MORGAN STANLEY FUND INC, 497, 1995-07-12

MORGAN STANLEY FUND INC
497, 1995-07-12

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<PAGE>
SUPPLEMENT DATED MARCH 31, 1995
TO PROSPECTUS DATED OCTOBER 28, 1994 OF
MORGAN STANLEY FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

CLASS B SHARES TO BE RENAMED CLASS C SHARES, EFFECTIVE MAY 1, 1995

The prospectus dated October 28, 1994 of the Morgan Stanley Fund, Inc. (the
"Fund") is hereby amended and supplemented as follows:

Stockholders of the Fund's Class B shares are hereby notified that,
effective May 1, 1995, such Class B shares will be renamed the Class C shares.
All references to the Class B shares are hereby amended accordingly. The Fund is
renaming the Class B shares in order to follow the industry practice of naming
classes with level loads Class C shares. All other characteristics of the shares
remain the same.
<PAGE>

MORGAN STANLEY FUND, INC.
MORGAN STANLEY LATIN AMERICAN FUND

SUPPLEMENT dated January 9, 1995 to the Prospectus dated October 28, 1994

FINANCIAL HIGHLIGHTS
(Unaudited)

The following table provides financial highlights for the Morgan Stanley
Latin American Fund (the "Latin American Fund") for the period from commencement
of operations on July 6, 1994 to November 30, 1994, and is included in the
financial statements in the Statement of Additional Information of the Morgan
Stanley Fund, Inc. The Statement of Additional Information is available at no
cost and can be requested by writing the address or calling the telephone number
on the cover of the Prospectus. The following information should be read in
conjunction with the financial statements and notes thereto.

Class A Class B
------- -------
July 6, 1994** July 6, 1994**
to to
November 30, 1994 November 30, 1994
----------------- -----------------
<S> <C> <C>

NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.05) (0.12)
Net Realized and Unrealized Gain on Investments 2.36 2.36
---- ----

Total from Investment Operations 2.31 2.24
---- ----

NET ASSET VALUE, END OF PERIOD $14.31 $14.24
------ ------
------ ------

TOTAL RETURN (1) 19.25%*** 18.67%***
----- -----
----- -----

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $7,213 $3,279
Ratio of Expenses to Average Net Assets 2.10%* 2.85%*
Ratio of Net Investment Income to Average Net Assets -0.91%* -1.66%*
Portfolio Turnover Rate 41.53%*** 41.53%***

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

During the period, various fees and expenses were waived and reimbursed. The ratios of expenses and net investment
income to average net assets had such waiver and reimbursement not occurred are as follows(2):

Ratio of Expenses to Average Net Assets 2.53% 3.28%
Ratio of Net Investment Income to Average Net Assets -1.34% -2.09%

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

<FN>
* Annualized.
** Commencement of operations.
*** Not Annualized.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 1.25% of the average daily net assets of the Latin American Fund. The
Adviser has agreed to waiver a portion of this fee and/or reimburse
expenses of the Latin American Fund to the extent that total operating
expenses 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 B
Shares. For the period ended November 30, 1994, the Adviser waived
advisory fees and/or reimbursed expenses totalling approximately $33,000
and $38,000, respectively, for the Latin American Fund.

</TABLE>

<PAGE>

MORGAN STANLEY FUND, INC.
MORGAN STANLEY EMERGING MARKETS FUND

SUPPLEMENT dated January 9, 1995 to the Prospectus dated October 28, 1994

FINANCIAL HIGHLIGHTS
(Unaudited)

The following table provides financial highlights for the Morgan Stanley
Emerging Markets Fund (the "Emerging Markets Fund") for the period from
commencement of operations on July 6, 1994 to November 30, 1994, and is included
in the financial statements in the Statement of Additional Information of the
Morgan Stanley Fund, Inc. The Statement of Additional Information is available
at no cost and can be requested by writing the address or calling the telephone
number on the cover of the Prospectus. The following information should be
read in conjunction with the financial statements and notes thereto.

Class A Class B
------- -------
July 6, 1994** July 6, 1994**
to to
November 30, 1994 November 30, 1994
----------------- -----------------
<S> <C> <C>

NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.00 (0.03)
Net Realized and Unrealized Gain on Investments 0.01 0.01
---- ----

Total from Investment Operations 0.01 (0.02)
---- ----

NET ASSET VALUE, END OF PERIOD $12.01 $11.98
------ ------
------ ------

TOTAL RETURN (1) 0.08%*** -0.17%***
---- ----
---- ----

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $14,860 $11,568
Ratio of Expenses to Average Net Assets 2.15%* 2.90%*
Ratio of Net Investment Income to Average Net Assets 0.27%* -0.48%*
Portfolio Turnover Rate 8.13%*** 8.13%***

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

Ratio of Expenses to Average Net Assets 2.77% 3.52%
Ratio of Net Investment Income to Average Net Assets -0.35% -1.10%

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

<FN>
* Annualized.
** Commencement of operations.
*** Not Annualized.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 1.25% of the average daily net assets of the Emerging Markets Fund. The
Adviser has agreed to waiver a portion of this fee and/or reimburse
expenses of the Emerging Markets Fund to the extent that total operating
expenses 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 B
Shares. For the period ended November 30, 1994, the Adviser waived
advisory fees and/or reimbursed expenses totalling approximately $61,000
and $3,000, respectively, for the Emerging Markets Fund.

</TABLE>

<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
MORGAN STANLEY MONEY MARKET FUND

PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.

P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-282-4404
------------------

Morgan Stanley Fund, Inc. (the "Fund") is an open-end management investment
company, or mutual fund, which offers redeemable shares in a series of
diversified and nondiversified investment portfolios (each, an "Investment
Fund"). The Fund is designed to make available to retail investors the expertise
of Morgan Stanley Asset Management Inc., the Investment Adviser and
Administrator. Shares are available through Morgan Stanley & Co. Incorporated
("Morgan Stanley"), the Distributor, and investment dealers, banks and financial
services firms that provide distribution, administrative or shareholder services
("Participating Dealers"). The Fund currently consists of ten Investment Funds
offering the following range of investment choices:

GLOBAL AND INTERNATIONAL EQUITY FUNDS:
Morgan Stanley Global Equity Allocation Fund (the "Global Equity Allocation
Fund")
Morgan Stanley Asian Growth Fund (the "Asian Growth Fund")
Morgan Stanley Emerging Markets Fund (the "Emerging Markets Fund")
Morgan Stanley Latin American Fund (the "Latin American Fund")
Morgan Stanley European Equity Fund (the "European Equity Fund")
Morgan Stanley Growth and Income Fund (the "Growth and Income Fund")

UNITED STATES EQUITY FUND:
Morgan Stanley American Value Fund (the "American Value Fund")

GLOBAL FIXED INCOME FUNDS:
Morgan Stanley Global Fixed Income Fund (the "Global Fixed Income Fund")
Morgan Stanley Worldwide High Income Fund (the "Worldwide High Income Fund")

MONEY MARKET FUND:
Morgan Stanley Money Market Fund (the "Money Market Fund").

The Morgan Stanley Worldwide High Income Fund invests predominantly in lower
rated and unrated bonds, commonly referred to as "junk bonds." Bonds of this
type are considered to be speculative with regard to the payment of interest and
return of principal and are subject to greater risk of loss of principal and
interest. Purchasers should carefully assess the risks associated with an
investment in this Investment Fund. See "Additional Investment Information --
Risk Factors Relating to Investing in Lower Rated Securities."

Certain Investment Funds invest in emerging markets securities, which are
subject to special risks. See "Foreign Investment Risk Factors."

INVESTORS SHOULD NOTE THAT AN INVESTMENT FUND MAY INVEST UP TO 15% OF ITS
NET ASSETS (10% OF THE NET ASSETS OF THE MONEY MARKET FUND) IN ILLIQUID ASSETS,
INCLUDING RESTRICTED SECURITIES (OTHER THAN RULE 144A SECURITIES THAT ARE
DETERMINED TO BE LIQUID). SEE "ADDITIONAL INVESTMENT INFORMATION -- NON-PUBLICLY
TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES." INVESTMENTS IN
RESTRICTED SECURITIES IN EXCESS OF 5% OF AN INVESTMENT FUND'S TOTAL ASSETS MAY
BE CONSIDERED A SPECULATIVE ACTIVITY, MAY INVOLVE GREATER RISK AND MAY INCREASE
THE INVESTMENT FUND'S EXPENSES.

INVESTMENTS IN THE INVESTMENT FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE UNITED STATES GOVERNMENT. THERE IS NO ASSURANCE THAT THE MORGAN STANLEY
MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.

THE MORGAN STANLEY MONEY MARKET FUND IS NOT CURRENTLY OFFERING SHARES.

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 28, 1994,
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 28, 1994.
<PAGE>
FUND EXPENSES

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

<TABLE>
<CAPTION>
GLOBAL GLOBAL GLOBAL GLOBAL
EQUITY EQUITY FIXED FIXED
ALLOCATION ALLOCATION INCOME INCOME
FUND FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases............................ 4.75%(1) None 4.75%(1) None
Maximum Sales Load Imposed on Reinvested Dividends................. None None None None
Deferred Sales Load
For purchases up to $999,999..................................... None 1.00%(2) None 1.00%(2)
For purchases of $1,000,000 or more.............................. 1.00%(1) 1.00%(2) 1.00%(1) 1.00%(2)
Redemption Fees (3)................................................ None None None None
Exchange Fees...................................................... None None None None
</TABLE>

<TABLE>
<CAPTION>
ASIAN ASIAN EMERGING EMERGING
GROWTH GROWTH MARKETS MARKETS
FUND FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases............................ 4.75%(1) None 4.75%(1) None
Maximum Sales Load Imposed on Reinvested Dividends................. None None None None
Deferred Sales Load
For purchases up to $999,999..................................... None 1.00%(2) None 1.00%(2)
For purchases of $1,000,000 or more.............................. 1.00%(1) 1.00%(2) 1.00%(1) 1.00%(2)
Redemption Fees (3)................................................ None None None None
Exchange Fees...................................................... None None None None
</TABLE>

<TABLE>
<CAPTION>
LATIN LATIN EUROPEAN EUROPEAN
AMERICAN AMERICAN EQUITY EQUITY
FUND FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases............................ 4.75%(1) None 4.75%(1) None
Maximum Sales Load Imposed on Reinvested Dividends................. None None None None
Deferred Sales Load
For purchases up to $999,999..................................... None 1.00%(2) None 1.00%(2)
For purchases of $1,000,000 or more.............................. 1.00%(1) 1.00%(2) 1.00%(1) 1.00%(2)
Redemption Fees (3)................................................ None None None None
Exchange Fees...................................................... None None None None
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE
HIGH HIGH
AMERICAN AMERICAN INCOME INCOME
VALUE FUND VALUE FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
- ---------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases....... 4.75%(1) None 4.75%(1) None
Maximum Sales Load Imposed on Reinvested
Dividends.................................... None None None None
Deferred Sales Load
For purchases up to $999,999................ None 1.00%(2) None 1.00%(2)
For purchases of $1,000,000 or more......... 1.00%(1) 1.00%(2) 1.00%(1) 1.00%(2)
Redemption Fees (3)........................... None None None None
Exchange Fees................................. None None None None
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND GROWTH AND
INCOME INCOME MONEY
FUND FUND MARKET
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B FUND
- ---------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases................... 4.75%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends........ None None None
Deferred Sales Load
For purchases up to $999,999............................ None 1.00%(2) None
For purchases of $1,000,000 or more..................... 1.00%(1) 1.00%(2) None
Redemption Fees (3)....................................... None None None
Exchange Fees............................................. None None None
</TABLE>

<TABLE>
<CAPTION>
GLOBAL GLOBAL
GLOBAL EQUITY GLOBAL EQUITY FIXED FIXED
ALLOCATION FUND ALLOCATION FUND INCOME FUND INCOME FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B
- ---------------------------------------------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
REIMBURSEMENT AND/OR FEE WAIVER)
Investment Advisory Fee and Administrative and
Shareholder Account Costs (4)...................... 0.25% 0.25% 0.25% 0.25%
12b-1 Fees.......................................... 0.25% 1.00% 0.25% 1.00%
Custody Fees........................................ 0.42% 0.42% 0.16% 0.16%
Other Expenses...................................... 0.78% 0.78% 0.79% 0.79%
--- --- --- ---
Total Operating Expenses (4).................... 1.70% 2.45% 1.45% 2.20%
--- --- --- ---
--- --- --- ---
</TABLE>

<TABLE>
<CAPTION>
ASIAN GROWTH ASIAN GROWTH EMERGING EMERGING
FUND FUND MARKETS FUND MARKETS FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
REIMBURSEMENT AND/OR FEE WAIVER)
Investment Advisory Fee and Administrative and
Shareholder Account Costs q(4)....................... 1.25% 1.25% 1.50% 1.50%
12b-1 Fees............................................ 0.25% 1.00% 0.25% 1.00%
Custody Fees.......................................... 0.30% 0.30% 0.30% 0.30%
Other Expenses........................................ 0.10% 0.10% 0.10% 0.10%
--- --- --- ---
Total Operating Expenses (4)...................... 1.90% 2.65% 2.15% 2.90%
--- --- --- ---
--- --- --- ---
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
LATIN LATIN
AMERICAN AMERICAN EUROPEAN EUROPEAN
FUND FUND EQUITY FUND EQUITY FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B
- -------------------------------------------------------------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE REIMBURSEMENT AND/OR
FEE WAIVER)
Investment Advisory Fee and Administrative and Shareholder Account Costs
(4)...................................................................... 1.50% 1.50% 1.25% 1.25%
12b-1 Fees................................................................ 0.25% 1.00% .25% 1.00%
Custody Fees.............................................................. 0.25% 0.25% 0.10% 0.10%
Other Expenses............................................................ 0.10% 0.10% .10% .10%
--- --- --- ---
Total Operating Expenses (4).......................................... 2.10% 2.85% 1.70% 2.45%
--- --- --- ---
--- --- --- ---
</TABLE>

<TABLE>
<CAPTION>
AMERICAN AMERICAN WORLDWIDE HIGH WORLDWIDE HIGH
VALUE FUND VALUE FUND INCOME FUND INCOME FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B
- -------------------------------------------------------------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE REIMBURSEMENT
AND/OR FEE WAIVER)
Investment Advisory Fee and Administrative and Shareholder Account
Costs (4).......................................................... 1.10% 1.10% 1.00% 1.00%
12b-1 Fees.......................................................... 0.25% 1.00% 0.25% 1.00%
Custody Fees........................................................ 0.05% 0.05% 0.20% 0.20%
Other Expenses...................................................... 0.10% 0.10% 0.10% 0.10%
--- --- --- ---
Total Operating Expenses (4).................................... 1.50% 2.25% 1.55% 2.30%
--- --- --- ---
--- --- --- ---
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND INCOME GROWTH AND INCOME
FUND FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B MONEY MARKET
- ------------------------------------------------------------- --------------------- --------------------- -----------------
<S> <C> <C> <C>
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
REIMBURSEMENT AND/OR FEE WAIVER)
Investment Advisory Fee and Administrative and Shareholder
Account Costs (4)........................................... 1.00% 1.00% 0.60%
12b-1 Fees................................................... 0.25% 1.00% 0.25%
Custody Fees................................................. 0.10% 0.10% 0.01%
Other Expenses............................................... 0.10% 0.10% 0.04%
--- --- ---
Total Operating Expenses (4)............................. 1.45% 2.20% 0.90%
--- --- ---
--- --- ---
<FN>
- ------------------------------
(1) Purchases of Class A shares of the Global Equity Allocation Fund, Global
Fixed Income Fund, Asian Growth Fund, Emerging Markets Fund, Latin American
Fund, European Equity Fund, American Value Fund, Worldwide High Income Fund
and Growth and Income Fund (the "Non-Money Funds") which, when combined
with the net asset value of the purchaser's existing investment in Class A
shares of these Funds, aggregate $1 million or more are not subject to a
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such
purchase that are redeemed within one year following such purchase. Any
such CDSC will be paid to the Distributor. Certain other purchases are not
subject to an initial sales charge. (See "Purchase of Shares")

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

(3) A charge of $8.00 may be imposed on redemptions by wire which is not an
expense of the Fund.
</TABLE>

4
<PAGE>
<TABLE>
<S> <C>
(4) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Investment Funds, if necessary, if such fees would cause
the total annual operating expenses of the Investment Funds, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. Absent the fee waivers, investment advisory fees are as
follows:
</TABLE>

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C> <C>
Global Equity Allocation Fund............................... 2.58% 3.34%
Global Fixed Income Fund.................................... 2.48% 3.29%
Asian Growth Fund........................................... 2.17% 2.92%
Emerging Markets Fund....................................... N/A N/A
Latin American Fund......................................... N/A N/A
European Equity Fund........................................ N/A N/A
American Value Fund......................................... 2.48% 3.28%
Worldwide High Income Fund.................................. N/A N/A
Growth and Income Fund...................................... N/A N/A
Money Market Fund........................................... N/A%
</TABLE>

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

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 expenses and fees for the Global Equity Allocation,
Global Fixed Income and Asian Growth Funds are based on actual figures for the
one year period ended June 30, 1994. The expenses and fees for the Emerging
Markets, Latin American, European Equity, American Value, Worldwide High Income,
Growth and Income and Money Market Funds 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").

The following example illustrates the expenses that you would pay on a
$1,000 investment in (i) Class A shares of each of the Non-Money Funds,
including the maximum 4.75% sales charge, (ii) Class B shares of each

5
<PAGE>
of such Non-Money Funds, which are purchased without an initial sales charge,
and (iii) shares of the Money Market Fund, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. (If it is assumed
there are no redemptions, the expenses are the same.)

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
GLOBAL EQUITY ALLOCATION FUND
Class A shares......................................... $ 64(1) $ 99 $ 135 $ 239
Class B shares......................................... 25(2) 76 131 278
GLOBAL FIXED INCOME FUND
Class A shares......................................... $ 62(1) $ 91 $ 123 $ 213
Class B shares......................................... 22(2) 69 118 253
ASIAN GROWTH FUND
Class A shares......................................... $ 66(1) $ 104 $ 145 $ 259
Class B shares......................................... 27(2) 82 140 298
EMERGING MARKETS FUND
Class A shares......................................... $ 68(1) $ 112 -- --
Class B shares......................................... 29(2) 90 -- --
LATIN AMERICAN FUND
Class A shares......................................... $ 68(1) $ 110 -- --
Class B shares......................................... 29(2) 88 -- --
EUROPEAN EQUITY FUND
Class A shares......................................... $ 64(1) $ 99 -- --
Class B shares......................................... 25(2) 76 -- --
AMERICAN VALUE FUND
Class A shares......................................... $ 62(1) $ 93 -- --
Class B shares......................................... 23(2) 70 -- --
WORLDWIDE HIGH INCOME FUND
Class A shares......................................... $ 63(1) $ 94 -- --
Class B shares......................................... 23(2) 72 -- --
GROWTH AND INCOME FUND
Class A shares......................................... $ 62(1) $ 91 -- --
Class B shares......................................... 22(2) 69 -- --
Money Market Fund...................................... $ 9 $ 29 -- --
<FN>
- --------------------------
* Because the Emerging Markets, Latin American, European Equity, American
Value, Worldwide High Income, Growth and Income, and Money Market Funds
were either not operational or had just become operational as of the Fund's
fiscal year end, the Fund has not projected expenses beyond the three- year
period shown.

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

(2) If Class B shares of the Non-Money Funds are redeemed within one year of
purchase, the expense figures in the first year increase to the following
amounts for each of the Investment Funds: Global Equity Allocation Fund,
$35 ; Global Fixed Income Fund, $32 ; Asian Growth Fund, $37 ; Emerging
Markets Fund, $39; Latin American Fund, $39; European Equity Fund, $35;
American Value Fund, $33; Worldwide High Income Fund, $34; and Growth and
Income Fund, $32.
</TABLE>

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown. The Adviser in its discretion may terminate voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the example above would be greater.

6
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for each class of the
Global Equity Allocation, Global Fixed Income, Asian Growth, American Value and
Worldwide High Income Funds for each of the respective periods presented. The
financial highlights for the period ended June 30, 1994 for such Investment
Funds are part of the Fund's financial statements, which appear in the Fund's
June 30, 1994 Annual Report to Shareholders, which is incorporated by reference
into the Fund's Statement of Additional Information. The Fund's financial
highlights for the period ended June 30, 1994 have been audited by Price
Waterhouse LLP, whose opinion thereon (which was unqualified) is also
incorporated by reference into 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 Emerging Markets, Latin American, European Equity and
Growth and Income Funds were not operational as of the date of the Annual
Report. The Money Market Fund ceased offering shares as of August 6, 1994. The
following information should be read in conjunction with the financial
statements and notes thereto. The financial statements for the Worldwide High
Income Fund from July 1, 1994 to August 31, 1994, which commenced operations on
April 21, 1994, are unaudited.

7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------- -------------------------------
JANUARY 4, JANUARY 4,
1993** TO JUNE YEAR ENDED 1993** TO JUNE YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS 30, 1993 JUNE 30, 1994 30, 1993 JUNE 30, 1994
- ------------------------------------------------ ---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 10.00 $ 11.09 $ 10.00 $ 11.05
------- ------------- ------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.04 0.10 0.01 0.06
Net Realized and Unrealized Gain On
Investments.................................. 1.05 0.90 1.04 0.86
------- ------------- ------- -------------
Total From Investment Operations............ 1.09 1.00 1.05 0.92

DISTRIBUTIONS
Net Investment Income......................... -- (0.03) -- --
Realized Gains................................ -- (0.07) -- (0.07)
------- ------------- ------- -------------
Total Distributions......................... -- (0.10) -- (0.07)
------- ------------- ------- -------------

NET ASSET VALUE, END OF PERIOD.................. $ 11.09 $ 11.99 $ 11.05 $ 11.90
------- ------------- ------- -------------
------- ------------- ------- -------------
TOTAL RETURN (1)................................ 10.90%*** 9.02% 10.50%*** 8.34%
------- ------------- ------- -------------
------- ------------- ------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)......... $10,434 $33,425 $6,995 $29,892
Ratio of Net Expenses to Average Net Assets... 1.70%* 1.70% 2.45%* 2.45%
Ratio of Net Investment Income to Average Net
Assets....................................... 1.04%* 0.98% 0.29%* 0.23%
Portfolio Turnover Rate....................... 14%*** 30% 14%*** 30%
</TABLE>

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

During each period, various fees and expenses were waived and reimbursed.
The ratios of net expenses and net investment income/(loss) to average net
assets had such waiver and reimbursement not occurred are as follows (2):

<TABLE>
<S> <C> <C> <C> <C>
Ratio of net expenses to average net
assets................................. 3.65%* 2.58% 4.40%* 3.34%
Ratio of net investment income/ (loss)
to average net assets.................. (0.91)%* 0.10% (1.66)%* (0.66)%
</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 B shares. For the fiscal periods ended
June 30, 1993 and June 30, 1994, the Adviser waived advisory fees and/or
reimbursed expenses totalling approximately $130,000 and 353,000,
respectively, for the Global Equity Allocation Fund.

8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND

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

DISTRIBUTIONS
Net Investment Income........................ (0.25) (0.50) (0.20) (0.44)
In Excess of Net Investment Income........... -- (0.12) -- (0.11)
Realized Gains............................... -- (0.47) -- (0.47)
In Excess of Realized Gains.................. -- (0.03) -- (0.03)
------- ------ ------- -------------
Total Distributions........................ (0.25) (1.12) (0.20) (1.05)
------- ------ ------- -------------

NET ASSET VALUE, END OF PERIOD................. $ 10.55 $ 9.53 $ 10.56 $ 9.54
------- ------ ------- -------------
------- ------ ------- -------------
TOTAL RETURN (1)............................... 8.02%*** 0.41% 7.61%*** (0.25)%
------- ------ ------- -------------
------- ------ ------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)........ $6,633 $10,369 $6,120 $5,407
Ratio of Net Expenses to Average Net
Assets...................................... 1.45%* 1.45% 2.20%* 2.20%
Ratio of Net Investment Income to Average Net
Assets...................................... 5.00%* 4.70% 4.25%* 3.95%
Portfolio Turnover Rate...................... 55%*** 168% 55%*** 168%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
Ratio of net expenses to average net
assets................................. 2.88%* 2.48% 3.63* 3.29%
Ratio of net investment income/(loss) to
average net assets..................... 3.57%* 3.67% 2.82%* 2.86%
</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 B shares. For the fiscal periods ended June
30, 1993 and June 30, 1994, the Adviser waived advisory fees and/or
reimbursed expenses totalling approximately $77,000 and $150,000,
respectively, for the Global Fixed Income Fund.

9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND

<TABLE>
<CAPTION>
CLASS A
------------------------------- CLASS B
YEAR ENDED --------------------------------
JANUARY 4, 1993** JUNE 30, JANUARY 4, 1993** YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1993 1994 TO JUNE 30, 1993 JUNE 30, 1994
- ----------------------------------------------- ----------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 12.00 $ 12.00 $ 12.00 $ 12.00
------ ------------ ------ -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss.......................... -- (0.03) -- (0.10)
Net Realized and Unrealized Gain On
Investments................................. -- 3.53 -- 3.50
------ ------------ ------ -------------
Total From Investment Operations........... -- 3.50 -- 3.40
------ ------------ ------ -------------

NET ASSET VALUE, END OF PERIOD................. $ 12.00 $ 15.50 $ 12.00 $ 15.40
------ ------------ ------ -------------
------ ------------ ------ -------------
TOTAL RETURN (1)............................... 0.00%*** 29.17% 0.00%*** 28.33%
------ ------------ ------ -------------
------ ------------ ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)........ $11,770 $138,212 $8,491 $116,889
Ratio of Net Expenses to Average Net
Assets...................................... 1.90%* 1.90% 2.65%* 2.65%
Ratio of Net Investment Income/(Loss) to
Average Net Assets.......................... (0.81)%* (0.24)% (1.56)%* (0.99)%
Portfolio Turnover Rate...................... 0%*** 34% 0%*** 34%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
Ratio of net expenses to average net
assets................................. 11.83%* 2.17% 12.64%* 2.92%
Ratio of net investment income/(loss) to
average net assets..................... (10.74)%* (0.51)% (11.55)%* (1.26)%
</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 B shares. For the fiscal periods ended June
30, 1993 and June 30, 1994, the Adviser waived advisory fees and/or
reimbursed expenses totalling approximately $29,000 and $464,000,
respectively, for the Asian Growth Fund.

10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------ ------------------
OCTOBER 18, 1993** OCTOBER 18, 1993**
TO TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1994 JUNE 30, 1994
- ------------------------------------------------------------------------ ------------------ ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 12.00 $ 12.00
------ ------
INCOME FROM INVESTMENT OPERATIONS.......................................
Net Investment Income................................................. 0.17 0.11
Net Realized and Unrealized Loss On Investments....................... (0.30) (0.31)
------ ------
Total From Investment Operations.................................... (0.13) (0.20)
------ ------
DISTRIBUTIONS
Net Investment Income................................................. (0.17) (0.11)
------ ------
NET ASSET VALUE, END OF PERIOD.......................................... $ 11.70 $ 11.69
------ ------
------ ------
TOTAL RETURN (1)........................................................ (1.12)%*** (1.70)%***
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)................................. $10,717 $7,237
Ratio of Net Expenses to Average Net Assets........................... 1.50%* 2.25%*
Ratio of Net Investment Income to Average Net Assets.................. 2.14%* 1.39%*
Portfolio Turnover Rate............................................... 17%*** 17%***
</TABLE>

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

<TABLE>
<S> <C> <C>
Ratio of net expenses to average net assets................... 2.48%* 3.28%*
Ratio of net investment income/(loss) to average net assets... 1.16%* 0.36%*
</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 B shares. For the fiscal period ended June 30, 1994, the Adviser
waived advisory fees and/or reimbursed expenses totalling approximately
$102,000 for the American Value Fund.

11
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------- ----------------------------------------
APRIL 21, 1994** JULY 1, 1994 APRIL 21, 1994** JULY 1, 1994
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 AUGUST 31, 1994 TO JUNE 30, 1994 AUGUST 31, 1994
- ----------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
UNAUDITED UNAUDITED
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 12.00 $ 12.17 $ 12.00 $ 12.16
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 0.18 0.15 0.17 0.17
Net Realized and Unrealized Gain
On Investments.................. 0.16 0.10 0.15 0.08
------ ------ ------ ------
Total From Investment
Operations.................... 0.34 0.25 0.32 0.25
------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income............ (0.17) (0.20) (0.16) (0.18)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD..... $ 12.17 $ 12.22 $ 12.16 $ 12.23
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN (1)................... 2.86%*** 4.99%*** 2.62%*** 4.77%***
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands)..................... $6,857 $9,144 $6,081 $7,157
Ratio of Net Expenses to Average
Net Assets...................... 1.55%* 1.55%* 2.30%* 2.30%*
Ratio of Net Investment Income to
Average Net Assets.............. 8.29%* 8.38%* 7.54%* 7.63%*
Portfolio Turnover Rate.......... 19%*** 21%*** 19%*** 21%***
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
Ratio of net expenses to
average net assets.......... 3.23%* 2.19%* 4.00%* 2.94%*
Ratio of net investment
income/ (loss) to average
net assets.................. 6.61%* 7.74%* 5.84%* 6.99%*
</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 B shares. For the periods ended June 30, 1994
and August 31, 1994, the Adviser waived advisory fees and/or reimbursed
expenses totalling approximately $39,000 and $16,000, respectively, for the
Worldwide High Income Fund.

12
<PAGE>
PROSPECTUS SUMMARY

THE FUND

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

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

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

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

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

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

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

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

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

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

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

INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc. (the "Adviser" and the
"Administrator"), a wholly owned subsidiary of Morgan Stanley Group Inc., which
at September 30, 1994 had approximately $51 billion in assets under management
as an investment manager or as a fiduciary adviser, acts as investment adviser
to the Fund and each of its Investment Funds. See "Management of the Fund --
Investment Adviser" and "-- Administrator."

13
<PAGE>
HOW TO INVEST

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

HOW TO REDEEM

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

RISK FACTORS

The investment policies of each Investment Fund entail certain risks and
considerations of which an investor should be aware. The American Value, Growth
and Income and Money Market Funds may, and the remaining Investment Funds will,
invest in securities of foreign issuers. Securities of foreign issuers are
subject to certain risks not typically associated with domestic securities,
including, among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
U.S. The Asian Growth, Emerging Markets, Latin American, European Equity and
Worldwide High Income Funds invest in securities of issuers located in
developing countries and emerging markets. These securities may impose greater
liquidity risks and other risks not typically associated with investing in more
established markets. The American Value Fund seeks high long-term total return
by investing primarily in small- to medium-sized corporations which are more
vulnerable to financial risks and other risks than larger corporations, and
therefore may involve a

14
<PAGE>
higher degree of risk and price volatility than investments in the securities of
larger corporations. The Emerging Markets, Latin American and Worldwide High
Income Funds' investments in emerging markets may also be in small- to
medium-sized companies. The Non-Money Funds, except for the American Value and
Growth and Income Funds, may invest in sovereign debt. The Emerging Markets,
Latin American, Growth and Income and Worldwide High Income Funds may invest in
lower rated and unrated debt securities (including in the case of the Latin
American Fund, sovereign debt) which are considered speculative with regard to
the payment of interest and return of principal. In addition, each Investment
Fund may invest in repurchase agreements, borrow money, lend its portfolio
securities, and purchase securities on a when-issued or delayed delivery basis.
The Latin American, Worldwide High Income, Growth and Income and Money Market
Funds may invest in reverse repurchase agreements. The Non-Money Funds may
invest in forward foreign currency exchange contracts, and the Worldwide High
Income, Emerging Markets, American Value, European Equity, Growth and Income and
Latin American Funds may invest in foreign currency exchange futures and
options, to hedge the currency risks associated with investment in non-U.S.
dollar denominated securities. The Emerging Markets, Latin American, European
Equity, Growth and Income and Worldwide High Income Funds may invest in options.
The Worldwide High Income Fund may invest in structured investments and the
Emerging Markets, Latin American, European Equity and Worldwide High Income
Funds may engage in short selling. The Growth and Income Fund may invest in
PERCS, ELKS, LYONs and similar securities which are convertible upon various
terms and conditions into equity securities. Each of these investment strategies
involves specific risks which are described under "Investment Objectives and
Policies" and "Additional Investment Information" herein and under "Investment
Objectives and Policies" in the Statement of Additional Information. See
"Investment Limitations" for a description of the risks associated with the
non-diversified status of the Global Fixed Income, Emerging Markets and Latin
American Funds.

15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

THE GLOBAL EQUITY ALLOCATION FUND

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

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

<TABLE>
<S> <C> <C> <C>
Argentina Indonesia Portugal South 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
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.

16
<PAGE>
Within a particular country, investments are made through the purchase of
common stocks which, in the aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International index for the given
country. The Morgan Stanley Capital International ("MSCI") Indices measure the
performance of stock markets worldwide. The various MSCI Indices are based on
the share prices of companies listed on the local stock exchange of the
specified country or countries within a specified region. The combined market
capitalization of companies in these indices represent approximately 60 percent
of the aggregate market value of the covered stock exchanges. Companies included
in the MSCI country index replicate the industry composition of the local market
and are a representative sampling of large, medium and small companies, subject
to liquidity. Non-domiciled companies traded on the local exchange and companies
with restricted float due to dominant shareholders or cross-ownership are
avoided. The Adviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Investment
Fund. Common stocks purchased for the Investment Fund include common stocks and
equivalents, such as securities convertible into common stocks and securities
having common stock characteristics, such as rights and warrants to purchase
common stocks. Debt securities convertible into common stocks will be investment
grade (rated in one of the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO")) or, if unrated, will be of
comparable quality as determined by the Adviser under the supervision of the
Board of Directors. Indexation of the Investment Fund's stock selection reduces
stock-specific risk through diversification and minimizes transaction costs,
which can be substantial in foreign markets.

The Investment Fund 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 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."

17
<PAGE>
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.

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.

18
<PAGE>
The Investment Fund may, to a limited extent, invest in non-publicly traded
securities, private placements and restricted securities. See "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities."

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

THE ASIAN GROWTH FUND

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

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

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

19
<PAGE>
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.

THE AMERICAN VALUE FUND

The American Value Fund's investment objective is to provide high total
return by investing in common stocks of small-to medium-sized corporations that
the Adviser believes to be undervalued relative to the stock market in general
at the time of purchase. The Investment Fund invests primarily in corporations
domiciled in the United States with equity market capitalizations which range
generally from $70 million up to $1 billion, but

20
<PAGE>
may from time to time invest in similar size foreign corporations. Under normal
circumstances, the Investment Fund will invest at least 65% of the value of its
total assets in corporations whose equity market capitalization is up to $1
billion. The Investment Fund may invest up to 35% of the value of its total
assets in corporations which are generally smaller than the 500 largest
corporations in the United States. Common stocks for this purpose consist of
common stocks and equivalents of any class or series, such as securities
convertible into common stock and securities having common stock
characteristics, such as rights and warrants to purchase common stocks, and
similar equity interests, such as trusts or partnership interests. Debt
securities convertible into common stocks will be investment grade (rated in one
of the four highest rating categories by a NRSRO) or, if unrated, will be of
comparable quality as determined by the Adviser under the supervision of the
Board of Directors. These investments may or may not carry voting rights.

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

Companies considered attractive will have the following characteristics:

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

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

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

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

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

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.

21
<PAGE>
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 EMERGING MARKETS FUND

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

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

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

22
<PAGE>
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 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.

23
<PAGE>
PERFORMANCE INFORMATION FOR THE EMERGING MARKETS FUND

The Emerging Markets Fund has identical investment objectives and policies
and substantially similar investment restrictions as those used by the Emerging
Markets Portfolio of the Morgan Stanley Institutional Fund, Inc. (the "Emerging
Markets Portfolio"), an investment portfolio currently managed by the Adviser.
Set forth below is representative performance data which an investor may find
relevant in considering whether to invest in the Emerging Markets Fund. However,
the performance data is not necessarily indicative of the future performance of
the Emerging Markets Fund. The Adviser expects that the Emerging Markets Fund
initially will be somewhat smaller in asset size than the Emerging Markets
Portfolio, but anticipates that the Emerging Markets Fund will reach the same
asset size as the Emerging Markets Portfolio before the end of the Emerging
Markets Fund's first year of operation and will continue to grow in size
thereafter. (Investment in the Emerging Markets Portfolio is open to certain
clients of the Adviser.)

The Emerging Markets Portfolio incurred expenses during the periods shown
that are different from the estimated advisory, administrative and other fees to
which the Emerging Markets Fund will be subject. Accordingly, the following
performance information has been adjusted by applying the anticipated total
expense ratios for the Emerging Markets Fund rather than the total expense
ratios experienced by the Emerging Markets Portfolio. The data set forth below
under the heading "Return With Sales Charge" for the Class A shares is adjusted
to take into account a 4.75% sales charge applicable to purchases of Class A
shares of the Emerging Markets Fund and for the Class B shares is adjusted to
take into account a 1.00% contingent deferred sales charge that is imposed if
Class B shares are redeemed within one year of their purchase. The data set
forth below under the heading "Return Without Sales Charge" is not adjusted to
take into account such sales charges. See "Performance Information" below and in
the Statement of Additional Information.

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 1994
(ADJUSTED TO REFLECT ESTIMATED EMERGING MARKETS FUND EXPENSES)

<TABLE>
<CAPTION>
Emerging Markets Portfolio (date of inception September 25, 1992)
<S> <C> <C>
SINCE
1 YEAR INCEPTION
---------- -----------
RETURN WITH
SALES CHARGE
Class A........................................................... 31.3% 31.7%
Class B........................................................... 35.8% 33.9%
RETURN WITHOUT
SALES CHARGE
Class A........................................................... 37.9% 35.4%
Class B........................................................... 37.2% 34.7%
</TABLE>

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

24
<PAGE>
currency issued by companies to finance operations in Latin America, or (iii) of
companies that alone or on a 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

25
<PAGE>
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.

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.

26
<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

27
<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 EUROPEAN EQUITY FUND

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

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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 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

29
<PAGE>
associated with investments in foreign issuers, see "Additional Investment
Information." The Investment Fund may temporarily reduce its equity holdings for
defensive purposes in response to adverse market conditions and invest in
domestic, Eurodollar and foreign short-term money market instruments. See
"Investment Objectives and Policies" in the Statement of Additional Information.

THE 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. See "Additional Investment Information -- Risk Factors
Relating to Investing in Lower Rated Debt Securities" and "-- Foreign Investment
Risk Factors."

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

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

30
<PAGE>
securities and emerging country debt securities are expected to be rated in the
lower and lowest rating categories of internationally recognized credit rating
organizations or to be unrated securities of comparable quality. Ratings of a
non-U.S. debt instrument, to the extent that those ratings are undertaken, are
related to evaluations of the country in which the issuer of the instrument is
located. Ratings generally take into account the currency in which a non-U.S.
debt instrument is denominated; instruments issued by a foreign government in
other than the local currency, for example, typically have a lower rating than
local currency instruments due to the existence of an additional risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer. To mitigate the risks associated with
investments in such lower rated securities, the Investment Fund will diversify
its holdings by market, issuer, industry and credit quality. Investors should
carefully review the section below entitled "Additional Investment Information
- -- Risk Factors Relating to Investing in Lower Rated Debt Securities."

The chart below indicates the Investment Fund's weighted average composition
of debt securities graded by Standard & Poor's for the period from commencement
of operations on April 21, 1994 to August 31, 1994.

<TABLE>
<CAPTION>
DEBT SECURITIES RATINGS PERCENTAGE OF
(STANDARD & POOR'S) NET ASSETS
- ------------------------------------------------------------------------------------------ ---------------
<S> <C>
Government Agencies....................................................................... 2.1%
AA........................................................................................ 0.7%
A......................................................................................... 24.7%
BB........................................................................................ 10.7%
B......................................................................................... 20.5%
CCC....................................................................................... 2.9%
Unrated................................................................................... 38.4%
</TABLE>

The weighted average indicated above was calculated on a dollar weighted
basis and was computed as at the end of each month during the fiscal year. 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 depository 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

31
<PAGE>
securities denominated in currencies other than the U.S. dollar will vary
depending on market conditions. The analysis of currencies is made independent
of the analysis of markets. Value in foreign exchange is determined by relative
purchasing power parity of a given currency. The Investment Fund seeks to invest
in currencies currently undervalued based on purchasing power parity. The
Adviser analyzes current account and capital account performance and real
interest rates to adjust for shorter-term currency flows. Although the
Investment Fund is permitted to engage in a wide variety of investment practices
designed to hedge against currency exchange rate risks with respect to its
holdings of non-U.S. dollar-denominated debt securities, the Investment Fund may
be limited in its ability to hedge against these risks. See "Additional
Investment Information -- Foreign Currency Hedging Transactions" and "Short
Sales." The Investment Fund may also write (i.e., sell) covered call options and
may enter into futures contracts and options on futures and sell indexed
financial futures contracts. See "Additional Investment Information -- Options
Transactions" and "-- Futures and Options on Futures."

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

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,

32
<PAGE>
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.

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

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

33
<PAGE>
emerging country securities is not feasible or may involve unacceptable
political risks. Initially, the Investment Fund expects that its investments in
emerging country debt securities will be made primarily in some or all of the
following emerging countries:

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

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

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

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

34
<PAGE>
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. U.S. dollar-denominated emerging
country debt securities held by the Investment Fund will generally be listed but
not traded on a securities exchange, and non-U.S.dollar-denominated securities
held by the Investment Fund may or may not be listed or traded on a securities
exchange. The Investment Fund may invest in mortgage-backed securities and in
other asset-backed securities issued by non-governmental entities such as banks
and other financial institutions. Mortgage-backed securities include mortgage
pass through securities and collateralized mortgage obligations. Asset-backed
securities are collateralized by such assets as automobile or credit card
receivables and are securitized either in a pass-through structure or in a
pay-through structure similar to a CMO. Investments in emerging country debt
securities entail special investment risks. See "Additional Investment
Information -- Foreign Investment Risk Factors."

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

35
<PAGE>
portion of its portfolio will be limited to those rated "A" or better by
Moody's, Standard & Poor's or IBCA Ltd. or, if unrated, determined to be of
comparable quality by the Adviser under the supervision of the Fund's Board of
Directors.

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

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

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

THE GROWTH AND INCOME FUND

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

36
<PAGE>
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.

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

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

THE MONEY MARKET FUND

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

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

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities in which the Money
Market Fund may invest, such as GNMA securities, differ from other fixed income
securities in that principal is paid back by the borrower

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

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

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

QUALITY INFORMATION. The Money Market Fund utilizes the amortized cost
method of valuation in accordance with regulations issued by the SEC. See
"Valuation of Shares." Accordingly, the Investment Fund will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of eligible quality, as determined by the Adviser under the supervision of
the Board of Directors and in accordance with regulations of the SEC, as such
regulations may from time to time be amended. Eligible quality for this purpose
means a security (i) rated in one of the two highest rating categories by at
least two NRSROs assigning a rating to the security or issuer or, if only one
rating organization assigned a rating, by that rating organization or (ii) if
unrated, determined to be of comparable quality by the Adviser under the
supervision of the Board of Directors. The Investment Fund will not invest more
than 5% of its total assets in securities of issuers having the second highest
rating from any NRSRO. Among the criteria adopted by the Board of Directors, the
Investment Fund will not purchase any bank or corporate obligation unless it is
rated at least Aa or Prime-1 by Moody's or AA or A-1 by Standard & Poor's or, if
unrated, it is determined to be of comparable quality by the Adviser under the
supervision of the Board of Directors. Ratings, however, are not the only
criteria utilized under the procedures adopted by the Board of Directors. For a
more detailed discussion of other quality requirements applicable to the Fund,
see "Description of Securities and Ratings" in the Statement of Additional
Information.

These quality standards must be satisfied at the time an investment is made.
In the event that an investment held by the Fund is assigned a lower rating or
ceases to be rated, the Adviser, under the supervision of the Board of
Directors, will promptly reassess whether such security presents minimal credit
risks and whether the

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Investment Fund should continue to hold the security in its portfolio. If a
portfolio security no longer presents minimal credit risks or is in default, the
Investment Fund will dispose of the security as soon as reasonably practicable
unless the Board of Directors determines that to do so is not in the best
interests of the Investment Fund.

ADDITIONAL INVESTMENT INFORMATION

INVESTMENT FUNDS

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

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

FOREIGN CURRENCY HEDGING TRANSACTIONS

The Non-Money Funds may enter into forward foreign currency exchange
contracts ("forward contracts"). Forward contracts provide for the purchase or
sale of an amount of a specified foreign currency at a future date. 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 the Investment Fund purchases or sells securities, locking in the U.S.
dollar value of dividends declared on securities held by the Investment Fund and
generally protecting the U.S. dollar value of securities held by the Investment
Fund against exchange rate fluctuations. While such forward contracts may limit
losses to the Investment Fund as a result of exchange rate fluctuations, they
will also limit any exchange rate gains that might otherwise have been realized.
The Global Equity Allocation, Asian Growth, American Value, Growth and Income
and Worldwide High Income Funds will enter into such contracts only to protect
against the effects of fluctuating rates of currency exchange and exchange
control regulations.

The Emerging Markets, Latin American, European Equity, Growth and Income and
Worldwide High Income Funds may also enter into foreign currency futures
contracts. A foreign currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Foreign currency futures contracts
traded in the United States are traded on regulated exchanges. Parties to a
futures contract must make initial "margin" deposits to secure performance of
the contract, which generally range from 2% to 5% of the contract price. There
also are requirements to make "variation" margin deposits as the value of the
futures contract fluctuates. The Investment Fund may not enter into foreign
currency futures contracts if the aggregate amount of initial margin deposits on
the Investment

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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 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.

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

RISK FACTORS RELATING TO INVESTING IN LOWER RATED AND UNRATED DEBT SECURITIES

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

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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.

LOAN PARTICIPATION 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"). The 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

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

STRUCTURED INVESTMENTS

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

SHORT SALES

The Emerging Markets, Latin American, European Equity and Worldwide High
Income Funds may from time to time sell securities short without limitation,
although initially the Investment Fund does not intend to sell securities short.
A short sale is a transactions in which the Investment Fund would sell
securities it does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. When the Investment Fund makes a short sale,
the proceeds it receives from the sale will be held on behalf of a broker until
the Investment Fund replaces the borrowed securities. To deliver the securities
to the buyer, the Investment Fund will need to arrange through a broker to
borrow the securities and, in so doing, the Investment Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Investment Fund may have to pay
a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.

The Investment Fund's obligation to replace the securities borrowed in
connection with a short sale will be secured by collateral deposited with the
broker that consists of cash, U.S. Government Securities or other liquid, high
grade debt obligations. In addition, the Investment Fund will place in a
segregated account with its

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Custodian an amount of cash, U.S. Government Securities or other liquid high
grade debt obligations equal to the difference, if any, between (1) the market
value of the securities sold at the time they were sold short and (2) any cash,
U.S. Government Securities or other liquid high grade debt obligations deposited
as collateral with the broker in connection with the short sale (not including
the proceeds of the short sale). Short sales by the Investment Fund involve
certain risks and special considerations. Possible losses from short sales
differ from losses that could be incurred from a purchase of a security, because
losses from short sales may be unlimited, whereas losses from purchases can
equal only the total amount invested.

OPTIONS TRANSACTIONS

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

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

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

The Investment Fund may also write (i.e., sell) covered put options. By
selling a covered put option, the Investment Fund incurs an obligation to buy
the security underlying the option from the purchaser of the put at the option's
exercise price at any time during the option period, at the purchaser's election
(certain options written by the Investment Fund will be exercisable by the
purchaser only on a specific date). Generally, a put option is "covered" if the
Investment Fund maintains cash, U.S. Government securities or other high grade
debt obligations equal to the exercise price of the option or if the Investment
Fund holds a put option on the same underlying security with a similar or higher
exercise price. The Investment Fund may sell put options to receive

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the premiums paid by purchasers and to close out a long put option position. In
addition, when the Adviser wishes to purchase a security at a price lower than
its current market price, the Investment Fund may write a covered put at an
exercise price reflecting the lower purchase price sought.

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

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

CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES

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

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

PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
are preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a

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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 of the holder, upon certain fixed dates. The
redemption price typically is the purchase price of the LYONs plus accrued
original issue discount to the date of redemption, which amounts to the
lower-than-market yield. The Investment Fund will receive only the
lower-than-market yield unless the underlying common stock increases in value at
a substantial rate. LYONs are attractive to investors, like the Investment Fund,
when it appears that they will increase in value due to the rise in value of the
underlying common stock.

BORROWING AND OTHER FORMS OF LEVERAGE

Each of the Latin American and Worldwide High Income Funds is authorized to
borrow money from banks and other entities in an amount equal to up to 331 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 the Investment Fund is 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

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investment returns on securities purchased with borrowed monies. Borrowing by
the Investment Fund will create the opportunity for increased net income but, at
the same time, will involve special risk considerations. Leveraging resulting
from borrowing will magnify declines as well as increases in the Investment
Fund's net asset value per share and net yield.

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

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

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

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

REPURCHASE AGREEMENTS

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

REVERSE REPURCHASE AGREEMENTS

The Worldwide High Income, Latin American, Growth and Income and Money
Market Funds may enter into reverse repurchase agreements with brokers, dealers,
domestic and foreign banks or other financial institutions that have been
determined by the Adviser to be creditworthy. In a reverse repurchase agreement,
the Investment Fund sells 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

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money by the Investment Fund. The Investment Fund's investment of the proceeds
of a reverse repurchase agreement is the speculative factor known as leverage.
The Investment Fund will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. The Investment Fund will
maintain with the Custodian a separate account with a segregated portfolio of
cash, U.S. Government securities or other liquid high grade debt obligations in
an amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect the Investment Fund's ability to maintain a
stable net asset value. In the event that the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Investment Fund's repurchase obligation, and the
Investment Fund's use of proceeds of the agreement may effectively be restricted
pending such decision. The aggregate of these agreements is limited as set forth
under "Investment Limitations." Reverse repurchase agreements are considered to
be borrowings and are subject to the percentage limitations on borrowings set
forth in "Investment Limitations."

LOANS OF PORTFOLIO SECURITIES

Each of the Investment Funds may lend their securities to brokers, dealers,
domestic and foreign banks or other financial institutions for the purpose of
increasing its net investment income. These loans must be secured continuously
by cash or equivalent collateral or by a letter of credit at least equal to the
market value of the securities loaned plus accrued interest. The Investment
Funds will not enter into securities loan transactions exceeding in the
aggregate 33% of the market value of an Investment Fund's total assets
(exceeding in the aggregate 20% of such value with respect to the Latin American
Fund). As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in collateral should the borrower of the portfolio
securities fail financially. For more detailed information about securities
lending, see "Investment Objectives and Policies" in the Statement of Additional
Information.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

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<PAGE>
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 the Investment Fund's total assets are required as deposit
to secure obligations under such contracts, and provided further that not more
than 20% of the 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.

DEPOSITARY RECEIPTS

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

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

MONEY MARKET INSTRUMENTS

The Non-Money Funds are permitted to invest in money market instruments,
although 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.

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 the Investment Fund may invest consist of (a) obligations of
the United States or emerging country governments (Latin American governments
with respect to the Latin American Fund), their respective agencies or
instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of United
States or emerging country banks (Latin American banks with respect to the Latin
American Fund) denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of United States and emerging
country corporations (Latin American corporations with respect to the Latin
American Fund) meeting the Investment Fund's credit quality standards; and (e)
repurchase agreements with banks and broker-dealers with respect to such
securities. See "Additional Investment Information -- Repurchase Agreements."
For temporary defensive purposes, the Investment Fund intends to invest only in
short-term and medium-term debt securities that the Adviser believes to be of
high quality, i.e., subject to relatively low risk of loss of interest or
principal (there is currently no rating system for debt securities in most
emerging countries, including most Latin American countries.)

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NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES

Each of the Non-Money Funds may invest in securities that are neither listed
on a stock exchange nor traded over the counter. Such unlisted equity securities
may involve a higher degree of business and financial risk that can result in
substantial losses. As a result of the absence of a public trading market for
these securities, they may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Investment Fund 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 total assets in illiquid securities, including
securities for which there is no readily available secondary market. Securities
that are not registered under the Securities Act of 1933, as amended, but that
can be offered and sold to qualified institutional buyers under Rule 144A under
that Act will not be included within the foregoing 15% restriction if the
securities are determined to be liquid. The Board of Directors has adopted
guidelines and delegated to the Adviser, subject to the supervision of the Board
of Directors, the daily function of determining and monitoring the liquidity of
Rule 144A securities. Rule 144A securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

NON-DIVERSIFICATION

The Global Fixed Income Fund, Emerging Markets Fund and Latin American Fund
are non-diversified portfolios, which means that the 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."

FOREIGN INVESTMENT RISK FACTORS

Each of the Investment Funds may invest in securities of foreign issuers.
Investment in securities of foreign issuers, especially in securities of issuers
in emerging countries, and in foreign branches of domestic banks involves
somewhat different investment risks from those affecting securities of U.S.
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on

50
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foreign investments as compared to dividends and interest paid to the Investment
Funds by domestic companies. See "Taxes." Additional risks include future
adverse political and economic developments, the possibility that a foreign
jurisdiction might impose or change withholding taxes on income payable with
respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, and the possible
adoption of foreign governmental restrictions such as exchange controls. Many of
the emerging countries listed above may have less stable political environments
than more developed countries. Also, it may be more difficult to obtain a
judgment in a court outside the United States.

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

INVESTMENT LIMITATIONS

Each Investment Fund, except the Global Fixed Income, Emerging Markets and
Latin American Funds, is a diversified investment company under the 1940 Act,
and is subject to the following limitations: (a) as to 75% of its total assets,
the Investment Fund may not invest more than 5% of its total assets in the
securities of any one issuer, except obligations of the U.S. Government and its
agencies and instrumentalities, and (b) the Investment Fund may not own more
than 10% of the outstanding voting securities of any one issuer. The Global
Fixed Income, Emerging Markets and Latin American Funds are nondiversified
investment companies under the 1940 Act, which means that each of such
Investment Funds is not limited by the 1940 Act in the proportion of its total
assets that may be invested in the obligations of a single issuer. Thus, each of
such Investment Funds may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk with respect to its portfolio securities. Each of such Investment
Funds, however, intends to comply with the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended, for qualification as a
regulated investment company. See "Taxes."

The Investment Funds also operate under certain investment restrictions that
are deemed fundamental policies and may be changed by an Investment Fund only
with the approval of the holders of a majority of the Investment Fund's
outstanding shares. In addition to other restrictions listed in the Statement of
Additional Information, an Investment Fund may not (i) enter into repurchase
agreements with more than seven days to maturity if, as a result, more than 15%
of the market value of the Investment Fund's total assets (or for the Money
Market Fund, 10% of the market value of its net assets) would be invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid; (ii) borrow money except from
banks for extraordinary or emergency purposes and then only in amounts up to 10%
of the value of the Investment Fund's total assets, taken at cost at the time of
borrowing, or purchase securities while borrowings exceed 5% of its total
assets, or mortgage, pledge or hypothecate any assets except in connection with
any such borrowing in amounts up to 10% of the value of the Investment Fund's
net assets at the time of borrowing; except that each of the Latin American and
Worldwide High Income Funds may borrow, and mortgage, pledge or hypothecate its
assets to secure such borrowings, in amounts equal to up to 33 1/3% of its
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing; and except that the Latin American, Worldwide High
Income, Growth and Income and Money Market Funds may

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enter into reverse repurchase agreements in accordance with their investment
objectives and policies; (iii) invest in fixed time deposits with a duration of
over seven calendar days; (iv) invest in fixed time deposits with a duration of
from two business days to seven calendar days if more than 10% (5% in the case
of the Money Market Fund) of the Investment Fund's total assets would be
invested in these deposits; or (v) except for the Latin American Fund, invest
more than 25% of the Investment Fund's total assets in securities of companies
in any one industry, except that for the Money Market Fund there is no
limitation on the purchase of instruments issued by U.S. banks.

MANAGEMENT OF THE FUND

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

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

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1994, the Adviser managed investments totaling
approximately $51 billion, including approximately $38 billion under active
management and $13 billion as Named Fiduciary or Fiduciary Adviser. See
"Management of the Fund -- Investment Advisory and Administrative Agreements" in
the Statement of Additional Information.

The Money Market Fund and each class of the Non-Money Funds have adopted
separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act (each,
a "Plan"). Under the applicable Plan, which is described in more detail under
"Distributor" below, the Distributor is entitled to receive from the Money
Market Fund, and from each of the Non-Money Funds with respect to the Class A
shares, payments of up to 0.25% of such Investment Fund's or class's annual
average net assets, and from each of the Non-Money Funds with respect to the
Class B shares, payments of up to 1.00% 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

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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 fee. up to 0.25%
of the net assets of each class will be used to compensate for shareholder
services provided.

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

GLOBAL EQUITY ALLOCATION FUND -- PAUL J. JACKSON. Mr. Jackson is a
Principal of Morgan Stanley. He joined the Adviser in 1991 to focus on global
asset allocation, with particular responsibility for the Active Country
Allocation product. Mr. Jackson joined Morgan Stanley in 1986 as an economist
and quantitative analyst. He has had primary management responsibility for the
Investment Fund since its inception. As a member of the equity research
department, he was responsible for Morgan Stanley's global quantitative research
efforts. During this time, he wrote and produced a GLOBALQUANT research
publication for the firm. Formerly, Mr. Jackson worked at the U.K. Department of
Energy focusing on macroeconomic analysis. He graduated from the London School
of Economics and was awarded a Masters Degree in Economics from University
College, Oxford, England.

GLOBAL FIXED INCOME FUND -- MARY T. COUGHLIN AND MICHAEL J. SMITH. Mary
Coughlin joined the Adviser as a Vice President in 1990. She has had primary
management responsibility for the Investment Fund since its inception. Prior
thereto, she was a Vice President at Continental Asset Management in taxable
fixed income, where she managed $6 billion in domestic fixed-income portfolios
and covered global markets (including U.S. government, corporate, and
mortgage-backed securities and international government bonds). Before joining
Continental Asset Management in 1987, Ms. Coughlin was a Vice President and
global fixed-income manager for Merrill Lynch Asset Management. She began her
investment career with General Reinsurance Company in 1981. Ms. Coughlin holds a
B.S. in Finance and Economics from Susquehanna University and an M.B.A. in
Finance from New York University. 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.

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

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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. 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 Morgan Stanley Institutional Fund, Inc. Emerging Markets Portfolio and the
Morgan Stanley Emerging Markets Funds, Inc. (a closed-end investment company
listed on the New York Stock Exchange ("NYSE")) and is 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. 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 Vice President 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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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 Vice President of the Adviser and has
had primary management responsibility for the Investment Fund since its
inception. She joined Morgan Stanley in 1984 as a marketing analyst. She became
an equity analyst in 1986 and a portfolio manager in 1989. Prior to joining
Morgan Stanley, Ms. Johnson worked for the New York City PBS affiliate, WNET,
Channel 13. She holds a B.A. degree from Yale College and is a Chartered
Financial Analyst.

MONEY MARKET FUND -- ABIGAIL JONES FEDER, GERALD P. BARTH, AND KENNETH R.
HOLLEY. Abigail Feder is a Vice President of the Adviser and a short-term,
fixed-income portfolio manager responsible for taxable and tax-advantaged
portfolios. She has had primary management responsibility for the Investment
Fund since its inception. Prior to joining the group in 1990, she spent three
years in the marketing area, where she worked first as an analyst and was then
promoted to a marketing director in 1988. Ms. Feder originally joined Morgan
Stanley in 1985 as an analyst in the corporate finance department. She holds a
B.A. from Vassar College. Gerald P. Barth joined the Adviser in 1987 to
establish the short to intermediate-term taxable cash management area and to
manage the tax-exempt municipal bond portfolio. He became a Vice President in
1989 and a Principal in 1991. He has had primary management responsibility for
the Investment Fund since its inception. Prior to joining the Adviser, Mr. Barth
was Director of Investments at Subaru of America for five years, where he
managed both the short and intermediate-term corporate cash portfolios. He began
his career at Arthur Andersen in the audit department and spent two years in the
tax department. He earned a B.S. in Accounting from LaSalle College and became a
Certified Public Accountant in 1977. Kenneth R. Holley joined the Adviser as a
short-term, fixed income portfolio manager in August 1993. He has had primary
management responsibility

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<PAGE>
for the Investment Fund since its inception. Previously, he worked for more than
two years as a finance officer for the African Development Bank (ADB)
implementing trading strategies for the bank's $1 billion short to intermediate
U.S. dollar portfolio. Prior to joining the ADB, Mr. Holley was a Vice President
at Ward and Associates Asset Management for a year and a half, responsible for
fixed income strategy. He holds a B.S. in Engineering from the University of
Pennsylvania and a M.B.A. from the Wharton School.

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

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

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

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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<PAGE>
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 has been granted an exemptive order by the SEC so that each
Investment Fund can offer more than one class of shares. The Fund may in the
future offer one or more classes of shares for each of the Non-Money Funds which
may have different CDSCs or initial sales charges or other distribution charges
or a combination thereof.

The Board of Directors of the Fund has approved and adopted the Distribution
Agreement for the Fund and a Plan for the Money Market Fund and each class of
the Non-Money Funds pursuant to Rule 12b-1 under the 1940 Act. Under each Plan,
the Distributor is entitled to receive from these Investment Funds a
distribution fee, which is accrued daily and paid quarterly, of up to 0.25% for
the Money Market Fund and the Class A shares of each of the Non-Money Funds and
up to 1.00% of the Class B shares of each of the Non-Money Funds, on an
annualized basis of the average daily net assets of such Investment Fund or
classes. The Distributor expects to reallocate most of its fee to investment
dealers, banks or financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealer"). The actual
amount of such compensation is agreed upon by the Fund's Board of Directors and
by the Distributor. The Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee and the Distributor
is free to make additional payments out of its own assets to promote the sale of
Fund shares.

In addition to the distribution fees described above, Morgan Stanley also
receives a sales charge of up to 4.75% of the sales price of Class A shares of
the Non-Money Funds and may receive a CDSC of up to 1.00% of the sales price of
shares of the Non-Money Funds, as described below under "Purchase of Shares."
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. 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.

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<PAGE>
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.

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

PORTFOLIO TRANSACTIONS

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

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

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

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

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<PAGE>
OFFERING PRICE OF CLASS A SHARES

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

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER RETENTION
CLASS A SHARES PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF
AMOUNT OF PURCHASE + OFFERING PRICE AMOUNT INVESTED OFFERING PRICE**
- ------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.25%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.50%
$1,000,000 and over None* None** *++
</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 in
connection with the sale of Class A shares of the Non-Money Funds in an
aggregate amount of $1 million or more up to the following amounts: 1.00% of the
net asset value of shares sold on amounts up to $3 million, .50% on the next $2
million and .25% on amounts over $5 million. For purposes of determining the
appropriate commission percentage to be applied to a particular sale under the
foregoing schedule, Morgan Stanley will consider the cumulative amount invested
by the purchaser in Class A shares of the Non-Money Funds.

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

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

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

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

Class A shares of the Non-Money Funds may be purchased at net asset value
without a sales charge by employee benefit plans which are sponsored by
organizations subject to minimum requirements with respect to number of
employees or amount of purchase, which may be established by Morgan Stanley.
Currently, those criteria require that the employer establishing the plan have
100 or more employees or have at least $10 million of retirement plan assets.
Morgan Stanley will not compensate Participating Dealers at the time of purchase
for sales made under these criteria.

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

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<PAGE>
Fund which includes, 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, or (iv) when purchased
with redemption proceeds from other mutual fund complexes on which the investor
had paid a front-end or contingent deferred sales charge. Investors who purchase
shares through a trust department or investment adviser may be charged an
additional service fee by that institution.

PURCHASE OF CLASS B SHARES

Class B shares of the Non-Money Funds may be purchased at the net asset
value per share and such shares are subject to a 1.00% CDSC 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.

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 distribution of shares of the Investment Funds.

A shareholder who has redeemed Class A shares of a Non-Money Fund may
reinvest up to the full amount redeemed (less any CDSC) at net asset value at
the time of the reinvestment in Class A shares of a Non-Money Fund without
payment of a sales charge. A shareholder who has redeemed Class B shares of a
Non-Money Fund and paid a CDSC upon such redemption, may reinvest up to the full
amount redeemed (less the CDSC) and the Class B shares obtained through such
reinvestment are not subject to any sales charge. Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the Class A or Class B shares being purchased. The reinvestment
privilege as to any specific Class A or Class B shares must be effected within
180 days of the redemption. The Transfer Agent must receive from the shareholder
or the shareholder's Participating Dealer both a written request for
reinvestment and a check or wire which does not exceed the redemption proceeds.
The written request must state that the reinvestment is made pursuant to this
reinvestment privilege. If a loss is realized on the redemption of Class A
shares, the reinvestment may be subject to the "wash sale" rules if made within
30 days of the redemption, resulting in a postponement of the recognition of
such loss for federal income tax purposes. The reinvestment privilege may be
terminated or modified at any time.

RETIREMENT PLANS

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

Morgan Stanley provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by United States Trust Company of
New York, New York ("U.S. Trust"). This includes Simplified Employee Pension
Plan ("SEP") IRA accounts and prototype documents. Brochures describing such
plans and

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<PAGE>
materials for establishing them are available from Morgan Stanley upon request.
The brochures for plans trusteed by U.S. Trust describe the current fees payable
to U.S. Trust for its services as trustee. Investors should consult with their
own tax advisers before establishing a retirement plan.

INITIAL PURCHASES DIRECTLY FROM THE FUND

1) BY CHECK. An account may be opened by completing and signing an Account
Registration Form 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 Account
Registration Form. For purchases by check, the Fund is ordinarily credited
with Federal Funds within one business day. Thus your purchase of shares by
check is ordinarily credited to your account at the net asset value per share
of the Investment Fund, other than the Money Market Fund, next determined on
the day of receipt. Your purchase of shares of the Money Market Fund by check
is ordinarily credited to your account at the price next determined on the day
of receipt and will begin receiving dividends the following day.

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

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

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

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

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

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

Purchase orders for shares of the Money Market Fund which are received and
accepted no later than 12:00 p.m. (Eastern Time) on any day that the NYSE
is open for business (a "Business Day") will be effective as of 12:00 p.m.
(Eastern Time) the same day and will receive, if applicable, the dividend

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<PAGE>
declared on the day of purchase as long as the Transfer Agent receives
payment in Federal Funds prior to the close of trading hours on the NYSE
(currently 4:00 p.m. Eastern Time.) Purchase orders received after 12:00
p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time), on any Business
Day for which payment in Federal Funds has been received by 4:00 p.m.
(Eastern Time), will be effective as of 4:00 p.m. (Eastern Time) the same
day, and will begin receiving dividends, if applicable, the following day.
Purchase orders for shares of the Non-Money Funds which are received prior
to the regular close of the NYSE (currently 4:00 p.m. Eastern Time) will be
executed at the price computed on the date of receipt as long as the
Transfer Agent receives payment by check or in Federal Funds prior to the
regular close of the NYSE on such day.

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

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

ADDITIONAL INVESTMENTS

You may add to your account at any time (minimum additional investment $100,
except for IRAs, for which the minimum additional investment is $50, and
automatic reinvestment of dividends and capital gains distributions, for which
there is no minimum and no sales charge) by purchasing shares through your
Participating Dealer or 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
shareholder servicing agent. Shares to be held in broker street name may not be
purchased through the Automatic Investment Plan.

OTHER PURCHASE INFORMATION

The purchase price for the Class A shares of the Non-Money Funds is based
upon the net asset value per share plus the applicable sales charge, if any,
next determined after the order is received by the Fund and for the

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Class B shares of the Non-Money Funds is based on the net asset value per share
next determined after the order is received by the Fund. Participating Dealers
are responsible for forwarding orders they receive to the Fund by the applicable
times described below on the same day as their receipt of the orders to permit
purchase of shares as described above and the failure to do so will result in
the investors being unable to obtain that day's net asset value. See "Valuation
of Shares." An order received prior to the regular close of the NYSE, which is
currently 4:00 p.m. (Eastern Time), will be executed at the price computed on
the date of receipt as long as the Transfer Agent receives payment by check or
in Federal Funds prior to the regular close of the NYSE on such day. An order
received after the regular close of the NYSE will be executed at the price
computed on the next day the NYSE is open as long as the Transfer Agent receives
payment by check or in Federal Funds prior to the regular close of the NYSE on
such day. Orders for the purchase of shares of the Money Market Fund become
effective on the Business Day Federal Funds are received, and the purchase will
be effected at the net asset value next computed after receipt of Federal Funds.
Purchase of shares of the Money Market Fund by check is ordinarily credited to
your account at the price next determined on the day of receipt and will begin
receiving dividends the following day. If you purchase shares of an Investment
Fund directly, you must make payment by check or Federal Funds to effect your
purchase of the shares and obtain the price for the shares as described above.
Purchasing shares of an Investment Fund is different from placing a trade for
securities at a given price and having a certain number of days in which to make
settlement or payment for the securities.

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

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

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

REDEMPTION OF SHARES

You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until the Fund's depository bank has made fully
available for withdrawal the check amount used to purchase Fund shares, which
generally will be within 15 days. The Fund will redeem shares of each of the
Investment Funds at its next determined net asset value. A CDSC of 1.00% will be
imposed on certain Class A shares of the Non-Money Funds that were purchased

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without payment of the initial sales charge due to the size of the purchase and
are redeemed within one year of purchase and will be imposed on Class B shares
of the Non-Money 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 Non-Money Funds is determined at the regular close of trading of
the NYSE (currently 4:00 p.m. Eastern Time) and the net asset value of the Money
Market Fund is determined at 12:00 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 is waived on redemptions of shares in connection with certain
post-retirement withdrawals from IRA or other retirement plans or following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended) of a shareholder of the Fund.

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

BY MAIL

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

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

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

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

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

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

BY TELEPHONE

Unless you have elected on the Account Registration Form 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

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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 additional telecopied written instructions of such
transaction requests. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that it reasonably believes to be 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 reduce or even exhaust
the shareholder's Fund account.

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

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

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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 Class A shares that you own in a Non-Money Fund for Class A
shares of another Non-Money Fund and for shares of the Money Market Fund. You
may exchange Class B shares that you own in a Non-Money Fund for Class B shares
of another Non-Money Fund and shares of the Money Market Fund. Shares of the
Money Market Fund may be exchanged for shares of either class of the Non-Money
Funds. Shares of the Investment Funds may be exchanged by mail or telephone,
except that no shares may be exchanged by telephone if you have elected on the
Account Registration Form 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.

As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of Non-Money Funds may tender their Class A shares of any
Non-Money Fund for exchange into the number of Class A shares of another
Non-Money Fund (including fractions thereof) which have a value equal to the
total redemption proceeds of shares tendered divided by the net asset value per
share next determined after such order is received. Class A shares issued
pursuant to such exchange will not be subject to the initial sales charges
described above or any other charge. A shareholder of the Money Market Fund will
be subject to the initial sales

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charge or CDSC of a Non-Money Fund if such shareholder exchanges shares of the
Money Market Fund for Class A shares of such Non-Money Fund, except that if such
shares of the Money Market Fund had been obtained by an earlier exchange of
Class A shares of a Non-Money Fund for such Money Market Fund shares, the Money
Market Fund shareholder will not be subject to such initial sales charge or CDSC
upon the exchange of such Money Market Fund shares for Class A shares of the
Non-Money Fund.

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

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

An exchange will not be subject to the CDSC, if applicable, at the time of
the exchange if the shareholder exchanges from one class of a Non-Money Fund
into the same class of another Non-Money Fund. For purposes of determining
whether a shareholder's redemption will be subject to the CDSC, the
shareholder's holding period of shares acquired through an exchange will be
related back to the time the shareholder initially purchased the Fund shares
that were exchanged so long as the shares are held in the same class of the Non-
Money Funds. An exchange of shares into the Money Market Fund from one of the
Non-Money Funds will be treated as a redemption at the time of exchange and the
CDSC, if applicable, will be imposed at the time of exchange if, for such
shares, the holding period in the same class of any of such Non-Money Funds, or
the combined holding periods in the same class of the Non-Money Funds, is less
than one year. As an example, Class A share purchases of $1,000,000 or more,
purchased at net asset value, will not be subject to a CDSC for the first year
if exchanged into Class A shares of another Non-Money Fund. Such Class A shares,
however, will be subject to the CDSC if exchanged into the Money Market Fund
within one year from purchase. Class B shares of a Non-Money Fund will not be
subject to a CDSC for the first year if exchanged into Class B shares of another
Non-Money Fund, but will be subject to a CDSC if exchanged into the Money Market
Fund within one year of purchase.

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.

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

BY MAIL

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

BY TELEPHONE

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

TRANSFER OF REGISTRATION

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

VALUATION OF SHARES

The net asset value per share of each Investment Fund, other than the Money
Market Fund, is determined by dividing the total market value of the Investment
Fund's investments and other assets, less all liabilities, by the total number
of outstanding shares of the Investment Fund. Net asset value is calculated
separately for each class of the Non-Money Funds. Net asset value per share of
the Non-Money Funds is determined as of the regular close of the NYSE on each
day that the NYSE is open for business. Securities listed on a United States
securities exchange for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a foreign exchange are valued at their closing
price. Unlisted securities and listed securities not traded on the valuation
date for which market quotations are not readily available are valued

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

The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into United States dollars at the prevailing market
rate at 12:00 p.m. (Eastern Time) on the day of conversion.

Although the legal rights of Class A and Class B shares will be identical,
the different expenses borne by each class will result in different net asset
values and dividends. The net asset value of Class B shares will generally be
lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B shares. It is expected, however, that the
net asset value per share of the two classes will tend to converge immediately
after the recording of dividends which will differ by approximately the amount
of the distribution expense accrual differential between the classes.

The net asset value per share of the Money Market Fund is determined at
12:00 p.m. (Eastern Time) on the days on which the NYSE is open. For the purpose
of calculating the Investment Fund's net asset value per share, securities are
valued by the "amortized cost" method of valuation, which does not take into
account unrealized gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Investment Fund would receive if it sold the
instrument.

PERFORMANCE INFORMATION

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

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

The performance figures for Class B 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.

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 Account Registration Form, 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.

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-

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

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

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

TAXES

TAX STATUS OF THE INVESTMENT FUND

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

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

Each Investment Fund is generally treated as a separate corporation 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 and elects to be treated for each
taxable year as a "regulated investment company" ("RIC") under Subchapter M of
the Code.

73
<PAGE>
TAX STATUS OF DISTRIBUTIONS

As a RIC, each Investment Fund must distribute to shareholders at least 90%
of its net investment income (which generally includes dividends, taxable
interest, and net short-term capital gains in excess of net long-term capital
losses, in excess of operating expenses) to shareholders. If an Investment Fund
meets this distribution requirement, it will not be subject to federal income
tax on any of its net investment income or capital gains that it distributes to
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 reinvested in shares, if the shareholder is subject to tax.
Such dividends paid by an Investment Fund generally will not qualify for the
dividends-received deduction for corporations.

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

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

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

GENERAL

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

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

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

74
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

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

The shares of the Investment Funds, when issued, will be fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
The shares have no preference as to conversion, exchange, dividends, retirement
or other features and have no preemptive rights. The shares of the Investment
Funds have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can elect 100% of
the Directors if they choose to do so. Under Maryland law, the Fund is not
required to hold an annual meeting of its shareholders unless required to do so
under the 1940 Act. A Director may be removed by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Fund. Any person or organization owning 25% or more of
the outstanding shares of an Investment Fund may be presumed to "control" (as
that term is defined in the 1940 Act) such Investment Fund. As of October 13,
1994, The Morgan Stanley Group, Inc., 1221 Avenue of the Americas, New York, New
York 10020, was presumed to "control" the Global Fixed Income, Latin American,
American Value and Worldwide High Income Funds based solely on its ownership of
25% or more of the outstanding voting shares of such funds.

REPORTS TO SHAREHOLDERS

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

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

CUSTODIAN

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

75
<PAGE>
DIVIDEND DISBURSING AND TRANSFER AGENT

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

INDEPENDENT ACCOUNTANTS

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

76
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FUND SELECTION

The minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the minimum amounts are $250 and $50, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC.--Investment Fund name.

<TABLE>
<S> <C> <C> <C>
/ / Morgan Stanley Global Equity / / Morgan Stanley Money Market Fund
Allocation Fund Class A $ -----------(2600) Class A $ -----------(2606)
/ / Morgan Stanley Global Equity / / Morgan Stanley Emerging Markets Fund
Allocation Fund Class B $ -----------(2650) Class A $ -----------(2605)
/ / Morgan Stanley Global Fixed / / Morgan Stanley Emerging Markets Fund
Income Fund Class A $ -----------(2601) Class B $ -----------(2655)
/ / Morgan Stanley Global Fixed / / Morgan Stanley Latin American Fund
Income Fund Class B $ -----------(2651) Class A $ -----------(2609)
/ / Morgan Stanley Asian Growth / / Morgan Stanley Latin American Fund
Fund Class A $ -----------(2602) Class B $ -----------(2659)
/ / Morgan Stanley Asian Growth / / Morgan Stanley European Equity Fund
Fund Class B $ -----------(2652) Class A $ -----------(2607)
/ / Morgan Stanley American Value / / Morgan Stanley European Equity Fund
Fund Class A $ -----------(2603) Class B $ -----------(2657)
/ / Morgan Stanley American Value / / Morgan Stanley Growth and Income Fund
Fund Class B $ -----------(2653) Class A $ -----------(2608)
/ / Morgan Stanley Worldwide High / / Morgan Stanley Growth and Income Fund
Income Fund Class A $ -----------(2604) Class B $ -----------(2658)
/ / Morgan Stanley Worldwide High
Income Fund Class B $ -----------(2654) Total Initial Investment: $ ----------------
</TABLE>

Note: If investing by wire, you A. By Mail: Enclosed is a check in the amount of
must obtain a Bank Wire Control $ ---------------------- payable to Morgan Stanley
Number. To do so, please call Fund, Inc.
800-282-4404. B. By Wire: A bank wire in the amount of $
------------------------ has been sent to Morgan
Stanley Fund, Inc.
from
--------------------------------------------

--------------------------------------------
Name of Bank Wire Control Number
</TABLE>

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

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

/ / telephone exchange privileges Name of Bank -------------------------------------------------------
/ / telephone redemption privileges
Bank A.B.A. Number ---------------- Account Number ----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip -----------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Fund into which I/we exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to
the name and address in which my/our fund account is ATTACH A VOIDED CHECK HERE
registered 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 ("Non-Money
Funds"). You may also receive a reduced sales charge by completing the Letter of
Intent as set forth below as provided in the Prospectus of the Morgan Stanley
Fund, Inc. (the "Prospectus"). See the Prospectus for details.

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

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

LIST OF OTHER ACCOUNTS

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

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

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

<PAGE>
LETTER OF INTENT (OPTIONAL)

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

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

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

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

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

<TABLE>
<S> <C> <C> <C> <C>
Withdrawal ($100 minimum) from: Amount of Each Check

Morgan Stanley Global Equity Allocation Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Global Fixed Income Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Asian Growth Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley American Value Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Worldwide High Income Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Emerging Markets Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Latin American Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley European Equity Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Growth and Income Fund: Class A: $ Class B: $ -------------------
---------------
Morgan Stanley Money Market Fund: $
-------------------------

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

AUTOMATIC INVESTMENT PLAN (OPTIONAL)

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

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

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

<TABLE>
<S> <C> <C> <C>
Morgan Stanley Global Equity Allocation Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Global Fixed Income Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Asian Growth Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley American Value Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Worldwide High Income Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Emerging Markets Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Latin American Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley European Equity Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Growth and Income Fund: Class A: $ Class $
--------------- B: ---------------
Morgan Stanley Money Market Fund: $
</TABLE>

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

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

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

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

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

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

<PAGE>
AGREEMENTS AND SIGNATURES

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

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

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

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

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

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

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

FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY

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

<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Branch Number

- ------------------------------------------------------- -------------------------------------------------------
Main Office Address Representative's Name

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

- ------------------------------------------------------- -------------------------------------------------------
Branch Address Title

- -------------------------------------------------------
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............................. 7
Prospectus Summary............................... 13
Investment Objectives and Policies............... 16
Additional Investment Information................ 39
Investment Limitations........................... 51
Management of the Fund........................... 52
Portfolio Transactions........................... 58
Purchase of Shares............................... 59
Redemption of Shares............................. 65
Shareholder Services............................. 68
Valuation of Shares.............................. 70
Performance Information.......................... 71
Dividends and Distributions...................... 72
Taxes............................................ 73
General Information.............................. 75
Appendix A....................................... A-1
Account Registration Form........................
</TABLE>

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

PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.

COMMON STOCK
($.001 PAR VALUE)

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

INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.

DISTRIBUTOR
MORGAN STANLEY & CO.

INCORPORATED

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

MORGAN STANLEY FUND, INC.
SUPPLEMENT dated March 13, 1995 to the
Statement of Additional Information dated October 28, 1994
(as amended January 9, 1995)

The following information is provided to supplement the list of publications,
indices and averages as set forth on Pages 25-27 of the Fund's Statement of
Additional Information under the heading "Performance Information -
Comparisons":

The IFC Latin America Total Return Composite Index - is an unmanaged
index of common stocks and includes Argentina, Brazil, Chile,
Colombia, Mexico, Peru and Venezuela.

The IFC Global Total Return Composite Index - is an unmanaged index
of common stocks and includes developing countries in Latin America,
East and South Asia, Europe, the Middle East and Africa. Comparisons
of performance assume reinvestment of dividends.

<PAGE>
MORGAN STANLEY FUND, INC.
MORGAN STANLEY EMERGING MARKETS FUND
SUPPLEMENT DATED JANUARY 9, 1995 TO THE PROSPECTUS DATED OCTOBER 28, 1994
FINANCIAL HIGHLIGHTS
(UNAUDITED)

The following table provides financial highlights for the Morgan Stanley
Emerging Markets Fund (the "Emerging Markets Fund") for the period from
commencement of operations on July 6, 1994 to November 30, 1994, and is included
in the financial statements in the Statement of Additional Information of the
Morgan Stanley Fund, Inc. The Statement of Additional Information is available
at no cost and can be requested by writing the address or calling the telephone
number on the cover of the Prospectus. The following information should be read
in conjunction with the financial statements and notes thereto.

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------- -----------------
JULY 6, 1994** TO JULY 6, 1994** TO
NOVEMBER 30, 1994 NOVEMBER 30, 1994
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $12.00 $12.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.00 (0.03)
Net Realized and Unrealized Gain on Investments.............. 0.01 0.01
------ ------
Total from Investment Operations............................. 0.01 (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD................................. $12.01 $11.98
====== ======
TOTAL RETURN(1)................................................ 0.08%*** -0.17%***
====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands).......................... $14,860 $11,568
Ratio of Expenses to Average Net Assets........................ 2.15%* 2.90%*
Ratio of Net Investment Income to Average Net Assets........... 0.27%* -0.48%*
Portfolio Turnover Rate........................................ 8.13%*** 8.13%***
</TABLE>

During the period, various fees and expenses were waived and reimbursed. The
ratios of expenses and net investment income to average net assets had such
waiver and reimbursement not occurred are as follows (2):

<TABLE>
<S> <C> <C>
Ratio of Expenses to Average Net Assets................... 2.77% 3.52%
Ratio of Net Investment Income to Average Net Assets...... -0.35% -1.10%
</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 1.25%
of the average daily net assets of the Emerging Markets Fund. The Adviser
has agreed to waiver a portion of this fee and/or reimburse expenses of the
Emerging Markets Fund to the extent that total operating expenses 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 B Shares. For
the period ended November 30, 1994, the Adviser waived advisory fees and/or
reimbursed expenses totalling approximately $61,000 and $3,000,
respectively, for the Emerging Markets Fund.
<PAGE>
MORGAN STANLEY FUND, INC.
MORGAN STANLEY LATIN AMERICAN FUND
SUPPLEMENT DATED JANUARY 9, 1995 TO THE PROSPECTUS DATED OCTOBER 28, 1994
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------- -----------------
JULY 6, 1994** TO JULY 6, 1994** TO
NOVEMBER 30, 1994 NOVEMBER 30, 1994
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $12.00 $12.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income...................................... (0.05) (0.12)
Net Realized and Unrealized Gain on Investments............ 2.36 2.36
------ ------
Total from Investment Operations........................... 2.31 2.24
------ ------
NET ASSET VALUE, END OF PERIOD............................... $14.31 $14.24
====== ======
TOTAL RETURN(1).............................................. 19.25%*** 18.67%***
====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)......................... $7,213 $3,279
Ratio of Expenses to Average Net Assets....................... 2.10%* 2.85%*
Ratio of Net Investment Income to Average Net Assets.......... -0.91%* -1.66%*
Portfolio Turnover Rate....................................... 41.53%*** 41.53%***
</TABLE>

During the period, various fees and expenses were waived and reimbursed. The
ratios of expenses and net investment income to average net assets had such
waiver and reimbursement not occurred are as follows (2):

<TABLE>
<S> <C> <C>
Ratio of Expenses to Average Net Assets................... 2.53% 3.28%
Ratio of Net Investment Income to Average Net Assets...... -1.34% -2.09%
</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 1.25%
of the average daily net assets of the Latin American Fund. The Adviser has
agreed to waiver a portion of this fee and/or reimburse expenses of the
Latin American Fund to the extent that total operating expenses 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 B Shares. For the period
ended November 30, 1994, the Adviser waived advisory fees and/or reimbursed
expenses totalling approximately $33,000 and $38,000, respectively, for the
Latin American Fund.

<PAGE>

MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION

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

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

1-800-282-4404

TABLE OF CONTENTS

PAGE
----

Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Tax Treatment of Forward Currency Contracts and Exchange Rate Changes.11
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .16
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Money Market Fund Net Asset Value. . . . . . . . . . . . . . . . . . . . . . .21
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .39
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Statement of Additional Information dated as of October 28, 1994, as amended
and supplemented January 9, 1995 and March 13, 1995, relating to the Prospectus
dated October 28, 1994, as supplemented January 9, 1995 and March 13, 1995, for:

Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Asian Growth Fund

<PAGE>

Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley European Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley Growth and Income Fund
Morgan Stanley Money Market Fund (currently not offering shares)

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

GLOBAL INVESTING

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

U.S. stock and bond markets now comprise less than half of the total
securities available worldwide and investors who limit their investments to the
U.S. ignore over 80% of the world's blue chip companies. Participating in global
markets helps the astute investor take advantage of opportunities worldwide.
Over the past 10 years, through 1992, the U.S. ranked in the top five performing
stock markets only two times according to Morgan Stanley Capital International.

SECURITIES LENDING

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

At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and

-3-
<PAGE>

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.

EQUITY-LINKED SECURITIES

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

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

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

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

-4-
<PAGE>

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The U.S. dollar value of the assets of the Global Equity Allocation, Global
Fixed Income, Asian Growth, Emerging Markets, Latin American, European Equity,
and to the extent they invest in foreign currencies, the American Value, Growth
and Income and Worldwide High Income Funds (the "Non-Money Funds") may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Investment Funds may incur costs in
connection with conversions between various currencies. The Investment Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract (a "forward contract")
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.

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

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

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

-5-
<PAGE>

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 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

-6-
<PAGE>

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.

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.

-7-
<PAGE>

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.

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

OPTIONS ON FOREIGN CURRENCIES

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

OPTIONS TRANSACTIONS

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

LOAN PARTICIPATION 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

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

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

PORTFOLIO TURNOVER

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

MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX

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

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

FEDERAL INCOME TAX

The following 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

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<PAGE>

the conclusions expressed herein, and may have a retroactive effect with respect
to the transactions contemplated herein.

Legislation, signed into law by President Clinton in August, 1993,
increased the top marginal rate of tax imposed on individual taxpayers from 31%
to 36% on taxable income in excess of $140,000 and imposed a 10% surtax on
high-income individual taxpayers on taxable income in excess of $250,000, on a
retroactive basis to January 1, 1993. As a result of these changes there is a
marked difference in the rate at which capital gains are taxed as compared to
ordinary income. The recent legislation provided an increase in the rates
imposed on ordinary income (as discussed above) but the rate imposed on capital
gains remains at 28%.

In addition, the recent legislation increased the alternative minimum tax
rates for noncorporate individual taxpayers from 24% to 26% on alternative
minimum taxable income (AMTI) less the exemption amount up to $175,000 and 28%
on AMTI less the exemption amount in excess of $175,000. The corporate
alternative minimum tax rate remains at 20%.

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

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

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

A gain or loss realized by a shareholder on the sale or exchange of shares
of an Investment Fund held as a capital asset will be capital gain or loss, and
such gain or loss will be long-term if the holding period for the shares exceeds
one year, and otherwise will be short-term. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within the 61-day period beginning 30 days before

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<PAGE>

and ending 30 days after the shares are disposed of. Any loss realized by a
shareholder on the disposition of shares held 6 months or less is treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares or any
inclusion of undistributed capital gain with respect to such shares.

Each Investment Fund will generally be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income and 98% of its capital gain
net income (the excess of short and long-term capital gains over short and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.

Each Investment Fund is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital gains distributions,
and redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Investment Fund, that
the Social Security or Taxpayer Identification Number provided is correct and
that the shareholder is exempt from backup withholding or is not currently
subject to backup withholding.

FOREIGN INCOME TAX

It is expected that each Investment Fund will be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, and the Investment Fund may be subject to foreign income taxes with
respect to other income. So long as more than 30% 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 (determine without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by an Investment Fund from its
foreign source income will be treated as foreign source income. An Investment
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income," such as the portion of
dividends received from an Investment Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations as individuals. Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income taxes paid by an Investment
Fund.

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

FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES

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<PAGE>

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

Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, the Investment Fund will
have to avoid realizing excessive 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.

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<PAGE>

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

PURCHASE OF SHARES

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

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

REDEMPTION OF SHARES

Each Investment Fund may suspend redemption privileges or postpone the date
of payment (i) during any period that the NYSE is closed, or trading on the NYSE
is restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for an Investment Fund to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit.

Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the
Investment Fund. Class A shares of the Non- Money Funds purchased without an
initial sales charge due to the size of the purchase that are redeemed within
one year of purchase are subject to a CDSC and Class B shares of the Non-Money
Funds that are redeemed within one year of purchase are subject to a 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.

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<PAGE>

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

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

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

INVESTMENT LIMITATIONS

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

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

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

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

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

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

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

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<PAGE>

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

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

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

(10) underwrite the securities of other issuers;

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

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

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

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

(15) with respect to all the Investment Funds, except the Latin American
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Investment Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or (in the case of the Money Market Fund) instruments issued
by U.S. banks;

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

(17) issue senior securities.

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

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

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<PAGE>

Investment Fund's total assets is represented by cash (including cash items and
receivables), U.S. Government securities, and other securities, with such other
securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Investment
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities);

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

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

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

(3) no Investment Fund will invest in oil, gas or other mineral leases;
and

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

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

DETERMINING MATURITIES OF CERTAIN INSTRUMENTS

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

-17-
<PAGE>

MANAGEMENT OF THE FUND

OFFICERS AND DIRECTORS

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

NAME AND ADDRESS POSITION WITH THE FUND BUSINESS EXPERIENCE DURING THE PAST
---------------- ---------------------- FIVE YEARS, INCLUDING ALL DIRECTORSHIPS
---------------------------------------
<S> <C> <C>

Frederick B. Whittemore* Director and Chairman of the Advisory Director of Morgan Stanley & Co. Incorporated;
1251 Avenue of the Americas Board previously Senior Banker of Morgan Stanley & Co.
New York, NY 10020 Incorporated.

Gerard E. Jones Director Partner, Richards & O'Neill (law firm).
2 Pickwick Plaza
Greenwich, CT 06830

John E. Eckelberry Director Vice Chairman of Doremus & Company.
200 Varick Street, 11th Floor
New York, NY 10014

Warren J. Olsen* Director and President Principal of Morgan Stanley & Co. Incorporated; Vice
1221 Avenue of the Americas President of Morgan Stanley Asset Management Inc.;
New York, NY 10020 previously associated with the law firm of Sullivan &
Cromwell.

Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law firm); previously associated
Bryan, Cave with Copple, Chamberlin & Boehm, P.C.; prior thereto,
21st Floor Managing Partner, Black, Robertshaw, Copple & Pozgay, P.C.
2800 No. Central Ave.
Phoenix, AZ 85004

James W. Grisham Vice President Principal of Morgan Stanley & Co. Incorporated and Vice
1221 Avenue of the Americas President of Morgan Stanley Asset Management Inc.
New York, NY 10020

Harold J. Schaaff Vice President General Counsel and Secretary, Morgan Stanley Asset
1221 Avenue of the Americas Management Inc.; Vice President, Morgan Stanley & Co.
New York, NY 10020 Incorporated; previously associated with the law firm of
Sullivan & Cromwell.

-18-
<PAGE>

Joseph P. Stadler Vice President Associated with Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas ("MSAM"); Vice President of Morgan Stanley & Co.
New York, NY 10020 Incorporated; Officer of various investment management
companies managed by MSAM; previously associated with
Price Waterhouse.

Valerie Y. Lewis Secretary Associated with Morgan Stanley Asset Management Inc.;
1221 Avenue of the Americas previously associated with the General Counsel's Office,
New York, NY 10020 Citicorp and Citibank, N.A. (Securities and Funding).

James Rooney Treasurer Assistant Vice President and Manager of Fund
73 Tremont Street Administration and Compliance of Mutual Funds Service
Boston, MA 02108-3913 Company; previously associated with Scudder, Stevens &
Clark, Inc.; prior thereto, associated with Ernst & Young.

Karl O. Hartmann Assistant Secretary Senior Vice President and General Counsel of Mutual Funds
73 Tremont Street Service Company; Senior Vice President, Secretary and
Boston, MA 02108-3913 General Counsel of Leland O'Brien Rubinstein Associates,
Inc., (an investment adviser) from November 1990 to
November 1991; Vice President and Associate General
Counsel of The Boston Company Advisors, Inc. from August
1988 to November 1990.

Hilary Toole Assistant Secretary Associated with Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas ("MSAM"); Officer of various investment management
New York, NY 10020 companies managed by MSAM; previously associated with
Reboul, MacMurray, Hewitt, Maynard & Kristol.

Timothy F. Osborne Assistant Treasurer Supervisor of Fund Administration and Compliance of Mutual
73 Tremont Street Funds Service Company; previously associated with Coopers
Boston, MA 02108-3913 & Lybrand.

<FN>
- ---------------
* "Interested Person" within the meaning of the 1940 Act.

</TABLE>

REMUNERATION OF DIRECTORS AND OFFICERS

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

-19-
<PAGE>

INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS

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

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

The Group with its subsidiaries ("Morgan Stanley") maintains a major global
presence with offices in Chicago, Frankfurt, Hong Kong, London, Los Angeles,
Luxembourg, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore,
Taipei, Tokyo, Toronto and Zurich. With over 7,000 employees, approximately 35%
of which are located outside the U.S., and members of the portfolio management
teams which are native to the countries in which they are investing, Morgan
Stanley is in an exceptional position to interpret the forces that will impact
the world's capital markets today, over the next decade and beyond.

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

As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with Morgan
Stanley's long-standing tradition of integrity and prudence, puts MSAM in a
unique position to offer investment management services. As compensation for
advisory services for the fiscal year ended June 30, 1994, the Adviser earned
fees of approximately $2,322,000 and voluntarily waived a portion of such fees
equal to approximately $209,000.

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

Under the Agreement between the Adviser and United States Trust Company of
New York ("United States Trust"), MFSC, a United States Trust subsidiary,
provides certain administrative services to the Fund. MFSC provides operational
and administrative services to investment companies with approximately $60
billion in assets and having approximately 229,000 shareholder accounts as of
September 30, 1994. MFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913.

DISTRIBUTION OF FUND SHARES

Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Group, serves as the Distributor of the Fund's shares pursuant to
a Distribution Agreement for the Fund and a Plan of Distribution for the Money
Market Fund and each class of the Non-Money Funds pursuant to Rule 12b-1 under
the 1940 Act (each, a "Plan" and together, the "Plans"). Under each Plan the
Distributor is entitled to receive from these Investment Funds a distribution
fee, which is accrued daily and paid quarterly, of up to 0.25% for the Money
Market Fund and the Class A shares of each of the Non-Money Funds, and up to
1.00% of the Class B shares of each of the Non-Money Funds, on an annualized
basis, of the average daily net assets of such

-20-
<PAGE>

Investment Fund or classes. The Distributor expects to allocate most of its fee
to investment dealers, banks or financial service firms that provide
distribution, administrative or shareholder services ("Participating Dealer").
The actual amount of such compensation is agreed upon by the Fund's Board of
Directors and by the Distributor. The Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and the Distributor is free to make additional payments out of its own assets to
promote the sale of Fund shares.

The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do
not obligate the Investment Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the Plan.
Thus, under each Plan, even if the Distributor's actual expenses exceed the fee
payable to it thereunder at any given time, the Investment Funds will not be
obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee. The Plans 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, 1993.

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

Fiscal Year
Ended
June 30, 1994
-------------
<S> <C>

Global Equity Allocation Fund-Class A $ 56,000
Global Equity Allocation Fund-Class B 172,000
Global Fixed Income Fund-Class A 20,000
Global Fixed Income Fund-Class B 61,000
Asian Growth Fund-Class A 238,000
Asian Growth Fund-Class B 764,000
American Value Fund-Class A* 14,000
American Value Fund-Class B* 44,000
Worldwide High Income Fund-Class A** 3,000
Worldwide High Income Fund-Class B** 11,000

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

<FN>
- ----------------
* The American Value Fund commenced operations on October 18, 1993.
** The Worldwide High Income Fund commenced operations on April 21, 1994.

</TABLE>

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 December 30, 1994 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 31% of the total
outstanding Class A shares and 48% of the total

-21-
<PAGE>

outstanding Class B shares of such Investment Fund; WBD Financial A.
Partnership, 55W. Monroe Street, Suite 3300, Chicago, IL 60603, owned 5% of the
total outstanding Class A shares of such Investment Fund and Steve M. Barnett,
666 Dundee Road, Suite 301, Northbrook, IL 60062, owned 5% of the total
outstanding Class A shares of such Investment Fund.

ASIAN GROWTH FUND: Advest, Inc. ("Advest"), 280 Trumbull Street, Hartford,
CT 06103, owned 6% of the total outstanding Class A shares of such Investment
Fund.

EMERGING MARKETS FUND: Crester Bank Trust Department, Sheltering Arms
Foundation, a/c #10091700, P.O. Box 26246, Richmond, VA 23260, owned 12% of the
total outstanding Class A shares of such Investment Fund; Advest, Inc.
("Advest"), 280 Trumbull Street, Hartford, CT 06103, owned 8% of the total
outstanding Class A shares and 6% of the total outstanding Class B shares of
such Investment Fund and Penny M. Newberg, c/o Alexander Kuhn, One Oak Brook
Terrace, 22nd Street and Butterfield Road, Oakbrook Terrace, IL 60181-4474,
owned 6% of such total outstanding Class A shares of such Investment Fund.

LATIN AMERICAN FUND: The Group owned 13% of the total outstanding Class A
shares and 31% of the total outstanding Class B shares of such Investment Fund
and J.C. Bradford & Co., 330 Commerce Street, Nashville, TN 37201, owned 6% of
the total outstanding Class B shares of such Investment Fund.

AMERICAN VALUE FUND: The Group owned 37% of the total outstanding Class A
shares and 58% of the total outstanding Class B shares of such Investment Fund;
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned 8% of the
total outstanding Class A shares of such Investment Fund and Advest, Inc.
("Advest"), 280 Trumbull Street, Hartford, CT 06103, owned 5% of the total
outstanding Class A shares of such Investment Fund.

WORLDWIDE HIGH INCOME FUND: The Group owned 47% of the total outstanding
Class A shares and 52% of the total outstanding Class B shares of such
Investment Fund.

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

MONEY MARKET FUND NET ASSET VALUE

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

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

-22-
<PAGE>

investments and assets are valued at fair value, as determined in good faith by,
or under procedures adopted by, the Directors.

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

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

PORTFOLIO TRANSACTIONS

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

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

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

-23-
<PAGE>

commissions, fees or other remuneration paid to Morgan Stanley or such
affiliates are consistent with the foregoing standard. For the two fiscal years
ended June 30, 1993 and June 30, 1994, the Fund paid brokerage commissions of
approximately $36,558 and $2,060,894, respectively. During the same period, the
Fund paid brokerage commissions of approximately $2,497 and $618,000,
respectively, to the Distributor, an affiliated broker-dealer. For the fiscal
year ended June 30, 1994 commissions paid to the Distributor represented
approximately 30% of the total amount of brokerage commissions paid in such
period and which were paid on transactions that represented 21% of the aggregate
dollar amount of transactions that incurred commissions paid by the Fund during
such period.

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

PERFORMANCE INFORMATION

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

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

TOTAL RETURN

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

Total return figures are calculated by raising the quantity
1+T to the power of n and multiplying this result by P.

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, 1994 and for the period from
inception through June 30, 1994 are as follows:

<TABLE>
<CAPTION>
One Year
Period Ended Since
June 30, 1994 Inception
------------- ---------
<S> <C> <C>

-24-
<PAGE>

Global Equity Allocation Fund
(commenced operations on January 4, 1993)
Class A Shares. . . . . . . . . . . . . . . 9.02% 13.64%
Class B Shares. . . . . . . . . . . . . . . 8.34% 12.88%
Global Fixed Income Fund
(commenced operations on January 4, 1993)
Class A Shares. . . . . . . . . . . . . . . 0.41% 5.62%
Class B Shares. . . . . . . . . . . . . . . (0.25)% 4.88%
Asian Growth Fund
(commenced operations on June 23, 1993)
Class A Shares. . . . . . . . . . . . . . . 29.17% 28.55%
Class B Shares. . . . . . . . . . . . . . . 28.33% 27.73%
American Value Fund
(commenced operations on October 18, 1993)
Class A Shares. . . . . . . . . . . . . . . --- 1.12%
Class B Shares. . . . . . . . . . . . . . . --- 1.70%
Worldwide High Income Fund
(commenced operations on April 21, 1994)
Class A Shares. . . . . . . . . . . . . . . --- 2.86%
Class B Shares. . . . . . . . . . . . . . . --- 2.62%

</TABLE>

The aggregate total return, exclusive of a sales charge or deferred sales
charge, for the Emerging Markets Fund for the period from commencement of
operations on July 6, 1994 to November 30, 1994 are 0.08% for Class A shares and
- -0.17% for Class B shares. The aggregate total return, exclusive of a sales
charge or deferred sales charge, for the Latin American Fund for the period from
commencement of operations on July 6, 1994 to November 30, 1994 are 19.25% for
Class A shares and 18.67% for Class B shares.

The European Equity and Growth and Income Funds had not commenced
operations in the period ended June 30, 1994.

YIELD FOR NON-MONEY FUNDS

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

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

Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.

Current yield figures are obtained by using the following formula.
Divide (i) the difference of b substracted from a by (ii) the product
of c multiplied by d. Add 1 to this result. Raise this amount to the sixth
power, subtract 1 and multiply this result by 2.

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

-25-
<PAGE>

The 30-day yield for the Global Fixed Income Fund as of June 30, 1994 was
6.32% for Class A shares and 5.88% for Class B shares.

CALCULATION OF YIELD FOR THE MONEY MARKET FUND

The current yield of the Money Market Fund is calculated daily on a base
period return for a hypothetical account having a beginning balance of one share
for a particular period of time (generally 7 days). The return is determined by
dividing the net change (exclusive of any capital changes in such account) by
its average net asset value for the period, and then multiplying it by 365/7 to
determine the annualized current yield. The calculation of net change reflects
the value of additional shares purchased with the dividends by the Money Market
Fund, including dividends on both the original share and on such additional
shares. An effective yield, which reflects the effects of compounding and
represents an annualization of the current yield with all dividends reinvested,
may also be calculated for the Money Market Fund by dividing the base period
return by 7, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the result.

The yield of the Money Market Fund will fluctuate. The annualization of a
week's dividend is not a representation by the Money Market Fund as to what an
investment in the Money Market Fund will actually yield in the future. Actual
yields will depend on such variables as investment quality, average maturity,
the type of instruments the Money Market Fund invests in, changes in interest
rates on instruments, changes in the expenses of the Money Market Fund and other
factors. Yields are one basis investors may use to analyze the Money Market
Fund, and other investment vehicles; however, yields of other investment
vehicles may not be comparable because of the factors set forth in the preceding
sentence, differences in the time periods compared, and differences in the
methods used in valuing portfolio instruments, computing net asset value and
calculating yield.

The Money Market Fund is not currently in operation.

COMPARISONS

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

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

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

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

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

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

-26-
<PAGE>

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 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.

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

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

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

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

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

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

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

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

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

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

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

-27-
<PAGE>

(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.

(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.

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

-28-
<PAGE>

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.

-29-
<PAGE>

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 1992, 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 "A Favorable Risk/Return Profile" indicates returns from 15.1%
to 21.0% on the vertical axis and risk (standard deviation) from 15.7% to 25.4%
on the horizontal axis. The following points are indicated on the graph:

For Small Cap Value Stocks:
Return of 21.0% at risk (standard deviation of 19.8%

For Small Cap Mean Between Value and Growth:
Return of 17.1% at risk (standard deviation) of 22.0%

Small Cap Growth Stocks:
Return of 16.6% at risk (standard deviation) of 25.4%

For S&P 500 Index:
Return of 15.7% at risk (standard deviation) of 15.7%

Source: Wilshire Associates style performance data 1978-1993

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

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

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

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

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

-30-
<PAGE>

<TABLE>
<CAPTION>
In Thousands (except last column)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <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 9/30/94
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $566,834
Value
$10
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $242,539
10
- -------------------------------------------------------------------------------------------------------------------------------
Large Cap 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130,513
10
- -------------------------------------------------------------------------------------------------------------------------------
10 Year 10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $ 74,520
Govt Bond
10
- -------------------------------------------------------------------------------------------------------------------------------
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $ 58,820
10
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

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

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

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

-31-
<PAGE>

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 700 employees located in the Far
East and has offices in Singapore, Shanghai, Taipei and Seoul.

-32-
<PAGE>

ESTIMATED GNP GROWTH
1990-2000

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

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

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

SUPERIOR HISTORIC MARKET RETURNS
1989-1993 Annualized Returns* (US Dollars)

Thailand 39.45%
Hong Kong 38.37
Philippines 33.58
CFEFxJ 32.00
Malaysia 30.07
Singapore 22.90
Indonesia 17.11
USA 14.83
World 6.44
Taiwan 5.64
EAFE 2.33
Korea -3.59
Japan -6.80

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.

-33-
<PAGE>

[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 August 31, 1994

Japan 92.4%
Taiwan (E) 35.1
Philippines 30.9
Malaysia 30.1
Korea (E) 26.6
World 26.2
Singapore 24.8
Indonesia 23.8
Thailand 22.7
CFEFxJ 22.2
USA 19.2
Hong Kong 16.7

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

[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

-34-
<PAGE>

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.]

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.

-35-
<PAGE>

[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.]

-36-
<PAGE>

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:

THE CASE FOR EMERGING MARKETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------

RETURNS GROWTH VALUE UNDER- DIVERSI-
REPRESEN- FICATION
TATION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Real GNP Real EPS Foreign Inv.
Returns Growth Growth P/E Mkt Cap/ % of Institu- Average
(1940-1993) (1994-2000) (1994) 1994E GNP tional Assets Correlation
- ----------------------------------------------------------------------------------------------

Emerging
Markets 17% 6.5% 15% 24.0x 30% 0.6% 0.07
- ----------------------------------------------------------------------------------------------

Developed
Markets 13% 2.5% 5% 26.5x 70% 99.4% 0.51
- ----------------------------------------------------------------------------------------------
</TABLE>

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

MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS

Over one-third of Morgan Stanley's 8,200 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.

MSAM currently has over $48.1 billion in assets under management and
fiduciary advice, including over $1 billion in Latin America markets and over
$6.4 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 3,350 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.

[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

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

Source: Morgan Stanley Research

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

-37-
<PAGE>

GROWTH POTENTIAL IN LATIN AMERICA

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

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

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

To Be Inserted

-38-
<PAGE>

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

Real GDP Growth
1993-2000
1965-93 Forecast

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

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

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

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

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

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

1988-93 1993
Annualized Return Return

S & P 500 14.5% 10.0%
T-Bills 5.7% 3.1%
Emerging Growth Stocks 18.4% 21.0%
U.S. Government Bonds 10.7% 8.2%
EAFE 2.0% 32.6%
Japanese Stocks -7.0% 25.5%
Emerging Market Equities 16.5% 67.5%
MSCI LATIN AMERICA 42.4% 49.1%
Source: Morgan Stanley Research

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

-39-
<PAGE>

Price/Earnings Ratio Market Cap/GNP

Developed Markets 26.X .7
Emerging Markets 24.0X .3
LATIN AMERICA 18.1X .3
DATA AS OF MARCH 1994, EMERGING MARKETS P/E REPRESENTED BY THE IFC
INDEX, DEVELOPED MARKETS BY MSCI WORLD

GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS

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

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

-40-
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

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

Any dividend or distribution paid shortly after an investor purchases
shares of an Investment Fund will reduce the per share net asset value of that
Investment Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes to shareholders subject to taxes as set
forth in the Prospectus.

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

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

CUSTODY ARRANGEMENTS

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

-41-
<PAGE>

DESCRIPTION OF SECURITIES AND RATINGS

I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

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

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

EXCERPTS FROM STANDARD & POOR'S CORPORATION (S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest. AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only to a
small degree. A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest

-42-
<PAGE>

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 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

-43-
<PAGE>

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

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

-44-
<PAGE>

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

-45-
<PAGE>

interest rate at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest payments but
generally are not collateralized. Brady Bonds are often viewed as having three
or four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In the event of a default with respect to collateralized Brady Bonds as
a result of which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held to the scheduled
maturity of the defaulted Brady Bonds by the collateral agent, at which time the
face amount of the collateral will equal the principal payments which would have
then been due on the Brady Bonds in the normal course. In addition, in light of
the residual risk of the Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds should be viewed as
speculative.

Brady Plan debt restructurings totaling approximately $73 billion have been
implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the Philippines,
Uruguay and Venezuela, with the largest proportion of Brady Bonds having been
issued to date by Mexico and Venezuela. Brazil and Poland have announced plans
to issue Brady Bonds aggregating approximately $52 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.

-46-
<PAGE>

FINANCIAL STATEMENTS

The Fund's audited financial statements and related notes and the Report of
Independent Accountants for the fiscal year ended June 30, 1994 for the Morgan
Stanley Global Equity Allocation, Morgan Stanley Global Fixed Income, Morgan
Stanley Asian Growth, Morgan Stanley American Value and Morgan Stanley
Worldwide High Income Funds, which appear in the Fund's June 30, 1994 Annual
Report to Shareholders, and the unaudited financial statements and related
notes for the semi-annual period ended December 31, 1994 for the Morgan Stanley
Global Equity Allocation, Morgan Stanley Global Fixed Income, Morgan Stanley
Asian Growth, Morgan Stanley American Value, Morgan Stanley Worldwide High
Income, Morgan Stanley Emerging Markets and Morgan Stanley Latin American
Funds, which appear in the Fund's December 31, 1994 Semi-Annual Report to
Shareholders, are attached hereto. The Morgan Stanley European Equity and Morgan
Stanley Growth and Income Funds were not operational as of the date of this
Statement of Additional Information. The Morgan Stanley Money Market Fund
ceased offering shares as of August 6, 1993.

-47-

<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
COMMON STOCKS (98.5%)
AUSTRALIA (7.9%)
30,535 Amcor Ltd. ....................................... $ 201
13,300 Ampol Exploration Ltd. ........................... 40
23,600 Australian National Industries Ltd. .............. 31
57,011 Boral Ltd. ....................................... 139
10,500 Brambles Industries .............................. 100
71,013 Broken Hill Proprietary Ltd. ..................... 931
24,400 Burns, Phillip & Co. Ltd. ........................ 62
15,128 Coca-Cola Amatil Ltd. ............................ 95
67,700 Coles Myer Ltd. .................................. 209
26,100 CRA Ltd. ......................................... 339
43,700 CSR Ltd. ......................................... 153
147,300 Fosters Brewing Corp. ............................ 114
31,083 General Property Trust ........................... 56
58,739 Goodman Fielder Ltd. ............................. 55
16,800 ICI Australia Ltd. ............................... 131
10,109 Lend Lease Corp. Ltd. ............................ 120
61,100 MIM Holdings Ltd. ................................ 128
57,600 National Australia Bank Ltd. ..................... 460
12,400 Newcrest Mining Ltd. ............................. 59
76,137 News Corp. Ltd. .................................. 464
32,000 North Broken Hill Peko Ltd. ...................... 80
47,500 Pacific Dunlop Ltd. .............................. 149
43,200 Pioneer International Ltd. ....................... 90
+14,600 Renison Goldfields Consolidated Ltd. ............. 48
36,712 Santos Ltd. ...................................... 102
28,567 Southcorp Holdings Ltd. .......................... 58
18,100 TNT Ltd. ......................................... 30
42,250 Western Mining Corp. ............................. 222
35,000 Westfield Trust .................................. 60
83,800 Westpac Banking Corp. ............................ 273
---------
4,999
---------
BELGIUM (3.9%)
1,700 AG Fin ........................................... 130
110 Beksert SA ....................................... 81
2,700 Delhaize Freres et Cie 'Le Lion' SA .............. 109
2,350 Electrabel ....................................... 408
550 Electrabel, Series 1 ............................. 96
820 Generale de Banque ............................... 204
*37 Generale de Banque (New) ......................... 8
200 Gevaert Photo-Production NV ...................... 55
300 Glaverbel SA ..................................... 41
1,250 Groupe Bruxelles Lambert ......................... 157
125 Kredietbank (AVF1 Shares) ........................ 25
750 Kredietbank ...................................... 149
1,220 Petrofina SA ..................................... 378
750 Reunies Electrobel & Tractebel SA ................ 226
750 Royale Belge ..................................... 116
450 Solvay et Cie .................................... 196
1,350 Union Miniere SA ................................. 109
---------
2,488
---------
CANADA (4.2%)
4,700 Alcan Aluminum Ltd. .............................. 106
6,100 American Barrick Resources Corp. ................. 146
5,200 Bank of Montreal ................................. 88
4,300 Bank of Nova Scotia .............................. 78
5,900 BCE, Inc. ........................................ 192
3,000 Bombardier, Inc. "B" ............................. 43
1,900 Brascan Ltd "A" .................................. 26
4,100 Canadian Imperial Bank of Commerce ............... 88
1,300 Canadian Occidental Petroleum Ltd. ............... 23

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
7,100 Canadian Pacific Ltd. ............................ $ 105
2,000 Canadian Tire Corp. "A" .......................... 16
2,000 Cominco Ltd. ..................................... 30
2,000 Dofasco, Inc. .................................... 27
2,700 Dupont Canada "A" ................................ 30
2,300 Echo Bay Mines, Ltd. ............................. 25
1,500 George Weston Ltd. ............................... 40
+3,800 Gulf Canada Resource Ltd. ........................ 12
2,800 Imasco Ltd. ...................................... 68
4,400 Imperial Oil Ltd. ................................ 129
1,900 Inco Ltd. ........................................ 46
800 Interprovincial Pipeline ......................... 17
2,900 Lac Minerals Ltd. ................................ 24
4,100 Laidlaw Inc., "B" ................................ 27
3,800 MacMillan Bloedel Ltd. ........................... 48
900 Magna International "A" .......................... 36
2,600 Moore Corp. ...................................... 44
1,600 Newbridge Networks Corp. ......................... 55
3,800 Noranda, Inc. .................................... 65
1,700 Norcen Energy Resources Ltd. ..................... 17
4,800 Northern Telecom Ltd. ............................ 133
12,600 Nova Corp. of Alberta ............................ 98
4,900 Placer Dome, Inc. ................................ 105
1,200 Potash Corp. of Saskatchewan, Inc. ............... 33
2,900 Ranger Oil Ltd. .................................. 19
1,700 Renaissance Energy Ltd. .......................... 36
6,100 Royal Bank of Canada ............................. 118
7,700 Seagram Co. Ltd. ................................. 232
+1,200 Talisman Energy, Inc. ............................ 24
1,700 Teck Corp. "B" ................................... 28
1,000 The Oshawa Group "A" ............................. 14
12,000 Thomson Corp. .................................... 131
4,600 Transcanada Pipeline Ltd. ........................ 54
4,000 Trizec Corp. "A" ................................. 1
---------
2,677
---------
FRANCE (7.6%)
550 Accor S.A. ....................................... 62
1,400 Air Liquide ...................................... 189
3,000 Alcatel Alsthom .................................. 326
3,000 AXA S.A. ......................................... 124
4,050 Banque Nationale de Paris ........................ 173
200 BIC Corp. ........................................ 43
500 Bouygues ......................................... 53
1,400 B.S.N. S.A. ...................................... 202
500 Carrefour Supermarch S.A. ........................ 166
125 Chargeurs ........................................ 30
2,100 Cie de Financiere de Paribas "A" ................. 133
1,650 Cie de Saint Gobain .............................. 193
3,550 Cie de Suez ...................................... 173
525 Cie Generale des Eaux ............................ 212
500 Compagnie Bancaire S.A. .......................... 45
5,000 Elf Aquitaine .................................... 349
450 Elf Sanofi S.A. .................................. 71
600 Eridania Beghin--Say S.A. ........................ 95
1,450 Estabissments Economiques du Casino Guichard
Perrachon ...................................... 36
1,200 Havas S.A. ....................................... 94
1,800 Lafarge Coppee S.A. .............................. 135
60 Legrand .......................................... 61
1,200 L'Oreal .......................................... 236
1,500 LVMH Moet Hennessy Louis Vuitton ................. 230
1,350 Lyonnaise des Eaux Demez ......................... 124

The accompanying notes are an integral part of the financial statements.
48

<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
FRANCE (CONT.)
2,100 Michelin (C.G.D.E.) "B" .......................... $ 87
+1,000 Pernod-Ricard .................................... 68
350 Pinault S.A. ..................................... 55
400 Promodes ......................................... 63
950 PSA Peugeot Citroen S.A. ......................... 135
5,400 Rhone Poulenc S.A. ............................... 123
100 Sagem ............................................ 49
1,000 Schneider S.A. ................................... 65
500 SIMCO ............................................ 47
80 Societe Eurofrance S.A. .......................... 29
1,800 Societe Generale ................................. 184
200 St. Louis ........................................ 60
2,900 Thomson CSF S.A. ................................. 82
4,000 Total Francaise Petrol S.A. "B" .................. 230
---------
4,832
---------
HONG KONG (3.7%)
10,400 Bank of East Asia ................................ 45
50,000 Cathay Pacific Airways Ltd. ...................... 74
36,000 Cheung Kong Holdings Ltd. ........................ 157
31,000 China Light & Power Ltd. ......................... 158
28,561 Dairy Farm International Holdings ................ 40
29,070 Hang Seng Bank Ltd. .............................. 192
24,520 Hong Kong & China Gas Co. ........................ 47
32,500 Hong Kong Electric Holdings ...................... 98
46,662 Hong Kong Land Holdings .......................... 118
172,400 Hong Kong Telecom ................................ 326
50,000 Hopewell Holdings Ltd. ........................... 40
56,000 Hutchison Whampoa ................................ 230
10,000 Hysan Development Co. ............................ 27
11,200 Jardine Matheson Ltd. ............................ 86
17,338 Mandarin Oriental ................................ 24
25,191 New World Development Co. Ltd. ................... 70
66,000 Regal Hotel International ........................ 16
35,000 South China Morning Post ......................... 20
34,100 Sun Hung Kai Properties .......................... 197
24,500 Swire Pacific Ltd. Class A ....................... 177
8,000 Television Broadcasting Ltd. ..................... 32
37,000 Wharf Holdings Ltd. .............................. 136
1,700 Wing Lung Bank ................................... 12
---------
2,322
---------
ITALY (2.1%)
10,250 Assicurazioni Generali SPA ....................... 263
14,000 Banca Commerciale Italiana ....................... 41
4,500 Banca Nazionale Dell'Agricoltura SPA ............. 9
10,000 Banco Ambrosiano Veneto .......................... 27
2,500 Benetton Group SPA ............................... 37
+2,000 Cogefar Italian .................................. 3
17,500 Credit Italiano .................................. 23
9,000 Edison SPA ....................................... 43
+2,000 Falck Italian .................................... 6
34,000 Fiat SPA ......................................... 136
9,000 Fiat SPA Risp .................................... 22
5,000 Fidis Italian .................................... 18
10,800 Finanziaria Cirio Bertolli Rica .................. 7
9,000 Finanziaria Italgel SPA .......................... 9
+5,000 Gilardini Industrial SPA ......................... 13
8,500 Istituto Bancario San Paolo di Torina SPA ........ 53
3,000 Italcable ........................................ 18
3,500 Italcementi Fabbriche Riunit SPA ................. 27

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
10,000 Italgas .......................................... $ 33
6,800 Mediobanca ....................................... 63
80,000 Montedison SPA ................................... 74
10,000 Montedison SPA NCS ............................... 8
20,000 Olivetti Group ................................... 30
+15,000 Pirelli SPA ...................................... 23
2,565 Rinascente ....................................... 16
2,750 Riunione Adriatica di Sicurti .................... 44
1,500 Riunione Adriatica di Sicurti Risp Non
Convertible .................................... 15
70,000 SIP .............................................. 174
15,000 SIP Risp NCS ..................................... 31
4,500 Sirti SPA ........................................ 33
10,000 SME Meridonale Finance ........................... 25
+10,000 Snia BPO SPA ..................................... 16
1,500 Societe Assicuratrice Industriale SPA ............ 19
---------
1,359
---------
JAPAN (23.4%)
11,000 Ajinomoto Cos., Inc. ............................. 151
3,000 Aoki Corp. ....................................... 16
18,000 Asahi Bank Ltd. .................................. 228
3,000 Asahi Breweries .................................. 33
21,000 Asahi Chemical Industries ........................ 158
14,000 Asahi Glass Co. .................................. 173
14,000 Bank of Tokyo .................................... 227
10,000 Bank of Yokohama ................................. 94
7,000 Bridgestone Co. .................................. 114
7,000 Canon, Inc. ...................................... 123
7,000 Chiba Bank ....................................... 65
1,000 Chiyoda Corp. .................................... 13
3,000 Chugai Pharmaceutical Ltd. ....................... 37
3,000 Cosmo Oil ........................................ 26
24,000 Dai Ichi Kangyo Bank ............................. 477
11,000 Dai Nippon Printing Co., Ltd. .................... 218
3,000 Daikin Industries Ltd. ........................... 29
+2,000 Daishowa Paper Manufacturing Co., Ltd. ........... 20
5,000 Daiwa Housing Industries ......................... 78
11,000 Daiwa Securities Co., Ltd. ....................... 193
3,000 Fanuc Co. ........................................ 144
22,000 Fuji Bank ........................................ 505
6,000 Fuji Photo Film Ltd. ............................. 134
20,000 Fujitsu .......................................... 229
7,000 Furukawa Electric ................................ 51
7,000 Hankyu Corp. ..................................... 41
3,000 Hazama-Gumi ...................................... 15
28,000 Hitachi .......................................... 293
18,000 Industrial Bank of Japan ......................... 592
2,000 Ito Yokado Ltd. .................................. 111
+17,000 Japan Air Lines Co. .............................. 123
7,000 Jujo Paper Co. ................................... 52
4,000 Jusco Ltd. ....................................... 93
11,000 Kajima Corp. ..................................... 111
6,400 Kansai Electric Power ............................ 172
11,000 KAO Corp. ........................................ 134
+38,000 Kawasaki Steel Corp. ............................. 161
10,000 Kinki Nippon Railway ............................. 86
11,000 Kirin Brewery Co. ................................ 131
+31,000 Kobe Steel Ltd. .................................. 99
7,000 Komatsu .......................................... 68
17,000 Kubota Corp. ..................................... 127
9,000 Kumagai Gumi Co. ................................. 45

49 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
JAPAN (CONT.)
3,000 Kyowa Hakko Kogyo ................................ $ 28
20,000 Marubeni Corp. ................................... 110
4,000 Marui Co. ........................................ 75
15,000 Matsushita Electric Industries Ltd. .............. 275
20,000 Mitsubishi Corp. ................................. 252
26,000 Mitsubishi Electric .............................. 176
10,000 Mitsubishi Estate Co. Ltd. ....................... 124
39,000 Mitsubishi Heavy Industries ...................... 312
10,000 Mitsubishi Kasel ................................. 53
11,000 Mitsubishi Trust and Banking ..................... 183
10,000 Mitsui & Co. ..................................... 85
7,000 Mitsui Fudosan ................................... 85
11,000 Mitsui Trust & Banking Co. ....................... 136
7,000 Mitsukoshi ....................................... 73
1,200 Mochida Pharmaceutical ........................... 25
13,000 NEC Corp. ........................................ 161
3,000 NGK Insulators ................................... 32
7,000 Nippon Denso Co., Ltd. ........................... 147
11,000 Nippon Express ................................... 117
3,000 Nippon Fire & Marine Insurance Co. ............... 23
3,000 Nippon Meat Packers .............................. 46
16,000 Nippon Oil Co. ................................... 124
49,000 Nippon Steel Corp. ............................... 171
10,000 Nippon Yusen ..................................... 64
14,000 Nissan Motors .................................... 124
+39,000 NKK Corp. ........................................ 105
14,000 Nomura Securities ................................ 338
7,000 Obayashi Corp. ................................... 48
17,000 Odakyu Electric Railway Co. ...................... 126
7,000 Oji Paper Ltd. ................................... 75
21,000 Osaka Gas Co. .................................... 99
3,000 Penta-Ocean Construction ......................... 20
2,000 Pioneer Electronic Corp. ......................... 57
24,000 Sakura Bank ...................................... 341
3,000 Sankyo Co. Ltd. .................................. 67
16,000 Sanyo Electric Co. Ltd. .......................... 90
8,000 Sekisui Chemical ................................. 93
7,000 Sekisui House .................................... 90
3,000 Seven-Eleven Japan ............................... 239
9,000 Sharp Corp. ...................................... 163
3,000 Shin-Etau Chemical Co. ........................... 64
7,000 Shizuoka Bank .................................... 96
+7,000 Showa Denko ...................................... 25
2,000 Sony Corp. ....................................... 123
23,000 Sumitomo Bank .................................... 506
24,000 Sumitomo Chemical Co. ............................ 130
10,000 Sumitomo Corp. ................................... 105
7,000 Sumitomo Electric Industries ..................... 107
+32,000 Sumitomo Metal Industries ........................ 96
13,000 Taisei Corp. ..................................... 90
11,000 Takeda Chemical Industries ....................... 133
7,000 Teijin Ltd. ...................................... 38
7,210 Tobu Railway Co. ................................. 49
18,000 Tokai Bank ....................................... 240
14,000 Tokio Marine & Fire Industries ................... 180
3,000 Tokyo Dome Corp. ................................. 61
10,900 Tokyo Electric Power ............................. 355
1,000 Tokyo Electron Ltd. .............................. 33
28,000 Tokyo Gas ........................................ 142
7,000 Tokyu Corp. ...................................... 54
3,000 Toppan Printing .................................. 46

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
17,000 Toray Industries ................................. $ 128
3,000 Toto Ltd. ........................................ 53
7,000 Toyoba Co. ....................................... 32
3,000 Toyoda Automatic Loom ............................ 60
28,000 Toyota Motor Corp. ............................... 629
+7,000 Ube Industries Ltd. .............................. 28
7,000 Yamaichi Securities .............................. 66
4,000 Yamanouchi Pharmaceuticals ....................... 76
3,000 Yamato Transport Co., Ltd. ....................... 40
10,000 Yasuda Trust & Banking ........................... 97
---------
14,824
---------
NETHERLANDS (7.7%)
10,700 ABN-Amro Holdings N.V. ........................... 354
5,000 Ahold N.V. ....................................... 126
2,000 Akzo N.V. ........................................ 215
2,600 Elsevier ......................................... 224
1,600 Heineken N.V. .................................... 194
9,850 Internationale Nederlanden Groep N.V. ............ 423
2,100 KLM Airlines ..................................... 59
2,600 Koninklijke KNP .................................. 63
850 Konink Ned Hoogovens Sico ........................ 34
+850 Nedlloyd Groep N.V. .............................. 30
12,000 Phillips Electronics N.V. ........................ 347
19,500 Royal Dutch Petroleum Co. ........................ 2,055
1,119 Stork N.V. ....................................... 28
5,900 Unilever N.V. .................................... 601
2,282 Wolters Kluwer N.V. .............................. 135
---------
4,888
---------

NEW ZEALAND (5.2%)
527,370 Brierly Investments Ltd. ......................... 386
342,100 Carter Holt Harvey Ltd. .......................... 763
9,800 Ceramco Corp. Ltd. ............................... 27
21,200 Fisher & Paykel Industries ....................... 52
292,200 Fletcher Challenge Ltd. .......................... 638
73,100 Fletcher Challenge Ltd. (Forestry Shares) ........ 94
99,300 Lion Nathan Ltd. ................................. 182
382,500 Telecom Corp. of New Zealand Ltd. ................ 1,032
19,900 Wilson & Horton Ltd. ............................. 92
---------
3,266
---------
SPAIN (5.5%)
950 Alba Finance S.A. ................................ 40
5,800 Argentaria S.A. .................................. 226
8,950 Autopistas Acesa ................................. 83
10,600 Banco Bilbao Vizcaya ............................. 233
8,050 Banco Central Hispano Americano .................. 157
5,250 Banco de Santander ............................... 190
6,600 Banco Espanol de Credito ......................... 47
650 Carburos Metalicos ............................... 22
3,350 Dragados y Construccion S.A. ..................... 53
2,550 Ebro Agricolas Compania de Allmentacion .......... 27
12,100 Empresa Nacional de Electricdad S.A. ............. 547
6,100 Ercros S.A. ...................................... 11
1,100 Fabricacion de Automobiles Renault de Espana
S.A. ........................................... 62
650 Fomento Construccion ............................. 68
1,700 Gas Natural SDG .................................. 134
39,700 Iberdrola S.A. ................................... 279
150 Immobilaria Metropolitana Vasco Central .......... 5

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, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
SPAIN (CONT.)
1,250 Mapfre Corporacion ............................... $ 48
500 Portland Valderrivas ............................. 40
14,350 Repsol B.A. ...................................... 414
+1,900 Sarrio S.A. ...................................... 8
1,700 Tabacalera S.A. "A" .............................. 44
42,600 Telefonica de Espana S.A. ........................ 576
13,800 Union Electrica Fenosa ........................... 67
+1,850 Uralita S.A. ..................................... 21
1,800 Vallehermosa S.A. ................................ 33
183 Vallehermosa S.A. ................................ 3
350 Zardoya Otis ..................................... 42
---------
3,480
---------
UNITED KINGDOM (6.4%)
10,900 Abbey National plc ............................... 66
7,900 Argyll Group plc ................................. 28
7,650 Arjo Wiggins Appleton plc ........................ 32
3,100 Associated British Foods plc ..................... 24
12,391 Barclays plc ..................................... 100
5,700 Bass plc ......................................... 44
18,550 BAT Industries plc ............................... 115
3,650 BICC plc ......................................... 22
6,862 Blue Circle Industries plc ....................... 30
3,450 BOC Group plc .................................... 37
6,700 Boots Co. plc .................................... 55
3,050 Bowater plc ...................................... 21
4,600 BPB Industries plc ............................... 22
2,668 British Aerospace plc ............................ 19
6,250 British Airways plc .............................. 36
30,500 British Gas plc .................................. 127
36,209 British Petroleum Co. plc ........................ 218
18,500 British Steel plc ................................ 41
38,300 British Telecommunications plc ................... 218
22,600 BTR plc .......................................... 124
1,550 Burmah Castrol plc ............................... 21
14,350 Cable & Wireless plc ............................. 90
6,450 Cadbury Schweppes plc ............................ 42
4,272 Caradon plc ...................................... 20
4,600 Coats Viyella plc ................................ 15
2,779 Commercial Union plc ............................. 22
2,650 Courtaulds plc ................................... 19
1,900 De La Rue plc .................................... 26
3,250 Eastern Electricity plc .......................... 31
6,750 Forte plc ........................................ 24
3,750 General Accident plc ............................. 31
20,450 General Electric plc ............................. 89
2,913 GKN plc .......................................... 25
17,450 Glaxo Holdings plc ............................... 147
14,700 Grand Metropolitan plc ........................... 93
7,150 Great Universal Stores plc ....................... 62
8,700 Guardian Royal Exchange plc ...................... 23
11,100 Guinness plc ..................................... 75
13,027 HSBC Holdings plc ................................ 142
32,633 Hanson plc ....................................... 122
6,500 Harrisons & Crossfields plc ...................... 17
4,600 Imperial Chemical Industries plc ................. 55
9,000 Ladbroke Group plc ............................... 21
4,125 Land Securities plc .............................. 39
5,750 Lasmo plc ........................................ 12
8,401 Lloyds Bank plc .................................. 68
8,800 Lonrho plc ....................................... 17

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
18,500 Marks and Spencer plc ............................ $ 112
3,050 MEPC plc ......................................... 20
8,200 National Power plc ............................... 55
3,450 North West Water Group plc ....................... 25
5,550 Peninsular & Oriental Steam Navigation Co. ....... 54
7,650 Pilkington plc ................................... 20
15,676 Prudential Corp. plc ............................. 70
7,125 Rank Organisation plc ............................ 41
4,327 Redland plc ...................................... 33
5,050 Reed International plc ........................... 59
11,600 Reuters Holdings plc ............................. 77
7,914 Rio Tinto Zinc plc (Registered) .................. 101
1,700 RMC Group plc .................................... 22
5,803 Royal Bank of Scotland Group plc ................. 38
4,845 Royal Insurance Holdings plc ..................... 19
10,700 Sainsbury (J) plc ................................ 66
4,800 Scottish Power plc ............................... 27
9,950 Sears plc ........................................ 18
4,450 Sedgwick Group plc ............................... 12
2,300 Slough Estates plc ............................... 8
6,100 Smithkline Beecham plc "A" ....................... 38
6,700 Smithkline Beecham plc units (5 "B" shares common
plus 1 preferred share) ........................ 38
2,050 Southern Electricity plc ......................... 19
7,210 Tarmac plc ....................................... 16
3,822 Taylor Woodrow plc ............................... 8
10,352 Tesco plc ........................................ 36
3,650 Thames Water plc ................................. 25
3,250 Thorn EMI plc .................................... 51
2,650 TI Group plc ..................................... 15
6,922 Trafalgar House plc .............................. 9
4,100 Unilever plc ..................................... 61
6,700 Vodafone Group plc ............................... 51
4,600 Zeneca Group plc ................................. 52
---------
4,023
---------
UNITED STATES (20.9%)
5,400 Abbott Laboratories .............................. 157
1,500 Aluminum Co. of America .......................... 110
3,100 American Express Co. ............................. 80
3,000 American International Group, Inc. ............... 260
+1,500 American Medical Response Corp. .................. 89
10,600 American Telephone & Telegraph Co. ............... 576
3,300 Amoco Co. ........................................ 188
1,100 Atlantic Richfield Co. ........................... 112
1,500 Automatic Data Processing, Inc. .................. 80
2,992 Banc One Corp. ................................... 102
3,000 BankAmerica Corp. ................................ 137
4,100 Bell Atlantic Corp. .............................. 230
3,300 Bellsouth Corp. .................................. 204
3,000 Boeing Co. ....................................... 139
3,700 Bristol-Myers Squibb Co. ......................... 198
4,500 Campbell Soup Co. ................................ 155
1,000 Capital Cities ABC, Inc. ......................... 71
1,500 Caterpillar, Inc. ................................ 150
4,000 Chevron Corp. .................................... 168
2,500 Chrysler Corp. ................................... 118
1,500 Chubb Corp. ...................................... 115
3,000 Citicorp ......................................... 120
9,100 Coca Cola Co. .................................... 370
2,700 Columbia/HCA Healthcare Corp. .................... 101

51 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
UNITED STATES (CONT.)
1,500 Computer Associates International, Inc. .......... $ 60
3,000 Consolidated Edison Co. of New York, Inc. ........ 80
1,500 Cooper Industries, Inc. .......................... 54
1,500 Corning, Inc. .................................... 49
1,500 CSX Corp. ........................................ 113
800 Deere & Co. ...................................... 54
2,200 Dow Chemical Co. ................................. 144
3,000 Duke Power Co. ................................... 107
4,500 DuPont (EI) de Nemours Co. ....................... 263
3,000 Eastman Kodak Co. ................................ 144
2,000 Enron Corp. ...................................... 65
7,500 Exxon Corp. ...................................... 425
3,000 Federal National Mortgage Association ............ 251
3,000 FPL Group, Inc. .................................. 90
1,500 Gannett Co., Inc. ................................ 74
6,100 General Electric Co. ............................. 284
4,900 General Motors Corp. ............................. 246
1,500 General Motors Corp., Class 'E' .................. 52
1,500 General RE Corp. ................................. 164
1,500 Goodyear Tire & Rubber Co. ....................... 54
4,500 Heinz H.J. Co. ................................... 143
3,000 Hewlett Packard .................................. 226
3,000 Home Depot, Inc. ................................. 126
1,500 Intel Corp. ...................................... 88
3,400 International Business Machines Corp. ............ 200
1,500 International Paper Co. .......................... 99
1,500 ITT Corp. ........................................ 122
1,800 J.C. Penney, Co. Inc. ............................ 98
4,000 Johnson & Johnson ................................ 172
4,500 K-Mart Corp. ..................................... 70
1,480 Lehman Brothers Holdings Inc. .................... 22
2,200 Lilly, Eli & Co. ................................. 125
1,500 May Department Stores Co. ........................ 59
6,000 McDonalds Corp. .................................. 173
1,500 Melville Corp. ................................... 58
7,500 Merck & Co., Inc. ................................ 223
+2,500 Microsoft Corp. .................................. 129
3,000 Minnesota Mining & Manufacturing Co. ............. 149
2,600 Mobil Corp. ...................................... 212
1,500 Morgan (J.P.) & Co., Inc. ........................ 93
3,700 Motorola, Inc. ................................... 165
3,000 Nationsbank Corp. ................................ 154
1,500 Norfolk Southern Corp. ........................... 95
3,300 Norwest Corp. .................................... 86
+2,300 Novell, Inc. ..................................... 39
1,500 Oracle Systems Corp. ............................. 56
4,500 Pacific Gas & Electric Co. ....................... 107
6,100 Pepsico, Inc. .................................... 187
3,000 Pfizer, Inc. ..................................... 189
5,200 Philip Morris Cos., Inc. ......................... 268
1,800 PPG Industries, Inc. ............................. 68
6,900 Procter & Gamble Co. ............................. 368
4,500 Public Service Enterprise Group, Inc. ............ 117
3,000 Rockwell International Corp. ..................... 112
3,000 SCE Corp. ........................................ 39
3,000 Sears Roebuck & Co. .............................. 144
4,500 Southern Co. ..................................... 84
3,000 Southwestern Bell Corp. .......................... 131
1,500 Suntrust Banks, Inc. ............................. 73
3,000 Texas Utilities Co. .............................. 94

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
1,500 The Dun & Bradstreet Corp. ....................... $ 83
3,000 The Limited, Inc. ................................ 52
4,500 Time Warner, Inc. ................................ 158
+3,000 Toys "R" Us, Inc. ................................ 98
2,400 Travelers, Inc. .................................. 77
800 U.S. Healthcare, Inc. ............................ 30
9,100 Wal-Mart Stores, Inc. ............................ 220
4,500 Walt Disney Co. .................................. 186
500 Wells Fargo & Co. ................................ 75
4,500 Westinghouse Electric Corp. ...................... 52
3,000 Weyerhaeuser Co. ................................. 120
3,200 WMX Technologies, Inc. ........................... 85
---------
13,202
---------
TOTAL COMMON STOCKS
(COST $60,388)................................................... 62,360
---------
PREFERRED STOCKS (0.1%)
ITALY (0.1%)
14,000 Fiat SPA ......................................... 35
---------
NETHERLANDS (0.0%)
156 Koninklijke KNP .................................. 1
---------
TOTAL PREFERRED STOCKS
(COST $15)....................................................... 36
---------
RIGHTS (0.1%)
BELGIUM (0.0%)
* 1,220 Petrofina SA ..................................... --
---------
FRANCE (0.0%)
* 1,225 Cie de Financiere de Paribas, expiring 5/6/96 .... 8
---------
ITALY (0.0%)
* 3,500 Italcementi Fabbriche Riunit SPA, expiring
7/18/94......................................... 8
* 15,000 Pirelli SPA, expiring 7/18/94 .................... --
---------
8
---------
SPAIN (0.1%)
* 5,250 Banco de Santander ............................... 33
* 1,250 Mapfre Corporacion, expiring 7/8/94 .............. --
---------
33
---------
TOTAL RIGHTS
(COST $52)....................................................... 49
---------
WARRANTS (0.0%)
FRANCE (0.0%)
*1,200 Lagardere Group, expiring 6/30/97 ................ --
---------
HONG KONG (0.0%)
*1,460 Hong Kong & China Gas Co., expiring 12/31/95 ..... 2
---------
ITALY (0.0%)
*10,000 Fiat SPA, expiring 12/31/94 ...................... 17
*45,000 Montedison SPA, expiring 12/31/95 ................ 5
*45,000 Montedison SPA, expiring 1/19/97 ................. 11
---------
33
---------
TOTAL WARRANTS
(COST $0)........................................................ 35
---------
TOTAL FOREIGN & US EQUITY SECURITIES (98.7%)
(COST $60,455)................................................... 62,480
---------

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, 1994

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (5.1%)
REPURCHASE AGREEMENT
UNITED STATES
$3,205 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $3,205, collateralized by $3,315
U.S. Treasury Notes 4.625%, due 11/30/94, valued
at $3,314 (COST $3,205)......................... $ 3,205
---------
FOREIGN CURRENCY (0.7%)
A$ 19 Australian Dollar................................. 14
BF 2,414 Belgian Franc..................................... 74
L 28 British Pound..................................... 44
C$ 115 Canadian Dollar................................... 83
DK 14 Danish Krone...................................... 2
DM 4 German Deutsche Mark.............................. 3
FF 31 French Franc...................................... 6
HK$ 215 Hong Kong Dollar.................................. 28
IL 24,803 Italian Lira...................................... 16
Y 1,871 Japanese Yen...................................... 19
MYR 12 Malaysian Ringgit................................. 4
NG 116 Netherland Guilder................................ 65
NZ$ 89 New Zealand Dollar................................ 53
S$ 4 Singapore Dollar.................................. 3
SP 4,766 Spanish Peseta.................................... 36
---------
TOTAL FOREIGN CURRENCY (COST $440)............................... 450
---------
TOTAL INVESTMENTS (104.5%) (COST $64,100)........................ 66,135
LIABILITIES IN EXCESS OF OTHER ASSETS (-4.5%).................... (2,818)
---------
NET ASSETS (100%)................................................ $ 63,317
---------
---------

SUMMARY OF FOREIGN & US EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)

VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -----------------------------------------------------------------
Finance................................ $ 13,605 21.5%
Services............................... 11,842 18.7
Energy................................. 10,095 15.9
Consumer Goods......................... 9,280 14.7
Materials.............................. 8,358 13.2
Capital Equipment...................... 6,427 10.1
Multi-Industry......................... 2,501 4.0
Mining................................. 372 0.6
--------- -------
$ 62,480 98.7%
--------- -------
--------- -------
- ---------------
NCS Non Convertible Shares
+ Non-income producing securities
* Fair valued securities. -- See Note A-1

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of forward foreign currency contracts open at June 30, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:

CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- ----------- --------- ----------- ----------- --------- -----------------
FF 12,199 $ 2,240 09/14/94 $ 2,100 $ 2,100 $ (140)
Y 944,888 9,858 04/28/95 $ 9,400 9,400 (458)
SP 329,046 2,488 10/31/94 $ 2,320 2,320 (168)
$ 2,549 2,549 07/29/94 FF13,782 2,533 (16)
--------- --------- -----
$ 17,135 $ 16,353 $ (782)
--------- --------- -----
--------- --------- -----
- --------------------------------------------------------------------------------
53 The accompanying notes are an integral part of the financial statements.
<PAGE>

MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
FIXED INCOME SECURITIES (94.8%)
BELGIAN FRANC (3.9%)
GOVERNMENT BOND
BF 21,000 Kingdom of Belgium 8.00%, 12/24/12................ $ 622
---------
CANADIAN DOLLAR (14.8%)
EUROBONDS
C$ 900 British Colombia Province 7.75%, 6/16/03.......... 577
1,000 Kingdom of Norway 8.375%, 1/27/03................. 664
1,000 The Export Import Bank Of Japan 7.75%, 10/8/02.... 646
---------
1,887
---------
GOVERNMENT BONDS
700 Government of Canada 7.50%, 12/1/03............... 455
---------
2,342
---------
DANISH KRONE (9.5%)
GOVERNMENT BOND
DK 10,250 Kingdom of Denmark 7.00%, 12/15/04................ 1,503
---------
FINNISH MARKKA (1.2%)
GOVERNMENT BOND
MK 1,000 Republic of Finland 9.50%, 3/15/04................ 188
---------
FRENCH FRANC (5.5%)
GOVERNMENT BOND
FF 6,150 Government of France O.A.T., 6.00%, 10/25/25...... 865
---------
GERMAN DEUTSCHE MARK (11.7%)
EUROBONDS
DM 1,200 LKB Baden-Wurttemberg 6.50%, 9/15/08.............. 693
1,000 Republic of Austria 6.50%, 1/10/24................ 540
---------
1,233
---------
GOVERNMENT BOND
1,150 Bundesrepublik 6.25%, 1/4/24...................... 609
---------
1,842
---------
ITALIAN LIRA (5.8%)
GOVERNMENT BONDS
IL 900,000 Republic of Italy (Treasury Bond) 11.50%,
3/1/03.......................................... 591
600,000 Republic of Italy (Treasury Bond) 9.00%,
11/1/23......................................... 323
---------
914
---------
JAPANESE YEN (4.9%)
EUROBOND
Y 70,000 KFW International Finance 6.00%, 11/29/99......... 773
---------
NETHERLAND GUILDER (6.7%)
GOVERNMENT BOND
NG 1,900 Government of Netherlands 7.50%,
1/15/23......................................... 1,057
---------
NEW ZEALAND DOLLAR (2.9%)
GOVERNMENT BOND
NZ$ 750 Government of New Zealand 8.00%, 4/15/04.......... 450
---------

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SPANISH PESETA (3.3%)
GOVERNMENT BOND
SP 80,000 Government of Spain 8.00%, 5/30/04................ $ 513
---------
SWEDISH KRONA (6.0%)
GOVERNMENT BOND
SK 7,900 Kingdom of Sweden 9.00%, 4/20/09.................. 941
---------
UNITED STATES DOLLAR (18.6%)
CORPORATE BOND
$ 200 Atlantic Richfield Co. 10.25%, 7/2/00............. 220
---------
EUROBOND
400 Republic of Italy 6.875%, 9/27/23................. 325
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
FEDERAL HOME LOAN BANK
500 Discount Note, 7/12/94............................ 499
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
471 Pool #337260 7.00%, 12/15/22...................... 433
---------
U.S. TREASURY BOND
30 8.125%, 8/15/19................................... 31
---------
U.S. TREASURY NOTES
400 7.875%, 2/15/96................................... 412
200 8.625%, 8/15/97................................... 211
100 8.75%, 10/15/97................................... 106
300 8.00%, 5/15/01.................................... 313
300 7.25%, 5/15/04.................................... 298
---------
1,340
---------
2,303
---------
YANKEE BONDS
100 LKB Baden-Wurttemberg 7.625%, 2/1/23.............. 93
---------
2,941
---------
TOTAL FIXED INCOME SECURITIES (COST $15,540)..................... 14,951
---------
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT
UNITED STATES
683 U.S. Trust, 4.10%, dated 6/30/94, due 7/1/94, to
be repurchased at $683, collateralized by $675
Government National Mortgage Association 9.50%,
with various maturity dates, valued at $714
(COST $683) .................................... 683
---------
FOREIGN CURRENCY (0.0%)
BF 1 Belgian Franc..................................... --
DM 3 German Deutsche Mark.............................. 2
IL 1 Italian Lira...................................... --
SP 2 Spanish Peseta.................................... --
SK 1 Swedish Krona..................................... --
---------
TOTAL FOREIGN CURRENCY (COST $2)................................. 2
---------
TOTAL INVESTMENTS (99.1%) (COST $16,225)......................... 15,636
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)..................... 140
---------
NET ASSETS (100%)................................................ $15,776
---------
---------

54 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994

FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:

Under the terms of forward foreign currency contracts open at June 30, 1994,
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 IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
BF 10,000 $ 307 7/7/94 SK 2,273 $ 297 $ (10)
SK 2,258 295 7/7/94 BF 10,000 307 12
$ 913 913 7/13/94 DM 1,500 946 33
DM 1,500 946 7/13/94 $ 874 874 (72)
NG 1,800 1,012 7/13/94 $ 936 936 (76)
SP 35,000 266 8/18/94 IL 406,228 256 (10)
DK 3,000 481 9/7/94 $ 444 444 (37)
BF 10,000 306 9/9/94 IL 473,380 298 (8)
SP 40,000 304 9/12/94 $ 291 290 (14)
--------- --------- ------
$ 4,830 $ 4,648 $ (182)
--------- --------- ------
--------- --------- ------
</TABLE>

- ---------------
DK -- Danish Krone
NG -- Netherland Guilder

The accompanying notes are an integral part of the financial statements. 55

<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
COMMON STOCKS (86.2%)
CHINA (1.6%)
200,000 China International Marine Container "B" ......... $ 181
330,000 China Merchants Shokou Port Services "B" ......... 222
3,311,000 Maanshan Iron & Steel Co. Ltd. ................... 910
568,100 Shanghai Diesel Engine Co. Ltd. "B" .............. 517
315,000 Shanghai Erfangji Co. Ltd. "B" ................... 90
500,000 Shanghai Industries Sewing Machine "B" ........... 226
215,670 Shanghai Jin Jiang Tower "B" ..................... 145
546,000 Shanghai Jinqiao "B" ............................. 453
8,800 Shanghai Petrochemical Co. ADR ................... 202
608,000 Shanghai Phoenix Bicycle "B" ..................... 347
170,000 Shanghai Refrigerator Compressor Co., Ltd. "B" ... 50
250,000 Shanghai Shangling Electric "B" .................. 170
335,500 Shanghai Tire & Rubber "B" ....................... 174
75,000 Shanghai Yaohua Pilkington Glass "B" ............. 79
81,400 Shenzhen Chiwan Harbour "B" ...................... 41
820,000 Yizheng Chemical Fibre Co. ....................... 205
---------
4,012
---------
HONG KONG (23.2%)
3,070,000 Charoen Pokphand Co. ............................. 834
1,915,000 Cheung Kong Holdings Ltd. ........................ 8,362
593,000 China Light & Power Co. Ltd. ..................... 3,030
1,837,000 Citic Pacific Ltd. ............................... 4,967
7,890,000 Guangdong Investments Ltd. ....................... 4,542
699,000 Hong Kong Electric Holdings ...................... 2,107
1,813,800 Hong Kong Telecom ................................ 3,426
1,068,000 Hopewell Holdings Ltd. ........................... 864
612,400 HSBC Holdings .................................... 6,695
1,928,000 Hutchison Whampoa Ltd. ........................... 7,920
1,495,000 New World Development Co. Ltd. ................... 4,158
430,000 Peregrine Investment Holdings .................... 706
300,000 Sum Cheong International ......................... 190
601,100 Sun Hung Kai Properties .......................... 3,461
625,300 Swire Pacific "A" ................................ 4,490
552,000 Varitronix International Ltd. .................... 850
685,000 Wharf Holdings Ltd. .............................. 2,526
---------
59,128
---------
INDIA (0.5%)
38,000 Grasim Industries Ltd. GDR ....................... 893
50,000 Indian Aluminum Co. Ltd. GDR ..................... 506
---------
1,399
---------
INDONESIA (7.3%)
99,800 Astra International (Foreign) .................... 713
24,000 Astra International IDR .......................... 152
204,000 Bankbali (Foreign) ............................... 498
404,000 Bank International Indonesia (Foreign) ........... 1,280
385,000 Barito Pacific Timber (Foreign) .................. 1,446
277,000 Charoen Pokphand (Foreign) ....................... 1,200
82,750 Duta Anggada Realty (Foreign) .................... 194
140,000 Gudang Garam (Foreign) ........................... 606
226,000 Indocement Tunggal (Foreign) ..................... 1,698
+160,000 Jembo Cable Co. (Foreign) ........................ 472
483,000 Kalbe Farma (Foreign) ............................ 1,647
670,000 Modern Photo Film Co. (Foreign) .................. 2,933
481,200 Sona Topas Tourism (Foreign) ..................... 1,534
259,500 Sorini (Foreign) ................................. 1,016
16,000 Sumalindo Lestari Jaya (Foreign) ................. 63
88,000 Tempo Scan Pacific (Foreign) ..................... 331
550,000 Ultra Jaya Milk (Foreign) ........................ 1,445
739,000 United Tractors (Foreign) ........................ 1,550
---------
18,778
---------

VALUE
SHARES (000)
- ----------------------------------------------------------------------------
KOREA (1.0%)
40,000 Korea Electric Power ............................. $ 1,332
20,000 Samsung Electronics Co. GDS ...................... 1,170
---------
2,502
---------
MALAYSIA (17.5%)
201,000 Ekran Bhd. ....................................... 1,351
428,000 Genting Bhd. ..................................... 5,095
24,999 Hong Leong Credit Bhd. ........................... 130
35,000 Hong Leong Industries Bhd. ....................... 159
24,250 Kim Hin Industries Bhd. .......................... 122
120,000 Magnum Corp. Bhd. ................................ 256
1,363,500 Malayan Banking .................................. 7,645
366,000 Malaysian International Shipping (Foreign) ....... 1,272
1,017,000 Malaysian Resources Corp. Bhd. ................... 1,898
219,000 Mulpha International Bhd. ........................ 308
500,000 Renong Bhd. ...................................... 607
895,000 Resorts World Bhd. ............................... 5,155
1,068,000 Tanjong plc ...................................... 4,634
1,062,000 Telekom Malaysia Bhd. ............................ 7,912
983,000 Tenaga Nasional Bhd. ............................. 5,511
634,000 United Engineers Bhd. ............................ 2,556
---------
44,611
---------
PAKISTAN (0.3%)
180,000 Dandot Cement Co. Ltd. ........................... 742
---------
PHILIPPINES (3.6%)
594,000 Ayala Corp. "B" .................................. 814
787,500 Ayala Land "B" ................................... 802
2,383,000 JG Summit Holding "B" ............................ 812
125,310 Manila Electric "B" .............................. 1,566
15,500 Philippines Long Distance Telephone "B" .......... 959
9,800 Philippines Long Distance Telephone ADR .......... 578
55,360 Philippine National Bank "B" ..................... 892
222,600 San Miguel "B" ................................... 1,113
3,311,000 SM Prime Holdings Inc. ........................... 656
1,200,000 Universal Robina Php ............................. 978
---------
9,170
---------
SINGAPORE (13.8%)
260,000 British-American Tobacco ......................... 1,142
494,000 City Development Ltd. ............................ 2,090
95,000 Cycle and Carriage ............................... 710
516,500 Development Bank of Singapore (Foreign) .......... 4,945
217,000 Fraser and Neave ................................. 2,391
1,125,000 IPC Corp. ........................................ 1,033
310,000 Jurong Cement .................................... 972
70,000 Jurong Engineering Ltd. .......................... 505
728,000 Keppel Corp. ..................................... 5,013
596,666 Overseas-Chinese Banking Corp (Foreign) .......... 5,282
165,000 Overseas Union Bank Ltd. ......................... 709
200,000 Resources Development Corp. Ltd. ................. 682
241,000 Sembawang Corp. .................................. 1,739
115,000 Singapore Airlines Ltd. (Foreign) ................ 950
177,000 Singapore Press Holdings (Foreign) ............... 2,960
1,964,000 Singapore Technologies Industrial Corp. .......... 2,396
200,000 Straits Steamship Land Ltd. ...................... 485
500,000 Straits Trading Co. Ltd. ......................... 1,213
---------
35,217
---------

56 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994

VALUE
SHARES (000)
- ----------------------------------------------------------------------------
TAIWAN (5.1%)
228,000 Asia Cement ...................................... $ 476
199,000 China Motor ...................................... 427
451,000 Hocheng Group Corp. .............................. 2,556
423,000 Merida Industry Co. Ltd. ......................... 706
1,848,000 Nan Ya Plastics .................................. 4,238
972,765 United Micro Electronics Corp. Ltd. .............. 4,516
---------
12,919
---------
THAILAND (12.3%)
53,000 Asia Credit Ltd. ................................. 529
741,100 Bangkok Bank Ltd. ................................ 5,268
41,000 Bangkok Bank Ltd. (Foreign) ...................... 311
21,152 Finance One Co. Ltd. ............................. 324
276,348 Finance One Co. Ltd. (Foreign) ................... 4,525
239,400 International Engineering Co. .................... 1,931
69,400 Land & House Co. Ltd. (Foreign) .................. 1,220
246,800 MDX Co. .......................................... 1,153
50,400 Phattra Thanakit Ltd. ............................ 1,626
16,900 Post Publishing Co. Ltd. ......................... 122
96,000 Shinawatra Computer Co. Ltd. (Foreign) ........... 2,147
44,200 Siam Cement Co. Ltd. ............................. 1,924
25,000 Siam Cement Co. Ltd. (Foreign) ................... 1,160
93,700 Siam Commercial Bank Co. Ltd. (Foreign) .......... 711
258,100 Somprasong Land (Foreign) ........................ 1,361
500,000 Telecomasia Co. Ltd. (Foreign) ................... 1,618
748,400 Thai Farmer's Bank Ltd. .......................... 3,497
70,000 Thai Farmer's Bank Ltd. (Foreign) ................ 369
92,000 Thai Telephone & Telecomm (Foreign) .............. 515
403,000 Wongpaitoon Footwear Co. Ltd. (Foreign) .......... 1,211
---------
31,522
---------
TOTAL COMMON STOCKS (COST $213,461).............................. 220,000
---------
RIGHTS (0.1%)
SINGAPORE (0.1%)
*+98,800 City Development Ltd. ............................ 230
*+30,000 Overseas Union Bank Ltd. (Foreign) ............... 37
---------
TOTAL RIGHTS (COST $0)........................................... 267
---------
WARRANTS (2.1%)
HONG KONG (1.9%)
+3,678,000 Citic Telecom, expiring 2/10/95 .................. 4,758
---------
SINGAPORE (0.1%)
+100,000 Keppel Corp., expiring 6/30/97 ................... 298
---------
THAILAND (0.1%)
+53,700 Finance One Co. Ltd., expiring 3/15/99 ........... 371
---------
TOTAL WARRANTS (COST $4,927)..................................... 5,427
---------

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (1.4%)
KOREA (0.2%)
$ #500 Daewoo Corp. 0.00%, 12/31/04 ..................... $ 500
---------
PHILIPPINES (1.0%)
*536 Benpres Holding Co. 4.20%, 11/26/49 .............. 2,546
---------
THAILAND (0.1%)
TB #537 Finance One Co. Ltd. 3.75%, 1/1/01 ............... 214
---------
UNITED STATES (0.1%)
$ 150 Sterlite Industries 3.50%, 6/30/99 ............... 149
---------
TOTAL CONVERTIBLE DEBENTURES (COST $1,669)....................... 3,409
---------
TOTAL FOREIGN SECURITIES (89.8%) (COST $220,057).................
229,103
---------
SHORT-TERM INVESTMENT (6.8%)
REPURCHASE AGREEMENT
UNITED STATES
17,425 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $17,627, collateralized by $3,470
U.S. Treasury Notes, 4.625% due 11/30/94, valued
at $3,469 and $14,610 U.S. Treasury Notes,
3.876% due 2/28/95, valued at $14,489 (COST
$17,425) ....................................... 17,425
---------
FOREIGN CURRENCY (4.2%)
HK$ 8,600 Hong Kong Dollar ................................. 1,113
IR 6,415,412 Indonesian Rupiah ................................ 2,956
MYR 7,661 Malaysian Ringgit ................................ 2,942
PH 40 Philippine Peso .................................. 2
S$ 168 Singapore Dollar ................................. 110
T$ 81,087 Taiwanese Dollar ................................. 3,023
TB 11,568 Thailand Baht .................................... 462
---------
TOTAL FOREIGN CURRENCY (COST $10,552)............................ 10,608
---------
TOTAL INVESTMENTS (100.8%) (COST $248,034)....................... 257,136
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.8%).................... (2,035)
---------
NET ASSETS (100%)................................................ $255,101
---------
---------

ADR -- American Depositary Receipt
GDS -- Global Depositary Shares
GDR -- Global Depositary Receipt
IDR -- International Depositary Receipt
+ -- Non-income producing securities
* -- Fair-valued securities -- See Note A-1
# -- Securities valued at cost -- See Note A-1

SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)

<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------
<S> <C> <C>
Services............................. $ 56,566 22.2%
Finance.............................. 42,093 16.5
Banking.............................. 37,394 14.6
Materials............................ 24,123 9.5
Multi-Industry....................... 21,838 8.6
Capital Equipment.................... 19,232 7.5
Consumer Goods....................... 15,401 6.0
Energy............................... 12,456 4.9
--------- -------
$ 229,103 89.8%
--------- -------
--------- -------
</TABLE>

The accompanying notes are an integral part of the financial statements. 57

<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
COMMON STOCKS (91.3%)
AEROSPACE (1.6%)
11,100 AAR Corp. ........................................ $ 150
31,200 United Industrial Corp. .......................... 140
---------
290
---------
BANKING (8.4%)
5,900 BB&T Financial Corp. ............................. 184
6,500 Deposit Guaranty Corp. ........................... 192
5,800 First Security Corp. ............................. 170
4,500 First Tennessee National Corp. ................... 197
6,800 Fourth Financial Corp. ........................... 196
5,550 Mercantile Bancorp. .............................. 195
8,000 Summit Bancorp. .................................. 173
6,500 Union Bank of San Francisco ...................... 193
---------
1,500
---------
BUILDING (2.8%)
5,100 Ameron, Inc. ..................................... 181
10,400 Gilbert Associates, Inc. "A"...................... 161
10,500 Pratt & Lambert, Inc. ............................ 158
---------
500
---------
CAPITAL GOODS (3.1%)
8,200 Binks Manufacturing Corp. ........................ 170
9,700 Cascade Corp. .................................... 213
7,700 Starret (L.S.) Co. "A"............................ 166
---------
549
---------
CHEMICALS (4.3%)
11,500 Aceto Corp. ...................................... 175
7,700 Dexter Corp. ..................................... 187
11,700 LeaRonal, Inc. ................................... 199
11,300 Quaker Chemical Corp. ............................ 209
---------
770
---------
COMMUNICATIONS (1.2%)
9,300 Comsat Corp. ..................................... 216
---------
CONSUMER DURABLES (3.0%)
10,400 Knape & Vogt Manufacturing Co. ................... 200
12,300 Oneida Ltd. ...................................... 174
5,500 Springs Industries Inc. "A" ...................... 164
---------
538
---------
CONSUMER--RETAIL (5.0%)
12,500 CPI Corp. ........................................ 208
24,500 Deb Shops, Inc. .................................. 165
5,900 Edison Brothers Stores ........................... 149
8,000 Guilford Mills, Inc. ............................. 164
12,700 Purolator Products Co. ........................... 222
---------
908
---------
CONSUMER--STAPLES (5.3%)
9,600 American Maize Products Co. "A"................... 197
5,600 Block Drug Co. "A"................................ 178
11,300 Coors (Adolph) "B"................................ 198
11,700 International Multifoods Corp..................... 186
10,900 Nash Finch Co. ................................... 188
---------
947
---------
ENERGY (2.1%)
6,700 Diamond Shamrock, Inc. ........................... 170
8,100 Ultramar Corp. ................................... 213
---------
383
---------

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
FINANCIAL--DIVERSIFIED (2.2%)
4,900 GATX Corp. ....................................... $ 198
5,800 GFC Financial Corp. .............................. 194
---------
392
---------
HEALTH CARE (5.9%)
7,900 Beckman Instruments, Inc. ........................ 199
11,700 Bergen Brunswig Corp. "A"......................... 196
14,000 Bindley Western Industries, Inc................... 166
7,200 Diagnostic Products Corp. ........................ 156
15,000 Hooper Holmes, Inc. .............................. 165
45,800 Kinetic Concepts, Inc. ........................... 172
---------
1,054
---------
INDUSTRIAL (7.0%)
5,500 American Filtrona Corp. .......................... 154
5,900 Barnes Group, Inc. ............................... 208
8,400 Commercial Intertech Corp. ....................... 221
13,100 Gencorp, Inc. .................................... 151
19,600 Kaman Corp. "A"................................... 179
14,300 Zero Corp. ....................................... 177
8,500 Zurn Industries Inc. ............................. 172
---------
1,262
---------
INSURANCE (5.2%)
7,100 Argonaut Group, Inc. ............................. 197
10,600 Enhance Financial Services Group ................. 185
7,200 Provident Life & Accident Insurance Co. of America
"B"............................................. 184
7,600 Selective Insurance Group Inc..................... 191
4,900 US Life Corp. .................................... 174
---------
931
---------
METALS (2.3%)
3,100 Carpenter Technology Corp. ....................... 185
6,100 Cleveland-Cliffs Iron Co. ........................ 232
---------
417
---------
PAPER & PACKAGING (3.2%)
7,300 Ball Corp. ....................................... 190
5,000 Pentair, Inc. .................................... 179
13,600 Sealright Co., Inc. .............................. 207
---------
576
---------
SERVICES (10.3%)
10,700 ABM Industries, Inc. ............................. 217
7,500 Angelica Corp. ................................... 198
11,700 Cross A.T. Co. "A"................................ 187
10,500 Gibson Greetings, Inc. ........................... 168
16,800 Handleman Co. .................................... 170
6,700 National Service Industries, Inc. ................ 174
9,100 New England Business Services, Inc. .............. 170
16,500 Piccadilly Cafeterias, Inc........................ 161
13,500 Russ Berrie & Co., Inc. .......................... 206
6,400 Wallace Computer Services, Inc. .................. 205
---------
1,856
---------
TECHNOLOGY (9.0%)
34,600 American Software, Inc. .......................... 173
6,300 Avnet, Inc. ...................................... 198
8,100 CTS Corp. ........................................ 200
8,300 Cubic Corp. ...................................... 156
7,500 Joslyn Corp. ..................................... 191
9,000 Kuhlman Corp. .................................... 133
7,000 MTS Systems Corp. ................................ 198
15,600 National Computer Systems, Inc. .................. 183
7,900 Shared Medical Systems Corp. ..................... 190
---------
1,622
---------

The accompanying notes are an integral part of the financial statements. 58

<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994

SHARES VALUE
(000)
- ----------------------------------------------------------------------------
TRANSPORTATION (1.9%)
8,800 Overseas Shipholding Group, Inc. ................. $ 161
10,100 Yellow Corp. ..................................... 175
---------
336
---------
UTILITIES (7.5%)
6,500 Central Hudson Gas & Electric Corp................ 171
15,100 Central Maine Power Co. .......................... 174
4,100 Commonwealth Energy Systems ...................... 166
7,000 Eastern Enterprises .............................. 160
11,500 Oneok, Inc. ...................................... 197
5,200 Orange & Rockland Utilities, Inc. ................ 162
4,700 SJW Corp. ........................................ 169
10,600 Washington Water Power Co. ....................... 152
---------
1,351
---------
TOTAL COMMON STOCKS
(COST $17,080)................................................... 16,398
---------
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.1%)
REPURCHASE AGREEMENT (3.1%)
$557 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $557, collateralized by $545
Government National Mortgage Association,
9.50%-10.00%, with various maturities, valued at
$581 (COST $557) ............................... $ 557
---------
TOTAL INVESTMENTS (94.4%) (COST $17,637)......................... 16,955
OTHER ASSETS IN EXCESS OF LIABILITIES (5.6%)..................... 999
---------
NET ASSET VALUE (100%)........................................... $ 17,954
---------
---------

59 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994

FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
FIXED INCOME SECURITIES (91.0%)
CANADIAN DOLLAR (2.3%)
GOVERNMENT BOND
C$ 500 Government of Canada 6.50%, 6/1/04 ............... $ 297
---------
DANISH KRONE (2.7%)
GOVERNMENT BOND
DK 2,400 Kingdom of Denmark 7.00%, 12/15/04 ............... 352
---------
FINNISH MARKKA (2.9%)
GOVERNMENT BOND
MK 2,000 Republic of Finland 9.50%, 3/15/04 ............... 377
---------
ITALIAN LIRA (2.5%)
GOVERNMENT BOND
IL 500,000 Republic of Italy (Treasury Bond) 11.50%,
3/1/03 ......................................... 328
---------
SWEDISH KRONA (2.6%)
GOVERNMENT BOND
SK 2,800 Kingdom of Sweden 9.00%, 4/20/09 ................. 333
---------
UNITED STATES DOLLAR (78.0%)
CORPORATE BONDS
$ 500 Armco Inc. 9.375%, 11/1/00 ....................... 480
500 Charter Medical Corp. 11.25%, 4/15/04 ............ 509
500 Comcast Corp. 9.50%, 1/15/08 ..................... 464
500 Continental Cablevision, Inc. 11.00%, 6/1/07 ..... 516
225 Healthtrust Inc. 8.75%, 3/15/05 .................. 203
350 IMC Fertilizer Group, Inc. 9.25%, 10/1/00 ........ 336
500 Owens Illinois, Inc. 10.50%, 6/15/02 ............. 509
500 Penn Traffic Co. 9.625% 4/15/05 .................. 470
500 Reliance Group Holdings, Inc. 9.00%, 11/15/00 .... 452
200 Riverwood International Corp. 10.375%, 6/30/04 ... 199
175 Southland Corp. 5.00%, 12/15/03 .................. 116
500 Tracor, Inc. 10.875%, 8/15/01 .................... 511
508 Trump Taj Mahal PIK 11.35%, 11/15/99 ............. 412

FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
$ 500 Westpoint Stevens, Inc. 9.375%, 12/15/05 ......... $ 452
---------
5,629
---------
EUROBONDS
**1,000 Federal Republic of Brazil "C" Bond 8.00%, 4/15/14 PIK . 406
**990 Federal Republic of Brazil "IDU" Bond 6.0625%, 1/1/01 .. 695
500 National Bank Of Hungary 8.875%, 11/1/13 ............... 402
*150 Polysindo Eka Perkasa 13.00%, 6/15/01 .................. 150
**800 Republic of Argentina 5.00%, 3/31/05 ................... 571
**300 Republic of Panama 5.9375%, 5/10/02 .................... 233
1,800 Republic of Venezuela Par "A" 6.75%, 3/31/20 ........... 875
---------
3,332
---------
LOAN AGREEMENT
**1,000 Morocco Restructuring and Consolidation Agreement
"A" 1990 ....................................... 721
---------
YANKEE BOND
500 Petroleos Mexicanos 8.625%, 12/1/23 .............. 406
---------
10,088
---------
TOTAL FIXED INCOME SECURITIES (COST $11,891).................... 11,775
---------
SHORT-TERM INVESTMENT (10.8%)
REPURCHASE AGREEMENT
UNITED STATES
$ 1,395 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $1,395, collateralized by $1,480
U.S. Treasury Notes, 3.875%, due 10/31/95,
valued at $1,446
(COST $1,395) ................................... $ 1,395
---------
TOTAL INVESTMENTS (101.8%) (COST $13,286)....................... 13,170
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.8%)................... (232)
---------
NET ASSETS (100%)............................................... $ 12,938
---------
---------

- ---------------
* Security valued at cost -- See Note A-1
** Variable or floating rate security -- rate disclosed is as of June 30, 1994
PIK -- Payment-in-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.

SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)

<TABLE>
<CAPTION>
PERCENT OF NET
INDUSTRY VALUE (000) ASSETS
- --------------------------------------------- ----------- -----------------
<S> <C> <C>
Foreign Government Bonds..................... $ 4,869 37.6%
Consumer Durables............................ 1,113 8.6
Communications............................... 980 7.6
Loan Agreements.............................. 721 5.6
Health Care.................................. 712 5.5
Paper & Packaging............................ 708 5.5
Consumer -- Retail........................... 586 4.5
Industrial................................... 480 3.7
Insurance.................................... 452 3.5
Entertainment................................ 412 3.2
Energy....................................... 406 3.1
Chemicals.................................... 336 2.6
----------- ---------
$ 11,775 91.0%
----------- ---------
----------- ---------
</TABLE>

60 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------

JUNE 30, 1994

<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
GLOBAL EQUITY FIXED ASIAN AMERICAN HIGH
ALLOCATION INCOME GROWTH VALUE INCOME
FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in Securities, at Value* -- See
accompanying portfolios $ 65,685 $ 15,634 $ 246,528 $ 16,955 $ 13,170
Foreign Currency at Value 450 2 10,608 -- --
Cash 234 -- 8 1 1
Receivable for Investments Sold 48 1,194 -- 17 --
Receivable for Fund Shares Sold 539 35 1,587 1,042 220
Dividends Receivable 184 -- 430 40 --
Interest Receivable -- 464 16 -- 228
Foreign Withholding Tax Reclaim Receivable 39 4 6 -- --
Expense Reimbursement Receivable -- -- -- 10 22
Deferred Organization Costs 68 67 43 70 76
------------- --------- --------- --------- ---------
Total Assets 67,247 17,400 259,226 18,135 13,717
------------- --------- --------- --------- ---------
LIABILITIES:
Payable for Investments Purchased 2,581 550 593 55 641
Payable for Fund Shares Redeemed 213 97 2,373 -- 2
Bank Overdraft -- 690 -- -- --
Unrealized Loss on Forward Foreign Currency
Contracts 782 182 -- -- --
Dividends Payable 1 1 -- 49 7
Investment Advisory Fees Payable 94 17 244 -- --
Administrative Fees Payable 26 5 75 5 4
Custody Fees Payable 48 10 220 14 2
Professional Fees Payable 36 34 48 19 27
Distribution Fees Payable 92 20 371 24 14
Shareholder Reporting Expenses Payable 40 17 123 7 3
Directors' Fees and Expenses Payable 1 1 1 2 1
Filing and Registration Fees Payable 16 -- 77 6 4
Organizational Costs Payable -- -- -- -- 74
------------- --------- --------- --------- ---------
Total Liabilities 3,930 1,624 4,125 181 779
------------- --------- --------- --------- ---------
NET ASSETS $ 63,317 $ 15,776 $ 255,101 $ 17,954 $ 12,938
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Net Assets Consist Of:
Capital Stock at Par $ 5 $ 2 $ 17 $ 2 $ 1
Paid in Capital in Excess of Par 61,333 16,573 242,227 18,410 12,844
Undistributed (Distributions in Excess of) Net
Investment Income (104) (28) -- 16 15
Accumulated (Distributions in Excess of) Net
Realized Gain 820 (22) 3,756 208 193
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency 1,263 (749) 9,101 (682) (115)
------------- --------- --------- --------- ---------
NET ASSETS $ 63,317 $ 15,776 $ 255,101 $ 17,954 $ 12,938
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
CLASS A SHARES:
Net Assets $ 33,425 $ 10,369 $ 138,212 $ 10,717 $ 6,857
Shares Issued and Outstanding ($.001 par
value)** 2,787 1,087 8,916 916 564
Net Asset Value and Redemption Price Per Share $ 11.99 $ 9.53 $ 15.50 $ 11.70 $ 12.17
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Maximum Sales Charge 4.75% 4.75% 4.75% 4.75% 4.75%
Maximum Offering Price Per Share (Net Asset
Value Per Share x 100/95.25) $ 12.59 $ 10.01 $ 16.27 $ 12.28 $ 12.78
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
CLASS B SHARES:
Net Assets $ 29,892 $ 5,407 $ 116,889 $ 7,237 $ 6,081
Shares Issued and Outstanding ($.001 par
value)** 2,512 567 7,589 619 500
Net Asset Value and Offering Price Per Share $ 11.90 $ 9.54 $ 15.40 $ 11.69 $ 12.16
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Investments at Cost, Including Foreign Currency $ 64,100 $ 16,225 $ 248,034 $ 17,637 $ 13,286
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
</TABLE>

* Includes repurchase agreements valued at $3,205,000, $683,000, $17,425,000,
$557,000 and $1,395,000 for Global Equity Allocation Fund, Global Fixed
Income Fund, Asian Growth Fund, American Value Fund and Worldwide High
Income Fund, respectively.
** Shares authorized are 375,000,000 each for Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund and
Worldwide High Income Fund, respectively.

The accompanying notes are an integral part of the financial statements. 61

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
AMERICAN WORLDWIDE
GLOBAL VALUE HIGH INCOME
EQUITY GLOBAL ASIAN FUND FUND
ALLOCATION FIXED GROWTH PERIOD FROM PERIOD FROM
FUND INCOME FUND FUND OCTOBER 18, APRIL 21,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* 1994*
JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, TO JUNE 30,
1994 1994 1994 1994 1994
(000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,032 $ -- $ 2,462 $ 335 $ --
Interest 133 886 615 33 227
Less Foreign Taxes Withheld (97) (16) (230) -- --
----------- ----------- ----------- ----------- --------
Total Income 1,068 870 2,847 368 227
----------- ----------- ----------- ----------- --------
EXPENSES:
Investment Advisory Fees
Basic Fee 398 106 1,715 86 17
Less: Fees Waived (353) (106) (464) (86) (17)
----------- ----------- ----------- ----------- --------
Investment Advisory Fees -- Net 45 -- 1,251 -- --
Administrative Fees 197 46 571 31 7
Custodian Fees 128 26 523 24 2
Filing and Registration Fees 16 -- 77 6 4
Directors' Fees and Expenses 11 10 9 7 2
Professional Fees 51 43 98 21 27
Shareholder Reports 72 32 231 15 3
Distribution Fees
Class A 56 20 238 14 3
Class B 172 61 764 44 11
Blue Sky Fees
Class A 16 16 29 13 2
Class B 15 16 21 12 2
Amortization of Organizational Costs 24 24 16 12 3
Other 3 1 3 2 --
Expenses Reimbursed by Adviser -- (44) -- (16) (22)
----------- ----------- ----------- ----------- --------
Net Expenses 806 251 3,831 185 44
----------- ----------- ----------- ----------- --------
Net Investment Income (Loss) 262 619 (984) 183 183
----------- ----------- ----------- ----------- --------
NET REALIZED GAIN (LOSS) ON INVESTMENTS
Securities Sold 966 440 4,352 208 193
Foreign Currency Transactions (334) 64 371 -- (1)
----------- ----------- ----------- ----------- --------
Total Net Realized Gain 632 504 4,723 208 192
----------- ----------- ----------- ----------- --------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 86 (1,219) 9,101 (682) (115)
----------- ----------- ----------- ----------- --------
Total Net Realized Gain and Change in Unrealized
Appreciation (Depreciation) 718 (715) 13,824 (474) 77
----------- ----------- ----------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 980 ($ 96) $ 12,840 ($ 291) $ 260
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
</TABLE>

- ---------------
*Commencement of operations

62 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------

GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
JANUARY 4,
1993*
TO JUNE 30, YEAR ENDED
1993 JUNE 30, 1994
(000) (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 46 $ 262
Net Realized Gain on Investments 2 632
Change in Unrealized Appreciation 1,177 86
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 1,225 980
--------------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (50)
Class B -- --
--------------- ---------------
-- (50)
--------------- ---------------
Realized Gains:
Class A -- (127)
Class B -- (85)
--------------- ---------------
-- (212)
--------------- ---------------
Net Decrease in Net Assets Resulting from
Distributions -- (262)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,109 59,445
Distributions Reinvested -- 243
Redeemed (4,907) (14,518)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 16,202 45,170
--------------- ---------------
Total Increase in Net Assets 17,427 45,888
NET ASSETS -- Beginning of Period 2 17,429
--------------- ---------------
NET ASSETS -- End of Period (including
undistributed (distributions in excess of) net
investment income of $46 and $(104),
respectively) $ 17,429 $ 63,317
--------------- ---------------
--------------- ---------------

- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 1,170 2,528
Distributions Reinvested -- 14
Redeemed (229) (696)
--------------- ---------------
Net Increase in Class A Shares Outstanding 941 1,846
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 12,317 $ 30,362
Distributions Reinvested -- 164
Redeemed (2,523) (8,163)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 9,794 $ 22,363
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 849 2,421
Distributions Reinvested -- 6
Redeemed (216) (548)
--------------- ---------------
Net Increase in Class B Shares Outstanding 633 1,879
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 8,792 $ 29,083
Distributions Reinvested -- 79
Redeemed (2,384) (6,355)
--------------- ---------------
Net Increase in Class B Shares Outstanding $ 6,408 $ 22,807
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>

*Commencement of operations

The accompanying notes are an integral part of the financial statements. 63

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF CHANGES IN NET ASSETS

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

GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
JANUARY 4,
1993*
TO JUNE 30,
1993 YEAR ENDED JUNE
(000) 30, 1994 (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 249 $ 619
Net Realized Gain on Investments 88 504
Change in Unrealized Appreciation (Depreciation) 470 (1,219)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 807 (96)
--------------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (137) (371)
Class B (104) (248)
In Excess of Net Investment Income:
Class A -- (93)
Class B -- (62)
--------------- ---------------
(241) (774)
--------------- ---------------
Realized Gains:
Class A -- (267)
Class B -- (237)
In Excess of Realized Gains:
Class A -- (14)
Class B -- (13)
--------------- ---------------
-- (531)
--------------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (241) (1,305)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 11,948 15,880
Distributions Reinvested 238 737
Redeemed (1) (12,193)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,185 4,424
--------------- ---------------
Total Increase in Net Assets 12,751 3,023
NET ASSETS -- Beginning of Period 2 12,753
--------------- ---------------
NET ASSETS -- End of Period (including
undistributed (distributions in excess of) net
investment income of $8 and ($28), respectively) $ 12,753 $ 15,776
--------------- ---------------
--------------- ---------------

- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 586 989
Distributions Reinvested 43 41
Redeemed -- (572)
--------------- ---------------
Net Increase in Class A Shares Outstanding 629 458
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 6,218 $ 10,128
Distributions Reinvested 134 426
Redeemed (1) (5,980)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 6,351 $ 4,574
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 561 549
Distributions Reinvested 18 30
Redeemed -- (591)
--------------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding 579 (12)
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 5,730 $ 5,752
Distributions Reinvested 104 311
Redeemed -- (6,213)
--------------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding $ 5,834 ($ 150)
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations

64 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF CHANGES IN NET ASSETS

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

ASIAN GROWTH FUND

<TABLE>
<CAPTION>
JUNE 23, 1993*
TO JUNE 30, YEAR ENDED
1993 JUNE 30, 1994
(000) (000)

- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Loss $ (4) $ (984)
Net Realized Gain on Investments -- 4,723
Change in Unrealized Appreciation -- 9,101
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (4) 12,840
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 20,265 285,430
Redeemed -- (63,430)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 20,265 222,000
--------------- ---------------
Total Increase in Net Assets 20,261 234,840

NET ASSETS -- Beginning of Period -- 20,261
--------------- ---------------

NET ASSETS -- End of Period (including accumulated
net investment loss of $4 and $0, respectively.) $ 20,261 $ 255,101
--------------- ---------------
--------------- ---------------

- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 981 10,025
Redeemed -- (2,090)
--------------- ---------------
Net Increase in Class A Shares Outstanding 981 7,935
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 11,771 $ 150,145
Redeemed -- (32,820)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 11,771 $ 117,325
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 708 8,840
Redeemed -- (1,959)
--------------- ---------------
Net Increase in Class B Shares Outstanding 708 6,881
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 8,494 $ 135,285
Redeemed -- (30,610)
--------------- ---------------
Net Increase in Class B Shares Outstanding $ 8,494 $ 104,675
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations

The accompanying notes are an integral part of the financial statements. 65

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF CHANGES IN NET ASSETS

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

AMERICAN VALUE FUND

<TABLE>
<CAPTION>
OCTOBER 18,
1993* TO
JUNE 30, 1994
(000)

- --------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Income $ 183
Net Realized Gain on Investments 208
Change in Unrealized Depreciation (682)
---------------
Net Decrease in Net Assets Resulting from
Operations (291)
---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (120)
Class B (59)
---------------
Net Decrease in Net Assets Resulting from
Distributions (179)
---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 18,925
Distributions Reinvested 55
Redeemed (556)
---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 18,424
---------------
Total Increase in Net Assets 17,954
NET ASSETS -- Beginning of Period --
---------------
NET ASSETS -- End of Period (including
undistributed net investment income of $16) $ 17,954
---------------
---------------

- -------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 940
Distributions Reinvested 4
Redeemed (28)
---------------
Net Increase in Class A Shares Outstanding 916
---------------
---------------
Dollars:
Issued $ 11,269
Distributions Reinvested 42
Redeemed (336)
---------------
Net Increase in Class A Shares Outstanding $ 10,975
---------------
---------------
CLASS B:
Shares:
Issued 636
Distributions Reinvested 1
Redeemed (18)
---------------
Net Increase in Class B Shares Outstanding 619
---------------
---------------
Dollars:
Issued $ 7,656
Distributions Reinvested 13
Redeemed (220)
---------------
Net Increase in Class B Shares Outstanding $ 7,449
---------------
---------------
- -------------------------------------------------------------------
</TABLE>

* Commencement of operations

66 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS

STATEMENT OF CHANGES IN NET ASSETS

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

WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
APRIL 21, 1994*
TO
JUNE 30, 1994
(000)
- --------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Income $ 183
Net Realized Gain on Investments 192
Change in Unrealized Depreciation (115)
---------------
Net Increase in Net Assets Resulting from
Operations 260
---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (94)
Class B (76)
---------------
Net Decrease in Net Assets Resulting from
Distributions (170)
---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 12,701
Distributions Reinvested 161
Redeemed (14)
---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,848
---------------
Total Increase in Net Assets 12,938

NET ASSETS -- Beginning of Period --
---------------
NET ASSETS -- End of Period (including
undistributed net investment income of $15) $ 12,938
---------------
---------------
- -------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 557
Distributions Reinvested 7
---------------
Net Increase in Class A Shares Outstanding 564
---------------
---------------
Dollars:
Issued $ 6,729
Distributions Reinvested 88
Redeemed (2)
---------------
Net Increase in Class A Shares Outstanding $ 6,815
---------------
---------------
CLASS B:
Shares:
Issued 495
Distributions Reinvested 6
Redeemed (1)
---------------
Net Increase in Class B Shares Outstanding 500
---------------
---------------
Dollars:
Issued $ 5,972
Distributions Reinvested 73
Redeemed (12)
---------------
Net Increase in Class B Shares Outstanding $ 6,033
---------------
---------------
- -------------------------------------------------------------------
</TABLE>

* Commencement of operations

The accompanying notes are an integral part of the financial statements. 67

<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JANUARY 4, JANUARY 4,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 11.09 $ 10.00 $ 11.05
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.10 0.01 0.06
Net Realized and Unrealized Gain On Investments 1.05 0.90 1.04 0.86
----------- ----------- ----------- -----------
Total From Investment Operations 1.09 1.00 1.05 0.92
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income -- (0.03) -- --
Realized Gains -- (0.07) -- (0.07)
----------- ----------- ----------- -----------
Total Distributions -- (0.10) -- (0.07)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.09 $ 11.99 $ 11.05 $ 11.90
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN(1) 10.90%*** 9.02% 10.50%*** 8.34%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 10,434 $ 33,425 $ 6,995 $ 29,892
Ratio of Net Expenses to Average Net Assets 1.70%* 1.70% 2.45%* 2.45%
Ratio of Net Investment Income to Average Net
Assets 1.04%* 0.98% 0.29%* 0.23%
Portfolio Turnover Rate 14%*** 30% 14%*** 30%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:
Ratio of Expenses to Average Net Assets 3.65%* 2.58% 4.40%* 3.34%
</TABLE>

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

GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JANUARY 4, JANUARY 4,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.55 $ 10.00 $ 10.56
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.52 0.21 0.43
Net Realized and Unrealized Gain (Loss) On
Investments 0.55 (0.42) 0.55 (0.40)
----------- ----------- ----------- -----------
Total From Investment Operations 0.80 0.10 0.76 0.03
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.20) (0.44)
In Excess of Net Investment Income -- (0.12) -- (0.11)
Realized Gains -- (0.47) -- (0.47)
In Excess of Realized Gains -- (0.03) -- (0.03)
----------- ----------- ----------- -----------
Total Distributions (0.25) (1.12) (0.20) (1.05)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.56 $ 9.54
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN(1) 8.02%*** 0.41% 7.61%*** (0.25)%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 6,633 $ 10,369 $ 6,120 $ 5,407
Ratio of Expenses to Average Net Assets 1.45%* 1.45% 2.20%* 2.20%
Ratio of Net Investment Income to Average Net
Assets 5.00%* 4.70% 4.25%* 3.95%
Portfolio Turnover Rate 55%*** 168% 55%*** 168%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.88%* 2.48% 3.63%* 3.29%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges

68 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS

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

ASIAN GROWTH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JUNE 23, JUNE 23,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00 $ 12.00 $ 12.00
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss -- (0.03) -- (0.10)
Net Realized and Unrealized Gain on Investments -- 3.53 -- 3.50
----------- ----------- ----------- -----------
Total From Investment Operations -- 3.50 -- 3.40
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.00 $ 15.50 $ 12.00 $ 15.40
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 0.00%*** 29.17% 0.00%*** 28.33%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 11,770 $ 138,212 $ 8,491 $ 116,889
Ratio of Expenses to Average Net Assets 1.90%* 1.90% 2.65%* 2.65%
Ratio of Net Investment Income (Loss) to Average
Net Assets (0.81)%* (0.24)% (1.56)%* (0.99)%
Portfolio Turnover Rate 0%*** 34% 0%*** 34%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:

Ratio of Expenses to Average Net Assets 11.83%* 2.17% 12.64%* 2.92%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

AMERICAN VALUE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- ---------------
OCTOBER 18, OCTOBER 18,
1993** 1993**
TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1994 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00
--------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.11
Net Realized and Unrealized Loss On Investments (0.30) (0.31)
--------------- -------
Total From Investment Operations (0.13) (0.20)
--------------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (0.11)
--------------- -------
NET ASSET VALUE, END OF PERIOD $11.70 $11.69
--------------- -------
--------------- -------
TOTAL RETURN (1) (1.12)%*** (1.70)%***
--------------- -------
--------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $10,717 $ 7,237
Ratio of Expenses to Average Net Assets 1.50%* 2.25%*
Ratio of Net Investment Income to Average Net
Assets 2.14%* 1.39%*
Portfolio Turnover Rate 17%*** 17%***
- ---------------------------------------------------------------------------------------------
During the period, various fees and expenses were waived and reimbursed. The ratios of
expenses had such waiver and reimbursement not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.48%* 3.28%*
- ---------------------------------------------------------------------------------------------
</TABLE>

* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges

The accompanying notes are an integral part of the financial statements. 69

<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS

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

WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- ---------------
APRIL 21, APRIL 21,
1994** 1994**
TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1994 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.17
Net Realized and Unrealized Gain On Investments 0.16 0.15
------- -------
Total From Investment Operations 0.34 0.32
------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (0.16)
------- -------
NET ASSET VALUE, END OF PERIOD $12.17 $12.16
------- -------
------- -------

TOTAL RETURN(1) 2.86%*** 2.62%***
------- -------
------- -------

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $6,857 $6,081
Ratio of Expenses to Average Net Assets 1.55%* 2.30%*
Ratio of Net Investment Income to Average Net
Assets 8.29%* 7.54%*
Portfolio Turnover Rate 19%*** 19%***
- ---------------------------------------------------------------------------------------------
During the period, various fees and expenses were waived and reimbursed. The ratios of
expenses had such waiver and reimbursement not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.67%* 4.74%*
- ---------------------------------------------------------------------------------------------
</TABLE>

* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges

70 The accompanying notes are an integral part of the financial statements.

<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
- --------------------------------------------------------------------------------

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, 1994, the
Fund had five separate investment portfolios: Morgan Stanley Global Equity
Allocation Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley Asian
Growth Fund, Morgan Stanley American Value Fund, and Morgan Stanley Worldwide
High Income Fund (referred to herein respectively as "Global Equity Allocation
Fund", "Global Fixed Income Fund", "Asian Growth Fund", "American Value Fund",
and "Worldwide High Income Fund" and collectively as the "Portfolios"). The Fund
currently offers Class A and Class B shares of each Portfolio. Prior to January
4, 1993, the Fund had no operations other than those relating to organizational
matters and the initial sale of shares of Global Equity Allocation Fund, Global
Fixed Income Fund and Money Market Fund to Morgan Stanley Asset Management Inc.
(the "Adviser" or "MSAM"). Effective August 6, 1993, Morgan Stanley Money Market
Fund was closed to new investors and became inactive.

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. 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 continue 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. The Fund
recognizes such taxes when the related income is accrued.

For the year ended June 30, 1994 Global Equity Allocation Fund, Global Fixed
Income Fund and Worldwide High Income Fund deferred to July 1, 1994 post October
currency losses of approximately $966,000, $115,000 and $1,000, respectively,
for Federal income tax purposes. Global Fixed Income Fund also deferred to July
1,1994 post October capital losses of approximately $16,000.

3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank 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.

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 bid 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 investment 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.

<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------

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, except American Value
Fund, 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. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.

6. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each Portfolio's commencement of operations. MSAM 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.

7. 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. For the year ended June 30, 1994, the effects of certain
differences were reclassified from undistributed net investment income
(accumulated loss) and accumulated net realized gain to paid in capital in
excess of par as follows:

<TABLE>
<CAPTION>
UNDISTRIBUTED NET
INVESTMENT INCOME ACCUMULATED
(ACCUMULATED LOSS) NET REALIZED GAIN
(000) (000)
------------------- -----------------
<S> <C> <C>
Global Equity
Allocation Fund....... $ (264) $ 300
Global Fixed Income
Fund.................. 60 (24)
Asian Growth Fund...... 984 (967)
American Value Fund.... 12 --
Worldwide High Income
Fund.................. 2 1
</TABLE>

B. ADVISER: The Adviser 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 fees

<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------

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 B
MAXIMUM MAXIMUM
EXPENSE EXPENSE
FUND ADVISORY 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%
</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, 1994, totaled
$130,000, $130,000, $130,000, $99,000 and $28,000 for Global Equity Allocation
Fund, Global Fixed Income Fund, Asian Growth Fund, American Value Fund and
Worldwide High Income Fund, respectively. Certain employees of MFSC are officers
of the Fund.

D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), 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 B shares of each Portfolio, on an
annualized basis, of the average daily net assets of such class. The amount of
distribution fees for the year ended June 30, 1994 is presented in each
Portfolio's Statement of Operations.

The Distributor may receive a maximum 4.75% sales charge from the sale of Class
A shares of each Portfolio. For the year ended June 30, 1994, the Distributor
has advised the Fund that it has earned sales charges of $58,000, $15,000,
$281,000, $5,000 and $2,000 for Global Equity Allocation Fund, Global Fixed
Income Fund, Asian Growth Fund, American Value Fund and Worldwide High Income
Fund, respectively.

The Distributor may receive a deferred sales charge for certain purchases of
Class A and Class B shares of each Portfolio redeemed within one year following
such purchase. For the year ended June 30, 1994, the Distributor has advised the
Fund that it earned deferred sales charges of $18,000, $17,000, $141,000 and
$1,000 for Global Equity Allocation Fund, Global Fixed Income Fund, Asian Growth
Fund and American Value Fund, respectively.

E. PURCHASES AND SALES: During the year ended June 30, 1994, purchases and sales
of investment securities other than U.S. Government securities and short-term
investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- --------------------------------- ------------- -----------
<S> <C> <C>
Global Equity Allocation Fund.... $ 55,848 $ 10,607
Global Fixed Income Fund......... 14,993 10,620
Asian Growth Fund................ 265,942 50,237
American Value Fund.............. 19,089 2,217
Worldwide High Income Fund....... 13,668 1,991
</TABLE>

Purchases and sales during the year ended June 30, 1994 of U.S. Government
securities, other than short-term U.S. Government securities, occurred in Global
Equity Allocation Fund and Global Fixed Income Fund and totaled $168,000 and $0,
and $9,234,000 and $10,269,000, respectively.

F. CUSTODIANS: Morgan Stanley Trust Company ("MSTC") 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 investment purchases and sales activity, an account
maintenance fee, plus reimbursement for certain out-of-pocket expenses. MSTC,
the Adviser and the Distributor are wholly owned subsidiaries of Morgan Stanley
Group, Inc. Fees incurred for custody services provided by MSTC for the year
ended June 30, 1994, totaled $119,000, $14,000, $513,000 and $1,000 for Global
Equity Allocation Fund, Global Fixed Income Fund, Asian Growth Fund and
Worldwide High Income Fund, respectively, of which $44,000, $6,000, $216,000 and
$1,000 were payable at June 30, 1994.

G. OTHER: At June 30, 1994, the following Portfolios' net assets were comprised
of foreign denominated securities and currency as indicated below. Changes in
currency rates will affect the value of and investment income from such
securities.
<TABLE>
<CAPTION>
FUND PERCENTAGE
- --------------------------------------------- -------------
<S> <C>
Global Equity Allocation Fund................ 78.5%
Global Fixed Income Fund..................... 76.2%
Asian Growth Fund............................ 93.9%
Worldwide High Income Fund................... 13.0%
</TABLE>
73
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------

Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of June 30, 1994:

<TABLE>
<S> <C> <C> <C>
Australian Dollar................. 1.3709 = $1.00
Belgian Franc..................... 32.6325 = $1.00
British Pound Sterling............ .6456 = $1.00
Canadian Dollar................... 1.3824 = $1.00
Danish Krone...................... 6.2272 = $1.00
Finnish Markka.................... 5.2852 = $1.00
French Franc...................... 5.4412 = $1.00
German Deutsche Mark.............. 1.5850 = $1.00
Hong Kong Dollar.................. 7.7295 = $1.00
Indonesian Rupiah................. 2,169.9750 = $1.00
Italian Lira...................... 1,578.0000 = $1.00
Japanese Yen...................... 98.5500 = $1.00
Korean Won........................ 805.0500 = $1.00
Malaysian Ringgit................. 2.6040 = $1.00
Netherland Guilder................ 1.7785 = $1.00
New Zealand Dollar................ 1.6800 = $1.00
Pakistani Rupee................... 30.5794 = $1.00
Philippine Peso................... 27.0000 = $1.00
Singapore Dollar.................. 1.5248 = $1.00
Spanish Peseta.................... 131.0750 = $1.00
Swedish Krona..................... 7.6539 = $1.00
Taiwanese Dollar.................. 26.8190 = $1.00
Thai Baht......................... 25.0400 = $1.00
</TABLE>

The Global Equity Allocation Fund and Asian Growth Fund incurred approximately
$12,000 and $606,000, respectively, as brokerage commissions to Morgan Stanley &
Co. Incorporated, an affiliated broker/dealer.

At June 30, 1994, 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...... $ 63,676 $ 4,472 $ (2,463) $ 2,009
Global Fixed Income
Fund................. 16,229 152 (747) (595)
Asian Growth Fund..... 238,297 19,319 (11,088) 8,231
American Value Fund... 17,637 575 (1,257) (682)
Worldwide High Income
Fund................. 13,286 136 (252) (116)
</TABLE>

H. STATEMENT OF POSITION 93-2: During the current year, the Fund adopted
Statement of Position 93-2: DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES. Accordingly, permanent book and tax differences relating
to shareholder distributions have been reclassified to additional paid-in
capital. As of July 1, 1993, the cumulative effect of such differences of
$(98,000) and $98,000 for Global Equity Allocation Fund; $59,000 and $(59,000)
for Global Fixed Income Fund and $4,000 and $0 for Asian Growth Fund were
reclassified from undistributed net investment income and accumulated net
realized gain, respectively, to paid in capital in excess of par. Net investment
income, net realized gains, and net assets were not affected by this change.

- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION: (UNAUDITED)
For the year ended June 30, 1994, the percentage of dividends that qualify for
the 70% dividend received deduction for corporate shareholders for Global Equity
Allocation Fund and American Value Fund are 27.11% and 83.15%, respectively.
Global Equity Allocation Fund has designated approximately $336,000 as long-term
capital gain for the fiscal year ended June 30, 1994. Foreign taxes accrued
during the fiscal year ended June 30, 1994 amounting to $97,000 and $16,000 for
Global Equity Allocation Fund and Global Fixed Income Fund, respectively, are
expected to be passed through to shareholders as foreign tax credits on Form
1099-DIV for the year ending December 31, 1994, which shareholders of the funds
will receive in late January 1995.

74
<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 and Worldwide
High Income Fund (constituting the Morgan Stanley Fund, Inc., hereafter referred
to as the "Fund") at June 30, 1994, and 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, 1994 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

August 19, 1994