<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
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
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 consists of ten diversified and nondiversified
investment portfolios. This prospectus (the "Prospectus") describes the Class A,
Class B and Class C shares of the nine investment portfolios listed above (each,
an "Investment Fund"). (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 Morgan
Stanley European Equity Fund and the Morgan Stanley Growth and Income Fund are
not currently offering shares. A tenth investment portfolio, the Morgan Stanley
Money Market Fund, which is also not currently offering shares, is not described
in this Prospectus.
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 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.
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 October 31, 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 OCTOBER 31, 1995.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
an Investment Fund may incur:
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION GLOBAL EQUITY GLOBAL FIXED ASIAN GROWTH EMERGING
EXPENSES ALLOCATION FUND INCOME FUND FUND MARKETS 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
</TABLE>
- ------------------
(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
Investment 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."
2
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION LATIN AMERICAN EUROPEAN EQUITY AMERICAN VALUE WORLDWIDE HIGH GROWTH AND
EXPENSES FUND FUND FUND INCOME FUND INCOME FUND
- --------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases
Class A................... 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1)
Class B................... None None None None None
Class C................... None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends
Class A................... None None None None None
Class B................... None None None None None
Class C................... None None None None None
Deferred Sales Load
For Purchases up to $999,999
Class A................... None None None None None
Class B................... 5.00%(2) 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) 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) 1.00%(1)
Class B................... 5.00%(2) 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) 1.00%(3)
Redemption Fees (4)
Class A................... None None None None None
Class B................... None None None None None
Class C................... None None None None None
Exchange Fees
Class A................... None None None None None
Class B................... None None None None None
Class C................... None None None None None
</TABLE>
- ------------------
(2) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Investment 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 Investment 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.
3
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES GLOBAL EQUITY GLOBAL FIXED EMERGING
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE ALLOCATION INCOME ASIAN GROWTH MARKETS
REIMBURSEMENT AND/OR FEE WAIVER) FUND FUND FUND FUND
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Investment Advisory Fee (5)
Class A............................................................. 0.67% 0.00% 1.00% 0.46%
Class B............................................................. 0.67% 0.00% 1.00% 0.46%
Class C............................................................. 0.67% 0.00% 1.00% 0.46%
12b-1 Fee
Class A............................................................. 0.25% 0.25% 0.25% 0.25%
Class B............................................................. 0.75% 0.75% 0.75% 0.75%
Class C............................................................. 0.75% 0.75% 0.75% 0.75%
Other Expenses
Class A............................................................. 0.78% 1.20% 0.65% 1.44%
Class B............................................................. 1.03% 1.45% 0.90% 1.69%
Class C............................................................. 1.03% 1.45% 0.90% 1.69%
Total Operating Expenses (5)
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%
</TABLE>
- ------------------
(5) 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. The following sets forth, for each Investment Fund, (i) investment
advisory fees absent advisory fee waivers and (ii) expected total operating
expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OPERATING EXPENSES
----------------- -------------------------------------
(ALL CLASSES) CLASS A CLASS B CLASS C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Global Equity Allocation Fund.......................... 1.00% 2.03% 2.78% 2.78%
Global Fixed Income Fund............................... 0.75% 2.22% 2.97% 2.97%
Asian Growth Fund...................................... 1.00% 1.90% 2.65% 2.65%
Emerging Markets Fund.................................. 1.25% 3.10% 3.90% 3.90%
Latin American Fund.................................... 1.25% 4.30% 5.20% 5.20%
European Equity Fund................................... 1.00% 1.90% 2.65% 2.65%
American Value Fund.................................... 0.85% 1.96% 2.71% 2.71%
Worldwide High Income Fund............................. 0.75% 1.97% 2.74% 2.74%
Growth and Income Fund................................. 0.75% 1.50% 2.25% 2.25%
</TABLE>
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>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS AFTER EXPENSE
REIMBURSEMENT AND/OR FEE LATIN AMERICAN EUROPEAN EQUITY AMERICAN VALUE WORLDWIDE HIGH GROWTH AND INCOME
WAIVER) FUND FUND FUND INCOME FUND FUND
----------------- ------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee (5)
Class A................... 0.00% 1.00% 0.39% 0.32% 0.75%
Class B................... 0.00% 1.00% 0.39% 0.32% 0.75%
Class C................... 0.00% 1.00% 0.39% 0.32% 0.75%
12b-1 Fee
Class A................... 0.25% 0.25% 0.25% 0.25% 0.25%
Class B................... 0.75% 0.75% 0.75% 0.75% 0.75%
Class C................... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses
Class A................... 1.85% 0.45% 0.86% 0.98% 0.45%
Class B................... 2.10% 0.70% 1.11% 1.23% 0.70%
Class C................... 2.10% 0.70% 1.11% 1.23% 0.70%
Total Operating Expenses (5)
Class A................... 2.10% 1.70% 1.50% 1.55% 1.45%
Class B................... 2.85% 2.45% 2.25% 2.30% 2.20%
Class C................... 2.85% 2.45% 2.25% 2.30% 2.20%
</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, Asian Growth, Emerging Markets, Latin
American, American Value and Worldwide High Income Funds are based on actual
figures for the period ended June 30, 1995. The Class A and Class C expenses and
fees for the European Equity and Growth and Income Funds are based on estimates.
The Class B expenses and fees for each Investment 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 Investment Fund,
including the maximum 4.75% sales charge, (ii) Class B shares of each Investment
Fund,
<TABLE>
<CAPTION>
GLOBAL GLOBAL
EQUITY FIXED ASIAN EMERGING
ALLOCATION INCOME GROWTH MARKETS
FUND FUND FUND FUND
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the
same.)
1 Year............................................................ $ 64(1) $ 62(1) $ 66(1) $ 68(1)
3 Years........................................................... 99 91 104 112
5 Years........................................................... 135 123 145 157
10 Years.......................................................... 239 213 259 284
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................................ 75 72 77 79
3 Years........................................................... 106 99 112 120
5 Years........................................................... 151 138 161 173
10 Years.......................................................... 279 253 298 322
(Assuming no redemption)
1 Year............................................................ 25 22 27 29
3 Years........................................................... 76 69 82 90
5 Years........................................................... 131 118 141 153
10 Years.......................................................... 279 253 298 322
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........................................................... 131 118 141 153
10 Years.......................................................... 279 253 298 322
</TABLE>
- --------------
* Because the European Equity and Growth and Income 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 Investment Funds. See "Purchase of Shares." For Class A
shares of the Investment 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.
6
<PAGE>
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
Investment Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
LATIN AMERICAN EUROPEAN EQUITY AMERICAN VALUE WORLDWIDE HIGH GROWTH AND
FUND FUND FUND INCOME FUND INCOME FUND
----------------- ------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no
redemptions, the expenses are
the same.)
1 Year.................... $ 68(1) $ 64(1) $ 62(1) $ 63(1) $ 62(1)
3 Years................... 110 99 93 94 91
5 Years................... 155 * 125 128 *
10 Years.................. 279 * 218 223 *
Class B shares
(Assuming complete redemption
at end of period)
1 Year.................... 79 75 73 73 72
3 Years................... 118 106 100 102 99
5 Years................... 170 * 140 143 *
10 Years.................. 318 * 258 264 *
(Assuming no redemption)
1 Year.................... 29 25 23 23 22
3 Years................... 88 76 70 72 69
5 Years................... 150 * 120 123 *
10 Years.................. 318 * 258 264 *
Class C shares
(Whether or not complete
redemption occurs at end of
period)
1 Year.................... 29(2) 25(2) 23(2) 23(2) 22(2)
3 Years................... 88 76 70 72 69
5 Years................... 150 * 120 123 *
10 Years.................. 318 * 258 264 *
</TABLE>
- --------------
(2) If Class C shares of the Investment Funds are redeemed within one year of
purchase, the expense figures in the first year increase to the following
amounts for each Investment Fund: 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.
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 financial highlights for the period ended June 30, 1995
for such Investment Funds are part of the Fund's financial statements, which
appear in the Fund's June 30, 1995 Annual Report to Shareholders, and are
included in the Fund's Statement of Additional Information. The Fund's financial
highlights for the year ended June 30, 1995 have been audited by Price
Waterhouse LLP, whose report thereon (which was unqualified) is also included in
the Statement of Additional Information. Additional performance information
about the Fund is contained in the Fund's Annual Report. The 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 European
Equity and Growth and Income Funds were not operational as of the date of the
Annual Report. 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)
------------------------------------------- --------------------------------------------
JANUARY 4, YEAR ENDED YEAR ENDED JANUARY 4, YEAR ENDED YEAR ENDED
SELECTED PER SHARE 1993** TO JUNE JUNE 30, JUNE 30, 1993** TO JUNE JUNE 30, JUNE 30,
DATA AND RATIOS 30, 1993 1994 1995 30, 1993 1994 1995
- -------------------- --------------- ------------ ------------ ---------------- ------------ ------------
<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 0.12 0.01 0.06 0.04
Net Realized and
Unrealized Gain
On Investments... 1.05 0.90 0.67 1.04 0.86 0.65
--------------- ------------ ------------ -------- ------------ ------------
Total From
Investment
Operations..... 1.09 1.00 0.79 1.05 0.92 0.69
--------------- ------------ ------------ -------- ------------ ------------
DISTRIBUTIONS
Net Investment
Income........... -- (0.03) -- -- -- --
In Excess of Net
Investment
Income........... -- -- (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 $ 12.60 $ 11.05 $ 11.90 $ 12.43
--------------- ------------ ------------ -------- ------------ ------------
--------------- ------------ ------------ -------- ------------ ------------
TOTAL RETURN (1).... 10.90%*** 9.02% 6.69% 10.50%*** 8.34% 5.84%
--------------- ------------ ------------ -------- ------------ ------------
--------------- ------------ ------------ -------- ------------ ------------
RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End of
Period
(Thousands)...... $10,434 $33,425 $42,586 $6,995 $29,892 $40,460
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% 1.01% 0.29% * 0.23% 0.25%
Portfolio Turnover
Rate............. 14% *** 30% 39% 14% *** 30% 39%
- ---------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING THE PERIOD
Per Share Benefit
to Net Investment
Income........... $ 0.08 $ 0.09 $ 0.04 $ 0.07 $ 0.12 $ 0.05
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% 0.68% (1.66)% * (0.66)% (0.08)%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, June 30, 1994 and June 30, 1995, the Adviser waived advisory
fees and/or reimbursed expenses totaling approximately $130,000, $353,000
and $247,000, respectively, for the Global Equity Allocation Fund.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS C
CLASS A (CLASS B UNTIL MAY 1, 1995)
--------------------------------------------------- ----------------------------------------------------
SELECTED PER SHARE JANUARY 4, 1993** YEAR ENDED YEAR ENDED JANUARY 4, 1993** YEAR ENDED YEAR ENDED
DATA AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
- -------------------- ----------------- ------------- ----------------- ----------------- -------------- -----------------
<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 0.56 0.21 0.43 0.49
Net Realized and
Unrealized Gain
On Investments... 0.55 (0.42) 0.50 0.55 (0.40) 0.47
------ ------ ------- ------ ------ -------
Total From
Investment
Operations..... 0.80 0.10 1.06 0.76 0.03 0.96
------ ------ ------- ------ ------ -------
DISTRIBUTIONS
Net Investment
Income........... (0.25) (0.50) (0.36) (0.20) (0.44) (0.30)
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) (0.36) (0.20) (1.05) (0.30)
------ ------ ------- ------ ------ -------
NET ASSET VALUE, END
OF PERIOD.......... $10.55 $ 9.53 $10.23 $10.56 $ 9.54 $10.20
------ ------ ------- ------ ------ -------
------ ------ ------- ------ ------ -------
TOTAL RETURN (1).... 8.02%*** 0.41% 11.41% 7.61%*** (0.25)% 10.24%
------ ------ ------- ------ ------ -------
------ ------ ------- ------ ------ -------
RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End of
Period
(Thousands)...... $6,633 $10,369 $11,092 $6,120 $5,407 $5,965
Ratio of Expenses
to Average Net
Assets........... 1.45%* 1.45% 1.45% 2.20%* 2.20% 2.20%
Ratio of Net
Investment
Income/(Loss) to
Average Net
Assets........... 5.00%* 4.70% 5.84% 4.25%* 3.95% 5.09%
Portfolio Turnover
Rate............. 55%*** 168% 169% 55%*** 168% 169%
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
EXPENSE
LIMITATION DURING
THE PERIOD
Per Share Benefit
to Net
Investment
Income............. $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12 $ 0.08
RATIOS BEFORE
EXPENSE LIMITATION:
Expenses to
Average Net
Assets........... 2.88%* 2.48% 2.22% 3.63%* 3.29% 2.97%
Net Investment
Income (Loss) to
Average Net
Assets........... 3.57%* 3.67% 5.07% 2.82%* 2.86% 4.32%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, June 30, 1994 and June 30, 1995, the Adviser waived advisory fees
and/or reimbursed expenses totaling approximately $77,000, $150,000 and
$121,000, respectively, for the Global Fixed Income Fund.
10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS C
CLASS A (CLASS B UNTIL MAY 1, 1995)
--------------------------------------------------- ----------------------------------------------------
SELECTED PER SHARE DATA JANUARY 4, 1993** YEAR ENDED YEAR ENDED JANUARY 4, 1993** YEAR ENDED YEAR ENDED
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
- ------------------------- ----------------- ------------- ----------------- ----------------- -------------- -----------------
<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
Income................ -- (0.03) -- -- (0.10) (0.12)
Net Realized and
Unrealized Gain On
Investments........... -- 3.53 1.43 -- 3.50 1.42
------ ------------- ------ ------ ------- ------
Total From Investment
Operations.......... -- 3.50 1.43 -- 3.40 1.30
------ ------------- ------ ------ ------- ------
DISTRIBUTIONS
Net Realized Gain...... -- -- (0.49) -- -- (0.49)
In Excess of Net
Realized Gain......... -- -- (0.02) -- -- (0.02)
Total
Distributions....... -- -- (0.51) -- -- (0.51)
------ ------------- ------ ------ ------- ------
NET ASSET VALUE, END OF
PERIOD.................. $12.00 $15.50 $16.42 $12.00 $15.40 $16.19
------ ------------- ------ ------ ------- ------
------ ------------- ------ ------ ------- ------
TOTAL RETURN (1)......... 0.00%*** 29.17% 9.50% 0.00%*** 28.33% 8.71%
------ ------------- ------ ------ ------- ------
------ ------------- ------ ------ ------- ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of
Period (Thousands).... $11,770 $138,212 $178,667 $8,491 $116,889 $139,497
Ratio of Expenses to
Average Net Assets.... 1.90%* 1.90% 1.90% 2.65%* 2.65% 2.65%
Ratio of Net Investment
Income/(Loss) to
Average Net Assets.... (0.81)%* (0.24)% 0.04%* (1.56)% (0.99)% (0.77)%
Portfolio Turnover
Rate.................. 0%*** 34% 34% 0%*** 34% 34%
- ------------------------------------------------------------------------------------------------------------------
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% 1.90% 12.64%* 2.92% 2.65%
Net Investment Loss to
Average Net Assets.... (10.74)%* (0.51)% 0.04% (11.55)%* (1.26)% (0.77)%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, June 30,
1994 and June 30, 1995, the Adviser waived advisory fees and/or reimbursed
expenses totaling approximately $29,000, $464,000 and $0, respectively, for
the Asian Growth Fund.
11
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS C
CLASS A (CLASS B UNTIL MAY 1,
--------------- 1995)
JULY 6, 1994** ------------------------
TO JUNE 30, JULY 6, 1994**
SELECTED PER SHARE DATA AND RATIOS 1995 TO JUNE 30, 1995
- ---------------------------------------------------------------------- --------------- ------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 12.00 $ 12.00
------- -------
LOSS FROM INVESTMENT OPERATIONS
Net Investment Loss................................................. 0.05 --
Net Realized and Unrealized Loss On Investments..................... (1.44) (1.47)
------- -------
Total From Investment Operations.................................. (1.39) (1.47)
------- -------
NET ASSET VALUE, END OF PERIOD........................................ $ 10.61 $ 10.53
------- -------
------- -------
TOTAL RETURN (1)...................................................... (11.58)% (12.25)%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)............................... $26,091 $22,245
Ratio of Expenses to Average Net Assets............................. 2.33%*+ 3.08%*+
Ratio of Net Investment Loss to Average Net Assets.................. 0.81%* 0.06%*
Portfolio Turnover Rate............................................. 32%*** 32%***
- -------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
Per Share Benefit to Net Investment Loss............................ $ 0.04 $ 0.04
RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets (Including Brazilian Tax Expense).... 3.10%* 3.90%*
Net Investment Loss to Average Net Assets........................... 0.04%* (0.76)%*
- -------------------------------------------------------------------------------------------
</TABLE>
+ 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 fiscal period ended June 30, 1995, the Adviser
waived advisory fees and/or reimbursed expenses totaling approximately
$197,000 for the Emerging Markets Fund.
12
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS C
(CLASS B UNTIL MAY 1,
CLASS A 1995)
-------------------------- --------------------------
JULY 6, 1994** JULY 6, 1994**
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1995 TO JUNE 30, 1995
- ---------------------------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 12.00 $ 12.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss................................................. (0.02) (0.08)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS (2.70) (2.73)
------ ------
Total From Investment Operations.................................. (2.72) (2.81)
------ ------
DISTRIBUTIONS
Net Realized Gain................................................... (0.20) (0.20)
------ ------
NET ASSET VALUE, END OF PERIOD........................................ $ 9.08 $ 8.99
------ ------
------ ------
TOTAL RETURN (1)...................................................... (23.07)% (23.83)%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)............................... $ 7,658 $ 4,085
Ratio of Expenses to Average Net Assets............................. 2.46%*+ 3.20%*+
Ratio of Net Investment Loss to Average Net Assets.................. (0.44)%* (1.16)%*
Portfolio Turnover Rate............................................. 107%*** 107%***
- -----------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
Per Share Benefit to Net Investment Loss............................ $ 0.13 $ 0.12
RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets (Including Brazilian Tax Expense).... 4.30%* 5.20%*
Net Investment Loss to Average Net Assets........................... (2.26)%* (3.16)%*
- -----------------------------------------------------------------------------------------------------
</TABLE>
+ 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.
(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 fiscal period ended June 30, 1995, the Adviser
waived advisory fees and/or reimbursed expenses totaling approximately
$165,000 for the Latin American Fund.
13
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FND
<TABLE>
<CAPTION>
CLASS C
CLASS A (CLASS B UNTIL MAY 1, 1995)
-------------------------------------- --------------------------------------
OCTOBER 18, OCTOBER 18,
1993** TO YEAR ENDED 1993** TO YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
<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 0.27 0.11 0.17
Net Realized and Unrealized Gain/(Loss) On
Investments................................ (0.30) 1.44 (0.31) 1.44
------- ------- ------ -------
Total From Investment Operations.......... (0.13) 1.71 (0.20) 1.61
------- ------- ------ -------
DISTRIBUTIONS
Net Investment Income....................... (0.17) (0.28) (0.11) (0.17)
Net Realized Gain........................... (0.24) 0.24)
------- ------- ------ -------
Total Distributions......................... (0.17) (0.52) (0.11) (0.41)
------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD................ $ 11.70 $ 12.89 $ 11.69 $ 12.89
------- ------- ------ -------
------- ------- ------ -------
TOTAL RETURN (1).............................. (1.12)%*** 15.01% (1.70)%*** 14.13%
------- ------- ------ -------
------- ------- ------ -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)....... $ 10,717 $ 20,675 $ 7,237 $ 13,867
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%* 2.29% 1.39%* 1.54%
Portfolio Turnover Rate..................... 17%*** 23% 17%*** 23%
- -----------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING
THE PERIOD
Per Share Benefit to Net Investment Income.. $ 0.08 $ 0.05 $ 0.08 $ 0.05
RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets.............. 2.48%* 1.96% 3.28%* 2.71%
Net Investment Income to Average Net
Assets..................................... 1.16%* 1.83% 0.36%* 1.08%
- -----------------------------------------------------------------------------------------------------
</TABLE>
* 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 periods ended June 30, 1994 and June 30,
1995, the Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $102,000 and $110,000, respectively, for the American Value
Fund.
14
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS C
CLASS A (CLASS B UNTIL MAY 1, 1995)
-------------------------------- --------------------------------
APRIL 21, 1994** YEAR ENDED APRIL 21, 1994** YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1994 JUNE 30, 1995
- --------------------------------------------------- ----------------- ------------- ----------------- -------------
<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 1.26 0.17 1.17
Net Realized and Unrealized Gain/(Loss) On
Investments..................................... 0.16 (0.52) 0.15 (0.50)
------ ------------- ------ -------------
Total From Investment Operations............... 0.34 0.74 0.32 0.67
------ ------------- ------ -------------
DISTRIBUTIONS
Net Investment Income............................ (0.17) (1.22) (0.16) (1.13)
Net Realized Gain................................ -- (0.12) -- (0.12)
------ ------------- ------ -------------
Total Distributions............................ (0.17) (1.34) (0.16) (1.25)
------ ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD..................... $ 12.17 $ 11.57 $ 12.16 $ 11.58
------ ------------- ------ -------------
------ ------------- ------ -------------
TOTAL RETURN (1)................................... 2.86%*** 6.87% 2.62%*** 6.20%
------ ------------- ------ -------------
------ ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)............ $ 6,857 $ 14,819 $ 6,081 $ 11,880
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%* 11.53% 7.54%* 10.72%
Portfolio Turnover Rate.......................... 19%*** 178% 19%*** 178%
- -----------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD
Per Share Benefit to Net Investment Income....... $ 0.02 $ 0.05 $ 0.06 $ 0.05
RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets................... 3.23%* 1.97% 4.00%* 2.74%
Net Investment Income to Average Net Assets...... 6.61%* 11.11% 5.84%* 10.28%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 periods
ended June 30, 1994 and June 30, 1995, the Adviser waived advisory fees
and/or reimbursed expenses totaling approximately $39,000 and $88,000,
respectively, for the Worldwide High Income Fund.
15
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund currently consists of ten investment portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley providing
services as Adviser, Administrator and Distributor. Each investment portfolio
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 nine Investment Funds as follows:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities 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 ASIAN GROWTH FUND seeks long-term capital appreciation by investing
primarily in equity securities of Asian issuers, excluding Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities 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 equity securities of European issuers.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
UNITED STATES EQUITY FUND:
- The AMERICAN VALUE FUND seeks high long-term total return by investing in
undervalued equity securities of small- to medium-sized corporations.
GLOBAL FIXED INCOME FUNDS:
- 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 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.
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 $52 billion in assets under management as an investment manager or
as a fiduciary adviser at June 30, 1995, 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
The Class A, Class B and Class C shares of the Investment Funds are designed
to provide investors a choice of three ways to pay distribution costs. Class A
shares of the Investment 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 Investment Funds. Shares of the Class B shares and
Class C shares of the Investment 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 an Investment 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 and
Growth and Income 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, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets,
17
<PAGE>
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 Investment 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 and Growth
and Income Funds may invest in reverse repurchase agreements. The Investment
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 equity securities 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>
<S> <C> <C> <C>
South
Argentina Indonesia Portugal Africa
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. With respect to the Investment Fund, equity securities include common and
preferred stocks, convertible securities, and 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
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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.
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<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 equity securities 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. With respect to the Investment Fund, equity securities
include common and preferred stocks, convertible securities, and rights and
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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 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.
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<PAGE>
THE EMERGING MARKETS FUND
The investment objective of the Emerging Markets Fund is to provide
long-term capital appreciation by investing primarily in equity securities of
emerging country issuers. With respect to the Investment Fund, equity securities
include common and preferred stocks, convertible securities, and 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 Morocco South Korea
Botswana India Nigeria Sri Lanka
Brazil Indonesia Pakistan Taiwan
Chile Israel Peru Thailand
China Jamaica Philippines Turkey
Colombia Jordan Poland Venezuela
Ghana Kenya Portugal Zimbabwe
Greece Malaysia Russia
South
Hong Kong Mexico 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
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<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
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<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.
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<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 equity securities of European issuers, including those located in
Germany, France, Switzerland, Belgium, Italy, Finland, Sweden, Denmark, Norway
and the United Kingdom. Investments may also be made in the common stocks of
issuers located in the smaller and emerging markets of Europe. With respect to
the Investment Fund, equity securities include common and preferred stocks,
convertible securities, and 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.
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<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
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<PAGE>
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 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 equity securities 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. With respect to the Investment Fund, equity securities
include common and preferred stocks, convertible securities, and 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
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<PAGE>
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 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."
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<PAGE>
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.
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."
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<PAGE>
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 21, 1994) through June 30, 1995.
<TABLE>
<CAPTION>
DEBT SECURITIES RATINGS PERCENTAGE OF
(STANDARD & POOR'S) NET ASSETS
- ------------------------------------------------------------------------------------------ ---------------
<S> <C>
AA........................................................................................ 0.17%
A......................................................................................... 22.83%
BB........................................................................................ 15.71%
B......................................................................................... 20.70%
CCC....................................................................................... 2.59%
Unrated................................................................................... 38.00%
</TABLE>
The weighted average indicated above was calculated on a dollar weighted
basis and was computed as at the end of each month through June 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.
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
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<PAGE>
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.
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
35
<PAGE>
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 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
Trinidad &
Brazil Hungary Pakistan Tobago
Bulgaria India Panama Tunisia
Chile Indonesia Paraguay Turkey
Ivory
China Coast Peru Uruguay
Colombia Jamaica Philippines Venezuela
Costa Rica Jordan Poland Zaire
Czech Republic Malaysia Portugal
Dominican Republic Mexico Russia
Ecuador Morocco Slovakia
</TABLE>
36
<PAGE>
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."
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
37
<PAGE>
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 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.
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<PAGE>
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 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.
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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."
ADDITIONAL INVESTMENT INFORMATION
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.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
The Worldwide High Income and Growth and Income Funds may invest in
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 PERCS, ELKS or LYONs, which are
equity-linked securities that are convertible into or based upon the value of,
equity securities upon certain terms and conditions. The
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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
is preferred stock with some characteristics of common stock. PERCS are
mandatory 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.
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
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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.
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 Asian Growth, Emerging Markets, Latin American
and Worldwide High Income Funds 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 depositories, although they
may also be issued by U.S. depositories, 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 U.S. 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.
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 are 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.
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FOREIGN CURRENCY HEDGING TRANSACTIONS
The Investment 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. 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 U.S. 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 liquid 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
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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.
FOREIGN INVESTMENT
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 U.S.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the U.S. 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 U.S. 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. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the U.S.
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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested, and to reduce transaction costs, the
American Value, European Equity, 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
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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 at the time of
entering the transaction 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 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.
INVESTMENT COMPANIES
Some emerging market 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 market countries through investment funds which have been specifically
authorized. Certain of the Investment Funds may invest in these investment
companies, subject to the provisions of the 1940 Act and other applicable laws.
If an Investment Fund invests in such investment companies, 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.
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Certain of the investment companies 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
companies. If the Investment Fund does elect to make an investment in such an
investment company, it will only purchase the securities of such investment
company in the secondary market.
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 exceeding in the
aggregate 33 1/3% 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.
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.
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
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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 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.
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MONEY MARKET INSTRUMENTS
The Investment Funds are permitted to invest in money market instruments,
although the 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.
NON-DIVERSIFICATION
The Global Fixed Income Fund, Emerging Markets Fund and Latin American Fund
are non-diversified portfolios, which means that each such Investment Fund is
not limited by the 1940 Act in the proportion of its assets that may be invested
in the obligations of a single issuer. Thus, each Investment Fund may invest a
greater 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."
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Investment Fund 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.
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
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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 of the Investment Fund.
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.
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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.
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 and Growth and Income 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."
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 none of such Investment Funds intends to sell securities short on a
regular basis. A short sale is a transaction in which the Investment Fund would
sell
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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.
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 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.
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 U.S. 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
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(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. 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 U.S. 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.)
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 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.
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 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 would be
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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
market 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 and Growth and Income 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% of the Investment Fund's
total assets would be invested in these deposits; or (v) invest more than 25% of
the Investment Fund's total assets in securities of companies in any one
industry, except for the Latin American Fund.
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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
Investment 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%
</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 June 30, 1995, the Adviser together with its affiliated asset
management companies managed investments totaling approximately $52 billion,
including approximately $38 billion under active management and $14 billion as
Named Fiduciary or Fiduciary Adviser. See "Management of the Fund -- Investment
Advisory and Administrative Agreements" in the Statement of Additional
Information.
Each class of the Investment 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 each of the Investment Funds
with respect to the Class A shares, payments of 0.25% of such class's annual
average net assets, and from each of the Investment 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 Class A shares of the
Investment Funds, up to 0.25% of the net assets of such class will be used to
compensate the 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.
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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 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.
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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 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.
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<PAGE>
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.
ADMINISTRATOR. 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.
In a merger completed on September 1, 1995, The Chase Manhattan Bank, N.A.
("Chase") succeeded to all of the rights and obligations under the United States
Trust Administration Agreement between the Adviser and the United States Trust
Company of New York ("U.S. Trust"), pursuant to which U.S. Trust had agreed to
provide certain administrative services to the Fund. Pursuant to a delegation
clause in the U.S. Trust Administration
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Agreement, U.S. Trust delegated its responsibilities to Mutual Funds Service
Company, which after the merger with Chase is a subsidiary of Chase known as
Chase Global Funds Services Company ("CGFSC") and will continue to provide
certain administrative services to the Fund. The Adviser supervises and monitors
such administrative services provided by CGFSC. 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. CGFSC'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 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.
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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 Investment Fund 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 each class of the Investment 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 Class A shares of each
Investment Fund, and 0.75% of the Class B shares and Class C shares of each
Investment Fund, 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.
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 each Investment Fund. 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 the Investment 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 Investment
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.
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<PAGE>
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 financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. 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
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<PAGE>
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.
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 Investment 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 Investment Funds 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
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<PAGE>
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. 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.")
OFFERING PRICE OF CLASS A SHARES
Class A shares of the Investment 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***++
</TABLE>
- --------------
* 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.
Morgan Stanley may in its discretion compensate Participating Dealers n
connection with the sale of Class A shares of the Investment 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 Investment Funds.
REDUCTION OR WAIVER OF SALES CHARGES. A shareholder who purchases
additional Class A shares of an Investment Fund may obtain reduced sales charges
through a right of accumulation of current purchases of Class A shares of an
Investment Fund with concurrent purchases of Class A shares of the other
Investment Fund and with existing Class A share investments in all Investment
Funds. The applicable sales charge will be
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<PAGE>
determined based on the total of (a) the shareholder's current purchases of
Class A shares of Investment 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 Investment 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 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 Investment Funds ("Letter"). Each purchase of Class A
shares of an Investment 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 an Investment 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 Investment 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 Investment 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.
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<PAGE>
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 Investment 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 Investment
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 "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 Investment 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.
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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*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
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.
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<PAGE>
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 Investment Funds may be purchased at the net asset
value per share and such shares are subject to a CDSC 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 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.
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 an Investment 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 an Investment
Fund without payment of a sales charge. A shareholder who has redeemed Class B
shares of an Investment 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 an Investment 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 Investment 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 Investment 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 Investment
Funds at net asset value without imposition of a sales charge. See "Offering
Price of Class A Shares."
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Morgan Stanley provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Chase. 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 Chase describe
the current fees payable to Chase for its services as trustee. Investors should
consult with their own tax advisers before establishing a retirement plan.
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 next determined on the day of receipt.
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):
Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA# 021000021
DDA# 910-2-732907
Attn: Morgan Stanley Fund, Inc.
Ref: (Fund name, your account number, your account name)
Please call the Fund at 1-800-282-4404 prior to wiring funds.
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C. Complete and sign the New Account Application and mail it to the address
shown thereon.
Purchase orders for shares of the Investment 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 Chase (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. 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 Investment 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 Investment 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 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
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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. 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 canceled 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 an Investment 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 Investment 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 Investment Funds that are redeemed within six years of purchase. A
CDSC of 1.00% will be imposed on certain Class C shares of the Investment Funds
that are redeemed within one year of purchase. 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 Investment Funds is
determined at the regular close of trading of the NYSE
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(currently 4:00 p.m. 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 Chase Global Funds Services 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 Chase Global Funds
Services 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 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
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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 an Investment 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 an Investment 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 an Investment 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 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
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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.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange shares that you own in an Investment Fund for shares of the
same class of another Investment Fund. Shares of the Investment Funds may be
exchanged by mail or telephone, except that no shares
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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 an Investment Fund into
the same class of another Investment 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 Investment Funds. 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
Investment Fund during the first year after purchase. Class B shares of an
Investment Fund will not be assessed the Class B CDSC if exchanged into Class B
shares of another Investment Fund during the first six years after purchase.
Class C shares of an Investment Fund will not be subject to a CDSC for the first
year if exchanged into Class C shares of another Investment Fund. If the initial
shares of an Investment 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 an
Investment 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 Investment Funds may
tender their Class A shares of any Investment Fund for exchange into the number
of Class A shares of another Investment 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.
CLASS B SHARES. As described above and as permitted pursuant to any rule,
regulation or order promulgated by the SEC, shareholders of Investment Funds may
tender their Class B shares of any Investment Fund for exchange into the number
of Class B shares of another Investment 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.
CLASS C SHARES. As described above and as permitted pursuant to any rule,
regulation or order promulgated by the SEC, shareholders of Investment Funds may
tender their Class C shares of any Investment Fund for exchange into the number
of Class C shares of another Investment 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.
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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.
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, Chase Global
Funds Services Company, P.O. Box 2798, Boston, Massachusetts 02208-2798.
BY TELEPHONE
When exchanging shares by telephone, have ready the name and your account
number of the 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 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. 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 is determined by
dividing the total fair 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 Investment Funds. Net asset value per share of the Investment 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
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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 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. 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.
For the purpose of calculating each Investment Fund's net asset value per
share, certain 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 each
Investment Fund would receive if it sold the instrument.
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 U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
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.
PERFORMANCE INFORMATION
The Fund may from time to time advertise total return of the Investment
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
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ten years) assuming that all distributions and dividends by an Investment Fund
were reinvested on the 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 and Growth and Income Funds may advertise "yield." Yield figures are
based on historical performance and are not intended to indicate future
performance. The "yield" of such Investment Funds refers to the income generated
by an investment in the Investment Funds over a 30-day period (which period will
be stated in the advertisement). The 30-day yield is further described under
"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.
Confirmations of the purchase of shares of each Investment Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
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-
76
<PAGE>
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 Investment Funds, the net income attributable
to and the dividends payable on Class B shares and Class C shares of an
Investment Fund will be lower than the net income attributable to and the
dividends payable on Class A shares of the Investment Funds. As a result, the
net asset value per share of the classes of an Investment Fund will differ at
times. Expenses of a Fund allocated to a particular class of shares of an
Investment Fund will be borne on a pro rata basis by each outstanding share of
that class.
TAXES
TAX STATUS OF THE INVESTMENT FUND
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action. See also the tax sections in the Statement of
Additional Information.
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.
Each Investment Fund intends to qualify 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
Each Investment Fund distributes substantially all of its net investment
income (including, for this purpose, net short-term capital gain), to its
shareholders. 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 in additional 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, 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.
77
<PAGE>
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.
A sale, exchange or redemption of shares held as a capital asset will be
capital gain or loss and such gain or loss will be a taxable event to the
shareholder.
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.
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 13.375
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 current Class C shares of the Investment Funds 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 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 16,
1995, The Morgan Stanley Group, Inc., 1221 Avenue of the Americas, New York, New
York 10020, was presumed to "control" the Class A and Class C shares of the
Global Fixed Income Fund; Raymond James & Associates, Inc., FAO Fredmar Inc.,
P.O. Box 7669, Warwick, Rhode Island 02887-7669, was presumed to "control" the
Class B shares of the Global Fixed Income Fund; Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, was presumed to "control" the Class B shares
of the Global Fixed Income Fund; Gerald Schmitz & Gerald Newcomb, Petroleum
Mktrs Equip PSP, 2010 Exchange, Oklahoma City, Oklahoma 73108-2698, was presumed
to "control" the Class B shares of the Global Fixed Income Fund; Principal
Financial, Cust FBO Jon F. Hrabe, P.O. Box 508, Dallas, Texas 75221, was
presumed to "control" the Class B shares of the Latin American Fund; The Morgan
Stanley Group, Inc., 1221 Avenue of the Americas,
78
<PAGE>
New York, New York 10020, was presumed to "control" the Class C shares of the
American Value Fund; and The Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, New York 10020, was presumed to "control" the Class C shares
of the Worldwide High Income Fund 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
As of September 1, 1995, domestic securities and cash are held by Chase,
which replaced U.S. Trust, as the Fund's domestic custodian. Chase 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.
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as Dividend Disbursing and Transfer Agent for the
Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Fund and audits its annual financial
statements.
79
<PAGE>
(This page has been left blank intentionally.)
<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 Chase Global Funds Services Company ("CGFSC") 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> <C> <C>
Morgan Stanley Global Equity Class A (2600) $ Class B (2625) $ Class C (2650) $
Allocation Fund ---------- ---------- ----------
Morgan Stanley Global Fixed Class A (2601) $ Class B (2626) $ Class C (2651) $
Income Fund ---------- ---------- ----------
Morgan Stanley Asian Growth Class A (2602) $ Class B (2627) $ Class C (2652) $
Fund ---------- ---------- ----------
Morgan Stanley Emerging Class A (2605) $ Class B (2630) $ Class C (2655) $
Markets Fund ---------- ---------- ----------
Morgan Stanley Latin American Class A (2609) $ Class B (2633) $ Class C (2659) $
Fund ---------- ---------- ----------
Morgan Stanley American Value Class A (2603) $ Class B (2628) $ Class C (2653) $
Fund ---------- ---------- ----------
Morgan Stanley Worldwide High Class A (2604) $ Class B (2629) $ Class C (2654) $
Income Fund ---------- ---------- ----------
Total
Initial
- -----------NOTE: IF INVESTING BY WIRE, YOU A. By Mail: Enclosed is Investment: $
MUST OBTAIN A BANK WIRE CONTROL NUMBER. TO DO a check in the amount of
SO, PLEASE CALL 800-282-4404. $ payable to Morgan
Stanley Fund, Inc.
B. By Wire: A bank wire
in the amount of $has
been sent to Morgan
Stanley Fund, Inc.
Bankfrom Name of Wire
Control
Number
<CAPTION>
MUST OBTAIN A BANK WIRE CONTROL NUMBER. TO DO
SO, PLEASE CALL 800-282-4404.
</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 PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
CGFSC to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account. I/ We understand that CGFSC
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 Name of Bank
privileges -------------------------------------------------------
/ / 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 ATTACH A VOIDED CHECK HERE
unless I check the 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 ("Investment
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 Investment 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 Investment Fund purchased
hereunder and the other Investment Fund, an aggregate amount which, together
with the value of Class A shares of any of the Investment 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 CGFSC 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 CGFSC 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 Chase Global Funds Services 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
CGFSC 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 CGFSC 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 CGFSC 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 CGFSC 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................ 40
Investment Limitations........................... 52
Management of the Fund........................... 54
Portfolio Transactions........................... 60
Purchase of Shares............................... 61
Redemption of Shares............................. 69
Shareholder Services............................. 72
Valuation of Shares.............................. 74
Performance Information.......................... 75
Dividends and Distributions...................... 76
Taxes............................................ 77
General Information.............................. 78
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
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
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PROSPECTUS
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INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO.
INCORPORATED
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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 diversified and non-diversified
investment portfolios designed to offer 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 ("SAI") addresses
information of the Fund applicable to the Class A shares, Class B shares and
Class C shares of the nine investment portfolios listed below (each, an
"Investment Fund").
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
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Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Tax Treatment of Forward Currency Contracts and Exchange
Rate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .16
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Statement of Additional Information dated October 31, 1995, relating to the
Prospectus dated October 31, 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
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INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectus with respect to nine Investment Funds of the
Fund: 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 and Morgan Stanley Growth and Income 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" and "Growth and
Income Fund" ).
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
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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 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 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
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thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
liquid, 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 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
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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 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.
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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.
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
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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.
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.
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 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.
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
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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.
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.
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.
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. High rates of portfolio
turnover necessarily result in correspondingly heavier brokerage and portfolio
trading costs which are paid by each of the Investment Funds. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains, See "Taxes" in the Prospectus for more information
on taxation. 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
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Tax." The tables set forth in the Prospectus under "Financial Highlights"
present each of the Investment Funds historical portfolio turnover ratios.
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.
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.
Each Investment Fund is generally treated as a separate corporation for
federal income tax purposes, and thus the provisions of the Code generally will
be applied to each Investment Fund separately, rather than to the Fund as a
whole. Each Investment Fund intends to qualify and elect to be treated for each
taxable year as a regulated investment company ("RIC") under subchapter M of the
Code.
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.
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<PAGE>
In order to qualify for the special tax treatment afforded to RICS 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 RICs, 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 RICs). 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.
If an Investment Fund fails to qualify as a RIC for any taxable year, it
will be taxable at regular corporate rates. In such case, distributions
(including capital gain distributions) will be taxable as ordinary dividends to
the extent of the Investment Fund's current and accumulated earnings and profits
and such distributions generally will be eligible for the corporate dividends
received deductions.
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.
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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
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 (determined 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.
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<PAGE>
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.
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 Investment 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 Investment 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
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on the next day the NYSE is open. The purchase price of shares of the Investment
Funds is based on such price as further described in the Prospectus under
"Purchase of Shares." Class A shares of the Investment 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 Investment 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
Investment 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. 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 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 Investment 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
Investment 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 Investment 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.
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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;
(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 and Latin American 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 and Growth and
Income 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;
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(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, 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;
(16) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases; or
(17) issue senior securities.
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
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<PAGE>
(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.
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. The Directors are also Directors of other open-end funds advised by
Morgan Stanley Asset Management Inc. (collectively with the Fund, the "Open-End
Fund Complex"). Officers of the Fund are also 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:
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Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Barton M. Biggs* Chairman and Chairman and Director of
1221 Avenue of the Director Morgan Stanley Asset
Americas Management Inc. and Morgan
New York, NY 10020 Stanley Asset Management
(62) Limited; Managing Director
of Morgan Stanley & Co.
Incorporated; 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 Principal of Morgan Stanley
1221 Avenue of the President & Co. Incorporated;
Americas Principal of Morgan Stanley
New York, NY 10020 Asset Management Inc.;
(38) 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.
17
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
John D. Barrett, II Director Chairman and Director of
521 Fifth Avenue Barrett Associates, Inc.
New York, NY 10135 (investment counseling);
(60) 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 & O'Neil
43 Arch Street LLP (law firm); Director of
Greenwich, CT 06830 the Morgan Stanley Fund,
(58) Inc., Morgan Stanley
Institutional Fund, Inc. and
PCS Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive
8255 North Central Officer of Rand McNally
Park Avenue (publication); Director of
Skokie, IL 60076 Allendale Insurance Co.,
(55) 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 and
8211 North Fresno Street CEO, Pinacle L.L.C.
Fresno, CA 93720 (investment firm); Director,
(61) 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 Executive
85 Charles Colman Blvd. Officer of LumeLite
Pawling, NY 12564 Corporation (injection
(63) 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.
18
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law
2800 North Central Avenue firm); Previously associated
Phoenix, AZ 85004 with Copple, Chamberlin &
(61) 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.
Frederick B. Whittemore* Director Advisory Director of Morgan
1251 Avenue of the 65 Stanley & Co.,
Americas Incorporated; Vice-Chariman
30th Flr. and Director of The Brazilian
New York, NY 10020 Investment Fund, Inc., The
(65) 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 Stanley &
1221 Avenue of the Co. Incorporated; Principal
Americas of Morgan Stanley Asset
New York, NY 10020 Management Inc.; Vice
(55) 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.
19
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co. Incorporated; Principal,
Americas General Counsel and Secretary
New York, NY 10020 of Morgan Stanley Asset
(35) 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 Morgan
1221 Avenue of the Stanley Asset Management
Americas Inc.; Previously with Price
New York, NY 10020 Waterhouse LLP (accounting);
(41) 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.
20
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Valerie Y. Lewis* Secretary Vice President of Morgan
1221 Avenue of the Stanley Asset Management
Americas Inc.; Previously with
New York, NY 10020 Citicorp (banking); Secretary
(39) 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 Senior Vice President,
73 Tremont Street Secretary Secretary and General Counsel
Boston, MA 02108-3913 of Chase Global Funds
(40) Services Company; Previously
with Leland, O'Brien,
Rubinstein Associates, Inc.
(investments).
James R. Rooney Treasurer Assistant Vice President,
73 Tremont Street Chase Global Funds Services
Boston, MA 02108-3913 Company; Manager of Fund
(37) Administration; Previously
with Scudder, Stevens &
Clark, Inc. (investment)
and Ernst & Young LLP
(accounting); 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.
21
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Joanna Haigney Assistant Supervisor of Fund
73 Tremont Street Treasurer Administration and
Boston, MA 02108-3913 Compliance, Chase Global
(29) Funds Services Company;
Previously with Coopers &
Lybrand LLP; 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
Effective June 28, 1995, the Open-End Fund Complex will pay each of the
nine Directors who is not an "interested person" an annual aggregate fee of
$55,000, plus out-of-pocket expenses. The Open-End Fund Complex will pay each of
the members of the Fund's Audit Committee, which consists of the Fund's
Directors who are not "interested persons" an additional annual aggregate fee of
$10,000 for serving on such a committee, The allocation of such fees will be
among the three funds in the Open-End Fund Complex in direct proportion to their
respective average net assets. For the fiscal period ended June 30, 1995, the
Fund paid approximately $77,000 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, 1995, 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 fiscal year from July 1, 1994
to June 30, 1995.
22
<PAGE>
COMPENSATION TABLE
- --------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position From Benefits Benefits From Registrant
Registrant Accrued Upon and Fund
as Part of Retirement Complex
Fund Paid to
Expenses Directors
- --------------------------------------------------------------------------------
Barton M. Biggs* $0 $0 $0 $0
Director and Chairman of
the Board
John D. Barret, II,* $0 $0 $0 $0
Director
John E. Eckleberry,*** $7,500 $0 $0 $7,500
Director
Gerard E. Jones,* $8,700 $0 $0 $93,977
Director
Warren J. Olsen,* $0 $0 $0 $0
Director and President
Andrew McNally IV,* $0 $0 $0 $13,630
Director
Samuel T. Reeves,* $0 $0 $0 $0
Director
Fergus Reid,* $0 $0 $0 $0
Director
Frederick O. Robertshaw,** $11,152+ $0 $0 $32,002
Director
Frederick B. Whittemore,** $21,254+ $0 $0 $69,904
Director (Chairman of the
Board until June 28, 1995)
- -------------------------------------------------------------------------------
*Elected (Director) as of June 28, 1995.
**Reelected as of June 28, 1995.
***Resigned as of June 28, 1995.
+The total amount of deferred compensation for Frederick O. Robertshaw and
Frederick B. Whittemore was $3,652 and $13,754, respectively.
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.
23
<PAGE>
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 years ended June 30, 1993, June 30, 1994 and
June 30, 1995, the Adviser earned fees of approximately $126,000 (and
voluntarily waived all such fees), $2,322,000 (and voluntarily waived a portion
of such fees equal to approximately $1,026,000) and $4,571,000 (and voluntarily
waived a portion of such fees equal to approximately $868,000), respectively.
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 years ended June 30, 1993, June 30, 1994 and June 30, 1995,
the Fund paid administrative fees to MSAM of approximately $58,000, $852,000 and
$1,154,000, respectively.
Under an Agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase," successor in interest to United States Trust Company of New York),
Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds Service
Company, a Chase subsidiary) provides certain administrative services to the
Fund. CGFSC provides operational and administrative services to investment
companies with approximately $61 billion in assets and having approximately
217,452 shareholder accounts as of September 30, 1995. CGFSC'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 each
class of the Investment Funds pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan" and collectively, 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 Class
A shares of each of the Investment Funds, the Class B shares and Class C
shares of each of the Investment 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.
24
<PAGE>
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 Class A, Class B and 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 20, 1995.
As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1995, the Distributor received aggregate fees of
approximately $2,697,893 which were attributable approximately as follows:
Fiscal Year
Ended
June 30, 1995
-------------
Global Equity Allocation Fund-Class A. . . . . . . . . . . . . . $97,885
Global Equity Allocation Fund-Class B+ . . . . . . . . . . . . . N/A
Global Equity Allocation Fund-Class C+ . . . . . . . . . . . . . 366,778
Global Fixed Income Fund-Class A . . . . . . . . . . . . . . . . 24,803
Global Fixed Income Fund-Class B+. . . . . . . . . . . . . . . . N/A
Global Fixed Income Fund-Class C+. . . . . . . . . . . . . . . . 56,785
Asian Growth Fund-Class A. . . . . . . . . . . . . . . . . . . . 402,870
Asian Growth Fund-Class B+ . . . . . . . . . . . . . . . . . . . N/A
Asian Growth Fund-Class C+ . . . . . . . . . . . . . . . . . . . 1,314,505
Emerging Markets Fund-Class A* . . . . . . . . . . . . . . . . . 34,453
Emerging Markets Fund-Class B* . . . . . . . . . . . . . . . . . N/A
Emerging Markets Fund-Class C* . . . . . . . . . . . . . . . . . 110,688
Latin American Fund-Class A* . . . . . . . . . . . . . . . . . . 14,697
Latin American Fund-Class B* . . . . . . . . . . . . . . . . . . N/A
Latin American Fund-Class C* . . . . . . . . . . . . . . . . . . 28,402
American Value Fund-Class A. . . . . . . . . . . . . . . . . . . 35,886
American Value Fund-Class B+ . . . . . . . . . . . . . . . . . . N/A
American Value Fund-Class C+ . . . . . . . . . . . . . . . . . . 93,416
Worldwide High Income Fund-Class A . . . . . . . . . . . . . . . 28,283
Worldwide High Income Fund-Class B . . . . . . . . . . . . . . . N/A
Worldwide High Income Fund-Class C+. . . . . . . . . . . . . . . 88,442
None of the three classes of the European Equity and Growth and Income
Funds were in operation in the fiscal year ended June 30, 1995.
- ---------------
* The Emerging Markets and Latin American Funds commenced operations on July
6, 1994.
+ 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. The Class B shares commenced operations on August 1, 1995. Therefore,
no fees were incurred for the fiscal year ended June 30, 1995.
25
<PAGE>
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal investing
activities of all employees of the Adviser and, as described below, impose
additional, more onerous, restrictions on the Fund's investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security.
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 October 16, 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: The Morgan Stanley Group, Inc. ("The Group"),
1221 Avenue of the Americas, New York, NY 10020, owned 32% of the total
outstanding Class A shares and 50% of the total outstanding Class C shares of
such Investment Fund; Steve M. Barnett, 666 Dundee Road Suite 1704, Northbrook,
IL 60062, owned 11% of the total outstanding Class A shares of such Investment;
Raymond James & Associates Inc., for Elite Account # 50071735, FAO Fredmar Inc.,
P.O. Box 7669, Warwick, RI 02887, owned 31% of the total outstanding Class B
shares of such Investment Fund; Smith Barney Inc., 388 Greenwich Street, New
York, NY 10013, owned 28% of the total outstanding Class B shares of such
Investment Fund; Gerald Schmitz & Gerald Newcomb, Petroleum MKTRS Equip PSP,
2010 Exchange, Oklahoma City, OK 73108, owned 27% of the total outstanding
Class B shares of such Investment Fund; Paine Webber for the benefit of Donald
C. Wentworth, P.O. Box 3321, Weehawken, NJ 07087, owned 6% of the total
outstanding Class B shares of such Investment Fund and Paine Webber for the
benefit of Sura JP Ahuja TTEE for Rockhill Cardiology Inc., Profit Sharing Plan,
12310 Overbrook, CT., Leawood, KS 66209, owned 6% of the total outstanding
Class B shares of such Investment Fund.
ASIAN GROWTH FUND: Advest Inc., Mutual Fund Operations 18th floor, 280
Trumbull Street, Hartford, CT 06103, owned 6% of the total outstanding Class A
shares of such Investment Fund.
26
<PAGE>
AMERICAN VALUE FUND: Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 24% of the total outstanding Class A shares
and 33% of the total outstanding Class C shares of such Investment Fund; Smith
Barney Inc. 388 Greenwich Street, New York, NY 10013, owned 5% of the total
outstanding Class A shares of such Investment Fund; James G. McMurray, M.D.,
Profit Sharing Plan, 303 Williams Avenue, Suite 411, Huntsville, AL 35801
owned 17% of the total outstanding Class B shares of such Investment Fund;
Cuddy Pup I & Thompson Associates, Profit Sharing Plan, C/O Joan Ciufo, 1300 5th
Street Ext., Beaver, PA 15009, owned 8% of the total outstanding Class B shares
of such Investment Fund and Philip M. Crossfield, IRA, 6010 Pulaski Pike,
Huntsville, AL 35810, owned 7% of the total outstanding Class B shares of such
Investment Fund.
WORLDWIDE HIGH INCOME FUND: FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO 80217, owned 24% of the total outstanding Class A shares of
such Investment Fund; Morgan Stanley Group Inc. 1221 Avenue of the Americas, New
York, NY 10020, owned 14% of the total outstanding Class A shares and 26% of
the total outstanding Class C shares of such Investment Fund and Charles
Schwab & Company Inc., Exclusive Benefit of its Customers, 101 Montgomery
Street, San Francisco, CA 94104 owned 11% of the total outstanding Class A
shares of such Investment Fund.
EMERGING MARKETS FUND: FTC & Co., Attn: Datalynx #118, P.O. Box 173736,
Denver, CO 80217, owned 14% of the total outstanding Class A shares of such
Investment Fund; Crester Bank Trust Department, Sheltering Arms Foundation, A/C
#10091700, P.O. Box 26246, Richmond, VA 23260, owned 6% of the total outstanding
Class A shares of such Investment Fund; Advest, Inc., 280 Trumbull Street,
Hartford, CT 06103, owned 5% of the total outstanding Class A shares and 6% of
the total outstanding Class C shares of such Investment Fund; Alex Brown & Sons
Incorporated, P.O. Box 1346, Baltimore, MD 21203, owned 11% of the total
outstanding Class B shares of such Investment Fund and Central Fidelity Bank
Cust., FBO Obici Foundation, 5th floor, P.O. Box 27602, Richmond, VA 23261,
owned 5% of the total outstanding Class C shares of such Investment Fund.
LATIN AMERICAN FUND: The Group owned 10% of the total outstanding Class A
shares and 17% of the total outstanding Class C shares of such Investment Fund;
Principal Financial, Cust FBO Jon F. Hrabe, P.O. Box 508, Dallas, Texas 75221
owned 31% of the total outstanding Class B shares of such Investment Fund;
Principal Financial, IRA Cust FBO Jon F. Hrabe, P.O. Box 215132, Dallas,
Texas 75221 owned 16% of the total outstanding Class B shares of such
Investment Fund and Prudential Securities FBO J.P. Barger, 600 W. Cummings
Park, Suite 3500, Woburn, MA 01801-6349, owned 12% of the total outstanding
Class C 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.
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
27
<PAGE>
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 three
fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995, the Fund paid
brokerage commissions of approximately $2,497, $618,000 and $115,622,
respectively, to the Distributor, an affiliated broker-dealer. For the fiscal
years ended June 30, 1993, June 30, 1994 and June 30, 1995, commissions paid to
the Distributor represented approximately 6.8%, 30%, and 7%, respectively, of
the total amount of brokerage commissions paid in such period and which were
paid on transactions that represented 8.9%, 21%, and 3%, respectively, 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.
28
<PAGE>
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:
P(1 + T)to the nth power = 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 one-year period ended June 30, 1995 and for the period from the
inception of each Investment Fund through June 30, 1995 are as follows:
One-Year Period
Ended Since
June 30, 1995 Inception
--------------- ---------
Global Equity Allocation Fund
(commenced operations on
January 4, 1993)
Class A Shares . . . . . . . . 6.69% 10.79%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 5.84% 9.99%
Global Fixed Income Fund
(commenced operations on
January 4, 1993)
Class A Shares . . . . . . . . 11.41% 7.92%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 10.24% 7.01%
Asian Growth Fund
(commenced operations on
June 23, 1993)
Class A Shares . . . . . . . . 9.50% 18.73%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 8.71% 17.93%
29
<PAGE>
American Value Fund
(commenced operations on
Oct. 18, 1993)
Class A Shares . . . . . . . . 15.01% 7.86%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 14.13% 7.00%
Worldwide High Income Fund
(commenced operations on
April 21, 1994)
Class A Shares . . . . . . . . 6.87% 8.26%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 6.20% 7.49%
Emerging Markets Fund
(commenced operations on
July 6, 1994)
Class A Shares . . . . . . . . N/A (11.58)%*
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . N/A (12.25)%*
Latin American Fund
(commenced operations on
July 6, 1994)
Class A Shares . . . . . . . . N/A (23.07)%*
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . N/A (23.83)%*
The European Equity and Growth and Income Funds had not commenced
operations in the fiscal year ended June 30, 1995.
+ 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. The Class B shares commenced operations on August 1, 1995. Therefore,
no total return information is available.
* Not Annualized.
YIELD FOR CERTAIN INVESTMENT 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:
30
<PAGE>
Yield = 2[(a - b + 1)to the 6th power - 1]
-----
cd
where:
a = dividends and interest earned during the period
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 June 30, 1995 was
5.19% for Class A shares and 4.69% for Class C shares. The 30-day yield for
the Worlwide High Income Fund as of June 30, 1995 was 10.55% for Class A shares
and 10.47% for Class C shares.
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 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 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 1,000 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.
31
<PAGE>
(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.,
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.
32
<PAGE>
(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 (Assumes reinvestment of dividends).
(cc) IFC Global Total Return Composite Index - An unmanaged index of common
stocks and includes 18 developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(dd) EMBI+ - Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ee) The MSCI Latin America Global Index - is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends.
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.
33
<PAGE>
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
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
34
<PAGE>
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, 1995" indicates returns of $10,000 to $710,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1995 on the horizontal axis. Every sixth quarter is presented instead of
lines covering each quarter.
<TABLE>
<CAPTION>
In Thousands (except last column)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70Q4 72Q2 73Q4 75Q2 76Q4 78Q2 79Q4 81Q2 82Q4 84Q2 85Q4 87Q2 88Q4 90Q2 91Q4 93Q2 94Q4 9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $539 $657
Value
$10
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $237 $304
10
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130 $169
10
- -----------------------------------------------------------------------------------------------------------------------------------
10 Year 10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $ 74 $ 85
Govt Bond
10
- -----------------------------------------------------------------------------------------------------------------------------------
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $ 60 $ 62
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.
35
<PAGE>
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.
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:
36
<PAGE>
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
[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
37
<PAGE>
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.]
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.]
38
<PAGE>
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.
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:
39
<PAGE>
THE CASE FOR EMERGING MARKETS
- --------------------------------------------------------------------------------
RETURNS GROWTH VALUE UNDER- DIVERSI-
REPRESEN- FICATION
TATION
- --------------------------------------------------------------------------------
Annual Real Foreign
Returns GNP Real Inv.
(1940- Growth EPS Mkt % of
1993) (1994- Growth P/E Cap/ Institutional Average
2000) (1994) 1994E GNP Assets Correlation
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
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.
MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS
Over one-third of Morgan Stanley's 9,200 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 June 30, 1995, MSAM, together with its affiliated asset management
companies, had approximately $52 billion in assets under management and
fiduciary advice, including over $824 million in Latin America markets and over
$3 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
40
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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:
EMERGING MARKET LIFE CYCLE
- ------------------------------------------------------------------------------
COUNTRIES BEHIND-THE- EMERGING ESTABLISHED MATURE
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
41
<PAGE>
- ------------------------------------------------------------------------------
Iran X
- ------------------------------------------------------------------------------
Source: Morgan Stanley Research
[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
1965-93 1993-2000
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 AMERICAN 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.
42
<PAGE>
Price/Earnings Ratio
Developed Markets* 28.4X
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
13.375 billion 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
43
<PAGE>
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales charge or CDSC is imposed on shares of any of the
Investment Funds, including the Investment 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, cannot be offset against net capital losses of any
other Investment Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Fund's domestic custodian. Chase 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-edged." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Aa -
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than 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
44
<PAGE>
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 States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed
45
<PAGE>
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
46
<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 intervals
47
<PAGE>
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.
FINANCIAL STATEMENTS
The Fund's audited financial statements and notes thereto for the fiscal
year ended June 30, 1995 , and the report thereon of Price Waterhouse LLP,
independent accountants, which appear in the June 30, 1995 Annual Report to
Shareholders are on the following pages. The European Equity Fund and Growth
and Income Fund were not operational as of the date of the Annual Report.
48
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
COMMON STOCKS (96.9%)
AUSTRALIA (4.2%)
21,500 Amcor Ltd. ....................................... $ 159
9,500 Ampolex Ltd. ..................................... 22
17,500 Australian National Industries Ltd. .............. 15
40,100 Boral Ltd. ....................................... 100
7,400 Brambles Industries Ltd. ......................... 70
56,401 Broken Hill Proprietary Ltd. ..................... 694
18,472 Burns, Philip & Co. Ltd. ......................... 39
10,876 Coca-Cola Amatil Ltd. ............................ 67
47,800 Coles Myer Ltd. .................................. 150
18,300 CRA Ltd. ......................................... 249
32,600 CSR Ltd. ......................................... 102
103,500 Foster Brewing Group Ltd. ........................ 92
23,930 General Property Trust ........................... 40
43,400 Goodman Fielder Ltd. ............................. 36
11,800 ICI Australia Ltd. ............................... 77
7,548 Lend Lease Corp. Ltd. ............................ 96
43,712 MIM Holdings Ltd. ................................ 54
43,500 National Australia Bank Ltd. ..................... 344
+8,700 Newcrest Mining Ltd. ............................. 37
53,795 News Corp. Ltd. .................................. 300
23,400 North Broken Hill Peko Ltd. ...................... 57
35,300 Pacific Dunlop Ltd. .............................. 74
30,400 Pioneer International Ltd. ....................... 76
10,486 Renison Goldfields Consolidated Ltd. ............. 33
2,432 Renison Goldfields Consolidated Ltd. (New) ....... 6
26,600 Santos Ltd. ...................................... 64
20,700 Southcorp Holdings Ltd. .......................... 41
+12,700 TNT Ltd. ......................................... 17
29,700 Western Mining Corp. ............................. 163
60,000 Westpac Banking Corp. Ltd. ....................... 217
-------
3,491
-------
BELGIUM (2.0%)
70 Bekaert S.A. ..................................... 55
125 CBR .............................................. 51
1,600 Delhaize Freres et Cie 'Le Lion' S.A. ............ 72
1,350 Electrabel S.A. .................................. 285
300 Electrabel S.A. (New) ............................ 64
1,130 Fortis AG ........................................ 120
450 Generale de Banque ............................... 145
775 Gevaert Photo-Production N.V. .................... 42
156 Glaverbel S.A. ................................... 21
700 Groupe Bruxelles Lambert S.A. .................... 94
400 Kredietbank N.V. ................................. 95
720 Petrofina S.A. ................................... 217
400 Reunies Electrobel & Tractebel S.A. .............. 145
400 Royale Belge ..................................... 75
250 Solvay et Cie .................................... 138
+800 Union Miniere S.A. ............................... 52
-------
1,671
-------
CANADA (5.1%)
5,600 Alcan Aluminum Ltd. .............................. 169
9,712 American Barrick Resources Corp. ................. 246
6,300 Bank of Montreal ................................. 132
5,900 Bank of Nova Scotia .............................. 127
8,100 BCE, Inc. ........................................ 260
4,100 Bombardier, Inc. 'B' ............................. 100
2,600 Brascan Ltd. 'A' ................................. 41
5,600 Canadian Imperial Bank of Commerce ............... 135
2,200 Canadian Occidental Petroleum Ltd. ............... 68
9,600 Canadian Pacific Ltd. ............................ 165
2,700 Canadian Tire Corp. 'A' .......................... 29
VALUE
SHARES (000)
- ---------------------------------------------------------------------
2,800 Cominco Ltd. ..................................... $ 51
1,500 Cott Corp. ....................................... 18
2,800 Dofasco, Inc. .................................... 35
1,200 Du Pont Canada, Inc. 'A' ......................... 17
3,200 Echo Bay Mines Ltd. .............................. 29
2,000 George Weston Ltd. ............................... 67
5,200 Gulf Canada Resources Ltd. ....................... 21
7,600 Imasco Ltd. ...................................... 135
6,000 Imperial Oil Ltd. ................................ 223
2,600 Inco Ltd. ........................................ 73
1,100 Interprovincial Pipeline ADR ..................... 24
5,600 Laidlaw, Inc. 'B' ................................ 54
5,200 MacMillan Bloedel Ltd. ........................... 73
1,200 Magna International, Inc. 'A' .................... 53
3,600 Moore Corp. Ltd. ................................. 79
2,200 Newbridge Networks Corp. ......................... 77
+5,200 Noranda, Inc. .................................... 102
2,400 Norcen Energy Resources Ltd. ..................... 32
6,500 Northern Telecom Ltd. ............................ 235
13,800 Nova Corp. of Alberta ............................ 117
5,800 Placer Dome, Inc. ................................ 152
1,100 Potash Corp. of Saskatchewan, Inc. ............... 61
4,000 Ranger Oil Ltd. .................................. 25
+2,300 Renaissance Energy Ltd. .......................... 48
+4,200 Rogers Communications ............................ 49
7,700 Royal Bank of Canada ............................. 172
10,500 Seagram Co. Ltd. ................................. 361
+1,600 Talisman Energy, Inc. ............................ 30
2,400 Teck Corp. 'B' ................................... 47
16,400 Thomson Corp. .................................... 224
6,300 Transcanada Pipelines Ltd. ....................... 84
-------
4,240
-------
FRANCE (4.0%)
300 Accor S.A. ....................................... 40
1,850 Alcatel Alsthom................................... 167
1,845 AXA S.A. ......................................... 100
105 AXA S.A. RFD...................................... 6
2,300 Banque Nationale de Paris ........................ 111
100 BIC .............................................. 16
350 Bouygues ......................................... 42
300 Carrefour S.A. ................................... 154
85 Chargeurs S.A. ................................... 17
249 Cie Bancaire S.A. ................................ 30
1,350 Cie Generale des Eaux ............................ 150
1,350 Cie de Financiere de Paribas 'A' ................. 81
1,000 Cie de Saint-Gobain .............................. 121
1,950 Cie de Suez S.A. ................................. 108
3,000 Elf Aquitaine .................................... 222
1,000 Elf Sanofi S.A. .................................. 55
400 Eridania Beghin-Say S.A. ......................... 62
950 Etablissements Economiques du Casion
Guichard-Perrachon ............................. 28
950 Groupe Danone RFD ................................ 160
650 Havas S.A. ....................................... 51
850 L'Air Liquide .................................... 136
1,100 Lafarge Coppee S.A. .............................. 86
400 Legrand S.A. ..................................... 63
750 L'Oreal .......................................... 188
950 LVMH Moet Hennessy Louis Vuitton ................. 171
850 Lyonnaise des Eaux S.A. .......................... 80
+1,350 Michelin (C.G.D.E.) 'B' .......................... 60
135 Paribas S.A. RFD ................................. 8
650 Pernod-Ricard .................................... 43
+225 Pinault S.A. ..................................... 48
250 Promodes ......................................... 57
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
FRANCE (CONT.)
+600 PSA Peugeot Citroen S.A. ......................... $ 83
3,000 Rhone-Poulenc S.A. 'A' ........................... 68
60 Sagem ............................................ 34
130 Saint Louis ...................................... 40
650 Schneider S.A. ................................... 51
350 Simco (Registered) ............................... 30
60 Societe Eurafrance S.A. .......................... 20
1,000 Societe Generale ................................. 117
+1,700 Thomson CSF S.A. ................................. 38
2,500 Total S.A. 'B' ................................... 150
-------
3,292
-------
GERMANY (2.0%)
30 Agiv AG .......................................... 10
110 Allianz AG Holding ............................... 197
20 AMB Aachener & Muenchener Beteiligungs AG ........ 14
20 Asko Deutsche Kaufhaus AG ........................ 12
330 BASF AG .......................................... 70
360 Bayer AG ......................................... 89
120 Bayer Hypotheken-und Wechsel-Bank AG ............. 33
130 Bayer Vereinsbank AG ............................. 39
25 Beiersdorf AG .................................... 20
20 Brau und Brunnen AG .............................. 4
270 Daimler-Benz AG .................................. 124
50 Degussa AG ....................................... 16
2,420 Deutsche Bank AG ................................. 118
+180 Deutsche Lufthansa AG ............................ 26
2,230 Dresdner Bank AG ................................. 64
20 Heidelberger Zement AG ........................... 17
60 Hochtief AG ...................................... 34
50 Karstadt AG ...................................... 22
30 Kaufhof Holding AG ............................... 11
+90 Kloeckner-Humboldt-Deutz AG ...................... 3
50 Linde AG ......................................... 30
70 MAN AG ........................................... 18
210 Mannesmann AG .................................... 64
40 Muenchener Rueckversicherungs-Gesellschaft
(Registered) ................................... 88
80 Preussag AG ...................................... 24
180 RWE AG ........................................... 62
30 SAP AG ........................................... 40
350 Schering AG ...................................... 24
290 Siemens AG ....................................... 144
+170 Thyssen AG ....................................... 32
250 Veba AG .......................................... 98
110 Viag AG .......................................... 43
150 Volkswagen AG .................................... 43
-------
1,633
-------
HONG KONG (5.1%)
18,000 Applied International Holdings Ltd................ 2
22,257 Bank of East Asia................................. 67
84,000 Cathay Pacific Airways Ltd........................ 123
63,000 Cheung Kong Holdings Ltd.......................... 312
56,500 China Light and Power Co. Ltd..................... 291
46,000 Chinese Estate Holdings Ltd....................... 33
22,000 Dickson Concepts International Ltd................ 13
6,000 Giordano Holdings Ltd............................. 4
12,000 Giordano International Ltd........................ 9
36,000 Hang Lung Development Corp........................ 57
54,600 Hang Seng Bank Ltd................................ 416
55,400 Hong Kong & China Gas Co.......................... 88
36,000 Hong Kong & Shanghai Hotels....................... 44
5,600 Hong Kong Aircraft Engineering Co. Ltd............ 15
VALUE
SHARES (000)
- ---------------------------------------------------------------------
308,400 Hong Kong Telecommunications Ltd.................. $ 610
121,420 Hopewell Holdings Ltd............................. 103
102,000 Hutchison Whampoa Ltd............................. 493
30,000 Hysan Development Co.............................. 69
12,000 Johnson Electric Holdings Ltd..................... 24
17,000 Miramar Hotel Investment Ltd...................... 35
44,335 New World Development Co. Ltd..................... 148
40,000 Oriental Press Group.............................. 16
11,300 Peregrine Investment Holdings..................... 16
30,905 Shangri-La Asia Ltd............................... 37
46,000 Shun Tak Holdings Ltd............................. 37
52,000 South China Morning Post.......................... 31
30,000 Stelux Holdings Ltd............................... 9
65,000 Sun Hung Kai Properties Ltd....................... 481
46,000 Swire Pacific Ltd. 'A'............................ 351
12,000 Television Broadcasting Ltd....................... 42
62,000 Wharf Holdings Ltd................................ 202
10,000 Windsor Industrial................................ 13
4,280 Wing Lung Bank.................................... 24
-------
4,215
-------
ITALY (2.0%)
+10,000 Alitalia S.p.A.................................... 5
12,975 Assicurazioni Generali S.p.A...................... 305
27,000 Banca Commerciale Italiana........................ 61
+6,500 Banca Nazionale dell'Agricoltura S.p.A............ 5
8,000 Banco Ambrosiano Veneto........................... 26
3,000 Benetton Group S.p.A.............................. 30
2,000 Burgo Cartiere S.p.A.............................. 13
36,500 Credito Italiano S.p.A............................ 42
10,000 Edison S.p.A...................................... 45
+1,000 Falck Acciaierie & Ferriere Lombarde.............. 1
+52,000 Fiat S.p.A........................................ 183
12,000 Fiat S.p.A. Di Risp (NCS)......................... 26
4,000 Fidis Finanziaria di Sviluppo S.p.A............... 9
3,000 Impreglio S.p.A................................... 3
12,000 Istituto Bancario San Paolo di Torina S.p.A....... 65
+3,500 Italcementi Fabbriche Riunit S.p.A................ 24
+1,500 Italcementi S.p.A................................. 5
11,000 Italgas........................................... 29
2,565 La Rinascente S.p.A............................... 15
9,500 Magneti Marelli S.p.A............................. 18
7,800 Mediobanca S.p.A.................................. 57
+90,000 Montedison S.p.A.................................. 64
+15,000.. Montedison S.p.A. Di Risp (NCS)................... 9
+20,000 Olivetti Group.................................... 20
19,200 Parmalat Finanziaria S.p.A........................ 17
+25,000 Pirelli S.p.A..................................... 33
4,410 R.A.S............................................. 47
1,690 R.A.S. di Risp.................................... 11
300 Risanamento Di Napoli S.p.A....................... 4
+1,000 Saffa S.p.A. 'A'.................................. 3
1,500 S.A.I............................................. 16
7,500 Saipem S.p.A...................................... 15
2,000 Sasib S.p.A....................................... 9
4,000 Sirti S.p.A....................................... 30
7,000 SME Meridionale................................... 17
+10,000.. Snia BPD S.p.A.................................... 11
107,200 Telecom Italia S.p.A.............................. 291
25,000 Telecom Italia Di Risp S.p.A...................... 53
-------
1,617
-------
JAPAN (17.7%)
1,000 Advantest Corp.................................... 38
11,000 Ajinomoto Co., Inc................................ 113
6,000 Aoki Corp......................................... 22
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
JAPAN (CONT.)
1,000 Aoyama Trading Co. Ltd............................ $ 17
22,000 Asahi Bank Ltd.................................... 235
5,000 Asahi Breweries Ltd............................... 58
16,000 Asahi Chemical Industry Co. Ltd................... 105
16,000 Asahi Glass Co.................................... 177
17,000 Bank of Tokyo..................................... 273
5,000 Bridgestone Co.................................... 74
10,000 Canon, Inc........................................ 163
3,000 Casio Computer Co. Ltd............................ 27
11,000 Chiba Bank........................................ 100
2,000 Chiyoda Corp...................................... 17
5,000 Chugai Pharmaceutical Ltd......................... 51
25,000 Dai Ichi Kangyo Bank.............................. 451
11,000 Dai Nippon Printing Co. Ltd....................... 175
6,000 Daikin Industries Ltd............................. 48
+2,000 Daishowa Paper Manufacturing Co. Ltd.............. 9
5,000 Daiwa House Industry.............................. 77
11,000 Daiwa Securities Co., Ltd......................... 116
4,000 Ebara Corp........................................ 49
3,200 Fanuc Co.......................................... 138
25,000 Fuji Bank......................................... 504
5,000 Fuji Photo Film Ltd............................... 118
18,000 Fujitsu Ltd....................................... 179
9,000 Furukawa Electric................................. 42
11,000 Hankyu Corp....................................... 66
6,000 Hazama-Gumi....................................... 25
33,000 Hitachi Ltd....................................... 329
9,000 Honda Motor Co.................................... 138
19,000 Industrial Bank of Japan.......................... 495
4,000 Ito-Yokado Co. Ltd................................ 211
+22,000 Japan Airlines Co................................. 146
14,000 Japan Energy Corp................................. 45
6,000 Joyo Bank......................................... 51
6,000 Jusco Co.......................................... 124
11,000 Kajima Corp....................................... 109
3,600 Kansai Electric Power Co.......................... 97
11,000 KAO Corp.......................................... 132
+28,000 Kawasaki Steel Corp............................... 92
16,000 Kinki Nippon Railway.............................. 140
11,000 Kirin Brewery Co. Ltd............................. 117
+33,000 Kobe Steel Ltd.................................... 78
11,000 Komatsu Ltd....................................... 84
16,000 Kubota Corp....................................... 102
11,000 Kumagai Gumi Co. Ltd.............................. 46
6,000 Kyowa Hakko Kogyo................................. 58
16,000 Marubeni Corp..................................... 81
5,000 Marui Co.......................................... 80
17,000 Matsushita Electric Industries Ltd................ 265
15,000 Mitsubishi Corp................................... 171
20,000 Mitsubishi Electric Corp.......................... 141
12,000 Mitsubishi Estate Co. Ltd......................... 135
44,000 Mitsubishi Heavy Industries Ltd................... 299
16,000 Mitsubishi Kasei Co............................... 68
11,000 Mitsubishi Materials Corp......................... 49
11,000 Mitsubishi Trust and Banking Corp................. 156
16,000 Mitsui & Co....................................... 125
+11,000 Mitsui Engineering & Shipbuilding Co. Ltd......... 24
9,000 Mitsui Fudosan Co. Ltd............................ 103
11,000 Mitsukoshi........................................ 79
1,200 Mochida Pharmaceutical Co. Ltd.................... 18
16,000 NEC Corp.......................................... 175
6,000 NGK Insulators Ltd................................ 54
5,000 Nippon Denso Co. Ltd.............................. 91
11,000 Nippon Express Co. Ltd............................ 100
VALUE
SHARES (000)
- ---------------------------------------------------------------------
6,000 Nippon Fire & Marine Insurance Co................. $ 38
5,000 Nippon Light Metal Co............................. 23
5,000 Nippon Meat Packers............................... 73
16,000 Nippon Oil Co..................................... 101
11,000 Nippon Paper Industries Co........................ 71
41,000 Nippon Steel Corp................................. 133
16,000 Nippon Yusen Kabushiki Kaisha..................... 90
21,000 Nissan Motor Co. Ltd.............................. 134
+32,000 NKK Corp.......................................... 75
17,000 Nomura Securities Co. Ltd......................... 297
11,000 Obayashi Corp..................................... 85
11,000 Odakyu Electric Railway Co........................ 80
11,000 Oji Paper Ltd..................................... 106
33,000 Osaka Gas Co...................................... 122
6,000 Penta-Ocean Construction.......................... 38
1,000 Rohm Co........................................... 52
27,000 Sakura Bank....................................... 282
4,600 Sankyo Co. Ltd.................................... 107
16,000 Sanyo Electric Co. Ltd............................ 79
1,000 Secom Co.......................................... 63
1,300 Sega Enterprises.................................. 46
5,000 Sekisui House Ltd................................. 62
3,000 Seven-Eleven Japan................................ 215
11,000 Sharp Corp........................................ 145
5,000 Shin-Etsu Chemical Co............................. 88
8,000 Shinizu Corp...................................... 77
2,000 Shiseido Co. Ltd.................................. 22
11,000 Shizuoka Bank..................................... 137
+11,000 Showa Denko K.K................................... 32
3,000 Sony Corp......................................... 144
28,000 Sumitomo Bank..................................... 485
22,000 Sumitomo Chemical Co.............................. 86
11,000 Sumitomo Corp..................................... 100
7,000 Sumitomo Electric Industries...................... 83
2,000 Sumitomo Forestry................................. 33
38,000 Sumitomo Metal Industries......................... 99
5,000 Sumitomo Metal Mining Co.......................... 37
6,000 Sumitomo Osaka Cement Co. Ltd..................... 22
11,000 Taisei Corp., Ltd................................. 65
11,000 Takeda Chemical Industries........................ 145
11,000 Teijin Ltd........................................ 53
11,000 Tobu Railway Co................................... 69
17,000 Tokai Bank........................................ 188
16,000 Tokio Marine & Fire Industries.................... 183
3,000 Tokyo Dome Corp................................... 46
12,100 Tokyo Electric Power Co........................... 371
2,000 Tokyo Electron Ltd................................ 68
33,000 Tokyo Gas Co...................................... 130
11,000 Tokyu Corp........................................ 70
8,000 Toppan Printing Co. Ltd........................... 105
16,000 Toray Industries, Inc............................. 99
5,000 Toto Ltd.......................................... 71
11,000 Toyobo Ltd........................................ 36
25,000 Toyota Motor Corp................................. 495
+11,000 Ube Industries Ltd................................ 38
11,000 Yamaichi Securities............................... 59
5,000 Yamanuchi Pharmaceutical Co....................... 112
11,000 Yasuda Trust & Banking............................ 72
-------
14,712
-------
NETHERLANDS (4.0%)
5,718 ABN-Amro Holdings N.V............................. 221
1,350 Akzo Nobel........................................ 161
11,500 Elsevier N.V...................................... 136
1,100 Heineken N.V...................................... 166
578 Hoogovens N.V..................................... 23
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
NETHERLANDS (CONT.)
5,058 Internationale Nederlanden Groep N.V.............. $ 280
+1,450 KLM Royal Dutch Airlines N.V...................... 47
2,200 Koninklijke Ahold N.V............................. 79
8,700 Koninklijke PTT Nederland N.V..................... 313
400 Nedlloyd Groep N.V................................ 14
1,800 N.V. Koninklijke KNP BT........................... 54
5,800 Phillips Electronics N.V.......................... 246
9,400 Royal Dutch Petroleum Co.......................... 1,148
531 Stork N.V......................................... 14
2,800 Unilever N.V...................................... 364
1,233 Wolters Kluwer N.V................................ 109
-------
3,375
-------
SINGAPORE (3.9%)
13,000 Amcol Holdings Ltd................................ 38
35,000 City Developments Ltd............................. 214
10,000 Cycle & Carriage Ltd.............................. 89
37,000 DBS Land Ltd...................................... 116
29,000 Development Bank of Singapore..................... 330
9,000 First Capital Corp................................ 28
11,000 Fraser & Neave Ltd................................ 127
28,000 Hai Sun Hup Group Ltd............................. 17
19,000 Hotel Properties Ltd.............................. 34
8,000 Inchcape Bhd...................................... 26
5,000 Jurong Shipyard Ltd............................... 36
23,000 Keppel Corp....................................... 188
12,000 NatSteel Ltd...................................... 25
36,000 Neptune Orient Lines Ltd.......................... 42
39,000 Oversea-Chinese Banking Corp...................... 432
7,000 Overseas Union Enterprise Ltd..................... 43
14,000 Parkway Holdings Ltd.............................. 34
2,000 Robinson & Co. Ltd................................ 8
8,000 Shangri-La Hotel Ltd.............................. 32
58,000 Singapore Airlines Ltd. (Foreign)................. 535
15,600 Singapore Press Holdings (Foreign)................ 233
27,000 Straits Steamship Land Ltd........................ 94
18,000 Straits Trading Co. Ltd........................... 45
71,000 United Industrial Corp. Ltd....................... 68
40,000 United Overseas Bank Ltd.......................... 378
-------
3,212
-------
SPAIN (3.4%)
400 Acerinox S.A...................................... 49
4,200 Argentaria S.A.................................... 155
6,800 Autopistas Concesionaria Espanola S.A............. 66
8,100 Banco Bilbao Vizcaya (Registered)................. 234
5,300 Banco Central Hispanoamericano S.A................ 112
+3,466 Banco Espanol de Credito S.A...................... 24
5,200 Banco Santander S.A............................... 205
700 Corporacion Financiera Alba S.A................... 36
900 Corporacion Mapfre CIA Internacional de Reaseguros
S.A............................................. 45
2,600 Dragados & Construcciones S.A..................... 38
1,950 Ebro Agricolas, Compania de Alimentacion S.A...... 20
8,900 Empresa Nacional de Electricidad S.A.............. 440
+317 Energia e Indsutrias Aragonesas................... 2
3,500 Ercros S.A........................................ 4
850 Fabricacion de Automoviles Renault de Espana
S.A............................................. 25
500 Fomento de Construcciones y Contratas S.A......... 43
1,300 Gas Natural SDG 'E'............................... 155
200 Gines Navarro Construction Co..................... 3
30,300 Iberdrola S.A..................................... 228
125 Inmobiliaria Metropolitana Vasco Central S.A...... 4
VALUE
SHARES (000)
- ---------------------------------------------------------------------
400 Portland Vaderrivas S.A........................... $ 27
10,800 Repsol S.A........................................ 340
1,300 Tabacalera S.A. 'A'............................... 49
31,800 Telefonica de Espana.............................. 410
10,500 Union Electrica Fenosa S.A........................ 49
+1,400 Uralita S.A....................................... 17
1,550 Vallehermoso S.A.................................. 26
1,000 Viscofan Industria Navarra De Envolturas
Celulosicas S.A................................. 15
300 Zardoya-Otis S.A.................................. 31
-------
2,852
-------
SWITZERLAND (2.0%)
+25 Adia S.A. (Bearer)................................ 5
25 Alusuisse-Lonza Holding AG (Bearer)............... 16
50 Alusuisse-Lonza Holding AG (Registered)........... 31
60 BBC Brown Boveri AG (Bearer)...................... 62
30 Ciba-Geigy AG (Bearer)............................ 22
160 Ciba-Geigy AG (Registered)........................ 117
800 CS Holding AG (Registered)........................ 73
10 Georg Fischer AG (Bearer)......................... 14
45 Holderbank Financiere Glaris AG (Bearer).......... 37
30 Merkur Holding AG (Registered).................... 9
250 Nestle S.A. (Registered).......................... 260
10 Roche Holding AG (Bearer)......................... 111
45 Roche Holding AG-Genusshein....................... 290
10 SGS Societe Generale de Surveillance Holding S.A.
(Bearer)........................................ 18
25 SMH AG (Bearer)................................... 16
100 SMH AG (Registered)............................... 14
225 Sandoz AG (Registered)............................ 155
100 Schweizerische Rueckversicherungs-Gesellschaft
(Registered).................................... 77
25 Sulzer AG (Registered)............................ 17
150 Swiss Bank Corp. (Bearer)......................... 53
250 Swiss Bank Corp. (Registered)..................... 44
+25 SwissAir AG (Registered).......................... 17
140 Union Bank of Switzerland (Bearer)................ 145
150 Union Bank of Switzerland (Registered)............ 33
50 Zurich Versicherungs-Gesellschaft (Registered).... 63
-------
1,699
-------
UNITED KINGDOM (8.7%)
17,900 Abbey National plc ............................... 133
13,000 Argyll Group plc ................................. 69
12,600 Arjo Wiggins Appleton plc ........................ 52
5,100 Associated British Foods plc ..................... 54
14,900 Barclays plc ..................................... 160
9,400 Bass plc ......................................... 90
30,675 BAT Industries plc ............................... 235
6,000 BICC plc ......................................... 28
11,000 Blue Circle Industries plc ....................... 49
5,400 BOC Group plc .................................... 69
11,000 Boots Co. plc .................................... 89
5,000 Bowater plc ...................................... 38
7,600 BPB Industries plc ............................... 38
4,400 British Aerospace plc ............................ 39
10,300 British Airways plc .............................. 68
50,300 British Gas plc .................................. 232
54,900 British Petroleum Co. plc ........................ 393
19,500 British Steel plc ................................ 53
59,600 British Telecommunications plc ................... 372
37,200 BTR plc .......................................... 189
2,518 Burmah Castrol plc ............................... 36
22,300 Cable & Wireless plc ............................. 153
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
UNITED KINGDOM (CONT.)
10,600 Cadbury Schweppes plc ............................ $ 77
6,900 Caradon plc ...................................... 26
7,714 Coats Viyella plc ................................ 23
4,585 Commercial Union plc ............................. 43
4,400 Courtaulds plc ................................... 31
3,100 De La Rue plc .................................... 46
4,800 Eastern Group plc ................................ 50
11,100 Forte plc ........................................ 40
6,200 General Accident plc ............................. 57
33,600 General Electric plc ............................. 164
4,764 GKN plc .......................................... 49
30,900 Glaxo Holdings plc ............................... 372
24,200 Grand Metropolitan plc ........................... 151
10,700 Great Universal Stores plc ....................... 100
14,575 Guardian Royal Exchange plc ...................... 48
18,300 Guinness plc ..................................... 138
53,526 Hanson plc ....................................... 187
10,700 Harrisons & Crosfield plc ........................ 24
21,151 HSBC Holdings plc ................................ 273
7,600 Imperial Chemical Industries plc ................. 93
14,991 Ladbroke Group plc ............................... 40
6,600 Land Securities plc .............................. 64
9,400 Lasmo plc ........................................ 26
12,674 Lloyds Bank plc .................................. 126
7,788 Lonrho plc ....................................... 18
30,500 Marks & Spencer plc .............................. 211
5,000 MEPC plc ......................................... 30
13,500 National Power plc ............................... 96
5,700 North West Water plc ............................. 50
9,100 Peninsular & Oriental Steam Navigation Co. ....... 84
12,600 Pilkington plc ................................... 35
22,677 Prudential Corp. plc ............................. 121
4,700 Rank Organisation plc ............................ 30
7,017 Redland plc ...................................... 46
8,300 Reed International plc ........................... 117
16,500 Reuters Holdings plc ............................. 138
2,800 RMC Group plc .................................... 47
9,400 Royal Bank of Scotland Group plc ................. 64
7,642 Royal Insurance Holdings plc ..................... 38
12,900 RTZ Corp. plc (Registered) ....................... 168
17,600 Sainsbury (J) plc ................................ 124
7,900 Scottish Power plc ............................... 41
16,400 Sears plc ........................................ 26
5,200 Sedgwick Group plc ............................... 11
2,800 S.G. Warburg Group plc ........................... 32
3,800 Slough Estates plc ............................... 13
12,800 SmithKline Beecham plc 'A' ....................... 116
3,400 Southern Electricity plc ......................... 35
11,860 Tarmac plc ....................................... 21
6,349 Taylor Woodrow plc ............................... 12
16,825 Tesco plc ........................................ 78
6,000 Thames Water plc ................................. 45
5,300 Thorne EMI plc ................................... 110
4,462 TI Group plc ..................................... 28
11,300 Trafalgar House plc .............................. 8
6,800 Unilever plc ..................................... 138
11,000 Vodafone Group plc ............................... 41
8,900 Zeneca Group plc ................................. 150
-------
7,209
-------
UNITED STATES (32.8%)
8,400 Abbott Laboratories .............................. 340
2,700 Aluminum Co. of America .......................... 135
5,400 American Express Co. ............................. 190
3,700 American Home Products Corp. ..................... 286
VALUE
SHARES (000)
- ---------------------------------------------------------------------
4,100 American International Group, Inc. ............... $ 467
15,900 American Telephone & Telegraph Co. ............... 845
5,700 Amoco Corp. ...................................... 380
+2,700 AMR Corp. ........................................ 201
2,000 Atlantic Richfield Co. ........................... 220
2,700 Automatic Data Processing, Inc. .................. 170
5,300 Banc One Corp. ................................... 171
5,300 BankAmerica Corp. ................................ 279
4,900 Bell Atlantic Corp. .............................. 274
5,700 BellSouth Corp. .................................. 362
5,300 Boeing Co. ....................................... 332
5,200 Bristol-Myers Squibb Co. ......................... 354
4,500 Campbell Soup Co. ................................ 221
200 Capital Cities/ABC, Inc. ......................... 22
2,700 Caterpillar, Inc. ................................ 173
3,600 Chevron Corp. .................................... 168
4,400 Chrysler Corp. ................................... 211
2,700 Chubb Corp. ...................................... 216
+3,600 Cisco Systems, Inc. .............................. 182
4,300 Citicorp ......................................... 249
11,300 Coca-Cola Co. .................................... 720
4,800 Columbia/HCA Healthcare Corp. .................... 208
2,700 Computer Associates International, Inc. .......... 183
5,300 Consolidated Edison Co. of New York, Inc. ........ 156
2,700 Cooper Industries, Inc. .......................... 107
2,700 Corning, Inc. .................................... 88
1,900 CSX Corp. ........................................ 143
1,300 Deere & Co. ...................................... 111
3,900 Dow Chemical Co. ................................. 280
7,800 Du Pont (EI) de Nemours Co. ...................... 536
5,300 Duke Power Co. ................................... 220
5,300 Eastman Kodak Co. ................................ 321
3,200 Eli Lilly & Co. .................................. 251
3,500 Enron Corp. ...................................... 123
5,600 Entergy Corp. .................................... 135
13,100 Exxon Corp. ...................................... 925
5,300 Federal National Mortgage Association ............ 500
5,300 FPL Group, Inc. .................................. 205
2,000 Gannett Co., Inc. ................................ 109
17,000 General Electric Co. ............................. 958
8,500 General Motors Corp. ............................. 399
2,700 General Motors Corp. 'E' ......................... 118
1,600 General RE Corp. ................................. 214
2,700 Goodyear Tire & Rubber Co. ....................... 111
5,300 Hewlett-Packard Co. .............................. 395
4,900 H.J. Heinz Co. ................................... 218
5,200 Home Depot, Inc. ................................. 211
7,900 Intel Corp. ...................................... 500
6,000 International Business Machines Corp. ............ 576
1,800 International Game Technology .................... 28
2,700 International Paper Co. .......................... 232
1,500 ITT Corp. ........................................ 176
3,100 J.C. Penney Co., Inc. ............................ 149
6,000 Johnson & Johnson ................................ 406
8,000 Kmart Corp. ...................................... 117
2,700 May Department Stores Co. ........................ 112
6,600 McDonald's Corp. ................................. 258
2,700 Melville Corp. ................................... 93
13,200 Merck & Co., Inc. ................................ 647
+5,300 Microsoft Corp. .................................. 479
5,300 Minnesota Mining & Manufacturing Co. ............. 303
4,600 Mobil Corp. ...................................... 442
1,600 Monsanto ......................................... 144
2,700 Morgan (J.P.) & Co., Inc. ........................ 189
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
SHARES VALUE)
(000
- ---------------------------------------------------------------------
UNITED STATES (CONT.)
6,400 Motorola, Inc. ................................... $ 430
1,100 Nucor Corp. ...................................... 59
5,300 NationsBank Corp. ................................ 284
2,100 Norfolk Southern Corp. ........................... 141
5,700 Norwest Corp. .................................... 164
+4,100 Novell, Inc. ..................................... 82
+2,650 Oracle System Corp. .............................. 102
7,700 Pacific Gas & Electric Co. ....................... 223
8,900 PepsiCo, Inc. .................................... 406
2,800 Pfizer, Inc. ..................................... 259
8,400 Philip Morris Cos., Inc. ......................... 625
1,700 PPG Industries, Inc. ............................. 73
7,900 Procter & Gamble Co. ............................. 568
+1,400 Promus Co., Inc. ................................. 55
8,000 Public Service Enterprise Group, Inc. ............ 222
5,300 Rockwell International Corp. ..................... 242
2,700 SCE Corp. ........................................ 46
5,100 Schering-Plough Corp. ............................ 225
5,200 Sprint Corp. ..................................... 175
5,300 Sears, Roebuck & Co. ............................. 317
8,000 Southern Co. ..................................... 179
6,000 Southwestern Bell Corp. .......................... 286
2,700 Suntrust Banks, Inc. ............................. 157
5,300 Texas Utilities Co. .............................. 182
2,700 The Dun & Bradstreet Corp. ....................... 142
5,300 The Limited, Inc. ................................ 117
5,300 Time Warner, Inc. ................................ 218
+5,300 Toys 'R' Us, Inc. ................................ 155
4,100 Travelers, Inc. .................................. 179
2,600 Union Pacific Corp. .............................. 144
1,350 U.S. Healthcare, Inc. ............................ 41
338 U.S. Industries, Inc. ............................ 5
3,000 Viacom, Inc. 'B' ................................. 139
15,900 Wal-Mart Stores, Inc. ............................ 425
5,700 Walt Disney Co. .................................. 317
800 Wells Fargo & Co. ................................ 144
8,000 Westinghouse Electric Corp. ...................... 117
5,300 Weyerhaeuser Co. ................................. 250
4,800 WMX Technologies, Inc. ........................... 136
-------
27,275
-------
TOTAL COMMON STOCKS (COST $75,752).......................... 80,493
-------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
27,069 News Corp. Ltd. .................................. 134
-------
GERMANY (0.0%)
100 RWE AG ........................................... 27
20 SAP AG ........................................... 25
-------
52
-------
ITALY (0.1%)
+16,000 Fiat S.p.A. ...................................... 35
-------
TOTAL PREFERRED STOCKS (COST $202).......................... 221
-------
NO. OF VALUE
RIGHTS (000)
- ---------------------------------------------------------------------
RIGHTS (0.0%)
AUSTRALIA (0.0%)
*+2,719 Coca-Cola Amatil Ltd. ............................ $ 3
-------
FRANCE (0.0%)
*+664 Cie Bancaire S.A. ................................ 8
-------
SPAIN (0.0%)
+300 Zardoya-Otis S.A. ................................ 3
-------
TOTAL RIGHTS (COST $0)...................................... 14
-------
NO. OF
UNITS
- --------
UNITS (0.2%)
AUSTRALIA (0.1%)
+1,622 Westfield Trust .................................. 2
25,700 Westfield Trust .................................. 45
-------
47
-------
UNITED KINGDOM (0.1%)
119 British Aerospace (1 share cumulative loan stock
plus 1 warrant) ................................ 1
12,400 SmithKline Beecham plc (1 'B' share common plus 1
preferred share) ............................... 110
-------
111
-------
TOTAL UNITS (COST $139)..................................... 158
-------
NO. OF
WARRANTS
- --------
WARRANTS (0.0%)
BELGIUM (0.0%)
+61 Petrofina S.A., expiring 6/3/97 .................. 1
-------
CANADA (0.0%)
+121 Trizec Corp., expiring 7/25/99 ................... --
-------
HONG KONG (0.0%)
+2,000 Applied International Holdings Ltd., expiring
12/30/99 ....................................... --
-------
ITALY (0.0%)
+420 R.A.S. S.p.A. Savings Shares, expiring
12/31/97 ....................................... 1
+880 R.A.S. S.p.A., expiring 11/30/97 ................. 4
-------
5
-------
TOTAL WARRANTS (COST $4).................................... 6
-------
FACE
AMOUNT
(000)
- --------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
$ 29 Sanofi 4.00%, 1/1/00 (COST $18)................... 18
-------
TOTAL FOREIGN & U.S. SECURITIES (97.4%) (COST $76,115)...... 80,910
-------
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.4%)
REPURCHASE AGREEMENT
UNITED STATES
$4,465 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $4,467, collateralized by $4,630
United States Treasury Bills, due 7/27/95,
valued at $4,612 (COST $4,465).................. $ 4,465
-------
TOTAL INVESTMENT IN SECURITIES (COST $80,580)............... 85,375
-------
FOREIGN CURRENCY (0.1%)
A$ 9 Australian Dollar................................. 6
BF 478 Belgian Franc..................................... 17
L 3 British Pound Sterling............................ 5
C$ 5 Canadian Dollar................................... 4
DM 1 Deutsche Mark..................................... 1
IL 22,189 Italian Lira...................................... 13
Y 2,002 Japanese Yen...................................... $ 24
S$ 6 Singapore Dollar.................................. 5
SP 842 Spanish Peseta.................................... 7
CHF 2 Swiss Franc....................................... 1
-------
TOTAL FOREIGN CURRENCY (COST $83)........................... 83
-------
TOTAL INVESTMENTS (102.9%) (COST $80,663)................... 85,458
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%)............... (2,412)
-------
Net Assets (100%)........................................... $83,046
-------
-------
<TABLE>
<S> <C> <C>
- ---------------
+ --
* --
ADR --
NCS --
RFD --
<CAPTION>
- ---------
<S> <C>
+ Non-income producing securities
* Fair valued securities -- See Note A-1
ADR American Depositary Receipt
NCS Non Convertible Shares
RFD Ranked for Dividends
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund is obligated to deliver or is to receive foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- ---------- --------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 2,616 $ 2,616 7/6/95 L 1,660 $ 2,642 $ 26
IL 2,385 1 7/31/95 $ 1 1 --
BF 126,707 4,485 4/30/96 $ 4,500 4,500 15
$ 2,900 2,900 4/30/96 BF 82,839 2,932 32
Y 796,000 9,781 4/30/96 $ 10,000 10,000 219
--------- --------- -----
$ 19,783 $ 20,075 $ 292
--------- --------- -----
--------- --------- -----
</TABLE>
BF -- Belgian Franc
IL -- Italian Lira
L -- British Pound Sterling
Y -- Japanese Yen
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------------------------------------------------- ------- -----------
<S> <C> <C>
Finance........................................... $17,388 21.0%
Services.......................................... 15,425 18.6
Consumer Goods.................................... 15,364 18.5
Energy............................................ 10,849 13.1
Capital Equipment................................. 9,650 11.6
Materials......................................... 8,243 9.9
Multi-Industry.................................... 3,528 4.2
Mining............................................ 463 0.5
------- ---
$80,910 97.4%
------- ---
------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
FIXED INCOME SECURITIES (94.8%)
AUSTRALIAN DOLLAR (2.5%)
GOVERNMENT BOND (2.5%)
A$ 600 Government of Australia 9.00%, 9/15/04................. $ 422
---------
BRITISH POUND STERLING (5.6%)
GOVERNMENT BOND (5.6%)
L 600 United Kingdom 8.00%, 12/7/00.......................... 946
---------
CANADIAN DOLLAR (3.3%)
EUROBOND (3.3%)
C$ 800 The Export-Import Bank of Japan 7.75%, 10/8/02......... 566
---------
DANISH KRONE (5.0%)
GOVERNMENT BOND (5.0%)
DK 5,050 Kingdom of Denmark 7.00%, 12/15/04..................... 843
---------
DEUTSCHE MARK (13.4%)
EUROBONDS (10.9%)
DM 500 Treuhandanstalt 6.25%, 7/29/99......................... 364
850 Treuhandanstalt 6.875%, 6/11/03........................ 609
1,250 Treuhandanstalt 6.75%, 5/13/04......................... 886
---------
1,859
---------
GOVERNMENT BOND (2.5%)
600 Bundesrepublik 6.50%, 7/15/03.......................... 420
---------
TOTAL DEUTSCHE MARK............................................... 2,279
---------
FINNISH MARKKA (1.4%)
GOVERNMENT BOND (1.4%)
FM 1,000 Republic of Finland 9.50%, 3/15/04..................... 244
---------
FRENCH FRANC (5.5%)
GOVERNMENT BOND (5.5%)
FF 4,800 Government of France O.A.T. 6.75%, 10/25/03............ 943
---------
ITALIAN LIRA (3.9%)
GOVERNMENT BOND (3.9%)
IL 1,220,000 Republic of Italy 8.50%, 8/1/99........................ 661
---------
JAPANESE YEN (9.5%)
EUROBONDS (9.5%)
Y 70,000 Japan Development Bank 6.50%, 9/20/01.................. 1,015
45,000 Republic of Austria 4.75%, 12/20/04.................... 611
---------
TOTAL JAPANESE YEN................................................ 1,626
---------
NETHERLANDS GUILDER (5.1%)
GOVERNMENT BONDS (5.1%)
NG 650 Government of the Netherlands 7.25%, 10/1/04........... 427
690 Government of the Netherlands 7.00%, 6/15/05........... 444
---------
TOTAL NETHERLANDS GUILDER......................................... 871
---------
NEW ZEALAND DOLLAR (1.9%)
GOVERNMENT BONDS (1.9%)
NZ$ 250 Government of New Zealand 6.50%, 2/15/00............... 159
250 Government of New Zealand 8.00%, 4/15/04............... 171
---------
TOTAL NEW ZEALAND DOLLAR.......................................... 330
---------
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
SPANISH PESETA (3.9%)
GOVERNMENT BONDS (3.9%)
SP 65,000 Government of Spain 10.25%, 11/30/98................... $ 517
20,000 Government of Spain 10.30%, 6/15/02.................... 154
---------
TOTAL SPANISH PESETA.............................................. 671
---------
SWEDISH KRONA (1.6%)
GOVERNMENT BONDS (1.6%)
SK 2,000 Government of Sweden 10.25%, 5/5/00.................... 272
---------
UNITED STATES DOLLAR (32.2%)
EUROBOND (1.0%)
$ 200 Republic of Italy 6.875%, 9/27/23...................... 178
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (31.2%)
FEDERAL HOME LOAN MORTGAGE CORPORATION
497 Gold 9.00%, 3/1/25..................................... 517
350 Gold TBA 9.00%, 7/1/25................................. 365
---------
882
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
247 ARM 7.00%, 1/1/25...................................... 252
97 ARM 7.50%, 1/20/25..................................... 102
150 TBA 30 Yr 9.00%, 7/15/25............................... 157
---------
511
---------
U.S. TREASURY BONDS
140 8.875%, 8/15/17........................................ 175
30 8.125%, 8/15/19........................................ 35
20 8.00%, 11/15/21........................................ 23
---------
233
---------
U.S. TREASURY NOTES
475 7.875%, 2/15/96........................................ 481
1,865 7.50%, 11/15/01........................................ 2,001
1,210 6.25%, 2/15/03......................................... 1,213
---------
3,695
---------
5,321
---------
TOTAL UNITED STATES DOLLAR.......................................... 5,499
---------
TOTAL FIXED INCOME SECURITIES (COST $15,661)........................ 16,173
---------
SHORT-TERM INVESTMENTS (4.2%)
DEUTSCHE MARK (0.8%)
POOLED TIME DEPOSIT (0.8%)
DM 187 ING Bank 4.75%, 7/5/95................................. 135
---------
UNITED STATES DOLLAR (3.4%)
REPURCHASE AGREEMENT (3.4%)
$ 586 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $586, collateralized by $615 U.S.
Treasury Bills, due 7/27/95, valued at $613.......... 586
---------
TOTAL SHORT-TERM INVESTMENTS (COST $721)............................ 721
---------
TOTAL INVESTMENTS (99.0%) (COST $16,382)............................ 16,894
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)........................ 163
---------
NET ASSETS (100%)................................................... $17,057
---------
---------
<TABLE>
<S> <C> <C>
- ---------------
ARM -- Adjustable Rate Mortgage
TBA -- Security is subject to delayed delivery.
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund is obligated to deliver or is to receive foreign currency in exchange for
U.S. dollars or foreign currency as indicated below:
<TABLE>
<CAPTION>
CURRENCY
TO IN EXCHANGE
DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN(LOSS) (000)
- --------- --------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C>
NG 1,300 $ 839 7/13/95 $ 821 $ 822 $ (17)
DM 1,000 725 9/6/95 $ 701 701 (24)
DK 2,800 518 9/7/95 $ 508 508 (10)
A$ 500 354 9/20/95 NZ$ 546 362 8
--------- --------- ---
$ 2,436 $ 2,393 $ (43)
--------- --------- ---
--------- --------- ---
</TABLE>
A$ -- Australian Dollar
DK -- Danish Krone
DM -- Deutsche Mark
NG -- Netherlands Guilder
NZ$ -- New Zealand Dollar
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- -------------------------------------------------------------------------
COMMON STOCKS (100.0%)
AUSTRALIA (0.0%)
+79,500 Odin Mining & Investment Co. Ltd. ................ $ 24
--------
CHINA (2.0%)
396,000 China Merchants Shokou Port Services 'B' ......... 215
*630,000 Chiwan Petroleum Supply 'B' ...................... 230
30,000 Jilin Chemical Industrial Co. ADR ................ 578
709,800 Jinqiao Export Processing Zone Development Co.
Ltd. 'B' ....................................... 341
5,519,000 Maanshan Iron & Steel Co. Ltd. ................... 1,155
59,000 Shandong Huaneng Power Co. Ltd. .................. 450
568,100 Shanghai Diesel Engine Co. Ltd. 'B' .............. 352
315,000 Shanghai Erfanji Co. Ltd. 'B' .................... 47
500,000 Shanghai Industrial Sewing Machine Co. Ltd. ...... 92
215,670 Shanghai Jin Jiang Tower 'B' ..................... 69
1,000,000 Shanghai Narcissus Electric Appliances Industrial
Co. Ltd. 'B' ................................... 260
8,800 Shanghai Petrochemical Co. ADR ................... 276
608,000 Shanghai Phoenix Bicycle 'B' ..................... 131
+221,000 Shanghai Refrigerator Compressor Co. Ltd. 'B' .... 79
335,500 Shanghai Tire & Rubber 'B' ....................... 101
75,000 Shanghai Yaohua Pilkington Glass 'B' ............. 75
81,400 Shenzhen Chiwan Wharf Holdings 'B' ............... 41
*1,100,000 Shenzhen North Jainshe Motorcycle ................ 533
3,670,000 Yizheng Chemical Fibre Co. 'H' ................... 1,281
--------
6,306
--------
HONG KONG (27.2%)
8,020,000 Charoen Pokphand Co. ............................. 2,824
2,665,000 Cheung Kong Holdings Ltd. ........................ 13,191
593,000 China Light & Power Co. Ltd. ..................... 3,050
1,769,000 Citic Pacific Ltd. ............................... 4,447
12,056,000 Guangdong Investments Ltd. ....................... 6,583
2,822,000 Harbin Power Equipment Co. ....................... 903
861,000 Hong Kong Electric Holdings ...................... 2,926
628,756 Hong Kong & Shanghai Bank ........................ 8,065
6,030,800 Hong Kong Telecommunications Ltd. ................ 11,925
2,698,000 Hopewell Holdings Ltd. ........................... 2,284
2,108,000 Hutchison Whampoa Ltd. ........................... 10,189
1,645,000 New World Development Co. Ltd. ................... 5,474
430,000 Peregrine Investment Holdings .................... 611
300,000 Sum Cheong International ......................... 171
601,100 Sun Hung Kai Properties Ltd. ..................... 4,447
795,300 Swire Pacific Ltd. 'A' ........................... 6,064
972,000 Varitronix International Ltd. .................... 1,702
554,000 Wharf Holdings Ltd. .............................. 1,808
--------
86,664
--------
INDIA (0.8%)
38,000 Grasim Industries Ltd. GDR ....................... 912
49,000 Hindalco Industries Ltd. ......................... 1,421
--------
2,333
--------
INDONESIA (6.6%)
*300,000 Asiana Imi Industries (Foreign) .................. 128
*504,000 Bank International Indonesia (Foreign) ........... 1,556
*770,000 Barito Pacific Timber (Foreign) .................. 1,106
*5,600,000 Bimantara Citra .................................. 3,143
*594,000 Charoen Pokphand Co. Ltd.(Foreign) ............... 1,294
*375,000 Duta Pertiwi (Foreign) ........................... 379
*462,000 Indocement Tunggal (Foreign) ..................... 1,815
*763,500 Indosat (Foreign) ................................ 2,897
*393,000 Kalbe Farma (Foreign) ............................ 1,800
VALUE
SHARES (000)
- -------------------------------------------------------------------------
*378,500 Kermika Indonesia Associasi (Foreign) ............ $ 510
*1,000,000 Ometraco (Foreign) ............................... 719
*962,400 Sona Topas Tourism Industry (Foreign) ............ 1,296
*311,000 Sorini Corp. (Foreign) ........................... 1,487
*1,375,000 Ultra Jaya Milk IDR (Foreign) .................... 1,235
*679,000 United Tractors (Foreign) ........................ 1,448
--------
20,813
--------
KOREA (3.6%)
49,560 Hyundai Engineering & Construction Co. ........... 2,307
40,000 Korea Electric Power ............................. 1,498
*+900 Korea Mobile Telecommunications Corp. ............ 949
69,600 Pohang Iron & Steel Ltd. ......................... 2,053
*11,870 Samsung Electronics Co. .......................... 2,445
#10,000 Samsung Electronics Co. GDR (New) ................ 962
#991 Samsung Electronics Co. GDS ...................... 71
#23,958 Samsung Electronics Co. GDS (Euro 1/2
non-voting)..................................... 1,264
--------
11,549
--------
MALAYSIA (21.9%)
758,000 Bandar Raya Developments Bhd. .................... 1,648
822,000 Genting Bhd. ..................................... 8,126
794,000 Land & General Bhd. .............................. 2,654
420,000 Magnum Corp. Bhd. ................................ 982
1,495,500 Malayan Banking Bhd. ............................. 11,839
1,038,000 Malaysian International Shipping (Foreign) ....... 3,044
1,317,000 Malaysian Resources Corp. Bhd. ................... 2,323
479,000 Mulpha International Bhd. ........................ 582
2,570,000 Renong Bhd. ...................................... 4,786
1,215,000 Resorts World Bhd. ............................... 7,127
650,000 Sime Darby Bhd. .................................. 1,813
1,024,000 Tan & Tan Development ............................ 1,277
233,000 Tanjong plc ...................................... 803
+564,000 Technology Resources Industries .................. 1,619
1,171,000 Telekom Malaysia Bhd. ............................ 8,886
1,264,000 Tenaga Nasional Bhd. ............................. 5,159
460,000 Time Engineering Bhd. ............................ 1,547
864,000 United Engineers Bhd. ............................ 5,493
--------
69,708
--------
PAKISTAN (0.2%)
7,200 Pakistan Telecommunications ...................... 731
--------
PHILIPPINES (5.9%)
+321,200 Aboitiz Equity Ventures .......................... 65
860,600 Ayala Corp. 'B' .................................. 960
1,408,125 Ayala Land, Inc. 'B' ............................. 1,626
#+289,440 Benpres Holdings Corp. GDR ....................... 2,460
7,638,000 JG Summit Holding 'B' ............................ 2,273
402,465 Manilla Electric 'B' ............................. 3,231
4,981,500 Petron Corp. ..................................... 3,218
15,500 Philippine Long Distance Telephone Co. ........... 1,108
9,800 Philippine Long Distance Telephone Co. ADR ....... 703
59,678 Philippine National Bank 'B' ..................... 695
*+228,000 Pilipino Telephone Corp. ......................... 179
289,380 San Miguel Corp. 'B' ............................. 1,201
+4,304,300 SM Prime Holdings, Inc. .......................... 1,180
--------
18,899
--------
SINGAPORE (14.8%)
260,000 British-American Tobacco ......................... 1,186
871,800 City Developments Ltd. ........................... 5,334
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<C> <S> <C>
VALUE
SHARES (000)
- -------------------------------------------------------------------------
SINGAPORE (CONT.)
749,000 DBS Land Ltd. .................................... $ 2,347
421,500 Development Bank of Singapore .................... 4,796
237,000 Fraser & Neave Ltd. .............................. 2,730
87,500 Jurong Engineering Ltd. .......................... 513
658,000 Keppel Corp. ..................................... 5,368
696,666 Oversea-Chinese Banking Corp. .................... 7,727
195,000 Overseas Union Bank Ltd. ......................... 1,228
391,000 Sembawang Corp. Ltd. ............................. 2,378
115,000 Singapore Airlines Ltd. (Foreign) ................ 1,062
200,400 Singapore Press Holdings (Foreign) ............... 2,997
1,964,000 Singapore Technologies Industrial Corp. .......... 2,979
400,000 Straits Steamship Land Ltd. ...................... 1,385
561,000 Straits Trading Co. Ltd. ......................... 1,405
397,000 United Overseas Bank Ltd. ........................ 3,750
--------
47,185
--------
TAIWAN (2.4%)
+612,000 Advanced Semiconductor Engineering, Inc. ......... 1,777
+738,000 Taiwan Semiconductor Co. ......................... 3,586
+445,000 United Micro Electronics Corp. Ltd. .............. 2,283
--------
7,646
--------
THAILAND (14.6%)
24,300 Advanced Information Services Co. Ltd. ........... 360
69,800 Advanced Information Services Co. Ltd.
(Foreign) ...................................... 1,035
677,300 Bangkok Bank Co. Ltd. (Foreign) .................. 7,463
144,300 Charoen Pokphand Feedmill Co. Ltd. (Foreign) ..... 859
13,800 Charoen Popkhand Feedmill Co. Ltd. ............... 84
752,044 Finance One Co. Ltd. (Foreign) ................... 5,545
239,400 International Engineering Co. .................... 1,794
69,400 Land & House Co. Ltd. (Foreign) .................. 1,462
207,800 National Finance & Securities Co. Ltd.
(Foreign) ...................................... 1,027
201,600 Phatra Thanakit Co. Ltd. (Foreign) ............... 1,682
96,000 Shinawatra Computer Co. Ltd. ..................... 2,380
53,000 Siam Cement Co. Ltd. (Foreign) ................... 3,384
315,500 Siam Commercial Bank Co. Ltd. .................... 3,016
1,500,000 Telecomasia Co. Ltd. (Foreign) ................... 5,621
511,200 Thai Farmer's Bank Co. ........................... 4,887
466,400 Thai Telephone & Telecommunications .............. 3,817
92,000 United Communication Industry (Foreign) .......... 1,386
403,000 Wongpaitoon Footwear Co. Ltd. (Foreign) .......... 620
--------
46,422
--------
TOTAL COMMON STOCKS (COST $289,705)............................ 318,280
--------
NO. OF VALUE
RIGHTS (000)
- -------------------------------------------------------------------------
RIGHTS (0.0%)
INDONESIA (0.0%)
*+400,000 Ometraco, expiring 8/29/95 ....................... $ --
--------
*+1,924,800 Sona Topas Tourism Industry, expiring 7/13/95 .... --
--------
TOTAL RIGHTS (COST $0)......................................... --
--------
NO. OF
UNITS
- -----------
UNITS (0.1%)
INDIA (0.1%)
34,000 SIV Industries Ltd. (3 GDR's + 1 Warrant) (COST
$649) .......................................... 357
--------
NO. OF
WARRANTS
- -----------
WARRANTS (0.0%)
THAILAND (0.0%)
*+132,200 National Finance & Securities Co. Ltd., expiring
11/15/99 (COST $0) ............................. --
--------
TOTAL FOREIGN SECURITIES (100.1%) (COST $290,354).............. 318,637
--------
FACE
AMOUNT
(000)
- -----------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
UNITED STATES
$ 883 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to
be repurchased at $883, collateralized by $920
United States Treasury Bills, due 7/27/95,
valued at $916 (COST $883) ..................... 883
--------
TOTAL INVESTMENT IN SECURITIES (COST $291,237)................. 319,520
--------
FOREIGN CURRENCY (0.0%)
HK$ 213 Hong Kong Dollar ................................. 27
MYR 4 Malaysian Ringgit ................................ 2
S$ 70 Singapore Dollar ................................. 50
T$ 519 Taiwan Dollar .................................... 20
--------
TOTAL FOREIGN CURRENCY (COST $99).............................. 99
--------
TOTAL INVESTMENTS (100.4%) (COST $291,336)..................... 319,619
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.4%).................. (1,455)
--------
NET ASSETS (100%).............................................. $318,164
--------
--------
</TABLE>
- ---------------
+ -- Non income producing securities
* -- Fair valued securities -- See Note A-1
# -- 144A Security -- Certain conditions for public
sale may exist
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
IDR -- International Depositary Receipt
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
INDUSTRY VALUE PERCENTAGE OF
- ----------------------------------- (000) NET ASSETS
-------- ----------------
Banking............................ $ 56,141 17.6 %
Real Estate........................ 51,417 16.2
Telecommunications................. 40,699 12.8
Services........................... 39,294 12.3
Multi-Industry..................... 34,572 10.9
Capital Equipment.................. 30,291 9.5
Materials.......................... 21,128 6.6
Energy............................. 18,974 6.0
Consumer Goods..................... 15,244 4.8
Financial Services................. 10,877 3.4
-------- -----
$318,637 100.1 %
-------- -----
-------- -----
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
COMMON STOCKS (91.8%)
AEROSPACE (3.1%)
24,400 AAR Corp.......................................... $ 436
10,800 Thiokol Corp...................................... 327
45,200 United Industrial Corp............................ 322
-------
1,085
-------
BANKING (9.4%)
12,700 First Security Corp............................... 356
16,000 Greenpoint Financial Corp......................... 378
12,700 Onbankcorp., Inc.................................. 360
22,000 Peoples Heritage Financial Group, Inc............. 330
11,200 Standard Federal Bank............................. 377
18,120 Summit Bancorp., Inc.............................. 385
9,000 Union Bank of San Francisco....................... 380
13,000 Union Planters Corp............................... 348
14,000 Washington Mutual, Inc............................ 328
-------
3,242
-------
BUILDING (3.3%)
10,200 Ameron, Inc....................................... 370
31,000 Gilbert Associates, Inc. 'A'...................... 403
15,200 Pratt & Lambert, Inc.............................. 355
-------
1,128
-------
CAPITAL GOODS (2.8%)
13,600 Binks Manufacturing Corp.......................... 345
19,400 Cascade Corp...................................... 310
13,900 Starret (L.S.) Co. 'A'............................ 315
-------
970
-------
CHEMICALS (3.8%)
20,400 Aceto Corp........................................ 301
16,500 Dexter Corp....................................... 390
14,700 LeaRonal, Inc..................................... 310
18,400 Quaker Chemical Corp.............................. 299
-------
1,300
-------
COMMUNICATIONS (1.1%)
18,500 Comsat Corp....................................... 363
-------
CONSUMER--DURABLES (3.1%)
17,900 Arvin Industries, Inc............................. 400
23,320 Knape & Vogt Manufacturing Co..................... 350
21,000 Oneida Ltd........................................ 310
-------
1,060
-------
CONSUMER--RETAIL (6.3%)
19,200 CPI Corp.......................................... 367
4,620 Dave & Busters, Inc............................... 92
27,100 Deb Shops, Inc.................................... 88
23,100 Edison Brothers Stores............................ 277
14,300 Guilford Mills, Inc............................... 348
29,000 Ross Stores, Inc.................................. 341
9,100 Springs Industries, Inc. 'A'...................... 339
33,000 Venture Stores, Inc............................... 326
-------
2,178
-------
CONSUMER--STAPLES (4.0%)
9,798 Block Drug Co. 'A'................................ 331
19,000 Coors (Adolph) 'B'................................ 311
15,300 International Multifoods Corp..................... 344
23,400 Nash Finch Co..................................... 380
-------
1,366
-------
ENERGY (2.0%)
13,700 Diamond Shamrock, Inc............................. $ 353
13,800 Ultramar Corp..................................... 348
-------
701
-------
FINANCIAL--DIVERSIFIED (3.2%)
10,900 FINOVA Group, Inc................................. 381
8,100 GATX Corp......................................... 382
22,900 Manufactured Home Communities, Inc................ 352
-------
1,115
-------
HEALTH CARE (4.0%)
12,700 Beckman Instruments, Inc.......................... 354
19,000 Bindley Western Industries, Inc................... 301
52,600 Kinetic Concepts, Inc............................. 375
18,500 United Wisconsin Services, Inc.................... 370
-------
1,400
-------
INDUSTRIAL (5.6%)
9,500 American Filtrona Corp............................ 280
6,900 Barnes Group, Inc................................. 278
28,100 Gencorp, Inc...................................... 302
28,100 Kaman Corp. 'A'................................... 358
27,600 Zero Corp......................................... 414
15,700 Zurn Industries Inc............................... 314
-------
1,946
-------
INSURANCE (5.3%)
12,100 Argonaut Group, Inc............................... 384
20,000 Enhance Financial Services Group.................. 387
15,600 Provident Life & Accident Insurance Co............ 363
10,600 Selective Insurance Group, Inc.................... 350
8,900 US Life Corp...................................... 358
-------
1,842
-------
METALS (2.2%)
5,300 Carpenter Technology Corp......................... 361
10,300 Cleveland-Cliffs Iron Co.......................... 397
-------
758
-------
PAPER & PACKAGING (3.0%)
11,300 Ball Corp......................................... 394
7,700 Potlatch Corp..................................... 321
18,600 Sealright Co., Inc................................ 312
-------
1,027
-------
SERVICES (11.0%)
15,400 ABM Industries, Inc............................... 356
15,600 Angelica Corp..................................... 390
19,300 Bowne & Co........................................ 331
22,200 Cross A.T. Co. 'A'................................ 330
28,900 Handleman Co...................................... 278
37,500 Jackpot Enterprises, Inc.......................... 380
11,400 National Service Industries, Inc.................. 329
17,100 New England Business Services, Inc................ 338
40,500 Piccadilly Cafeterias, Inc........................ 354
26,500 Russ Berrie & Co., Inc............................ 368
9,200 Wallace Computer Services, Inc.................... 353
-------
3,807
-------
TECHNOLOGY (9.7%)
18,000 Augat, Inc........................................ 369
6,900 Avnet, Inc........................................ 334
35,000 Core Industries, Inc.............................. 376
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
TECHNOLOGY (CONT.)
15,400 Cubic Corp........................................ $ 346
21,000 Gerber Scientific, Inc............................ 352
15,000 Joslyn Corp....................................... 394
13,100 MTS Systems Corp.................................. 354
20,900 National Computer Systems, Inc.................... 434
18,500 Scitex Corp....................................... 398
-------
3,357
-------
TRANSPORTATION (2.3%)
18,600 Overseas Shipholding Group, Inc................... 386
17,800 SkyWest, Inc...................................... 403
-------
789
-------
UTILITIES (6.6%)
13,600 Central Hudson Gas & Electric Corp................ 367
8,500 Commonwealth Energy Systems....................... 321
11,000 Eastern Entreprises............................... 329
17,100 Oneok, Inc........................................ 366
9,400 Orange & Rockland Utilities, Inc.................. 317
6,500 SJW Corp.......................................... 233
20,600 Washington Water Power Co......................... 330
-------
2,263
-------
TOTAL COMMON STOCKS (COST $29,742).......................... 31,697
-------
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (7.7%)
REPURCHASE AGREEMENT
$ 2,677 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $2,678, collateralized by $2,695
United States Treasury Bills, due 7/20/95,
valued at $2,687 (COST $2,677).................. $ 2,677
-------
TOTAL INVESTMENTS (99.5%) (COST $32,419).................... 34,374
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%)................ 168
-------
NET ASSET VALUE (100%)...................................... $34,542
-------
-------
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
FIXED INCOME SECURITIES (100.0%)
CORPORATE BONDS (23.9%)
UNITED STATES (23.9%)
$ 500 AES Corp. 9.75%, 6/15/00 ......................... $ 511
500 Armco, Inc. 9.375%, 11/1/00 ...................... 481
++200 Columbia Gas Systems, Inc. 10.50%, 6/1/12 ........ 292
500 Comcast Corp. 9.50%, 1/15/08 ..................... 501
1,000 Marcus Cable Co. 0.00% to 6/15/00, 14.25% to
12/15/05 ....................................... 533
500 Owens Illinois, Inc. 10.50%, 6/15/02 ............. 519
300 Plastic Specialties & Technologies, Inc. 11.25%,
12/1/03 ........................................ 282
500 Primark Corp. 8.75%, 10/15/00 .................... 488
500 Sherritt, Inc. 10.50%, 3/31/14 ................... 486
#350 Six Flags Theme Park, Inc. 0.00% to 6/15/98,
12.25% to 6/1/05 ............................... 254
500 Tracor, Inc. 10.875%, 8/15/01 .................... 513
518 Trump Taj Mahal PIK 11.35%, 11/15/99 ............. 411
500 Viacom International Subordinate Note 8.00%,
7/7/06 ......................................... 487
#150 Weirton Steel 10.75%, 6/1/05 ..................... 142
500 Westpoint Stevens, Inc. 9.375%, 12/15/05 ......... 484
--------
TOTAL CORPORATE BONDS (COST $6,286)........................... 6,384
--------
EUROBONDS (57.8%)
ARGENTINA (1.3%)
#400 Transport de Gas del Sur 7.75%, 12/23/98 ......... 354
--------
BRAZIL (27.5%)
1,300 Ceval Overseas Ltd. 10.75%, 7/11/96 .............. 1,300
#1,000 Compania Brasil de Projertos 12.50%, 12/22/97 .... 972
+++780 Federal Republic of Brazil 'C' Bond PIK 8.00%,
4/15/14 ........................................ 385
+++2,000 Federal Republic of Brazil New Money Bond 7.31%,
4/15/09 ........................................ 1,078
#1,000 Iochpe Maxion S.A. 12.375%, 11/8/02 .............. 880
1,500 Klabin Fabricadora Papel 10.00%, 12/20/01 ........ 1,357
1,750 Minas Gerais 'B' 8.25%, 2/10/00 .................. 1,365
--------
7,337
--------
BULGARIA (4.7%)
+++3,000 Bulgaria IAB 7.56%, 7/28/11 ...................... 1,268
--------
ECUADOR (4.2%)
+++2,250 Republic of Ecuador 7.25%, 2/28/25 ............... 1,119
--------
MEXICO (9.4%)
1,500 Cemex S.A. 8.875%, 6/10/98 ....................... 1,297
#200 Cemex S.A. 9.50%, 9/20/01 ........................ 156
500 Empresas La Moderna 10.25%, 11/12/97 ............. 455
#216 MC-Cuernavaca Trust 9.25%, 7/25/01 ............... 158
750 Mexico Par Bond 'B' (Value Recovery Rights
Attached) 6.25%, 12/31/19 ...................... 457
--------
2,523
--------
NIGERIA (5.0%)
3,000 Central Bank of Nigeria (Warrants Attached) 6.25%,
11/15/20 ....................................... 1,328
--------
VENEZUELA (5.7%)
+++3,000 Republic of Venezuela 'B' (Oil Warrants Attached)
6.75%, 3/31/20 ................................. 1,511
--------
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
TOTAL EUROBONDS (COST $15,585)................................ $ 15,440
--------
LOAN AGREEMENTS (8.9%)
MOROCCO (2.2%)
$ p+++1,000 Kingdom of Morocco Restructuring and Consolidation
Agreement 'A' 1990 7.38%, 1/1/09 (Participation:
Salomon Brothers)............................... 589
--------
RUSSIA (6.7%)
++/+++5,500 Bank for Foreign Economic Affairs................. 1,787
--------
TOTAL LOAN AGREEMENTS (COST $2,316) .......................... 2,376
--------
YANKEE BONDS (9.4%)
ARGENTINA (1.2%)
#350 Bridas Corp. 12.50%, 11/15/99 .................... 313
--------
INDONESIA (0.6%)
150 Polysindo Eka Perkasa 13.00%, 6/15/01 ............ 152
--------
MEXICO (5.9%)
#1,500 Petro Mexicanos 8.625%, 12/1/23 .................. 1,018
800 Tolmex S.A. 8.375%, 11/1/03 ...................... 566
--------
1,584
--------
UNITED STATES (1.7%)
500 Algoma Steel, Inc. 12.375%, 7/15/05 .............. 460
--------
TOTAL YANKEE BONDS (COST $2,552) ............................. 2,509
--------
TOTAL FIXED INCOME SECURITIES (COST $26,739) ................... 26,709
--------
NO. OF
UNITS
- ------------
UNITS (0.4%)
UNITED STATES (0.4%)
#100 Gulf States Steel ($1 million 1st Mortgage Note +
1 Warrant) 13.50%, 4/15/03 (COST $100) ......... 97
--------
TOTAL INVESTMENTS IN SECURITIES (COST $26,839).................. 26,806
--------
FACE
AMOUNT
(000)
- ------------
SHORT-TERM INVESTMENT (26.2%)
REPURCHASE AGREEMENT
UNITED STATES
$ 6,983 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95 to be
repurchased at $6,986, collateralized by $7,235
U.S. Treasury Bills, due 7/27/95, valued at
$7,207 (COST $6,983) ........................... 6,983
--------
TOTAL INVESTMENTS (126.6%) (COST $33,822)....................... 33,789
LIABILITIES IN EXCESS OF OTHER ASSETS (-26.6%).................. (7,090)
--------
NET ASSETS (100%)............................................... $ 26,699
--------
--------
- ---------------
++ -- Non-income producing securities -- in
default
+++ -- Variable or floating rate securities --
rate disclosed is as of June 30, 1995.
# -- 144A Security -- Certain conditions for
public sale may exist.
IAB -- Interest Arrears Bond
PIK -- Payment-in-kind. Income may be received
in additional securities or cash at the
discretion of the issuer.
p -- Participation interests were acquired
through the financial institutions
indicated parenthetically.
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
Foreign Government Bonds................ $ 7,146 26.8%
Consumer Goods.......................... 3,748 14.0
Energy.................................. 3,343 12.5
Materials............................... 3,306 12.4
Loan Agreements......................... 2,376 8.9
Capital Equipment....................... 1,904 7.1
Telecommunications...................... 1,520 5.7
Metals.................................. 1,083 4.1
Services................................ 1,153 4.3
Industrial.............................. 972 3.6
Finance................................. 158 0.6
-------- --------
$ 26,709 100.0%
-------- --------
-------- --------
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------
COMMON STOCKS (60.2%)
ARGENTINA (8.9%)
1,851 Banco del Sud Argentina .............. $ 11
+126,607 Banco del Suquia S.A. 'B' ............ 184
395 Buenos Aires Embotelladora ADR ....... 10
14,900 Capex S.A. 'A' ....................... 116
#22,865 Capex S.A. ADR ....................... 352
23,610 CIADEA (Renault) ..................... 115
13,545 Quilmes Industrial ................... 264
---------
1,052
---------
BRAZIL (18.8%)
25,550,000 Acesita .............................. 166
15,119 Brahma ............................... 5
6,340,820 Cia Energetica de Sao Paulo .......... 207
1,108,000 Cia Paulista De Forca e Luz .......... 55
9,400,000 Cia Siderurgica Nacional ............. 214
#6,313 Cemig GDR ............................ 123
1,770,000 Eletrobras ........................... 461
8,300 Eletrobras ADR ....................... 112
305,000 Light ................................ 96
#15,930 Rhodia-Ster S.A. GDR ................. 223
4,600,000 Telebras ............................. 131
6,300 Telebras ADR ......................... 208
1,303,000 Telesp ............................... 166
#3,907 Usiminas ADR ......................... 43
---------
2,210
---------
CHILE (2.6%)
7,915 Empresa Nacional de Electricidad
ADR ................................ 210
5,000 Maderas y Sinteticos S.A. ADR ........ 94
---------
304
---------
MEXICO (26.9%)
9,600 ALFA S.A. de C.V. .................... 117
+56,800 Apasco S.A. de C.V. .................. 225
96,270 Banacci 'B' .......................... 148
106,588 Banacci 'L' .......................... 162
#24,080 Cemex ADR ............................ 164
19,400 Cemex 'CPO' .......................... 67
16,150 Empresas ICA Sociedad Controladora
S.A. de C.V. ....................... 166
186,250 FEMSA 'B' ............................ 435
#4,300 Grupo Carso S.A. ADR ................. 47
+157,000 Grupo Financiero Bancomer 'B' ........ 46
+37,015 Grupo Financiero Bancomer 'L' ........ 10
#49,790 Grupo Financiero Bancomer ADS ........ 299
+107,000 Grupo Financiero Probursa 'C' ........ 47
+12,950 Grupo Mexicano de Desarollo 'B'
ADR ................................ 50
+5,000 Grupo Simec S.A. de C.V. 'B' ADR ..... 49
#9,550 Hylsamex ADR ......................... 174
8,275 Pan American Beverages, Inc. 'A' ..... 248
30,450 Sidek 'B' ............................ 27
10,660 Telefonos de Mexico 'L' ADR .......... 316
89,450 Tolmex 'B2' .......................... 349
+1,150 Tribasa ADR .......................... 10
---------
3,156
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------
PERU (3.0%)
67,600 Banco de Credito del Peru 'C' ........ $ 119
136,061 Telefonica del Peru 'B' .............. 232
---------
351
---------
TOTAL COMMON STOCKS (COST $7,930).................. 7,073
---------
PREFERRED STOCKS (36.2%)
BRAZIL (36.2%)
670,000 Acesita .............................. 5
60,940,000 Banco Bradesco ....................... 516
2,790,000 Banco Nacional ....................... 54
15,950,000 Banco do Brasil ...................... 191
3,940,000 Banco do Estado ...................... 22
164 Bardella S.A. ........................ 25
+1,134,700 Brahma ............................... 372
293,000 Brasmotor S.A. ....................... 54
800,000 Cemig ................................ 16
#3,539 Cemig ADR ............................ 70
+181,000 Centrais Eletricas de Santa Catarina
'B' ................................ 146
65,400 Cia Energetica de Sao Paulo .......... 3
6,040,000 Cia Paulista de Forca e Luz .......... 199
20,000 Confab Industrial S.A. ............... 15
400,000 Coteminas ............................ 126
3,200,000 Continental 2001 ..................... 69
144,064 Dixie Lalekla S.A. ................... 113
939,000 Eletrobras 'B' ....................... 250
1,639,100 Itaubanco ............................ 499
8,166,000 Lojas Renner ......................... 138
85,000 Multibras S.A. ....................... 70
4,528,000 Petrobras ............................ 384
49,500,000 Refripar ............................. 96
10,000,000 Tec Toy Industria Brinquedos ......... 6
5,889,383 Telebras ............................. 194
1,867,000 Telesp ............................... 231
62,800,000 Usiminas ............................. 71
1,080,000 Vale do Rio Doce ..................... 163
+325,000 WEG S.A. ............................. 148
---------
TOTAL PREFERRED STOCKS (COST $4,733)............... 4,246
---------
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
+4,000,000 Cia Paulista De Forza e Luz call,
expiring 10/16/95, strike price BR
70.00 (COST $0)..................... 6
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
(000)
<C> <S> <C>
- -----------
RIGHTS (0.0%)
BRAZIL (0.0%)
*+1,100,455 Banco Bradesco (COST $0)............. 1
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------
CONVERTIBLE DEBENTURES (3.2%)
COLOMBIA (3.2%)
$ #500 Banco de Colombia 5.20%, 2/1/99 (COST
$489) ............................. 380
---------
TOTAL FOREIGN SECURITIES (99.6%) (COST $13,152)... 11,706
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------
FOREIGN CURRENCY (0.7%)
APS 33 Argentine Peso ...................... $ 33
BR 21 Brazilian Real ...................... 22
ME 136 Mexican New Peso .................... 22
PS 2 Peruvian Sol ........................ 1
---------
TOTAL FOREIGN CURRENCY (COST $78)................. 78
---------
TOTAL INVESTMENTS (100.3%) (COST $13,230)......... 11,784
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%)..... (41)
---------
NET ASSETS (100%)................................. $11,743
---------
---------
- ---------------
</TABLE>
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
* -- Fair valued securities -- See Note A-1
144A Security -- certain conditions for public sale
# -- may exist
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995,
the Fund is obligated to deliver U.S. dollars in exchange for foreign currency
as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ------------- ----- ----------- ------------- ----- ---------------
<S> <C> <C> <C> <C> <C>
$ 72 $ 72 7/3/95 BR 66 $ 72 --
-- --
-- --
------ ---
------ ---
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
BR -- Brazilian Real
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Finance............................................................ $ 2,738 23.3%
Consumer Goods..................................................... 2,009 17.1
Materials.......................................................... 1,974 16.8
Utilities.......................................................... 1,954 16.6
Services........................................................... 1,477 12.6
Energy Sources..................................................... 999 8.5
Multi-Industry..................................................... 329 2.8
Capital Equipment.................................................. 226 1.9
--------- ---
$ 11,706 99.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S>
- ---------------------------------------------------------------------
COMMON STOCKS (71.7%)
ARGENTINA (2.1%)
2,200 Banco Frances del Rio de la Plata................. $13
705 Banco Frances del Rio de la Plata ADR............. 13
3,420 Banco de Galicia y Buenos Aires 'B'............... 14
8,227 Banco de Galicia y Buenos Aires ADR............... 130
1,410 Banco del Sud Argentina........................... 9
960 Buenos Aires Embotelladora ADR.................... 24
32,467 CIADEA (Renault).................................. 157
1,500 Capex S.A. 'A'.................................... 12
#6,575 Capex S.A. ADR.................................... 101
18,133 Cia Naviera Perez Companc S.A. 'B'................ 76
23,352 Quilmes Industrial................................ 455
--
1,004
--
BRAZIL (5.4%)
16,099 Brahma............................................ 5
#5,702 Cemig............................................. 111
5,963,260 Cia Energetica de Sao Paulo....................... 194
2,275,000 Cia Paulista de Forca e Luz....................... 114
9,950,000 Cia Siderurgica Nacional.......................... 227
1,513,000 Eletrobras........................................ 395
404,000 Light............................................. 127
#8,782 Rhodia-Ster S.A. GDR.............................. 123
5,260,000 Telebras.......................................... 149
28,070 Telebras ADR...................................... 926
740,000 Telesp............................................ 94
#15,100 Usiminas ADR...................................... 168
--
2,633
--
CHINA (1.1%)
4,300 Jilin Chemical Industrial Co. ADR................. 83
50,000 Maanshan Iron & Steel Co. Ltd..................... 10
50,000 Shanghai Diesel Engine Co. Ltd. 'B'............... 31
150,000 Shenzhen Chiwan Wharf Holdings 'B'................ 75
*160,000 Shenzhen North Jainshe Motorcycle................. 78
630,000 Yizheng Chemical Fibre 'H'........................ 220
+40,000 Zhuhai Pharmaceutical 'B'......................... 18
--
515
--
GREECE (3.1%)
+7,500 Aegek............................................. 167
6,000 Alpha Credit Bank................................. 333
17,000 Delta Dairy S.A................................... 354
7,000 Ergo Bank S.A..................................... 322
11,000 Hellenic Bottling Co. S.A......................... 327
--
1,503
--
HONG KONG (8.2%)
680,000 Charoen Pokphand Co............................... 239
72,000 Cheung Kong Holdings Ltd.......................... 356
90,000 Citic Pacific Ltd................................. 226
650,000 Guangdong Investments Ltd......................... 355
46,000 Hang Seng Bank Ltd................................ 351
262,000 Harbin Power Equipment Co......................... 84
132,800 Hong Kong Telecommunications Ltd.................. 263
420,000 Hopewell Holdings Ltd............................. 355
137,000 Hutchison Whampoa Ltd............................. 662
113,000 New World Development Co. Ltd..................... 376
11,000 Sun Hung Kai Properties Ltd....................... 81
49,000 Swire Pacific Ltd. 'A'............................ 374
140,000 Varitronix International Ltd...................... 245
--
3,967
--
HUNGARY (0.2%)
5,350 Gedeon Richter (Austrian Certificates)............ 86
--
INDIA (6.1%)
3,255 Century Textiles & Industries GDR................. 505
90,000 Great Eastern Shipping GDR........................ 641
20,250 Indian Aluminum Co. GDR........................... 220
#4,480 JCT Ltd. GDR...................................... 80
@108,700 Morgan Stanley India Investment Fund.............. 1,114
60,000 Tube Investments of India......................... $405
--
2,965
--
INDONESIA (6.1%)
*840,000 Bimantara Citra................................... 471
*80,000 Bank International Indonesia (Foreign)............ 247
*55,500 Charoen Pokphand Co. Ltd.(Foreign)................ 121
*72,000 Duta Pertiwi (Foreign)............................ 73
*109,500 Indocement Tunggal (Foreign)...................... 430
*60,000 Indosat (Foreign)................................. 228
5,800 Indosat ADR....................................... 222
*79,000 Kalbe Farma (Foreign)............................. 362
*16,000 Kermika Indonesia Association (Foreign)........... 21
*35,166 Sorini Corp. (Foreign)............................ 168
44,800 Tempo Scan Pacific (Foreign)...................... 231
*173,000 United Tractors (Foreign)......................... 369
--
2,943
--
ISRAEL (3.1%)
4,000 Elbit Ltd......................................... 300
680 First International Bank of Israel Ltd. '1'....... 84
2,000 First International Bank of Israel Ltd. '5'....... 247
44,327 Israel Land Development Co. Ltd................... 133
5,100 Koor Industries Ltd............................... 434
16,900 Osem Investment Ltd............................... 130
9,000 Super Sol Ltd..................................... 172
--
1,500
--
KOREA (1.3%)
1,000 Pohang Iron & Steel............................... 86
*1,500 Samsung Electronics Co............................ 309
6,000 Shinhan Bank Co. Ltd.............................. 123
3,000 Yukong Ltd........................................ 125
--
643
--
MEXICO (9.1%)
+37,200 Apasco S.A. de C.V................................ 148
221,655 Banacci 'B'....................................... 340
137,082 Banacci 'L'....................................... 208
#70,021 Cemex 'CPO' ADR................................... 476
51,500 Cemex 'CPO'....................................... 178
34,625 Empresas ICA Sociedad Controladora S.A. de C.V.... 355
+214,000 Grupo Financiero Bancomer 'B'..................... 63
+54,403 Grupo Financiero Bancomer 'L'..................... 14
#95,510 Grupo Financiero Bancomer ADS..................... 573
+59,000 Grupo Financiero Probursa 'C'..................... 26
+17,200 Grupo Mexicano de Desarollo 'B' ADR............... 67
#10,720 Hylsamex ADR...................................... 196
+4,800 Internacional de Ceramica ADR..................... 38
14,280 Pan American Beverages, Inc. 'A'.................. 428
+7,200 Sidek 'A'......................................... 6
+21,000 Sidek 'B'......................................... 19
5,700 Sidek ADR......................................... 26
17,325 Telefonos de Mexico 'L' ADR....................... 513
129,850 Tolmex 'B2'....................................... 507
+26,420 Tribasa ADR....................................... 225
--
4,406
--
MOROCCO (0.3%)
2,000 ONA S.A........................................... 83
2,000 Wafabank.......................................... 82
--
165
--
PAKISTAN (3.2%)
95,000 Dewan Salman Fibre................................ 313
143,000 D.G. Khan Cement Ltd.............................. 202
100,000 Fauji Fertilizer Co. Ltd.......................... 197
100,000 Karachi Electric.................................. 86
35,000 Nishat Mills Ltd.................................. 32
27,000 Pakistan State Oil Co. Ltd........................ 327
3,450 Pakistan Telecommunication Co..................... 368
10,000 Sui Northern Gas Pipelines........................ 10
--
1,535
--
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S>
PHILIPPINES (3.5%)
184,125 Ayala Land, Inc. 'B'.............................. $213
749,000 JG Summit Holding 'B'............................. 223
30,000 Manilla Electric 'B'.............................. 241
737,500 Petron Corp....................................... 476
600 Philippine Long Distance Telephone ADR............ 43
32,000 Pilipino Telephone Corp........................... 25
841,100 SM Prime Holdings, Inc............................ 231
57,900 San Miguel Corp. 'B'.............................. 240
--
1,692
--
POLAND (1.9%)
12,500 Bank Rozwoju Eksportu S.A......................... 200
15,750 Debica S.A........................................ 222
1,650 E. Wedel S.A...................................... 97
+31,300 Electrim.......................................... 110
+48,000 Mostostal Export 'A'.............................. 121
2,100 Zywiec............................................ 159
--
909
--
PORTUGAL (1.0%)
6,500 Banco Totta & Acores 'B' (Registered)............. 138
6,000 Filmes Lusomundo.................................. 66
15,000 UNICER-Uniao Cervejeira S.A....................... 253
--
457
--
SINGAPORE (0.2%)
6,600 Asia Pulp & Paper Co. Ltd. ADR.................... 83
--
SOUTH AFRICA (2.9%)
1,324 Anglo American Industrial Corp. Ltd............... 66
69,000 Gencor Ltd........................................ 237
75,000 Murray & Roberts Holdings Ltd..................... 433
400,000 SA Iron & Steel Corp. Ltd......................... 454
17,933 SASOL Ltd......................................... 172
5,530 Trans-Natal Coal.................................. 43
--
1,405
--
TAIWAN (2.3%)
+88,400 Advanced Semiconductor Engineering, Inc........... 257
+82,800 Taiwan Semiconductor Co........................... 402
+88,000 United Micro Electronics Corp. Ltd................ 451
--
1,110
--
THAILAND (6.9%)
14,800 Advanced Information Services Co. Ltd.
(Foreign)....................................... 219
63,400 Bangkok Bank Co. Ltd.............................. 555
68,000 Bangkok Bank Co. Ltd. (Foreign)................... 749
75,700 Finance One Co. Ltd. (Foreign).................... 558
22,000 Phatra Thanakit Co. Ltd. (Foreign)................ 184
10,300 Shinawatra Computer Co. Ltd....................... 255
2,900 Siam Cement Co. Ltd. (Foreign).................... 185
67,000 Thai Farmer's Bank Public Co...................... 641
--
3,346
--
TURKEY (3.7%)
350,000 Aksa Akrilik Kimya Sanayii A.S.................... 309
300,000 Borusan Birmesik.................................. 117
+405,000 Ege Biracilik Ve Malt Sanayii..................... 476
190,000 Ege Seramik Co., Inc.............................. 92
250,000 Koc Yatirim Ve Sanayii Mamulleri.................. 78
130,000 Migros Turk....................................... 146
250,000 Tat Konserve...................................... 195
+230,000 Tofas Turk Otomobil Fabrikasi..................... 203
2,428,400 Yapi Ve Kredi Bankasi............................. 156
--
1,772
--
TOTAL COMMON STOCKS (COST $35,785)............................... 34,639
--
PREFERRED STOCKS (11.6%)
BRAZIL (10.3%)
9,234,000 Acesita........................................... 60
77,680,000 Banco Bradesco.................................... $658
12,067,000 Banco Nacional.................................... 235
21,630,000 Banco do Brasil................................... 258
6,400,000 Banco do Estado................................... 36
+1,649,000 Brahma............................................ 541
386,000 Brasmotor......................................... 71
2,847 Cemig ADR......................................... 56
+19,000 Centrais Eletricas de Santa Catarina 'B'.......... 15
1,560,000 Cia Energetica de Sao Paulo....................... 62
#18,110 Cia Energetica de Sao Paulo ADR................... 206
1,350,000 Cia Paulista de Forca e Luz....................... 44
+45,000,000 Cosipa 'B'........................................ 75
2,070,000 Eletrobras 'B'.................................... 551
1,935,200 Itaubanco......................................... 589
93,000 Multibras S.A..................................... 77
4,991,000 Petrobras......................................... 423
2,105,000 Petrobras Distribuidora........................... 73
11,698,390 Telebras.......................................... 385
1,991,000 Telesp............................................ 247
96,360,000 Usiminas.......................................... 109
1,480,000 Vale do Rio Doce.................................. 224
--
4,995
--
MEXICO (1.1%)
224,900 FEMSA 'B'......................................... 525
--
PORTUGAL (0.2%)
*11,780 Filmes Lusomundo.................................. 109
--
TOTAL PREFERRED STOCKS (COST $6,477)............................. 5,629
--
<CAPTION>
NO. OF
RIGHTS
<C> <S>
- ------------
RIGHTS (0.1%)
BRAZIL (0.0%)
*+1,402,746 Banco Bradesco.................................... 2
--
PAKISTAN (0.0%)
*+750 Dewan Salman Fibre................................ --
*+5,250 Nishat Mills...................................... 2
--
2
--
TURKEY (0.1%)
*+65,000 Migros Turk....................................... 71
--
TOTAL RIGHTS (COST $74).......................................... 75
--
<CAPTION>
NO. OF
WARRANTS
<C> <S>
- ------------
WARRANTS (0.0%)
THAILAND
*+3,800 National Finance & Securities Co. Ltd., expiring
11/15/99 (COST $0).............................. --
--
<CAPTION>
SHARES
<C> <S>
- ------------
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
+900,000 Cia Paulista De Forza e Luz call, expiring
10/16/95, strike price BR 70.00 (COST $0)....... 1
--
<CAPTION>
FACE
AMOUNT
(000)
<C> <S>
- ------------
FIXED INCOME SECURITIES (4.9%)
CONVERTIBLE DEBENTURES (0.5%)
COLOMBIA (0.3%)
$ #170 Banco de Colombia 5.20%, 2/1/99................... 129
--
INDIA (0.2%)
120 Tata Iron & Steel Co. 2.25%, 4/1/99............... 112
--
TOTAL CONVERTIBLE DEBENTURES (COST $303)......................... 241
--
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<C> <S>
LOAN AGREEMENTS (4.4%)
RUSSIA (4.4%)
++/+++$6,500 Bank for Foreign Economic Affairs
(COST $1,741)................................... $2,113
--
TOTAL FIXED INCOME SECURITIES (COST $2,044)...................... 2,354
--
TOTAL FOREIGN SECURITIES (88.3%) (COST $44,380).................. 42,698
--
SHORT TERM INVESTMENTS (13.9%)
REPURCHASE AGREEMENT
UNITED STATES
6,706 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $6,709, collateralized by $6,950
United States Treasury Bills, due 7/27/95,
valued at $6,923 (COST $6,706) 6,706
--
TOTAL INVESTMENT IN SECURITIES (COST $51,086).................... 49,404
--
FOREIGN CURRENCY (1.1%)
APS 66 Argentine Peso.................................... 66
BR 58 Brazilian Real.................................... 63
GR 14,091 Greek Drachma..................................... 62
HK$ 3 Hong Kong Dollar.................................. --
IDN 518,430 Indonesian Rupiah................................. $233
MXN 5 Mexican New Peso.................................. 1
PKR 2,660 Pakistani Rupee................................... 86
PLZ 14 Polish Zloty...................................... 6
T$ 198 Taiwan Dollar..................................... 8
TB 369 Thai Baht......................................... 15
--
TOTAL FOREIGN CURRENCY (COST $540)............................... 540
--
TOTAL INVESTMENTS (103.3%) (COST $51,626)........................ 49,944
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.3%).................... (1,608)
--
NET ASSETS (100%)................................................ $48,336
--
--
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing
securities
++ -- Non-income producing
securities -- in default
+++ -- Variable or floating rate
securities.
* -- Fair valued securities -- See
Note A-1
@ -- The Fund is advised by an
affiliate.
# -- 144A Security -- certain
conditions for pubic sale may
exist.
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund is obligated to deliver U.S. dollars in exchange for foreign currency as
indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- ---------- ------- ----------- -------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 71 $ 71 7/3/95 GR 16,193 $ 72 $ 1
$ 51 51 7/3/95 PKR 1,573 51 --
$ 77 77 7/3/95 PTE 11,198 77 --
$ 150 150 7/3/95 ZAR 547 151 1
--
------- -------
$ 349 $ 351 $ 2
--
--
------- -------
------- -------
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
GR -- Greek Drachma
PKR -- Pakistani Rupee
PTE -- Portuguese Escudo
ZAR -- South African Rand
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Finance................................. $ 12,619 26.1%
Consumer Goods.......................... 7,904 16.4
Materials............................... 5,533 11.4
Capital Equipment....................... 4,347 9.0
Services................................ 4,323 8.9
Energy.................................. 3,666 7.6
Multi-Industry.......................... 2,193 4.5
Loan Agreements......................... 2,113 4.4
-------- ---
$ 42,698 88.3%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JUNE 30, 1995
<TABLE>
<CAPTION>
WORLDWIDE
GLOBAL EQUITY GLOBAL ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION FIXED GROWTH VALUE INCOME AMERICAN MARKETS
FUND INCOME FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
Securities, at Value*
(Note 1) -- See
accompanying
portfolios $ 85,375 $ 16,894 $ 319,520 $ 34,374 $ 33,789 $ 11,706 $ 49,404
Foreign Currency at
Value 83 -- 99 -- -- 78 540
Cash 134 399 1 -- 1 -- 332
Receivable for:
Investments Sold 140 -- 955 -- 1,241 585 156
Fund Shares Sold 223 5 858 241 143 154 544
Dividends 278 -- 714 57 -- 21 103
Interest 1 410 -- -- 522 11 5
Foreign Withholding
Tax Reclaim 58 -- 11 -- -- -- --
Unrealized Gain on
Forward Foreign
Currency Contracts 292 -- -- -- -- -- 2
Deferred Organization
Costs 49 48 32 54 60 59 58
Other 4 -- 26 -- -- -- --
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 86,637 17,756 322,216 34,726 35,756 12,614 51,144
------------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments Purchased 2,903 524 1,509 -- 8,762 432 2,531
Fund Shares Redeemed 221 26 926 11 16 183 27
Bank Overdraft 83 -- -- -- -- 174 --
Dividends -- 28 -- 50 148 -- --
Investment Advisory
Fees 127 -- 762 30 30 2 78
Administrative Fees 25 5 82 8 7 4 12
Custody Fees 26 5 126 4 3 13 31
Professional Fees 30 30 40 19 30 30 28
Distribution Fees 126 21 435 42 36 14 61
Shareholder Reporting
Expenses 37 5 135 10 9 -- 11
Directors' Fees and
Expenses 2 2 2 2 2 2 2
Filing and
Registration Fees 11 10 35 8 14 17 27
Unrealized Loss on
Forward Foreign
Currency Contracts -- 43 -- -- -- -- --
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 3,591 699 4,052 184 9,057 871 2,808
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 83,046 $ 17,057 $ 318,164 $ 34,542 $ 26,699 $ 11,743 $ 48,336
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Assets Consist Of:
Capital Stock at Par $ 6 $ 2 $ 19 $ 3 $ 2 $ 1 $ 5
Paid in Capital in
Excess of Par 76,810 16,770 291,244 32,428 27,093 15,494 50,944
Undistributed
(Distribution in
excess of) Net
Investment Income (990) 330 -- 13 165 -- 94
Accumulated
(Distribution in
excess of) Net
Realized Gain (Loss) 2,162 (524) (1,382) 143 (528) (2,306) (1,025)
Unrealized Appreciation
(Depreciation) on
Investments and
Foreign Currency 5,058 479 28,283 1,955 (33) (1,446) (1,682)
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 83,046 $ 17,057 $ 318,164 $ 34,542 $ 26,699 $ 11,743 $ 48,336
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS A SHARES:
Net Assets $ 42,586 $ 11,092 $ 178,667 $ 20,675 $ 14,819 $ 7,658 $ 26,091
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,379 1,084 10,878 1,604 1,281 844 2,459
Net Asset Value and
Redemption Price Per
Share $ 12.60 $ 10.23 $ 16.42 $ 12.89 $ 11.57 $ 9.08 $ 10.61
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Maximum Sales Charge 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
Maximum Offering Price
Per Share (Net Asset
Value Per Share x
100/95.25) $ 13.23 $ 10.74 $ 17.24 $ 13.53 $ 12.15 $ 9.53 $ 11.14
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS C SHARES:+
Net Assets $ 40,460 $ 5,965 $ 139,497 $ 13,867 $ 11,880 $ 4,085 $ 22,245
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,256 585 8,615 1,076 1,026 454 2,112
Net Asset Value and
Offering Price Per
Share $ 12.43 $ 10.20 $ 16.19 $ 12.89 $ 11.58 $ 8.99 $ 10.53
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Investments at Cost,
Including Foreign
Currency $ 80,663 $ 16,382 $ 291,336 $ 32,419 $ 33,822 $ 13,230 $ 51,626
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
<FN>
* Includes repurchase agreements aggregating $4,465,000, $586,000, $883,000,
$2,677,000, $6,983,000 and $6,706,000 for Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide
High Income Fund and Emerging Markets Fund, respectively.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
LATIN EMERGING
AMERICAN MARKETS
GLOBAL GLOBAL WORLDWIDE FUND FUND
EQUITY FIXED ASIAN AMERICAN HIGH PERIOD PERIOD
ALLOCATION INCOME GROWTH VALUE INCOME FROM FROM
FUND FUND FUND FUND FUND JULY 6, JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994* 1994*
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE TO JUNE
1995 1995 1995 1995 1995 30, 1995 30, 1995
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,067 $ -- $ 5,353 $ 819 $ -- $ 156 $ 376
Interest 219 1,147 740 82 2,648 35 440
Less Foreign Taxes
Withheld (231) (9) (500) -- (3) (12) (30)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Income 2,055 1,138 5,593 901 2,645 179 786
---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory
Fees
Basic Fee 759 117 2,920 202 152 109 312
Less: Fees Waived (247) (117) -- (110) (88) (109) (197)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory
Fees -- Net 512 -- 2,920 92 64 -- 115
Administrative Fees 282 50 895 78 69 41 85
Custodian Fees 104 22 498 18 14 54 125
Filing and Registration
Fees 5 2 12 4 4 6 17
Directors' Fees and
Expenses 13 13 13 13 8 8 8
Professional Fees 51 34 91 25 35 35 37
Shareholder Reports 77 16 302 23 20 10 26
Distribution Fees
Class A 98 25 403 36 28 15 34
Class C+ 367 57 1,315 93 88 29 111
Amortization of
Organizational Costs 19 19 11 16 16 15 14
Blue Sky Fees
Class A 16 16 25 13 16 16 16
Class C+ 16 16 25 13 16 16 16
Brazilian Tax Expense -- -- -- -- -- 32 46
Other 8 3 27 3 3 16 17
Expenses Reimbursed by
Adviser -- (4) -- -- -- (56) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Expenses 1,568 269 6,537 427 381 237 667
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income
(Loss) 487 869 (944) 474 2,264 (58) 119
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS)
ON INVESTMENTS
Securities Sold 2,238 (502) 4,934 362 (494) (2,306) (996)
Foreign Currency
Transactions (2,101) 67 318 -- 24 (34) (68)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized
Gain (Loss) 137 (435) 5,252 362 (470) (2,340) (1,064)
---------- ---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) 3,795 1,228 19,182 2,637 82 (1,446) (1,682)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized Gain
(Loss) and Change in
Unrealized Appreciation
(Depreciation) 3,932 793 24,434 2,999 (388) (3,786) (2,746)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $ 4,419 $ 1,662 $ 23,490 $ 3,473 $ 1,876 ($ 3,844) ($ 2,627)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 262 $ 487
Net Realized Gain on Investments 632 137
Change in Unrealized Appreciation 86 3,795
-------------- --------------
Net Increase in Net Assets from
Operations 980 4,419
-------------- --------------
DISTRIBUTIONS:
Net Investment Income:
Class A (50) --
Class C + -- --
In Excess of Net Investment Income:
Class A -- (168)
Class C+ -- (82)
-------------- --------------
(50) (250)
-------------- --------------
Net Realized Gain:
Class A (127) (427)
Class C + (85) (407)
-------------- --------------
(212) (834)
-------------- --------------
Net Decrease in Net Assets Resulting
from Distributions (262) (1,084)
-------------- --------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 59,445 32,645
Distributions Reinvested 243 996
Redeemed (14,518) (17,247)
-------------- --------------
Net Increase in Net Assets Resulting
from Capital Share Transactions 45,170 16,394
-------------- --------------
Total Increase in Net Assets 45,888 19,729
NET ASSETS -- Beginning of Period 17,429 63,317
-------------- --------------
NET ASSETS -- End of Period (Including
distributions in excess of net
investment income of
$104 and $990, respectively) $ 63,317 $ 83,046
-------------- --------------
-------------- --------------
- -------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 2,528 1,341
Distributions Reinvested 14 45
Redeemed (696) (794)
-------------- --------------
Net Increase in Class A Shares
Outstanding 1,846 592
-------------- --------------
-------------- --------------
Dollars:
Issued $ 30,362 $ 16,461
Distributions Reinvested 164 546
Redeemed (8,163) (9,697)
-------------- --------------
Net Increase in Class A Shares
Outstanding $ 22,363 $ 7,310
-------------- --------------
-------------- --------------
Class C +
Shares:
Issued 2,421 1,329
Distributions Reinvested 6 38
Redeemed (548) (623)
-------------- --------------
Net Increase in Class C Shares
Outstanding 1,879 744
-------------- --------------
-------------- --------------
Dollars:
Issued $ 29,083 $ 16,184
Distributions Reinvested 79 450
Redeemed (6,355) (7,550)
-------------- --------------
Net Increase in Class C Shares
Outstanding $ 22,807 $ 9,084
-------------- --------------
-------------- --------------
- -------------------------------------------------------------------------
</TABLE>
+Class B Shares were renamed Class C Shares on May 1, 1995.
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 619 $ 869
Net Realized Gain (Loss) 504 (435)
Change in Unrealized Appreciation
(Depreciation) (1,219) 1,228
-------------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations (96) 1,662
-------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (371) (369)
Class C+ (248) (173)
In Excess of Net Investment Income:
Class A (93) --
Class C+ (62) --
-------------- -------
(774) (542)
-------------- -------
Net Realized Gain:
Class A (267) --
Class C+ (237) --
In Excess of Net Realized Gain:
Class A (14) --
Class C+ (13) --
-------------- -------
(531) --
-------------- -------
Net Decrease in Net Assets Resulting
from Distributions (1,305) (542)
-------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 15,880 8,903
Distributions Reinvested 737 328
Redeemed (12,193) (9,070)
-------------- -------
Net Increase in Net Assets Resulting
from Capital Share Transactions 4,424 161
-------------- -------
Total Increase in Net Assets 3,023 1,281
NET ASSETS -- Beginning of Period 12,753 15,776
-------------- -------
NET ASSETS -- End of Period (Including
undistributed (distributions in excess
of) net investment income of $(28) and
$330, respectively) $ 15,776 $ 17,057
-------------- -------
-------------- -------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 989 682
Distributions Reinvested 41 27
Redeemed (572) (712)
-------------- -------
Net Increase (Decrease) in Class A
Shares Outstanding 458 (3)
-------------- -------
-------------- -------
Dollars:
Issued $ 10,128 $ 6,628
Distributions Reinvested 426 258
Redeemed (5,980) (6,878)
-------------- -------
Net Increase in Class A Shares
Outstanding $ 4,574 $ 8
-------------- -------
-------------- -------
Class C+:
Shares:
Issued 549 239
Distributions Reinvested 30 7
Redeemed (591) (228)
-------------- -------
Net Increase (Decrease) in Class C
Shares Outstanding (12) 18
-------------- -------
-------------- -------
Dollars:
Issued $ 5,752 $ 2,275
Distributions Reinvested 311 70
Redeemed (6,213) (2,192)
-------------- -------
Net Increase (Decrease) in Class C
Shares Outstanding $ (150) $ 153
-------------- -------
-------------- -------
- -----------------------------------------------------------------------------
</TABLE>
+Class B Shares were renamed Class C Shares on May 1, 1995.
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (984) $ (944)
Net Realized Gain on Investments 4,723 5,252
Change in Unrealized Appreciation 9,101 19,182
--------------- --------
Net Increase in Net Assets Resulting
from Operations 12,840 23,490
--------------- --------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (4,935)
Class C+ -- (4,055)
In Excess of Net Realized Gain:
Class A -- (241)
Class C+ -- (198)
--------------- --------
Net Decrease in Net Assets Resulting
from Distributions -- (9,429)
--------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Issued 285,430 109,249
Distributions Reinvested -- 8,260
Redeemed (63,430) (68,507)
--------------- --------
Net Increase in Net Assets Resulting
from Capital Share Transactions 222,000 49,002
--------------- --------
Total Increase in Net Assets 234,840 63,063
NET ASSETS -- Beginning of Period 20,261 255,101
--------------- --------
NET ASSETS -- End of Period $ 255,101 $ 318,164
--------------- --------
--------------- --------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 10,025 3,855
Distributions Reinvested -- 299
Redeemed (2,090) (2,192)
--------------- --------
Net Increase in Class A Shares
Outstanding 7,935 1,962
--------------- --------
--------------- --------
Dollars:
Issued $ 150,145 $ 62,609
Distributions Reinvested -- 4,563
Redeemed (32,820) (35,024)
--------------- --------
Net Increase in Class A Shares
Outstanding $ 117,325 $ 32,148
--------------- --------
--------------- --------
Class C+
Shares:
Issued 8,840 2,904
Distributions Reinvested -- 245
Redeemed (1,959) (2,123)
--------------- --------
Net Increase in Class C Shares
Outstanding 6,881 1,026
--------------- --------
--------------- --------
Dollars:
Issued $ 135,285 $ 46,640
Distributions Reinvested -- 3,697
Redeemed (30,610) (33,483)
--------------- --------
Net Increase in Class C Shares
Outstanding $ 104,675 $ 16,854
--------------- --------
--------------- --------
- -------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
OCTOBER 18, 1993* TO YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 183 $ 474
Net Realized Gain 208 362
Change in Unrealized Appreciation (Depreciation) (682) 2,637
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations (291) 3,473
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (120) (350)
Class C+ (59) (143)
------- -------
(179) (493)
------- -------
Net Realized Gain:
Class A -- (260)
Class C+ -- (167)
------- -------
-- (427)
------- -------
Net Decrease in Net Assets Resulting from Distributions (179) (920)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 18,925 15,936
Distributions Reinvested 55 472
Redeemed (556) (2,373)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 18,424 14,035
------- -------
Total Increase in Net Assets 17,954 16,588
NET ASSETS -- Beginning of Period -- 17,954
------- -------
NET ASSETS -- End of Period (Including undistributed net investment income of $16 and
$13, respectively) $ 17,954 $ 34,542
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 940 794
Distributions Reinvested 4 29
Redeemed (28) (135)
------- -------
Net Increase in Class A Shares Outstanding 916 688
------- -------
------- -------
Dollars:
Issued $ 11,269 $ 9,738
Distributions Reinvested 42 351
Redeemed (336) (1,647)
------- -------
Net Increase in Class A Shares Outstanding $ 10,975 $ 8,442
------- -------
------- -------
Class C+
Shares:
Issued 636 506
Distributions Reinvested 1 11
Redeemed (18) (60)
------- -------
Net Increase in Class C Shares Outstanding 619 457
------- -------
------- -------
Dollars:
Issued $ 7,656 $ 6,198
Distributions Reinvested 13 121
Redeemed (220) (726)
------- -------
Net Increase in Class C Shares Outstanding $ 7,449 $ 5,593
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 183 $ 2,264
Net Realized Gain (Loss) on Investments 192 (470)
Change in Unrealized Appreciation (Depreciation) (115) 82
------------- -------------
Net Increase in Net Assets Resulting from Operations 260 1,876
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (94) (1,262)
Class C+ (76) (906)
------------- -------------
(170) (2,168)
------------- -------------
Net Realized Gain:
Class A -- (104)
Class C+ -- (97)
------------- -------------
-- (201)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions (170) (2,369)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 12,701 21,132
Distributions Reinvested 161 918
Redeemed (14) (7,796)
------------- -------------
Net Increase in Net Assets Resulting from Capital Share Transactions 12,848 14,254
------------- -------------
Total Increase in Net Assets 12,938 13,761
NET ASSETS -- Beginning of Period -- 12,938
------------- -------------
NET ASSETS -- End of Period (Including undistributed net investment income of $15 and $165,
respectively) $ 12,938 $ 26,699
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 557 1,277
Distributions Reinvested 7 51
Redeemed -- (611)
------------- -------------
Net Increase in Class A Shares Outstanding 564 717
------------- -------------
------------- -------------
Dollars:
Issued $ 6,729 $ 14,466
Distributions Reinvested 88 542
Redeemed (2) (6,987)
------------- -------------
Net Increase in Class A Shares Outstanding $ 6,815 $ 8,021
------------- -------------
------------- -------------
Class C+
Shares:
Issued 495 564
Distributions Reinvested 6 35
Redeemed (1) (73)
------------- -------------
Net Increase in Class C Shares Outstanding 500 526
------------- -------------
------------- -------------
Dollars:
Issued $ 5,972 $ 6,666
Distributions Reinvested 73 376
Redeemed (12) (809)
------------- -------------
Net Increase in Class C Shares Outstanding $ 6,033 $ 6,233
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
JUNE 30, 1995
(000)
<S> <C>
- -------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (58)
Net Realized Loss on Investments (2,340)
Change in Unrealized Depreciation (1,446)
-------
Net Decrease in Net Assets Resulting from Operations (3,844)
-------
DISTRIBUTIONS:
Paid in Capital:
Class A (124)
Class C+ (50)
-------
Net Decrease in Net Assets Resulting from Distributions (174)
-------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,076
Distributions Reinvested 135
Redeemed (5,450)
-------
Net Increase in Net Assets Resulting from Capital Share
Transactions 15,761
-------
Total Increase in Net Assets 11,743
NET ASSETS -- Beginning of Period --
-------
NET ASSETS -- End of Period $ 11,743
-------
-------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 1,235
Distributions Reinvested 9
Redeemed (400)
-------
Net Increase in Class A Shares Outstanding 844
-------
-------
Dollars:
Issued $ 14,271
Distributions Reinvested 103
Redeemed (3,781)
-------
Net Increase in Class A Shares Outstanding $ 10,593
-------
-------
Class C+
Shares:
Issued 613
Distributions Reinvested 3
Redeemed (162)
-------
Net Increase in Class C Shares Outstanding 454
-------
-------
Dollars:
Issued $ 6,805
Distributions Reinvested 32
Redeemed (1,669)
-------
Net Increase in Class C Shares Outstanding $ 5,168
-------
-------
- -------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
JUNE 30, 1995
(000)
<S> <C>
- -----------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 119
Net Realized Loss on Investments (1,064)
Change in Unrealized Depreciation (1,682)
-------
Net Decrease in Net Assets Resulting from Operations (2,627)
-------
CAPITAL SHARE TRANSACTIONS (1):
Issued 57,700
Redeemed (6,737)
-------
Net Increase in Net Assets Resulting from Capital Share
Transactions 50,963
-------
Total Increase in Net Assets 48,336
NET ASSETS -- Beginning of Period --
-------
NET ASSETS -- End of Period (Including undistributed net
investment income of $94) $ 48,336
-------
-------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 2,800
Redeemed (341)
-------
Net Increase in Class A Shares Outstanding 2,459
-------
-------
Dollars:
Issued $ 31,244
Redeemed (3,679)
-------
Net Increase in Class A Shares Outstanding $ 27,565
-------
-------
Class C+
Shares:
Issued 2,392
Redeemed (280)
-------
Net Increase in Class C Shares Outstanding 2,112
-------
-------
Dollars:
Issued $ 26,456
Redeemed (3,058)
-------
Net Increase in Class C Shares Outstanding $ 23,398
-------
-------
- -----------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE DATA JANUARY 4, 1993* YEAR ENDED YEAR ENDED JANUARY 4, 1993* YEAR ENDED YEAR ENDED
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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 0.12 0.01 0.06 0.04
Net Realized and
Unrealized Gain 1.05 0.90 0.67 1.04 0.86 0.65
------- ------------- ------------- ------ ------------- -------------
Total From Investment
Operations 1.09 1.00 0.79 1.05 0.92 0.69
------- ------------- ------------- ------ ------------- -------------
DISTRIBUTIONS
Net Investment Income -- (0.03) -- -- -- --
In Excess of Net
Investment Income -- -- (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 $ 12.60 $ 11.05 $ 11.90 $ 12.43
------- ------------- ------------- ------ ------------- -------------
------- ------------- ------------- ------ ------------- -------------
TOTAL RETURN(1) 10.90% 9.02% 6.69% 10.50% 8.34% 5.84%
------- ------------- ------------- ------ ------------- -------------
------- ------------- ------------- ------ ------------- -------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 10,434 $ 33,425 $ 42,586 $ 6,995 $ 29,892 $ 40,460
Ratio of Expenses to
Average Net Assets 1.70%** 1.70% 1.70% 2.45%** 2.45% 2.45%
Ratio of Net Investment
Income to Average Net
Assets 1.04%** 0.98% 1.01% 0.29%** 0.23% 0.25%
Portfolio Turnover Rate 14% 30% 39% 14% 30% 39%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.08 $ 0.09 $ 0.04 $ 0.07 $ 0.12 $ 0.05
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% 0.68% (1.66 %** (0.66)% (0.08)%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED JANUARY 4, 1993* YEAR ENDED YEAR ENDED
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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 0.56 0.21 0.43 0.49
Net Realized and Unrealized
Gain (Loss) 0.55 (0.42) 0.50 0.55 (0.40) 0.47
------ ------------- ------------- ------ ------ ------
Total From Investment
Operations 0.80 0.10 1.06 0.76 0.03 0.96
------ ------------- ------------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.36) (0.20) (0.44) (0.30)
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) (0.36) (0.20) (1.05) (0.30)
------ ------------- ------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.23 $ 10.56 $ 9.54 $ 10.20
------ ------------- ------------- ------ ------ ------
------ ------------- ------------- ------ ------ ------
TOTAL RETURN(1) 8.02% 0.41% 11.41% 7.61% (0.25)% 10.24%
------ ------------- ------------- ------ ------ ------
------ ------------- ------------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 6,633 $ 10,369 $ 11,092 $ 6,120 $ 5,407 $ 5,965
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% 5.84% 4.25%** 3.95% 5.09%
Portfolio Turnover Rate 55% 168% 169% 55% 168% 169%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88%** 2.48% 2.22% 3.63%** 3.29% 2.97%
Net Investment Income to
Average Net Assets 3.57%** 3.67% 5.07% 2.82%** 2.86% 4.32%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE JUNE 23, 1993* YEAR ENDED YEAR ENDED JUNE 23, 1993* YEAR ENDED YEAR ENDED
DATA AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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) -- -- (0.10) (0.12)
Net Realized and
Unrealized Gain -- 3.53 1.43 -- 3.50 1.42
------- ------------- ------------- ------- ------------- -------------
Total From
Investment
Operations -- 3.50 1.43 -- 3.40 1.30
------- ------------- ------------- ------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) -- -- (0.49)
In Excess of Net
Realized Gain -- -- (0.02) -- -- (0.02)
------- ------------- ------------- ------- ------------- -------------
-- -- (0.51) -- -- (0.51)
------- ------------- ------------- ------- ------------- -------------
NET ASSET VALUE, END
OF PERIOD $ 12.00 $ 15.50 $ 16.42 $ 12.00 $ 15.40 $ 16.19
------- ------------- ------------- ------- ------------- -------------
------- ------------- ------------- ------- ------------- -------------
TOTAL RETURN(1) 0.00% 29.17% 9.50% 0.00% 28.33% 8.71%
------- ------------- ------------- ------- ------------- -------------
------- ------------- ------------- ------- ------------- -------------
RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End of
Period (000's) $ 11,770 $ 138,212 $ 178,667 $ 8,491 $ 116,889 $ 139,497
Ratio of Expenses to
Average Net Assets 1.90%** 1.90% 1.90% 2.65%** 2.65% 2.65%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (0.81 %** (0.24)% 0.04% (1.56 %** (0.99)% (0.77)%
Portfolio Turnover
Rate 0% 34% 34% 0% 34% 34%
- --------------------------------------------------------------------------------------------------------------------
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% 1.90% 12.64%** 2.92% 2.65%
Net Investment
Income (Loss) to
Average Net
Assets (10.74 %** (0.51)% 0.04% (11.55 %** (1.26)% (0.77)%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
-------------------------------- --------------------------------
OCTOBER 18, 1993* YEAR ENDED OCTOBER 18, 1993* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1994 JUNE 30, 1995
<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 0.27 0.11 0.17
Net Realized and Unrealized Gain (Loss) (0.30) 1.44 (0.31) 1.44
------- ------------- ------ -------------
Total from Investment Operations (0.13) 1.71 (0.20) 1.61
------- ------------- ------ -------------
DISTRIBUTIONS
Net Investment Income (0.17) (0.28) (0.11) (0.17)
Net Realized Gain -- (0.24) -- (0.24)
------- ------------- ------ -------------
Total Distributions (0.17) (0.52) (0.11) (0.41)
------- ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 11.70 $ 12.89 $ 11.69 $ 12.89
------- ------------- ------ -------------
------- ------------- ------ -------------
TOTAL RETURN(1) (1.12)% 15.01% (1.70)% 14.13%
------- ------------- ------ -------------
------- ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 10,717 $ 20,675 $ 7,237 $ 13,867
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%** 2.29% 1.39%** 1.54%
Portfolio Turnover Rate 17% 23% 17% 23%
- -----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $ 0.08 $ 0.05 $ 0.08 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.48%** 1.96% 3.28%** 2.71%
Net Investment Income to Average Net Assets 1.16%** 1.83% 0.36%** 1.08%
- -----------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
------------------------------- -------------------------------
APRIL 21, 1994* YEAR ENDED APRIL 21, 1994* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1994 JUNE 30, 1995
<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 1.26 0.17 1.17
Net Realized and Unrealized Gain
(Loss) 0.16 (0.52) 0.15 (0.50)
------ ------------- ------ -------------
Total From Investment Operations 0.34 0.74 0.32 0.67
------ ------------- ------ -------------
DISTRIBUTIONS
Net Investment Income (0.17) (1.22) (0.16) (1.13)
Net Realized Gain -- (0.12) -- (0.12)
------ ------------- ------ -------------
Total Distributions (0.17) (1.34) (0.16) (1.25)
------ ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 12.17 $ 11.57 $ 12.16 $ 11.58
------ ------------- ------ -------------
------ ------------- ------ -------------
TOTAL RETURN(1) 2.86% 6.87% 2.62% 6.20%
------ ------------- ------ -------------
------ ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,857 $ 14,819 $ 6,081 $ 11,880
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%** 11.53% 7.54%** 10.72%
Portfolio Turnover Rate 19% 178% 19% 178%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.05 $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.23%** 1.97% 4.00%** 2.74%
Net Investment Income to Average Net
Assets 6.61%** 11.11% 5.84%** 10.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------- ----------------
JULY 6, 1994* JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1995 TO JUNE 30, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.02) (0.08)
Net Realized and Unrealized Loss (2.70) (2.73)
-------- --------
Total From Investment Operations (2.72) (2.81)
-------- --------
DISTRIBUTIONS
Paid in Capital (0.20) (0.20)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 8.99
-------- --------
-------- --------
TOTAL RETURN(1) (23.07)% (23.83)%
-------- --------
-------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 7,658 $ 4,085
Ratio of Expenses to Average Net Assets 2.46%**/\ 3.20%**/\
Ratio of Net Investment Loss to Average Net Assets (0.44 %** (1.16)%**
Portfolio Turnover Rate 107% 107%
- --------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Loss $ 0.13 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets (Including Brazilian Tax Expense) 4.30%** 5.20%**
Net Investment Loss to Average Net Assets (2.26 %** (3.16)%**
/\ 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.
- --------------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations.
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
80
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------- ----------------
JULY 6, 1994* JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1995 TO JUNE 30, 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 --
Net Realized and Unrealized Loss (1.44) (1.47)
------- -------
Total From Investment Operations (1.39) (1.47)
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.61 $ 10.53
------- -------
------- -------
TOTAL RETURN(1) (11.58)% (12.25)%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 26,091 $ 22,245
Ratio of Expenses to Average Net Assets 2.33%**/\ 3.08%**/\
Ratio of Net Investment Income to Average Net Assets 0.81%** 0.06%**
Portfolio Turnover Rate 32% 32%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $ 0.04 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.10%** 3.90%**
Net Investment Income (Loss) to Average Net Assets 0.04%** (0.76)%**
/\ 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.
- ----------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on August 14, 1992 and commenced operations on January 4, 1993. The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company which offers redeemable shares of
diversified and non-diversified investment portfolios. As of June 30, 1995, the
Fund had seven separate active investment portfolios: Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley
Asian Growth Fund, Morgan Stanley American Value Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Latin American Fund and Morgan Stanley Emerging
Markets Fund (referred to herein respectively as "Global Equity Allocation
Fund", "Global Fixed Income Fund", "Asian Growth Fund", "American Value Fund",
"Worldwide High Income Fund", "Latin American Fund", and "Emerging Markets
Fund", and collectively as the "Portfolios"). The Fund currently offers Class A
and Class C shares of each Portfolio. The current Class C shares were named
Class B shares until May 1, 1995 when such shares were renamed Class C.
A. ACCOUNTING POLICIES: The following is a summary of significant accounting
policies for the Fund. Such policies are in conformity with generally accepted
accounting principles for investment companies and are consistently followed by
the Fund in the preparation of the financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the mean between the current bid and asked prices, if any, of
reputable brokers. Bonds and other fixed income securities are valued according
to the broadest and most representative market. In addition, bonds and other
fixed income securities are valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value. All
other securities and assets for which market values are not readily available,
including restricted securities, are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done by
others.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on either income earned or repatriated, or gains
realized. The Fund accrues such taxes when the related income is earned or gains
are realized. In addition, effective January 1, 1994, the Brazilian government
announced a 0.25% tax on banking transaction debits (withdrawals). This tax was
subsequently repealed as of January 1, 1995. The Brazilian government also
assessed a 1% tax on all settlements of foreign currency used to purchase listed
equity securities. This tax was repealed on March 9, 1995.
Paid in capital in excess of par, undistributed (distributions in excess of) net
investment income and accumulated (distributions in excess of) net realized gain
have been adjusted for permanent book-tax differences, if any, for the
Portfolios.
At June 30, 1995, Global Fixed Income Fund had a capital loss carryforward for
Federal income tax purposes of approximately $366,000 which will expire June 30,
2003. To the extent that such carryforward is utilized, no capital gain
distribution will be made.
For the year ended June 30, 1995, Emerging Markets Fund and Global Equity
Allocation Fund deferred for Federal income tax purposes to July 1, 1995, post
October currency losses of approximately $44,000 and $715,000, respectively.
Emerging Markets Fund, American Value Fund and Global Fixed Income Fund also
deferred to July 1, 1995, post October capital losses of approximately $928,000,
$60,000 and $154,000, respectively.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank acting as custodian for the Fund takes possession of the
underlying securities, the value of which is at least equal to the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. In the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
82
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in United States dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank. Although the net
assets of the Fund are presented at the foreign exchange rates and market values
at the close of the period, the Fund does not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the fluctuations arising from changes in the market prices of the
securities held at period end. Similarly, the Fund does not isolate the effect
of changes in foreign exchange rates from the fluctuations arising from changes
in the market prices of securities sold during the period. Accordingly, realized
and unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on security transactions and balances.
However, pursuant to U.S. Federal income tax regulations, gains and losses from
certain foreign currency transactions and sales of foreign denominated debt
securities are treated as ordinary income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference between
the amount of investment income and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amount actually received or paid,
and certain currency related amounts of realized gains or losses from the sale
of foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other emerging
countries. Foreign ownership limitations also may be imposed by the charters of
individual companies in emerging countries to prevent, among other concerns,
violation of foreign investment limitations. As a result, an additional class of
shares (identified as "foreign" in the Portfolio of Investments) may be created
and offered for investment. The "local" and "foreign" shares' market values may
vary.
5. FORWARD FOREIGN CURRENCY CONTRACTS: Each Portfolio may enter into forward
foreign currency contracts to attempt to protect securities and related
receivables and payables against changes in future foreign exchange rates. A
forward currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value is
recorded by the Portfolio as unrealized gain or loss. The Portfolio records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
is generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
6. PURCHASED OPTIONS. Certain Portfolios may purchase call or put options which
are traded on a recognized securities or futures exchange. When a Portfolio
purchases a call option, it acquires the right to buy a designated security at a
designated price ("exercise price"); when a Portfolio purchases a put option, it
acquires the right to sell a designated security at the exercise price. A
Portfolio 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. A Portfolio may purchase put options on securities which it holds to
protect against a decline in the value of the security. Risks may arise from
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
7. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase securities on a
when-issued or forward commitment basis. Payment and delivery may take place a
month or more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated.
8. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis
83
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
over a period of five years beginning with each Portfolio's commencement of
operations. Morgan Stanley Asset Management, Inc. has agreed that in the event
any of its initial shares in a Portfolio are redeemed, the proceeds on
redemption will be reduced by the pro-rata portion of any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the initial shares held at time of redemption.
9. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis except where collection is in doubt. Discounts
and premiums on securities purchased are amortized according to the effective
yield method over their respective lives. Most expenses of the Fund can be
directly attributed to a particular Portfolio. Expenses which cannot be directly
attributed are apportioned among the Portfolios based upon relative net assets.
Income, expenses (other than class specific expenses) and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Portfolios are recorded on the
ex-distribution date.
Income and capital gain distributions are determined in accordance with U.S.
Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions and deferral of wash sale and
post-October losses.
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MSAM"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., provides the Fund with
investment advisory services at a fee paid quarterly and calculated at the
annual rates of average daily net assets indicated below. The Adviser has agreed
to reduce operating fees payable to it and to reimburse the Portfolios, if
necessary, if the annual operating expenses, expressed as a percentage of
average daily net assets, exceed the maximum ratios indicated below.
<TABLE>
<CAPTION>
CLASS A CLASS C
MAXIMUM MAXIMUM
OPERATING OPERATING
ADVISORY EXPENSE EXPENSE
FUND FEE RATIO RATIO
- ------------------------------------------------------------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Global Equity Allocation Fund............................................................. 1.00% 1.70% 2.45%
Global Fixed Income Fund.................................................................. 0.75% 1.45% 2.20%
Asian Growth Fund......................................................................... 1.00% 1.90% 2.65%
American Value Fund....................................................................... 0.85% 1.50% 2.25%
Worldwide High Income Fund................................................................ 0.75% 1.55% 2.30%
Latin American Fund....................................................................... 1.25% 2.10% 2.85%
Emerging Markets Fund..................................................................... 1.25% 2.15% 2.90%
</TABLE>
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an Administrative Agreement for a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of each Portfolio. Under an
agreement between MSAM and U.S. Trust Company of New York ("U.S. Trust"), Mutual
Funds Service Company ("MFSC"), a subsidiary of U.S. Trust, provides certain
administrative services to the Fund. MFSC is compensated for such services by
MSAM from the fee it receives from the Fund, subject to certain fee minimums as
defined in the agreement, which for the year ended June 30, 1995, totaled
$182,000 for Global Equity Allocation Fund, Global Fixed Income Fund, Asian
Growth Fund, American Value Fund, and Worldwide High Income Fund, and $178,000
for Latin American Fund and Emerging Markets Fund, respectively. Certain
employees of MFSC are officers of the Fund.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM,
serves as the distributor of the Fund and provides both classes of each
Portfolio with distribution services pursuant to a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940. The
Distributor is entitled to receive from the Portfolios a distribution fee, which
is accrued daily and paid quarterly, of up to 0.25% for the Class A shares of
each Portfolio and up to 1.00% of the Class C shares of each Portfolio, on an
annualized basis, of the average daily net assets of such class.
The Distributor may receive a deferred sales charge for certain purchases of
Class A and Class C shares of each Portfolio redeemed within one year following
such purchase. For the year ended June 30, 1995, the Distributor has advised the
Fund that it earned deferred sales charges on Class C shares of approximately
$26,000, $5,000, $130,000, $2,000, $4,000, $5,000 and $15,000 for Global Equity
Allocation Fund, Global Fixed Income Fund, Asian Growth Fund, American Value
Fund, Worldwide High Income Fund, Latin American Fund and Emerging Markets Fund,
respectively. There were no deferred sales charges earned on Class A shares.
E. PURCHASES AND SALES: For the year ended June 30, 1995, purchases and sales of
investment securities other than long-term U.S. Government securities and short-
term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ---------------------------------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Global Equity Allocation Fund....................................................................... $ 42,019 $28,655
Global Fixed Income Fund............................................................................ 12,889 17,056
Asian Growth Fund................................................................................... 158,562 93,194
American Value Fund................................................................................. 17,396 5,095
Worldwide High Income Fund.......................................................................... 47,817 32,975
Latin American Fund................................................................................. 23,839 8,378
Emerging Markets Fund............................................................................... 50,907 5,528
</TABLE>
84
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
Purchases and sales during the year ended June 30, 1995 of long-term U.S.
Government securities occurred in the Global Fixed Income Fund and totaled
$10,175,000 and $5,296,000, respectively.
F. CUSTODIANS: Morgan Stanley Trust Company ("MSTC"), a wholly-owned subsidiary
of Morgan Stanley Group, Inc., acts as custodian for the Fund's non-U.S. assets
held outside the United States in accordance with a custodian agreement. U.S.
Trust acts as custodian for the Fund's domestic assets in accordance with a
custodian agreement. Custodian fees are computed and payable monthly based on
assets held, investment purchases and sales activity, an account maintenance
fee, plus reimbursement for certain out-of-pocket expenses. Fees incurred for
custody services provided by MSTC for the year ended June 30, 1995 were as
follows:
<TABLE>
<CAPTION>
MSTC
MSTC CUSTODIAN
CUSTODIAN FEES
FEES PAYABLE
FUND (000) (000)
- ------------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Global Equity Allocation Fund............................................................. $ 96 $ 24
Global Fixed Income Fund.................................................................. 12 3
Asian Growth Fund......................................................................... 487 126
Worldwide High Income Fund................................................................ 4 1
Latin American Fund....................................................................... 52 13
Emerging Markets Fund..................................................................... 116 29
</TABLE>
G. OTHER: At June 30, 1995, net assets of certain Portfolios were substantially
comprised of foreign denominated securities and currency. Changes in currency
rates will affect the value of and investment income from such securities.
Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of June 30, 1995:
<TABLE>
<S> <C> <C> <C>
Argentine Peso............................................................................ 0.999750 = $1.00
Australian Dollar......................................................................... 1.407360 = $1.00
Belgian Franc............................................................................. 28.460000 = $1.00
Brazilian Real............................................................................ 0.920500 = $1.00
British Pound Sterling.................................................................... 0.628540 = $1.00
Canadian Dollar........................................................................... 1.373350 = $1.00
Danish Krone.............................................................................. 5.402000 = $1.00
Deutsche Mark............................................................................. 1.383950 = $1.00
Finnish Markka............................................................................ 4.274500 = $1.00
French Franc.............................................................................. 4.850750 = $1.00
Greek Drachma............................................................................. 225.040000 = $1.00
Hong Kong Dollar.......................................................................... 7.737800 = $1.00
Indonesian Rupiah......................................................................... 2,227.000000 = $1.00
Italian Lira.............................................................................. 1,635.500000 = $1.00
Israeli Shekel............................................................................ 2.953500 = $1.00
Japanese Yen.............................................................................. 84.825000 = $1.00
Korean Won................................................................................ 758.250000 = $1.00
Malaysian Ringgit......................................................................... 2.438000 = $1.00
Mexican New Peso.......................................................................... 6.250000 = $1.00
Morocco Dhiram............................................................................ 8.330500 = $1.00
Netherlands Guilder....................................................................... 1.549400 = $1.00
New Zealand Dollar........................................................................ 1.496890 = $1.00
Pakistani Rupee........................................................................... 30.979000 = $1.00
Peruvian Sol.............................................................................. 2.224500 = $1.00
Philippine Peso........................................................................... 25.540000 = $1.00
Polish Zloty.............................................................................. 2.341000 = $1.00
Portuguese Escudo......................................................................... 146.300000 = $1.00
Singapore Dollar.......................................................................... 1.397500 = $1.00
South African Rand........................................................................ 3.636250 = $1.00
Spanish Peseta............................................................................ 121.050000 = $1.00
Swedish Krona............................................................................. 7.276850 = $1.00
Swiss Franc............................................................................... 1.151500 = $1.00
Taiwan Dollar............................................................................. 25.828000 = $1.00
Thai Baht................................................................................. 24.685000 = $1.00
Turkish Lira.............................................................................. 44,215.000000 = $1.00
</TABLE>
At June 30, 1995, Global Equity Allocation Fund, Asian Growth Fund, Latin
American Fund and Emerging Markets Fund incurred approximately $6,000, $107,000,
$1,000 and $2,000, respectively, as brokerage commissions with Morgan Stanley &
Co. Incorporated, an affiliated broker/dealer.
At June 30, 1995, cost and unrealized appreciation (depreciation) for Federal
income tax purposes of the securities of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- -------------------------------------------------------------------------------- -------- ------- --------- --------------
<S> <C> <C> <C> <C>
Global Equity Allocation Fund................................................... $ 80,786 $6,661 $ (2,072) $ 4,589
Global Fixed Income Fund........................................................ 16,386 622 (114) 508
Asian Growth Fund............................................................... 292,284 41,905 (14,669) 27,236
American Value Fund............................................................. 32,419 2,824 (869) 1,955
Worldwide High Income Fund...................................................... 33,822 676 (709) (33)
Latin American Fund............................................................. 13,729 533 (2,556) (2,023)
Emerging Markets Fund........................................................... 51,190 3,123 (4,909) (1,786)
</TABLE>
85
<PAGE>
MORGAN STANLEY FUNDS
- -----------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
During the year ended June 30, 1995, Morgan Stanley Fund, Inc. shareholders
voted on proposals at a special meeting held on June 28, 1995. The description
of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
VOTED FOR WITHHOLD
(000) (000)
--------- --------
<S> <C> <C>
1. To elect the following Directors to serve the
Fund until such time as their successors have
been duly appointed.
Barton M. Biggs 21,814 294
John D. Barrett II 21,814 294
Gerald E. Jones 21,800 308
Andrew McNally IV 21,806 302
Warren J. Olsen 21,813 295
Samuel T. Reeves 21,840 268
Fergus Reid 21,817 291
Frederick O. Robertshaw 21,837 271
Frederick B. Whittemore 21,798 310
</TABLE>
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
For the year ended June 30, 1995, the percentage of dividends that qualify for
the 70% dividend received deduction for corporate shareholders of the Global
Equity Allocation Fund and American Value Fund are 27.11% and 87.17%,
respectively.
Global Equity Allocation Fund and Asian Growth Fund have designated
approximately $2,376,000 and $867,000 as long-term capital gain for the fiscal
year ended June 30, 1995.
Foreign taxes paid during the fiscal year ended June 30, 1995 amounting to
$9,000 and $30,000 for Global Fixed Income Fund and Emerging Markets Fund,
respectively are expected to be passed through to shareholders as foreign tax
credits on Form 1099-DIV for the year ending December 31, 1995, which will be
sent to shareholders in late January 1996.
86
<PAGE>
MORGAN STANLEY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide High
Income Fund, Latin American Fund and Emerging Markets Fund (constituting the
Morgan Stanley Fund, Inc., hereafter referred to as the "Fund") at June 30,
1995, the results of each of their operations, the changes in each of their net
assets and the financial highlights for each of the Funds for each of the
respective periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 11, 1995
87
