,250          $0                     $0                        $57,400
Director and Chairman of
the Board

John E. Eckleberry,**           7,500           0                      0                          7,500
Director

Gerard E. Jones,*               8,700           0                      0                         75,485


                                       20

<PAGE>

Director

Warren J. Olsen,*                   0           0                      0                              0
Director and President

Frederick O. Robertshaw,*          7,500        0                      0                         30,580
Director

----------------------------------------------------------------------------
<FN>
*    As of June 28, 1995, the following persons were elected Directors of the
     Fund:  Barton M. Biggs, John D. Barrett II, Gerard E. Jones, Andrew McNally
     IV, Warren J. Olsen, Samuel T. Reeves, Fergus Reid, Frederick O. Robertshaw
     and Frederick B. Whittemore.

**   Resigned effective June 28, 1995.
</TABLE>

INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS

       The Adviser is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020.

       The Group, a renowned global financial services firm, is distinguished by
quality, service and a commitment to excellence. Tracing its roots to the
founding of the U.S. securities industry, the Group remains a leader in the
field. The Group's premier list of clients includes some of the largest
multinational corporations and institutions, governments, nation-states, royal
households and very high-net-worth individuals.

      The Group with its subsidiaries ("Morgan Stanley") maintains a major
global presence with offices in Chicago, Frankfurt, Hong Kong, London, Los
Angeles, Luxembourg, Melbourne, Milan, New York, Paris, San Francisco, Seoul,
Singapore, Taipei, Tokyo, Toronto and Zurich. With over 9,800 employees,
approximately 35% of which are located outside the U.S., and members of the
portfolio management teams which are native to the countries in which they are
investing, Morgan Stanley is in an exceptional position to interpret the forces
that will impact the world's capital markets today, over the next decade and
beyond.

       The investment management division of Morgan Stanley was formed in 1975
under the leadership of Barton Biggs and incorporated as a wholly-owned
subsidiary of the Group in 1981. MSAM was formed to offer investment management
and fiduciary services to institutions and high-net-worth individuals. MSAM
offers its clients the same superior service and high standards of integrity
that have been the hallmark of Morgan Stanley since its founding in 1935.

       As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with Morgan
Stanley's long-standing tradition of integrity and prudence, puts MSAM in a
unique position to offer investment management services. As compensation for
advisory services for the fiscal year ended June 30, 1994, the Adviser earned
fees of approximately $2,322,000  and voluntarily waived a portion of such fees
equal to approximately $1,026,000.

       Pursuant to the Administration Agreement between the Adviser and the
Fund, the Adviser provides Administrative Services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.25% of the average daily net assets of each Investment
Fund. For the fiscal year ended June 30, 1994, the Fund paid administrative fees
to MSAM of approximately $852,000.

       Under the Agreement between the Adviser and United States Trust Company
of New York ("United States Trust"), MFSC, a United States Trust subsidiary,
provides certain administrative services to the Fund. MFSC provides operational
and administrative services to investment companies with approximately $56
billion in assets and having approximately 245,090 shareholder accounts as of
December 31, 1994. MFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913.

DISTRIBUTION OF FUND SHARES

       Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Group, serves as the Distributor of the Fund's shares pursuant to
a Distribution Agreement for the Fund and a Plan of Distribution for the


                                        21

<PAGE>

Money Market Fund and each class of the Non-Money Funds pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan" and together, the "Plans").  Under each Plan
the Distributor is entitled to receive from these Investment Funds a
distribution fee, which is accrued daily and paid quarterly, of up to 0.25% for
the Money Market Fund and the Class A shares of each of the Non-Money Funds, and
up to 0.75% of the Class B shares and Class C shares of each of the Non-Money
Funds, on an annualized basis, of the average daily net assets of such
Investment Fund or classes.  The Distributor expects to allocate most of its fee
to investment dealers, banks or financial service firms that provide
distribution, administrative or shareholder services ("Participating Dealer").
The actual amount of such compensation is agreed upon by the Fund's Board of
Directors and by the Distributor.  The Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and the Distributor is free to make additional payments out of its own assets to
promote the sale of Fund shares.

       The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement.  The Plans do
not obligate the Investment Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the Plan.
Thus, under each Plan, even if the Distributor's actual expenses exceed the fee
payable to it thereunder at any given time, the Investment Funds will not be
obligated to pay more than that fee.  If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee.  The Plans for the Money Market Fund, the Class A shares and the Class
C shares were most recently approved by the Fund's Board of Directors, including
those directors who are not "interested persons" of the Fund as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of a Plan or in any agreements related thereto, on September 22,
1994.  The Plan for the Class B shares was most recently approved by the
Fund's Board of Directors, including those directors who are not "interested
persons" of the Fund as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of a Plan or in any
agreements related thereto, on June 1, 1995.

       As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1994, the Distributor received aggregate fees of
approximately $1,383,000,  which were attributable approximately as follows:



                                                Fiscal Year
                                                    Ended
                                               June 30, 1994
                                               -------------
   Global Equity Allocation Fund-Class A       $   58,000
   Global Equity Allocation Fund-Class B+           N/A
   Global Equity Allocation Fund-Class C+          18,000
   Global Fixed Income Fund-Class A                15,000
   Global Fixed Income Fund-Class B+                N/A
   Global Fixed Income Fund-Class C+               17,000
   Asian Growth Fund-Class A                      281,000
   Asian Growth Fund-Class B+                       N/A
   Asian Growth Fund-Class C+                     141,000
   American Value Fund-Class A*                     5,000
   American Value Fund-Class B*+                    N/A
   American Value Fund-Class C*+                    1,000
   Worldwide High Income Fund-Class A**             2,000
   Worldwide High Income Fund-Class B**+            N/A
   Worldwide High Income Fund-Class C**+             ----


   Neither of the classes of the Emerging Markets, Latin American, European
Equity and Growth and Income Funds were in operation in the fiscal year ended
June 30, 1994.

________________________
*  The American Value Fund commenced operations on October 18, 1993.
** The Worldwide High Income Fund commenced operations on April 21, 1994.


                                        22
<PAGE>


+  The Class B shares listed above were created on May 1, 1995.  The original
   Class B shares were renamed Class C shares, as listed above, on May 1, 1995.

       CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

       The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of June 30, 1995 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:

       GLOBAL EQUITY ALLOCATION FUND:  FTC & Co., Attn: Datalynx #162, P.O. Box
173736, Denver, CO  80217-3736, owned 6% of the total outstanding Class A shares
of such Investment Fund.

       GLOBAL FIXED INCOME FUND:  Morgan Stanley Group, Inc. (the "Group"),
1221 Avenue of the Americas, New York, NY  10020, owned 49% of the total
outstanding Class C shares of such Investment Fund.

       EMERGING MARKETS FUND:  FTC & Co., Attn: Datalynx #118, P.O. Box 173736,
Denver, CO  80217-3736, owned 16% of the total outstanding Class A shares of
such Investment Fund; Crestar Bank Trust Department, Sheltering Arms Foundation,
a/c #10091700, P.O. Box 26246, Richmond, VA  23260, owned 7% of the total
outstanding Class A shares of such Investment Fund; and Advest, Inc. ("Advest"),
280 Trumbull Street, Hartford, CT  06103, owned 6% of the total outstanding
Class A shares of such Investment Fund.

       LATIN AMERICAN FUND:  The Group owned 18% of the total outstanding Class
C shares of such Investment Fund; and Prudential Securities FBO J.P. Barger, 600
W. Cummings Park, Suite 3500, Woburn, MA 01801-6349, owned 13% of the total
outstanding Class C shares of such Investment Fund.

       AMERICAN VALUE FUND:  The Group owned 26% of the total outstanding Class
A shares and 39% of the total outstanding Class C shares of such Investment
Fund; and Smith Barney Inc., a/c/ #00122517815, 388 Greenwich Street, New York,
NY  10013, owned 5% of the total outstanding Class A shares and a/c #00122517779
owned 5% of the total outstanding Class A shares of such Investment Fund.

       WORLDWIDE HIGH INCOME FUND:  The Group owned 33% of the total
outstanding Class A shares of such Investment Fund; Advest, 280 Trumbull Street,
Hartford, CT 06103, owned 6% of the total outstanding Class A shares of such
Investment Fund; and Prudential Securities FBO John P. Dobson, 140 Christie Hill
Road, Darien, CT 06820-3016, owned 5% of the total outstanding Class A shares of
such Investment Fund.

       The Group may be deemed a "controlling person" of the Fund by virtue of
its power to control the voting or disposition of the shares it owns. As a
result of its ownership position, the Group may be able to control the outcome
of matters voted on by shareholders of the Funds.

                        MONEY MARKET FUND NET ASSET VALUE

       The Money Market Fund seeks to maintain a stable net asset value per
share of $1.00. The Investment Fund uses the amortized cost method of valuing
its securities, which does not take into account unrealized gains or losses. The
use of amortized cost and the maintenance of the Investment Fund's per share net
asset value at $1.00 is based on the Investment Fund's election to operate under
the provisions of Rule 2a-7 under the 1940 Act. As a condition of operating
under that Rule, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less, and invest only in securities which
are of "eligible quality" as determined in accordance with regulations of the
SEC.

       The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Investment Fund's investment objectives, to stabilize the net asset value per
share as computed for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield available for such securities or for
securities of comparable maturity, quality and type as obtained from one or more
of


                                        23

<PAGE>

the major market makers for the securities to be valued. Other investments and
assets are valued at fair value, as determined in good faith by, or under
procedures adopted by, the Directors.

       In the event of a deviation of over 1/2 of 1% between the Investment
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost, the Directors will
promptly consider what action, if any, should be taken. The Directors will also
take such action as they deem appropriate to eliminate or to reduce to the
extent reasonably practicable any material dilution or other unfair results
which might arise from differences between the two. Such action may include
redemption in kind, selling instruments prior to maturity to realize capital
gains or losses or to shorten the average maturity, withholding dividends,
paying distributions from capital or capital gains or utilizing a net asset
value per share as determined by using available market quotations.

       There are various methods of valuing the assets and of paying dividends
and distributions from a money market fund. The Money Market Fund values its
assets at amortized cost while also monitoring the available market bid price,
or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of the Investment
Fund will ordinarily remain at $1.00, but the Investment Fund's daily dividends
will vary in amount. Net realized short-term capital gains, if any, less any
capital loss carryforwards, will be distributed whenever the Directors determine
that such distributions would be in the best interest of shareholders, but in
any event, at least once a year. The Money Market Fund does not expect to
realize any long-term capital gains. Should any such gains be realized, they
will be distributed annually, less any capital loss carryforwards.


                             PORTFOLIO TRANSACTIONS

       The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Investment Fund and directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Investment Fund. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage services which, in
the opinion of the Adviser, are necessary for the achievement of better
execution, provided the Adviser believes this to be in the best interest of the
Fund.

       In purchasing and selling securities for the Investment Fund, it is the
Fund's policy to seek to obtain quality execution at the most favorable prices,
through responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Investment Fund, consideration will be given to
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker- dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Investment Fund may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Investment Fund and
one or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Investment Fund and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Directors.

       Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Fund's portfolio
brokerage transactions to Morgan Stanley or broker affiliates of Morgan Stanley.
In order for Morgan Stanley or its affiliates to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. Furthermore, the
Directors of the Fund, including a majority of the Directors who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Morgan Stanley
or such affiliates are consistent with the foregoing standard. For the two
fiscal years ended June 30, 1993 and June 30, 1994, the Fund paid brokerage
commissions of approximately $36,558 and $2,060,894, respectively.  During the
same period, the Fund paid brokerage commissions of approximately $2,497 and
$618,000, respectively, to the Distributor, an affiliated broker-dealer.  For
the fiscal year ended June 30, 1994 commissions paid to the Distributor


                                        24
<PAGE>

represented approximately 30% of the total amount of brokerage commissions paid
in such period and which were paid on transactions that represented 21% of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund during such period.

       Investment Fund securities will not be purchased from, or through, or
sold to or through, the Adviser or Morgan Stanley or any "affiliated persons,"
as defined in the 1940 Act, of Morgan Stanley when such entities are acting as
principals, except to the extent permitted by law.

                             PERFORMANCE INFORMATION

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

       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 the Investment Funds may advertise total return. Total
return figures are based on historical earnings and are not intended to indicate
future performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Investment Fund) 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 Investment Fund) and the deduction of all
applicable Fund expenses on an annual basis.

     Total return figures are calculated according to the following formula:

                              n
                      P(1 + T)  = 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).

       Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Investment
Funds for the six-month period ended December 31, 1994, the one-year period
ended December 31, 1994 and for the period from inception through December 31,
1994 are as follows:

<TABLE>
<CAPTION>

                                                       Six-Month        One-Year Period
                                                      Period Ended           Ended            Since
                                                   December 31, 1994   December 31, 1994    Inception
                                                      (Unaudited)         (Unaudited)      (Unaudited)
                                                      -----------         -----------      -----------
    <S>                                            <C>                 <C>                 <C>
    Global Equity Allocation Fund
         (commenced operations on January 4, 1993)
           Class A Shares.........................       1.78%                0.27%           10.99%
           Class B Shares.........................        N/A                  N/A             N/A
           Class C Shares.........................       1.24%               (0.51)%          10.15%



                                        25
<PAGE>

     Global Fixed Income Fund
         (commenced operations on January 4, 1993)
           Class A Shares.........................       0.11%               (5.53)%           4.23%
           Class B Shares.........................        N/A                  N/A             N/A
           Class C Shares.........................      (0.47)%              (6.37)%           3.38%
                                                                                                  0

    Asian Growth Fund
         (commenced operations on June 23, 1993)
           Class A Shares........................        1.77%              (14.22)%          19.66%
           Class B. Shares.......................         N/A                 N/A              N/A
           Class C Shares........................        1.46%              (14.72)%          18.92%


    American Value Fund
         (commenced operations on Oct. 18, 1993)
           Class A Shares.......................         3.39%                2.01%            1.85%
           Class B Shares.......................          N/A                  N/A             N/A
           Class C Shares.......................         2.95%                1.22%            0.99%


    Worldwide High Income Fund
         (commenced operations on April 21, 1994)
           Class A Shares.........................      (1.49)%                ---             1.24%
           Class B Shares.........................        N/A                 N/A               N/A
           Class C Shares.........................      (1.90)%                ---             0.67%


    Emerging Markets Fund
         (commenced operations on July 6, 1994)
           Class A Shares.........................        ---                  ---            (7.92)%
           Class B Shares.........................       N/A                  N/A               N/A
           Class C Shares.........................        ---                  ---            (8.25)%


    Latin American Fund
         (commenced operations on July 6, 1994)
           Class A Shares.........................        ---                  ---             0.48%
           Class B Shares.........................       N/A                  N/A               N/A
           Class C Shares.........................        ---                  ---           (0.02)%
</TABLE>

       The European Equity and Growth and Income Funds had not commenced
operations in the period ended December 31, 1994.

YIELD FOR NON-MONEY FUNDS

       From time to time certain of the Investment Funds may advertise yield.

       Current yield reflects the income per share earned by an Investment
Fund'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.

       Current yield figures are obtained using the following formula:


       Yield = 2[(a - b + 1)(6) - 1]
                  -----
                     cd


    where:

               a        =  dividends and interest earned during the period


                                       26
<PAGE>

               b        =  expenses accrued for the period
                           (net of reimbursements)
               c        =  the average daily number of shares outstanding during
                           the period that were entitled to receive income
                           distributions
              d         =  the maximum offering price per share on the last day
                           of the period

       The 30-day yield for the Global Fixed Income Fund as of December 31, 1994
was 6.19% for Class A shares and  5.75% for Class B shares.

CALCULATION OF YIELD FOR THE MONEY MARKET FUND

       The current yield of the Money Market Fund 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 Money Market
Fund, including dividends on both the original share and on such additional
shares. 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 the Money Market Fund 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 yield of the Money Market Fund will fluctuate. The annualization of a
week's dividend is not a representation by the Money Market Fund as to what an
investment in the Money Market Fund will actually yield in the future. Actual
yields will depend on such variables as investment quality, average maturity,
the type of instruments the Money Market Fund invests in, changes in interest
rates on instruments, changes in the expenses of the Money Market Fund and other
factors. Yields are one basis investors may use to analyze the Money Market
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.

       The Money Market Fund is not currently in operation.

COMPARISONS

       To help investors better evaluate how an investment in an Investment Fund
of Morgan Stanley Fund, Inc. might satisfy their investment objective,
advertisements regarding the Fund may discuss various measures of Fund
performance as reported by various financial publications. Advertisements may
also compare performance (as calculated above) to performance as reported by
other investments, indices and averages. The following publications, indices and
averages may be used:

       (a)  Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of dividends.

       (b)  Standard & Poor's 500 Stock Index or its component indices -
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities company stocks and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.

       (c)  The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation and finance
company stocks listed on the New York Stock Exchange.

       (d)  Wilshire 5000 Equity Index or its component indices - represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.

       (e)  Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund


                                        27
<PAGE>

performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.

       (f)  Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.

       (g)  Goldman Sachs 100 Convertible Bond Index - currently includes 67
bonds and 33 preferred. The original list of names was generated by screening
for convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.

       (h)  Salomon Brothers GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage pools of the
Government National Association.

       (i)  Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.

       (j)  Salomon Brothers Broad Investment Grade Bond - is a market-weighted
index that contains approximately 4700 individually priced investment grade
corporate bonds rated BBB or better, United States Treasury/agency issues and
mortgage pass-through securities.

       (k)  Salomon Brothers World Bond Index - measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:

            Australian Dollars               Netherlands Guilder
            Canadian Dollars                 Swiss Francs
            European Currency Units          UK Pounds Sterling
            French Francs                    U.S. Dollars
            Japanese Yen                     German Deutsche Marks

       (l)  J.P. Morgan Traded Global Bond Index - is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.

       (m)  Lehman LONG-TERM Treasury Bond - is composed of all bonds covered
by the Lehman Treasury Bond Index with maturities of 10 years or greater.

       (n)  Lehman Aggregate Bond Index - is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.

       (o)  NASDAQ Industrial Index - is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and does
not include income.

       (p)  Composite Indices - 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.

       (q)  CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc. - analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.

       (r)  Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.

       (s)  Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,


                                        28
<PAGE>

Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal and
Weisenberger Investment Companies Service - publications that rate fund
performance over specified time periods.

       (t)  Consumer Price Index (or cost of Living Index), published by the
United States Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.

       (u)  Stocks, Bonds, Bills and Inflation, published by Hobson Associates
- historical measure of yield, price and total return for common and small
company stock, long-term government bonds, Treasury bills and inflation.

       (v)  Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.

       (w)  Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.

       (x)  The MSCI Combined Far East Free ex-Japan Index, a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in the
MSCI Combined Far East Free ex Japan Index at 20% of its market capitalization.

       (y)  First Boston High Yield Index - generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.

       (z)  Russell 2500 Small Company Index - is comprised of the bottom 500
stocks in the Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the stocks in the
Russell 2000 Index. The largest security in the index has a market
capitalization of approximately 1.3 billion.

       (aa)  Morgan Stanley Capital International World Index - An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.

       (bb)  Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela.

       In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Investment Funds, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance. In addition, there can be
no assurance that the Fund will continue this performance as compared to such
other averages.

AMERICAN VALUE FUND

       The American Value Fund's portfolio managers are "value" investors, and
as such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value.  This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.

       Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized.  Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.

       Wilshire Associates reports small cap value stocks (an index made up of
the lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap growth stock during the period of 1978 to 1994, and with
less risk than the average small cap growth stock (an index made up of small
capitalization stocks with the highest earnings growth, highest price-to-book
and highest price-to-earnings ratios as shown in the chart below).



             [THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES


                                        29
<PAGE>


                  GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

A graph entitled "Small Cap Value Has Provided A Favorable Risk/Return Profile"
indicates returns from 14.3% to 19.5% on the vertical axis and risk (standard
deviation) from 14.9% to 24.3% on the horizontal axis.  The following points are
indicated on the graph:

  For Small Cap Value Portfolio:  Return of 19.5% at risk (standard deviation)
                                    of 15.9%
      For Small Cap Mean Between Value and Growth:  Return of 15.9% at risk
                          (standard deviation) of 20.6%
    Small Cap Growth Portfolio:  Return of 15.6% at risk (standard deviation)
                                    of 24.3%
       For S&P 500:  Return of 14.3% at risk (standard deviation) of 14.9%

          Source:  Wilshire Associates style performance data 1978-1994

                   [END OF NARRATIVE DESCRIPTION THAT REPLACES
                  GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

Past performance is no guarantee of future results.  The S&P 500 and the Style
Portfolio Data are unmanaged indices of securities.  The risk factor is an
annualized standard deviation of the annual returns.  The Small Cap Value Index
is a straightforward composite benchmark.  It is the average of three separate
indices:  Low Price/Book Index ("Low P/B"), High Yield Index, and Low
Price/Earnings Index ("Low P/E").  Each index is computed by sorting the
companies of stocks ranked 501-2000 by market capitalization by the fundamental
measure.  The universe is then split into equally weighted deciles based on the
sorted fundamental measure.  The Low P/B and the Low P/E indices are simply the
unweighted returns from the 8th and 9th decile.  The High Yield Index is the
unweighted return from the 2nd and 3rd decile.  The process is a repetitive,
rigid algorithm which is not subject to manager selectivity.  The Small Cap
Index is the Decile 6-8 index of the Center for Research in Security Prices of
the University of Chicago ("CRSP").  The CRSP indices are composed of nearly all
common stocks traded on the NYSE, AMEX, and NASDAQ within a given market-cap
range.  The size cutoffs are determined by ranking all NYSE stocks by market
cap, forming deciles, and then adding all the issues that fit the size range
from the other deciles.  The CRSP Decile 6-8 represents the sixth through eighth
deciles.  The market capitalization ranges characterized by both indices are
consistent with each other and represent the MSAM/Chicago definition of the
small capitalization universe.

$10,000 invested 20 years ago in an unmanaged basket of small cap value stocks
would have significantly outperformed the other investments shown in the chart
below:

            [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                  GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

A graph entitled "Growth of a $10,000 investment on January 1, 1971 through
September 30, 1994"  indicates returns of $10,000  to $610,000  on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1994 on the horizontal axis.  Every sixth quarter is presented instead of
lines covering each quarter.


                                        30

<PAGE>

In Thousands (except last column)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
70Q4      72Q2  73Q4  75Q2  76Q4  78Q2  79Q4  81Q2  82Q4  84Q2  85Q4  87Q2  88Q4  90Q2  91Q4  93Q2  9/30/94
------------------------------------------------------------------------------------------------------------
<S>       <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
Small Cap $10   $10   $10   $20   $30   $35   $55   $70   $110  $170  $240  $270  $270  $390  $525  $566,834
Value
$10
------------------------------------------------------------------------------------------------------------
Small Cap 10    10    10    15    20    30    45    55    70    100   120   110   135   160   210   $242,539
10
------------------------------------------------------------------------------------------------------------
Large Cap 10    10    10    15    15    15    15    30    35    50    65    65    85    110   130   $130,513
10
------------------------------------------------------------------------------------------------------------
10 Year   10    10    10    12    15    15    15    30    30    35    40    45    50     60    75   $74,520
Govt Bond
10
------------------------------------------------------------------------------------------------------------
T-Bill    10    10    10    12    15    15    20    30    35    35    40    45    50     55    58   $58,820
10
------------------------------------------------------------------------------------------------------------
</TABLE>

              [END OF TABULAR REPRESENTATION THAT REPLACES GRAPHIC
                      MATERIAL FOR EDGAR FILING PURPOSES.]


Past performance is no guarantee of future results.  Small cap securities are
generally more volatile than T-Bills, 10-year government bonds or the S&P 500.
The returns shown assume the reinvestment of all distributions of income and
capital gains and do not reflect the deduction of sales charges or management
fees and expenses that would be applicable to a managed basket of equity
securities.  The deduction of such sales charges and management fees and
expenses would reduce the returns shown.  It is not possible to invest directly
in an index of equity securities, including any of the MSCI indices.  An
investment strategy may be designed to replicate an index of equity securities
and may be more or less successful in achieving such a replication.


       THE AMERICAN VALUE FUND'S PORTFOLIO.  The portfolio universe consists of
the next 2,000 companies that rank in size following the 500 largest U.S.
corporations.  The portfolio consists of approximately 100 companies, many of
which have been in business for over one hundred years and meet the stringent
criteria set forth by Morgan Stanley's portfolio management team.  Companies in
the portfolio must be bargain-priced, with quality products and a dominant
market niche.  They must demonstrate a sustainable growth rate, a healthy
financial position and have a history of paying dividends.

       Careful analysis, using this criteria, helps Morgan Stanley portfolio
managers distinguish an underpriced stock that is in a position to recover, from
one that will continue to decline.

       THE MORGAN STANLEY DISTINCTION.  The portfolio managers' goal is to
capitalize on the market's tendency to overreact to bad news.  Often a single
negative event that has been exaggerated in the stock market can cause a stock's
price to decline much more than is justified by the company's actual prospects.
This type of discrepancy between a company's market price and its intrinsic
worth (based on its earnings, cash flow, and/or asset values) is viewed by the
portfolio managers as an opportunity.

       The managers of the American Value Fund are long-term investors, not
short-term traders.  They recognize that the potentially higher rate of return
available from small stocks cannot be achieved overnight.  Value takes time to
be realized.

       The Fund's portfolio managers seek companies paying high, sustainable
dividends.  Dividends are important because they provide a good indication that
a company has not only quality, shareholder-oriented management, but also
financial strength.

THE ASIAN GROWTH POTENTIAL

       Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 5.3% in Asia as compared with 2% in both North America and
Europe, according to the World Bank Atlas.  According to Morgan Stanley
research, the economies in this region are less mature and are expected to have
a higher rate of sustainable growth well into the next century.

       According to research conducted by J. Walter Thompson, by the year 2000,
Asia will have two-thirds of the world's population; only four of the world's
largest cities will be non-Asian; affluent Asian households will rise by 50% to
51 million; and per capita Gross Domestic Product ("GDP") will double.  In
addition, 240 million Asian households will have televisions (a 70% increase in
the past 5 years, as compared with a 4.3% increase in Britain and a 6.7%
increase in the U.S.).  China currently has one-quarter of the world's
population and is projected to have 200 million middle-class consumers by the
year 2000.  By 2012, China, alone, is projected to have the world's largest
economy.



                                        31
<PAGE>


       Annualized returns of stock markets in this region are, in some cases,
twice that of the U.S., according to Morgan Stanley Capital International (MSCI)
Indices.  On a relative basis, stock prices in this region are less than many
countries in the world, according to MSCI.

       MORGAN STANLEY:  THE ASIAN AUTHORITY.  Morgan Stanley has a strong
commitment to the Asian region.  The portfolio team is based in Morgan Stanley's
Singapore office, with managers who are native to the region and the markets
they analyze, offering local insights that have contributed to a superior
performance record.  Morgan Stanley has over 1,250 employees located in the Far
East and has offices in Singapore, Shanghai, Taipei and Seoul.



                                 ESTIMATED GNP GROWTH
                                       1990-2000

                                 Asia                         5.3%
                                 North America                2.0%
                                 South America                2.2%
                                 Europe                       2.0%
                                 Middle East                  1.6%
                                 Africa                       0.3%
                                 Source:  World Bank Atlas

            [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                  GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]


The following replaces a bar graph that indicates percentage returns on the
vertical axis and countries on the horizontal axis:

                          SUPERIOR HISTORIC MARKET RETURNS
                     1990-1994 ANNUALIZED RETURNS* (US DOLLARS)

Hong Kong                                                   27.18%
Philippines                                                 21.44
CFEFxJ                                                      20.14
Thailand                                                    17.47
Singapore                                                   16.02
Malaysia                                                    13.86
USA                                                          9.16
World                                                        4.24
EAFE                                                         1.82
Korea                                                        0.26
Indonesia                                                   -2.15
Taiwan                                                      -2.98
Japan                                                       -3.43

Past performance of Asian markets is not a guarantee of their future
performance and is not indicative of the Fund's future performance.
*Gross Dividends
Sources: MSCI Indices


                                        32
<PAGE>



                    [END OF TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

Past Performance is no guarantee of future results.  The MSCI indices represent
an unmanaged basket of equity securities.  The returns shown assume the
reinvestment of all distributions of income and capital gains and do not reflect
the deduction of sales charges or management fees and expenses that would be
applicable to a managed basket of equity securities.  The deduction of such
sales charges and management fees and expenses would reduce the returns shown.
It is not possible to invest directly in an index of equity securities,
including any of the MSCI indices.  An investment strategy may be designed to
replicate an index of equity securities and may be more or less successful in
achieving such a replication.

               [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

The following replaces a bar graph that indicates price earnings ratios in
percentages from 0-100% on the vertical axis and countries on the horizontal
axis:

                     PRICE EARNINGS/RATIO* AS OF DECEMBER, 1994

Japan                                                       97.3%
Taiwan (E)                                                  36.0
Philippines                                                 28.0
Malaysia                                                    24.2
World                                                       23.2
Korea (E)                                                   22.0
Indonesia                                                   20.9
Thailand                                                    20.1
Singapore                                                   19.5
CFEFxJ(E)                                                   19.4
USA                                                         16.9
Hong Kong                                                   13.3


*Trailing 12 Months
Source: MSCI
(E) Estimate, not from MSCI, 12/31/94


                     [END OF TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]


EMERGING MARKETS' GROWTH POTENTIAL

Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 6.5% in emerging markets as compared with 2.5% in industrial
countries, according to the World Bank. According to Morgan Stanley research,
the economies in this region are less mature and are expected to have a
higher rate of sustainable growth well into the next century. If the high
savings in the emerging markets countries as of 1991 are sustained, the
savings will provide much of the needed capital for economic growth:

               [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]


                                        33
<PAGE>



The following replaces a bar graph that indicates percentage of growth from
0-50% on the vertical axis and countries on the horizontal axis:

                          GROWTH - HIGH SAVINGS RATE (1991)

Singapore                                                   45%
China                                                       43
Korea                                                       37
Indonesia                                                   37
Thailand                                                    34
Japan                                                       34
Hong Kong                                                   33
Malaysia                                                    33
Taiwan                                                      30
EEC(1)                                                      22
India(1)                                                    20
Mexico                                                      20
Chile                                                       18
Philippines                                                 16
Brazil                                                      16
Argentina                                                   16
USA                                                         15

                                  Source: World Bank
                                  Note: (1) 1989 data.

                     [END OF TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]


Morgan Stanley believes that population growth projected by the World Bank for
the 1990s, particularly among the middle class, will create buying power and
fuel demand for products, leading to economic growth and industrial
sophistication:

                                  Total Population         Middle Classes
                                               (Percent Per Annum)

            Developed Countries         0.4%                    1.1%
            Developing Countries        1.9%                    5.9%
            SOURCE: WORLD BANK

A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will greatly increase consumption of
goods and services.

               [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

The following replaces a bar graph that indicates the percentages of population
under the age of 15 ranging from 0-50% on the horizontal axis and countries on
the vertical axis.

                               YOUNG POPULATION (1991)
                                 Source: The Economist
                                  Note:(1) 1990 data.


                                        34
<PAGE>

                        USA                     22%
                        Argentina(1)            30
                        Brazil(1)               35
                        Chile(1)                31
                        Mexico(1)               37
                        Venezuela(1)            38
                        Indonesia               37
                        S. Korea                27
                        Malaysia                37
                        Philippines             39
                        Taiwan                  27
                        Thailand                35
                        India                   36
                        Turkey(1)               35
                        Jordan(1)               44
                        Nigeria(1)              47

                  A large percentage of the population is under the age of 15 in
                  emerging countries. As these children mature, they will have a
                  tremendous impact on consumption of goods and services.

                     [END OF TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

       Historically, the average annual total return of emerging markets has
exceeded that of developed countries, and other indicators point to significant
future growth in the emerging markets:

<TABLE>
<CAPTION>

                            THE CASE FOR EMERGING MARKETS
--------------------------------------------------------------------------------------
                         |                 |               |             |
            RETURNS      |    GROWTH       |  VALUE        | UNDER-      | DIVERSI-
                         |                 |               | REPRESEN-   | FICATION
                         |                 |               | TATION      |
--------------------------------------------------------------------------------------
                  Annual | Real            |               |             |
                  Returns| GNP      Real   |               |Foreign Inv. |
                  (1940- |Growth    EPS    |          Mkt  |    % of     |
                  1993)  |(1994-   Growth  |   P/E    Cap/ |Institutional|  Average
                         | 2000)   (1994)  |  1994E   GNP  |   Assets    | Correlation
--------------------------------------------------------------------------------------
<S>               <C>     <C>      <C>        <C>     <C>   <C>            <C>
Emerging           17%   | 6.5%     15%    |  24.0x   30%  |    0.6%     |    0.07
 Markets                 |                 |               |             |
                         |                 |               |             |
Developed          13%   | 2.5%      5%    |  26.5x   70%  |   99.4%     |    0.51%
Markets                  |                 |               |             |
</TABLE>

                         SOURCE: MORGAN STANLEY RESEARCH
  THE RETURNS DO NOT REFLECT ANY ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT
                               OR OTHER EXPENSES.
              ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS.
      THE PAST PERFORMANCE OF EMERGING MARKETS, HOWEVER, IS NO GUARANTEE OF
                 THE EMERGING MARKETS FUND'S FUTURE PERFORMANCE.


                                        35
<PAGE>


MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS

       Over one-third of Morgan Stanley's 9,800 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.

       At December 31, 1994, MSAM, together with its affiliated asset management
companies, had approximately $48.7 billion in assets under management and
fiduciary advice, including over $1 billion in Latin America markets and over $7
billion in equities and fixed income in emerging markets, making it one of the
largest investment managers in emerging markets.

       Morgan Stanley portfolio managers have access to proprietary research
through Morgan Stanley Capital International (MSCI), the generally recognized
standard for measuring the performance of international securities worldwide.
MSCI monitors approximately 4,000 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.

GROWTH POTENTIAL IN LATIN AMERICA

       An economic transformation is occurring in Latin America today, which we
believe is creating a positive environment for investors. Old (protected)
economies are being transformed into new (open) free market economies, as
evidenced by many changes, including:

                  Old (Protected)            New (Open)
                  ---------------            ----------
                  High import tariffs        Low tariffs
                  Regulated exchange rates   Free exchange rates
                  Regulated interest rates   Market interest rates
                  Investment restrictions    Open foreign investment
                  High tax rates             Competitive tax rates
                  Command economy            Market economy
                  Employment priority        Efficiency priority
                  Subsidies                  Competitive market prices
                  State-owned industry       Privatization
                  Deficit spending           Fiscal austerity
                  Capital flight             Return capital
                  High inflation             Lower inflation

       According to Morgan Stanley research, the economies in this region are
less mature and are expected to have higher rates of sustainable growth well
into the next century. We believe the greatest potential for gain is when
situations are improving and not when they are mature.

               [THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

The following replaces a bell curve line graph that indicates development
increasing upward in the vertical axis and time of maturity increasing to the
right in the horizontal axis:

                                        36
<PAGE>

                       EMERGING MARKET LIFE CYCLE

--------------------------------------------------------------------------------
                            BEHIND-THE-    EMERGING    ESTABLISHED     MATURE
  COUNTRIES                   SCENES       MARKETS       GROWTH       ECONOMIES
--------------------------------------------------------------------------------
Germany                                                                   X
--------------------------------------------------------------------------------
U.S.                                                                      X
--------------------------------------------------------------------------------
Japan                                                      X
--------------------------------------------------------------------------------
U.K.                                                                      X
--------------------------------------------------------------------------------
Spain                                                      X
--------------------------------------------------------------------------------
Hong Kong                                                  X
--------------------------------------------------------------------------------
Singapore                                                  X
--------------------------------------------------------------------------------
Portugal                                                   X
--------------------------------------------------------------------------------
Taiwan                                        X
--------------------------------------------------------------------------------
Greece                                        X
--------------------------------------------------------------------------------
Korea                                         X
--------------------------------------------------------------------------------
Malaysia                                      X
--------------------------------------------------------------------------------
Turkey                                        X
--------------------------------------------------------------------------------
Thailand                                      X
--------------------------------------------------------------------------------
Mexico                                        X
--------------------------------------------------------------------------------
Chile                                         X
--------------------------------------------------------------------------------
Argentina                                     X
--------------------------------------------------------------------------------
Venezuela                                     X
--------------------------------------------------------------------------------
Indonesia                                     X
--------------------------------------------------------------------------------
Philippines                                   X
--------------------------------------------------------------------------------
India                                         X
--------------------------------------------------------------------------------
Brazil                                        X
--------------------------------------------------------------------------------
Pakistan                                      X
--------------------------------------------------------------------------------
Sri Lanka                                     X
--------------------------------------------------------------------------------
Peru                                          X
--------------------------------------------------------------------------------
Egypt                           X
--------------------------------------------------------------------------------
Sub-Saharan
Africa                          X
--------------------------------------------------------------------------------
Eastern Europe                  X
--------------------------------------------------------------------------------
Cuba                            X
--------------------------------------------------------------------------------
Vietnam                         X
--------------------------------------------------------------------------------
Iran                            X
--------------------------------------------------------------------------------


Source: Morgan Stanley Research



                                        37
<PAGE>


                     [END OF TABULAR REPRESENTATION THAT REPLACES
                     GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]


       Historically, this region's economy has grown faster than the industrial
countries, as measured by Gross Domestic Product, and the World Bank projects it
to grow twice as fast as the industrial countries by the year 2000.

                                                Real GDP Growth
                                                                  1993-2000
                                           1965-93                      Forecast

            Latin America                 4.3%                     5.0%
            Industrial Countries          3.1%                     2.5%
            SOURCE: WORLD BANK

PAST PERFORMANCE OF LATIN AMERICAN MARKETS, HOWEVER, IS NO GUARANTEE OF THE
LATIN AMERICAN FUND'S FUTURE PERFORMANCE.

       Morgan Stanley believes that the population growth projected by the World
Bank for the 1990s in these developing countries, particularly among the middle
class, will create buying power and fuel demand for products, leading to
economic growth and industrial sophistication:

                                    Growth of                     Growth of
                                    Total Population              Middle Classes
                                                 (Percent Per Annum)

            Developed Countries          0.4%                          1.1%
            Developing Countries         1.9%                          5.9%
            SOURCE: WORLD BANK

       According to Morgan Stanley research, historically, annualized returns of
stock markets in this region have been superior, and on a relative basis, stock
prices in this region are significantly lower than developed markets as well as
other emerging markets, as measured by price/earnings ratios.

                                       1988-93                      1993
                                    Annualized Return             Return
            S & P 500                   14.5%                      10.0%
            T-Bills                      5.7%                       3.1%
            Emerging Growth Stocks      18.4%                      21.0%
            U.S. Government Bonds       10.7%                       8.2%
            EAFE                         2.0%                      32.6%
            Japanese Stocks             -7.0%                      25.5%
            Emerging Market Equities    16.5%                      67.5%
            MSCI LATIN AMERICA          42.4%                      49.1%
            SOURCE: MORGAN STANLEY RESEARCH

            The returns do not reflect any asset-based charges for investment
management or other expenses. Assumes reinvestment of all dividends/
distribution. Past Performance is no guarantee of the Latin American Fund's
future performance.

                                    Price/Earnings Ratio

            Developed Markets*          28.4X


                                        38
<PAGE>


            Emerging Markets*           13.9X
            LATIN AMERICA**             17.2X
            SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX,
            DEVELOPED MARKETS BY MSCI WORLD
            *                   Prospective 1995
            **  Trailing as of December 31, 1994


                                    Market Cap/GNP
                                    (As of March 3, 1994)

            Developed Markets             .7
            Emerging Markets              .3
            LATIN AMERICA                 .3
            SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX,
            DEVELOPED MARKETS BY MSCI WORLD


                               GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS

       The Fund's Articles of Incorporation permit the Directors to issue
7,750,000,000  shares of common stock, par value $.001 per share, from an
unlimited number of Investment Funds. Currently the Fund is authorized to offer
shares of  ten Investment Funds, nine of which have Class A and Class B shares.

       The shares of each Investment Fund of the Fund are fully paid and
non-assessable, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Investment Fund of the Fund
have no pre-emptive rights. The shares of the Fund have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so. A shareholder is entitled to one vote for each full share owned (and a
fractional vote for each fractional share owned), then standing in his name on
the books of the Fund.

DIVIDENDS AND DISTRIBUTIONS

       The Fund's policy is to distribute substantially all of each Investment
Fund's net investment income, if any. Each Investment Fund may choose to make
sufficient distributions of net capital gains to avoid liability for federal
excise tax. An Investment Fund will not be subject to federal income tax on
capital gains or ordinary income distributed to shareholders so long as it
qualifies as a RIC (see discussion under "Dividends and Distributions" and
"Taxes" in the Prospectus). 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 distributions cannot be predicted.

       Any dividend or distribution paid shortly after an investor purchases
shares of an Investment Fund will reduce the per share net asset value of that
Investment Fund 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 to shareholders subject to taxes as set
forth in the Prospectus.

      As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of an Investment Fund are automatically
reinvested in additional shares of that Investment Fund at net asset value as of
the business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales


                                        39
<PAGE>


charge or CDSC is imposed on shares of any of the Investment Funds, including
the Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of an Investment Fund.

       Each Investment Fund generally will be treated as a separate corporation
(and hence as a separate "regulated investment company") for federal tax
purposes. Any net capital gains of any Investment Fund, whether or not
distributed to investors, can not be offset against net capital losses of any
other Investment Fund.

CUSTODY ARRANGEMENTS

      United States Trust Company of New York serves as the Fund's domestic
custodian. United States Trust Company of New York is not affiliated with Morgan
Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as
the Fund's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Fund in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley
Trust Company is an affiliate of Morgan Stanley & Co. Incorporated. In the
selection of foreign subcustodians, the Directors consider a number of factors,
including, but not limited to, the reliability and financial stability of the
institution, the ability of the institution to provide efficiently the custodial
services required for the Fund, and the reputation of the institution in the
particular country or region.

                      DESCRIPTION OF SECURITIES AND RATINGS

I.  DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

      EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS:  Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.  Aa
- Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The
modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicates a mid-range rating and the modifier 3 indicates
that the issue ranks at the lower end of the rating category.

     A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.  Ba - Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.  B
- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contact over any long period of time may be small.   Caa -
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect 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 -


                                        40
<PAGE>


Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

       EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest.  AA - Bonds rated AA have a very strong capacity to
pay interest and repay principal and differ from the highest rated issues only
to a small degree.  A - Bonds rated A have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories.  BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories.  BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.  C - The rating C is reserved for income bonds on which no
interest is being paid.  D - Debt rated D is in default, and payment of
interest and/or repayment of principal is in arrears.

       DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 - high quality with margins of protection ample
although not so large as in the preceding group.

       DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") -
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.

       EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ -  very strong
capacity to pay principal and interest; SP-1 - strong capacity to pay principal
and interest.

       DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ - this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 - this designation indicates the degree of safety regarding
timely payment is very strong.

       WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.

II.  DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES

       The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.

       United States Treasury securities are backed by the "full faith and
credit" of the United States. Securities issued or guaranteed by Federal
agencies and United States Government sponsored instrumentalities may or may not
be backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United


                                        41

<PAGE>


States itself in the event the agency or instrumentality does not meet its
commitment. Agencies which are backed by the full faith and credit of the United
States include the Export-Import Bank, Farmers Home Administration, Federal
Financing Bank, and others. Certain agencies and instrumentalities, such as the
Government National Mortgage Associates, are, in effect, backed by the full
faith and credit of the United States through provisions in their charters that
they may make "indefinite and unlimited" drawings on the Treasury, if needed to
service debt. Debt from certain other agencies and instrumentalities, including
the Federal Home Loan Bank and Federal National Mortgage Association, are not
guaranteed by the United States, but those institutions are protected by the
discretionary authority for the United States Treasury to purchase certain
amounts of their securities to assist the institution in meeting its debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the United
States Government.

       Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.

       An instrumentality of the United States Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.

III.  FOREIGN INVESTMENTS

       The Investment Funds may invest in securities of foreign issuers.
Investors should recognize that investing in such foreign securities involves
certain special considerations which are not typically associated with investing
in United States issuers. For a description of the effect on the Investment
Funds of currency exchange rate fluctuations, see "Investment Objectives and
Policies - Forward Foreign Currency Exchange Contracts" above. As foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards and may have policies that are not comparable to those of
domestic issuers, there may be less information available about certain foreign
companies than about domestic issuers. Securities of some foreign issuers are
generally less liquid and more volatile than securities of comparable domestic
issuers. There is generally less government supervision and regulation of stock
exchanges, brokers and listed issuers than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States investments in those
countries. Foreign securities not listed on a recognized domestic or foreign
exchange are regarded as not readily marketable and therefore such investments
will be limited to 15% of an Investment Fund's net asset value at the time of
purchase.

       Although the Investment Funds will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
United States exchanges.

       Certain foreign governments levy withholding or other taxes on dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund and
Worldwide High Income Fund, it is not expected that an Investment Fund 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 any such Investment Fund because its investment
objective is to seek long-term capital appreciation and any dividend or interest
income should be considered incidental.

IV.  EMERGING COUNTRY EQUITY AND DEBT SECURITIES


                                        42
<PAGE>



       The definition of emerging country equity or debt securities of each of
the Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging
Markets, Latin American, European Equity and Worldwide High Income Funds
includes securities of companies that may have characteristics and business
relationships common to companies in a country or countries other than an
emerging country. As a result, the value of the securities of such companies may
reflect economic and market forces applicable to other countries, as well as to
an emerging country.  The Adviser believes, however, that investment in such
companies will be appropriate because the Investment Fund will invest only in
those companies which, in its view, have sufficiently strong exposure to
economic and market forces in an emerging country such that their value will
tend to reflect developments in such emerging country to a greater extent than
developments in another country or countries.  The Investment Fund may invest in
companies organized and located in countries other than an emerging country,
including companies having their entire production facilities outside of an
emerging country, when securities of such companies meet one or more elements of
the Investment Fund's definition of an emerging country debt security and so
long as the Adviser believes at the time of investment that the value of the
company's securities will reflect principally conditions in such emerging
country.

       The value of debt securities held by the Investment Fund generally will
vary inversely to changes in prevailing interest rates.  The Investment Fund's
investments in fixed-rated debt securities with longer terms to maturity are
subject to greater volatility than the Investment Fund's investments in
shorter-term obligations.  Debt obligations acquired at a discount are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which are not subject to such
discount.

       Investments in emerging country government debt securities involve
special risks.  Certain emerging countries have historically experienced, and
may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging country's debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt.  As a result of the foregoing, a
government obligor may default on its obligations. If such an event occurs, the
Investment Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country.  In addition, no assurance can be given that the holders
of commercial bank debt will not contest payments to the holders of other
foreign government debt obligations in the event of default under their
commercial bank loan agreements.

      The Investment Fund may invest in certain debt obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan").  Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. 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 Investment Fund may purchase Brady Bonds
either in the primary or secondary markets.  The price and yield of Brady Bonds
purchased in the secondary market will reflect the market conditions at the time
of purchase, regardless of the stated face amount and the stated interest rate.
With respect to Brady Bonds with no or limited collateralization, the Investment
Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.

      U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular


                                        43
<PAGE>


intervals thereafter.  Certain Brady Bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held to the scheduled maturity of the defaulted Brady Bonds by the
collateral agent, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds should be viewed as speculative.

       Brady Plan debt restructurings totaling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil and Poland have
announced plans to issue Brady Bonds aggregating approximately $52 billion,
based on current estimates. There can be no assurance that the circumstances
regarding the issuance of Brady Bonds by these countries will not change.


                                        44
<PAGE>


                              FINANCIAL STATEMENTS

      The Fund's audited financial statements and notes thereto for the fiscal
year ended June 30, 1994, which appear in the June 30, 1994 Annual Report to
Shareholders and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are on the following pages.  The Fund's
unaudited financial statements for the six-month period ended December 31, 1994
are also on the following pages.  The Emerging Markets Fund, Latin American
Fund, European Equity Fund and Growth and Income Fund were not operational as of
the date of the Annual Report and the European Equity Fund and Growth and Income
Fund were not operational as of December 31, 1994.  The Money Market Fund ceased
offering shares as of August 6, 1993.


                                        45





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