<PAGE>
File No. 33-51294
File No. 811-7140
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 16 /X/
and
REGISTRATION STATEMENT UNDER THE / /
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18
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MORGAN STANLEY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 548-7786
Harold J. Schaaff, Esquire
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas, New York, New York 10020
(Name and Address of Agent for Service)
--------------
COPIES TO:
Warren J. Olsen Richard W. Grant, Esquire
Morgan Stanley Asset Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 2000 One Logan Square
New York, NY 10020 Philadelphia, PA 19103
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IT IS PROPOSED THAT THIS FILING BE EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON (DATE) PURSUANT TO PARAGRAPH (B)
/x/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)
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REGISTRANT HAS PREVIOUSLY ELECTED TO AND HEREBY CONTINUES ITS ELECTION TO
REGISTER AN INDEFINITE NUMBER OF SHARES OF ITS COMMON STOCK, PAR VALUE
$.001 PER SHARE, PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDED JUNE 30, 1996 ON AUGUST 23, 1996.
<PAGE>
MORGAN STANLEY FUND, INC.
CROSS REFERENCE SHEET
PART A - INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
ITEM NUMBER LOCATION IN PROSPECTUS FOR MORGAN STANLEY GLOBAL EQUITY FUND
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- *
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
ITEM NUMBER LOCATION IN PROSPECTUS FOR MORGAN STANLEY VALUE, MORGAN
STANLEY EQUITY GROWTH AND MORGAN STANLEY MID CAP GROWTH FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- *
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
<PAGE>
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number LOCATION IN PROSPECTUS FOR MORGAN STANLEY EMERGING
MARKETS DEBT FUND
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- *
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number LOCATION IN PROSPECTUS FOR MORGAN STANLEY GROWTH AND INCOME AND
MORGAN STANLEY EUROPEAN EQUITY FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
ii
<PAGE>
Item 3. Condensed Financial Information -- *
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
iii
<PAGE>
- -------------------
* Omitted since the answer is negative or the Item is not applicable.
iv
<PAGE>
PART B -INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A
Item Number LOCATION IN STATEMENT OF ADDITIONAL INFORMATION FOR MORGAN
STANLEY GLOBAL FIXED INCOME, MORGAN STANLEY WORLDWIDE HIGH
INCOME, MORGAN STANLEY HIGH YIELD, MORGAN STANLEY AMERICAN VALUE,
MORGAN STANLEY AGGRESSIVE EQUITY, MORGAN STANLEY U.S. REAL
ESTATE, MORGAN STANLEY GLOBAL EQUITY ALLOCATION, MORGAN STANLEY
ASIAN GROWTH, MORGAN STANLEY EMERGING MARKETS, MORGAN STANLEY
LATIN AMERICAN, MORGAN STANLEY INTERNATIONAL MAGNUM, MORGAN
STANLEY JAPANESE EQUITY, MORGAN STANLEY GROWTH AND INCOME, MORGAN
STANLEY EUROPEAN EQUITY, MORGAN STANLEY EQUITY GROWTH, MORGAN
STANLEY GLOBAL EQUITY, MORGAN STANLEY EMERGING MARKETS DEBT,
MORGAN STANLEY MID CAP GROWTH, MORGAN STANLEY VALUE, MORGAN
STANLEY MONEY MARKET, MORGAN STANLEY TAX-FREE MONEY MARKET AND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUNDS.
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History --
Item 13. Investment Objectives and Policies -- Investment Objectives and
Policies; Investment Limitations; Determining Maturities of Certain
Instruments; Description of Securities and Ratings
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund;
General Information
Item 17. Brokerage Allocation and Other Practices -- Portfolio Transactions
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Shareholder Services;
Money Market Fund Net Asset Value; General Information
Item 20. Tax Status -- Investment Objectives and Policies; Federal Income
Tax; Federal Tax Treatment of Forward Currency Contracts and
Exchange Rate Changes; Taxes and Foreign Shareholders; General
Information
Item 21. Underwriters -- Management of the Fund
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
PART C - OTHER INFORMATION
v
<PAGE>
Part C contains the information required by the Items of the Form N-1A under
such Items as set forth in the Form N-1A.
vi
<PAGE>
The Prospectus for the Morgan Stanley Global Fixed Income,
Morgan Stanley Worldwide High Income and Morgan Stanley High Yield Funds,
included as part of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No. 033-51294)
filed with the Securities and Exchange Commission via EDGAR on April 30,
1996, is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Morgan Stanley American Value, Morgan Stanley
Aggressive Equity and Morgan Stanley U.S. Real Estate Funds, included as part
of Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
of Morgan Stanley Fund, Inc. (File No. 033-51294) filed with the Securities
and Exchange Commission via EDGAR on April 30, 1996, is hereby incorporated
by reference as if set forth in full herein.
The Prospectus for the Morgan Stanley Global Equity Allocation, Morgan
Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan Stanley Latin
American, Morgan Stanley International Magnum and Morgan Stanley Japanese
Equity Funds, included as part of Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No.
033-51294) filed with the Securities and Exchange Commission via EDGAR on
April 30, 1996, is hereby incorporated by reference as if set forth in full
herein.
The Prospectus for the Morgan Stanley Money Market, Morgan Stanley Tax-
Free Money Market and Morgan Stanley Government Obligations Money Market
Funds, included as part of Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No.
033-51294) filed with the Securities and Exchange Commission via EDGAR on
September 23, 1996, is hereby incorporated by reference as if set forth in
full herein.
vii
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
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MORGAN STANLEY GLOBAL EQUITY FUND
A PORTFOLIO OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 41826, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-341-2911
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Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each a "Fund" and together, the "Funds").
This prospectus (the "Prospectus") describes the Class A, Class B and Class C
shares of the Morgan Stanley Global Equity Fund (a "Fund," or the "Global Equity
Fund"). The Company is designed to make available to retail investors the
expertise of Morgan Stanley Asset Management Inc., the investment adviser (the
"Adviser") and administrator (the "Administrator"). Shares are available through
( or the "Distributor"), and through investment dealers,
banks and financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Global Equity Fund that a prospective investor should know before investing and
it should be retained for future reference. The Company offers other Funds which
are described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Global Equity, Morgan Stanley Global Equity Allocation,
Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan Stanley
Latin American and Morgan Stanley International Magnum Funds; (ii) U.S. EQUITY
- -- Morgan Stanley American Value, Morgan Stanley Aggressive Equity, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Global Fixed Income, Morgan Stanley Emerging Markets Debt, Morgan
Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and (iv)
MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley Government
Obligations Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated , 1996,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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 , 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Global Equity Fund may incur:
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES GLOBAL EQUITY FUND
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
Class A................................................................................... (1)
Class B................................................................................... None
Class C................................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
Class A................................................................................... None
Class B................................................................................... None
Class C................................................................................... None
Deferred Sales Load
For Purchases up to $999,999
Class A................................................................................... None
Class B................................................................................... 5.00%(2)
Class C................................................................................... 1.00%(3)
For Purchases of $1,000,000 or more
Class A................................................................................... 1.00%(1)
Class B................................................................................... 5.00%(2)
Class C................................................................................... 1.00%(3)
Redemption Fees (4)
Class A................................................................................... None
Class B................................................................................... None
Class C................................................................................... None
Exchange Fees
Class A................................................................................... None
Class B................................................................................... None
Class C................................................................................... None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Fund
which, when combined with the net asset value of the purchaser's existing
investments in Class A shares of the 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) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Fund are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. See "Purchase of Class B Shares." Any such CDSC will be
paid to the Distributor.
(3) Purchases of Class C shares of the Fund are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. Any such CDSC will be paid to
the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) GLOBAL EQUITY FUND
---------------------
<S> <C>
Investment Advisory Fee (after expense reimbursement and/or fee waiver)(5)
Class A...................................................................................
Class B...................................................................................
Class C...................................................................................
12b-1/Service Fees
Class A (6)............................................................................... 0.25%
Class B (6)............................................................................... 1.00%
Class C (6)............................................................................... 1.00%
Other Expenses (after expense reimbursement and/or fee waiver) (5)
Class A...................................................................................
Class B...................................................................................
Class C...................................................................................
Total Operating Expenses (after expense reimbursement and/or fee waiver) (5)
Class A...................................................................................
Class B...................................................................................
Class C...................................................................................
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Fund, if necessary, if such fees would cause the total
annual operating expenses of the Fund, as a percentage of average daily net
assets, to exceed the percentages set forth in the table above. The
following sets forth, for the Fund, (i) investment advisory fees absent
advisory fee waivers and (ii) expected total operating expenses absent fee
waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
GLOBAL EQUITY
FUND
---------------
<S> <C>
Total Operating Expenses
Class A.......................................................................... --
Class B.......................................................................... --
Class C.......................................................................... --
Investment Advisory Fees
(All Classes)..................................................................... --
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company." The
Adviser reserves the right to terminate any of its fee waivers at any time in
its sole discretion. For further information on Company expenses, see
"Management of the Company."
(6) Of the 12b-1/Service fees for the Class A shares, the 0.25% represents a
shareholder service fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The Class A, Class B and Class C expenses and fees for the Fund are
based on estimates. For purposes of calculating the estimated expenses and fees
set forth above, the table assumes that the Fund's average daily net assets will
be $50,000,000. 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 Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of the Fund, including
the maximum % sales charge, (ii) Class B shares of the Fund, which have a
CDSC, but no initial sales charge and (iii) Class C shares of the Fund, which
have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
----------------------
<S> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the same)
1 Year....................................................................................
3 Years...................................................................................
Class B shares
(Assuming complete redemption at end of period)
1 Year....................................................................................
3 Years...................................................................................
(Assuming no redemption)
1 Year....................................................................................
3 Years...................................................................................
Class C shares
(Assuming complete redemption immediately prior to the end of period)
1 Year....................................................................................
3 Years...................................................................................
(Assuming no redemption)
1 Year....................................................................................
3 Years...................................................................................
</TABLE>
- ------------------
(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds which, when combined with the net asset value of
the purchaser's existing investments in Class A shares of the Funds,
aggregate $1 million or more are not subject to an initial sales charge. A
CDSC of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. THE FUND IS NEW AND 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 examples above would be
greater.
4
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two Funds which are designed to
offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and
providing services as distributor. MAS serves as
the Adviser and Administrator for the Mid Cap Growth Fund and the Value Fund.
MSAM serves as the Adviser and Administrator for all of the other Funds listed
below. Each Fund has its own investment objective and policies designed to meet
its specific goals. The investment objective of the Global Equity Fund is as
follows:
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, are not included in the Fund named below. The objectives
of the Company's other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese 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.
5
<PAGE>
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH FUND seeks to achieve long-term capital growth by
investing primarily in common stocks of smaller and medium size companies
which are deemed by the Adviser to offer long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks which are
deemed by the Adviser to be relatively undervalued based on various
measures such as price/ earnings ratios and price/book ratios.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- 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 HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
- 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 located throughout the world.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
6
<PAGE>
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal taxes as is consistent with
maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI") which, together with its affiliated asset management companies, had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." [On , 1996,
Morgan Stanley Group Inc. purchased the parent company of Van Kampen American
Capital, Inc. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with billion in
assets under management as of September 30, 1996.
RISK FACTORS
The investment policies of the Global Equity Fund entail certain risks and
considerations of which an investor should be aware. The Fund 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 Fund also may invest in derivatives, including options, futures, and
options on futures. In addition, the Fund may invest in repurchase agreements,
lend its portfolio securities, purchase securities on a when-issued basis or
delayed delivery basis and invest in forward foreign currency exchange
contracts. 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.
HOW TO INVEST
The Class A, Class B and Class C shares of the Fund are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Fund are offered at net asset value plus an initial sales charge of up to
% in graduated percentages based on the investor's aggregate investments in
the Funds. Shares of the Class B shares and Class C shares of the Fund are
offered at net asset value. Class B shares are subject to a contingent deferred
sales charge ("CDSC") for redemptions within six years of purchase and are
subject to higher annual distribution-related expenses than the Class A shares.
Class C shares are subject to a CDSC for
7
<PAGE>
redemptions within one year of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. See "Purchase of Shares"
for a discussion of reduction or waiver of sales charges, which are available
for certain investors. Share purchases may be made through
, through Participating Dealers or by sending payments
directly to the Company. The minimum initial investment is for each class
of the Fund, except that the minimum initial investment amount is reduced for
certain categories of investors. The minimum for subsequent investments is ,
except that the minimum for subsequent investments is reduced for certain
categories of investors and there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value per
share of the 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 the 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 CDSC of 1.00%. Certain Class B shares that are redeemed within six years of
purchase are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. Certain Class C shares that are redeemed within one year of
purchase are subject to a CDSC of 1.00%. The CDSC for each class is applicable
to 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 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 the Fund to less
than , the entire investment may be subject to involuntary redemption. See
"Redemption of Shares."
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Global Equity Fund, described below,
together with the policies the Fund, employs in its efforts to achieve its
objective. The Fund's investment objective is a fundamental policy which may not
be changed by the Fund without the approval of a majority of the Fund's
outstanding voting securities. There is no assurance that the Fund will attain
its objective. The investment policies described below are not fundamental
policies and may be changed without shareholder approval.
THE GLOBAL EQUITY FUND
The Global Equity Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers. With respect to the Fund, equity securities include common and
preferred stocks, convertible securities, and rights and warrants to purchase
common stocks. The Fund may invest in American, Global or other types of
Depositary Receipts. The Adviser expects that, under normal circumstances, at
least 20% of the Fund's total assets will be invested in the common stocks of
U.S. issuers. The remainder of the Fund will be invested in issuers located
throughout the world, including those located in emerging markets. At least 65%
of the total assets of the Fund will be invested in equity securities under
normal circumstances. Securities in emerging markets may not be as liquid as
those in developed markets and pose greater risks. As used in this Prospectus,
the term "emerging markets" applies to the markets of any country which, in the
opinion of the Adviser, is generally considered to be an emerging or developing
country by the international financial community, which includes the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. See "Objectives and
Policies" in the Statement of Additional Information. Although the Fund intends
to invest primarily in securities listed on stock exchanges, it will also invest
in securities traded in over-the-counter markets. For temporary defensive
purposes, the Fund invests 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 principle.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection, and is value driven. 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 from a
number of sources, including its affiliate in Geneva, Switzerland, 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. 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.
The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see below.
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ADDITIONAL INVESTMENT INFORMATION
DEPOSITARY RECEIPTS
Depositary Receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the Fund
may utilize appropriate futures contracts and options on futures contracts,
including securities index futures contracts and options on securities index
futures contracts.
The Fund 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 of which those strategies are used, will depend on the development of
such markets.
The primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by a Fund and the prices of futures and options relating to the stocks purchased
or sold by the 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 Fund's ability to hedge. For more detailed
information about futures transactions see "Investment Objectives and Policies"
in the Statement of Additional Information.
FOREIGN INVESTMENT
The Fund invests in securities of foreign issuers. Investment in securities
of foreign issuers, especially in securities of issuers in emerging countries,
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.
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Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Fund by domestic companies. 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. Also,
it may be more difficult to obtain a judgment in a court outside the United
States. Emerging countries may have less stable political environments than more
developed countries.
Investments in securities of foreign issuers are generally denominated in
foreign currencies, and the Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies. Therefore, the value of the Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. The Fund will also
incur certain costs in connection with conversions between various currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") that provide for the purchase of or sale of an amount of a
specified 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 Fund purchases or
sells securities, locking in the U.S. Dollar value of dividends declared on
securities held by the Fund and generally protecting the U.S. Dollar value of
securities held by the Fund against exchange rate fluctuations. Such contracts
may also be used as a protective measure against the effects of exchange control
regulations. While such forward contracts may limit losses to the Fund as a
result of exchange rate fluctuation, they will also limit any gains that may
otherwise have been realized. Except in circumstances where segregated accounts
are not required by the Investment Company Act of 1940, as amended (the "1940
Act") and the rules adopted thereunder, the Fund's Custodian will place cash or
other liquid assets into a segregated account of the Fund in an amount equal to
the value of the 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 the Fund's commitments with respect to such contracts.
See "Investment Objectives and Policies" in the Statement of Additional
Information.
INVESTMENT COMPANY SECURITIES
The Fund may invest in investment company securities. Investments in
investment companies are securities of other open-end or closed-end investment
companies.
To the extent a Fund invests a portion of its assets in investment company
securities, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the Fund itself.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio 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
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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 Fund will not
enter into securities loan transactions exceeding in the aggregate 33 1/3% of
the market value of the Fund's total assets. 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.
MONEY MARKET INSTRUMENTS
Money market investments include obligations of the U.S. Government, its
agencies and instrumentalities, obligations of foreign sovereignties, other debt
securities, high grade commercial paper including bank obligations, certificates
of deposit (including Eurodollar certificates of deposit) and repurchase
agreements. For more detailed information about these money market investments,
see "Description of Securities and Ratings" in the Statement of Additional
Information.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Funds may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities, and
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. Securities that are restricted from
sale to the public without registration ("Restricted Securities" under the
Securities Act of 1933, as amended) that can be offered and sold to qualified
institutional buyers under Rule 144A under that Act ("144A Securities") may not
be treated as illiquid for purposes of the Fund's liquidity restrictions. 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 144A Securities. 144A Securities may become
illiquid if qualified institutional buyers are not interested in acquiring the
securities.
OPTIONS TRANSACTIONS
The Funds may seek to increase their return or may hedge all or a portion of
their portfolio investments through options with respect to securities in which
such Funds may invest. A Fund may also purchase put or call options on
individual securities or baskets of securities. When a Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when the 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.
A 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 Fund at
the stated exercise price. A Fund will receive a premium from writing call
options, which increases the 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 option, a 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 Fund's obligation as writer of the option continues. A Fund
may also write (i.e., sell) covered put options. By
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<PAGE>
selling a covered put option, the 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 Fund will be exercisable by the purchaser only on a
specific date).
The 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 Fund may also engage in over-the-counter options ("OTC
Options") transactions. OTC Options are purchased from or sold to securities
dealers, financial institutions or other parties ("Counterparties") through
direct bilateral agreement with the Counterparty.
The Fund may invest in options to the extent that their outstanding
obligations to purchase securities under such options in combination with their
outstanding obligations with respect to futures transactions do not exceed 50%
of their total assets, and will maintain assets sufficient to meet their
obligations under such contracts in a segregated account with the custodian or
will otherwise comply with the SEC's position on asset coverage.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with investment dealers or
financial institutions that meet the credit guidelines of the Company's Board of
Directors. In a repurchase agreement, the 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 Fund
always receives 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, the Fund might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Fund's realization upon the collateral
may be delayed or limited. Repurchase agreements with durations (or maturities)
over seven days in length are considered to be illiquid securities.
SWAPS
Swaps are derivatives in the form of a contract or other similar instrument
which is an agreement to exchange the return generated by one instrument for the
return generated by another instrument. The payment streams are calculated by
reference to a specified index and agreed upon notional amount. The term
"specified index" includes, but is not limited to, currencies, fixed interest
rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). The currency swaps in which a Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
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Funds will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date, with the Funds
receiving or paying, as the case may be, only the net amount of the two returns.
A Fund's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or other liquid assets. A Fund will not enter into
any swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique was not used.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The 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. The payment obligation and the
interest rates that will be received are each fixed at the time the Fund enters
into the commitment, and no interest accrues to the Fund until settlement.
ZERO COUPONS
Zero coupons securities ("Zero Coupons"), are fixed income securities that
do not make regular interest payments. Zero Coupons are sold at substantial
discounts from their face value. The difference between a Zero Coupon's issue or
purchase price and its face value represents the imputed interest an investor
will earn if the obligation is held until maturity. Zero Coupon prices may also
exhibit greater price volatility than ordinary fixed income securities because
of the manner in which their principal and interest are returned to the
investor.
INVESTMENT LIMITATIONS
The Fund 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
Fund may not invest more than 5% of its total assets in the
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securities of any one issuer, except obligations of the U.S. Government, and its
agencies and instrumentalities, and (b) as to 75% of its total assets, the Fund
may not own more than 10% of the outstanding voting securities of any one
issuer.
The Fund also operates under certain investment restrictions that are deemed
fundamental policies and may be changed by the Fund only with the approval of
the holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each
Portfolio operates under certain non-fundamental investment limitations as
described below and in the Statement of Additional Information. The Fund may not
borrow money except from banks for extraordinary or emergency purposes and then
only in amounts up to 10% of the value of the Fund's total assets, taken at
market value at the time of borrowing. In addition, the Fund may mortgage,
pledge or hypothecate any assets in connection with any such borrowing in
amounts up to 10% of the value of the Fund's net assets at the time of
borrowing.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER -- Morgan Stanley Asset Management Inc. (the "Adviser")
is the investment adviser and administrator of the Fund. The Adviser provides
investment advice and portfolio management services pursuant to an investment
advisory agreement (the "Investment Advisory Agreement") and, subject to the
supervision of the Company's Board of Directors, makes the Fund's investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Fund's investments. The Adviser is entitled to receive advisory fees
computed daily and paid monthly at the annual rate of % for the Fund. The
Adviser has agreed to a reduction in the fees payable to it and to reimburse
expenses to the Fund, if necessary, if such fees or expenses would cause total
annual operating expenses of the Fund to exceed the maximum set forth in "Fund
Expenses."
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, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately 103.5
billion, including approximately 86.9 billion under active management and 16.6
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
PORTFOLIO MANAGER. The following individual had primary portfolio
management responsibility for the Global Equity Fund since its inception:
FRANCES CAMPION. Frances Campion joined the Adviser in January 1990 as a
Global Equity Fund Manager and is now a Principal of Morgan Stanley. Her
responsibilities include day to day management of the Global Equity product.
Prior to joining the Adviser, Ms. Campion was a U.S. equity analyst with Lombard
Odier Limited where she had responsibility for the management of global
portfolios. Ms. Campion has ten years global investment experience. She is a
graduate of University College, Dublin.
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ADMINISTRATOR. The Administrator also provides the Company with
administrative services pursuant to a separate administration agreement (the
"Administration Agreement"). The services provided under the Administration
Agreement are subject to the supervision of the officers and Board of Directors
of the Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration Agreement also provides that the
Administrator through its agents will provide the Company dividend disbursing
and transfer agent services. For its services under the Administration
Agreement, the Company pays the Administrator a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of the Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR.
(" " or the "Distributor") serves as the Distributor of
the shares of the Company. Under its distribution agreement (the "Distribution
Agreement") with the Company, sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. is not obligated to sell any specific number
of shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Global
Equity Fund 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 the Fund a distribution fee, which is accrued daily and paid quarterly, at
a maximum rate of 0.75% of the Class B shares and Class C shares of the Fund, on
an annualized basis of the average daily net assets of such classes. The actual
amount of such compensation is agreed upon by the Company's Board of Directors
and by the Distributor. The Distributor expects to pay a portion of its fee to
investment dealers, banks or financial services firms that provide distribution
services (each, a "Participating Dealer"). 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
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<PAGE>
out of its own assets to promote the sale of Fund shares. Class A shares, Class
B shares and Class C shares authorizes the payment of service fee at an annual
rate of 0.25% on an annualized basis of the average daily net assets of such
class of shares of the Fund as compensation the Distributor for shareholder
services. In addition to such payments, the Adviser may use its advisory fees or
other resources to pay expenses associated with activities which might be
construed to be financing the sale of the Fund's shares, including payments to
third parties that provide assistance in the distribution effort (in addition to
selling shares and providing shareholder services).
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse for the actual expenses Morgan Stanley 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 Fund will not be obligated to pay more than that fee. If
actual expenses are less than the fee it receives,
will retain the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company 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 the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Fund is 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.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at
. Shares are also offered through members of the NASD who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents for investors ("brokers"). The term
"dealers" and "brokers" are sometimes referred to herein as "Participating
Dealers".
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Initial investments must be at least $ for each class of shares, and
subsequent investments must be at least $ for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of [Van Kampen American Capital]
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the Participating
Dealer and processed at the offering price next calculated after acceptance by
ACCESS.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer
18
<PAGE>
agency expenses associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF NET DEALERS (AS %
OFFERING AMOUNT OF OFFERING
SIZE OF INVESTMENT PRICE INVESTED PRICE)
- ------------------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000................... -- -- --
$50,000 but less than $100,000...... -- -- --
$100,000 but less than $250,000..... -- -- --
$250,000 but less than $500,000..... -- -- --
$500,000 but less than $1,000,000... -- -- --
$1,000,000 or more*................. * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: % on sales to
19
<PAGE>
$ million, plus % on the next million, plus % on the excess over $ million.
See "Purchase of Shares -- Purchase of Class B Shares" and "-- Purchase of
Class C Shares" for additional information with respect to contingent
deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933. The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate.
The Distributor does not believe that termination of a relationship with a
bank would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor [except the Morgan Stanley
Institutional Fund, Inc.]
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
20
<PAGE>
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
21
<PAGE>
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1)Current or retired Trustees/Directors of funds advised by an Adviser, Van
Kampen American Capital Investment Advisory Corp. and such persons'
families and their beneficial accounts.
(2)Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3)Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4)[Registered investments advisers,] trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor
may pay Participating Dealers through which purchases are made an amount
up to 0.50% of the amount invested, over a 12-month period following such
transaction.
(5)Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6)Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has
a separate agreement with the Distributor.
(7)Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(8)Pension, profit-sharing or other employee benefit plans created pursuant
to a plan qualified under Section 401 of the Code or plans under Section
457 of the Code, or employee benefit plans created pursuant to Section
403(b) of the Code and sponsored by non-profit organizations defined
under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount
invested in the fund(s) is at least $500,000, (2) the sponsor signs a
$500,000 LOI, or (3) such shares are purchased by an employer-sponsored
plan with more than 100 eligible employees. Section 403(b) plans
sponsored by public educational institutions will not be eligible for net
asset value purchases based on the aggregate investment made by the plan
or the number of eligible employees. Participants in such plans will be
eligible for reduced sales charges based solely on the aggregate value of
their individual investments in the applicable Fund.
22
<PAGE>
(9)GROUP PURCHASES. Individuals who are members of a "qualified group" may
purchase Class A shares of the Fund without the imposition of a front-end
sales charge. For this purpose, a qualified group is one which (i) has
been in existence for more than six months, (ii) has a purpose other than
to acquire shares of the Fund or similar investments, (iii) has given and
continues to give its endorsement or authorization, on behalf of the
group, for purchase of shares of the Fund and other Participating Funds,
(iv) has a membership that the authorized dealer can certify as to the
group's members and (v) satisfies other uniform criteria established by
the Distributor for the purpose of realizing economies of scale in
distributing such shares. A qualified group does not include one whose
sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a contingent deferred sales charge or one percent in the event
of redemption within one year of purchase, and a commission will be paid
to authorized dealers who initiate and are responsible for such sales to
each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren under 21 years of age, parents, and a person's spouse's
parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution Plans" on
purchases made as described in (3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs trusteed
by Chase. This includes Simplified Employee Pension Plan ("SEP"), IRA accounts
and prototype documents. Brochures describing such plans and materials for
establishing them are available from VK Trust upon request. The brochures for
plans trusteed by Chase describe the current fees payable to Chase for its
services as trustee. Investors should consult with their own tax advisers before
establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total
23
<PAGE>
cost of such shares. Accordingly, the CDSC will not be applied to dollar amounts
representing an increase in the net asset values above the initial purchase
price of the shares being redeemed. In addition, no charge is assessed on
redemptions of Class B shares derived from reinvestment of dividends or capital
gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES
CHARGE AS
PERCENTAGE
OF THE
DOLLAR
AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ----------------------------------------------------------------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 3.0%
Fifth....................................................... 2.0%
Sixth....................................................... 1.0%
Thereafter.................................................. None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan, as described under
"Management of the Company -- Distributor" above. The combination of the CDSC
and the distribution/service fee facilitates the ability of the Company to sell
the Class B shares without a sales charge being deducted at the time of
purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; (iii) to the extent that shares
redeemed have been withdrawn from a Systematic Withdrawal Plan, up to a maximum
amount of 12% per year from a shareholder account based on the value of the
account at the time the Withdrawal Plan is established, provided however that
all dividends and distributions are reinvested in Class B Shares; (iv) effected
pursuant to the right of the Company to liquidate a shareholder's account as
described herein under "Redemption of Shares;" or (v) redemptions of shares by
employee benefit
24
<PAGE>
plans ("each, an Employee Plan") qualified under Sections 401 or 437 of the
Code, or Plans created under Section 403(b) of the Code and sponsored by
nonprofit organizations as defined under Section 501(c)(1) of the Code where (a)
the initial amount invested by an Employee Plan in one or more of the Funds is
at least $1,000,000, (b) the sponsor of an Employee Plan signs a letter of
intent to invest at least $1,000,000 in one or more of the Funds, or (c) the
shares being redeemed were purchased by an employer-sponsored Employee Plan with
100 eligible employees; provided, however, that Employee Plans created under
Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Employee Plan participant's aggregate investment in the Funds, and not
on the aggregate investment made by the Employee Plan or on the number of
eligible employees. The waiver with respect to (i) above is only applicable in
cases where the shareholder account is registered (a) in the name of an
individual person, (b) as a joint tenancy with rights of survivorship, (c) as
community property or (d) in the name of a minor child under the Uniform Gifts
or Uniform Transfers to Minors Act. A shareholder, or his or her representative,
must notify the Company's Transfer Agent prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver. The
shareholder is responsible for providing sufficient documentation to the
Transfer Agent to verify the existence of such circumstances. For information on
the imposition and waiver of the CDSC, contact the Transfer Agent at
1-800-341-2911.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor 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 pay to Participating Dealers 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 Company -- Distributor" above. In
determining whether a CDSC is payable, and, if so, the amount of the fee of the
fee or charge, it is assumed that shares not subject to such fee or charge are
the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of the Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of the Fund and paid a CDSC upon such redemption may
25
<PAGE>
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of the Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinstatement privilege are
subject to the minimum applicable investment requirements. The reinstatement
privilege as to any specific Class A, Class B or Class C shares must be
exercised 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 reinstatement and a check or wire which does not exceed the
redemption proceeds. The written request must state that the reinstatement is
made pursuant to this reinstatement privilege. If a loss is realized on the
redemption of Class A shares, the reinstatement 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 reinstatement privilege may be terminated or modified at any time.
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings. See
the Statement of Additional Information for further discussion of waiver
provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of [Van Kampen American
Capital] performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from ACCESS showing any reinvestments of dividends
and capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption thereof. In addition, if such certificates are
lost the shareholder must write to the Morgan Stanley Fund c/o ACCESS, P.O. Box
418256, Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to
obtain a Surety Bond in a form acceptable to ACCESS. On the date the letter is
received ACCESS will calculate a fee for replacing the lost certificate equal to
no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
26
<PAGE>
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 421-5666 ((800) 772-8889
for the hearing impaired) or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Company."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Company invested into shares of the same class of any other
Participating Fund [,or the Morgan Stanley Money Market Funds], so long as a
pre-existing account for such class of shares exists for such shareholder.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund. Class A shares of
Van Kampen American Capital funds that generally do not impose an initial sales
charge are subject to the appropriate sales charge applicable to Class A shares
of the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.
27
<PAGE>
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company employ procedures considered by them to
be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, a shareholder
agrees that neither the Distributor nor the Company will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the principal, if necessary. Each withdrawal
constitutes a redemption of shares on which taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of the Fund at the time the Systematic
Withdrawal Plan commences, provided that the shareholder elects to have all
dividends and distributions on the shareholder's Class B shares automatically
reinvested in additional Class B shares. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing
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with shares held the next longest period of time until shares held the shortest
period of time are redeemed. Under this policy, the least amount of CDSC will be
waived by withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, by placing the redemption request through Participating Dealer or by
calling the Company.
The Company will redeem shares of an Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of a Fund that
were purchased without payment of the initial sales charge due to the size of
the purchase and are redeemed within one year of purchase. A maximum CDSC of
5.00% which decreases in steps to 0% after six years, will be imposed on certain
Class B shares of a Fund that are redeemed within six years of purchase. A CDSC
of 1.00% will be imposed on certain Class C shares of the Fund that are redeemed
within one year of purchase. See "Purchase of Shares." Any CDSC will be imposed
on the lesser of the current market value or the total cost of the shares being
redeemed. In determining whether a CDSC 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.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
to be redeemed, the class designation of such shares, the account number and be
signed exactly as the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$50,000, or if the proceeds are not to be
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<PAGE>
paid to the record owner at the record address, or if the record address has
changed within the previous 30 days, signature(s) must be guaranteed by one of
the following: a bank or trust company; a broker-dealer; a credit union; a
national securities exchange, registered securities association or clearing
agency; a savings and loan association; or a federal savings bank. If
certificates are held for the shares being redeemed, such certificates must be
endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within three business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
it confirms that the purchase check has cleared, usually a period of up to 15
days. Any gain or loss realized on the redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $ unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available
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<PAGE>
if the shareholder cannot reach ACCESS by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Company's other redemption procedures previously
described. Requests received by ACCESS prior to 4:00 p.m., Eastern Time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $ or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $ and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value
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<PAGE>
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum investment due to
shareholder redemptions.
FOR SHARES 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 Company may impose a fee of $8.00 on wire redemption
of shares of the Company that will be deducted from the redemption proceeds.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256. 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
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares of the Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of the Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be 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. 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 obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the closing price, or if that is
unavailable, 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
"amortized cost" method of valuation does not take into account unrealized gains
or losses. This method 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
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<PAGE>
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price each Fund would receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the Fund. The Adviser may, consistent
with NASD rules, place portfolio orders with qualified broker-dealers who
recommend the Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
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 for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances but market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. High portfolio turnover involves correspondingly greater
transaction costs which will be borne directly by the Fund. In addition, high
portfolio turnover may result in more capital gains which would be taxable to
the shareholders of the Fund.
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<PAGE>
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Global
Equity Fund. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in the 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 the Fund were reinvested on the reinvestment dates during the period. Total
return does not take into account any federal or state income taxes consequences
to shareholders subject to tax. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and Morgan Stanley Capital International.
The respective performance figures for Class B shares and Class C shares of
the Fund will generally be lower than those for Class A shares of the Fund
because of the larger distribution fee charged to Class B shares and Class C
shares.
PERFORMANCE OF INVESTMENT ADVISER
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Global Equity Fund. The portfolio of
MSIF (the "MSIF Portfolio") has substantially the same investment objective and
policies as the Global Equity Fund. In addition, the Adviser intends the Global
Equity Fund and the corresponding MSIF Portfolio to be managed by the same
personnel and to continue to have closely similar investment strategies,
techniques and characteristics. Past investment performance of the MSIF
Portfolio, as shown in the table below, may be relevant to your consideration of
investment in the Global Equity Fund. The investment performance of the MSIF
Portfolio is not necessarily indicative of future performance of the Global
Equity Fund. Also, the operating expenses of the Global Equity Fund will be
different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a %
sales charge applicable to purchases of Class A shares of the Global Equity
Fund; (ii) with respect to Class B shares, to take into account the applicable
CDSC that is imposed if Class B shares of the Global Equity Fund are redeemed
within the year of their purchase indicated; and (iii) with respect to the Class
C shares, to take into account a 1.00% CDSC that is imposed if Class C shares of
the Global Equity Fund 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.
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<PAGE>
TOTAL RETURN FOR THE MSIF GLOBAL EQUITY PORTFOLIO
FOR THE PERIOD ENDING ___________________
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE GLOBAL EQUITY FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------------------------------------- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
Class A (of 4.75%)...................... -- % -- % -- % -- %
Class B (of 5.00%)...................... -- % -- % -- % -- %
Class C (of 1.00%)...................... -- % -- % -- % -- %
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ----------------------------------------
<S> <C> <C> <C> <C>
Class A................................. -- % -- % -- % -- %
Class B................................. -- % -- % -- % -- %
Class C................................. -- % -- % -- % -- %
</TABLE>
- ------------------
(1) Commenced Operations on .
The past performance of the MSIF Global Equity Portfolio is no guarantee of
the future performance of the Global Equity Fund.
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 of the Fund, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
The Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. Net realized gains, if any, will be
distributed annually. Confirmations of the purchase of shares of the Fund
through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase the Fund's net assets for the purpose of calculating net asset value
per share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net
asset value per share excludes the dividend or distribution (i.e., is reduced by
the per share amount of the dividend or distribution). Dividends and
distributions paid shortly after the purchase of shares by an investor, although
in effect a return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of the Fund, the net income attributable to and the dividends payable
on Class B shares and Class C shares of the Fund will be lower than the net
income
35
<PAGE>
attributable to and the dividends payable on Class A shares of the Fund. As a
result, the net asset value per share of the classes of the Fund will differ at
times. Expenses of the Company allocated to a particular class of shares of the
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUND
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Global Equity 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 of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available capital loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
The Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by the Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by the
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
the Fund's shares. Capital gains distributions are not eligible for the
corporate dividends-received deduction. The Fund will make annual reports to
shareholders of the federal income tax status of all distributions.
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and net capital gains prior to the end of each calendar year
to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by the 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 the Fund
and received by the shareholders on December 31 of the year declared.
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<PAGE>
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less than the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
the Fund.
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 THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. 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 Fund, 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 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 Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian
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<PAGE>
for foreign assets held outside the United States and employs subcustodians who
were approved by the Directors of the Company 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 Company. Morgan
Stanley Trust is an affiliate of the Adviser and the Distributor. For more
information on the custodians, see "General Information -- Custody Arrangements"
in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Bos 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
38
<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 COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY 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
Prospectus Summary.................................................... 5
Investment Objective and Policies..................................... 9
Additional Investment Information..................................... 10
Investment Limitations................................................ 14
Management of the Company............................................. 15
Purchase of Shares.................................................... 17
Shareholder Services.................................................. 26
Redemption of Shares.................................................. 29
Valuation of Shares................................................... 32
Portfolio Transactions................................................ 33
Performance Information............................................... 33
Dividends and Distributions........................................... 35
Taxes................................................................. 36
General Information................................................... 37
</TABLE>
MORGAN STANLEY
GLOBAL EQUITY FUND
A PORTFOLIO OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-------------------------------------------------------------------------
MORGAN STANLEY VALUE FUND
MORGAN STANLEY EQUITY GROWTH FUND
MORGAN STANLEY MID CAP GROWTH FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-341-2911
--------------
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the three investment portfolios listed above. The Company is
designed to make available to retail investors the expertise of Morgan Stanley
Asset Management Inc. and its affiliate, Miller Anderson & Sherrerd, LLP, the
investment advisers (each an "Adviser" and together, the "Advisers") and
administrators (each an "Administrator" and together, the "Administrators").
Shares are available through (" " or the "Distributor"), and through
investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Global Equity, Morgan Stanley Global Equity Allocation,
Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan Stanley
Latin American and Morgan Stanley International Magnum Funds; (ii) U.S. EQUITY
- -- Morgan Stanley American Value, Morgan Stanley Aggressive Equity, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Global Fixed Income, Morgan Stanley Emerging Markets Debt, Morgan
Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and (iv)
MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley Government
Obligations Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated , 1996,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds are available
upon request and without charge by writing or calling the Company at the address
and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
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 , 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
EQUITY MID CAP
VALUE GROWTH GROWTH
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
Class A.................................. --%(1) --%(1) --%(1)
Class B.................................. None None None
Class C.................................. None None None
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
Deferred Sales Load
For Purchases up to $999,999
Class A.................................. None None None
Class B.................................. 5.00%(2) 5.00%(2) 5.00%(2)
Class C.................................. 1.00%(3) 1.00%(3) 1.00%(3)
For Purchases of $1,000,000 or more
Class A.................................. 1.00%(1) 1.00%(1) 1.00%(1)
Class B.................................. 5.00%(2) 5.00%(2) 5.00%(2)
Class C.................................. 1.00%(3) 1.00%(3) 1.00%(3)
Redemption Fees (4)
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
Exchange Fees
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Funds
listed above which, when combined with the net asset value of the
purchaser's existing investments in Class A shares of the 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) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
will be paid to the Distributor.
(3) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE VALUE EQUITY GROWTH MID CAP GROWTH
NET ASSETS) FUND FUND FUND
----------- ---------------- ------------------
<S> <C> <C> <C>
Investment Advisory Fee (after
expense reimbursement and/or
fee waiver) (5)
Class A................... -- -- --
Class B................... -- -- --
Class C................... -- -- --
12b-1/Service Fees
Class A (6)............... 0.25% 0.25% 0.25%
Class B (6)............... 1.00% 1.00% 1.00%
Class C (6)............... 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee
waiver) (5)
Class A................... -- -- --
Class B................... -- -- --
Class C................... -- -- --
Total Operating Expenses
(after expense reimbursement
and/or fee waiver) (5)
Class A................... -- -- --
Class B................... -- -- --
Class C................... -- -- --
</TABLE>
- ------------------
(5) The Advisers have agreed to waive their advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, (i) investment advisory fees
absent advisory fee waivers and (ii) expected total operating expenses
absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
VALUE EQUITY GROWTH MID CAP GROWTH
FUND FUND FUND
--------- -------------- ---------------
<S> <C> <C> <C>
Total Operating Expenses
Class A............................................................. -- -- --
Class B............................................................. -- -- --
Class C............................................................. -- -- --
Investment Advisory Fees
(All Classes)....................................................... -- -- --
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company."
Each 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 Company."
(6) Of the 12b-1/service fees for the Class A shares, the 0.25% represents a
shareholder service fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The Class A, Class B and Class C expenses and fees for
each such Fund are based on estimates. For purposes of calculating the estimated
expenses and fees set forth above, the table assumes that each Fund's average
daily net assets will be $50,000,000. 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 Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each listed Fund,
including the maximum --% sales charge, (ii) Class B shares of each such Fund,
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
such Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
EQUITY MID CAP
VALUE GROWTH GROWTH
FUND FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses
are the same.)
1 Year.................................................. $ -- $ -- $ --
3 Years................................................. -- -- --
Class B shares
(Assuming complete redemption at end of period)
1 Year.................................................. -- -- --
3 Years................................................. -- -- --
(Assuming no redemption)
1 Year.................................................. -- -- --
3 Years................................................. -- -- --
Class C Shares
(Assuming complete redemption immediately prior to the end
of period)
1 Year.................................................. -- -- --
3 Years................................................. -- -- --
Class C Shares
(Assuming no redemption)
1 Year.................................................. -- -- --
3 Years................................................. -- -- --
</TABLE>
- ------------------
(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds listed above which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
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.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. THE FUNDS ARE NEW AND 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 examples above would be
greater.
4
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and
providing services as distributor. MAS serves as
the Adviser and Administrator for the Mid Cap Growth Fund and the Value Fund.
MSAM serves as the Adviser and Administrator for all of the other Funds listed
below. Each Fund has its own investment objective and policies designed to meet
its specific goals. The investment objective of each Fund described in this
Prospectus is as follows:
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.
- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks of smaller and medium size companies which are
deemed by the Advisers to offer long-term growth potential.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks which are
deemed by the Advisers to be relatively undervalued based on various
measures such as price/ earnings ratios and price/book ratios.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. For ease of reference, the words "Morgan Stanley," which begin
the name of each Fund, have not been included in the Funds named below. The
objectives of these other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
5
<PAGE>
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese 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.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- 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 HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
- 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 located throughout the world.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
6
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability or principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," an "Adviser" or an
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI"), which, together with its affiliated asset management companies other
than Miller Anderson & Sherrerd LLP ("MAS"), had approximately $66.0 billion in
assets under management as an investment manager or as a fiduciary adviser at
September 30, 1996, acts as investment adviser to each of the Funds, except the
Mid Cap Growth and Value Funds. The institutional investment advisory business
of MAS (an "Adviser" or an "Administrator"), was established in 1969 and MAS
recently became an indirectly wholly owned subsidiary of MSGI and an affiliate
of MSAM. MAS had approximately $37.5 billion in assets under management as an
investment manager at September 30, 1996. See "Management of the Company --
Investment Advisers" and "-- Administrators." [On , 1996, Morgan Stanley
Group Inc. purchased the parent company of Van Kampen American Capital, Inc. Van
Kampen American Capital, Inc. is the fourth largest non-proprietary mutual fund
provider in the United States with $ billion in assets under management as of
September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks which may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Mid Cap Growth and
Value Funds, invest in small- to medium-sized corporations, which are more
vulnerable to financial risks and other risks than larger corporations, and
therefore may involve a higher degree of risk and price volatility than
investments in the securities of larger corporations. The Funds may invest in
securities of foreign issuers which are subject to certain risks not typically
associated with domestic securities, including, among other risks, changes in
currency rates and in exchange control regulations, limited publicly available
information regarding foreign issuers, lower accounting, auditing and financial
standards, potential price volatility and lesser liquidity of shares traded on
securities markets, less government regulation of securities markets, changes in
taxes, possible seizure or expropriation of the foreign issuer or foreign
deposits, and potentially greater difficulty in obtaining a judgment in a court
outside the United States. The Funds may invest in forward foreign currency
exchange contracts, and may invest in foreign currency exchange futures and
options. In addition, the Funds may invest in derivatives, which include
options, futures and options on futures and swaps and each Fund may invest in
repurchase agreements, borrow money, lend its portfolio securities, and purchase
securities on a when-issued or delayed delivery basis. 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.
7
<PAGE>
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds described herein are
designed to provide investors a choice of three ways to pay distribution costs.
Class A shares of the Funds are offered at net asset value plus an initial sales
charge of up to % in graduated percentages based on the investor's aggregate
investments in the Funds. Shares of the Class B shares and Class C shares of the
Funds are offered at net asset value. Class B shares are subject to a contingent
deferred sales charge ("CDSC") for redemptions within six years of purchase and
are subject to higher annual distribution-related expenses than the Class A
shares. Class C shares are subject to a CDSC for redemptions within one year of
purchase and are subject to higher annual distribution-related expenses than the
Class A shares. See "Purchase of Shares" for a discussion of reduction or waiver
of sales charges, which are available for certain investors. Share purchases may
be made through , through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $ for
each class of a Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $ , except that the minimum for subsequent investments is
reduced for certain categories of investors and there is no minimum for
automatic reinvestment of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share of the 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 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
CDSC of 1.00%. Certain Class B shares that are redeemed within six years of
purchase are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. Certain Class C shares that are redeemed within one year of
purchase are subject to a CDSC of 1.00%. The CDSC for each class is applicable
to 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 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 a Fund to less
than $ , the entire investment may be subject to involuntary redemption. See
"Redemption of Shares."
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objectives. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There is no assurance that a Fund will attain its objective. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval.
THE VALUE FUND
The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities with that are deemed by the Adviser to be relatively undervalued
based on various measures such as price/earnings ratios and price/book ratios.
The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. Equity securities, for this
purpose, include common stock, preferred stock, convertible securities,
depositary receipts ("Depositary Receipts") and rights and warrants to purchase
stock. Up to 5% of the Fund's assets may be invested in foreign equity
securities, excluding American Depositary Receipts ("ADRs"). The Fund generally
will invest in equity securities of companies with equity capitalization greater
than $300 million.
The Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the Standard & Poor's
Composite Index of 500 Stocks ("S&P 500"), based on the value measures such as
price/earnings ratios and price/book ratios, as well as fundamental research.
While capital return will be emphasized somewhat more than income return, the
Value Fund's total return will consist of both capital and income returns.
Stocks which are deemed to be undervalued in the marketplace have, under most
market conditions, provided higher dividend income returns than stocks which are
deemed to have long-term earnings growth potential which normally sell at higher
price/earnings ratios. However, the Adviser may select non-dividend paying
stocks for their value characteristics. For temporary defensive purposes, the
Equity Growth Fund may invest 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.
The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization U.S. companies and, to a limited extent, as
described below, foreign corporations. Equity securities, for this purpose,
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity securities.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Equity Growth Fund's investment objective. In selecting securities for the
Fund, the Adviser concentrates on a universe of rapidly
9
<PAGE>
growing, high quality companies and lower, but accelerating, earnings growth
situations. The Adviser's universe of potential investments generally comprises
companies with market capitalizations of $500 million or more. The Fund is not
restricted to investments in specific market sectors. The Adviser uses its
research capabilities, analytical resources and judgment to assess economic,
industry and market trends, as well as individual company developments, to
select promising growth investments for the Fund. The Adviser concentrates on
companies with strong, communicative managements and clearly defined strategies
for growth. In addition, the Adviser rigorously assesses company developments,
including changes in strategic direction, management focus and current and
likely future earnings results. Valuation is important to the Adviser but is
viewed in the context of prospects for sustainable earnings growth and the
potential for positive earnings surprises vis-a-vis consensus expectations. The
Fund is free to invest in any equity security that, in the Adviser's judgment,
provides above average potential for capital appreciation.
In selecting investments for the Equity Growth Fund, the Adviser emphasizes
individual security selection. The Fund's investments will generally be
diversified by number of issues but concentrated sector positions may result
from the investment process. The Fund has a long-term investment perspective;
however, the Adviser may take advantage of short-term opportunities that are
consistent with the Fund's objective by selling recently purchased securities
which have increased in value.
The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of Depositary Receipts.
Investors should recognize that investing in foreign companies involves certain
special considerations which are not typically associated with investing in U.S.
companies. See "Additional Investment Information" herein and "Investment
Objectives and Policies" in the Statement of Additional Information.
The Equity Growth Fund may invest in convertible securities of domestic and,
subject to the above restrictions, foreign issuers on occasions when, due to
market conditions, it is more advantageous to purchase such securities than to
purchase common stock. Since the Fund invests in both common stocks and
convertible securities, the risks of investing in the general equity markets may
be tempered to a degree by the Fund's investments in convertible securities
which are often not as volatile as common stock.
For temporary defensive purposes, the Equity Growth Fund may invest 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.
The Equity Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks of small and medium size
companies which are deemed by the Adviser to offer long-term growth potential.
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The Mid Cap Growth Fund generally will invest at least 65% of its assets in
equity securities of mid-cap companies offering long-term growth potential.
Equity securities for this purpose include common stock, preferred stock,
convertible securities, Depositary Receipts, foreign equity securities, and
rights and warrants to purchase stock. Up to 5% of the Fund's assets may be
invested in foreign equity securities, excluding ADRs. The Mid Cap Growth Fund
generally will invest in securities issued by companies with market
capitalizations in the range of the companies represented in the S&P MidCap 400
Index. Such range is currently $100 million to $8 billion but the range
fluctuates over time with changes in the equity market.
The Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental, and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Adviser uses valuation analysis to
eliminate the most overvalued securities. The Fund sells holdings when the
Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends, or when the securities'
valuations exceed the level that the Adviser believes is reasonable given their
growth prospects.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.
For temporary defensive purposes, the Equity Growth Fund may invest 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.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
EQUITY SECURITIES
Equity securities commonly include, but are not limited to, common stocks,
preferred stocks, Depositary Receipts, rights, warrants, and foreign equities.
Preferred stock is contained in both the definition of equity securities and
fixed income securities because it exhibits characteristics commonly associated
with each type of security.
COMMON STOCKS
Each Equity Fund will invest in Common Stocks. Common Stocks are equity
securities which represent an ownership interest in a corporation, entitling the
shareholder to voting rights and receipt of dividends paid based on
proportionate ownership.
PREFERRED STOCKS
Preferred Stocks are non-voting securities which evidence ownership in a
corporation and which pay a fixed or variable stream of dividends.
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CONVERTIBLE SECURITIES AND WARRANTS
The Equity Funds may invest in convertible securities, preferred stock,
warrants or other securities exchangeable under certain circumstances for shares
of common stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
DEPOSITARY RECEIPTS
Depositary Receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the Funds
may utilize appropriate futures contracts and options on futures contracts,
including securities index futures contracts and options on securities index
futures contracts.
The 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 primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by a Fund and the prices of futures and options relating to the stocks purchased
or sold by the 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 Fund's ability to hedge. For more detailed
information about futures transactions see "Investment Objectives and Policies"
in the Statement of Additional Information.
OPTIONS TRANSACTIONS
The Funds may seek to increase their return or may hedge all or a portion of
their portfolio investments through options with respect to securities in which
such Funds may invest. A Fund may also purchase put or call options on
individual securities or baskets of securities. When a Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when the 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.
A 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 Fund at
the stated exercise price. A Fund will receive a premium from
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writing call options, which increases the 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 option, a 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 Fund's obligation as writer of
the option continues. A Fund may also write (i.e., sell) covered put options. By
selling a covered put option, the 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 Fund will be exercisable by the purchaser only on a
specific date).
The Equity Growth 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 Value Fund and the Mid Cap Growth Fund
may also engage in over-the-counter options ("OTC Options") transactions. OTC
Options are purchased from or sold to securities dealers, financial institutions
or other parties ("Counterparties") through direct bilateral agreement with the
Counterparty.
The Value and Mid Cap Growth Funds may invest in options to the extent that
their outstanding obligations to purchase securities under such options in
combination with their outstanding obligations with respect to futures
transactions do not exceed 50% of their total assets, and will maintain assets
sufficient to meet their obligations under such contracts in a segregated
account with the custodian or will otherwise comply with the SEC's position on
asset coverage.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
FIXED INCOME SECURITIES
Fixed Income Securities commonly include, but are not limited to,
debentures, U.S. Governments, zero coupons, agencies, corporate bonds,
convertible securities, money market instruments, Repurchase agreements,
preferred stocks and foreign bonds. Preferred stock is contained in both the
definition of equity securities and Fixed Income Securities since it exhibits
characteristics commonly associated with each type of security.
CORPORATE BONDS
The Value and MidCap Growth Funds may invest in Corporate Bonds. Corporate
Bonds are fixed income securities issued by private corporations. Bondholders,
as creditors, have a prior legal claim over common and preferred stockholders of
the corporation as to both income and assets for the principal and interest due
to the bondholder.
AGENCIES
Agencies are securities that are not guaranteed by, or backed by the full
faith and credit of, the U.S. Government, but which are issued, sponsored or
guaranteed by a federal agency or federally sponsored agency such as the Student
Loan Marketing Association, Resolution Funding Corporation, or any of several
other agencies. For further information on these securities, see "Investment
Objectives and Policies" in the Statement of Additional Information.
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FOREIGN BONDS
The Value and MidCap Growth Funds may invest in foreign bonds. Foreign bonds
are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FOREIGN INVESTMENT
The Funds may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, 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 United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic issuers. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environment 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 a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The 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 a Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value
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of securities held by the Fund against exchange rate fluctuations. While such
forward contracts may limit losses to a Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
The Funds may attempt to accomplish objectives similar to those described
above with respect to forward contracts for currency by means of purchasing put
or call options on foreign currencies on exchanges. A put option gives such
Funds the right to sell a currency at the exercise price until the expiration of
the option. A call option gives the Funds the right to purchase a currency at
the exercise price until the expiration of the option. The Funds may also write
covered call options on foreign currencies for hedging purposes. See "Investment
Objectives and Policies -- Forward Foreign Currency Exchange Contracts" in the
Statement of Additional Information.
INVESTMENT COMPANY SECURITIES
The Value and Mid Cap Growth Funds may invest in investment company
securities. Investments in investment companies are securities of other open-end
or closed-end investment companies.
To the extent a Fund invests a portion of its assets in investment company
securities, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the Fund itself.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a 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 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, a
Fund might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the 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."
MONEY MARKET INSTRUMENTS
Money market investments include obligations of the U.S. Government, its
agencies and instrumentalities, obligations of foreign sovereignties, commercial
paper and other high quality, short-term corporate obligations, bank
obligations, including certificates of deposit (including Eurodollar
certificates of deposit) and bankers' acceptance and repurchase agreements. For
more detailed information about these money market investments, see "Description
of Securities and Ratings" in the Statement of Additional Information.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Funds may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities, and
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. Securities that are restricted from
sale to the public without registration ("Restricted Securities" under the
Securities Act of 1933, as amended) that can be offered and sold to qualified
institutional buyers
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under Rule 144A under that Act ("144A Securities") may be treated as illiquid
for purposes of the Fund's liquidity restrictions. 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 144A Securities. 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
LOANS OF PORTFOLIO SECURITIES
Each of the 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 Funds will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets. 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.
SWAPS
Swaps are derivatives in the form of a contract or other similar instrument
which is an agreement to exchange the return generated by one instrument for the
return generated by another instrument. The payment streams are calculated by
reference to a specified index and agreed upon notional amount. The term
"specified index" includes, but is not limited to, currencies, fixed interest
rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). The currency Swaps in which a Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such Swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
Funds will usually enter into Swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date, with the Funds
receiving or paying, as the case may be, only the net amount of the two returns.
A Fund's obligations under a Swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or other liquid assets. A Fund will not enter into
any Swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Company's Board of Directors.
Interest rate and total rate of return Swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return Swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return Swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency Swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency Swap is subject to the risk that the
other party to the Swap will default on its contractual delivery obligations.
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The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique was not used.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each 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. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement.
ZERO COUPONS
Zero coupons securities ("Zero Coupons") are fixed income securities that do
not make regular interest payments. Instead, Zero Coupons are sold at
substantial discounts from their face value. The difference between a Zero
Coupon's issue or purchase price and its face value represents the imputed
interest an investor will earn if the obligation is held until maturity. Zero
Coupon prices may also exhibit greater price volatility than ordinary fixed
income securities because of the manner in which their principal and interest
are returned to the investor.
INVESTMENT LIMITATIONS
Each Fund is a diversified investment company under the 1940 Act, and,
therefore, with respect to 75% of its assets, it may not (a) invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the U.S. Government, its agencies and instrumentalities, or (b) own more than
10% of the outstanding voting securities of any one issuer. Each Fund also
operates under certain investment restrictions that are deemed fundamental
policies and may be changed only with the approval of the holders of a majority
of the Fund's outstanding shares. See "Investment Limitations" in the Statement
of Additional Information. In addition, each Fund operates under certain
non-fundamental investment limitations as described below and in the Statement
of Additional Information.
The Equity Growth Fund may not borrow money, except from banks for
extraordinary or emergency purposes, and then only in amounts up to 10% of the
value of the Fund's total assets, taken at cost at the time of borrowing. In
addition, the Fund may mortgage, pledge, or hypothecate any assets in connection
with any such borrowing in amounts up to 10% of the Fund's net assets at the
time of the borrowing.
The Value Fund and the Mid Cap Growth Fund may not borrow money, except (i)
as a temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of the Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). The Value and Mid
Cap Growth Funds may borrow money other than from banks or other Funds, provided
such borrowing is not inconsistent with the 1940 Act, as amended, or the Rules
and Regulations or interpretations or orders of the Securities and Exchange
Commission ("SEC")
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thereunder. The Value and Mid Cap Growth Funds may not purchase additional
securities when borrowings exceed 5% of their total (gross) assets. In addition,
the Value Fund and the Mid Cap Growth Fund may pledge, mortgage or hypothecate
assets in an amount up to 50% of its total assets, provided that each Fund may
segregate assets without limit in order to comply with the requirements of
Section 18(f) of the Investment Company Act of 1940, as amended, and applicable
interpretations thereof published from time to time by the SEC and its staff.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISERS. Morgan Stanley Asset Management Inc. (an "Adviser") is
the investment adviser and administrator of the Equity Growth Fund and Miller
Anderson & Sherrerd, LLP (an "Adviser") is the investment adviser and
administrator of the Mid Cap Growth and Value Funds. The Advisers provide
investment advice and portfolio management services pursuant to investment
advisory agreements (the "Investment Advisory Agreements") and, subject to the
supervision of the Company's Board of Directors, make the Fund's investment
decisions, arrange for the execution of portfolio transactions and generally
manage the Fund's investments. The Adviser is entitled to receive an advisory
fee computed daily and paid monthly at the following annual rates for each Fund:
<TABLE>
<S> <C>
Value Fund [--]
Equity Growth Fund [--]
Mid Cap Growth Fund [--]
</TABLE>
Each of the Advisers has agreed to a reduction in the fees payable to it and
to reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause total annual operating expenses of the Funds to exceed the
maximums set forth in "Fund Expenses."
MSAM, 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, 1996, the Adviser together with its affiliated asset
management companies (other than MAS) managed investments totaling approximately
$66.0 billion, including approximately $49.4 billion under active management and
$16.6 billion as Named Fiduciary or Fiduciary Adviser. MAS is a Pennsylvania
limited liability partnership founded in 1969 with principal offices at One
Tower Bridge, West Conshohocken, Pennsylvania 19428. MAS provides investment
services to employee benefit plans, endowment funds, foundations and other
institutional investors and has served as investment adviser to several open-end
investment companies since 1984. At September 30, 1996, MAS managed investments
totalling approximately $37.5 billion. See "Management of the Company --
Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Equity Funds noted below:
VALUE FUND -- ROBERT J. MARCIN AND RICHARD M. BEHLER. Robert J. Marcin, a
Managing Director of Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the MAS Funds Value Portfolio in 1990 and the MAS Funds
Equity Portfolio in 1994. Richard M. Behler, a Principal of Morgan Stanley,
joined Miller Anderson & Sherrerd, LLP ("MAS"), in 1995. He served as a
Portfolio Manager from 1992 through 1995 for Moore Capital
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Management and as Senior Vice President for Merrill Lynch Economics from 1987
through 1992. He assumed responsibility for the MAS Funds Value Portfolio in
1996. Mr. Behler and Mr. Marcin have shared primary responsibility for managing
the Fund's assets since its inception.
EQUITY GROWTH FUND -- KURT A. FEUERMAN AND MARGARET K. JOHNSON. Kurt
Feuerman is a Managing Director of the Adviser. Prior to joining the Adviser in
July 1993, he spent over three years in Morgan Stanley's Research Department
where he was responsible for restaurant, gaming and emerging growth stocks.
Before joining Morgan Stanley, Mr. Feuerman was a Managing Director at Drexel
Burnham Lambert, where he had been an equity analyst since 1984. From 1982 to
1984, Mr. Feuerman was at the Bank of New York, following the auto and auto
parts industries. Mr. Feuerman earned a B.A. degree from McGill University, an
M.A. from Syracuse University, and an M.B.A. from Columbia University. Margaret
Johnson is a Principal of the Adviser and a Portfolio Manager in the
Institutional Equity Group. She joined the Adviser in 1984 and worked as an
Analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became an
Equity Analyst in 1986 and a Portfolio Manager in 1989. Prior to joining Morgan
Stanley, she 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. Mr.
Feuerman and Ms. Johnson have had primary responsibility for managing the Fund's
assets since its inception.
MID CAP GROWTH FUND -- ARDEN C. ARMSTRONG AND ABHI Y. KANITKAR. Arden
Armstrong, a Managing Director of Morgan Stanley, joined MAS in 1986. She
assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1990, the
MAS Funds Growth Portfolio in 1993 and the MAS Funds Equity Portfolio in 1994.
Abhi Kanitkar, a Vice President of Morgan Stanley, joined MAS in 1994. He served
as an Investment Analyst from 1993 through 1994 for Newbold's Asset Management
and as Director & Investment Analyst from 1990 through 1993 for Kanitkar
Investment Services, Inc. He assumed responsibility for the MAS Funds Mid Cap
Growth Portfolio in 1996. Ms. Armstrong and Mr. Kanitkar have shared primary
responsibility for managing the Fund's assets since its inception.
ADMINISTRATORS. The Administrators also provide the Company with
administrative services pursuant to separate administration agreements (the
"Administration Agreements"). The services provided under the Administration
Agreements are subject to the supervision of the officers and Board of Directors
of the Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration Agreements also provide that the
Administrators through its agents will provide the Company dividend disbursing
and transfer agent services. For their services under the Administration
Agreements, the Company pays the Administrators a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of the applicable Fund.
Under sub-administration agreements between the Administrators and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrators supervise and monitor such administrative services
provided by CGFSC. The services provided under the sub-administration agreements
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreements as being in the
best
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interests of the Company. CGFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913. For additional information on the Administration
Agreement, see "Management of the Company" in the Statement of Additional
Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Advisers, Administrators and Distributor.
The Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. (" " or the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, sells shares of the Company
upon the terms and at the current offering price described in this Prospectus.
is not obligated to sell any specific number of shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the 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
Funds a distribution fee, which is accrued daily and paid quarterly, at a
maximum rate of 0.75% of the Class B shares and Class C shares of each Fund, on
an annualized basis of the average daily net assets of such classes. The actual
amount of such compensation is agreed upon by the Company's Board of Directors
and by the Distributor. 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 Distributor
may, in its discretion, voluntarily waive from time to time all or any portion
of its distribution fee and the Distributor is free to make additional payments
out of its own assets to promote the sale of Fund shares. Class A shares, Class
B shares and Class C shares are subject to a service fee at an annual rate of
0.25% on an annualized basis of the average daily net assets of such class of
shares of a Fund. In addition to such payments, the Advisers may use their
advisory fees or other resources to pay expenses associated with activities
which might be construed to be financing the sale of these Funds' shares
including payments to third parties that provide assistance in the distribution
effort (in addition to selling shares and providing shareholder services).
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the 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 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.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company 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
20
<PAGE>
outstanding voting securities of the applicable class of an Equity Fund. The fee
set forth above will be paid by the appropriate class to the Distributor unless
and until a Plan is terminated or not renewed. The Company intends to operate
each Plan in accordance with its terms and the NASD Conduct Rules concerning
sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Advisers or their affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Advisers or their
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Advisers may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The 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.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at
. Shares are also offered through members of the NASD who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents for investors ("brokers"). The term
"dealers" and "brokers" are sometimes referred to herein as "Participating
Dealers".
Initial investments must be at least $ for each class of shares, and
subsequent investments must be at least $ for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of [Van Kampen American Capital]
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each
21
<PAGE>
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the Participating
Dealer and processed at the offering price next calculated after acceptance by
ACCESS.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the
22
<PAGE>
average total daily net assets of the Fund on an annual basis. All of the
foregoing payments are made by the Distributor out of its own assets. These
programs will not change the price an investor will pay for shares or the amount
that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF NET DEALERS (AS %
OFFERING AMOUNT OF OFFERING
SIZE OF INVESTMENT PRICE INVESTED PRICE)
- ------------------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000................... -- -- --
$50,000 but less than $100,000...... -- -- --
$100,000 but less than $250,000..... -- -- --
$250,000 but less than $500,000..... -- -- --
$500,000 but less than $1,000,000... -- -- --
$1,000,000 or more*................. * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: % on sales to $ million, plus % on the next
million, plus % on the excess over $ million. See "Purchase of Shares --
Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
23
<PAGE>
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor [except the Morgan Stanley
Institutional Fund, Inc.]
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receive
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
24
<PAGE>
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1)Current or retired Trustees/Directors of funds advised by an Adviser, Van
Kampen American Capital Investment Advisory Corp. and such persons'
families and their beneficial accounts.
(2)Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3)Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4)[Registered investments advisers,] trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor
may pay Participating Dealers through which purchases are made an amount
up to 0.50% of the amount invested, over a 12-month period following such
transaction.
25
<PAGE>
(5)Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6)Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has
a separate agreement with the Distributor.
(7)Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(8)Pension, profit-sharing or other employee benefit plans created pursuant
to a plan qualified under Section 401 of the Code or plans under Section
457 of the Code, or employee benefit plans created pursuant to Section
403(b) of the Code and sponsored by non-profit organizations defined
under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount
invested in the fund(s) is at least $500,000, (2) the sponsor signs a
$500,000 LOI, or (3) such shares are purchased by an employee-sponsored
plan with more than 100 eligible employees. Section 403(b) plans
sponsored by public educational institutions will not be eligible for net
asset value purchases based on the aggregate investment made by the plan
or the number of eligible employees. Participants in such plans will be
eligible for reduced sales charges based solely on the aggregate value of
their individual investments in the applicable Fund.
(9)GROUP PURCHASES. Individuals who are members of a "qualified group" may
purchase Class A Shares of the Fund without the imposition of a front-end
sales charge. For this purpose, a qualified group is one which (i) has
been in existence for more than six months, (ii) has a purpose other than
to acquire shares of the Fund or similar investments, (iii) has given and
continues to give its endorsement or authorization, on behalf of the
group, for purchase of shares of the Fund and other Participating Funds,
(iv) has a membership that the authorized dealer can certify as to the
group's members and (v) satisfies other uniform criteria established by
the Distributor for the purpose of realizing economies of scale in
distributing such shares. A qualified group does not include one whose
sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment advisor or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a contingent deferred sales charge or one percent in the event
of redemption within one year of purchase, and a commission will be paid
to authorized dealers who initiate and are responsible for such sales to
each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren under 21 years of age, parents and a person's spouse's
parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following
26
<PAGE>
acceptance of the order. An authorized dealer may charge a transaction fee for
placing an order with respect to such shares. Authorized dealers will be paid a
service fee as described herein under "Distribution Plans" on purchases made as
described in (3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
The Distributor provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Van Kampen American Capital
Trust Company ("VK Trust"). This includes Simplified Employee Pension Plan
("SEP"), IRA accounts and prototype documents. Brochures describing such plans
and materials for establishing them are available from VK Trust upon request.
The brochures for plans trusteed by VK Trust describe the current fees payable
to VK Trust for its services as trustee. Investors should consult with their own
tax advisers before establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES
CHARGE AS
PERCENTAGE
OF THE
DOLLAR
AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ----------------------------------------------------------------------
<S> <C>
First....................................................... --%
Second...................................................... --%
Third....................................................... --%
Fourth...................................................... --%
Fifth....................................................... --%
Sixth....................................................... --%
Thereafter.................................................. None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
27
<PAGE>
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of % of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. The combination of the CDSC
and the distribution/service fee facilitates the ability of the Company to sell
the Class B shares without a sales charge being deducted at the time of
purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; (iii) to the extent that shares
redeemed have been withdrawn from a Systematic Withdrawal Plan, up to a maximum
amount of 12% per year from a shareholder account based on the value of the
account at the time the Withdrawal Plan is established, provided however that
all dividends and distributions are reinvested in Class B Shares; (iv) effected
pursuant to the right of the Company to liquidate a shareholder's account as
described herein under "Redemption of Shares"; or (v) redemptions of shares by
employee benefit plans (each, an "Employee Plan") qualified under Sections 401
or 457 of the Code or Plans created under Section 403(b) of the Code and
sponsored by nonprofit organizations as defined under Section 501(c)(3) of the
Code where (a) the initial amount invested by an Employee Plan in one or more of
the Funds is at least $1,000,000, (b) the sponsor of an Employee plan signs a
letter of intent to invest at least $1,000,000 in one or more of the Funds, or
(c) the shares being redeemed were purchased by an employer-sponsored Employee
Plan with at least 100 eligible employees; provided, however, that Employee
Plans created under Section 403(b) of the Code which are sponsored by public
educational institutions shall qualify under (a), (b) or (c) above on the basis
of the value of each Employee Plan participant's aggregate investment in the
Funds and not on the aggregate investment made by the Employee Plan or on the
number of eligible employees. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the name
of an individual person, (b) as a joint tenancy with rights of survivorship, (c)
as community property or (d) in the name of a minor child under the Uniform
Gifts or Uniform Transfers to Minors Act. A shareholder, or his or her
representative, must notify the Company's Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for this
waiver. The shareholder is responsible for providing sufficient documentation to
the Transfer Agent to verify the existence of such circumstances. For
information on the imposition and waiver of the CDSC, contact the Transfer Agent
at 1-800-341-2911.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
28
<PAGE>
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
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 pay to Participating Dealers 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 Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee of the fee or charge, it is assumed that shares not subject to
such fee or charge are the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of a Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of a Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinstatement privilege are
subject to the minimum applicable investment requirements. The reinstatement
privilege as to any specific Class A, Class B or Class C shares must be
exercised 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 reinstatement 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 reinstatement 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 reinstatement
privilege may be terminated or modified at any time. Reinstatement at net asset
value is also offered to participants in those eligible retirement plans held or
administered by Van Kampen American Capital Trust Company for repayment of
principal (and interest) on their borrowings on such plan. See the Statement of
Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCESS. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of [Van Kampen American
Capital] performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an
29
<PAGE>
account, the shareholder receives a statement showing the activity in the
account. Each shareholder will receive statements at least quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized brokers, dealers or
financial intermediaries or by mailing a check directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption thereof. In addition, if such certificates are
lost the shareholder must write to the Morgan Stanley Fund c/o ACCESS, P.O. Box
418256, Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to
obtain a Surety Bond in a form acceptable to ACCESS. On the date the letter is
received ACCESS will calculate a fee for replacing the lost certificate equal to
no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 421-5666 ((800) 772-8889
for the hearing impaired) or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Company."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distribution paid on a class of
shares of the Company invested into shares of the same class of any other
Participating Fund, [,or the Morgan Stanley Money Market Funds] so long as a
pre-existing account for such class of shares exists for such shareholder.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company
30
<PAGE>
should obtain and read a current prospectus of the Participating Funds into
which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER
PARTICIPATING FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days any
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund. Class A shares of
Van Kampen American Capital funds that generally do not impose an initial sales
charge are subject to the appropriate sales charge applicable to Class A shares
of the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company employ procedures considered by them to
be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, a shareholder
agrees that neither the Distributor nor the Company will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or
31
<PAGE>
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the principal, if necessary. Each
withdrawal constitutes a redemption of shares on which taxable gain or loss will
be recognized. The plan holder may arrange for monthly, quarterly, semi-annual,
or annual checks in any amount not less than $25.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of an Equity Fund at the time the Systematic
Withdrawal Plan commences, provided that the shareholder elects to have all
dividends and distributions on the shareholder's Class B shares automatically
reinvested in additional Class B shares. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, by placing the redemption request through Participating Dealer or by
calling the Company.
32
<PAGE>
The Company will redeem shares of a Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of a Fund that
were purchased without payment of the initial sales charge due to the size of
the purchase and are redeemed within one year of purchase. A maximum CDSC of
5.00% which decreases in steps to 0% after six years, will be imposed on certain
Class B shares of a Fund that are redeemed within six years of purchase. A CDSC
of 1.00% will be imposed on certain Class C shares of the Fund that are redeemed
within one year of purchase. See "Purchase of Shares." Any CDSC will be imposed
on the lesser of the current market value or the total cost of the shares being
redeemed. In determining whether a CDSC 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.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
to be redeemed, the class designation of such shares, the account number and be
signed exactly as the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$50,000, or if the proceeds are not to be paid to the record owner at the record
address, or if the record address has changed within the previous 30 days,
signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer, a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power an d sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signer and certified within the prior 60 days must accompany the redemption
request. The redemption price is the net asset value per share next determined
after the request is received by ACCESS in proper form. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days after acceptance by ACCESS of the request and
any other necessary documents in proper order. Such payments may be postponed or
the right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, ACCESS may delay
mailing a redemption check until it confirms that the purchase check has
cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $ unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
33
<PAGE>
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason, in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $ or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $ and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in or
to be of long-continued and indefinite duration." While the Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
34
<PAGE>
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is make within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
Reinstatement of net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
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 Company may impose a fee of $8.00 on a
wire redemption of shares of the Company that will be deducted from the
redemption proceeds.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
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
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such classes of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be 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. 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 obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income
35
<PAGE>
securities, which is accrued daily. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices but take into account institutional size
trading in similar groups of securities and any developments related to the
specific securities. Securities not priced in this manner are valued at the most
recent quoted bid price, or, when stock exchange valuations are used, at the
latest quoted sale price on the day of valuation. If there is no such reported
sale, the latest quoted bid price will be used. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. In the event that amortized cost does not approximate
market value, market prices as determined above will be used. The "amortized
cost" method of valuation does not take into account unrealized gains or losses.
This method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price each Fund would receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
Each Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the applicable Fund. Each Adviser may,
consistent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the applicable Fund to their clients or who act as agents in the
purchase of shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisers may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley") and
affiliates of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
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 for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objectives of each Fund described herein is not to invest for
short-term trading, each Fund will seek to take advantage of trading
opportunities as they arise to the extent they are consistent with the Fund's
36
<PAGE>
objectives. Accordingly, investment securities may be sold from time to time
without regard to the length of time they have been held. Each Fund anticipates
that its annual portfolio turnover rate will not exceed 100% under normal
circumstances but market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. High portfolio turnover involves
correspondingly greater transaction costs which will be borne directly by a
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds
described herein. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in a 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
the Fund were reinvested on the reinvestment dates during the period. Total
return does not take into account any federal or state income taxes consequences
to shareholders subject to tax. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and Morgan Stanley Capital International.
The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.
PERFORMANCE OF INVESTMENT ADVISERS
MSAM manages a portfolio of Morgan Stanley Institutional Fund, Inc. ("MSIF")
which served as the model for the Equity Growth Fund. Similarly, the Value and
Mid Cap Growth Funds were modeled after portfolios of the MAS Funds, which are
currently managed by MAS. Each portfolio of MSIF (the "MSIF Portfolio") and the
MAS Funds (the "MAS Portfolios") has substantially the same investment objective
and policies as its corresponding Fund. In addition, the Adviser intends each of
the Funds to be managed by the same personnel and to continue to have closely
similar investment strategies, techniques and characteristics as the
corresponding MSIF or MAS Portfolio. Past investment performance of the MSIF
Portfolio and the MAS Portfolios, as shown in the tables below, may be relevant
to your consideration of investment in a Fund. The investment performance of the
MSIF Portfolio or the MAS Portfolios is not necessarily indicative of future
performance of the Funds. Also, the operating expenses of the Funds will be
different from, and may be higher than, the operating expenses of the
corresponding MSIF or MAS Portfolio. The investment performance of the MSIF
Portfolio and MAS Portfolios are provided merely to indicate the experience of
the respective Advisers in managing similar investment portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a %
sales charge applicable to purchases of Class A shares of the Funds, (ii) with
respect to Class B shares, to take into account the applicable CDSC that is
imposed if Class B shares of the Funds are redeemed within the year of their
purchase indicated and (iii) with respect to the Class C shares, to take into
account a 1.00% CDSC that is imposed if Class C shares of the Funds 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.
37
<PAGE>
TOTAL RETURN FOR THE MSIF EQUITY GROWTH PORTFOLIO
FOR THE PERIOD ENDING
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- ------------------------------------------------------------------ --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Class A (of 4.75%)................................................ --% --% --% --%
Class B (of 5.00%)................................................ --% --% --% --%
Class C (of 1.00%)................................................ --% --% --% --%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................................... --% --% --% --%
Class B........................................................... --% --% --% --%
Class C........................................................... --% --% --% --%
</TABLE>
- ------------------
(1) Commenced Operations on .
The past performance of the MSIF Equity Growth Portfolio is no guarantee of
the future performance of the Equity Growth Fund.
TOTAL RETURN FOR THE MAS FUNDS VALUE PORTFOLIO
FOR THE PERIOD ENDING
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- ------------------------------------------------------------------ --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Class A (of 4.75%)................................................ --% --% --% --%
Class B (of 5.00%)................................................ --% --% --% --%
Class C (of 1.00%)................................................ --% --% --% --%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................................... --% --% --% --%
Class B........................................................... --% --% --% --%
Class C........................................................... --% --% --% --%
</TABLE>
- ------------------
(1) Commenced Operations on .
The past performance of the MAS Funds Value Portfolio is no guarantee of the
future performance of the Value Fund.
38
<PAGE>
TOTAL RETURN FOR THE MAS FUNDS MID CAP GROWTH PORTFOLIO
FOR THE PERIOD ENDING
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- ------------------------------------------------------------------ --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Class A (of 4.75%)................................................ --% --% --% --%
Class B (of 5.00%)................................................ --% --% --% --%
Class C (of 1.00%)................................................ --% --% --% --%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................................... --% --% --% --%
Class B........................................................... --% --% --% --%
Class C........................................................... --% --% --% --%
</TABLE>
- ------------------
(1) Commenced Operations on .
The past performance of the MAS Funds Mid Cap Growth Portfolio is no
guarantee of the future performance of the Mid Cap Growth Fund.
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 of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
Each Equity Fund expects to distribute substantially all of its net
investment income in the form of annual dividends. Net realized gains, if any,
will be distributed annually. Confirmations of the purchase of shares of a Fund
through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Equity Fund, the net income attributable to and the dividends
payable on Class B shares and Class C shares of a Fund will be lower than the
net income
39
<PAGE>
attributable to and the dividends payable on Class A shares of the Fund. As a
result, the net asset value per share of the classes of a Fund will differ at
times. Expenses of the Company allocated to a particular class of shares of a
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Equity Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available capital loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by a 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 the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is
40
<PAGE>
less than the Shareholder's adjusted basis in the redeemed, exchanged or sold
shares. If capital gain distributions have been made with respect to shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Shareholders may also be subject to state and local taxes on
distributions from the Fund.
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 THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue
billion shares of common stock, par value $.001 per share. Pursuant
to the Company's By-Laws, the Board of Directors may increase the number of
shares the Company is authorized to issue without the approval of the
shareholders of the Company. 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 each Equity Fund, 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 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 Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial
41
<PAGE>
services for such assets. Morgan Stanley Trust may also hold certain domestic
assets for the Company. Morgan Stanley Trust is an affiliate of the Adviser and
the Distributor. For more information on the custodians, see "General
Information -- Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
42
<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 COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY 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
Prospectus Summary.................................................... 5
Investment Objectives and Policies.................................... 9
Additional Investment Information..................................... 11
Investment Limitations................................................ 17
Management of the Company............................................. 17
Purchase of Shares.................................................... 21
Shareholder Services.................................................. 29
Redemption of Shares.................................................. 32
Valuation of Shares................................................... 35
Portfolio Transactions................................................ 36
Performance Information............................................... 37
Dividends and Distributions........................................... 39
Taxes................................................................. 40
General Information................................................... 41
</TABLE>
MORGAN STANLEY
VALUE FUND
MORGAN STANLEY
EQUITY GROWTH FUND
MORGAN STANLEY
MID CAP GROWTH FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS DEBT FUND
A PORTFOLIO OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-341-2911
--------------
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each, a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the Morgan Stanley Emerging Markets Debt Fund (the "Fund," or
the "Emerging Markets Debt Fund"). The Company is designed to make available to
retail investors the expertise of Morgan Stanley Asset Management Inc., the
investment adviser (the "Adviser") and administrator (the "Administrator").
Shares are available through , (" ," or the "Distributor"),
and investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Emerging Markets Debt Fund that a prospective investor should know before
investing and it should be retained for future reference. The Company offers
other Funds which are described in other prospectuses and under "Prospectus
Summary" below. The Company currently offers the following Funds: (i) GLOBAL AND
INTERNATIONAL EQUITY -- Morgan Stanley Global Equity, Morgan Stanley Global
Equity Allocation, Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets,
Morgan Stanley Latin American and Morgan Stanley International Magnum Funds;
(ii) U.S. EQUITY -- Morgan Stanley American Value, Morgan Stanley Aggressive
Equity, Morgan Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan
Stanley U.S. Real Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED
INCOME -- Morgan Stanley Global Fixed Income, Morgan Stanley Emerging Markets
Debt, Morgan Stanley Worldwide High Income and Morgan Stanley High Yield Funds;
and (iv) MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley
Government Obligations Money Market Funds. Additional information about the
Company is contained in a "Statement of Additional Information," dated
, 1996, which is incorporated herein by reference. The Statement of
Additional Information and the prospectuses pertaining to the other Funds of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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 , 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Emerging Markets Debt Fund may incur:
<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT
SHAREHOLDER TRANSACTION EXPENSES FUND
- --------------------------------------------------------------------------------------------------- ----------------
<S> <C>
Maximum Sales Load Imposed on Purchases
Class A........................................................................................ %(1)
Class B........................................................................................ None
Class C........................................................................................ None
Maximum Sales Load Imposed on Reinvested Dividends
Class A........................................................................................ None
Class B........................................................................................ None
Class C........................................................................................ None
Deferred Sales Load
For Purchases up to $999,999
Class A........................................................................................ None
Class B........................................................................................ 5.00 %(2)
Class C........................................................................................ 1.00 %(3)
For Purchases of $1,000,000 or more
Class A........................................................................................ 1.00 %(1)
Class B........................................................................................ 5.00 %(2)
Class C........................................................................................ 1.00 %(3)
Redemption Fees (4)
Class A........................................................................................ None
Class B........................................................................................ None
Class C........................................................................................ None
Exchange Fees
Class A........................................................................................ None
Class B........................................................................................ None
Class C........................................................................................ None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Fund
which, when combined with the net asset value of the purchaser's existing
investment in Class A shares of the 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) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Fund are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. See "Purchase of Class B Shares." Any such CDSC will be
paid to the Distributor.
(3) Purchases of Class C shares of the Fund are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. Any such CDSC will be paid to
the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES EMERGING MARKETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) DEBT FUND
-------------------
<S> <C>
Investment Advisory Fee (after expense reimbursement and/or fee waiver) (5)
Class A...................................................................................... %
Class B...................................................................................... %
Class C...................................................................................... %
12b-1/Service Fees
Class A (6).................................................................................. 0.25%
Class B (6).................................................................................. 1.00%
Class C (6).................................................................................. 1.00%
Other Expenses (after expense reimbursement and/or fee waiver) (5)
Class A...................................................................................... %
Class B...................................................................................... %
Class C...................................................................................... %
Total Operating Expenses (after expense reimbursement and/or fee waiver) (5)
Class A...................................................................................... %
Class B...................................................................................... %
Class C...................................................................................... %
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Fund, if necessary, if such fees would cause the total
annual operating expenses of the Fund, as a percentage of average daily net
assets, to exceed the percentages set forth in the table above. The
following sets forth, for the Fund, (i) investment advisory fees absent
advisory fee waivers and (ii) expected total operating expenses absent fee
waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT FUND
-----------------------
<S> <C>
Total Operating Expenses
Class A........................ --
Class B........................ --
Class C........................ --
Investment Advisory Fees
(All Classes).................. --
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company." 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 Company."
(6) Of the 12b-1/Service fees for the Class A shares, the 0.25% represents a
shareholder service fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The Class A, Class B and Class C expenses and fees for the Fund are
based on estimates. For purposes of calculating the estimated expenses and fees
set forth above, the table assumes that the Fund's average daily net assets will
be $50,000,000. 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 Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of the Fund, including
the maximum % sales charge, (ii) Class B shares of the Fund, which have a
CDSC, but no initial sales charge and (iii) Class C shares of the Fund, which
have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT FUND
----------------
<S> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the same)
1 Year.......................................................................................... $ (1)
3 Years.........................................................................................
Class B shares
(Assuming complete redemption at end of period)
1 Year..........................................................................................
3 Years.........................................................................................
(Assuming no redemption)
1 Year..........................................................................................
3 Years.........................................................................................
Class C shares
(Assuming complete redemption immediately prior to the end of period)
1 Year..........................................................................................
3 Years.........................................................................................
(Assuming no redemption)
1 Year..........................................................................................
3 Years.........................................................................................
</TABLE>
- ------------------
(1) Certain large purchases may be subject to a reduced sales load. Purchases
of class A shares of the Fund which, when combined with the net asset value
of the purchaser's existing investment in Class A shares of the Funds,
aggregate $1 million or more are not subject to an initial sales charge. A
CDSC of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. THE FUND IS NEW AND 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.
4
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as advisers and administrators and providing
services as distributor. MAS serves as the Adviser and Administrator for the Mid
Cap Growth Fund and the Value Fund. MSAM serves as the Adviser and Administrator
for all of the other Funds listed below. Each Fund has its own investment
objective and policies designed to meet its specific goals. The investment
objective of the Emerging Markets Debt Fund is as follows:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, have not been included in the Funds named below. The
investment objectives of the other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located throughout the
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers. world, including U.S.
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.
5
<PAGE>
GLOBAL FIXED INCOME FUNDS:
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield income securities that offer a yield
above that generally available on debt securities in the four highest
rating categories of the recognized rating services.
- 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 located throughout the world.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH seeks long-term capital growth by investing primarily
in common stocks of smaller and medium size companies which are deemed by
the Adviser to offer long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Common Stocks which are
deemed by the Adviser to be relatively undervalued based on various
measures such as price/ earnings ratios and price/book ratios.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
6
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly owned subsidiary of Morgan Stanley Group Inc.
("MSGI"), which, together with its affiliated asset management companies had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." [On [ , 1996,
Morgan Stanley Group Inc. purchased the parent company of Van Kampen American
Capital, Inc. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with $ billion in
assets under management as of September 30, 1996.
RISK FACTORS
The investment policies of the Emerging Markets Debt Fund entail certain
risks and considerations of which an investor should be aware. The Fund will
invest in securities of foreign issuers, including emerging country securities.
Securities of foreign issuers and, in particular, emerging country securities,
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
United States. The Fund may invest in forward foreign currency exchange
contracts, and in foreign currency exchange futures and options thereon. The
Fund may invest in securities that are neither listed on a stock exchange nor
traded over-the-counter, including private placement securities. Such securities
may be less liquid than publicly traded securities. In addition, the Fund may
invest in derivatives, which include options, futures and options on futures and
the Fund may invest in repurchase agreements, lend its portfolio securities,
purchase securities on a when-issued or delayed delivery basis, and borrow money
in an amount not in excess of 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than borrowing. 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.
HOW TO INVEST
The Class A, Class B and Class C shares of the Fund are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Fund are offered at net asset value plus an initial sales charge of up to
% in graduated percentages based on the investor's aggregate investments in
the Funds. Shares of the Class B shares and Class C shares of the Fund are
offered at net asset value. Class B shares are subject to a
7
<PAGE>
contingent deferred sales charge ("CDSC") for redemptions within six years of
purchase and are subject to higher annual distribution-related expenses than the
Class A shares. Class C shares are subject to a CDSC for redemptions within one
year of purchase and are subject to higher annual distribution-related expenses
than the Class A shares. See "Purchase of Shares" for a discussion of reduction
of waiver of sales charges, which are available for certain investors. Share
purchases may be made through , through Participating Dealers or by
sending payments directly to the Fund. The minimum initial investment is $
for each class of the Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $100, except that the minimum for subsequent investments is
reduced for certain categories of investors and there is no minimum for
automatic reinvestment of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value per
share of the 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 the 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 CDSC of 1.00% on the lesser of the current market value of the shares
redeemed or the total cost of such shares. Certain Class B shares that are
redeemed within six years of purchase are subject to a maximum CDSC of 5.00%
which decreases in steps to 0% after six years. Certain Class C shares that are
redeemed within one year of purchase are subject to a CDSC of 1.00%. The CDSC
for each class is applicable to 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 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 the Fund to less than $ , the entire investment may be subject to
involuntary redemption. See "Redemption of Shares."
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Emerging Markets Debt Fund is described
below, together with the policies it employs in its efforts to achieve its
objective. The Fund's investment objective is a fundamental policy which may not
be changed by the Fund without the approval of a majority of the Fund's
outstanding voting securities. The investment policies described below are not
fundamental policies and may be changed without shareholder approval. There is
no assurance that the Fund will attain its investment objective.
THE EMERGING MARKETS DEBT FUND
The investment objective of the Fund is to seek high total return. In
seeking to achieve this objective, the Fund will seek to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. In addition, the Fund may invest
up to 35% of its total assets in debt securities of corporate issuers located in
or organized under the laws of emerging countries. 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, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation.
The Adviser intends to invest the 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. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. The Fund will focus its investments on those
emerging market countries in which it believes the economies are developing
strongly and in which the markets are becoming more sophisticated. Initially,
the 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 Morocco Russia
Argentina Greece Nicaragua Slovakia
Brazil Hungary Nigeria South Africa
Bulgaria India Pakistan Thailand
Chile Indonesia Panama Trinidad & Tobago
China Ivory Coast Paraguay Tunisia
Colombia Jamaica Peru Turkey
Costa Rica Jordan Philippines Uruguay
Czech Republic Malaysia Poland Venezuela
Dominican Republic Mexico Portugal Zaire
Ecuador
</TABLE>
In selecting emerging country debt securities for investment by the Fund, the
Adviser will apply a market risk analysis contemplating assessment of factors
such as liquidity, volatility, tax implications, interest rate sensitivity,
counterparty risks and technical market considerations. Currently, investing in
many emerging country securities is not feasible or may involve unacceptable
political risks. As opportunities to invest in debt securities in
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<PAGE>
other countries develop, the Fund expects to expand and further diversify the
emerging countries in which it invests. While the 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 conditions, the Fund's
assets will be invested in issuers in at least three countries.
Emerging country debt securities held by the 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
participations, 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 Fund will generally be listed but not traded
on a securities exchange, and non-U.S. Dollar-denominated securities held by the
Fund may or may not be listed or traded on a securities exchange. Investments in
emerging country debt securities entail special investment risks. The Fund will
be subject to no restrictions on the maturities of the emerging country debt
securities it holds; those maturities may range from overnight to 30 years.
The 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 Fund's assets may be invested in non-U.S. Dollar-denominated
securities. The portion of the Fund's assets invested in securities denominated
in currencies other than the U.S. Dollar will vary depending on market
conditions. Although the 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 Fund
may be limited in its ability to hedge against these risks. See "Additional
Investment Information" and the Statement of Additional Information.
In selecting particular emerging country debt securities for investment by
the 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. Emerging
country debt securities in which the 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 Fund's investments are expected to be rated in the lower and
lowest rating categories of internationally recognized credit rating
organizations or are expected to be unrated securities of comparable quality.
These types of debt obligations are predominantly speculative with respect to
the capacity to pay interest and repay principal in accordance with their terms
and generally involve a greater risk of default and of volatility in price than
securities in higher rating categories.
The 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 Fund's shares and
increases in the yield on the Fund's investments. See "Additional Investment
Information --Borrowing and Other Forms of Leverage." The Fund may also 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).
The Fund's investments in government, government-related and restructured
debt instruments are subject to special risks, including the issuer's inability
or unwillingness to repay principal and interest, requests to
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<PAGE>
reschedule or restructure outstanding debt and requests to extend additional
loan amounts. The Fund may have limited recourse in the event of default on such
debt instruments. The Fund may invest in loans, assignments of loans and
participations in loans. See "Additional Investment Information."
The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowing for investment purposes or to pay
dividends. Borrowing creates leverage which is a speculative characteristic.
Although the Fund is authorized to borrow, it will do so only when the Adviser
believes that borrowing will benefit the Fund after taking into account
considerations such as the costs of borrowing and the likely investment returns
on securities purchased with borrowed monies. Borrowing by the 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 Fund's net asset value per share and net
yield.
The Fund expects that all of its borrowing will be made on a secured basis.
The 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
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 Fund may also enter into reverse repurchase agreements. See "Additional
Investment Information -- Reverse Repurchase Agreements" below.
DEPOSITARY RECEIPTS
The Fund may invest in American Depositary Receipts ("ADRs"), 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.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Fund 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
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<PAGE>
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 Fund purchases or sells securities, locking in the U.S. Dollar
value of dividends declared on securities held by the Fund and generally
protecting the U.S. Dollar value of securities held by the Fund against exchange
rate fluctuations. While such forward contracts may limit losses to the Fund as
a result of exchange rate fluctuations, they will also limit any exchange rate
gains that might otherwise have been realized.
As another means of reducing the risks associated with investing in
securities denominated in foreign currencies, the Fund may enter into contracts
for the future acquisition or delivery of foreign currencies and may purchase
foreign currency options. These investment techniques are designed primarily to
hedge against anticipated future changes in currency prices that otherwise might
adversely affect the value of the Fund's portfolio securities. The Fund will
incur brokerage fees when it purchases or sells futures contracts or options,
and it will be required to maintain margin deposits. As set forth below, futures
contracts and options entail risks, but the Adviser believes that use of such
contracts and options may benefit the Fund by diminishing currency risks.
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward contracts for currency by means of purchasing put
or call options on foreign currencies on exchanges. A put option gives the Fund
the right to sell a currency at the exercise price until the expiration of the
option. A call option gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option. The Fund will not enter into
any futures contract or option if immediately thereafter the value of all the
foreign currencies underlying its futures contracts and foreign currency options
would exceed 10% of the value of its total assets. In addition, the Fund may
enter into a futures contract only if immediately thereafter not more than 5% of
its total assets are required as deposits to secure obligations under such
contracts.
FOREIGN INVESTMENT
The Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.
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.
12
<PAGE>
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and the Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies. Therefore, the value of the Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. The Fund will also
incur certain costs in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the Fund
may utilize appropriate futures contracts and options on futures contracts,
including securities index futures contracts and options on securities index
futures contracts.
The Fund will engage 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 primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by the Fund and the prices of futures and options relating to the stocks
purchased or sold by the 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 Fund's ability to hedge. For
more detailed information about futures transactions see "Investment Objectives
and Policies" in the Statement of Additional 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. The
Fund may invest in these investment funds subject to the provisions of the 1940
Act, and other applicable laws as discussed in the Statement of Additional
Information. If the Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the expenses of the
Fund (including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds.
13
<PAGE>
Certain of the investment funds referred to in the preceding paragraph are
advised by the Adviser. The Fund may, to the extent permitted under the 1940 Act
and other applicable law, invest in these investment funds. If the 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.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its 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 Fund will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of the Fund's total assets. 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 the Statement of Additional
Information.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The 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 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. In the case of Participations, the
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 Participations 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 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 Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is determined by the
Adviser to be creditworthy. When the 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 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 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 Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet the 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 Participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
MONEY MARKET INSTRUMENTS
Money market investments include obligations of the U.S. Government, its
agencies and instrumentalities, obligations of foreign sovereignties, commercial
paper and other high quality, short-term corporate obligations, bank
obligations, including certificates of deposit (including Eurodollar
certificates of deposit) and bankers' acceptances and repurchase agreements. For
more detailed information about these money market investments, see the
Statement of Additional Information.
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<PAGE>
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities.
Such unlisted securities, which include emerging country securities and
investments in new and early stage companies, 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, and 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.
Securities that are restricted from sale to the public without registration
("Restricted Securities") under the Securities Act of 1933, as amended, (the
"1933 Act") that can be offered and sold to qualified institutional buyers under
Rule 144A under that Act ("144A Securities") may not be treated as illiquid for
purposes of the Fund's liquidity restrictions. The Board of Directors has
adopted guidelines and delegated to the Adviser, subject to the supervision of
the Board of Directors, the daily function of determining and monitoring the
liquidity of Rule 144A securities. Rule 144A securities may become illiquid if
qualified institutional buyers are not interested in acquiring the securities.
OPTIONS TRANSACTIONS
The Fund may seek to increase its return or may hedge all or a portion of
its portfolio investments through stock options and stock index futures
contracts with respect to securities in which the Fund may invest. The Fund may
purchase and sell indexed financial futures contracts. An indexed futures
contract is an agreement to take or make delivery of an amount of cash equal to
the difference between the value of the index at the beginning and at the end of
the contract period. Successful use of indexed futures will be subject to the
Adviser's ability to predict correctly movements in the direction of the
relevant debt market. No assurance can be given that the Adviser's judgment in
this respect will be correct. The Fund may also purchase put or call options on
individual securities or baskets of securities. When the Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when the 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 Fund may write (i.e., sell) covered call options on securities and loan
participations and assignments held in its portfolio which give the purchaser
the right to buy the underlying security, loan participation or assignment
covered by the option from the Fund at the stated exercise price. The Fund will
receive a premium from writing call options, which increases the Fund's return
on the underlying security, loan participation or assignment in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security, loan participation or assignment above the exercise
price of the option for as long as the Fund's obligation as writer of the option
continues.
The Fund 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 Fund is not
fully invested in emerging country debt securities and anticipates a significant
market advance, it may purchase indexed futures in order to gain rapid market
exposure that may in part or entirely offset, increase
15
<PAGE>
in the cost of securities that it intends to purchase. In a substantial majority
of these transactions, the 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.
The Fund may also write (i.e., sell) covered put options. By selling a
covered put option, the 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 Fund will be exercisable by the purchaser only on a specific
date).
The 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 primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by the
Fund and the prices of options relating to the securities purchased or sold by
the Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with brokers, dealers or banks
that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, the 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 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, the
Fund might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Fund's realization upon the collateral may be delayed or
limited. Repurchase agreements with durations (or maturities) over seven days in
length are considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Fund 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 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 money by the Fund. The
Fund's investment of the proceeds of a reverse repurchase agreement is the
speculative factor known as leverage. The 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
Fund will maintain with the Custodian a separate account with a segregated
portfolio of cash or liquid securities 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 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 Fund's
repurchase obligation, and the Fund's use of proceeds of the
16
<PAGE>
agreement may effectively be restricted pending such decision. Reverse
repurchase agreements are considered to be borrowings and are subject to the
percentage limitations on borrowings set forth in the Statement of Additional
Information.
SHORT SALES
The Fund may from time to time sell securities short without limitation. A
short sale is a transaction in which the 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 Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, the Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. The 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 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, or U.S. Government securities or other liquid securities. In
addition, the Fund will place in a segregated account with its Custodian an
amount of cash or liquid securities 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 Fund involve
certain risks and special considerations. Possible losses from short sales
differ from losses that could be incurred from a purchase of a security, because
losses from short sales may be unlimited, whereas losses from purchases can
equal only the total amount invested.
STRUCTURED INVESTMENTS
The 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 Fund
anticipates it will invest typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments. The
Fund is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
TEMPORARY INVESTMENTS
During periods in which the Adviser believes changes in economic, financial
or political conditions make it advisable, the Fund may reduce its holdings in
emerging country debt securities, for temporary defensive
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<PAGE>
purposes, and the Fund 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 Fund may invest consist of (a) obligations of the U.S. or emerging
country governments, their respective agencies or instrumentalities; (b) bank
deposits and bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. or emerging country banks 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 meeting the Fund's credit
quality standards; and (e) repurchase agreements with banks and broker-dealers
with respect to such securities. For temporary defensive purposes, the 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).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The 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. The payment obligation and the
interest rates that will be received are each fixed at the time the Fund enters
into the commitment, and no interest accrues to the Fund until settlement.
ZERO COUPON, PAY-IN-KIND OR DEFERRED PAYMENT SECURITIES
Zero coupon securities are securities that are sold at a discount to par
value and on which interest payments are not made 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 have received annually "phantom income." Because
the Fund will distribute its "phantom income" to shareholders, to the extent
that shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional shares, the Fund will have fewer assets with which
to purchase income producing securities. The Fund accrues income with respect to
these securities prior to the receipt of cash payments. 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.
INVESTMENT LIMITATIONS
The Emerging Markets Debt Fund is a non-diversified investment company under
the 1940 Act, which means that it 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, the Emerging Markets Debt Fund 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. The Emerging Markets Debt Fund, 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."
18
<PAGE>
The Fund also operates under certain investment restrictions that are deemed
fundamental policies and may be changed by the Fund only with the approval of
the holders of a majority of the Fund's outstanding shares. See the Statement of
Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and the Funds. The
Adviser provides investment advice and portfolio management services pursuant to
an investment advisory agreement (an "Investment Advisory Agreement") and,
subject to the supervision of the Company's Board of Directors, makes the Fund's
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments. The Adviser is contractually entitled
to receive advisory fees computed daily and paid monthly at the annual rate of
% of the average daily net assets of the Fund. The Adviser has agreed to a
reduction in the fees payable to it and to reimburse to the Fund, if necessary,
if such fees would cause total annual operating expenses of the Fund to exceed
the maximum set forth in "Fund Expenses."
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, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.9 billion under active management and $16.6
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
PORTFOLIO MANAGER -- The following individual has primary portfolio
management responsibility for the Fund.
EMERGING MARKETS DEBT FUND -- PAUL GHAFFARI. Paul Ghaffari is a Principal
of Morgan Stanley. He joined the Adviser in June 1993 as a Vice President and
Portfolio Manager for the Morgan Stanley Emerging Markets Debt Fund (a
closed-end investment company). Prior to joining the Adviser, Mr. Ghaffari was a
Vice President in the Fixed Income Division of the Emerging Markets Sales and
Trading Department at Morgan Stanley. From 1983 to 1992, he worked in 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 an
M.S. in Foreign Service from Georgetown University. Mr. Ghaffari has had primary
responsibility for managing the Portfolio's assets since the Fund commenced
operations.
ADMINISTRATOR. The Administrator also provides the Company with
administrative services pursuant to a separate administration agreement (the
"Administration Agreement"). The services provided under the Administration
Agreement are subject to the supervision of the officers and Board of Directors
of the Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration
19
<PAGE>
Agreement also provides that the Administrator through its agents will provide
the Company dividend disbursing and transfer agent services. For its services
under the Administration Agreement, the Company pays the Administrator a monthly
fee which on an annual basis equals 0.25% of the average daily net assets of the
Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank, N.A. ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the Administration Agreement as being in the best
interests of the Company. CGFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913. For additional information on the Administration
Agreement, see "Management of the Company" in the Statement of Additional
Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. (" " or the "Distributor")
serves as the Distributor of the shares of the Company. Under its distribution
agreement (the "Distribution Agreement") with the Company, the Distributor sells
shares of the Company upon the terms and at the current offering price described
in this Prospectus. The Distributor is not obligated to sell any specific number
of shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Emerging
Markets Debt Fund 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 the Fund a distribution fee, which is accrued daily and paid quarterly, at
a maximum rate of 0.75% of the Class B shares and Class C shares of the Fund, on
an annualized basis of the average daily net assets of such classes. The actual
amount of such compensation is agreed upon by the Company's Board of Directors
and by the Distributor. The Distributor expects to pay a portion of its fee to
investment dealers, banks or financial services firms that provide distribution
services (each, a "Participating Dealer"). 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 Rule 12b-1 plan of each
of the Class B shares and Class C shares authorizes the payment of service fee
at an annual rate of 0.25% on an annualized basis of the average daily net
assets of such class of shares of the Fund as compensates the Distributor for
shareholder services. In addition to such payments, the Adviser may use its
advisory fees or other resources to pay expenses associated with activities
which might be construed to be financing the sale of the Fund's shares including
payments to third parties that provide assistance in the distribution effort (in
addition to selling shares and providing shareholder services).
20
<PAGE>
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
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 Fund 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.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company 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 the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Fund is 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.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at
. Shares are also offered through members of the NASD who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents for investors ("brokers"). The term
"dealers" and "brokers" are sometimes referred to herein as "Participating
Dealers".
Initial investments must be at least $ for each class of shares, and
subsequent investments must be at least $ for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application,
21
<PAGE>
through the Participating Dealer, to the shareholder service agent, ACCESS
Investor Services, Inc., a wholly-owned subsidiary of [Van Kampen American
Capital] ("ACCESS"). When purchasing shares of the Company, investors must
specify whether the purchase is for Class A shares, Class B shares or Class C
shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the Participating
Dealer and processed at the offering price next calculated after acceptance by
ACCESS.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and
22
<PAGE>
sponsor business seminars for, qualifying authorized dealers for certain
services or activities which are primarily intended to result in sales of shares
of the Company. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF NET DEALERS (AS %
OFFERING AMOUNT OF OFFERING
SIZE OF INVESTMENT PRICE INVESTED PRICE)
- ------------------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000................... -- -- --
$50,000 but less than $100,000...... -- -- --
$100,000 but less than $250,000..... -- -- --
$250,000 but less than $500,000..... -- -- --
$500,000 but less than $1,000,000... -- -- --
$1,000,000 or more*................. * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: % on sales to $ million, plus % on the next
million, plus % on the excess over $ million. See "Purchase of Shares --
Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the
23
<PAGE>
described services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a bank would result in any material adverse consequences to the Company.
State securities laws regarding registration of banks and other financial
institutions may differ from the interpretations of federal law expressed herein
and banks and other financial institutions may be required to register as
dealers pursuant to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor except the Morgan Stanley Institutional
Fund, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
24
<PAGE>
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund by:
(1)Current or retired Trustees/Directors of funds advised by an Adviser, Van
Kampen American Capital Investment Advisory Corp. and such persons'
families and their beneficial accounts.
(2)Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3)Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4)[Registered investments advisers,] trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in
25
<PAGE>
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Volume Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor
may pay Participating Dealers through which purchases are made an amount
up to 0.50% of the amount invested, over a 12-month period following such
transaction.
(5)Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6)Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has
a separate agreement with the Distributor.
(7)Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(8)Pension, profit-sharing or other employee benefit plans created pursuant
to a plan qualified under Section 401 of the Code or plans under Section
457 of the Code, or employee benefit plans created pursuant to Section
403(b) of the Code and sponsored by non-profit organizations defined
under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount
invested in the fund(s) is at least $500,000, (2) the sponsor signs a
$500,000 LOI, or (3) such shares are purchased by an employee-sponsored
plan with more than 100 eligible employees. Section 403(b) plans
sponsored by public educational institutions will not be eligible for net
asset value purchases based on the aggregate investment made by the plan
or the number of eligible employees. Participants in such plans will be
eligible for reduced sales charges based solely on the aggregate value of
their individual investments in the applicable Fund.
(9)GROUP PURCHASES. Individuals who are members of a "qualified group" may
purchase Class A shares of the Fund without the imposition of a front-end
sales charge. For this purpose, a qualified group is one which (i) has
been in existence for more than six months, (ii) has a purpose other than
to acquire shares of the Fund or similar investments, (iii) has given and
continues to give its endorsement or authorization, on behalf of the
group, for purchase of shares of the Fund and other Participating Funds,
(iv) has a membership that the authorized dealer can certify as to the
group's members and (v) satisfies other uniform criteria established by
the Distributor for the purpose of realizing economies of scale in
distributing such shares. A qualified group does not include one whose
sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment advisor or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a contingent deferred sales charge or one percent in the event
of redemption within one year of purchase, and a commission will be paid
to authorized dealers who initiate and are responsible for such sales to
each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren under 21 years of age, parents and a person's spouse's
parents.
26
<PAGE>
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order with respect to such shares. Authorized dealers will be
paid a service fee as described herein under "Distribution Plans" on purchases
made as described in (3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs trusteed
by Chase. This includes Simplified Employee Pension Plan ("SEP") IRA accounts
and prototype documents. Brochures describing such plans and materials for
establishing them are available from VK Trust Stanley upon request. The
brochures for plans trusteed by VK Trust describe the current fees payable to VK
Trust for its services as trustee. Investors should consult with their own tax
advisers before establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
27
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES
CHARGE AS
PERCENTAGE
OF THE
DOLLAR
AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ----------------------------------------------------------------------
<S> <C>
First....................................................... %
Second...................................................... %
Third....................................................... %
Fourth...................................................... %
Fifth....................................................... %
Sixth....................................................... %
Thereafter.................................................. None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. The combination of the CDSC
and the distribution/service fee facilitates the ability of the Company to sell
the Class B shares without a sales charge being deducted at the time of
purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; (iii) to the extent that shares
redeemed have been withdrawn from a Systematic Withdrawal Plan, up to a maximum
amount of 12% per year from a shareholder account based on the value of the
account at the time the Withdrawal Plan is established, provided however that
all dividends and distributions are reinvested in Class B Shares; (iv) effected
pursuant to the right of the Company to liquidate a shareholder's account as
described herein under "Redemption of Shares"; or (v) redemptions of shares by
employee benefit plans (each, an "Employee Plan") qualified under Sections 401
or 457 of the Code, or Plans created under Section 403(b) of the Code and
sponsored by nonprofit organizations as defined under Section 501(c)(3) of the
Code, where (a) the initial amount invested by an Employee Plan in one or more
of the Funds is at least $1,000,000, (b) the sponsor of an Employee Plan signs a
letter of intent to invest at least $1,000,000 in one or more of the Funds, or
(c) the shares being redeemed were purchased by an employer-sponsored Employee
Plan with 100 eligible employees; provided, however, that Employee Plans created
under Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Employee Plan participant's aggregate investment in the Funds, and not
on the aggregate investment made by the Employee Plan or on the number of
eligible employees. The waiver with respect to (i) above is only applicable in
cases where the shareholder account is registered (a) in the name of an
individual person, (b) as a joint tenancy with rights of survivorship, (c) as
community property or (d) in the name of a minor child under the Uniform Gifts
or Uniform Transfers to Minors Act. A shareholder, or his or her representative,
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must notify the Company's Transfer Agent prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver. The
shareholder is responsible for providing sufficient documentation to the
Transfer Agent to verify the existence of such circumstances. For information on
the imposition and waiver of the CDSC, contact the Transfer Agent at
1-800-282-4404.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor 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 pay to Participating Dealers 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 Company -- Distributor" above. In
determining whether a CDSC is payable, and, if so, the amount of the fee of the
fee or charge, it is assumed that shares not subject to such fee or charge are
the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of the Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of the Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of the Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinstatement privilege are
subject to the minimum applicable investment requirements. The reinstatement
privilege as to any specific Class A, Class B or Class C shares must be
exercised 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 reinstatement 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 reinstatement 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 reinstatement
privilege may be terminated or modified at any time. Reinstatement at net asset
value is also offered to participants in those eligible retirement
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plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal (and interest) on their borrowings on such plans. See the
Statement of Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra costs to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of [Van Kampen American
Capital] performs bookkeepping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account which shares are held by ACCESS. Except as described herein,
after each share transaction in an account, the shareholder receives a statement
showing the activity in the account. Each shareholder will receive statements at
least quarterly from ACCESS showing any reinvestments of dividends and capital
gains distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption thereof. In addition, if such certificates are
lost the shareholder must write to the Morgan Stanley Fund c/o ACCESS, P.O. Box
419256, Kansas City, MO 64141-9256, requesting an "affadavit of loss" and to
obtain a Surety Bond in a form acceptable to ACCESS. On the date the letter is
received ACCESS will calculate a fee for replacing the lost certificate equal to
no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 421-5666 ((800) 772-8889
for the hearing impaired) or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Company."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
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DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Company invested into shares of the same class of any other
Participating Fund, [or the Morgan Stanley Money Market Funds] so long as
pre-existing account for such class of shares exists for such shareholder.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund. Class A shares of
Van Kampen American Capital funds that generally do not impose an initial sales
charge are subject to the appropriate sales charge applicable to Class A shares
of the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the fund from which such shares
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such share originally was purchased.
Exchange of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company's employ procedure considered by them to
be reasonable to confirm their instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recordings,
telephone communications, and providing written confirmation of
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instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither the Distributor nor the Company will be liable
for following telephone instructions which it reasonably believes to be genuine.
If the exchanging shareholder does not have an account in the Participating Fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the principal, if necessary. Each withdrawal
constitutes a redemption of shares on which taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual or
annual checks in any amount not less than $25.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of the Fund at the time the Systematic
Withdrawal Plan commences, provided that the shareholder elects to have all
dividends and distributions on the shareholder's Class B shares automatically
reinvested in additional Class B shares. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must
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also include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to ACCESS, P.O. Box 419256, Kansas City, Missouri
64141-9256, by placing the redemption request through a Participating Dealer or
by calling the Company.
The Company will redeem shares of the Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of the Fund
that were purchased without payment of the initial sales charge due to the size
of the purchase and are redeemed within one year of purchase. A maximum CDSC of
5.00% which decreases in steps to 0% after six years, will be imposed on certain
Class B shares of the Fund that are redeemed within six years of purchase. A
CDSC of 1.00% will be imposed on certain Class C shares of the Fund that are
redeemed within one year of purchase. See "Purchase of Shares." Any CDSC will be
imposed on the lesser of the current market value or the total cost of the
shares being redeemed. In determining whether a CDSC 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.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
to be redeemed, the class designation of such shares, the account number and he
signed exactly as the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$50,000, or if the proceeds are not to be paid to the record owner at the record
address, or if the record address has changed within the previous 30 days,
signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signor and certified within the prior 60 days must accompany the redemption
request. The redemption price is the net asset value per share next determined
after the request is received by ACCESS in proper form. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days after acceptance by ACCESS of the request and
any other necessary documents in proper order. Such payments may be postponed or
the right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, ACCESS may delay
mailing a redemption check until it confirms that the purchase check has
cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
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DEALER REDEMPTION REQUEST. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $ unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Request") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal indemnification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason, in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $ or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $ and up to $1 million may be
redeemed daily of the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address or record. proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
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REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemption following the disability of holders of Class B shares
and Class C shares. An individual will be considered disabled for this purpose
of he or she meets the definition thereof in Section 72(m)(7) of the Code, which
in pertinent part defines a person as disabled of such person "is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
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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 Company may impose a fee of $8.00 on a
wire redemption of shares of the Company that will be deducted from the
redemption proceeds.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
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
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares of the Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of the Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be 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. 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 obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid 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
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Directors. For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. Dollars at the mean of the bid price and asked price of such currencies
against the U.S. Dollar as quoted by a major bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the Fund. The Adviser may, consistent
with NASD rules, place portfolio orders with qualified broker-dealers who
recommend the Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
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 for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances but market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. High portfolio turnover involves correspondingly greater
transaction costs which will be borne directly by the Fund. In addition, high
portfolio turnover may result in more capital gains which would be taxable to
the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Emerging
Markets Debt Fund. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in the 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 the Fund were reinvested on the reinvestment dates during the period. Total
return does not take into account any federal or state income taxes consequences
to shareholders subject to tax. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and Morgan Stanley Capital International.
37
<PAGE>
The respective performance figures for Class B shares and Class C shares of
the Fund will generally be lower than those for Class A shares of the Fund
because of the larger distribution fee charged to Class B shares and Class C
shares.
PERFORMANCE OF INVESTMENT ADVISER
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Emerging Markets Debt Fund. The
portfolio of MSIF (the "MSIF Portfolio") has substantially the same investment
objective and policies as the Emerging Markets Debt Fund. In addition, the
Adviser intends the Emerging Markets Debt Fund and the corresponding MSIF
Portfolio to be managed by the same personnel and to continue to have closely
similar investment strategies, techniques and characteristics. Past investment
performance of the MSIF Portfolio, as shown in the table below, may be relevant
to your consideration of investment in the Emerging Markets Debt Fund. The
investment performance of the MSIF Portfolio is not necessarily indicative of
future performance of the Emerging Markets Debt Fund. Also, the operating
expenses of the Emerging Markets Debt Fund will be different from, and may be
higher than, the operating expenses of the MSIF Portfolio. The investment
performance of the MSIF Portfolio is provided merely to indicate the experience
of the Adviser in managing similar investment portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a %
sales charge applicable to purchases of Class A shares of the Emerging Markets
Debt Fund; (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Emerging Markets Debt
Fund are redeemed within the year of their purchase indicated; and (iii) with
respect to the Class C shares, to take into account a 1.00% CDSC that is imposed
if Class C shares of the Emerging Markets Debt Fund 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.
TOTAL RETURN FOR THE MSIF EMERGING MARKETS DEBT PORTFOLIO
FOR THE PERIOD ENDING ___________________
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE EMERGING MARKETS DEBT FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------------------------------------- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
Class A (of 4.75%)...................... -- % -- % -- % -- %
Class B (of 5.00%)...................... -- % -- % -- % -- %
Class C (of 1.00%)...................... -- % -- % -- % -- %
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ----------------------------------------
<S> <C> <C> <C> <C>
Class A................................. -- % -- % -- % -- %
Class B................................. -- % -- % -- % -- %
Class C................................. -- % -- % -- % -- %
</TABLE>
- ------------------
(1) Commenced Operations on .
The past performance of the MSIF Emerging Markets Debt Portfolio is no
guarantee of the future performance of the Emerging Markets Debt Fund.
38
<PAGE>
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 of the Fund, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
The Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. Net realized gains, if any, will be
distributed annually. Confirmations of the purchase of shares of the Fund
through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase the Fund's net assets for the purpose of calculating net asset value
per share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net
asset value per share excludes the dividend or distribution (i.e., is reduced by
the per share amount of the dividend or distribution). Dividends and
distributions paid shortly after the purchase of shares by an investor, although
in effect a return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of the Fund, the net income attributable to and the dividends payable
on Class B shares and Class C shares of the Fund will be lower than the net
income attributable to and the dividends payable on Class A shares of the Fund.
As a result, the net asset value per share of the classes of the Fund will
differ at times. Expenses of the Company allocated to a particular class of
shares of the Fund will be borne on a pro rata basis by each outstanding share
of that class.
TAXES
TAX STATUS OF THE FUND
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Emerging Markets Debt 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 of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
39
<PAGE>
The Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
The Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by the Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by the
Fund attributable to dividends received from shares of domestic corporations
generally will not qualify for the dividends-received deduction to corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
the Fund's shares. Capital gains distributions are not eligible for the
corporate dividends-received deduction. The Fund will make annual reports to
shareholders of the federal income tax status of all distributions.
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and net capital gains prior to the end of each calendar year
to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by the 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 the Fund
and received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less than the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
the Fund.
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 THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. 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.
40
<PAGE>
The shares of the Fund, 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 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 Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company 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 Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
41
<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 COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY 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
Prospectus Summary.................................................... 5
Investment Objective and Policies..................................... 9
Additional Investment Information..................................... 11
Investment Limitations................................................ 18
Management of the Company............................................. 19
Purchase of Shares.................................................... 21
Shareholder Services.................................................. 30
Redemption of Shares.................................................. 33
Valuation of Shares................................................... 36
Portfolio Transactions................................................ 37
Performance Information............................................... 37
Dividends and Distributions........................................... 39
Taxes................................................................. 39
General Information................................................... 40
</TABLE>
MORGAN STANLEY
EMERGING MARKETS DEBT FUND
A PORTFOLIO OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-------------------------------------------------------------------------
MORGAN STANLEY GROWTH AND INCOME FUND
MORGAN STANLEY EUROPEAN EQUITY FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-282-4404
------------------
Morgan Stanley Fund, Inc. (the "Fund") is an open-end management investment
company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios. This prospectus (the "Prospectus")
describes the Class A, Class B and Class C shares of the Morgan Stanley Growth
and Income Fund and the Morgan Stanley European Equity Fund (each an "Investment
Fund" and collectively, the "Investment Funds"). The Fund is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"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").
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. The Fund offers additional portfolios
which are described in other prospectuses and under "Prospectus Summary" below.
The Fund currently offers the following portfolios: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Global Equity Allocation, Morgan Stanley Asian Growth,
Morgan Stanley Emerging Markets, Morgan Stanley Latin American, Morgan Stanley
International Magnum, Morgan Stanley Japanese Equity and Morgan Stanley European
Equity Funds; (ii) U.S. EQUITY -- Morgan Stanley American Value, Morgan Stanley
Aggressive Equity, Morgan Stanley Growth and Income and Morgan Stanley U.S. Real
Estate Funds; (iii) GLOBAL FIXED INCOME -- Morgan Stanley Global Fixed Income,
Morgan Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and
(iv) MONEY MARKET -- Morgan Stanley Money Market Fund, Morgan Stanley Tax-Free
Money Market Fund and Morgan Stanley Government Obligations Money Market Fund.
Additional information about the Fund is contained in a "Statement of Additional
Information," dated , which is incorporated herein by reference. The
Statement of Additional Information and the prospectuses pertaining to the other
portfolios of the Fund are available upon request and without charge by writing
or calling the Fund at the address and telephone number set forth above.
THE FUND'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED
OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION OF ITS AFFILIATES OR
CORRESPONDENTS THEREOF. THE FUND'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
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 .
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
an Investment Fund may incur:
<TABLE>
<CAPTION>
GROWTH AND EUROPEAN
SHAREHOLDER TRANSACTION INCOME EQUITY
EXPENSES FUND FUND
- ------------------------------ ---------- --------
<S> <C> <C>
Maximum Sales Load Imposed on
Purchases
Class A................... 4.75%(1) 4.75%(1)
Class B................... None None
Class C................... None None
Maximum Sales Load Imposed on
Reinvested Dividends
Class A................... None None
Class B................... None None
Class C................... None None
Deferred Sales Load For
Purchases up to $999,999
Class A................... None None
Class B................... 5.00%(2) 5.00%(2)
Class C................... 1.00%(3) 1.00%(3)
For Purchase of $1,000,000 or
more
Class A................... 1.00%(1) 1.00%(1)
Class B................... 5.00%(2) 5.00%(2)
Class C................... 1.00%(3) 1.00%(3)
Redemption Fees (4)
Class A................... None None
Class B................... None None
Class C................... None None
Exchange Fees
Class A................... None None
Class B................... None None
Class C................... None None
</TABLE>
- ------------------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the
Investment Funds which, when combined with the net asset value of the
purchaser's existing investment in Class A shares of these Funds, aggregate
$1 million or more are not subject to a sales load (an "initial sales
charge"). A contingent deferred sales charge ("CDSC") of 1.00% will be
imposed, however, on shares from any such purchase that are redeemed within
one year following such purchase. Any such CDSC will be paid to the
Distributor. Certain other purchases are not subject to an initial sales
charge. See "Purchase of Shares."
(2) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Investment Funds are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
will be paid to the Distributor.
(3) Purchases of Class C shares of the Investment Funds are subject to a CDSC of
1.00% for redemptions made within one year of purchase. Any such CDSC will
be paid to the Distributor.
(4) A charge of $8.00 may be imposed on redemptions by wire which is not an
expense of the Fund.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES GROWTH AND EUROPEAN
(AS A PERCENTAGE OF AVERAGE INCOME EQUITY
NET ASSETS) FUND FUND
---------- ----------
<S> <C> <C>
Investment Advisory Fee (after
expense reimbursement and/or
fee waiver) (6)
Class A................... 0.75% 1.00%
Class B................... 0.75% 1.00%
Class C................... 0.75% 1.00%
12b-1 Fees
Class A................... 0.25% 0.25%
Class B (7)............... 1.00% 1.00%
Class C (7)............... 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee
waiver) (6)
Class A................... 0.45% 0.45%
Class B................... 0.45% 0.45%
Class C................... 0.45% 0.45%
Total Operating Expenses
(after expense reimbursement
and/or fee waiver) (6)
Class A................... 1.45% 1.70%
Class B................... 2.20% 2.20%
Class C................... 2.45% 2.45%
</TABLE>
- ------------------------------
(6) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Investment Funds, if necessary, if such fees would cause the
total annual operating expenses of the Investment Funds, as a percentage of
average daily net assets, to exceed the percentages set forth in the table
above. The following sets forth, for each Investment Fund, (i) investment
advisory fees absent advisory fee waivers and (ii) expected total operating
expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OPERATING EXPENSES
------------- ---------------------------------
(ALL CLASSES) CLASS A CLASS B CLASS C
------------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Growth and Income Fund............. 0.75% 1.50% 2.25% 2.25%
European Equity Fund............... 1.00% 1.90% 2.65% 2.65%
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Fund." The
Adviser reserves the right to terminate any of its fee waivers at any time in
its sole discretion. For further information on Fund expenses, see
"Management of the Fund."
(7) Of the 12b-1 fees for the Class B shares and the Class C shares of the
Investment Funds, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Investment Funds will bear
directly or indirectly. The Class A, Class B and Class C expenses and fees for
the European Equity and Growth and Income 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").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each Investment Fund,
including the maximum 4.75% sales charge, (ii) Class B shares of each Investment
Fund, which have a CDSC, but no initial sales charge, and (iii) Class C shares
of each Investment Fund which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GROWTH AND EUROPEAN
INCOME EQUITY
FUND FUND
---------- ---------
<S> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the
same.)
1 Year........................................................... $ 62(1) $ 64(1)
3 Years.......................................................... 91 99
5 Years.......................................................... * *
10 Years......................................................... * *
Class B shares
(Assuming complete redemption at end of period)
1 Year........................................................... $ 72 $ 75
3 Years.......................................................... 99 106
5 Years.......................................................... * *
10 Years......................................................... * *
(Assuming no redemption)
1 Year........................................................... $ 22 $ 25
3 Years.......................................................... 69 76
5 Years.......................................................... * *
10 Years......................................................... * *
Class C shares
(Whether or not complete redemption occurs at end of period)
1 Year........................................................... $ 22(2) $ 25(2)
3 Years.......................................................... 69 76
5 Years.......................................................... * *
10 Years......................................................... * *
</TABLE>
- ------------------------------
* Because the Investment Funds were not operational as of the date of this
Prospectus, the Fund has not projected expenses beyond the three-year period
shown.
(1) Reduced sales charges apply to purchases of $100,000 or more of the Class A
shares of the Investment Funds. See "Purchase of Shares." For Class A shares
of the Investment Funds, generally purchases of $1 million or more may be
accomplished at net asset value without an initial sales charge, but may be
subject to a 1.00% CDSC if liquidated within one year of purchase.
(2) If Class C shares of the Investment Funds are redeemed within one year of
purchase, the expense figures in the first year increase to the following
amounts for each Investment Fund: Growth and Income Fund, $32; and European
Equity Fund, $35.
THE FOREGOING EXAMPLES 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 examples above would be greater.
4
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund currently consists of twenty-two investment portfolios which are
designed to offer investors a range of investment choices with Morgan Stanley
Asset Management Inc. providing services as Adviser and Administrator and Morgan
Stanley & Co. Incorporated providing services as Distributor. Each investment
portfolio has its own investment objective and policies designed to meet its
specific goals. The investment objective of each Investment Fund described in
this Prospectus is as follows:
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
The other investment portfolios of the Fund are described in other
prospectuses which may be obtained from the Fund at the address and telephone
number noted on the cover page of this Prospectus. The objectives of the Fund's
other investment portfolios are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation by investing
primarily in equity securities of Asian issuers, excluding Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The GLOBAL EQUITY FUND seeks long-term Capital Appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese 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.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
5
<PAGE>
- The AMERICAN VALUE FUND seeks high long-term total return by investing in
undervalued equity securities of small- to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH FUND seeks to achieve long-term capital growth by
investing primarily in common stocks of smaller and medium size companies
which are deemed by the Adviser to offer long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks which are
deemed by the Adviser to be relatively undervalued based on various
measures such as price/ earnings ratios and price/book ratios.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- 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 HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the three
highest rating categories of the recognized rating services.
- 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.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
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THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS CURRENTLY ARE NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI") which, together with its affiliated asset management companies, had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
the Fund and each of its Investment Funds. See "Management of the Fund --
Investment Adviser" and "-- Administrator." [On June 24, 1996, Morgan Stanley
Group Inc. entered into a definitive agreement to purchase the parent company of
Van Kampen American Capital, Inc. Van Kampen American Capital, Inc. is the
fourth largest non-proprietary mutual fund provider in the United States with $
billion in assets under management as of September 30, 1996. The acquisition is
expected to close by November , 1996.]
RISK FACTORS
The investment policies of each Investment Fund entail certain risks and
considerations of which an investor should be aware. The Growth and Income Fund
may, and the European Equity Fund 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 United States. The European Equity
Fund invests 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
Growth and Income Fund may invest in lower rated and unrated debt securities
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 Growth and Income Fund may
invest in reverse repurchase agreements. The Investment Funds may invest in
forward foreign currency exchange contracts and foreign currency exchange
futures and options to hedge the currency risks associated with investment in
non-U.S. dollar denominated securities. The Investment Funds may invest in
options. The European Equity Fund 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.
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HOW TO INVEST
The Class A, Class B and Class C shares of the Growth and Income and
European Equity Funds are designed to provide investors a choice of three ways
to pay distribution costs. Class A shares of the Investment Funds are offered at
net asset value plus an initial sales charge of up to % in graduated
percentages based on the investor's aggregate investments in the Investment
Funds. Class B shares and Class C shares of the Investment Funds are offered at
net asset value. Class B shares of the Investment Funds are subject to a
contingent deferred sales charge ("CDSC") for redemptions within six years of
purchase and are subject to higher annual distribution-related expenses than the
Class A shares. Class C shares are subject to a CDSC for redemptions within one
year of purchase and are subject to higher annual distribution-related expenses
than the Class A shares. Share purchases may be made through Morgan Stanley,
through Participating Dealers or by sending payments directly to Chase Global
Funds Services Company (the "Transfer Agent") on behalf of the Fund. The minimum
initial investment is $ for each Investment Fund, except that the minimum
initial investment amount for individual retirement accounts ("IRAs") is $ .
The minimum for subsequent investments is $ , except that the minimum for
subsequent investments for IRAs is $ and there is no minimum for automatic
reinvestment of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Investment Fund may be redeemed at any time at the net asset
value per share of the Investment Fund next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. A Class A shareholder of an Investment Fund who did not pay an initial
sales charge due to the size of the purchase and redeems shares within one year
of purchase will be subject to a CDSC of 1.00% on the lesser of the current
market value of the shares redeemed or the total cost of such shares. Certain
Class B shares that are redeemed within six years of purchase are subject to a
maximum CDSC of 5.00% which decreases in steps to 0% after six years. Certain
Class C shares that are redeemed within one year of purchase are subject to a
CDSC of 1.00%. The CDSC in each case is applicable to the lesser of the current
market value of the shares redeemed or the total cost of such shares. In
determining whether a CDSC 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
$ , the entire investment may be subject to involuntary redemption. See
"Redemption of Shares."
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Investment Fund is described below,
together with the policies the Investment Fund employs in its efforts to achieve
its objective. Each Investment Fund's investment objective is a fundamental
policy which may not be changed by the 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. For more information about certain investment practices
common to two or more of the Investment Funds and applicable quality
requirements, see "Additional Investment Information."
THE GROWTH AND INCOME FUND
The Growth and Income Fund seeks capital appreciation and current income by
investing primarily in equity and equity-linked securities. The Investment Fund
seeks to achieve its investment objective, consistent with reasonable investment
risk, by investing in equity securities of rapidly growing companies, or
convertible securities or other equity-linked, income-generating securities
(e.g., PERCS, ELKS, LYONs) of such companies. The Investment Fund will also
invest in slower-growth companies with stable or accelerating earnings and/ or
dividend growth. The equity securities of the foregoing companies in which the
Investment Fund will invest consist of common stock (dividend-paying, and to the
extent it is consistent with the Investment Fund's investment objective,
nondividend-paying), preferred stock and securities convertible into common
stock, such as convertible preferred stock, convertible bonds and warrants. The
Investment Fund will, under normal market conditions, invest at least 65% of the
value of its total assets in such equity securities. The Investment Fund is not
subject to any limit on the size of companies in which it may invest, but
intends to be primarily invested, under normal circumstances, in companies with
equity market capitalizations of approximately $750 million and above. The
Investment Fund is designed for investors who want an actively managed
diversified portfolio of selected equity securities that seeks to outperform the
total return of the S&P 500 Index, while providing a yield higher than the yield
of the S&P 500 Index.
The Investment Fund does not seek to achieve its objective with any
individual portfolio security, but rather it aims to manage the portfolio as a
whole in such a way as to achieve its objective. The Investment Fund attempts to
reduce risk by investing in many different economic sectors, industries and
companies. The Investment Fund's Adviser may under- or over-weight selected
economic sectors against the S&P 500 Index's sector weightings to seek to
enhance the Investment Fund's total return or reduce fluctuations in market
value relative to the S&P 500 Index. The Investment Fund's primary objective is
not to invest for short-term trading, although the Investment Fund will seek to
take advantage of trading opportunities as they arise to the extent that they
are consistent with the Investment Fund's objectives.
Pending investment or settlement, and for liquidity purposes, the Investment
Fund may invest in domestic, Eurodollar and foreign short-term money market
instruments. As determined by the Adviser, the Investment Fund may also purchase
such instruments to temporarily reduce the Investment Fund's equity holdings for
defensive purposes in response to adverse market conditions.
The Investment Fund may invest in when-issued and delayed delivery
securities. See "Additional Investment Information -- When-Issued and Delayed
Delivery Securities." The Investment Fund may invest up to
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34% of its total assets in securities that are rated below investment grade by a
nationally recognized statistical rating organization (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."
Any remaining assets of the Investment Fund not invested as described above
may be invested in certain securities or obligations, including derivative
securities, as set forth in "Additional Investment Information" below.
THE EUROPEAN EQUITY FUND
The European Equity Fund seeks long-term capital appreciation by investing
primarily in equity securities of European issuers, including those located in
Germany, France, Switzerland, Belgium, Italy, Finland, Sweden, Denmark, Norway
and the United Kingdom. Investments may also be made in the equity securities of
issuers located in the smaller and emerging markets of Europe. With respect to
the Investment Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. Under
normal circumstances, at least 65% of the total assets of the Investment Fund
will be invested in equity securities of European issuers.
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.
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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
equity securities 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 equity
securities of U.S. issuers. For a description of special considerations and
certain risks associated with investments in foreign issuers, see "Additional
Investment Information." The Investment Fund may temporarily reduce its equity
holdings for defensive purposes in response to adverse market conditions and
invest in domestic, Eurodollar and foreign short-term money market instruments.
See "Investment Objectives and Policies" in the Statement of Additional
Information.
Any remaining assets of the Investment Fund not invested as described above
may be invested in certain securities or obligations, including derivative
securities, as set forth in "Additional Investment Information" below.
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ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
The Growth and Income Fund may invest in convertible securities, preferred
stock, warrants or other securities exchangeable under certain circumstances for
shares of common stock. Warrants are instruments giving holders the right, but
not the obligation, to buy shares of a company at a given price during a
specified period.
The Growth and Income Fund may invest in equity-linked securities,
including, among others, PERCS, ELKS or LYONs, which are securities that are
convertible into, or the value of which is 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 which is fairly developed and liquid. The market for such securities may
be shallow, however, and high volume trades may be possible only with
discounting. In addition to the foregoing risks, the return on such securities
depends on the creditworthiness of the issuer of the securities, which may be
the issuer of the underlying securities or a third party investment banker or
other lender. The creditworthiness of such third party issuer of equity-linked
securities may, and often does, exceed the creditworthiness of the issuer of the
underlying securities. The advantage of using equity-linked securities over
traditional equity and debt securities is that the former are income producing
vehicles that may provide a higher income than the dividend income on the
underlying equity securities while allowing some participation in the capital
appreciation of the underlying equity securities. Another advantage of using
equity-linked securities is that they may be used for hedging to reduce the risk
of investing in the generally more volatile underlying equity securities.
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 is
preferred stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer at any time or if the issuer's common stock
is trading at a specified price level or better. The redemption price starts at
the beginning of the PERCS duration period at a price that is above the cap by
the amount of the extra dividends the PERCS holder is entitled to receive
relative to the common stock over the duration of the PERCS and declines to the
cap price shortly before maturity of the PERCS. In exchange for having the cap
on capital gains and giving the issuer the option to redeem the PERCS at any
time or at the specified common stock price level, the Investment Fund may be
compensated with a substantially higher dividend yield than that on the
underlying common stock. Investors, such as the Growth and Income 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.
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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 Growth and Income 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 Growth and
Income Fund, when it appears that they will increase in value due to the rise in
value of the underlying common stock.
DEPOSITARY RECEIPTS
The Growth and Income Fund may on occasion invest in American Depositary
Receipts ("ADRs"). 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.
Holders of unsponsored ADRs generally bear all the costs associated with
establishing the unsponsored ADR. The depositary of an unsponsored ADR is under
no obligation to distribute shareholder communications received from the
underlying issuer or to pass through to the holders of the unsponsored ADR
voting rights with respect to the deposited securities or pool of securities.
ADRs are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, ADRs in registered form
are designed for use in the U.S. securities market and ADRs in bearer form are
designed for use in securities
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markets outside the United States. The Investment Fund may invest in sponsored
and unsponsored ADRs. For purposes of the Investment Funds' investment policies,
an Investment Fund's investments in ADRs will be deemed to be investments in the
underlying securities.
DERIVATIVES
The Growth and Income and European Equity Funds may invest in derivatives,
which are financial products or instruments that derive their value from the
value of an underlying asset, reference rate or index. The following are
derivatives: forward foreign currency exchange contracts, options (e.g., puts
and calls), futures contracts, options on futures contracts, convertible
securities, warrants, equity-linked securities (e.g., PERCS, ELKS and LYONS),
structured securities, and depositary receipts. See elsewhere in this
"Additional Investment Information" section for descriptions of these various
instruments, and see "Investment Objectives and Policies" for more information
regarding any investment policies or limitations applicable to their use.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Growth and Income and European Equity Funds may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a decline in a foreign currency against the U.S. Dollar between the
trade date and settlement date when such Investment Funds purchases or sells
securities, locking in the U.S. Dollar value of dividends declared on securities
held by the Investment Fund and generally protecting the U.S. Dollar value of
securities held by the Investment Fund against exchange rate fluctuations. While
such forward contracts may limit losses to the Investment Fund as a result of
exchange rate fluctuations, they will also limit any exchange rate gains that
might otherwise have been realized. The Growth and Income Fund will enter into
such contracts only to protect against the effects of fluctuating rates of
currency exchange and exchange control regulations.
The Investment Funds may also enter into foreign currency futures contracts.
A foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a price
set at the time of the contract. Foreign currency futures contracts traded in
the U.S. are traded on regulated exchanges. Parties to a futures contract must
make initial "margin" deposits to secure performance of the contract, which
generally range from 2% to 5% of the contract price. There also are requirements
to make "variation" margin deposits as the value of the futures contract
fluctuates. The Investment Funds may not enter into foreign currency futures
contracts if the aggregate amount of initial margin deposits on the Investment
Fund's futures positions, including stock index futures contracts (which are
discussed below), would exceed 5% of the value of the Investment Fund's total
assets. The Investment Fund also will be required to segregate assets to cover
its futures contracts obligations.
At the maturity of a forward or futures contract, the Investment Fund may
either accept or make delivery of the currency specified in the contract or,
prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract. Closing purchase transactions with
respect to futures contracts are effected on an exchange. The Investment Fund
will only enter
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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 Growth and Income and European Equity Funds may attempt to accomplish
objectives similar to those described above with respect to forward and futures
contracts for currency by means of purchasing put or call options on foreign
currencies on exchanges. A put option gives such Investment Funds the right to
sell a currency at the exercise price until the expiration of the option. A call
option gives the Investment Fund the right to purchase a currency at the
exercise price until the expiration of the option.
Each Investment Fund's Custodian will place cash or liquid 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.
FOREIGN INVESTMENT
Each Investment Fund may invest in securities of foreign issuers. Investment
in securities of foreign issuers, especially in securities of issuers in
emerging countries, and in foreign branches of domestic banks involves somewhat
different investment risks from those affecting securities of U.S. issuers.
There may be limited publicly available information with respect to foreign
issuers, and foreign issuers are not generally subject to uniform accounting,
auditing, and financial and other reporting standards and requirements
comparable to those applicable to domestic companies. Therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in foreign countries than in the United States.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Investment Funds by domestic
companies. See "Taxes." Additional risks include future adverse political and
economic developments, the possibility that a foreign jurisdiction might impose
or change withholding taxes on income payable with respect to foreign
securities, possible seizure, nationalization or expropriation of the foreign
issuer or foreign deposits, and the possible adoption of foreign governmental
restrictions such as exchange controls. Emerging countries may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and an Investment Fund may temporarily hold uninvested
reserves in bank deposits in foreign currencies. Therefore,
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the value of an Investment Fund's assets measured in U.S. Dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Each Investment Fund will also incur certain costs
in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Growth and Income and European Equity Funds may utilize appropriate securities
index futures contracts and options on securities index 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 Investment Fund 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 on futures transactions only for hedging purposes.
The Growth and Income Fund 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 Growth and Income and European Equity Funds may enter into futures
contracts and options thereon provided that not more than 5% of each such
Investment Fund's total assets at the time of entering the transaction are
required as deposits to secure obligations under such contracts, and provided
further that not more than 20% of each Investment Fund's total assets, in the
aggregate are invested in futures contracts and options on futures contracts.
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 an Investment Fund will
be unable to close out a futures position or options contract will be minimized
by only
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<PAGE>
entering into futures contracts or options transactions for which there appears
to be a liquid secondary market. For more detailed information about futures
transactions see "Investment Objectives and Policies" in the Statement of
Additional Information.
INVESTMENT COMPANIES
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. The European Equity Fund may invest in these investment companies,
subject to the provisions of the Investment Company Act of 1940, as amended (the
"1940 Act") and other applicable laws. If the Investment Fund invests in such
investment companies, the Investment Fund's shareholders will bear not only
their proportionate share of the expenses of the Investment Fund (including
operating expenses and the fees of the Adviser), but also will indirectly bear
similar expenses of the underlying investment funds.
Certain of the investment companies referred to in the preceding paragraph
are advised by the Adviser. The Investment Fund may, to the extent permitted
under the 1940 Act and other applicable law, invest in these investment
companies. If the Investment Fund does elect to make an investment in such an
investment company, it will only purchase the securities of such investment
company in the secondary market.
LOANS OF PORTFOLIO SECURITIES
Each Investment Fund may lend its securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Investment Funds will
not enter into securities loan transactions exceeding in the aggregate 33 1/3%
of the market value of an Investment Fund's total assets. 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.
LOWER RATED AND UNRATED DEBT SECURITIES
The Growth and Income Fund may invest in lower rated or unrated debt
securities, commonly referred to as "junk bonds." In addition, the emerging
country debt securities in which the 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
17
<PAGE>
quality, regardless of prevailing interest rates. Fluctuations in the value of
the Investment Fund's investments will be reflected in the Investment Fund's net
asset value per share. The Adviser considers both credit risk and market risk in
making investment decisions for the Investment Fund. Investors should carefully
consider the relative risks of investing in lower rated and unrated debt
securities and understand that such securities are not generally meant for
short-term investing.
The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for emerging country debt securities. Such
disruptions may severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for lower rated and
unrated debt securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities.
As a result, the Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. In addition, there may be limited trading markets
for debt securities of issuers located in emerging countries. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Investment
Fund's net asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect the
Investment Fund's net asset value and investment practices, the secondary market
for lower rated and unrated debt securities, the financial condition of issuers
of such securities and the value of outstanding lower rated and unrated debt
securities. For example, U.S. federal legislation requiring the divestiture by
federally insured savings and loan associations of their investments in lower
rated and unrated debt securities and limiting the deductibility of interest by
certain corporate issuers of lower rated and unrated debt securities adversely
affected the market in recent years.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Investment
Fund may have to replace the security with a lower yielding security, resulting
in a decreased return for investors. If the Investment Fund experiences
unexpected net redemptions, it may be forced to sell its higher rated
securities, resulting in a decline in the overall credit quality of the
Investment Fund's investment portfolio and increasing the exposure of the
Investment Fund to the risks of lower rated and unrated debt securities.
MONEY MARKET INSTRUMENTS
The Growth and Income and European Equity 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, its agencies and instrumentalities, obligations of
foreign sovereignties, other debt securities, commercial paper including bank
obligations, certificates of deposit
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<PAGE>
(including Eurodollar certificates of deposit) and repurchase agreements. For
more detailed information about these money market investments, see "Description
of Securities and Ratings" in the Statement of Additional Information.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Investment Fund may invest in securities that are neither listed on a
stock exchange nor traded over the counter. Such unlisted [equity] securities
may involve a higher degree of business and financial risk that can result in
substantial losses. As a result of the absence of a public trading market for
these securities, they may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
such Investment Funds or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements which
might be applicable if their securities were publicly traded. If such securities
are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Investment Fund may be required to bear
the expenses of registration. As a general matter, an Investment Fund may not
invest more than 15% of its net assets in illiquid securities, including
securities for which there is no readily available secondary market. Securities
that are not registered under the Securities Act of 1933, as amended, but that
can be offered and sold to qualified institutional buyers under Rule 144A under
that Act will not be included within the foregoing 15% restriction if the
securities are determined to be liquid. The Board of Directors has adopted
guidelines and delegated to the Adviser, subject to the supervision of the Board
of Directors, the daily function of determining and monitoring the liquidity of
Rule 144A securities. Rule 144A securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
OPTIONS TRANSACTIONS
The Growth and Income and European Equity Funds may seek to increase their
return or may hedge all or a portion of their portfolio investments through
options with respect to securities in which the Investment Funds may invest. The
Investment Funds 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.
An 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 an Investment Fund.
An 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,
an 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
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<PAGE>
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.
An 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 or liquid securities 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. An Investment Fund
may sell put options to receive the premiums paid by purchasers and to close out
a long put option position. In addition, when the Adviser wishes to purchase a
security at a price lower than its current market price, an Investment Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
An Investment Fund may also purchase put or call options on individual
securities or baskets of securities. When an 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. An 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. An 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. An 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 an
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 an
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 an Investment
Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
REPURCHASE AGREEMENTS
The Investment Funds may enter into repurchase agreements with brokers,
dealers or banks that meet the credit guidelines of the Fund's Board of
Directors. In a repurchase agreement, an Investment Fund buys a security from a
seller that has agreed to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. The
term of these agreements is usually from overnight to one week and never exceeds
one year. A repurchase agreement may be viewed as a fully collateralized loan of
money by an Investment Fund to the seller. The Investment Funds always receive
securities as collateral with a market value at least equal to the purchase
price, including accrued interest, and this value is maintained during the term
of the agreement. If the seller defaults and the collateral value declines, an
Investment Fund might incur a loss. If
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<PAGE>
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 Growth and Income Fund 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 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 or liquid securities in an amount at least equal to its
purchase obligations under these agreements (including accrued interest). If
interest rates rise during a reverse repurchase agreement, it may adversely
affect the Investment Fund's ability to maintain a stable net asset value. In
the event that the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the Investment
Fund's repurchase obligation, and the Investment Fund's use of proceeds of the
agreement may effectively be restricted pending such decision. The aggregate of
these agreements is limited as set forth under "Investment Limitations." Reverse
repurchase agreements are considered to be borrowings and are subject to the
percentage limitations on borrowings set forth in "Investment Limitations."
SHORT SALES
The European Equity Fund may from time to time sell securities short without
limitation, although it does not intend to sell securities short on a regular
basis. A short sale is a transaction in which the Investment Fund would sell
securities it does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. When the Investment Fund makes a short sale,
the proceeds it receives from the sale will be held on behalf of a broker until
the Investment Fund replaces the borrowed securities. To deliver the securities
to the buyer, the Investment Fund will need to arrange through a broker to
borrow the securities and, in so doing, the Investment Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Investment Fund may have to pay
a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Investment Fund's obligation to replace the securities borrowed in
connection with a short sale will be secured by collateral deposited with the
broker that consists of cash, U.S. Government securities or other liquid, high
grade debt obligations. In addition, the Investment Fund will place in a
segregated account with its Custodian an amount of cash or liquid securities
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
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<PAGE>
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.
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 appropriate Custodian a
separate account with a segregated portfolio of cash or liquid securities 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. It is a current policy of the Investment Funds
not to enter into when-issued commitments or delayed delivery securities
exceeding, in the aggregate, 15% of an Investment Fund's net assets other than
the obligations created by these commitments.
INVESTMENT LIMITATIONS
Each Investment Fund 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, 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 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 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 market value at the
time of borrowing, or purchase securities while borrowings exceed 5% of its
total assets, or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing in amounts up to 10% of the value of the Investment
Fund's total assets at the time of borrowing; except that the Growth and Income
Fund may enter into reverse repurchase agreements in accordance with its
investment objectives and policies; (iii) invest in fixed time deposits with a
duration of over seven calendar days; (iv) invest in fixed time deposits with a
duration of from two business days to seven calendar days if more than 10% of
the Investment Fund's total assets would be invested in these deposits; or (v)
invest more than 25% of the Investment Fund's total assets in securities of
companies in any one industry.
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MANAGEMENT OF THE FUND
INVESTMENT ADVISER. Morgan Stanley Asset Management, Inc. (the "Adviser")
is the Investment Adviser and Administrator of the Fund and each of its
Investment Funds. The Adviser provides investment advice and portfolio
management services pursuant to an investment advisory agreement (the
"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. The Adviser is entitled to receive
advisory fees computed daily and paid monthly at the annual rates set forth
below.
<TABLE>
<S> <C>
Growth and Income Fund 0.75%
European Equity Fund 1.00%
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the Fund, if necessary, if such fees or expenses would
cause total annual operating expenses of the Fund to exceed the maximum set
forth in "Fund Expenses."
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, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately 103.5
billion, including approximately 86.9 billion under active management and 16.6
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Investment Funds noted below:
GROWTH AND INCOME FUND-- KURT A. FEUERMAN AND MARGARET KINSLEY JOHNSON. Kurt
Feuerman is a Managing Director of the Adviser and has shared primary management
responsibility for the Investment Fund since its commencement of operations.
Prior to joining the Adviser in July 1993, he spent over three years in
Morgan Stanley's Research Department where he was responsible for restaurant,
gaming and emerging growth stocks. Before joining Morgan Stanley, Mr. Feuerman
was a Managing Director at Drexel Burnham Lambert, where he had been an equity
analyst since 1984. From 1982 to 1984, Mr. Feuerman was at the Bank of New York,
following the auto and auto parts industries. Mr. Feuerman earned a B.A. degree
from McGill University, an M.A. from Syracuse University, and an M.B.A. from
Columbia University. Margaret Johnson is a Principal of the Adviser and has
shared primary management responsibility for the Investment Fund since its
commencement of operations. 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. Mr. Feuerman and Ms. Johnson have had primary
responsibility for managing the Fund's assets since it commenced operations.
EUROPEAN EQUITY FUND -- ROBERT SARGENT. Mr. Sargent is a Principal of the
Adviser and 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,
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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 it commenced operations.
ADMINISTRATOR. The Adviser also provides the Fund with administrative
services pursuant to a separate administration agreement (the "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 an agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase"), Chase Global Funds Services Company ("CGFSC"), a subsidiary of Chase,
provides certain administrative services to the Fund. The Adviser supervises and
monitors such administrative services provided by CGFSC. The services provided
under the administration agreement are 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
as being in the best interests of the Fund. CGFSC's business address is 73
Tremont Street, Boston, Massachusetts 02108-3913. For additional information on
the administration agreement, see "Management of the Fund" in the Statement of
Additional Information.
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, Administrator and Distributor. The Officers of
the Fund conduct and supervise its daily business operations.
DISTRIBUTOR.
(" " or the "Distributor") serves as the Distributor of
the shares of the Company. Under its distribution agreement (the "Distribution
Agreement") with the Company, sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. is not obligated to sell any specific number
of shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Global
Equity Fund 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 the Fund a distribution fee, which is accrued daily and paid quarterly, at
a maximum rate of 0.75% of the Class B shares and Class C shares of the Fund, on
an annualized basis of the average daily net assets of such classes. The actual
amount of such compensation is agreed upon by the Company's Board of Directors
and by the Distributor. The Distributor expects to pay a portion of its fee to
investment dealers, banks or financial services firms that provide distribution
services (each, a "Participating Dealer"). The Distributor may, in its
discretion, voluntarily waive
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<PAGE>
from time to time all or any portion of its distribution fee and the Distributor
is free to make additional payments out of its own assets to promote the sale of
Fund shares. Class A shares, Class B shares and Class C shares authorizes the
payment of service fee at an annual rate of 0.25% on an annualized basis of the
average daily net assets of such class of shares of the Fund as compensation the
Distributor for shareholder services. In addition to such payments, the Adviser
may use its advisory fees or other resources to pay expenses associated with
activities which might be construed to be financing the sale of the Fund's
shares, including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services).
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse for the actual expenses Morgan Stanley 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 Fund will not be obligated to pay more than that fee. If
actual expenses are less than the fee it receives,
will retain the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company 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 the Fund. The fee set
forth above will be paid by the appropriate class to Morgan Stanley unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Fund is 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.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at
. Shares are also offered through members of the NASD who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents for investors ("brokers"). The term
"dealers" and "brokers" are sometimes referred to herein as "Participating
Dealers".
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<PAGE>
Initial invetsments must be at least $ for each class of shares, and
subsequent investments must be at least $ for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of [Van Kampen American Capital]
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time) each
day the Exchange is open. Net asset value per share for each class is determined
by dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the Exchange are priced based on the
next close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time. Orders of less than $500 are mailed by
the Participating Dealer and processed at the offering price next calculated
after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer
26
<PAGE>
agency expenses associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF NET DEALERS (AS %
OFFERING AMOUNT OF OFFERING
SIZE OF INVESTMENT PRICE INVESTED PRICE)
- ------------------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
Less than $50,000................... -- -- --
$50,000 but less than $100,000...... -- -- --
$100,000 but less than $250,000..... -- -- --
$250,000 but less than $500,000..... -- -- --
$500,000 but less than $1,000,000... -- -- --
$1,000,000 or more*................. * * *
</TABLE>
- ------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: % on sales to $ million, plus % on the next
million, plus % on the excess over $ million. See "Purchase of Shares --
Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
27
<PAGE>
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933. The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate.
The Distributor does not believe that termination of a relationship with a
bank would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor [except the Morgan Stanley
Institutional Fund, Inc.]
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all
28
<PAGE>
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the charges applicable to the purchases made and
the charges previously paid. The initial purchase must be for an amount equal to
at least 5% of the minimum total purchased amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees/Directors of funds advised by an Adviser,
Van Kampen American Capital Investment Advisory Corp. and such persons'
families and their beneficial accounts.
29
<PAGE>
(2) Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4) [Registered investments advisers,] trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor
may pay Participating Dealers through which purchases are made an amount
up to 0.50% of the amount invested, over a 12-month period following such
transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.
(6) Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has
a separate agreement with the Distributor.
(7) Investors purchasing shares of a Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Pension, profit-sharing or other employee benefit plans created pursuant
to a plan qualified under Section 401 of the Code or plans under Section
457 of the Code, or employee benefit plans created pursuant to Section
403(b) of the Code and sponsored by non-profit organizations defined
under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount
invested in the fund(s) is at least $500,000, (2) the sponsor signs a
$500,000 LOI, or (3) such shares are purchased by an employer-sponsored
plan with more than 100 eligible employees. Section 403(b) plans
sponsored by public educational institutions will not be eligible for net
asset value purchases based on the aggregate investment made by the plan
or the number of eligible employees. Participants in such plans will be
eligible for reduced sales charges based solely on the aggregate value of
their individual investments in the applicable Fund.
(9) GROUP PURCHASES. Individuals who are members of a "qualified group" may
purchase Class A shares of the Fund without the imposition of a front-end
sales charge. For this purpose, a qualified group is one which (i) has
been in existence for more than six months, (ii) has a purpose other than
to acquire shares of the Fund or similar investments, (iii) has given and
continues to give its endorsement or authorization, on behalf of the
group, for purchase of shares of the Fund and other Participating Funds,
(iv) has a membership that the authorized dealer can certify as to the
group's members and (v) satisfies other uniform criteria established by
the Distributor for the purpose of realizing economies of scale in
30
<PAGE>
distributing such shares. A qualified group does not include one whose
sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a contingent deferred sales charge or one percent in the event
of redemption within one year of purchase, and a commission will be paid
to authorized dealers who initiate and are responsible for such sales to
each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren under 21 years of age, parents, and a person's spouse's
parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution Plans" on
purchases made as described in (3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
Van Kampen Merritt Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs trusteed
by Chase. This includes Simplified Employee Pension Plan ("SEP"), IRA accounts
and prototype documents. Brochures describing such plans and materials for
establishing them are available from VK Trust upon request. The brochures for
plans trusteed by Chase describe the current fees payable to Chase for its
services as trustee. Investors should consult with their own tax advisers before
establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year
31
<PAGE>
period after purchase. The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of purchase of
Class B shares until the redemption of such shares (the "holding period"). The
following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES
CHARGE AS
PERCENTAGE
OF THE
DOLLAR
AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ----------------------------------------------------------------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 3.0%
Fifth....................................................... 2.0%
Sixth....................................................... 1.0%
Thereafter.................................................. None*
</TABLE>
- ------------------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan, as described under
"Management of the Company -- Distributor" above. The combination of the CDSC
and the distribution/service fee facilitates the ability of the Company to sell
the Class B shares without a sales charge being deducted at the time of
purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; (iii) to the extent that shares
redeemed have been withdrawn from a Systematic Withdrawal Plan, up to a maximum
amount of 12% per year from a shareholder account based on the value of the
account at the time the Withdrawal Plan is established, provided however that
all dividends and distributions are reinvested in Class B Shares; (iv) effected
pursuant to the right of the Company to liquidate a shareholder's account as
described herein under "Redemption of Shares;" or (v) redemptions of shares by
employee benefit plans ("each, an Employee Plan") qualified under Sections 401
or 437 of the Code, or Plans created under Section 403(b) of the Code and
sponsored by nonprofit organizations as defined under Section 501(c)(1) of the
Code where (a) the initial amount invested by an Employee Plan in one or more of
the Funds is at least $1,000,000, (b) the sponsor of an Employee Plan signs a
letter of intent to invest at least $1,000,000 in one or more of the Funds, or
(c) the shares being redeemed were purchased by an employer-sponsored Employee
Plan with 100 eligible employees; provided, however, that Employee Plans created
under Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Employee Plan participant's aggregate investment in the Funds, and not
on the aggregate investment made by the Employee Plan or on the number of
eligible employees. The waiver with respect to
32
<PAGE>
(i) above is only applicable in cases where the shareholder account is
registered (a) in the name of an individual person, (b) as a joint tenancy with
rights of survivorship, (c) as community property or (d) in the name of a minor
child under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder,
or his or her representative, must notify the Company's Transfer Agent prior to
the time of redemption if such circumstances exist and the shareholder is
eligible for this waiver. The shareholder is responsible for providing
sufficient documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
the Transfer Agent at 1-800-341-2911.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor 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 pay to Participating Dealers 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 Company -- Distributor" above. In
determining whether a CDSC is payable, and, if so, the amount of the fee of the
fee or charge, it is assumed that shares not subject to such fee or charge are
the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of the Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of the Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of the Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinstatement privilege are
subject to the minimum applicable investment requirements. The reinstatement
privilege as to any specific Class A, Class B or Class C shares must be
exercised 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 reinstatement and a check or wire which does not exceed the
redemption proceeds. The written request must state that the reinstatement is
made pursuant to this reinstatement privilege. If a loss is realized on the
redemption of Class A shares, the reinstatement 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 reinstatement privilege may be terminated or
33
<PAGE>
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings. See the Statement of Additional Information for further
discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of [Van Kampen American
Capital] performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from ACCESS showing any reinvestments of dividends
and capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption thereof. In addition, if such certificates are
lost the shareholder must write to [Van Kampen American Capital Funds] c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Company. Such shares are acquired at net asset value (without sales charge)
on the record date of such dividend or distribution. Unless the shareholder
instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing impaired) or
in writing to ACCESS. The investor may, on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Company."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
34
<PAGE>
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Company invested into shares of the same class of any other
Participating Fund [,or the Morgan Stanley Money Market Funds], so long as a
pre-existing account for such class of shares exists for such shareholder.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A Shares of funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund. Class A Shares of
Van Kampen American Capital funds that generally do not impose an initial sales
charge are subject to the appropriate sales charge applicable to Class A Shares
of the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company employ procedures considered by them to
be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon
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telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither the Distributor nor
the Company will be liable for following telephone instructions which it
reasonably believes to be genuine. If the exchanging shareholder does not have
an account in the Participating Fund whose shares are being acquired, a new
account will be established with the same registration, dividend and capital
gains options (except dividend diversification options) and broker, dealer or
financial intermediary of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or dividend diversification
options for the new account, an exchanging shareholder must file a specific
written request. The Company reserves the right to reject any order to acquire
its shares through exchange. In addition, the Company may restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of the Fund at the time the Systematic
Withdrawal Plan commences, provided that the shareholder elects to have all
dividends and distributions on the shareholder's Class B shares automatically
reinvested in additional Class B shares. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated
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Clearing House. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once ACCESS has received the
application and the voided check or deposit slip, such shareholder's designated
bank account, following any redemption, will be credited with the proceeds of
such redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, by placing the redemption request through Participating Dealer or by
calling the Company.
The Company will redeem shares of an Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of a Fund that
were purchased without payment of the initial sales charge due to the size of
the purchase and are redeemed within one year of purchase. A maximum CDSC of
5.00% which decreases in steps to 0% after six years, will be imposed on certain
Class B shares of a Fund that are redeemed within six years of purchase. A CDSC
of 1.00% will be imposed on certain Class C shares of the Fund that are redeemed
within one year of purchase. See "Purchase of Shares." Any CDSC will be imposed
on the lesser of the current market value or the total cost of the shares being
redeemed. In determining whether a CDSC 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.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
to be redeemed, the class designation of such shares, the account number and be
signed exactly as the shares are registered. Signatures must conform exactly to
the account registration. If the proceeds of the redemption would exceed
$50,000, or if the proceeds are not to be paid to the record owner at the record
address, or if the record address has changed within the previous 30 days,
signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signer and certified within the prior 60 days must accompany the redemption
request. The redemption price is the net asset value per share next determined
after the request is received by ACCESS in proper form. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days after acceptance by ACCESS of the request and
any other necessary documents in proper order. Such payments may be postponed or
the right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, ACCESS may delay
mailing a redemption check until it confirms that the purchase check has
cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
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DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $ unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 421-5666
((800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $ or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $ and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
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REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
FOR SHARES 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 Company may impose a fee of $8.00 on wire redemption
of shares of the Company that will be deducted from the redemption proceeds.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256. 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 class of shares of each Investment
Fund is determined by dividing the total fair market value of the investments
and other assets of such classes of shares, less all liabilities of such classes
of shares, by the total number of outstanding shares of such classes of shares.
Net asset value is calculated separately for each class of the Investment Funds.
Net asset value per share of the Investment Funds is determined as of the
regular close of the NYSE on each day that the NYSE is open for business.
Securities listed on a securities exchange for which market quotations are
available are valued at their closing price. If no closing price is available,
such securities will be 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. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are not
readily
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available are valued at a price within a range not exceeding the current asked
price nor less than the current bid price. The current bid and asked prices are
determined either based on the average bid and asked prices quoted on such
valuation date by reputable brokers or as provided by a reputable pricing
service.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used.
The "amortized cost" method of valuation, which does not take into account
unrealized gains or losses, involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price each Investment Fund would receive if it sold the
instrument.
The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the Fund. The Adviser may, consistent
with NASD rules, place portfolio orders with qualified broker-dealers who
recommend the Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
the commissions,
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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 for comparable transactions involving similar securities being
purchased or sold during a comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances but market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. High portfolio turnover involves correspondingly greater
transaction costs which will be borne directly by the Fund. In addition, high
portfolio turnover may result in more capital gains which would be taxable to
the shareholders of the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise total return of the Investment
Funds. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" shows what an investment in an
Investment Fund would have earned over a specified period of time (such as one,
three, five or ten years) assuming that all distributions and dividends by an
Investment Fund were reinvested on the reinvestment dates during the period.
Total return does not take into account any federal or state income taxes that
may be payable upon redemption by shareholders subject to tax. The Fund may also
include comparative performance information in advertising or marketing an
Investment Fund's shares. Such performance information may include data from
Lipper Analytical Services, Inc. and Morgan Stanley Capital International.
From time to time the Growth and Income Fund may advertise "yield." Yield
figures are based on historical performance and are not intended to indicate
future performance. The "yield" of such Investment Fund refers to the income
generated by an investment in the Investment Funds over a 30-day period (which
period will be stated in the advertisement). The 30-day yield is further
described under "Performance Information" in the Statement of Additional
Information. The Fund may also use comparative performance information from time
to time in marketing Fund shares, including data from Lipper Analytical
Services, Inc. and/or Donoghue's Money Fund Report.
The respective performance figures for Class B shares and Class C shares of
each Fund will generally be lower than those for Class A shares of such
Investment Fund because of the larger distribution fee charged to Class B shares
and Class C shares.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge for Class A shares of any of the Investment Funds, except
that, upon written notice to the Fund or by checking off the appropriate box in
the Distribution Option Section on the New Account Application, a shareholder
may elect to receive dividends and/or distributions in cash. Shares received
through reinvestment of dividends and/or distributions will not be subject to
any CDSC upon their redemption.
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The European Equity Fund 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.
The Growth and Income Fund expects to distribute substantially all of its
net investment income in the form of quarterly dividends. Net realized gains, if
any, will be distributed annually. Confirmations of the purchase of shares of
each Investment Fund through the automatic reinvestment of income dividends and
capital gains distributions will be provided, pursuant to Rule 10b-10(b) under
the Securities Exchange Act of 1934, as amended, on the next quarterly client
statement following such purchase of shares. Consequently, confirmations of such
purchases will not be provided at the time of completion of such purchases, as
might otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase an Investment Fund's net assets for the purpose of calculating net
asset value per share. Therefore, on the "ex-dividend" or "ex-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, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of the Investment Funds, the net income attributable to and the
dividends payable on Class B shares and Class C shares of an Investment Fund
will be lower than the net income attributable to and the dividends payable on
Class A shares of the Investment Funds. As a result, the net asset value per
share of the classes of an Investment Fund will differ at times. Expenses of a
Fund allocated to a particular class of shares of an Investment Fund will be
borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE INVESTMENT FUND
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of an Investment Fund or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each Investment Fund is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Investment Fund separately, rather than to the Fund as a whole.
Net long-term and short-term capital gains, net income, and operating expenses
therefore will be determined separately for each Investment Fund.
Each Investment Fund intends to qualify for the special tax treatment
afforded "regulated investment companies" ("RICs") under Subchapter M of the
Code so that it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which is distributed to its shareholders.
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TAX STATUS OF DISTRIBUTIONS
Each Investment Fund distributes substantially all of its net investment
income (including, for this purpose, net short-term capital gain), to its
shareholders. Dividends paid by an Investment Fund from its net investment
income will be taxable to the shareholders of such Investment Fund as ordinary
income, whether received in cash or in additional shares, if the shareholder is
subject to tax. Such dividends paid by an Investment Fund generally will not
qualify for the dividends-received deduction to corporations.
Distributions of net capital gains (i.e., net long-term capital gains in
excess of net short-term capital losses and any available capital loss
carryforward) are taxable to shareholders subject to tax as long-term capital
gains, regardless of how long the shareholder has held the Investment Fund's
shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Investment Fund will make annual reports to
shareholders of the federal income tax status of all distributions.
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 and other distributions declared in October, November and December
by an Investment Fund payable as of a record date in such month and paid at any
time during January of the following year are treated as having been paid by an
Investment Fund and received by the shareholders on December 31 of the year
declared.
A sale, exchange or redemption of shares held as a capital asset will be
capital gain or loss and such gain or loss will be a taxable event to the
shareholder.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN AN INVESTMENT FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Fund to issue 21.75
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
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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.
REPORTS TO SHAREHOLDERS
The Fund will send to its shareholders annual and semi-annual reports; the
financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Fund or the Transfer Agent, will send to each shareholder
having an account directly with the Fund a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Fund or the Transfer Agent will send the shareholder a confirmation
statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Fund's custodian for foreign assets held
outside the United States and employs subcustodians who were approved by the
Directors of the Fund in accordance with regulations of the SEC for the purpose
of providing custodial services for such assets. Morgan Stanley Trust may also
hold certain domestic assets for the Fund. Morgan Stanley Trust is an affiliate
of the Adviser and the Distributor. For more information on the custodians, see
"General Information -- Custody Arrangements" in the Statement of Additional
Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Fund and audits its annual financial
statements.
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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 contract 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 RATINGS GROUP 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.
GROWTH AND INCOME AND EUROPEAN EQUITY FUNDS
P.O. BOX 2798, BOSTON, MA 02208-2798 (800-282-4404) NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
/ / Individual / / Joint Tenants / / Trust
/ / Gift/Transfer to Minor / / Other____________________
NOTE: Joint tenant registration will be as "joint tenants with right of
survivorship" and not as "tenants in common" unless specified. Trust
registrations should specify name of the trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship is created (using the minor's Social Security Number
("SSN")). For an Individual Retirement Account ("IRA") a different application
is required. Please call Chase Global Funds Services Company ("CGFSC") at
800-282-4404 or your investment dealer to obtain the IRA application.
<TABLE>
<S> <C>
- -------------------------------------------------------------- --------------------------------------------------------------
Name(s) (PLEASE PRINT) Social Security Number(s) or Taxpayer Identification Number(s)
("TIN(s)")
- -------------------------------------------------------------- --------------------------------------------------------------
Name Telephone Number
- --------------------------------------------------------------
Address
- -------------------------------------------------------------- / / U.S. Citizen / / Other (specify citizenship)
--------------------
City/State/Zip
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED MAILINGS: If you or your family members own multiple accounts in
the Morgan Stanley Fund, Inc., you can prevent duplicate mailings to your
address by completing this section.
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FUND SELECTION
- --------------------------------------------------------------------------------
The minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the minimum amounts are $250 and $50, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC.--Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Growth and Class A $ Class B $ Class C $
Income Fund ---------- ---------- ----------
Morgan Stanley European Equity Class A $ Class B $ Class C $
Fund ---------- ---------- ----------
Total Initial Investment:
<CAPTION>
</TABLE>
<TABLE>
<S> <C>
NOTE: IF INVESTING BY WIRE, YOU MUST A. By Mail: Enclosed is a check in the amount of $ ---------------------- payable to Morgan
OBTAIN A BANK WIRE CONTROL NUMBER. Stanley Fund, Inc.
TO DO SO, PLEASE CALL 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 of the same class unless
appropriate boxes below are checked:
<TABLE>
<S> <C> <C> <C>
All Dividends are to be / / reinvested / / paid in cash
All Capital Gains are to be / / reinvested / / paid in cash
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT PRIVILEGES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
CGFSC to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account. I/ We understand that CGFSC
charges an $8.00 fee for each wire redemption, which will be
deducted from the proceeds of the redemption.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange 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 Investment Fund into which I/we
exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The Fund and the Fund's Transfer Agent will employ reasonable procedures to confirm that instructions communicated by telephone
are genuine. These procedures include requiring the investor to provide certain personal identification information at the time
an account is opened and prior to effecting each transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional telecopying written instructions of transaction
requests. Neither the Fund nor the Transfer Agent will be responsible for any loss, liability, cost or expenses for following
instructions received by telephone that it reasonably believes to be genuine.
</TABLE>
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION (OPTIONAL)
- --------------------------------------------------------------------------------
Fund shareholders together with members of their families, may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan Stanley Fund, Inc. sold with an initial sales load ("Investment
Funds"). You may also receive a reduced sales charge by completing the Letter of
Intent as set forth below as provided in the Prospectus of the Morgan Stanley
Fund, Inc. (the "Prospectus"). See the Prospectus for details.
To qualify, you must complete this section, listing all of your accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.
I/We qualify for the Rights of Accumulation initial sales charge discount
described in the Prospectus and Statement of Additional Information of Morgan
Stanley Fund, Inc.
/ / I/We own Class A shares of more than one Investment Fund of Morgan Stanley
Fund, Inc.
/ / The registration of some of my/our Class A shares differs from that shown
on this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER ACCOUNTS
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF INTENT (OPTIONAL)
- --------------------------------------------------------------------------------
I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to invest, within a 13-month period beginning on the date hereof
(initial purchase date) in Class A shares of the Investment Fund purchased
hereunder, an aggregate amount which will equal or exceed the amount indicated
below:
/ / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) / / Yes / / No Not Available for
IRAs
- --------------------------------------------------------------------------------
Available to shareholders with account balances of $5,000 or more.
I/We hereby authorize CGFSC to redeem the necessary number of shares from
my/our Morgan Stanley Fund, Inc. Account on the designated dates in order to
make the following periodic payments:
/ / Monthly / / Quarterly / / Semiannually / / Annually
(This request for participation in the Systematic Withdrawal Plan must be
received by the 18th day of the month in which you wish withdrawals to begin.
Redemptions of shares to make the payments elected above will occur on the 25th
day of the month prior to payment, or if such day is not a business day, then
the next preceding business day.)
Withdrawal ($100 minimum) from:
<TABLE>
<CAPTION>
Amount of
Fund Name Each Check Or %*
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
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)
*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts
without being subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on the
designated dates in order to purchase shares in the Funds indicated below at the
applicable public offering price determined on that day.
/ / Monthly on the 5th day / / Monthly on the 20th day
Amount of each debit (minimum $100) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
</TABLE>
NOTE: A completed Bank Authorization Form (see below) and a voided personal
check MUST accompany this Automatic Investment Plan application.
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN--BANK AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- -----------------------------------------
Bank Name Bank Address Bank Account Number
</TABLE>
I/We authorize you, the above named bank, to debit my/our account for amounts
drawn by Chase Global Funds Services Company, acting as my/our agent for the
purchase of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a check drawn upon
you and signed by me/us. This authority shall remain in effect until revoked in
writing and received by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against insufficient funds.
I/We further agree that you will incur no liability to me if you dishonor any
such withdrawal. This will be so even though such dishonor results in the
cancellation of that purchase.
<TABLE>
<S> <C>
- --------------------------------------------------------------- ---------------------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X ----------------------------------------- ------------- X ----------------------------------------- -------------
Signature Date Signature Date
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
By signing this application, I/we hereby certify under penalties of perjury that
the information on this application is complete and correct and that as required
by federal law:
/ / I/We certify that (1) the number(s) shown above on this form is/are the
correct SSN(s) or TIN(s) and (2) I/we are not subject to any backup
withholding either because I/we have not been notified by the Internal
Revenue Service ("IRS") that I/we are subject to backup withholding, or the
IRS has notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF CLAUSE (2) IS NOT TRUE, STRIKE OUT
THAT PART BEFORE SIGNING).
/ / If no TIN(s) or SSN(s) has/have been provided above, I/we have applied, or
intend to apply, to the IRS or the Social Security Administration for a TIN
or a SSN, and I/we understand that if I/we do not provide either number to
CGFSC within 60 days of the date of this application or if I/we fail to
furnish my/our correct SSN or TIN, I/we may be subject to a penalty and a
31% backup withholding on distributions and redemption proceeds. (Please
provide either number on IRS Form W-9). You may request such form by
calling CGFSC at 800-282-4404.
I/We represent that I am/we are of legal age and capacity to purchase shares of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this application, my/our investment dealer and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund, Inc.
and CGFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense incurred for acting upon instructions believed
to be authentic and in accordance with the procedures set forth in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we acknowledge
that neither the Fund nor the Distributor is a bank and that Fund shares are not
backed or guaranteed by any bank or insured by the FDIC.
<TABLE>
<S> <C>
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
</TABLE>
Sign exactly as name(s) of registered owner(s) appear(s) above (including legal
title if signing for a corporation, trust custodial account, etc.)
NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
MORGAN STANLEY FUND, INC. THROUGH A PARTICIPATING DEALER (AN INVESTMENT
DEALER).
FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance with
the terms of our selling agreement with Morgan Stanley & Co. Incorporated and
with the Prospectus and Statement of Additional Information of the Fund. We
agree to notify CGFSC of any purchases made under the Letter of Intent or Rights
of Accumulation.
<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Representative's Name
- ------------------------------------------------------- -------------------------------------------------------
Branch Number Representative's Telephone Number
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City/State/Zip Code
- ------------------------------------------------------- -------------------------------------------------------
Branch Telephone Number Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE FUND OR THE DISTRIBUTOR TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
-----
Fund Expenses....................................
Prospectus Summary...............................
Investment Objectives and Policies...............
Additional Investment Information................
Investment Limitations...........................
Management of the Fund...........................
Portfolio Transactions...........................
Purchase of Shares...............................
Redemption of Shares.............................
Shareholder Services.............................
Performance Information..........................
Dividends and Distributions......................
Taxes............................................
General Information..............................
Appendix A.......................................
New Account Application
</TABLE>
MORGAN STANLEY
GROWTH AND INCOME FUND
MORGAN STANLEY
EUROPEAN EQUITY FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO.
INCORPORATED
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of twenty-two diversified
and non-diversified investment portfolios designed to offer a range of
investment choices (each, a "Fund" and collectively, the "Funds"). The
Company is designed to make available to retail investors the expertise of
Morgan Stanley Asset Management, Inc. ("MSAM") and its affiliate, Miller
Anderson & Sherrerd, LLP ("MAS", and each of MSAM and MAS, an "Adviser").
This Statement of Additional Information ("SAI") addresses information of the
Company applicable to the Funds. The Morgan Stanley Growth and Income, Morgan
Stanley Japanese Equity, Morgan Stanley European Equity and Morgan Stanley
Tax-Free Money Market Funds currently are not offering shares.
This Statement is not a prospectus but should be read in conjunction with
the Company's prospectuses (each a "Prospectus" and together, the
"Prospectuses"). To obtain the Prospectuses, please call the Morgan Stanley
Fund, Inc. Services Group:
1-800-341-2911
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . 2
FEDERAL INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
FEDERAL TAX TREATMENT OF FORWARD CURRENCY CONTRACTS
AND EXCHANGE RATE CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . .23
TAXES AND FOREIGN SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . .23
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS. . . . . . . . . . . . . . . . .32
MANAGEMENT OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . .32
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
DESCRIPTION OF SECURITIES AND RATINGS. . . . . . . . . . . . . . . . . . . . .61
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Statement of Additional Information dated ____________, 1996, relating to:
The Prospectus for the Morgan Stanley Global Fixed Income Fund, Morgan
Stanley Worldwide High Income Fund and Morgan Stanley High Yield Fund,
dated November 1, 1996 (Class A shares, Class B shares and Class C shares).
The Prospectus for the Morgan Stanley American Value Fund, Morgan Stanley
Aggressive Equity Fund and Morgan Stanley U.S. Real Estate Fund, dated
November 1, 1996 (Class A shares, Class B shares and Class C shares).
The Prospectus for the Morgan Stanley Global Equity Allocation Fund, Morgan
Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley International Magnum Fund and
Morgan Stanley Japanese Equity Fund, dated November 1, 1996 (Class A
shares, Class B shares and Class C shares).
The Prospectus for the Morgan Stanley Money Market Fund, Morgan Stanley
Tax-Free Money Market Fund and Morgan Stanley Government Obligations Money
Market Fund, dated November 1, 1996.
The Prospectus for the Morgan Stanley Growth and Income Fund and Morgan
Stanley European Equity Fund, undated (Class A shares, Class B shares and
Class C shares) (not currently offered).
<PAGE>
The Prospectus for the Morgan Stanley Value Fund, Morgan Stanley Equity
Growth Fund and Morgan Stanley Mid Cap Growth Fund, dated __________, 1996
(Class A shares, Class B shares and Class C shares).
The Prospectus for the Morgan Stanley Global Equity Fund, dated
___________, 1996 (Class A shares, Class B shares and Class C shares).
The Prospectus for the Morgan Stanley Emerging Markets Debt Fund, dated
__________, 1996 (Class A shares, Class B shares and Class C shares).
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's twenty-two Funds: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley High Yield Fund,
Morgan Stanley American Value Fund, Morgan Stanley Aggressive Equity Fund,
Morgan Stanley U.S. Real Estate Fund, Morgan Stanley Global Equity Allocation
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley International Magnum Fund,
Morgan Stanley Japanese Equity Fund, Morgan Stanley Growth and Income Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Equity Growth Fund, Morgan
Stanley Global Equity Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Mid Cap Growth Fund, Morgan Stanley Value Fund (collectively, the
"Non-Money Funds") and Morgan Stanley Money Market Fund, Morgan Stanley Tax-Free
Money Market Fund and Morgan Stanley Government Obligations Money Market Fund.
For ease of reference, the words "Morgan Stanley," which begin the name of each
Fund, are not used hereinafter. MSAM is the Adviser to all of the Funds,
except that MAS is the Adviser to the Value and Mid Cap Growth Funds.
EMERGING COUNTRY DEBT SECURITIES
GENERAL. The Emerging Markets Debt Fund's definition of emerging country debt
securities includes securities of companies that may have characteristics and
business relationships common to companies in a country or countries other than
an emerging country. As a result, the value of the securities of such companies
may reflect economic and market forces applicable to other countries, as well as
to an emerging country. The Adviser believes, however, that investment in such
companies will be appropriate because the Portfolio 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. For example, the 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
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 Emerging Markets Debt Portfolio is subject to no restrictions on the
maturities of the emerging country debt securities it holds; those maturities
may range from overnight to 30 years. The value of debt securities held by the
Fund generally will vary inversely to changes in prevailing interest rates. The
Fund's investments in fixed-rated debt securities with longer terms to maturity
are subject to greater volatility than the 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.
Government, government-related and restructured debt securities in emerging
markets 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 participations 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 Fund's
investment in such securities may be limited by certain investment
restrictions contained in the 1940 Act.
2
<PAGE>
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 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.
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.
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.
BRADY BONDS. The Emerging Markets Debt 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 restructuring 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 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 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.
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U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals 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 restructuring totalling approximately $73 billion have been
implemented to date in Argentina, Bulgaria, Costa Rica, Ecuador, 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.
STRUCTURED SECURITIES. The Emerging Markets Debt Fund may also invest a portion
of its assets in interests 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 Fund anticipates it will invest typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. The 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. Certain issuers of Structured Securities may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Fund's
investment in these Structured Securities may be limited by restrictions
contained in the 1940 Act. Structured Securities are typically sold in private
placement transactions, and there currently is no active trading market for
Structured Securities.
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LOAN PARTICIPATIONS AND ASSIGNMENTS. The Emerging Markets Debt Portfolio may
also 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 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 Fund's investment in Participations typically will
result in the Fund having a contractual relationship only with the Lender and
not with the borrower. The 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 connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the 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 Participations being subject to the credit risk of the Lender with
respect to the Participation, but even under such a structure, in the event of
the Lender's insolvency, the Lender's servicing of the Participation may be
delayed and the assignability of the Participation impaired. The Fund will
acquire Participations only if the Lender interpositioned between the Fund and
the borrower is determined by the Adviser to be creditworthy.
When the 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 Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain sovereign debt obligations
is restricted by the governing documentation as to the nature of the assignee
such that the only way in which the Fund may acquire an interest in a loan is
through a Participation and not an Assignment. The Fund may have difficulty
disposing of Assignments and Participations because to do so it will have to
assign such securities to a third party. Because there is no liquid market for
such securities, the 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 Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet the 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 Participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's securities and calculating its net asset value.
EQUITY-LINKED SECURITIES
The Value, Mid Cap Growth, Global Equity, Equity Growth, Growth and
Income and Aggressive Equity Funds may invest in equity-linked securities,
including, among others, PERCS, ELKS, or LYONs, which are securities that are
convertible into, or the value of which is 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. 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
Funds 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 regardless of the price at which
the common stock trades. If the common stock is trading at a price that is at
or below the cap, a 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
Fund receives less than one share, with the conversion ratio adjusted so that
the market value of the common stock received by the Fund equals the cap.
Accordingly, a Fund is subject to the risk that if the price of the common
stock is above the cap price at the maturity of the PERCS, the 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 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 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
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common stock is trading at a price that is at or below the cap, a 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 Fund
receives the cap amount. Accordingly, a Fund is subject to the risk that if the
price of the common stock is above the cap price at the maturity of the ELKS,
the 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 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-market 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, a 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
purchase price of the LYON's plus accrued original issue discount, the Fund
will receive an amount above the lower-than-market yield on the LYONs, based on
how well the underlying common stock performs. LYONs also present risks based
on payment expectations. If a LYON's issuer redeems the LYONs, the Fund may
have to replace the LYONs with a lower yielding security, resulting in a
decreased return for investors.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
FIRM COMMITMENTS
Firm commitments for securities include "when-issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While a Fund has firm commitments outstanding, the Fund will
maintain in a segregated account cash or liquid securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
Custodian for a Fund will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, a Fund may be required subsequently to place
additional assets in the separate account in order to ensure that the value of
the account remains equal to the amount of such Fund's commitment. It may be
expected that a Non-Money Market Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of a Money Market Fund's total assets absent unusual market conditions.
When a Fund engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in a Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants are warrants which entitle the holder to receive
from their issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. Dollars) which is calculated pursuant to a predetermined
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formula and based on the exchange rate between a specified foreign currency and
the U.S. Dollar as of the exercise date of the warrant. Foreign currency
warrants generally are exercisable upon their issuance and expire as of a
specified date and time. Foreign currency warrants have been issued in
connection with U.S. Dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
Dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. Dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations
with which they may be offered, and may be listed on exchanges. Foreign
currency warrants may be exercisable only in certain minimum amounts, and an
investor wishing to exercise warrants who possesses less than the minimum number
required for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the
case of any exercise of warrants, there may be a time delay between the time a
holder of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities are debt obligations the
principal on which is payable at maturity in an amount that may vary based on
the exchange rate between the U.S. Dollar and a particular foreign currency at
or about that time. The return on "standard" principal exchange rate linked
securities is enhanced if the foreign currency to which the security is linked
appreciates against the U.S. Dollar, and is adversely affected by increases in
the foreign exchange value of the U.S. Dollar; "reverse" principal exchange rate
linked securities are like the "standard" securities, except that their return
is enhanced by increases in the value of the U.S. Dollar and adversely impacted
by increases in the value of foreign currency. Interest payments on the
securities are generally made in U.S. Dollars at rates that reflect the degree
of foreign currency risk assumed or given up by the purchaser of the notes
(i.e., at relatively higher interest rates if the purchaser has assumed some of
the foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. Dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. Dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. Dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
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The U.S. Dollar value of the assets of the Global Equity, Global Equity
Allocation, Global Fixed Income, Asian Growth, Emerging Markets, Emerging
Markets Debt, Latin American, European Equity, Japanese Equity and
International Magnum Funds and to the extent they invest in foreign
currencies, the Value, Mid Cap Growth, American Value, Aggressive Equity,
Growth and Income, Equity Growth, Worldwide High Income and High Yield Funds
may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Funds may incur
costs in connection with conversions between various currencies. The 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 Funds may enter into forward contracts in several circumstances. When
a Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
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 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 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 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. A 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 Fund to deliver an amount of foreign currency
in excess of the value of such Fund's 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 Company 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 Fund will thereby be served. Except in
circumstances where segregated accounts are not required by the 1940 Act and
the rules adopted thereunder, the Company's Custodian will place cash or
liquid assets into a segregated account of a Fund in an amount equal to the
value of such 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 assets 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 Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a 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.
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It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a 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 Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such 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 a 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 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 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 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.
In addition, Funds may cross-hedge currencies by entering into a
transaction to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which a portfolio has or
expects to have portfolio exposure. These Funds may also engage in proxy
hedging, which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where two currencies are
economically linked. A Fund's entry into forward contracts, as well as any
use of proxy or cross hedging techniques, will generally require the Fund to
hold liquid securities or cash equal to the Fund's obligations in a
segregated account throughout the duration of the contract.
FUTURES CONTRACTS
The Emerging Markets, Latin American, European Equity, International
Magnum, American Value, Aggressive Equity, 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 Emerging Markets, Latin American, European Equity, American
Value, Aggressive Equity, Growth and Income and Worldwide High Income Funds
may enter into foreign currency futures contracts and options thereon. The
U.S. Real Estate Fund may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and reducing
transaction costs. The High Yield, U.S. Real Estate, Emerging Markets Debt,
Equity Growth, Global Equity, Value and Mid Cap Growth Funds may also enter
into futures contracts for hedging purposes. No Fund will enter into futures
contracts or options thereon for speculative purposes. 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.
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The Emerging Markets, Latin American, European Equity, Equity Growth,
Emerging Markets Debt, Global Equity, American Value, Aggressive Equity,
Growth and Income, Value, Mid Cap Growth and Worldwide High Income Funds may
purchase and sell indexed financial futures contracts. An index futures
contract is an agreement to take or make delivery of an amount of cash equal
to the difference between the value of the index at the beginning and at the
end of the contract period. Successful use of index futures will be subject
to the Adviser's ability to predict correctly movements in the direction of
the relevant securities market. No assurance can be given that the Adviser's
judgment in this respect will be correct.
The Emerging Markets, Latin American, European Equity, American Value,
Equity Growth, Emerging Markets Debt, Global Equity, Aggressive Equity,
Growth and Income, Value, Mid Cap Growth 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 a Fund's 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 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 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 such 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 Funds
expect 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 that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that
all futures transactions constitute bona fide hedging transactions. A Fund
may engage in futures 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 Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any such contracts it has
entered into. The 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 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 Fund upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the 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.
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RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. In addition to the limits
imposed under CFTC regulations, described above, the Emerging Markets, Latin
American, European Equity, American Value, Aggressive Equity, Growth and
Income and Worldwide High Income Funds will not enter into futures contract
transactions to the extent that the Fund's outstanding obligations to
purchase securities under futures contracts and options would exceed 20% of
its total assets. The Emerging Markets Debt, Equity Growth, Global Equity,
Value and Mid Cap Growth Funds will not enter into futures contracts to the
extent that their outstanding obligations to purchase securities under these
contracts in combination with their outstanding obligations with respect to
options transactions would exceed 50% of their total assets. Each such Fund
will maintain assets sufficient to meet its obligations under such contracts
in a segregated account with the custodian bank or will otherwise comply with
the SEC's position on asset coverage.
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, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a 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
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 Fund's ability to effectively hedge.
Each 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 Funds
engage in futures strategies only for hedging purposes, the Adviser does not
believe that the Funds are subject to the risks of loss frequently associated
with futures transactions. The Fund would presumably have sustained comparable
losses if, instead of the futures contract, the Fund had invested in the
underlying security or currency and sold it after the decline.
Utilization of futures transactions by a 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 a 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 a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
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OPTIONS ON FOREIGN CURRENCIES
The Emerging Markets, Latin American, European Equity, American Value,
Global Equity, Emerging Markets Debt, Equity Growth, Aggressive Equity,
Growth and Income, Value, Mid Cap Growth 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 a Fund the right to sell a currency at the
exercise price until the expiration of the option. A call option gives a
Fund the right to purchase a currency at the exercise price until the
expiration of the option.
The Funds noted above may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline
in the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against
such diminution in the value of portfolio securities, the Funds may purchase
put options on the foreign currency. If the value of the currency does
decline, the Funds will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on their portfolios which otherwise would have resulted. Conversely,
where a rise in the dollar value of a currency in which securities to be
acquired are denominated is projected, thereby increasing the cost of such
securities, the Funds may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options,
however, the benefit to the Funds derived from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Funds could sustain losses on
transactions in foreign currency options which would require them to forego a
portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes.
For example, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the anticipated decline occurs, the
option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If this does not occur, the
option may be exercised and the Fund would be required to purchase or sell
the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the
Fund owns the underlying foreign currency covered by the call, an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by the Custodian) or upon conversion or exchange of other foreign
currency held in its portfolio. A written call option is also covered if the
Fund has a call on the same foreign currency and in the same principal amount
as the call written where the exercise price of the call held (a) is equal to
or less than the exercise price of the call written or (b) is greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash or other liquid securities in a segregated account with the
Custodian, or (c) maintains in a segregated account cash or other liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. Dollars, marked-to-market daily.
Funds may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is designed to provide a hedge against a decline
in the U.S. Dollar value of a security which the portfolio owns or has the
right to acquire due to an adverse change in the exchange rate and which is
denominated in the currency underlying the option. In such circumstances,
the Fund will either "cover" the transaction as described above or
collateralize the option by maintaining in a segregated account with the
Custodian, cash or other liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. Dollars marked-to-market
daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and
currency exposures. Such combinations are generally referred to as synthetic
securities. For example, in lieu of purchasing a foreign bond, a Fund may
purchase a U.S. dollar-denominated security and at the same time enter into a
forward contract to exchange U.S. dollars for the contract's underlying
currency at a future date. By matching the amount of U.S. dollars to be
exchanged with the anticipated value of the U.S. dollar-denominated security,
the Fund may be able to lock in the foreign currency value of the security
and adopt a synthetic position reflecting the credit quality of the U.S.
dollar-denominated security.
The Custodian of the Funds will place cash or other liquid assets into a
segregated account of a Fund in an amount equal to the value of such 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 liquid assets 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 Fund's commitments with respect to such contracts.
OPTIONS TRANSACTIONS
The Emerging Markets, Equity Growth, Emerging Markets Debt, Value, Latin
American, European Equity, International Magnum, Aggressive Equity, Global
Equity, U.S. Real Estate, Growth and Income, Mid Cap Growth 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 Fund at the stated exercise price. A "covered" call option means that so
long as a 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.
A Fund will receive a premium from writing call options, which increases
the 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, a 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 Fund's
obligation as writer of the option continues. Thus, in some periods a 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.
A Fund may sell put options to receive the premiums paid by purchasers
and to close out a long put option position. In addition, when the Adviser
wishes to purchase a security at a price lower than its current market price,
a Fund may write a covered put at an exercise price reflecting the lower
purchase price sought.
A 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. A 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 Fund would incur no additional loss. A 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 a
Fund's ability to purchase call and put options.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC Option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument
underlying an OTC Option it has entered into with a Fund or fails to make a
cash settlement payment due in accordance with the terms of that option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor of credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC Options will be satisfied. The staff of the SEC currently
takes the position that OTC Options purchased by a Fund or sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid
unless the Fund has entered into a special arrangement to dispose of the
security, and are subject to the Fund's limitation on investing in illiquid
securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an
option also entails the risk that changes in the value of the underlying
security or contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract or securities, an option may or may not be less risky than
ownership of the futures contract or actual securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract or securities. In the opinion of
the Adviser, the risk that a 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.
COMBINED TRANSACTIONS
Funds may enter into multiples of the forwards, futures and options
transactions described above in which they are permitted to engage, including
multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including forward foreign currency exchange
contracts) and any combination of futures, options and foreign currency
transactions, instead of a single transaction, as part of a single hedging
strategy when, in the opinion of the Adviser, it is in the best interest of
the Fund to do so. A combined transaction, while part of a single strategy,
may contain elements of risk that are present in each of its component
transactions and will be structured in accordance with applicable Securities
and Exchange Commission (the "SEC") regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded over-
the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Furthermore, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting a Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
GLOBAL INVESTING
Investors should recognize that investing in foreign securities involves
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since a Fund may temporarily
hold uninvested reserves in bank deposits in foreign currencies, the Fund
will be affected favorably or unfavorably by changes in currency
rates and in exchange control regulations, and may incur costs in connection
with conversions between various currencies. The investment policies of
certain Funds permit entering into forward foreign currency exchange
contracts in order to hedge holdings and commitments against changes in the
level of future currency rates. Such contracts involve an obligation to
purchase or sell a specific currency at a future date at a price set at the
time of the contract.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic issuers, there may be less publicly available
information about certain foreign securities than about domestic securities.
Securities of some foreign issuers are generally less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government supervision and regulation of stock exchanges, brokers and
listed issuers than in the U.S. 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 U.S. investments in those countries.
Although Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges.
In addition, it is expected that the expenses for custodian arrangements of
a Fund's foreign securities will be somewhat greater than the expenses for
the custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against 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.
INVESTMENT COMPANY SECURITIES
The 1940 Act, generally prohibits a Fund from acquiring more than 3% of the
outstanding voting shares of an investment company and limits such
investments to no more than 5% of the Fund's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the Fund from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company. The Fund may not purchase shares of any
affiliated investment company except as permitted by a rule or order of the
SEC.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Worldwide High Income Fund and Emerging Markets Debt 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"). A 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. A
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, a 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 Participations being subject to the
credit risk of the Lender with respect to the Participations, but even under
such a structure, in the event of the Lender's insolvency, the Lender's
servicing of the Participations may be delayed and the assignability of the
Participations impaired. A Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When a 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 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 Funds anticipate 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 Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet the 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 Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
MORTGAGE-RELATED DEBT SECURITIES
Mortgage-related debt securities represent ownership interests in
individual pools of residential mortgage loans. These securities are designed
to provide monthly payments of interest and principal to the investor. Each
mortgagor's monthly payment to his lending institution on his residential
mortgage is "passed-through" to investors. Mortgage pools consist of whole
mortgage loans or participations in loans. The terms and characteristics of the
mortgage instruments are generally uniform within a pool but may vary among
pools. Lending institutions which originate mortgages for the pools are subject
to certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than
the interest rates paid on the mortgages
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included in the underlying pool, but only by the amount of the fees paid to the
mortgage pooler, issuer, and/or guarantor of payment of the securities for the
guarantee of the services of passing through monthly payments to investors.
Actual yield may vary from the coupon rate, however, if mortgage-related
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that mortgages in the
underlying pool are prepaid as noted above. In addition, interest on
mortgage-related securities is earned monthly, rather than semi-annually as is
the case for traditional bonds, and monthly compounding may tend to raise the
effective yield earned on such securities.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
The International Magnum Fund seeks to achieve its objective by investing
primarily in equity securities of non-U.S. issuers in accordance with the EAFE
country (defined below) weightings determined by the Adviser. After
establishing regional allocation strategies, the Adviser then selects equity
securities among issuers of a region. The Fund invests in countries (each an
"EAFE country") comprising the Morgan Stanley Capital International EAFE
(Europe, Australia and the Far East) Index (the "EAFE Index.")
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy, The Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom. "Far East" includes Japan,
Hong Kong and Singapore/Malaysia.
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 equity securities of
U.S. and non-U.S. issuers in accordance with country weightings determined by
the Adviser and with stock selection within each country designed to replicate
a broad market index. The Adviser determines country allocations for the Fund
on an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The 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.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks.
These risks may include future unfavorable political and economic developments,
possible withholding taxes on interest income, seizure or nationalization of
foreign deposits, currency controls, interest limitations, or other
governmental restrictions which might affect the payment of principal or
interest on the securities held by a Fund. Additionally, these institutions may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and record keeping requirements than those applicable to
domestic branches of U.S. banks. The Money Market Funds will invest in U.S.
Dollar-denominated obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when the Adviser believes that the risks
associated with such investment are minimal and that all applicable quality
standards have been satisfied.
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PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rate for each of the
Funds, except the Growth and Income and Aggressive Equity Funds, will not
exceed 100%, although in any particular year, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. High rates of
portfolio turnover necessarily result in correspondingly heavier brokerage and
portfolio trading costs which are paid by the Funds. In addition to portfolio
trading costs, higher rates of portfolio turnover may result in the realization
of capital gains. See "Taxes" in the Prospectus for more information on
taxation. The portfolio turnover rate for a year is the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the Fund for the year, excluding securities with maturities of one year or
less. The rate of portfolio turnover will not be a limiting factor when a Fund
deems it appropriate to purchase or sell securities for the portfolio.
However, the U.S. federal tax requirement that a Fund derive less than 30% of
its gross income from the sale or disposition of securities held less than
three months may limit the Fund's ability to dispose of its securities. See
"Federal Income Tax." The tables set forth in the Prospectus under "Financial
Highlights" present each of the Non-Money Market Funds historical portfolio
turnover ratios.
REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the
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Custodian in the Federal Reserve/Treasury book-entry system or by another
authorized securities depository. The term of a repurchase agreement is
usually from overnight to one week, and never exceeds one year. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement involves the sale of securities held by a
Fund pursuant to the Fund's agreement to repurchase the securities at an agreed
upon price, date and rate of interest. Such agreements are considered to be
borrowings under the 1940 Act. While reverse repurchase transactions are
outstanding, the Funds will maintain in a segregated account cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
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SECURITIES LENDING
Each 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, a 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 Fund. Each 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 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the 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 Fund at any time, and (d) the Fund receive reasonable
interest on the loan (which may include the 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 the Adviser to be of good standing and when, in the
judgment of the Adviser, the consideration which can be earned currently from
such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
STAND-BY COMMITMENTS
A Fund may enter into stand-by commitments with respect to obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to
purchase, at a Fund's option, a specified Municipal Obligation at its amortized
cost value to the Fund plus accrued interest, if any. Stand-by commitments may
be exercisable by a Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Advisor's opinion, present minimal credit
risks and otherwise satisfy applicable quality standards. The Funds' reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their right thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the
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valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where a Fund pays directly or indirectly for a stand-by commitment,
its cost will be reflected as an unrealized loss for the period during which the
commitment is held by that Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of the principal
(the principal-only or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
SWAP CONTRACTS
The Global Equity, Emerging Markets Debt, Equity Growth, Value and Mid
Cap Growth Funds may enter into Swap Contracts. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The payment streams are calculated by reference to a
specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest
rate indices, fixed income indices, stock indices and commodity indices (as
well as amounts derived from arithmetic operations on these indices). For
example, a Fund may agree to swap the return generated by a fixed-income
index for the return generated by a second fixed-income index. The currency
swaps in which a Fund may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon
notional amount.
The swaps in which the noted Funds may engage also include rate caps,
floors and collars under which one party pays a single or periodic fixed
amount(s) (or premium), and the other party pays periodic amounts based on
the movement of a specified index. Swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that the
Fund is contractually obligated to make. If the other party to a swap
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. Currency swaps usually
involve the delivery of the entire principal value of one designated currency
in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations. If
there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents
utilizing standardized swap
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documentation. As a result, the swap market has become relatively liquid.
Caps, floors, and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. The Fund's obligations
under a swap agreement will be accrued daily (offset against any amounts
owing to the portfolio) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of cash or liquid securities, to avoid any potential leveraging of
the Fund. To the extent that these swaps, caps, floors, and collars are
entered into for hedging purposes, the Adviser believes such obligations do
not constitute "senior securities" under the 1940 Act and, accordingly, will
not treat them as being subject to the Fund's borrowing restrictions. Funds
may enter into OTC Derivatives transactions (Swaps, Caps, Floors, Puts, etc.,
but excluding foreign exchange contracts) with counterparties that are
approved by the Adviser in accordance with guidelines established by the
Board of Directors. These guidelines provide for a minimum credit rating for
each counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
TEMPORARY INVESTMENTS
When the Adviser deems that market conditions are such that a temporary
defensive approach is warranted, the Global Equity, Emerging Markets Debt,
Equity Growth, Value, and Mid Cap Growth Funds may invest up to 100% of their
assets in money market instruments or any fixed income securities in which
they are permitted to invest.
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments held by each Money Market Fund may have
maturities of more than 397 days, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 days, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 397 days. In determining the weighted average maturity
of a Fund and whether a variable rate demand instrument has a remaining
maturity of 397 days or less, each instrument will be deemed by the Fund to
have a maturity equal to the longer of the period remaining until its next
interest rate adjustment or the period remaining until the principal amount can
be recovered through demand. In determining whether an unrated variable rate
demand instrument is of comparable quality at the time of purchase to
instruments rated "high quality," the Adviser will follow guidelines adopted by
the Company's Board of Directors.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
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 Fund will maintain with the
appropriate Custodian a separate account with a segregated portfolio of cash
or liquid securities in an amount at least equal to these commitments. It is
possible that the market value at the time of settlement would be higher or
lower than the purchase price if the general level of interest rates has
changed.
ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have
been stripped of their unmatured interest coupons, or the coupons themselves,
and also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States Government.
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A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity.
The difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names,
such as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury
Receipts ("TRs"), Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax
considerations generally affecting the Company and its shareholders that are not
described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Company
or its shareholders, and the discussion here and in the Company's prospectuses
are not intended as a substitute for careful tax planning.
Each 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 Fund
separately, rather than to the Company as a whole. Each Fund intends to
qualify and elect to be treated for each taxable year as a regulated investment
company ("RIC") under subchapter M of the Code.
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Legislation and administrative changes or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
In order to qualify for the special tax treatment afforded to RICs under
Subchapter M of the Code, each 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 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
Company's taxable year, (i) at least 50% of the market value of the Fund's
total assets is represented by cash, United States Government securities,
securities of other RICs, and other securities and cash items, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer or two or more issuers
which the Fund controls and which are engaged in the same, similar, or related
trades or businesses (other than U.S. Government securities or the securities of
other RICs). For purposes of the 90% gross income requirement described above,
foreign currency gains may be excluded by regulation from income that qualifies
under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, a Fund must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and net short-term capital gains
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less operating expenses) to shareholders. If a Fund meets all of the RIC
requirements, it will not be subject to federal income tax on any of its net
investment income or capital gains that it distributes to shareholders.
If a Fund fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such case, distributions (including
capital gain distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits and such
distributions generally will be eligible for the corporate dividends received
deductions.
Each 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 Fund will pay federal income tax thereon, and, if the 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 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 a Fund held as a capital asset will be capital gain or loss, and such gain or
loss will be long-term if the holding period for the shares exceeds one year,
and otherwise will be short-term. Any loss realized on a sale or exchange will
be disallowed to the extent the shares disposed of are replaced within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of. Any loss realized by a shareholder on the disposition of shares
held 6 months or less is treated as a long-term capital loss to the extent of
any distributions of net long-term capital gains received by the shareholder
with respect to such shares or any inclusion of undistributed capital gain with
respect to such shares.
Each 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 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 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.
ADDITIONAL CONSIDERATIONS FOR THE TAX-FREE MONEY MARKET FUND
In order for the Tax-Free Money Market Fund to pay exempt interest
dividends during any taxable year, at the close of each quarter of its taxable
year at least 50% of the value of the Fund's assets must consist of certain
tax-exempt obligations. Exempt-interest dividends distributed to shareholders
are not included in the shareholder's gross income for regular federal income
tax purposes. Exempt-interest dividends may, however, be subject to the
alternative minimum tax (the "AMT") imposed by Section 55 and, in the case of
corporate taxpayers, the Code or the environmental tax (the "Environmental Tax")
imposed by Section 59A of the Code. The AMT and the Environmental Tax may be
imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference (and therefore potentially subject to the AMT and the
Environmental Tax) for both corporate and non-corporate taxpayers. Second, in
the case of exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the AMT and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter
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S corporations may also be subject to taxes on their "passive investment
income," which could include exempt-interest dividends. Up to 85% (depending on
the taxpayer's income) of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual depending upon the individual's "modified
adjusted gross income" (which includes exempt-interest dividends).
The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users) of facilities financed by
industrial development or private activity bonds. A "substantial user" is
defined generally to include certain persons who regularly use such a facility
in their trade or business. Such entities or persons should consult their tax
advisors before purchasing shares of this Fund.
Issuers of bonds purchased by the Tax-Free Money Market Fund (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date of
issuance thereof if such representations are determined to have been inaccurate
or if the issuer of such bonds (or the beneficiary of such bonds) fails to
comply with such covenants.
Distributions of net investment income received by the Tax-Free Money
Market Fund from investments in debt securities (other than interest on
tax-exempt Municipal Obligations) and any net short-term capital gains
distributed by the Fund will be taxable to shareholders as ordinary income and
will not be eligible for the dividends received deduction for corporate
shareholders. Although the Tax-Free Money Market Fund generally does not expect
to receive net investment income other than Tax-Exempt Interest, up to 20% of
the net assets of the Fund may be invested in Municipal Obligations that do not
bear Tax-Exempt Interest, and any taxable income recognized by the Fund will be
distributed and taxed to its shareholders.
FOREIGN INCOME TAX
It is expected that each Fund will be subject to foreign withholding taxes
with respect to its dividend and interest income from foreign countries, if any,
and a Fund may be subject to foreign income or other taxes with respect to other
income. So long as more than 50% in value of a Fund's total assets at the close
of the taxable year consists of stock or securities of foreign corporations, the
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. A 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 a 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 Fund and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they
itemize deductions, a deduction for their shares of the foreign income taxes in
computing their federal income tax liability. (No deductions will be allowed in
computing alternative minimum tax liability.)
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by a Fund from its foreign source
income will be treated as foreign source income. A 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
a 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 a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal
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income tax laws. Because the availability of a credit or deduction depends on
the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES
Except for certain hedging transactions, each 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 a 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, a Fund will have to avoid
realizing gains on futures contracts and certain forward contracts held less
than three months and may be required to defer the closing out of futures
contracts beyond the time when it would otherwise be advantageous to do so. It
is anticipated that unrealized gains of such contracts that have been open for
less than three months as of the end of a 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 Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the 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 a 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
Company is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Company 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 Company, distributions of net
long-term capital gains, and amounts retained by the Company which are
designated as undistributed capital gains.
If the income from the Company 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 Company, will be subject to U.S. federal income tax at
the rates applicable to United States citizens and residents or domestic
corporations.
The Company may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
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The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Company.
PURCHASE OF SHARES
For Class A shares of the Non-Money Funds, the purchase price of shares
is based upon the net asset value per share plus the applicable sales charge,
if any, next determined after the purchase order is received. Class B shares
and Class C shares of the Non-Money Funds may be purchased at the net asset
value per share next determined after the purchase order is received. For
all classes of such Funds an order received prior to the regular close of the
New York Stock Exchange (the "NYSE") (currently, 4:00 p.m., Eastern Time)
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
Prospectuses under "Purchase of Shares." Class A shares of the Non-Money
Funds purchased without an initial sales charge that are redeemed within one
year of purchase are subject to a 1.00% contingent deferred sales charge
("CDSC"), certain Class B shares of the Non-Money Funds that are redeemed
within six years of purchase are subject to a CDSC of up to 5.00% and
certain Class C shares of the Non-Money Funds that are redeemed within one
year of purchase are subject to a 1.00% CDSC, as described in the Prospectus
under "Purchase of Shares." The initial sales charge and CDSC are not
applicable to shares of any class of any Non-Money Market Fund purchased
through the automatic reinvestment of dividends or distributions paid by any
Fund.
The price of shares of the Money Market Funds is the net asset value per
share next determined after Federal Funds are available to such Fund. A
purchase of a Money Market Fund's shares by check is credited to the
shareholder's account at the price next determined after receipt of Federal
Funds on the day of receipt and will begin receiving dividends the following
day.
Shares of the Company may be purchased on any day the NYSE is open,
except that shares of the Money Market Funds may be purchased on any day when
both the NYSE and the Federal Reserve Banks are open. The NYSE is closed
when the following holidays are observed: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively. Federal Reserve
Banks are closed on Martin Luther King Day, Columbus Day and Veterans Day, in
addition to such NYSE holidays.
Each 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 Company, 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 a Fund's shares.
REDEMPTION OF SHARES
Each 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 a 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. Additionally, if the Board of Directors determines that it
would be detrimental to the best interests of the remaining shareholders of the
Fund to payment wholly or partly in cash, the Company may pay the redemption
proceeds in whole or in part by a distribution-in-kind of readily marketable
securities held by the 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.
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 Fund(s).
Class A shares of the Non-Money Funds purchased without an initial sales charge
due to the size of the purchase that are redeemed within one year of purchase
are subject to a 1.00% CDSC,
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<PAGE>
certain Class B shares of the Non-Money Funds that are redeemed within six years
of purchase are subject to a CDSC of up to 5.00% that decreases to 0% after six
years, and certain Class C shares of the Non-Money Funds that are redeemed
within one year of purchase are subject to a 1.00% CDSC as described in the
Prospectus under "Purchase of Shares." Such initial sales charge and CDSC are
not applicable to shares of any class of any Fund purchased through the
automatic reinvestment of dividends or distributions paid by any Fund.
To protect your account and the Company from fraud, signature guarantees
are required for certain redemptions. Signature guarantees enable the Company
to verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and (2)
share transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Company
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 Fund of the Company has adopted certain investment policies
which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) at least 67% of the voting
securities of the Fund present at a meeting if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company.
For the purpose of adopting investment limitations the current Funds have
been divided into three separate groups, which limitations apply only to the
Funds that form a part of that group. The groups are comprised as follows:
Category I Funds: Global Fixed Income, Worldwide High Income, High Yield,
American Value, Aggressive Equity, U.S. Real Estate, Global
Equity Allocation, Asian Growth, Emerging Markets, Latin
American, International Magnum, Japanese Equity, Growth and
Income and European Equity Funds.
Category II Funds: Equity Growth, Global Equity, Emerging Markets Debt, Mid
Cap Growth and Value Funds.
Money Market Funds: Money Market, Tax-Free Money Market and Government
Obligations Money Market Funds.
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
25
<PAGE>
(1) invest in commodities, except that each of the Emerging Markets Fund,
Latin America Fund, European Equity Fund, American Value Fund, Aggressive Equity
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, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) 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;
(6) except with respect to the Latin America Fund and U.S. Real Estate
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the 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;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, Latin America Fund, European Equity Fund,
Aggressive Equity Fund and Worldwide High Income Fund may enter into short sales
in accordance with its investment objective and policies;
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1%
of such securities together own more than 5% of such securities;
(10) 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 Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Worldwide High Income Fund, Latin America Fund and Growth and Income Fund may
enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Latin America Fund,
Aggressive Equity Fund, Value 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;
(11) 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, Aggressive Equity 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);
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale;
26
<PAGE>
(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) issue senior securities;
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) 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;
(16) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
America Fund, Aggressive Equity Fund and U.S. Real Estate Fund, purchase more
than 10% of any class of the outstanding securities of any issuer; and
(17) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
America Fund and U.S. Real Estate 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 Funds total assets,
at market value, would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) 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, Aggressive 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) purchase warrants if, by reason of such purchase, more than 5% of the
value of the 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 Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange;
(3) invest in oil, gas or other mineral leases; and
(4) invest in illiquid securities, except 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, as amended (the "1933
Act"), except securities that are not registered under the 1933 Act but that
can be offered and sold to qualified institutional buyers under Rule 144A
under the 1933 Act.
Each of the Global Fixed Income, Latin American, Aggressive Equity and U.S.
Real Estate 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 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 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).
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future Funds of the Company may adopt different
limitations.
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<PAGE>
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities;
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance
with their respective investment objectives and policies, or entering into
repurchase agreements, subject to the limitations described in
non-fundamental investment limitation (8) below, (ii) by lending their
portfolio securities, and (iii) by lending portfolio assets to other Funds,
banks, brokers, dealers and other financial institutions, so long as such
loans are not inconsistent with the 1940 Act, the rules, regulations,
interpretations or orders of the SEC and its staff thereunder;
(4) except for the Emerging Markets Debt Fund, with respect to 75% of
each Fund's assets, purchase a security if, as a result, the Fund would
hold more than 10% (taken at the time of such investment) of the outstanding
voting securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of
each Fund's assets, purchase securities of any issuer if, as a result, more
than 5% of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that
this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(6) borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes, and (ii) in connection with reverse repurchase agreements,
provided that (i) and (ii) in combination do not exceed 33 1/3% of the Fund's
total assets (including the amount borrowed) less liabilities (exclusive of
borrowings) and except that the Emerging Markets Debt Fund may borrow from banks
and other entities in an amount not in excess of 33 1/3% of its total assets
(including the amount borrowed) less liabilities in accordance with its
investment objective and policies;
(7) underwrite the securities of other issuers (except to the extent that
a Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities);
(8) except for the Emerging Markets Debt Fund, acquire any securities of
companies within one industry, if as a result of such acquisition, more than
25% of the value of the 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, when any such Fund adopts a
temporary defensive position; and
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) enter into futures contracts to the extent that each Fund's
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of each Fund's total assets, and will maintain
assets sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the SEC's position
on asset coverage;
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<PAGE>
(2) write put or call options except to the extent described above
in (1);
(3) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided
that each Fund may make margin deposits in connection with transactions in
options, futures, and options on futures;
(4) sell short unless, by virtue of its ownership of other securities,
each respective Fund has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional, the sale
is made upon the same conditions, except that the Emerging Markets Debt Fund
may from time to time sell securities short without limitation but consistent
with applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
(5) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than
1/2 of 1% of such securities together own more than 5% of such securities;
(6) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so
long as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder;
or, except for the Emerging Markets Debt Fund, purchase additional securities
when borrowings exceed 5% of total assets;
(7) pledge, mortgage or hypothecate assets in an amount greater than 10%
of its total assets in the case of the Equity Growth, Global Equity and Emerging
Markets Debt Funds or 50% of its total assets in the case of the Mid Cap Growth
and Value Funds, provided that each Fund may segregate assets without limit in
order to comply with the requirements of Section 18(f) of the 1940 Act and
applicable rules, regulations or interpretations of the SEC and its staff;
(8) invest more than an aggregate of 15% of the net assets of the Fund,
determined at the time of investment, in illiquid securities provided that
this limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined
to be liquid securities under guidelines or procedures adopted by the Board
of Directors;
(9) invest for the purpose of exercising control over management of any
company;
(10) 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;
(11) in the case of the Equity Growth, Global Equity, and Emerging
Markets Debt Funds, make loans as described in fundamental investment
limitations 3(ii) and 3(iii), above, in an amount exceeding 33 1/3% of its
total assets; and
(12) in the case of the Emerging Markets Debt Fund, purchase a security
if, as a result, with repect to 50% of its assets, it would hold more than
10% of the outstanding voting securities of an issuer or have more than 5% of
its total assets invested in securities of an issuer or, with respect to 100%
of its assets, it would have more than 25% of its total assets invested in
securities of the issuer, except that these limitations do not apply to
investments in U.S. Government securities.
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<PAGE>
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MONEY MARKET FUNDS
The following are fundamental investment limitations with respect to the Money
Market Funds. No Money Market Fund will:
(1) invest in commodities;
(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) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) 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, except that the Tax-Free Money Market Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations;
(6) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the 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 or their domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) issue senior securities or borrow money, except for borrowing money
from banks for temporary purposes or (with respect to the Money Market Fund and
Government Obligations Fund) for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Fund's total assets at the time
of such borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Fund; or mortgage, pledge, hypothecate
or in any manner transfer as security for indebtedness any securities owned or
held by the Fund, any assets except as may be necessary in connection with
permitted borrowings and then, in amounts not in excess of 10% of the value of
the Fund's total assets at the time of the borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Fund's securities by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient.);
(9) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(10) make short sales of securities or maintain a short position or write
or sell puts, calls, straddles, spreads or combinations thereof;
(11) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the Fund
may invest only in investment companies that are unaffiliated with
30
<PAGE>
the Fund; and with respect to the Tax-Free Money Market Fund and Government
Obligations Money Market Fund, invest more than 10% of the value of the
Fund's assets in other investment companies that are unaffiliated with the
Fund and then no more than 5% of the Fund's assets may be invested in any one
money market fund;
(12) with respect to the Money Market Fund, purchase any securities other
than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Fund's assets and may make time
deposits;
(13) with respect to the Tax-Free Money Market Fund, under normal market
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
(14) with respect to the Government Obligations Money Market Fund, purchase
securities other than U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There is no limit on the
amount of the Fund's assets which may be invested in the securities of any one
issuer of obligations that the Fund is permitted to purchase;
(15) purchase the securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or securities subject to unconditional demand features issued by a non-
controlled person) if immediately after and as a result at the time of purchase
more than 5% of the Fund's total assets would be invested in the securities of
such issuer; except that, under applicable regulations, the Fund may invest
more than 5% of its total assets in any one issuer for up to three business
days;
(16) enter into repurchase agreements with more than seven days maturity
if, as a result, more than 10% of the 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; and
(17) make loans, except that a Fund may purchase or hold debt obligations
in accordance with its investment objectives, policies and limitations and,
with respect to the Money Market and Government Obligations Money Market Funds,
may enter into repurchase agreements for securities, and may lend portfolio
securities against collateral, consisting of cash or securities which are
consistent with the Fund's permitted investments, which is equal at all times
to at least 100% of the value of the securities loaned. There is no investment
restriction on the amount of securities that may be loaned.
With respect to limitation (6) above concerning industry concentration, the
Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The following are non-fundamental investment limitations with respect to the
Money Market Funds. As a matter of non-fundamental policy, no Money Market Fund
will:
(1) 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;
(2) purchase warrants if, by reason of such purchase, more than 5% of the
value of the 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 Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange; and
(3) invest in oil, gas or other mineral leases.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future Funds of the Company may adopt different
limitations.
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<PAGE>
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a
government obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be deemed to have
a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE COMPANY
OFFICERS AND DIRECTORS
The Company's Officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Company. The Directors set broad
policies for the Company and choose its Officers. Three Directors and all of
the Officers of the Company are directors, officers or employees of the
Company's advisers, distributor or administrative services providers. The
other Directors have no affiliation with the Company's advisers, distributor
or administrative services providers or their affiliates. The Directors are
also Directors of other open-end funds advised by MSAM (collectively with the
Company, the "Open-End Fund Complex") and [a] closed-end fund[s] (together
with the Open-End Fund Complex, the "Fund Complex"). Officers of the Company
are also officers of funds in the Fund Complex and some or all of the other
investment companies managed, administered, advised or distributed by MSAM or
its affiliates. A list of the Directors and Officers of the Company and a
brief statement of their present positions and principal occupations during
the past five years is set forth below:
<TABLE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Company Past Five Years
- ------------------------------- --------------------- ---------------------------
<S> <C> <C>
Barton M. Biggs* Chairman and Chairman and Director of Morgan Stanley
1221 Avenue of the Director Asset Management Inc. and Morgan Stanley
Americas Asset Management Limited; Managing
New York, NY 10020 Director of Morgan Stanley & Co.
(11/26/32) Incorporated; Member of Investment Advisory
Counsel of the Thailand Fund; Member of the
Yale Development Board; Director of the
Rand McNally Company; Director and
Officer of various investment companies
managed by Morgan Stanley Asset
Management Inc.
Warren J. Olsen* Director and Principal of Morgan Stanley Asset
1221 Avenue of the President Management Inc; President and Director of
Americas various investment companies managed by
New York, NY 10020 Morgan Stanley Asset Management Inc.
(12/21/56)
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<PAGE>
John D. Barrett, II Director Chairman and Director of Barrett Associates,
521 Fifth Avenue Inc. (investment counseling); Director of
New York, NY 10135 the Ashforth Company (real estate); Director of
(8/21/35) the Morgan Stanley Institutional Fund, Inc.
and PCS Cash Fund, Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm);
43 Arch Street Director of the Morgan Stanley Institutional
Greenwich, CT 06830 Fund, Inc. and PCS Cash Fund, Inc.
(1/23/37)
Andrew McNally, IV Director Chairman and Chief Executive Officer of
8255 North Central Rand McNally (publication); Director of
Park Avenue Allendale Insurance Co., Mercury Finance
Skokie, IL 60076 (consumer finance); Zenith Electronics,
(11/11/39) Hubbell, Inc. (industrial electronics); Director
of the Morgan Stanley Institutional Fund, Inc.
and PCS Cash Fund, Inc.;
Samuel T. Reeves Director Chairman of the Board and CEO, Pinacle
8211 North Fresno Street Trading L.L.C. (investment firm); Director, Pacific
Fresno, CA 93720 Gas and Electric and PG&E Enterprises
(7/28/34) (utilities); Director of the Morgan Stanley
Institutional Fund, Inc. and PCS Cash Fund,
Inc.
Fergus Reid Director Chairman and Chief Executive Officer of
85 Charles Colman Blvd. LumeLite Corporation (injection molding
Pawling, NY 12564 firm); Trustee and Director of Vista Mutual
(8/12/32) Fund Group; Director of the Morgan Stanley
Institutional Fund, Inc. and PCS Cash Fund, Inc.
Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin & Boehm, P.C. and
2800 North Central Avenue Rake, Copple, Downey & Black, P.C. (law firms);
Phoenix, AZ 85004 Director of the Morgan Stanley Institutional Fund, Inc.
(1/24/34) and PCS Cash Fund, Inc.
Frederick B. Whittemore* Director Advisory Director of Morgan Stanley & Co.
1251 Avenue of the Incorporated; Vice-Chairman and Director of
Americas, 30th Flr. various investment companies managed by Morgan
New York, NY 10020 Stanley Asset Management Inc.
(11/12/30)
James W. Grisham* Vice President Principal of Morgan Stanley Asset Management Inc.;
1221 Avenue of the Officer of various investment companies managed by
Americas Morgan Stanley Asset Management Inc.
New York, NY 10020
(10/24/41)
33
<PAGE>
Michael F. Klein* Vice President Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc; Officer of various
Americas investment companies managed by Morgan
New York, NY 10020 Stanley Asset Management Inc. Previously
(12/12/58) associated with Rogers & Wells (law firm).
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley & Co. Incorporated;
1221 Avenue of the General Counsel and Secretary of Morgan Stanley
Americas Asset Management Inc.; Officer of various
New York, NY 10020 investment companies managed by Morgan
(6/10/60) Stanley Asset Management Inc.
Joseph P. Stadler* Vice President Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Officer of various
Americas investment companies managed by Morgan
New York, NY 10020 Stanley Asset Management Inc. Previously
(6/7/54) with Price Waterhouse LLP (accounting).
Valerie Y. Lewis* Secretary Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Officer of various investment
Americas companies managed by Morgan Stanley Asset
New York, NY 10020 Management Inc. Previously with Citicorp (banking).
(3/26/56)
Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
73 Tremont Street Counsel of Chase Global Funds Services Company;
Boston, MA 02108-3913 Previously with Leland, O'Brien, Rubinstein
(3/7/55) Associates, Inc. (investments).
James R. Rooney Treasurer Vice President, Director of Fund Administration
73 Tremont Street and Compliance Services, Chase Global Funds
Boston, MA 02108-3913 Services Company; Officer of various
(10/21/58) investment companies managed by Morgan Stanley
Asset Management Inc. Previously with Scudder, Stevens &
Clark, Inc. (investment) and Ernst & Young LLP (accounting).
Joanna Haigney Assistant Treasurer Manager of Fund Administration and Compliance
73 Tremont Street Services, Chase Global Funds Services Company;
Boston, MA 02108-3913 Officer of various investment companies managed
(10/10/66) by Morgan Stanley Asset Management Inc.
Previously with Coopers & Lybrand LLP.
</TABLE>
__________________________
* "Interested Person" within the meaning of the 1940 Act.
34
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
The Open-End Fund Complex pays each of the nine Directors who is not an
"interested person" an annual aggregate fee of $55,000, plus out-of-pocket
expenses. The Open-End Fund Complex will pay each of the members of the
Company's Audit Committee, which consists of three of the Company's Directors
who are not "interested persons," an additional annual aggregate fee of
$10,000 for serving on such a committee. The allocation of such fees will be
among the two funds in the Open-End Fund Complex in direct proportion to
their respective average net assets. For the fiscal period ended June 30,
1996, the Company paid approximately $77,000 in Directors' fees and
expenses. Directors who are also Officers or affiliated persons receive no
remuneration for their services as Directors. The Company's Officers and
employees are paid by the Advisers or their agents. As of September 30,
1996, to Company management's knowledge, the Directors and officers of the
Company, as a group, owned less than 1% of the outstanding common stock of
each Fund of the Company. The following table shows aggregate compensation
paid to each of the Company's Directors by the Company and the Fund Complex,
respectively, for the fiscal year from July 1, 1995 to June 30, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(3)
Pension or (4) (5)
(2) Retirement Estimated Total
(1) Aggregate Benefits Annual Compensation
Name of Compensation Accrued Benefits From Registrant
Person, From as part of Fund Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barton M. Biggs* $0 $0 $0 $0
Director and Chairman of the Board
John D. Barret, II,* $65,000 $0 $0 $65,000
Director
John E. Eckleberry,*** $0 $0 $0 $0
Director
Gerard E. Jones,* $65,000 $0 $0 $72,100
Director
Warren J. Olsen,* $0 $0 $0 $0
Director and President
Andrew McNally, IV,* $55,000+ $0 $0 $55,000
Director
Samuel T. Reeves,* $55,000+ $0 $0 $55,000
Director
Fergus Reid,* $65,000+ $0 $0 $72,100
Director
Frederick O. Robertshaw,** $55,000+ $0 $0 $55,000
Director
Frederick B. Whittemore,** $0 $0 $0 $13,750
Director (Chairman of the Board until
June 28, 1995)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
* Elected (Director) as of June 28, 1995.
** Reelected as of June 28, 1995.
*** Resigned as of June 28, 1995.
+ The total amount of deferred compensation for Frederick O. Robertshaw,
Samuel T. Reeves, Fergus Reid, Andrew McNally, IV, and Frederick B.
Whittemore was $0, $32,500, $27,500, $27,500 and $3,000, respectively.
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
MSAM is a wholly-owned subsidiary of Morgan Stanley Group Inc. (the
"Group"). The principal offices of the Group are located at 1221 Avenue of
the Americas, New York, NY 10020. MAS is an indirect wholly-owned subsidiary
of the Group with its principal offices located at One Tower Bridge, West
Conshohocken, PA 19428.
[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 ______ employees, approximately __%
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 to the Company for the fiscal years ended June 30, 1994, June
30, 1995 and June 30, 1996, the Adviser earned fees of approximately $2,322,000
(and voluntarily waived a portion of such fees equal to approximately
$1,026,000), $4,571,000 (and voluntarily waived a portion of such fees equal to
approximately $868,000), $7,177,000 (and voluntarily waived a portion of such
fees equal to approximately $1,328,000) respectively. Further, for the fiscal
years ended June 30, 1994, June 30, 1995 and June 30, 1996, MSAM, as adviser
for the PCS Money Market Portfolio (the "Predecessor Money Market Portfolio")
the predecessor to the Money Market Fund received $686,138, $611,754 and
$759,398, respectively (net of voluntary fee waivers of $109,879, $87,105 and
$153,797 respectively) and as adviser for the PCS Government Obligations Money
Market Portfolio (the "Predecessor Government Obligations Money Market
Portfolio") the predecessor to the Government Obligations Money Market Fund
received $412,757, $897,867 and $395,312 respectively (net of voluntary fee
waivers of $25,448, $0 and $45,251, respectively).
MAS provides investment services to employee benefit plans, endowment
funds, foundations, and other institutional investors and has served as
investment adviser to the MAS Funds, a registered open-end investment company,
since 1984. At September 30, 1996, MAS managed investments totalling
approximately $37.5 billion.
Pursuant to the Administration Agreements between the Advisers,
respectively, and the Company, MSAM and MAS (each, an "Administrator") provide
administrative services to those Funds that MSAM or MAS, respectively, serves as
Adviser. For their services under the Administration Agreements, the Company
pays the Administrators a monthly fee which on an annual basis equals 0.25%
of the average daily net assets of each Non-Money Market Fund and 0.10% of
the first $200 million of each Money Market Fund's average daily net assets,
0.75% of the next $200 million of average daily net assets, .05% of the next
$200 million of average daily net assets, and .03% on average
36
<PAGE>
daily net assets over $600 million. For the fiscal years ended June 30,
1994, June 30, 1995 and June 30, 1996, the Company paid administrative fees
to MSAM of approximately $852,000, $1,154,000 and $1,801,654 respectively.
For the fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996,
PFPC Inc., which served as administrator to the Predecessor Money Market
Portfolio and Predecessor Government Obligations Money Market Portfolio (the
"Predecessor Portfolios"), was paid aggregate administrative fees of
$283,085, $346,829 and $273,252 respectively. MAS did not serve as an
Administrator and received no compensation from the Company prior to the end
of the fiscal year ended June 30, 1996.
Under Sub-Administration Agreements between the Administrators,
respectively, and The Chase Manhattan Bank ("Chase," successor in interest to
United States Trust Company of New York), Chase Global Funds Services Company
("CGFSC," formerly Mutual Funds Service Company, a corporate affiliate of
Chase) provides certain administrative services to the Company. CGFSC
provides operational and administrative services to investment companies with
approximately $64.3 billion in assets and having approximately 212,568
shareholder accounts as of June 30, 1996. CGFSC's business address is 73
Tremont Street, Boston, Massachusetts 02108-3913.
DISTRIBUTION OF FUND SHARES
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), a wholly-owned
subsidiary of the Group, served as the distributor of the Company's shares
pursuant to a Distribution Agreement with the Company and a Plan of
Distribution for the Money Market Funds and each class of the Non-Money Funds
pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan" and collectively,
the "Plans"). Subsequent to January 1, 1997, _________ (the "Distributor")
replaced Morgan Stanley as distributor of the Company's shares pursuant to a
Distribution Agreement with the Company and the Plans. Under each Plan the
Company's distributor is entitled to receive from the Funds a distribution
fee, which is accrued daily and paid quarterly, of up to 0.50% for each of
the Money Market Funds and up to 0.75% of the Class B shares and Class C
shares of each of the Non-Money Funds, on an annualized basis, of the average
daily net assets of such 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 (a
"Participating Dealer"). The actual amount of such compensation is agreed
upon by the Company'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 Funds to accrue and pay to the Distributor the
fee agreed to under its Distribution Agreement. The Plans do not obligate
the 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 Funds will not be obligated
to pay more than that fee. If the Distributor's actual expenses are less
than the fee it receives, the Distributor will retain the full amount of the
fee. The Plans for the [Class A,] Class B and Class C shares of the
Non-Money Market Funds were most recently approved by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company 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 ____________ __, 1996 and the Plan for the Money Market
Funds was most recently approved on ________________.
[The Distributor did not serve as the distributor and received no compensation
from the Company prior to the end of the fiscal year ended June 30, 1996.]
As compensation for providing distribution services to the Company for the
fiscal year ended June 30, 1996, Morgan Stanley received aggregate fees of
approximately $4,267,000 which were attributable approximately as follows:
37
<PAGE>
Fiscal Year
Ended
June 30, 1996
(000)
-------------
Global Equity Allocation Fund-Class A. . . . . . . . . . . . . . $ 126
Global Equity Allocation Fund-Class B+ . . . . . . . . . . . . . 47
Global Equity Allocation Fund-Class C+ . . . . . . . . . . . . . 496
Global Fixed Income Fund-Class A . . . . . . . . . . . . . . . . 26
Global Fixed Income Fund-Class B+. . . . . . . . . . . . . . . . 3
Global Fixed Income Fund-Class C+. . . . . . . . . . . . . . . . 56
Asian Growth Fund-Class A. . . . . . . . . . . . . . . . . . . . 516
Asian Growth Fund-Class B+ . . . . . . . . . . . . . . . . . . . 194
Asian Growth Fund-Class C+ . . . . . . . . . . . . . . . . . . . 1,505
Emerging Markets Fund-Class A. . . . . . . . . . . . . . . . . . 131
Emerging Markets Fund-Class B+ . . . . . . . . . . . . . . . . . 35
Emerging Markets Fund-Class C+ . . . . . . . . . . . . . . . . . 309
Latin American Fund-Class A . . . . . . . . . . . . . . . . . . 28
Latin American Fund-Class B+ . . . . . . . . . . . . . . . . . . 6
Latin American Fund-Class C+ . . . . . . . . . . . . . . . . . . 55
American Value Fund-Class A. . . . . . . . . . . . . . . . . . . 57
American Value Fund-Class B+ . . . . . . . . . . . . . . . . . . 14
American Value Fund-Class C+ . . . . . . . . . . . . . . . . . . 187
Worldwide High Income Fund-Class A . . . . . . . . . . . . . . . 90
Worldwide High Income Fund-Class B+. . . . . . . . . . . . . . . 112
Worldwide High Income Fund-Class C+. . . . . . . . . . . . . . . 231
Aggressive Equity Fund-Class A . . . . . . . . . . . . . . . . . 4
Aggressive Equity Fund-Class B . . . . . . . . . . . . . . . . . 10
Aggressive Equity Fund-Class C . . . . . . . . . . . . . . . . . 10
High Yield Fund-Class A. . . . . . . . . . . . . . . . . . . . . 2
High Yield Fund-Class B. . . . . . . . . . . . . . . . . . . . . 5
High Yield Fund-Class C. . . . . . . . . . . . . . . . . . . . . 5
U.S. Real Estate Fund-Class A. . . . . . . . . . . . . . . . . . 1
U.S. Real Estate Fund-Class B. . . . . . . . . . . . . . . . . . 3
U.S. Real Estate Fund-Class C. . . . . . . . . . . . . . . . . . 3
International Magnum Fund-Class A**. . . . . . . . . . . . . . . N/A
International Magnum Fund-Class B**. . . . . . . . . . . . . . . N/A
International Magnum Fund-Class C**. . . . . . . . . . . . . . . N/A
Japanese Equity Fund-Class A** . . . . . . . . . . . . . . . . . N/A
Japanese Equity Fund-Class B** . . . . . . . . . . . . . . . . . N/A
Japanese Equity Fund-Class C** . . . . . . . . . . . . . . . . . N/A
Growth and Income Fund-Class A** . . . . . . . . . . . . . . . . N/A
Growth and Income Fund-Class B** . . . . . . . . . . . . . . . . N/A
Growth and Income Fund-Class C** . . . . . . . . . . . . . . . . N/A
European Equity Fund-Class A** . . . . . . . . . . . . . . . . . N/A
European Equity Fund Class B** . . . . . . . . . . . . . . . . . N/A
European Equity Fund Class C** . . . . . . . . . . . . . . . . . N/A
Money Market Fund**++. . . . . . . . . . . . . . . . . . . . . . N/A
Tax-Free Money Market Fund **. . . . . . . . . . . . . . . . . . N/A
Government Obligations Money Market Fund**++ . . . . . . . . . . N/A
Equity Growth Fund - Class A** . . . . . . . . . . . . . . . . . N/A
Equity Growth Fund - Class B** . . . . . . . . . . . . . . . . . N/A
38
<PAGE>
Equity Growth Fund - Class C** . . . . . . . . . . . . . . . . . N/A
Global Equity Fund - Class A** . . . . . . . . . . . . . . . . . N/A
Global Equity Fund - Class B** . . . . . . . . . . . . . . . . . N/A
Global Equity Fund - Class C** . . . . . . . . . . . . . . . . . N/A
Emerging Markets Debt Fund - Class A** . . . . . . . . . . . . . N/A
Emerging Markets Debt Fund - Class B** . . . . . . . . . . . . . N/A
Emerging Markets Debt Fund - Class C** . . . . . . . . . . . . . N/A
Mid Cap Growth Fund - Class A**. . . . . . . . . . . . . . . . . N/A
Mid Cap Growth Fund - Class B**. . . . . . . . . . . . . . . . . N/A
Mid Cap Growth Fund - Class C**. . . . . . . . . . . . . . . . . N/A
Value Fund - Class A** . . . . . . . . . . . . . . . . . . . . . N/A
Value Fund - Class B** . . . . . . . . . . . . . . . . . . . . . N/A
Value Fund - Class C** . . . . . . . . . . . . . . . . . . . . . N/A
________________________
** Not operational as of June 30,1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995.
++ As compensation for providing distribution services to the Predecessor
Portfolios for the fiscal years ended June 30, 1996, Morgan Stanley
received fees from the Predecessor Money Market Portfolio in the amount of
$843,776 and from the Predecessor Government Obligations Money Market
Portfolio in the amount of $439,236.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Adviser and, as described below,
impose additional, more onerous, restrictions on the Company's investment
personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Company within periods of trading by the
Company in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of September 30, 1996 and the
percentage of outstanding shares of such classes owned beneficially or of
record by such shareholders as of such date are, to Company management's
knowledge, as follows:
GLOBAL EQUITY ALLOCATION FUND: Scott & Stringfellow PSP, C/O David
Plageman, P.O. Box 1575, Richmond, VA 23213, owned 5% of the total outstanding
Class A shares of such Fund.
39
<PAGE>
GLOBAL FIXED INCOME FUND: The Private Bank & Trust Co., 10 Dearborn
Street, Chicago, IL 60602, owned 12% of the total outstanding Class A shares
of such Fund; Oppenheimer Company, Inc., P.O. Box 3484, Church Street
Station, New York, NY 10008, owned 13% of the total outstanding Class B
shares of such Fund; and PaineWebber, FBO Robert P. Buhrman, P.O. Box 3321,
Weehawken, NJ 07087, owned 9% of total outstanding Class C shares of such
Fund.
AMERICAN VALUE FUND: Smith Barney, Inc., 388 Greenwich Street, New
York, NY 10013, owned 7% of the total outstanding Class A shares of such
Fund; James G. McMurray, M.D. Profit Sharing Plan, 303 Williams Avenue,
Suite 411, Huntsville, AL 35801, owned 7% of the total outstanding Class B
shares of such Fund and Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 13% of the total outstanding Class C
shares of such Fund.
WORLDWIDE HIGH INCOME FUND: FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO 80217, owned 14% of the total outstanding Class A shares
of such Fund.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 33% of
the total outstanding Class A shares of such Fund.
HIGH YIELD FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 80% of the total outstanding Class A
shares of such Fund, 85% of the total outstanding Class B shares of such
Fund and 93% of the total outstanding Class C shares of such Fund.
LATIN AMERICAN FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 25% of
the total outstanding Class A shares of such Fund and Smith Barney, Inc., 388
Greenwich Street, New York, NY 10013, owned 6% of the total outstanding Class
B shares of such Fund.
U.S. REAL ESTATE FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 62% of the total outstanding Class A
shares of such Fund, 62% of the total outstanding Class B shares of such
Fund and 82% of the total outstanding Class C shares of such Fund.
AGGRESSIVE EQUITY FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 31% of the total outstanding Class A
shares of such Fund, 51% of the total outstanding Class B shares of such Fund
and 57% of the total outstanding Class C shares of such Fund.
INTERNATIONAL MAGNUM FUND: Morgan Stanley Group, Inc., 1221 Avenue of
the Americas, New York, NY 10020, owned 80% of the total outstanding Class A
shares of such Fund; 86% of the total outstanding Class B shares of such
Fund and 67% of the total outstanding Class C shares of such Fund.
MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway, 2nd Floor,
Wilmington, DE 19809, owned 1.11% of the total outstanding shares of the Fund.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND: PFPC, Inc., 400 Bellevue
Parkway, 2nd Floor, Wilmington, DE 19809, owned 1.02% of the total
outstanding shares of the Fund.
TAX-FREE MONEY MARKET FUND: N/A
JAPANESE EQUITY FUND: N/A
GROWTH AND INCOME FUND: N/A
EUROPEAN EQUITY FUND: N/A
40
<PAGE>
EQUITY GROWTH FUND: N/A
GLOBAL EQUITY FUND: N/A
EMERGING MARKETS DEBT FUND: N/A
MID CAP GROWTH FUND: N/A
VALUE FUND: N/A
[The Group may be deemed a "controlling person" of the Company 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
Each of the Money Market Funds seeks to maintain a stable net asset value
per share of $1.00. Each 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 a Fund's per share net asset value at
$1.00 is based on the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. As a condition of operating under that Rule, each of
the Money Market Funds 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
Funds' 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 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 a 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. Each of the Money Market Funds
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 such
Funds will ordinarily remain at $1.00, but the Investment Funds' 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 Funds do
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.
41
<PAGE>
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 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 Funds. The Company 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 Company.
In purchasing and selling securities for the Funds, it is the Company'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 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 Company. Some
securities considered for investment by a Fund may also be appropriate for other
clients served by the Adviser. If purchase or sale of securities consistent
with the investment policies of a 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 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 Company's Directors.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio
brokerage transactions to Morgan Stanley or broker affiliates of Morgan
Stanley under procedures adopted by the Board of Directors. For the three
fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996, the
Company paid brokerage commissions of approximately $618,000, $115,622 and
$180,458, respectively, to the Distributor, an affiliated broker-dealer. For
the fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996,
commissions paid to the Distributor represented approximately 30%,7% and 6%,
respectively, of the total amount of brokerage commissions paid in such
period and which were paid on transactions that represented 21%, 3% and 2%
respectively, of the aggregate dollar amount of transactions that incurred
commissions paid by the Company during such period.
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 Company may from time to time quote various performance figures to
illustrate the 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 Company 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 Company are based
on the standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the 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
42
<PAGE>
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the 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 Fund) and the deduction of all applicable Company
expenses on an annual basis.
Total return figures are calculated according to the following formula:
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof).
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Funds that
commenced operations prior to June 30, 1996 for the one-year period ended June
30, 1996 and for the period from the inception of each Fund through June 30,
1996 are as follows:
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
Global Equity Allocation Fund
Class A Shares . . . . . . . . . 01/04/93 24.62% 14.58%
Class B Shares+. . . . . . . . . 08/01/95 18.08% N/A
Class C Shares+ . . . . . . . . 01/04/93 23.65% 13.74%
Global Fixed Income Fund
Class A Shares . . . . . . . . . 01/04/93 5.20% 7.12%
Class B Shares+ . . . . . . . . 08/01/95 3.76% N/A
Class C Shares+ . . . . . . . . 01/04/93 4.47% 6.27%
Asian Growth Fund
Class A Shares . . . . . . . . . 06/23/93 4.45% 13.78%
Class B Shares+ . . . . . . . . 08/01/95 1.82% N/A
Class C Shares+ . . . . . . . . 06/23/93 3.64% 12.98%
American Value Fund
Class A Shares . . . . . . . . . 10/18/93 17.41% 11.29%
Class B Shares+ . . . . . . . . 08/01/95 12.29% N/A
Class C Shares+ . . . . . . . . 10/18/93 16.50% 10.42%
Worldwide High Income Fund
Class A Shares . . . . . . . . . 04/21/94 19.61% 13.28%
Class B Shares+ . . . . . . . . 08/01/95 17.07% N/A
Class C Shares+ . . . . . . . . 04/21/94 18.71% 12.45%
43
<PAGE>
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
Emerging Markets Fund
Class A Shares . . . . . . . . . 07/06/94 14.16% 0.47%
Class B Shares+ . . . . . . . . 08/01/95 9.45% N/A
Class C Shares+ . . . . . . . . 07/06/94 13.30% -0.29%
Latin American Fund
Class A Shares . . . . . . . . . 07/06/94 39.35% 3.56%
Class B Shares+ . . . . . . . . 08/01/95 29.96% N/A
Class C Shares+ . . . . . . . . 07/06/94 38.26% 2.64%
Aggressive Equity Fund
Class A Shares . . . . . . . . . 01/02/96 20.52% N/A
Class B Shares . . . . . . . . . 01/02/96 20.18% N/A
Class C Shares . . . . . . . . . 01/02/96 20.10% N/A
U.S. Real Estate Fund
Class A Shares . . . . . . . . . 05/01/96 4.63% N/A
Class B Shares . . . . . . . . . 05/01/96 4.54% N/A
Class C Shares . . . . . . . . . 05/01/96 4.54% N/A
High Yield Fund
Class A Shares . . . . . . . . . 05/01/96 0.29% N/A
Class B Shares . . . . . . . . . 05/01/96 0.21% N/A
Class C Shares . . . . . . . . . 05/01/96 0.21% N/A
International Magnum Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Japanese Equity Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Growth and Income Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
European Equity Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Equity Growth Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
44
<PAGE>
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
Global Equity Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Emerging Markets Debt Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Mid Cap Growth Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Value Fund
Class A Shares . . . . . . . . . N/A N/A N/A
Class B Shares . . . . . . . . . N/A N/A N/A
Class C Shares . . . . . . . . . N/A N/A N/A
Money Market Fund . . . . . . . . . 03/12/92 N/A N/A
Tax-Free Money Market Fund . . . . N/A N/A N/A
Government Obligations Money Market
Fund . . . . . . . . . . . . . . . 03/12/92 N/A N/A
The European Equity, International Magnum, Japanese Equity, Growth and
Income, Equity Growth, Global Equity, Emerging Markets Debt, Mid Cap Growth,
Value, Money Market, Tax-Free Money Market and Government Obligations Money
Market Funds had not commenced operations in the fiscal year ended June 30,
1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995.
* Not Annualized.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
Yield = 2[(a - b + 1) - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to
45
<PAGE>
receive income distributions
d = the maximum offering price per share on the last day of the
period
The 30-day yield for the Global Fixed Income Fund as of June 30, 1996 was
4.63% for Class A shares; 4.69% for Class B shares and 3.94% for Class C shares.
The 30-day yield for the Worldwide High Income Fund as of June 30, 1996 was
12.56% for Class A shares; 12.42% for Class B shares and 12.40% for Class C
shares.
CALCULATION OF YIELD FOR MONEY MARKET FUNDS
The current yield of the Money Market, Tax-Free Money Market and Government
Obligations Money Market Funds are 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 Fund, including dividends
on both the original share and on such additional shares. The yields of the
Predecessor Money Market Portfolio and Predecessor Government Obligations Money
Market Portfolio for the 7-day period ended June 30, 1996 were 4.40% and 4.42%
respectively. An effective yield, which reflects the effects of compounding and
represents an annualization of the current yield with all dividends reinvested,
may also be calculated for each Portfolio by dividing the base period return by
7, adding 1 to the quotient, raising the sum to the 365th power, and subtracting
1 from the result. The effective yields of the Predecessor Money Market
Portfolio and Predecessor Government Obligations Money Market Portfolio for
the 7-day period ended June 30, 1996 were 4.50% and 4.52% respectively.
The yield of a Fund will fluctuate. The annualization of a week's dividend
is not a representation by the Fund to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Fund invests
in, changes in interest rates on instruments, changes in the expenses of the
Fund and other factors. Yields are one basis investors may use to analyze the
Funds, 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 fund instruments, computing net asset value and
calculating yield.
TAXABLE EQUIVALENT YIELD
It is easy to calculate your own taxable equivalent yield if you know your
tax bracket. The formula is:
Tax Free Yield
--------------------
1 - Your Tax Bracket = Your Taxable Equivalent Yield
For example, if you are in the 28% tax bracket and can earn a tax-free
yield of 7.5%, the taxable equivalent yield would be 10.42%.
The table below indicates the advantages of investments in Municipal Bonds
for certain investors. Tax-exempt rates of interest payable on a Municipal Bond
(shown at the top of each column) are equivalent to the taxable yields set forth
opposite the respective income tax levels, based on income tax rates effective
for the tax year 1996 under the Internal Revenue Code. There can, of course, be
no guarantee that the Money Market, Tax-Free Money Market or the Government
Obligations Money Market will achieve a specific yield. Also, it is possible
that some portion of the Fund's dividends may be subject to federal income
taxes. A substantial portion, if not all, of such dividends may be subject to
state and local taxes.
46
<PAGE>
TAXABLE EQUIVALENT YIELD TABLE
SAMPLE LEVEL OF TAXABLE EQUIVALENT RATES
TAXABLE INCOME BASED ON TAX-EXEMPT YIELD OF:
FEDERAL
INCOME
JOINT SINGLE TAX
RETURN RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
__________
* Net amount subject to 1996 Federal Income Tax after deductions and
exemptions, not indexed for 1996 income tax rates.
The taxable equivalent yield for the Predecessor Government Obligations
Money Market Portfolio for the seven days ended June 30, 1996, assuming a
federal income tax rate of 39.6% (maximum rate), was 7.32%. The taxable
equivalent effective yield for the Predecessor Government Obligations Money
Market Portfolio for the seven days ended June 30 1996, assuming the same tax
rate, was 7.48%.
COMPARISONS
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages - an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities company stocks and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices - represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper - Capital Appreciation Index - a composite of mutual funds
managed for maximum capital gains.
(f) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index - currently includes 67 bonds
and 33 preferred. The original
47
<PAGE>
list of names was generated by screening for convertible issues of $100 million
or greater in market capitalization. The index is priced monthly.
(i) Salomon Brothers GNMA Index - includes pools of mortgages originated
by private lenders and guaranteed by the mortgage pools of the Government
National Association.
(j) 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.
(k) 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.
(l) 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 Japanese Yen
Canadian Dollars Netherlands Guilder
Swiss Francs UK Pounds Sterling
European Currency Units U.S. Dollars
French Francs German Deutsche Marks
(m) 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.
(n) Lehman LONG-TERM Treasury Bond - is composed of all bonds covered by
the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.
(t) 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
48
<PAGE>
Service - publications that rate fund performance over specified time periods.
(u) 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.
(v) 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.
(w) Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.
(x) 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.
(y) The MSCI Combined Far East Free ex-Japan Index, a
market-capitalization weighted index comprising stocks in Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is included
in the MSCI Combined Far East Free ex-Japan Index at 20% of its market
capitalization.
(z) CS 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.
(aa) 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.
(bb) 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, New Zealand,
the Far East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of
the performance of over 196 securities on the stock exchanges of Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment
of dividends.)
(dd) IFC Global Total Return Composite Index - An unmanaged index of
common stocks and includes developing countries in Latin America, East and
South Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ - Expanding on the EMBI, which includes only Bradys, the
EMBI+ includes a broader group of Brady Bonds, loans, Eurobonds and U.S.
Dollar local markets instruments. A more comprehensive benchmark than EMBI,
the EMBI+ covers 49 instruments from 14 countries. At $98 billion, its market
cap is nearly 50% higher than the EMBI's. The EMBI+ is not, however, intended
to replace the EMBI but rather to complement it. The EMBI continues to
represent the most liquid, most easily traded segment of the market, while
the EMBI+ represents the broader market, including more of the assets that
investors typically hold in their portfolios. Both of these indices are
published daily.
(ff) The MSCI Latin America Global Index - is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico,
Argentina, Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment
of dividends).
(gg) Morgan Stanley Capital International Japan Index - An unmanaged
index of common stocks (assumes dividends reinvested).
49
<PAGE>
(hh) NAREIT Index - An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Company's
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 Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
[Delete the remainder and insert narrative regarding advertising.]
AMERICAN VALUE FUND
The American Value Fund's portfolio managers are "value" investors, and as
such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value. This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.
Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized. Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.
Wilshire Associates reports small cap value stocks (an index made up of the
lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap growth stock during the period of 1978 to 1994, and with
less risk than the average small cap growth stock (an index made up of small
capitalization stocks with the highest earnings growth, highest price-to-book
and highest price-to-earnings ratios as shown in the chart below).
[THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Small Cap Value Has Provided A Favorable Risk/Return Profile"
indicates returns from 14.3% to 19.5% on the vertical axis and risk (standard
deviation) from 14.9% to 24.3% on the horizontal axis. The following points are
indicated on the graph:
For Small Cap Value Portfolio:
Return of 19.5% at risk (standard deviation) of 15.9%
For Small Cap Mean Between Value and Growth:
Return of 15.9% at risk (standard deviation) of 20.6%
Small Cap Growth Portfolio:
Return of 15.6% at risk (standard deviation) of 24.3%
For S&P 500: Return of 14.3% at risk (standard deviation) of 14.9%
Source: Wilshire Associates style performance data 1978-1994
[END OF NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
50
<PAGE>
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, 1995" indicates returns of $10,000 to $710,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1995 on the horizontal axis. Every sixth quarter is presented instead of
lines covering each quarter.
<TABLE>
<CAPTION>
In Thousands (except last column)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70Q4 72Q2 73Q4 75Q2 76Q4 78Q2 79Q4 81Q2 82Q4 84Q2 85Q4 87Q2 88Q4 90Q2 91Q4 93Q2 94Q4 9/30/95
Small $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $539 $657
Cap
Value
$10
Small 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $237 $304
Cap
10
Large 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130 $169
Cap
10
10 Year10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $ 84 $ 85
Govt
Bond
10
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $ 60 $ 62
10
</TABLE>
51
<PAGE>
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. Small cap securities are
generally more volatile than T-Bills, 10-year government bonds or the S&P 500.
The returns shown assume the reinvestment of all distributions of income and
capital gains and do not reflect the deduction of sales charges or management
fees and expenses that would be applicable to a managed basket of equity
securities. The deduction of such sales charges and management fees and
expenses would reduce the returns shown. It is not possible to invest directly
in an index of equity securities, including any of the MSCI indices. An
investment strategy may be designed to replicate an index of equity securities
and may be more or less successful in achieving such a replication.
THE AMERICAN VALUE FUND'S PORTFOLIO. The portfolio universe consists of
the next 2,000 companies that rank in size following the 500 largest U.S.
corporations. The portfolio consists of approximately 100 companies, many of
which have been in business for over one hundred years and meet the stringent
criteria set forth by Morgan Stanley's portfolio management team. Companies in
the portfolio must be bargain-priced, with quality products and a dominant
market niche. They must demonstrate a sustainable growth rate, a healthy
financial position and have a history of paying dividends.
Careful analysis, using this criteria, helps Morgan Stanley portfolio
managers distinguish an underpriced stock that is in a position to recover, from
one that will continue to decline.
THE MORGAN STANLEY DISTINCTION. The portfolio managers' goal is to
capitalize on the market's tendency to overreact to bad news. Often a single
negative event that has been exaggerated in the stock market can cause a stock's
price to decline much more than is justified by the company's actual prospects.
This type of discrepancy between a company's market price and its intrinsic
worth (based on its earnings, cash flow, and/or asset values) is viewed by the
portfolio managers as an opportunity.
The managers of the American Value Fund are long-term investors, not
short-term traders. They recognize that the potentially higher rate of return
available from small stocks cannot be achieved overnight. Value takes time to
be realized.
The Fund's portfolio managers seek companies paying high, sustainable
dividends. Dividends are important because they provide a good indication that
a company has not only quality, shareholder-oriented management, but also
financial strength.
THE ASIAN GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 5.3% in Asia as compared with 2% in both North America and
Europe, according to the World Bank Atlas. According to Morgan Stanley
research, the economies in this region are less mature and are expected to have
a higher rate of sustainable growth well into the next century.
According to research conducted by J. Walter Thompson, by the year 2000,
Asia will have two-thirds of the world's population; only four of the world's
largest cities will be non-Asian; affluent Asian households will rise by 50% to
51 million; and per capita Gross Domestic Product ("GDP") will double. In
addition, 240 million Asian households will have televisions (a 70% increase in
the past 5 years, as compared with a 4.3% increase in Britain and a 6.7%
increase in the U.S.). China currently has one-quarter of the world's
population and is projected to have 200 million middle-class consumers by the
year 2000. By 2012, China, alone, is projected to have the world's largest
economy.
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Annualized returns of stock markets in this region are, in some cases,
twice that of the U.S., according to Morgan Stanley Capital International (MSCI)
Indices. On a relative basis, stock prices in this region are less than many
countries in the world, according to MSCI.
MORGAN STANLEY: THE ASIAN AUTHORITY. Morgan Stanley has a strong
commitment to the Asian region. The portfolio team is based in Morgan Stanley's
Singapore office, with managers who are native to the region and the markets
they analyze, offering local insights that have contributed to a superior
performance record. Morgan Stanley has over 1,250 employees located in the Far
East and has offices in Singapore, Shanghai, Taipei and Seoul.
ESTIMATED GNP GROWTH
1990-2000
Asia 5.3%
North America 2.0%
South America 2.2%
Europe 2.0%
Middle East 1.6%
Africa 0.3%
Source: World Bank Atlas
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentage returns on the vertical axis and countries on the horizontal axis:
SUPERIOR HISTORIC MARKET RETURNS
1990 - 1994 ANNUALIZED RETURNS* (US DOLLARS)
Hong Kong 27.18%
Philippines 21.44
CFEFxJ 20.14
Thailand 17.47
Singapore 16.02
Malaysia 13.86
USA 9.16
World 4.24
EAFE 1.82
Korea 0.26
Indonesia -2.15
Taiwan -2.98
Japan -3.43
Past performance of Asian markets is not a guarantee of their future performance
and is not indicative of the Fund's future performance.
* Gross Dividends
Sources: MSCI Indices
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<PAGE>
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past Performance is no guarantee of future results. The MSCI indices represent
an unmanaged basket of equity securities. The returns shown assume the
reinvestment of all distributions of income and capital gains and do not reflect
the deduction of sales charges or management fees and expenses that would be
applicable to a managed basket of equity securities. The deduction of such
sales charges and management fees and expenses would reduce the returns shown.
It is not possible to invest directly in an index of equity securities,
including any of the MSCI indices. An investment strategy may be designed to
replicate an index of equity securities and may be more or less successful in
achieving such a replication.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentages from 0-100% on the vertical axis and countries on the horizontal
axis:
PRICE EARNINGS/RATIO* AS OF DECEMBER, 1994
Japan 97.3%
Taiwan (E) 36.0
Philippines 28.0
Malaysia 24.2
World 23.2
Korea (E) 22.0
Indonesia 20.9
Thailand 20.1
Singapore 19.5
CFEFxJ (E) 19.4
USA 16.9
Hong Kong 13.3
*Trailing 12 Months
Source: MSCI
(E) Estimate, not from MSCI, 12/31/94
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
EMERGING MARKETS' GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is projected
to be 6.5% in emerging markets as compared with 2.5% in industrial countries,
according to the World Bank. According to Morgan Stanley research, the economies
in this region are less mature and are expected to have a higher rate of
sustainable growth well into the next century. If the high savings in the
emerging markets countries as of 1991 are sustained, the savings will provide
much of the needed capital for economic growth:
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<PAGE>
[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.
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[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates percentage of population
under the age of 15 ranging from 0-50% on the horizontal axis and countries on
the vertical axis.
YOUNG POPULATION (1991)
Source: The Economist
Note: (1) 1990 data.
USA 22%
Argentina (1) 30
Brazil (1) 35
Chile (1) 31
Mexico (1) 37
Venezuela (1) 38
Indonesia 37
S. Korea 27
Malaysia 37
Philippines 39
Taiwan 27
Thailand 35
India 36
Turkey (1) 35
Jordan (1) 44
Nigeria (1) 47
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will have a tremendous impact on
consumption of goods and services.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, the average annual total return of emerging markets has
exceeded that of developed countries, and other indicators point to significant
future growth in the emerging markets:
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MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS
Over one-third of Morgan Stanley's 9,200 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.
At ______, 1996, MSAM, together with its affiliated asset management
companies, had approximately ___ billion in assets under management and
fiduciary advice, including over ______ million in Latin America markets and
over _ billion in equities and fixed income in emerging markets, making it one
of the largest investment managers in emerging markets.
Morgan Stanley portfolio managers have access to proprietary research
through Morgan Stanley Capital International (MSCI), the generally recognized
standard for measuring the performance of international securities worldwide.
MSCI monitors approximately 4,000 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.
GROWTH POTENTIAL IN LATIN AMERICA
An economic transformation is occurring in Latin America today, which we
believe is creating a positive environment for investors. Old (protected)
economies are being transformed into new (open) free market economies, as
evidenced by many changes, including:
OLD (PROTECTED) NEW (OPEN)
--------------- ----------
High import tariffs Low tariffs
Regulated exchange rates Free exchange rates
Regulated interest rates Market interest rates
Investment restrictions Open foreign investment
High tax rates Competitive tax rates
Command economy Market economy
Employment priority Efficiency priority
Subsidies Competitive market prices
State-owned industry Privatization
Deficit spending Fiscal austerity
Capital flight Return capital
High inflation Lower inflation
According to Morgan Stanley research, the economies in this region are less
mature and are expected to have higher rates of sustainable growth well into the
next century. We believe the greatest potential for gain is when situations are
improving and not when they are mature.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bell curve line graph that indicates development
increasing upward in the vertical axis and time of maturity increasing to the
right in the horizontal axis:
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EMERGING MARKET LIFE CYCLE
- --------------------------------------------------------------------------------
COUNTRIES BEHIND-THE- EMERGING ESTABLISHED MATURE
SCENES MARKETS GROWTH ECONOMIES
- --------------------------------------------------------------------------------
Germany X
U.S. X
Japan X
U.K. X
Spain X
Hong Kong X
Singapore X
Portugal X
Taiwan X
Greece X
Korea X
Malaysia X
Turkey X
Thailand X
Mexico X
Chile X
Argentina X
Venezuela X
Indonesia X
Philippines X
India X
Brazil X
Pakistan X
Sri Lanka X
Peru X
Egypt X
Sub-Saharan Africa X
Eastern Europe X
Cuba X
Vietnam X
Iran X
Source: Morgan Stanley Research
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
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Historically, this region's economy has grown faster than the industrial
countries, as measured by Gross Domestic Product, and the World Bank projects it
to grow twice as fast as the industrial countries by the year 2000.
Real GDP Growth
1965-93 1993-2000
Forecast
Latin America 4.3% 5.0%
Industrial Countries 3.1% 2.5%
SOURCE: WORLD BANK
PAST PERFORMANCE OF LATIN AMERICAN MARKETS, HOWEVER, IS NO GUARANTEE OF THE
LATIN AMERICA 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 Total Growth of
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
Annualized 1993
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
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<PAGE>
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 America
Fund's future performance.
Price/Earnings Ratio
--------------------
Developed Markets* 28.4%
Emerging Markets* 13.9%
LATIN AMERICA** 17.2%
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX, DEVELOPED MARKETS BY
MSCI WORLD
* PROSPECTIVE 1995
** TRAILING AS OF DECEMBER 31, 1994
Market Cap/GNP
(As of March 3, 1994)
Developed Markets .7
Emerging Markets .3
LATIN AMERICA .3
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX, DEVELOPED MARKETS BY
MSCI WORLD
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Company's Articles of Incorporation permit the Directors to issue 21.75
billion shares of common stock, par value $.001 per share, from an unlimited
number of Funds. Currently the Company is authorized to offer shares of twenty-
two Funds, nineteen of which have Class A, Class B and Class C shares.
The shares of each Fund of the Company are fully paid and non-assessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Fund of the Company have no pre-emptive
rights. The shares of the Company 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
Company.
DIVIDENDS AND DISTRIBUTIONS
The Company's policy is to distribute substantially all of each Fund's net
investment income, if any. Each Fund may choose to make sufficient distributions
of net capital gains to avoid liability for federal excise tax. A 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
Company 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 Non-Money Market Fund will reduce the per share net asset value of
that Fund by the per share amount of the dividend or distribution.
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<PAGE>
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 a Fund are automatically reinvested
in additional shares of that 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 Funds, including
the Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of a Fund.
Each 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 Fund, whether or not distributed to investors, cannot be
offset against net capital losses of any other Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Company's domestic custodian except with respect to the
Money Market Funds. Chase is not affiliated with Morgan Stanley & Co.
Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as the Company's
custodian for foreign assets held outside the United States and employs
subcustodians who were approved by the Directors of the Company 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 Company, and the reputation of the institution in the
particular country or region. PNC Bank, N.A. serves as the Company's custodian
for each of the Money Market Funds.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS: AAA - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. AA -
Bonds which are rated AA are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The
modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicates a mid-range rating and the modifier 3 indicates
that the issue ranks at the lower end of the rating category.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future. BAA - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be
61
<PAGE>
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. BA - Bonds which are rated Ba are judged
to have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B - Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. 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 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 NOTES 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.
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<PAGE>
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 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 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 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 a Fund's net asset value at the time of purchase.
Although the 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.
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<PAGE>
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 a 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 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 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 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 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 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 Fund generally will vary inversely
to changes in prevailing interest rates. The Fund's investments in fixed-rated
debt securities with longer terms to maturity are subject to greater volatility
than the 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 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 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 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 Fund will
64
<PAGE>
rely for payment of interest and principal primarily on the willingness and
ability of the issuing government to make payment in accordance with the terms
of the bonds.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals 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.
65
<PAGE>
FINANCIAL STATEMENTS
The Company's audited financial statements and notes thereto for the
fiscal year ended June 30, 1996, and the report thereon of Price Waterhouse
LLP, independent accountants, which appear in the June 30, 1996 Annual Report
to Shareholders are incorporated herein by reference. The International
Magnum Fund, Japanese Equity Fund, Growth and Income Fund, European Equity
Fund, Equity Growth Fund, Global Equity Fund, Emerging Markets Debt Fund, Mid
Cap Growth Fund, Value Fund, Money Market Fund, Tax-Free Money Market Fund
and Government Obligations Money Market Fund were not operational as of the
date of the Annual Report.
The PCS Cash Fund, Inc.'s audited financial statements and notes thereon
for the fiscal year ended June 30, 1996, and the report thereon of Coopers &
Lybrand LLP which appear in the PCS Cash Fund, Inc.'s Annual Report to
Shareholders are incorporated herein by reference. These financial statements
and notes and report thereon relate to the PCS Money Market Portfolio and PCS
Government Obligations Money Market Portfolio which were the predecessors of the
Morgan Stanley Money Market Fund and Morgan Stanley Government Obligations Money
Market Fund, respectively.
66
<PAGE>
PART C
Morgan Stanley Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS (included in Part A)
Audited financial highlights 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 Latin American and Morgan Stanley Emerging
Markets Funds for the fiscal year ended June 30, 1995 are included
in Part A (the prospectuses). As of June 30, 1995, the Morgan Stanley
Government Obligations Money Market, Morgan Stanley Tax-Free Money
Market, Morgan Stanley European Equity, Morgan Stanley Growth and Income,
Morgan Stanley International Magnum, Morgan Stanley Japanese Equity,
Morgan Stanley Value, Morgan Stanley Equity Growth, Morgan Stanley Global
Equity, Morgan Stanley Aggressive Equity, Morgan Stanley U.S. Real
Estate, Morgan Stanley High Yield, Morgan Stanley Emerging Markets Debt
and Morgan Stanley Mid Cap Growth Funds had not yet commenced operations.
Accordingly, no audited financial highlights for these Funds are included
in the prospectus relating to such Funds.
Audited financial highlights for the PCS Money Market Portfolio and PCS
Government Obligations Money Market Portfolio, portfolios of PCS Cash
Fund, Inc., for the fiscal year ended June 30, 1996 are included in
Part A (the prospectuses). The PCS Money Market Portfolio is the
predecessor to the Morgan Stanley Money Market Fund and the PCS
Government Obligations Money Market Portfolio is the predecessor
portfolio to the Morgan Stanley Government Obligations Money Market Fund.
(2) FINANCIAL STATEMENTS (included in Part B)
The registrant's audited financial statements 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 Latin American and Morgan
Stanley Emerging Markets Funds, respectively, for the fiscal year ended
June 30, 1995, including Price Waterhouse LLP's report thereon, are
incorporated by reference into Part B (the Statement of Additional
Information) and are part of the Registrant's June 30, 1995 Annual
Report to Shareholders. The financial statements incorporated by
reference into Part B are:
1. Statements of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
As of June 30, 1995, the Morgan Stanley Money Market, Morgan Stanley
Government Obligations Money Market, Morgan Stanley Tax-Free Money
Market, Morgan Stanley European Equity, Morgan Stanley Growth and
Income, Morgan Stanley International Magnum, Morgan Stanley Japanese
Equity, Morgan Stanley Value, Morgan Stanley Equity Growth, Morgan
Stanley Mid Cap Growth, Morgan Stanley Global Equity, Morgan Stanley
Aggressive Equity, Morgan Stanley U.S. Real Estate, Morgan Stanley
High Yield and Morgan Stanley Emerging Markets Debt Funds had not yet
commenced operations. Accordingly, no audited financial statements are
filed for these Funds at this time.
PCS Cash Fund Inc.'s audited financial statements for the PCS Money
Market and PCS Government Obligations Money Market Portfolios, for the
fiscal year ended June 30, 1996 are
<PAGE>
incorporated by reference into Part B (the Statement of Additional
Information) and are a part of the PCS Cash Fund, Inc.'s June 30, 1996
Annual Report to Shareholders. The financial statements incorporated by
reference into Part B are:
1. Statement of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
<PAGE>
(B) EXHIBITS
1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33- 51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(b) Articles Supplementary (adding Registrant's High Yield, U.S. Real
Estate and Japanese Equity Funds) to the Amended and Restated
Articles of Incorporation are filed herewith.
(c) Articles Supplementary (adding Registrant's Government
Obligations Money Market and Tax-Free Money Market Funds)to the
Amended and Restated Articles of Incorporation are filed herewith.
(d) Form of Articles Supplementary (adding Registrant's Global Equity,
Emerging Markets Debt, Mid Cap Growth, Equity Growth and Value
Funds) to the Amended and Restated Articles of Incorporation are
filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(b) Amended Schedule A and Supplement to Investment Advisory
Agreement between Registrant and Morgan Stanley Asset
Management Inc. (adding Registrant's Asian Growth Fund and
Small Cap Value Equity Fund (currently the American Value
Fund)) is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(c) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Worldwide High Income Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(d) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Growth and Income Fund, European Equity Fund,
Latin American Fund and Emerging Markets Fund) is incorporated
by reference to Post-Effective Amendment No. 10 to the
Registrant's
<PAGE>
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(e) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Aggressive Equity Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(f) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's International Magnum, Japanese Equity, U.S. Real
Estate and High Yield Funds) is incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as
filed with the SEC via EDGAR on September 23, 1996.
(g) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's U.S. Real Estate and High Yield Funds) is filed
herewith.
(h) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Tax-Free Money Market Fund) is incorporated by
reference to Post-Effective Amendment No. 14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on July 9, 1996.
(i) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Government Obligations and Money Market Funds) is
filed herewith.
(j) Form of Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management, Inc. (adding
Registrant's Value Fund, Global Equity, Emerging Markets Debt,
Equity Growth and Mid Cap Growth Funds) is filed herewith.
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase
Manhattan Bank, N.A. dated March 11, 1994 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(b) Registrant's Custody Agreement (Global) with Morgan Stanley
Trust Company dated January 4, 1993 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995.
(c) Registrant's Custody Agreement with PNC Bank, N.A.
(with respect to the Money Market Funds) is filed herewith.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement
filed herewith.
(b) Chase Administration Agreement is incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement
filed herewith.
(c) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
<PAGE>
Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
(d) Sub-Transfer Agent Agreement among Morgan Stanley Asset
Management Inc., Chase Global Funds Services Company and PFPC,
Inc. is filed herewith.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
(b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is filed
herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Morgan Stanley Money Market Fund ("Money Market Plan") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995. The following Rule 12b-1 distribution plans have
been omitted because they are substantially identical to the
Money Market Plan and differ from the Money Market Plan only in
references to the Investment Fund to which the plan relates:
Morgan Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund.
(b) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Aggressive Equity
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995. The following plans have been omitted
because they are substantially identical to the Class A Plan and
differ from the Class A Plan only in references to the Investment
Fund to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth Fund,
Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide High
Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares (the "Class B Plan") of the Morgan Stanley Aggressive
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-51294 and 811-7140), as filed with the
SEC via EDGAR on October 4, 1995. The following plans have been
omitted because they are substantially identical to the Class B
Plan and differ from the Class B Plan only in references to the
Investment Fund to which the plan relates: Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund,
Morgan Stanley Small Cap Value Equity Fund (currently the
<PAGE>
Morgan Stanley American Value Fund), Morgan Stanley Value Fund,
Morgan Stanley Equity Growth Fund, Morgan Stanley Mid Cap Growth
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley
Emerging Markets Debt Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund, Morgan Stanley Japanese Equity Fund.
(d) Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(now known as Class C Shares) and referred to as the "Class C
Plan" of the Morgan Stanley Aggressive Equity Fund is
incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 4, 1995. The following plans have been omitted because
they are substantially identical to the Class C Plan and differ
from the Class C Plan only in references to the Investment Fund
to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
16 Schedules of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 30, 1995.
18 Registrant's Form of Rule 18f-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
27 Financial data schedules for the fiscal year ended June 30, 1996, are
filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of September 30, 1996.
Number of
Title of Class Record Holders
-------------- ---------------
Morgan Stanley Global Equity Allocation Fund-Class A . . . . 4,169
Morgan Stanley Global Equity Allocation Fund-Class B . . . . 1,694
<PAGE>
Morgan Stanley Global Equity Allocation Fund-Class C . . . . 4,846
Morgan Stanley Global Fixed Income Fund-Class A. . . . . . . 340
Morgan Stanley Global Fixed Income Fund-Class B. . . . . . . 57
Morgan Stanley Global Fixed Income Fund-Class C. . . . . . . 193
Morgan Stanley Asian Growth Fund-Class A . . . . . . . . . . 20,896
Morgan Stanley Asian Growth Fund-Class B . . . . . . . . . . 6,449
Morgan Stanley Asian Growth Fund-Class C . . . . . . . . . . 14,141
Morgan Stanley Emerging Markets Fund-Class A . . . . . . . . 4,104
Morgan Stanley Emerging Markets Fund-Class B . . . . . . . . 1,366
Morgan Stanley Emerging Markets Fund-Class C . . . . . . . . 3,605
Morgan Stanley Latin American Fund-Class A . . . . . . . . . 1,130
Morgan Stanley Latin American Fund-Class B . . . . . . . . . 194
Morgan Stanley Latin American Fund-Class C . . . . . . . . . 577
Morgan Stanley European Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley American Value Fund-Class A . . . . . . . . . 1,266
Morgan Stanley American Value Fund-Class B . . . . . . . . . 256
Morgan Stanley American Value Fund-Class C . . . . . . . . . 1,317
Morgan Stanley Worldwide High Income Fund-Class A. . . . . . 1,858
Morgan Stanley Worldwide High Income Fund-Class B. . . . . . 1,928
Morgan Stanley Worldwide High Income Fund-Class C. . . . . . 1,607
Morgan Stanley Aggressive Equity Fund-Class A. . . . . . . . 269
Morgan Stanley Aggressive Equity Fund-Class B. . . . . . . . 157
Morgan Stanley Aggressive Equity Fund-Class C. . . . . . . . 138
Morgan Stanley Growth and Income Fund-Class A. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class B. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class C. . . . . . . . 0
Morgan Stanley High Yield Fund-Class A . . . . . . . . . . . 18
Morgan Stanley High Yield Fund-Class B . . . . . . . . . . . 30
Morgan Stanley High Yield Fund-Class C . . . . . . . . . . . 16
Morgan Stanley U.S. Real Estate Fund-Class A . . . . . . . . 72
Morgan Stanley U.S. Real Estate Fund-Class B . . . . . . . . 51
Morgan Stanley U.S. Real Estate Fund-Class C . . . . . . . . 37
Morgan Stanley International Magnum Fund-Class A . . . . . . 55
Morgan Stanley International Magnum Fund-Class B . . . . . . 65
Morgan Stanley International Magnum Fund-Class C . . . . . . 21
Morgan Stanley Japanese Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley Money Market Fund . . . . . . . . . . . . . . 0
Morgan Stanley Government Obligations Money Market Fund. . . 0
Morgan Stanley Tax-Free Money Market Fund. . . . . . . . . . 0
Morgan Stanley Value Fund - Class A . . . . . . . . . . . . 0
Morgan Stanley Value Fund - Class B . . . . . . . . . . . . 0
Morgan Stanley Value Fund - Class C . . . . . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class A. . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class B. . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class C. . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class A . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class B . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class C . . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class A . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class B . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class C . . . . . . . 0
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the 1933 Act and is,
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Management of the Fund--Investment
Adviser" in the Prospectus constituting Part A of this Registration Statement
and "Management of the Fund" in Part B of this Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in by the
Chairman, President and Directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form ADV filed by MSAM
pursuant to the Advisers Act (SEC File No. 801-15757).
DIRECTORS
James M. Allwin Director
Barton M. Biggs Director
Gordon S. Gray Director
Peter A. Nadosy Director
Dennis G. Sherva Director
OFFICERS
Barton M. Biggs Chairman
Managing Director
Peter A. Nadosy Vice Chairman
Managing Director
James M. Allwin President
Managing Director
P. Dominic Caldecott Managing Director (MSAM) - UK
A. Macdonald Caputo Managing Director
Ean Wah Chin Managing Director (MSAM) -
Singapore
Garry B. Crowder Managing Director
Madhav Dhar Managing Director
Kurt A. Feuerman Managing Director
Gordon S. Gray Managing Director
Marianne Laing Hay Managing Director
Gary D. Latainer Managing Director
Mahmoud A. Mamdani Managing Director
Robert A. Sargent Managing Director (MSAM) - UK
Bidyut C. Sen Managing Director
Vinod R. Sethi Managing Director
Dennis G. Sherva Managing Director
James L. Tanner Managing Director (MSAM) - UK
Richard G. Woolworth, Jr. Managing Director
Debra M. Aaron Principal
Warren Ackerman III Principal
John R. Alkire Principal (MSAM) - Toyko
Robert E. Angevine Principal
Gerald P. Barth-Wehrenaip Principal
Francine J. Bovich Principal
Stuart J. M. Breslow Principal
Andrew C. Brown Principal (MSAM) - UK
Jeffrey P. Brown Principal
Frances Campion Principal (MSAM) - UK
Terence P. Carmichael Principal
Arthur Certosimo Principal
<PAGE>
Stephen C. Cordy Principal
Jacqueline A. Day Principal (MSAM) - UK
Abigail Jones Feder Principal
Eugene Flood, Jr. Principal
Thomas C. Frame Principal
Paul B. Ghaffari Principal
James Wayne Grisham Principal
Perry E. Hall II Principal
Ruth A. Hughes-Guden Principal
Margaret Kinsley Johnson Principal
Michael B. Kushma Principal
Marianne J. Lippmann Principal
Andrew Mack Principal (MSAM) - UK
Gary J. Mangino Principal
Jeffrey Margolis Principal
M. Paul Martin Principal
Walter Maynard, Jr. Principal
Robert L. Meyer Principal
Margaret P. Naylor Principal (MSAM) - UK
Warren Olsen Principal
Christopher G. Petrow Principal
Russell C. Platt Principal
Narayan Ramachandran Principal
Gail Hunt Reeke Principal
Christine I. Reilly Principal
Stefano Russo Principal (MSAM) - Milan
Bruce R. Sandberg Principal
Kiat Seng Seah Principal (MSAM) - Singapore
Stephen C. Sexauer Principal
Robert M. Smith Principal
Kunihiko Sugio Principal (MSAM) - Tokyo
Ann D. Thivierge Principal
Philip W. Winters Principal
Alford E. Zick, Jr. Principal
Suzanne S. Akers Vice President
William S. Auslander Vice President
Kimberly L. Austin Vice President
Marshall T. Bassett Vice President
Theodore R. Bigman Vice President
L. Kenneth Brooks Vice President
Jonathan Paul Buckeridge Vice President (MSAM) - Melbourne
Carl Kuo-Wei Chien Vice President (MSAM) - Hong Kong
Lori A. Cohane Vice President
James Colmenares Vice President
Kate Cornish-Bowden Vice President (MSAM) - UK
Nikhil Dhaon Vice President
Christine H. du Bois Vice President
Raye L. Dube Vice President
Richard S. Farden Vice President
Daniel E. Fox Vice President
Karen T. Frost Vice President (MSAM) - UK
Josephine M. Glass Vice President
Charles A. Golden Vice President
James A. Grasselino Vice President
<PAGE>
Kenneth John Greig Vice President (MSAM) - UK
Maureen A. Grover Vice President
Kenneth R. Holley Vice President
Holly D. Hopps Vice President
Etsuko Fuseya Jennings Vice President
Donald B. Johnston Vice President
Peter L. Kirby Vice President
Michael F. Klein Vice President
George Koshy Vice President
Daniel R. Lascano Vice President
Arthur J. Lev Vice President
Valerie Y. Lewis Vice President
Jane Likins Vice President (MSAM) - UK
Khoon-Min Lim Vice President
William David Lock Vice President (MSAM) - UK
Gordon W. Loery Vice President
Yvonne Longley Vice President (MSAM) - UK
Paula J. Morgan Vice President (MSAM) - UK
Clare K. Mutone Vice President
Terumi Nagata Vice President (MSAM) - Tokyo
Yoshiro Okawa Vice President (MSAM) - Tokyo
Martin O. Pearce Vice President (MSAM) - UK
Alexander A. Pena Vice President
Anthony J. Pesce Vice President
David J. Polansky Vice President
Akash Prakash Vice President (MSAM) - Muabai
Gregg A. Robinson Vice President
Gerald D. Rubin Vice President
Donald P. Ryan Vice President
Andy B. Skov Vice President
Michael James Smith Vice President (MSAM) - UK
Kim I. Spellman Vice President
Joseph P. Stadler Vice President
Christian K. Stadlinger Vice President
Catherine Steinhardt Vice President
Ram K. Sundaram Vice President
Joseph Y.S. Tern Vice President (MSAM) Singapore
Richard Boon Hwee Toh Vice President (MSAM) Singapore
K.N. Vaidyanathan Vice President (MSAM) Muabai
Dennis J. Walsh Vice President
Kevin V. Wasp Vice President
Harold J. Schaaff, Jr. Principal
General Counsel and Secretary
Eileen K. Murray Treasurer
Madeline D. Barkhorn Assistant Secretary
Charlene R. Herzer Assistant Secretary
<PAGE>
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity
Fund; The Brazilian Investment Fund, Inc.; The Enterprise Group of Funds, Inc.
- - Tax-Exempt Income Portfolio; Fortis Series Fund, Inc. - Global Asset
Allocation Series; Fountain Square International Equity Fund; General American
Capital Company; The Latin American Discovery Fund, Inc.; certain portfolios
of The Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa
Investment Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley
Emerging Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.;
Morgan Stanley European Emerging Markets Fund, Inc.; all funds of the Morgan
Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund, Inc.; The
Morgan Stanley High Yield Fund, Inc.; Morgan Stanley India Investment Fund,
Inc.; Morgan Stanley Institutional Fund, Inc.; The Pakistan Investment Fund,
Inc.; PCS Cash Fund, Inc.; Principal Aggressive Growth Fund, Inc.; Principal
Asset Allocation Fund, Inc.; certain portfolios of Sun America Series Trust;
SEI Institutional Managed Trust - Balanced Portfolio; The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
<PAGE>
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for
Morgan Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc., and PCS
Cash Fund, Inc. The information required by this Item 29 with respect to each
Director and officer of MS&Co. is incorporated by reference to Schedule A of
Form BD filed by MS&Co. pursuant to the Securities and Exchange Act of 1934
(SEC File No. 8-15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained in the physical possession of the
Registrant; Registrant's Transfer Agent and Sub-Administrator, Chase Global
Funds Services Company, 73 Tremont Street, P.O. Box 2798, Boston,
Massachusetts 02208-2798; Registrant's Sub-Transfer Agent, PFPC, Inc. 400
Bellevue Parkway, Wilmington, Delaware 19809; and the Registrant's custodian
banks, including sub-custodians.
ITEM 31. MANAGEMENT SERVICES
Morgan Stanley Asset Management Inc. ("MSAM") has entered into a
Chase Administration Agreement with The Chase Manhattan Bank, N.A. ("Chase"),
successor in interest to United States Trust Company of New York (which is
incorporated herein by reference to Exhibit No. 9(b) to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement) pursuant to which
Chase will provide the following services to the Registrant: (i) managing,
administering and conducting the general business activities of the
Registrant, other than those which are contracted to third parties; (ii)
providing personnel and facilities to perform the foregoing; (iii) accounting
services, including the preparation of statements and reports; (iv) transfer
agent services, including processing correspondence from shareholders,
recording transfers, issuing stock certificates and handling checks; (v)
handling dividends and distributions, including disbursing, withholding and
tax reporting; and (vi) providing office facilities, statistical and research
data, office supplies and assisting the Registrant to comply with regulatory
developments.
ITEM 32. UNDERTAKINGS
1. Registrant undertakes to file a post-effective amendment
containing reasonably current financial statements, which need not be
certified, for the Morgan Stanley High Yield Fund, Morgan Stanley U.S. Real
Estate Fund, Morgan Stanley International Magnum Fund, Morgan Stanley
Japanese Equity Fund, Morgan Stanley Growth and Income Fund, Morgan Stanley
European Equity Fund, Morgan Stanley Money Market Fund, Morgan Stanley
Tax-Free Money Market Fund, Morgan Stanley Government Obligations Money
Market Fund, Morgan Stanley Value Fund, Morgan Stanley Equity Growth Fund,
Morgan Stanley Global Equity Fund, Morgan Stanley Emerging Markets Debt Fund,
and Morgan Stanley Mid Cap Growth Fund within four to six months of their
effective date or the commencement of operations of each such Investment Fund,
whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act inform
the Board of Directors of his or their desire to communicate with other
Shareholders of the Fund, the Directors will inform such Shareholder(s) as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.
3. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 17th day of October, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Warren J. Olsen Director, President October 17, 1996
- ----------------------------- ----------------
Warren J. Olsen (Principal Executive
Officer)
*/s/ Barton M. Biggs Director (Chairman) October 17, 1996
- ------------------------------ ----------------
Barton M. Biggs
*/s/ Fergus Reid Director October 17, 1996
- ----------------------------- ----------------
Fergus Reid
*/s/ Frederick O. Robertshaw Director October 17, 1996
- ----------------------------- ----------------
Frederick O. Robertshaw
*/s/ Andrew McNally IV Director October 17, 1996
- ----------------------------- ----------------
Andrew McNally IV
*/s/ John D. Barrett II Director October 17, 1996
- ----------------------------- ----------------
John D. Barrett II
*/s/ Gerard E. Jones Director October 17, 1996
- ----------------------------- ----------------
Gerard E. Jones
*/s/ Samuel T. Reeves Director October 17, 1996
- ----------------------------- ----------------
Samuel T. Reeves
*/s/ Frederick B. Whittemore Director October 17, 1996
- ----------------------------- ----------------
Frederick B. Whittemore
*/s/ James R. Rooney Treasurer October 17, 1996
- ----------------------------- ----------------
James R. Rooney (Principal
Accounting
Officer)
*By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
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1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
EX-99.1b (b) Articles Supplementary (addding Registrant's High Yield, U.S.
Real Estate and Japanese Equity Funds) to the Amended and
Restated Articles of Incorporation are filed herewith.
EX-99.1c (c) Articles Supplementary (adding Registrant's Government
Obligations Money Market and Tax-Free Money Market Funds)to the
Amended and Restated Articles of Incorporation are filed herewith.
EX-99.1d (d) Form of Articles Supplementary (adding Registrant's Global
Equity, Emerging Markets Debt, Mid Cap Growth, Equity Growth and
Value Funds) to the Amended and Restated Articles of Incorporation
are filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(b) Amended Schedule A and Supplement to Investment Advisory
Agreement between Registrant and Morgan Stanley Asset
Management Inc. (adding Registrant's Asian Growth Fund and
Small Cap Value Equity Fund (currently the American Value
Fund)) is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(c) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Worldwide High Income Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(d) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Growth and Income Fund, European Equity Fund,
Latin American Fund and Emerging Markets Fund) is incorporated
by reference to Post-Effective Amendment No. 10 to the
Registrant's
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<C> <S>
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(e) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Aggressive Equity Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(f) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's International Magnum, Japanese Equity, U.S. Real
Estate and High Yield Funds) is incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as
filed with the SEC via EDGAR on September 23, 1996.
EX-99.5g (g) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's U.S. Real Estate and High Yield Funds) is filed
herewith.
(h) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Tax-Free Money Market Fund) is incorporated by
reference to Post-Effective Amendment No. 14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on July 9, 1996.
EX-99.5i (i) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Government Obligations and Money Market Funds) is
filed herewith.
EX-99.5j (j) Form of Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Value Fund, Global Equity, Emerging Markets Debt,
Equity Growth and Mid Cap Growth Funds) is filed herewith.
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase
Manhattan Bank, N.A. dated March 11, 1994 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(b) Registrant's Custody Agreement (Global) with Morgan Stanley
Trust Company dated January 4, 1993 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995.
EX-99.8c (c) Registrant's Custody Agreement with PNC Bank, N.A. (with respect
to the Money Market Funds) is filed herewith.
EX-99.9a 9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement filed
herewith.
EX-99.9b (b) Chase Administration Agreement is incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement filed
herewith.
(c) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
</TABLE>
<PAGE>
<TABLE>
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Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
EX-99.9d (d) Sub-Transfer Agent Agreement among Morgan Stanley Asset
Management Inc., Chase Global Funds Services Company and PFPC,
Inc. is filed herewith.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
EX-99.11a 11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
EX-99.11b (b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is filed
herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Morgan Stanley Money Market Fund ("Money Market Plan") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995. The following Rule 12b-1 distribution plans have
been omitted because they are substantially identical to the
Money Market Plan and differ from the Money Market Plan only in
references to the Investment Fund to which the plan relates:
Morgan Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund.
(b) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Aggressive Equity
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995. The following plans have been omitted
because they are substantially identical to the Class A Plan and
differ from the Class A Plan only in references to the Investment
Fund to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares (the "Class B Plan") of the Morgan Stanley Aggressive
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-51294 and 811-7140), as filed with the
SEC via EDGAR on October 4, 1995. The following plans have been
omitted because they are substantially identical to the Class B
Plan and differ from the Class B Plan only in references to the
Investment Fund to which the plan relates: Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund,
Morgan Stanley Small Cap Value Equity Fund (currently the
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Morgan Stanley American Value Fund), Morgan Stanley Value Fund,
Morgan Stanley Equity Growth Fund, Morgan Stanley Mid Cap Growth
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley
Emerging Markets Debt Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund, Morgan Stanley Japanese Equity Fund.
(d) Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(now known as Class C Shares) and referred to as the "Class C
Plan" of the Morgan Stanley Aggressive Equity Fund is
incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 4, 1995. The following plans have been omitted because
they are substantially identical to the Class C Plan and differ
from the Class C Plan only in references to the Investment Fund
to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
16 Schedules of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 30, 1995.
18 Registrant's Form of Rule 18f-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
EX-99.27 27 Financial data schedules for the fiscal year ended June 30, 1996, are
filed herewith.
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<PAGE>
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on April 22, 1996 adopted a resolution increasing the total number of shares of
stock that the Corporation shall have the authority to issue from thirteen
billion three hundred seventy-five million (13,375,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of thirteen
million three hundred seventy-five thousand dollars ($13,375,000) designated and
classified as follows:
<PAGE>
NUMBER OF SHARES OF
COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
2
<PAGE>
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
to sixteen billion seven hudred fifty million (16,750,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of sixteen
million seven hundred fify thousand dollars ($16,750,000) and designating three
additional investment funds, each offering Class A, Class B and Class C shares
of common stock, so that the common stock, par value $.001
3
<PAGE>
per share of the Corporation authorized to be issued is designated and
classified as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
4
<PAGE>
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
5
<PAGE>
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
6
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this 2nd day of May, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
------------------------
Warren J. Olsen
President
Attest: /s/ Valerie Y. Lewis
-------------------------
Valerie Y. Lewis
Secretary
7
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed
on behalf of said corporation the foregoing Articles Supplementary to the
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ Warren J. Olsen
----------------------
Warren J. Olsen
8
<PAGE>
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on July 16, 1996 adopted a resolution increasing the total number of shares of
stock that the Corporation shall have the authority to issue from sixteen
billion seven hundred fifty million (16,750,000,000) shares of common stock, par
value $.001 per share, having an aggregate par value of sixteen million seven
hundred fifty thousand dollars ($16,750,000) and designated and classified as
follows:
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
- ------------- -----------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
<PAGE>
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
2
<PAGE>
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
to twenty one billion seven hundred and fifty million (21,750,000,000) shares of
common stock, par value $.001 per share, having an aggregate par value of twenty
one million seven hundred and fifty thousand dollars ($21,750,000), increasing
the number of shares of common stock classified and allocated to the Morgan
Stanley Money Market Fund and designating two additional investment funds, each
offering Class A shares of common stock, so that the common
3
<PAGE>
stock, par value $.001 per share of the Corporation authorized to be issued is
designated and classified as follows:
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
Morgan Stanley Money Market Fund 2,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
4
<PAGE>
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
5
<PAGE>
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
6
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this 30th day of August, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
------------------------------------------
Warren J. Olsen
President
Attest: /s/ Valerie Y. Lewis
--------------------------------
Valerie Y. Lewis
Secretary
7
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed
on behalf of said corporation the foregoing Articles Supplementary to the
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ Warren J. Olsen
--------------------------------------
Warren J. Olsen
<PAGE>
FORM OF
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on December , 1996 adopted a resolution increasing the total number of
shares of stock that the Corporation shall have the authority to issue from
twenty-one billion seven hundred fifty million (21,750,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of twenty-one
million seven hundred fifty thousand dollars ($21,750,000) and designated and
classified as follows:
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
- ------------- -----------------------
Morgan Stanley Money Market Fund 2,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
<PAGE>
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
2
<PAGE>
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
to twenty-seven billion three hundred seventy-five million (27,375,000,000)
shares of common stock, par value $.001 per share, having an aggregate par value
of twenty-seven million three
3
<PAGE>
hundred and seventy-five thousand dollars ($27,375,000), designating and
classifying five additional investment funds, each offering Class A shares,
Class B shares and Class C shares of common stock, so that the common stock, par
value $.001 per share, of the Corporation authorized to be issued is designated
and classified as follows:
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
- ------------- -----------------------
Morgan Stanley Money Market Fund 2,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
4
<PAGE>
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
5
<PAGE>
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
Morgan Stanley Global Equity Fund
-Class A 375,000,000 shares
Morgan Stanley Global Equity Fund
-Class B 375,000,000 shares
Morgan Stanley Global Equity Fund
-Class C 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class A 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class B 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class C 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
-Class A 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
-Class B 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
-Class C 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class A 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class B 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class C 375,000,000 shares
Morgan Stanley Value Fund
-Class A 375,000,000 shares
6
<PAGE>
Morgan Stanley Value Fund
-Class B 375,000,000 shares
Morgan Stanley Value Fund
-Class C 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
7
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this ___ day of December, 1996.
MORGAN STANLEY FUND, INC.
By:
--------------------------------
Warren J. Olsen
President
Attest:
----------------------
Valerie Y. Lewis
Secretary
8
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed on
behalf of said corporation the foregoing Articles Supplementary to the Articles
of Amendment and Restatement of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles Supplementary to the Articles of Amendment and Restatement to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
-----------------------------------
Warren J. Olsen
9
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY U.S. REAL ESTATE FUND)
Supplement dated as of April 22, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the investment
funds of the Fund. The Fund has created an additional investment fund: the
Morgan Stanley U.S. Real Estate Fund (the "Real Estate Fund").
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 1.00% with
respect to the Morgan Stanley U.S. Real Estate Fund.
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the 22nd day
of April, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By: /s/ Warren J. Olsen
--------------------
Name: Warren J. Olsen
Title: Principal
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Name: Warren J. Olsen
Title: President
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY HIGH YIELD FUND)
Supplement dated as of April 22, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the investment
funds of the Fund. The Fund has created an additional investment fund: the
Morgan Stanley High Yield Fund (the "High Yield Fund").
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be 0.75% with
respect to the Morgan Stanley High Yield Fund.
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the 22nd day
of April, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By: /s/ Warren J. Olsen
--------------------
Name: Warren J. Olsen
Title: Principal
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Name: Warren J. Olsen
Title: President
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY MONEY MARKET FUND)
Supplement dated as of September 26, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the investment
funds of the Fund. The Fund has created an additional investment fund: the
Morgan Stanley Money Market Fund (the "Money Market Fund");
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Money Market Fund:
an annual rate, payable in monthly installments,
of 0.45% of the first $250 million of the average
daily net assets of the Money Market Fund, 0.40%
of the next $250 million of the average daily net
assets of the Money Market Fund, and 0.35% of the
average daily net assets in excess of $500 million
of the Money Market Fund.
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the 25th day
of September, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By: /s/ Peter A. Nadosy
---------------------------------------
Name: Peter A. Nadosy
Title: Vice Chairman
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
---------------------------------------
Name: Warren J. Olsen
Title: President
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND)
Supplement dated as of September 26, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the investment
funds of the Fund. The Fund has created an additional investment fund: the
Morgan Stanley Government Obligations Money Market Fund (the "Government
Obligations Money Market Fund");
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Government Obligations Money Market Fund:
an annual rate, payable in monthly installments,
of 0.45% of the first $250 million of the average
daily net assets of the Government Obligations
Money Market Fund, 0.40% of the next $250 million
of the average daily net assets of the Government
Obligations Money Market Fund, and 0.35% of the
average daily net assets in excess of $500 million
of the Government Obligations Money Market Fund.
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the 25th day
of September, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By: /s/ Peter A. Nadosy
---------------------------------------
Name: Peter A. Nadosy
Title: Vice Chairman
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
---------------------------------------
Name: Warren J. Olsen
Title: President
<PAGE>
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY VALUE FUND)
Supplement dated as of _________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the
"Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Value Fund (the "Value Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Value Fund:
Annual
Investment Fund Percentage Rate
--------------- ---------------
Value Fund _____%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:___________________
Name:
Title:
MORGAN STANLEY FUND, INC.
By:____________________
Name:
Title:
<PAGE>
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY GLOBAL EQUITY FUND)
Supplement dated as of ___________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the
"Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Global Equity Fund (the "Global Equity Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Global Equity Fund:
Annual
Investment Fund Percentage Rate
--------------- ---------------
Global Equity Fund ________%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:___________________
Name:
Title:
MORGAN STANLEY FUND, INC.
By:____________________
Name:
Title:
<PAGE>
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY EMERGING MARKETS DEBT FUND)
Supplement dated as of ___________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the
"Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Emerging Markets Debt Fund (the "Emerging Markets Debt Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to the Emerging Markets Debt Fund:
Annual
Investment Fund Percentage Rate
--------------- ---------------
Emerging Markets Debt Fund ______%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:___________________
Name:
Title:
MORGAN STANLEY FUND, INC.
By:____________________
Name:
Title:
<PAGE>
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY EQUITY GROWTH FUND)
Supplement dated as of ___________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the
"Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Equity Growth Fund (the "Equity Growth Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to Equity Growth Fund:
Annual
Investment Fund Percentage Rate
--------------- ---------------
Equity Growth Fund _______%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:___________________
Name:
Title:
MORGAN STANLEY FUND, INC.
By:____________________
Name:
Title:
<PAGE>
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY MID CAP GROWTH FUND)
Supplement dated as of ___________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the
"Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Mid Cap Growth Fund (the "Mid Cap Growth Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows with
respect to Mid Cap Growth Fund:
Annual
Investment Fund Percentage Rate
--------------- ---------------
Mid Cap Growth Fund _______%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:___________________
Name:
Title:
MORGAN STANLEY FUND, INC.
By:____________________
Name:
Title:
<PAGE>
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of September 26, 1996 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and Morgan
Stanley Fund Inc., a Maryland corporation (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian services
to the Fund's investment portfolios listed in Appendix A attached hereto (each,
a "Portfolio" and collectively, the "Portfolios"), and PNC Bank wishes to
furnish custodian services, either directly or through an affiliate or
affiliates, as more fully described herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. DEFINITIONS, AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of
<PAGE>
Directors to give Oral Instructions and Written Instructions on behalf of the
Fund and listed on the Authorized Persons Appendix attached hereto and made a
part hereof or any amendment thereto as may be received by PNC Bank. An
Authorized Person's scope of authority may be limited by the Fund by setting
forth such limitation in the Authorized Persons Appendix.
(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system maintained
by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "ORAL INSTRUCTIONS" mean oral instructions received by PNC Bank
from an Authorized Person or from a person reasonably believed by PNC Bank to be
an Authorized Person.
(g) "PNC BANK" means PNC Bank, National Association or a subsidiary
or affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(j) "SHARES" mean the shares of beneficial interest of any Portfolio.
(k) "PROPERTY" means:
(i) any and all securities and other investment items of the
Portfolios which the Fund may from time to time deposit, or
cause to be
2
<PAGE>
deposited, with PNC Bank or which PNC Bank may from time
to time hold for a Portfolio;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund
on behalf of a Portfolio, which are received by PNC Bank
from time to time, from or on behalf of the Fund.
(k) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide custodian
services to the Fund, with respect to the Portfolios, and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PNC Bank with the following with respect to the Portfolios:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Directors, approving the appointment of PNC Bank
or its affiliates to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect to each class
of Shares;
3
<PAGE>
(e) a copy of each Portfolio's administration agreement if PNC Bank
is not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act
only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PNC Bank to be an Authorized Person) pursuant to this
Agreement. PNC Bank may assume that any Oral Instructions or Written
Instructions received hereunder are not in any way inconsistent with the
provisions of the Fund's Charter or By-Laws or of any vote, resolution or
proceeding of the Fund's Board of Directors or of the Fund's shareholders,
unless and until PNC Bank receives Written Instructions to the contrary.
4
<PAGE>
(c) The Fund agrees to forward to PNC Bank Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PNC Bank or its affiliates) so that PNC Bank receives the Written Instructions
by the close of business on the same day that such Oral Instructions are
received. The fact that such confirming Written Instructions are not received
by PNC Bank shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PNC Bank shall incur no liability to the Fund or any Portfolio in acting
upon and in accordance with such Oral Instructions or Written Instructions,
provided that PNC Bank's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice, including
Oral Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PNC Bank is in doubt as to any question of
law pertaining to any action it should or should not take, PNC Bank may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PNC Bank, at the option of PNC
Bank).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written
5
<PAGE>
Instructions PNC Bank receives from the Fund, and the advice it receives from
counsel, PNC Bank shall be entitled to rely upon and follow the advice of
counsel. In the event PNC Bank so relies on the advice of counsel, PNC Bank
shall remain liable for any action or omission on the part of PNC Bank which
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PNC Bank of any duties, obligations or responsibilities set forth
in this Agreement.
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from counsel
and which PNC Bank believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions. Nothing in
this section shall be construed so as to impose an obligation upon PNC Bank (i)
to seek such directions, advice or Oral Instructions or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action. Nothing in this subsection shall excuse PNC Bank when an action or
omission on the part of PNC Bank constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
6
<PAGE>
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Portfolio, which are in the possession or under the control of PNC Bank, shall
be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to
such books and records at all times during PNC Bank's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by PNC Bank to the Fund or to an authorized representative of
the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of
the Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PNC Bank may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
7
<PAGE>
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PNC Bank shall have no liability with respect
to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption does not result from PNC Bank's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties or
obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PNC Bank and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state and foreign
securities and blue sky laws, and amendments thereto), and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PNC Bank takes (i) at the
request or on the direction of or in reliance
8
<PAGE>
on the advice of the Fund or (ii) upon Oral Instructions or Written
Instructions. Neither PNC Bank, nor any of its affiliates, shall be indemnified
against any liability (or any expenses incident to such liability) arising out
of PNC Bank's or its affiliates' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under this Agreement.
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf of
the Fund or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PNC Bank in writing. PNC Bank shall be obligated to
exercise care and diligence in the performance of its duties hereunder, to act
in good faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PNC Bank shall be liable
for any damages arising out of PNC Bank's failure to perform its duties under
this Agreement to the extent such damages arise out of PNC Bank's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties
under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PNC Bank reasonably believes to be
9
<PAGE>
genuine; or (B) subject to section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC Bank nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages which the
Fund or a Portfolio may incur or suffer by or as a consequence of PNC Bank's
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PNC Bank.
14. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for
delivery to PNC Bank, all the Property owned by the Portfolios, including cash
received as a result of the distribution of Shares, during the period that is
set forth in this Agreement. PNC Bank will not be responsible for such property
until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in the Fund's name using
all cash received from or for the account of the Fund, subject to the terms of
this Agreement. In addition, upon Written Instructions, PNC Bank shall open
separate custodial accounts for each separate Portfolio (collectively, the
10
<PAGE>
"Accounts") and shall hold in the Accounts all cash received from or for the
Accounts of the Fund specifically designated to each separate Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a Portfolio
only for:
(i) purchase of securities in the name of a Portfolio or PNC
Bank or PNC Bank's nominee as provided in sub-section (j)
and for which PNC Bank has received a copy of the
broker's or dealer's confirmation or payee's invoice, as
appropriate;
(ii) purchase or redemption of Shares of a Portfolio delivered
to PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution,
advisory, management fees or similar expenses which are
to be borne by a Portfolio;
(iv) payment to, subject to receipt of Written Instructions, a
Portfolio's transfer agent, as agent for the
shareholders, an amount equal to the amount of dividends
and distributions stated in the Written Instructions to
be distributed in cash by the transfer agent to
shareholders, or, in lieu of paying a Portfolio's
transfer agent, PNC Bank may arrange for the direct
payment of cash dividends and distributions to
shareholders in accordance with procedures mutually
agreed upon from time to time by and among the Fund, PNC
Bank and a Portfolio's transfer agent.
(v) payments, upon receipt of Written Instructions, in
connection with the conversion, exchange or surrender of
securities owned or subscribed to by a Portfolio and held
by or delivered to PNC Bank;
11
<PAGE>
(vi) payments of the amounts of dividends received with
respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions
in sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other
proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant to
the terms of this Agreement. PNC Bank shall have no
power or authority to assign, hypothecate, pledge or
otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified
resolution of the Fund's Board of Directors, authorizing
the transaction. In no case may any member of the Fund's
Board of Directors, or any officer, employee or agent of
the Fund withdraw any securities.
At PNC Bank's own expense and for its own convenience,
PNC Bank may enter into sub-custodian agreements with
other banks or trust companies to perform duties
described in this sub-section (c). Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published
report, of at least one million dollars ($1,000,000), if
it is a subsidiary or affiliate of PNC Bank, or at least
twenty million dollars ($20,000,000) if
12
<PAGE>
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must be qualified to act as custodian and agree
to comply with the relevant provisions of the 1940 Act
and other applicable rules and regulations. Any such
arrangement will not be entered into without written
notice to the Fund.
PNC Bank shall remain responsible for the performance of
all of its duties as described in this Agreement and
shall hold the Fund and each Portfolio harmless from its
own acts or omissions, under the standards of care
provided for herein, or the acts and omissions of any
sub-custodian chosen by PNC Bank under the terms of this
sub-section (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PNC Bank, directly or
through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio
against the receipt of payment for the sale of
such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral Instructions or Written
Instructions, proxies, consents, authorizations,
and any other instruments whereby the authority of
a Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or
its agent, when such securities are called,
redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to PNC Bank;
(iv) deliver any securities held for a Portfolio
against receipt of other securities or cash issued
or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger,
consolidation or recapitalization of any
13
<PAGE>
corporation, or the exercise of any conversion
privilege;
(v) deliver any securities held for a Portfolio to any
protective committee, reorganization committee or
other person in connection with the
reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets
of any corporation, and receive and hold under the
terms of this Agreement such certificates of
deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such
delivery;
(vi) make such transfer or exchanges of the assets of a
Portfolio and take such other steps as shall be
stated in said Oral Instructions or Written
Instructions to be for the purpose of effectuating
a duly authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Fund or the Portfolio;
(vii) release securities belonging to a Portfolio to any
bank or trust company for the purpose of a pledge
or hypothecation to secure any loan incurred by the
Fund on behalf of that Portfolio; provided,
however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed,
except that in cases where additional collateral
is required to secure a borrowing already made
subject to proper prior authorization, further
securities may be released for that purpose; and
repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing the
loan;
(viii) release and deliver securities owned by a
Portfolio in connection with any repurchase
agreement entered into by the Fund on behalf of
the Portfolio, but only on receipt of payment
therefor; and pay out moneys of the Portfolio in
connection with such repurchase agreements, but
only upon the delivery of the securities;
14
<PAGE>
(ix) release and deliver or exchange securities owned
by a Portfolio in connection with any conversion
of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by a
Portfolio for the purpose of redeeming in kind
Shares of a Portfolio upon delivery thereof to PNC
Bank; and
(xi) release and deliver or exchange securities owned
by a Portfolio for other corporate purposes.
PNC Bank must also receive a certified resolution
describing the nature of the corporate purpose and
the name and address of the person(s) to whom
delivery shall be made when such action is
pursuant to sub-paragraph (xi).
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Board of Directors approving, authorizing
and instructing PNC Bank on a continuous basis, to deposit in the Book-Entry
System all securities belonging to the Portfolios eligible for deposit therein
and to utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the Portfolios, and
deliveries and returns of securities loaned, subject to repurchase agreements or
used as collateral in connection with borrowings. PNC Bank shall continue to
perform such duties until it receives Written Instructions or Oral Instructions
authorizing contrary actions.
15
<PAGE>
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which
are maintained in the Book-Entry System, the
records of PNC Bank shall identify by Book-Entry
or otherwise those securities belonging to each
Portfolio. PNC Bank shall furnish to the Fund a
detailed statement of the Property held for each
Portfolio under this Agreement at least monthly
and from time to time and upon written request.
(ii) Securities and any cash of each Portfolio
deposited in the Book-Entry System will at all
times be segregated from any assets and cash
controlled by PNC Bank in other than a fiduciary
or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank
and its sub-custodian, if any, will pay out money
only upon receipt of securities and will deliver
securities only upon the receipt of money.
(iii) All books and records maintained by PNC Bank which
relate to a Portfolio's participation in the Book-
Entry System will at all times during PNC Bank's
regular business hours be open to the inspection
of Authorized Persons, and PNC Bank will furnish
to the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
(f) REGISTRATION OF SECURITIES. All Securities held for a Portfolio
which are issued or issuable only in bearer form; except such securities held in
the Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for a Portfolio may be registered in the name of the Fund on
behalf of that Portfolio, PNC Bank, the Book-Entry System, a sub-custodian,
16
<PAGE>
or any duly appointed nominees of the Fund, PNC Bank, the Book-Entry System or a
sub-custodian. The Fund reserves the right to instruct PNC Bank as to the
method of registration and safekeeping of the securities of the Portfolios. The
Fund agrees to furnish to PNC Bank appropriate instruments to enable PNC Bank to
hold or deliver in proper form for transfer, or to register in the name of its
nominee or in the name of the Book-Entry System, any securities which it may
hold for the Accounts and which may from time to time be registered in the name
of the Fund on behalf of a Portfolio.
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the account
of a Portfolio, except in accordance with Written Instructions. PNC Bank,
directly or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notices, proxies and proxy soliciting materials to the
registered holder of such securities. If the registered holder is not the Fund
on behalf of a Portfolio, then Written Instructions or Oral Instructions must
designate the person who owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each
Portfolio, all income, dividends, distributions,
coupons, option premiums,
17
<PAGE>
other payments and similar items, included or to
be included in the Property, and, in addition,
promptly advise each Portfolio of such receipt and
credit such income, as collected, to each
Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the
payment of money;
(C) receive and hold for the account of each Portfolio
all securities received as a distribution on the
Portfolio's securities as a result of a stock
dividend, share split or reorganization,
recapitalization, readjustment or other
rearrangement or distribution of rights or similar
securities issued with respect to any securities
belonging to a Portfolio and held by PNC Bank
hereunder;
(D) present for payment and collect the amount payable
upon all securities which may mature or be called,
redeemed, or retired, or otherwise become payable
on the date such securities become payable; and
(E) take any action which may be necessary and proper
in connection with the collection and receipt of
such income and other payments and the endorsement
for collection of checks, drafts, and other
negotiable instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling
for the account of a Portfolio in
18
<PAGE>
accordance with street delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund on behalf of a Portfolio or PNC Bank or a
nominee of either, or for exchange of securities
for a different number of bonds, certificates, or
other evidence, representing the same aggregate
face amount or number of units bearing the same
interest rate, maturity date and call provisions,
if any; provided that, in any such case, the new
securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral Instructions or
Written Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each
Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or
19
<PAGE>
under the laws of any state now or hereafter
in effect, inserting the Fund's name, on
behalf of a Portfolio, on such certificate as
the owner of the securities covered thereby,
to the extent it may lawfully do so.
(i) SEGREGATED ACCOUNTS.
(i) PNC Bank shall upon receipt of Written Instructions or
Oral Instructions establish and maintain a segregated
account(s) on its records for and on behalf of each
Portfolio. Such accounts may be used to transfer cash
and securities, including securities in the Book-Entry
System:
(A) for the purposes of compliance by the Fund with
the procedures required by a securities or option
exchange, providing such procedures comply with
the 1940 Act and any releases of the SEC relating
to the maintenance of segregated accounts by
registered investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding Shares
through IRA accounts, in accordance with a Portfolio's
prospectuses, the Internal Revenue Code of 1986, as
amended (including regulations promulgated thereunder),
and with such other procedures as are mutually agreed
upon from time to time by and among the Fund, PNC Bank
and a Portfolio's transfer agent.
(iii) PNC Bank may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that
the Portfolios use (each an "FCM Agreement"), pursuant to
which the Portfolios' margin deposits in any transactions
involving futures contracts and options on futures
contracts will be held by PNC Bank in accounts (each an
"FCM Account") subject to disposition by the FCM involved
in
20
<PAGE>
such contracts in accordance with the customer contract
between FCM and the Fund on behalf of a particular
Portfolio ("FCM Contract"), SEC rules governing such
segregated accounts, CFTC rules and the rules of the
applicable commodities exchange. Such FCM Agreements
shall only be entered into upon receipt of Written
Instructions from the Fund which state that (i) a
customer agreement between the FCM and the Fund on behalf
of a particular Portfolio has been entered into; and (ii)
the Fund is in compliance with all the rules and
regulations of the CFTC. Transfers of initial margin
shall be made into an FCM Account only upon Written
Instructions; transfers of premium and variation margin
may be made into an FCM Account pursuant to Oral
Instructions. Transfers of funds from an FCM Account to
the FCM for which PNC Bank holds such an account may only
occur upon certification by the FCM to PNC Bank that
pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased
securities upon receipt of Oral Instructions or Written Instructions from the
Fund or a Portfolio's investment adviser that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
21
<PAGE>
(vii) the name of the person from whom or the broker through
whom the purchase was made. PNC Bank shall upon receipt
of securities purchased by or for a Portfolio pay out of
the moneys held for the account of the Portfolio the
total amount payable to the person from whom or the
broker through whom the purchase was made, provided that
the same conforms to the total amount payable as set
forth in such Oral Instructions or Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall settle sold securities upon
receipt of Oral Instructions or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund on behalf of a
Portfolio upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount payable
is the same as was set forth in the Oral Instructions or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
22
<PAGE>
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions
and entries for the account of each Portfolio,
listing each Portfolio securities belonging to
each Portfolio with the adjusted average cost of
each issue and the market value at the end of such
month and stating the cash account of each
Portfolio including disbursements;
(C) the reports required to be furnished to the Fund
pursuant to Rule 17f-4; and
(D) such other information as may be agreed upon from
time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion
or similar communication received by it as custodian of
the Property. PNC Bank shall be under no other
obligation to inform the Fund as to such actions or
events.
(m) COLLECTIONS. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies
23
<PAGE>
of all demand letters, any written responses, memoranda of all oral responses
and shall await instructions from the Fund. PNC Bank shall not be obliged to
take legal action for collection unless and until reasonably indemnified to its
satisfaction. PNC Bank shall also notify the Fund as soon as reasonably
practicable whenever income due on securities is not collected in due course and
shall provide the Fund with periodic status reports of such income collected
after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of a
Portfolio to dissolve or to function without a custodian of its cash, securities
or other property), PNC Bank shall not deliver cash, securities or other
property of the Portfolios to the Fund. It may deliver them to a bank or trust
company of PNC Bank's choice, having an aggregate capital, surplus and undivided
profits, as shown by its last published report, of not less than twenty million
dollars ($20,000,000), as a custodian for the Fund to be held under terms
similar to those of this Agreement. PNC Bank shall not be required to make any
such delivery or payment until full payment shall have been made to PNC Bank of
all of its fees, compensation, costs and expenses. PNC Bank shall have a
security interest in and shall have a right of setoff against the Property
24
<PAGE>
as security for the payment of such fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at
Airport Business Center, International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 19113, marked for the attention of the Custodian Services
Department (or its successor) (b) if to the Fund, at the address of the Fund or
(c) if to neither of the foregoing, at such other address as shall have been
given by like notice to the sender of any such notice or other communication by
the other party. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association or PNC Bank Corp., provided that (i) PNC Bank gives
the Fund thirty (30)
25
<PAGE>
days' prior written notice; (ii) the delegate (or assignee) agrees with PNC Bank
and the Fund to comply with all relevant provisions of the 1940 Act; and (iii)
PNC Bank and such delegate (or assignee) promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
26
<PAGE>
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Sam Sparhawk
-------------------------------
Title: Vice President
----------------------------
MORGAN STANLEY FUND, INC.
By: /s/ Valerie Y. Lewis
-------------------------------
Title: Secretary
----------------------------
28
<PAGE>
APPENDIX A
Listing of Investment Portfolios Subject to this Agreement
1. Morgan Stanley Money Market Fund
2. Morgan Stanley Tax-Free Money Market Fund
3. Morgan Stanley Government Obligations Money Market Fund
29
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
30
<PAGE>
ADDENDUM
TO
MORGAN STANLEY FUND, INC.
MSAM ADMINISTRATION AGREEMENT
This Addendum Agreement (the "Addendum") is made and entered into as of
September 26, 1996 by and between MORGAN STANLEY ASSET MANAGEMENT INC., a
Delaware corporation ("MSAM"), and MORGAN STANLEY FUND, INC., a Maryland
corporation (the "Fund"). The Addendum amends and supplements the MSAM
Administration Agreement dated as of November 17, 1992 by and between MSAM and
the Fund, as amended and supplemented to date (the "Agreement").
In consideration of the mutual covenants stated below and in the Agreement,
MSAM and the Fund agree as follows:
1. As used herein and in the Agreement, all capitalized terms herein have the
meanings as set forth in the Agreement. The Agreement and the Addendum
together constitute the entire agreement among the parties hereto and
supercede all prior oral or written agreements between either of the
parties hereto relating to the Investment Funds.
2. Schedule A, as amended and supplemented to date, is deleted and replaced
with the Schedule A attached hereto.
3. The Agreement as modified by the Addendum shall become effective as of the
date first written above when the Addendum is accepted and signed by the
parties hereto.
6. The Addendum may be executed in one or more counterparts, each of which
shall be deemed an original of the Addendum and when taken together shall
constitute one and the same Addendum.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused the Addendum to be duly
executed as of the date first written above.
ATTEST: MORGAN STANLEY ASSET MANAGEMENT INC.
/s/ Joseph C. Benedetti By /s/ Warren J. Olsen
- ------------------------- ----------------------------
Name: Joseph C. Benedetti Name: Warren J. Olsen
Title: Principal
ATTEST: MORGAN STANLEY FUND, INC.
/s/ Joseph C. Benedetti By /s/ Valerie Y. Lewis
- ------------------------- ----------------------------
Name: Joseph C. Benedetti Name: Valerie Y. Lewis
Title: Secretary
<PAGE>
SCHEDULE A
TO
MSAM ADMINISTRATION AGREEMENT DATED AS OF NOVEMBER 17, 1992
AS AMENDED AND SUPPLEMENTED AS OF SEPTEMBER 26, 1996
By and Between
MORGAN STANLEY FUND, INC.
and
MORGAN STANLEY ASSET MANAGEMENT INC.
FEE SCHEDULE
I. FEE SCHEDULE FOR ALL INVESTMENT FUNDS, EXCEPT FOR THE FOLLOWING:
Morgan Stanley Money Market Fund;
Morgan Stanley Tax-Free Money Market Fund; and
Morgan Stanley Government Obligations Money Market Fund.
For the services provided and the expenses assumed pursuant to the attached
MSAM Administration Agreement, Morgan Stanley Fund, Inc. (the "Fund") shall pay
to Morgan Stanley Asset Management Inc. ("MSAM") an annual fee, in monthly
installments, of 0.25% OF THE AVERAGE DAILY NET ASSETS of the applicable
Investment Funds.
This fee is allocated to each of the applicable Investment Funds based on
the relative net assets of such Investment Funds.
II. FEE SCHEDULE FOR THE FOLLOWING INVESTMENT FUNDS:
Morgan Stanley Money Market Fund;
Morgan Stanley Tax-Free Money Market Fund; and
Morgan Stanley Government Obligations Money Market Fund.
A. SERVICES OTHER THAN AS TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.
For the services provided and the expenses assumed pursuant to the attached
MSAM Administration Agreement, except the services and expenses of transfer
agent and dividend disbursing agent, the Fund shall pay to MSAM an annual fee,
in monthly installments, as follows:
0.100 OF 1% ON THE FIRST $200 MILLION IN ASSETS, PLUS
0.075 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.050 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.030 OF 1% ON ASSETS IN EXCESS OF $600 MILLION.
<PAGE>
The fees in the foregoing table shall be based on the average daily net
assets of such Investment Funds. The fees will be computed and are payable
monthly and are allocated to each of such Investment Funds based on the relative
net assets of such Investment Funds.
B. SERVICES AS TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.
For the services provided and the expenses assumed pursuant to the attached
MSAM Administration Agreement as transfer agent and dividend disbursing agent,
the Fund shall pay to MSAM annual and transaction fees based on the following
schedule:
ACCOUNT FEE:
Annual, semi-annual dividend $10.00 per account per annum
Quarterly dividend $12.00 per account per annum
Monthly dividend $15.00 per account per annum
Daily accrual dividend $15.00 per account per annum
Inactive account $ .30 per account per annum
Fees are billed monthly based on 1/12th of the annual fee. An inactive account
is defined as having a zero balance with no dividend payable. Inactive accounts
are purges annually after year-end tax reporting. Accounts which are subject to
a contingent deferred sales charge (CDSC) will have an additional 12.5% added to
their appropriate account fee.
TRANSACTION CHARGES:
New Account Set-up: $5.00 per account
Manual Transactions: $1.50 per transaction
Master/Omnibus Account: $1.50 per purchase/redemption
Wire order desk: $6.00 per broker call to place
transactions
Account fee: $1.85 per account
Checkwriting: $ .50 per check (returned to
shareholder)
$ .10 per check (not returned to
shareholder)
12b-1 Calculation $ .25 per account per calculation
Commission Cycle: $ .25 per account per calculation
(non Fund/Serv)
MONTHLY BASE FEE:
$2,000 for each portfolio/class; plus per account charges, excluding transaction
charges and out-of-pocket charges.
ADDITIONAL EXPENSES (OUT-OF-POCKET):
a. Toll-free lines (if required)
<PAGE>
b. Forms, envelopes, checks, checkbooks
c. Postage, etc. (bulk, pre-sort, first class current prevailing rates)
d. Hardware/phone lines for remote terminal(s)(if required)
e. Microfiche/microfilm
f. Wire fee for receipt or disbursement - $7.50 per wire
g. ACH Transaction Charge: $.20 per item
h. Mailing fee: Approximately $.08 per item, standard inserts $.015 each
i. Cost of proxy solicitation, mailing and tabulation
j. Certificate issuance fee: $2.00 per certificate
k. NSCC Fund/SERV interface charges, Networking charges, and PNC facility
and transaction charges (if applicable)
l. Audio Reponse (if applicable)
m. Record retention storage
n. "B" notice mailing: $3.00 per item
o. Locating lost shareholders in anticipation of escheating: $7.50 per
name
p. Development/programming costs: negotiated time and material
q. Consolidated statements: one annual statement included in pricing;
additional production $.25 per page, per production
r. Sales tracking system interfaces - negotiated time and expenses
s. Fulfillment
t. Creation of User Tapes - $100 per occurrence
u. Labels - $.06 each; $100 minimum
v. Non-PFPC caused reruns - time and material cost
w. Ad hoc reports: Standard $.01 per record processed - plus $100.00 set
up fee
x. Retroactive Record dates $100.00 plus $.025 per account
ADDITIONAL EXPENSES (WHICH MAY BE PAID BY SHAREHOLDER):
a. IRA/Keogh Processing: $10.00 per account per annum
5.00 new account set-up fee
10.00 per transfer in
18.00 per transfer out
b. Exchange Fee: $5.00
c. Checkwriting:
Stop Payments: $ 9.50 each
Non-Sufficient Funds 25.00 each
Check Copies 2.50 each
d. Account Transcripts: Most recent 3 years $35.00
Three years or greater 50.00
<PAGE>
ADDENDUM
TO
MORGAN STANLEY FUND, INC.
FUND ADMINISTRATION AGREEMENT
This Addendum Agreement (the "Addendum") is made and entered into as of
September 26, 1996 by and among MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware
Corporation ("MSAM"), THE CHASE MANHATTAN BANK, a New York corporation, (the
"Administrator"). The Addendum amends and supplements the Fund Administration
Agreement (the "Agreement"), dated as of November 17, 1992 by and between MSAM
and the Administrator, as successor to United States Trust Company of New York.
In consideration of the mutual covenants stated below and in the Agreement,
MSAM and the Administrator agree as follows:
1. As used herein and in the Agreement, all capitalized terms herein have the
meanings as set forth in the Agreement. The Agreement and the Addendum
together constitute the entire agreement among the parties hereto and
supercede all prior oral or written agreements between or among any of the
parties hereto and their predecessors relating to the Investment Funds.
2. Section 10 of the Agreement is amended to specify that notices to the
Administrator shall be delivered to:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
ATTN: James R. Rooney
Fax: 617-557-8610
3. With respect to the Morgan Stanley Money Market Fund, Morgan Stanley Tax-
Free Money Market Fund and Morgan Stanley Government Obligations Money
Market Fund, Schedule A to the Agreement is replaced with Schedule A
attached hereto.
4. Schedule B to the Agreement is replaced with the Schedule B attached
hereto.
<PAGE>
5. The Agreement as modified by the Addendum shall become effective when the
Addendum is accepted and signed by the parties hereto.
6. The Addendum may be executed in one or more counterparts, each of which
shall be deemed an original of the Addendum and when taken together shall
constitute one and the same Addendum.
IN WITNESS WHEREOF the parties hereto have caused the Addendum to be duly
executed as of the date first written above.
ATTEST: MORGAN STANLEY ASSET MANAGEMENT INC.
/s/ Joseph C. Benedetti By /s/ Warren J. Olsen
- ------------------------- ----------------------------
Name: Joseph C. Benedetti Name: Warren J. Olsen
Title: Principal
ATTEST: THE CHASE MANHATTAN BANK
/s/ Karl Hartmann By /s/ Bernard Dagnall
- ------------------------- ----------------------------
Name: Karl Hartmann Name: Bernard Dagnall
Title: Senior Title: President
Vice President
<PAGE>
SCHEDULE A
FEES AND EXPENSES
FOR THE
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
AND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
(THE "MONEY MARKET FUNDS")
I. FUND ACCOUNTING AND ADMINISTRATION FEES
MSAM shall pay to the Administrator an annual fee for each of the Money
Market Funds based on the following schedule:
0.07 OF 1% ON THE FIRST $200 MILLION IN ASSETS, PLUS
0.05 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.04 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.03 OF 1% ON ASSETS IN EXCESS OF $600 MILLION.
The fees in the foregoing table shall be based on the average daily
net assets of such Investment Funds. The fees will be computed and are payable
monthly.
Minimum Monthly Fee (exclusive of out-of-pocket expenses):
$7,083 per month for each of the first two portfolios (provided
that, for portfolios with assets under $40,000.00, the minimum
monthly fee will be $6,250 per month); and $6,250 per month for
each additional portfolio.
Out-of-pocket expenses for such Investment Funds, including, but not
limited to, the cost of security pricing services, including backup pricing
services, the preparation of Fund Board materials, and mailings will be billed
to MSAM on a monthly basis.
II. TRANSFER AGENCY AND SHAREHOLDER SERVICING FEES
A. MSAM shall pay to the Administrator periodic and transaction fees based
on the following schedule for each of the Money Market Funds:
<PAGE>
FEES AND EXPENSES (CONTINUED)
ACCOUNT FEE:
Annual, semi-annual dividend $10.00 per account per annum
Quarterly dividend $12.00 per account per annum
Monthly dividend $15.00 per account per annum
Daily accrual dividend $15.00 per account per annum
Inactive account $ .30 per account per annum
Fees are billed monthly based on 1/12th of the annual fee. An inactive account
is defined as having a zero balance with no dividend payable. Inactive accounts
are purges annually after year-end tax reporting. Accounts which are subject to
a contingent deferred sales charge (CDSC) will have an additional 12.5% added to
their appropriate account fee.
TRANSACTION CHARGES:
New Account Set-up: $5.00 per account
Manual Transactions: $1.50 per transaction
Master/Omnibus Account: $1.50 per purchase/redemption
Wire order desk: $6.00 per broker call to place transactions
Account fee: $1.85 per account
Checkwriting: $ .50 per check (returned to shareholder)
$ .10 per check (not returned to shareholder)
12b-1 Calculation $ .25 per account per calculation
Commission Cycle: $ .25 per account per calculation (non
Fund/Serv)
ADDITIONAL EXPENSES (OUT-OF-POCKET):
a. Toll-free lines (if required)
b. Forms, envelopes, checks, checkbooks
c. Postage, etc. (bulk, pre-sort, first class current prevailing rates)
d. Hardware/phone lines for remote terminal(s)(if required)
e. Microfiche/microfilm
f. Wire fee for receipt or disbursement - $7.50 per wire
g. ACH Transaction Charge: $.20 per item
h. Mailing fee: Approximately $.08 per item, standard inserts $.015 each
i. Cost of proxy solicitation, mailing and tabulation
j. Certificate issuance fee: $2.00 per certificate
k. NSCC Fund/SERV interface charges, Networking charges, and PNC facility
and transaction charges (if applicable)
<PAGE>
FEES AND EXPENSES (CONTINUED)
l. Audio Response (if applicable)
m. Record retention storage
n. "B" notice mailing: $3.00 per item
o. Locating lost shareholders in anticipation of escheating: $7.50 per
name
p. Development/programming costs: negotiated time and material
q. Consolidated statements: one annual statement included in pricing;
additional production $.25 per page, per production
r. Sales tracking system interfaces - negotiated time and expenses
s. Fulfillment
t. Creation of User Tapes - $100 per occurrence
u. Labels - $.06 each; $100 minimum
v. Non-PFPC caused reruns - time and material cost
w. Ad hoc reports: Standard $.01 per record processed - plus $100.00 set
up fee
x. Retroactive Record dates $100.00 plus $.025 per account
ADDITIONAL EXPENSES (WHICH MAY BE PAID BY SHAREHOLDER):
a. IRA/Keogh Processing: $10.00 per account per annum
5.00 new account set-up fee
10.00 per transfer in
18.00 per transfer out
b. Exchange Fee: $ 5.00
c. Checkwriting:
Stop Payments: $ 9.50 each
Non-Sufficient Funds: 25.00 each
Check Copies 2.50 each
d. Account Transcripts: Most recent 3 years $35.00
Three years or greater 50.00
<PAGE>
SCHEDULE B
LISTING OF INVESTMENT FUNDS SUBJECT TO THIS AGREEMENT
INVESTMENT FUNDS FOR WHICH THE ADMINISTRATOR SERVES AS ADMINISTRATOR AND FUND
ACCOUNTING AGENT AND AS SOLE TRANSFER AGENT:
1. Morgan Stanley Global Fixed Income Fund
2. Morgan Stanley Worldwide High Income Fund
3. Morgan Stanley High Yield Fund
4. Morgan Stanley Global Equity Allocation Fund
5. Morgan Stanley Asian Growth Fund
6. Morgan Stanley Emerging Markets Fund
7. Morgan Stanley Latin American Fund
8. Morgan Stanley International Magnum Fund
9. Morgan Stanley Japanese Equity Fund
10. Morgan Stanley American Value Fund
11. Morgan Stanley Aggressive Equity Fund
12. Morgan Stanley U.S. Real Estate Fund
13. Morgan Stanley Growth and Income Fund
14. Morgan Stanley European Equity Fund
<PAGE>
INVESTMENT FUNDS FOR WHICH THE ADMINISTRATOR SERVES AS ADMINISTRATOR AND FUND
ACCOUNTING AGENT AND AS ONE OF THE TRANSFER AGENTS:
1. Morgan Stanley Money Market Fund
2. Morgan Stanley Tax-Free Money Market Fund
3. Morgan Stanley Government Obligations Money Market Fund
<PAGE>
SUB-TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of September 26, 1996 by and between MORGAN
STANLEY ASSET MANAGEMENT INC., a Delaware corporation (the "Company") and PFPC
INC., a Delaware corporation ("PFPC").
W I T N E S S E T H:
WHEREAS, Morgan Stanley Fund, Inc., a Maryland corporation (the "Fund"), is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company has entered into the MSAM Administration Agreement
which provides for transfer agency services, dated September 26, 1996, with the
Fund (the "Transfer Agency Agreement"), concerning the provision of services as
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent to its investment portfolios;
WHEREAS, the Company wishes to retain PFPC to serve as sub-transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent with
respect to Shares that are owned by Prime Resources Account holders of the
Fund's investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS, AS USED IN THIS AGREEMENT:
<PAGE>
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope
of authority may be limited by the Fund by setting forth such limitation in
the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC
from an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.
(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2
<PAGE>
2. APPOINTMENT. The Company hereby appoints PFPC to serve as sub-
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent to the Fund in accordance with the terms set forth in this Agreement.
PFPC accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. With respect to the Portfolios, the Fund or
the Company has provided or, where applicable, will provide PFPC with the
following:
(a) Certified or authenticated copies of the resolutions of the
Fund's Board of Directors, approving the appointment of PFPC or
its affiliates to provide services to the Fund and approving this
Agreement;
(b) A copy of the Fund's most recent effective registration
statement;
(c) A copy of the advisory agreement with respect to each investment
Portfolio of the Fund (each, a Portfolio);
(d) A copy of the distribution agreement with respect to each class
of Shares of the Fund;
(e) A copy of each Portfolio's administration agreements if PFPC is
not providing the Portfolio with such services;
(f) Copies of any shareholder servicing agreements made in respect of
the Fund or a Portfolio; and
(g) Copies (certified or authenticated where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by
3
<PAGE>
PFPC hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any of its investment
portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Directors or of the Fund's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
(c) The Fund or the Company, as the case may be, agrees to forward to
PFPC Written Instructions confirming Oral Instructions so that PFPC receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Fund or
the Company in acting
4
<PAGE>
upon such Oral Instructions or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund or the Company.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund or the Company, the Fund's investment adviser or
PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Fund or the Company, and the advice it receives from counsel, PFPC may
rely upon and follow the advice of counsel. In the event PFPC so relies on the
advice of counsel, PFPC remains liable for any action or omission on the part of
PFPC which constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Fund, the Company or from counsel
and which PFPC believes,
5
<PAGE>
in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PFPC (i) to seek such directions,
advice or Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of another provision of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund, which
are in the possession or under the control of PFPC, shall be the property of the
Fund. Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws, rules and regulations. The
Fund and Authorized Persons shall have access to such books and records at all
times during PFPC's normal business hours. Upon the reasonable request of the
Fund or the Company, copies of any such books and records shall be provided by
PFPC to the Fund or the Company or to an Authorized Person, at the Fund's
expense.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is
6
<PAGE>
otherwise consented to, in writing, by the Fund or the Company. The Fund and
the Company agree that such consent shall not be unreasonably withheld and may
not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment. In the event of
equipment failure, PFPC shall, at no additional expense to the Fund or the
Company, exercise its best efforts in good faith to minimize service
interruptions. The foregoing obligation shall not extend to computer terminals
located outside of premises maintained by PFPC. PFPC shall have no liability
with respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties or
obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by
7
<PAGE>
PFPC during the term of this Agreement, the Company will pay to PFPC a fee or
fees as may be agreed to from time to time in writing by the Company and PFPC.
12. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
PFPC from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including reasonable attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which PFPC takes (i)
at the request or on the direction of or in reliance on the advice of the Fund
or the Company or (ii) upon Oral Instructions or Written Instructions. PFPC
shall not, however, be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its affiliates' own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund or the Company except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC shall be liable for any
damages arising out of PFPC's failure to perform its duties
8
<PAGE>
under this Agreement to the extent such damages arise out of PFPC's willful
misfeasance, bad faith, gross negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC, shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund or the Company for
any consequential, special or indirect losses or damages which the Fund or the
Company may incur or suffer by or as a consequence of PFPC's performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
14. DESCRIPTION OF SERVICES.
9
<PAGE>
(a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE.
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with shareholders
to complete or correct information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction with
proxy solicitations;
(vi) Countersign share certificates;
(vii) Prepare and mail to shareholders confirmation of
activity;
(viii) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(ix) Mail duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with PFPC;
(x) Provide periodic shareholder lists and statistics to the
clients;
(xi) Provide detailed data for underwriter/broker
confirmations;
(xii) Prepare periodic mailing of year-end tax and statement
information;
(xiii) Notify on a timely basis the administrator, investment
adviser, accounting agent, and custodian of fund
activity; and
(xiv) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.
(i) Accept and post daily Fund purchases and
10
<PAGE>
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates in accordance with the
Fund's policy as stated in the prospectus (when requested
in writing by the shareholder).
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account;
and
(iii) Confirmation of receipt or crediting of funds for such
order to the Fund's custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that
function is properly authorized by the certificate of incorporation or
resolution of the Fund's Board of Directors. Shares shall be redeemed and
payment therefor shall be made in accordance with the Fund's prospectus, when
the recordholder tenders Shares in proper form and directs the method of
redemption. If the recordholder has not directed that redemption proceeds be
wired, when the Custodian provides PFPC with funds, the redemption check shall
be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed
by the recordholder; or
11
<PAGE>
(ii) Transfer authorizations are signed by the recordholder
when Shares are held in book-entry form.
When a broker-dealer notifies PFPC of a redemption desired by a customer, and
the Custodian provides PFPC with funds, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to the broker-dealer on
behalf of its customer.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the
Fund's Board of Directors authorizing the declaration and payment of dividends
and distributions, PFPC shall issue dividends and distributions declared by the
Fund in Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if provided for in the Fund's prospectus. Such issuance
or payment, as well as payments upon redemption as described above, shall be
made after deduction and payment of the required amount of funds to be withheld
in accordance with any applicable tax laws or other laws, rules or regulations.
PFPC shall mail to the Fund's shareholders such tax forms and other information,
or permissible substitute notice, relating to dividends and distributions paid
by the Fund as are required to be filed and mailed by applicable law, rule or
regulation. PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC may arrange, in accordance with the prospectus, for
issuance of Shares obtained
12
<PAGE>
through:
-- Any pre-authorized check plan; and
-- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC may arrange, in accordance with the prospectus, for
a shareholder's:
-- Exchange of Shares for shares of another fund with which
the Fund has exchange privileges;
-- Automatic redemption from an account where that
shareholder participates in an automatic redemption plan;
and/or
-- Redemption of Shares from an account with a checkwriting
privilege.
g. COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written
Instructions, PFPC shall mail all communications by the Fund to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
In addition, PFPC will receive and tabulate the proxy cards for the
meetings of the Fund's shareholders.
(h) RECORDS. PFPC shall maintain records of the accounts for each
shareholder showing the following information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of Shares held and number and class of
Shares for which certificates, if
13
<PAGE>
any, have been issued, including certificate numbers and
denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid
and the date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance of
a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent
to perform any calculations contemplated or required by
this Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued only upon:
(i) The shareholder's pledge of a lost instrument bond or
such other appropriate indemnity bond issued by a surety
company approved by PFPC; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect PFPC and its
affiliates.
(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any
Fund shareholder to inspect stock records, PFPC will notify the Company and the
Company will issue instructions granting or denying each such request. Unless
PFPC has acted contrary to the Company's instructions, the Company agrees to and
does hereby, release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Fund's stock
14
<PAGE>
records.
(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES.
Upon receipt of Written Instructions, PFPC shall cancel
outstanding certificates surrendered by the Fund to reduce the total amount of
outstanding shares by the number of shares surrendered by the Fund.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Company or by PFPC on sixty (60) days' prior written notice to
the other party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Company, at 1221
Avenue of the Americas, New York, New York 10020; or (c) if to neither of the
foregoing, at such other address as shall have been given by like notice to the
sender of any such notice or other communication by the other party. If notice
is sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately. If notice is sent by
first-class mail, it shall be deemed to have been given three days after it has
been mailed. If notice is sent by messenger, it shall be deemed to have been
given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
15
<PAGE>
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
and the Company thirty (30) days' prior written notice; (ii) the delegate (or
assignee) agrees with PFPC and the Company to comply with all relevant
provisions of the 1940 Act; and (iii) PFPC and such delegate (or assignee)
promptly provide such information as the Fund or the Company may request, and
respond to such questions as the Fund or the Company may ask, relative to the
delegation (or assignment), including (without limitation) the capabilities of
the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are
16
<PAGE>
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MORGAN STANLEY ASSET MANAGEMENT INC.
By: /s/ Warren J. Olsen
-------------------------------
Title: Principal
----------------------------
PFPC INC.
By: Robert J. Perlsweig
-------------------------------
Title: Executive Vice President
----------------------------
18
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of September 26, 1996, is Exhibit A to that
certain Sub-Transfer Agency Services Agreement dated as of September 26, 1996
between MORGAN STANLEY ASSET MANAGEMENT INC. and PFPC INC.
PORTFOLIOS
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund
19
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
20
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the references to us under the heading "Independent
Accountants" in the Prospectus for Morgan Stanley Global Equity Fund, the
Prospectus for Morgan Stanley Value Fund, Morgan Stanley Equity Growth Fund and
Morgan Stanley Mid Cap Growth Fund and the Prospectus for Morgan Stanley
Emerging Markets Debt Fund constituting parts of this Post-Effective Amendment
No. 16 to the registration statement on Form N-1A of Morgan Stanley Fund, Inc.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 17, 1996
<PAGE>
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to this Post-Effective Amendment No.
16 in the Registration Statement (File No. 33-51294) on Form N-1A under the
Securities Act of 1933, as amended, of Morgan Stanley Fund, Inc. (consisting
of the PCS Money Market and PCS Government Obligations Portfolios which were
the predecessors of the Morgan Stanley Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund):
-- The incorporation by reference of our report dated July 31, 1996
accompanying the financial statements and financial highlights in
the Statement of Additional Information.
-- The reference to our Firm under the heading "Financial Statements"
in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> MORGAN STANLEY FUND, INC.
<SERIES>
<NUMBER> 101
<NAME> MORGAN STANLEY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 170879976
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 424769
<ASSETS-OTHER> 22646
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 171327391
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<NAME> MORGAN STANLEY FUND, INC.
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<NAME> MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
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