MORGAN STANLEY FUND INC
497, 1996-01-09
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<PAGE>
- --------------------------------------------------------------------------------
                              P R O S P E C T U S
 -----------------------------------------------------------------------------
                  MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
                    MORGAN STANLEY GLOBAL FIXED INCOME FUND
                        MORGAN STANLEY ASIAN GROWTH FUND
                      MORGAN STANLEY EMERGING MARKETS FUND
                       MORGAN STANLEY LATIN AMERICAN FUND
                      MORGAN STANLEY EUROPEAN EQUITY FUND
                       MORGAN STANLEY AMERICAN VALUE FUND
                     MORGAN STANLEY AGGRESSIVE EQUITY FUND
                   MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
                     MORGAN STANLEY GROWTH AND INCOME FUND
                               PORTFOLIOS OF THE
                           MORGAN STANLEY FUND, INC.
                P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
                      FOR INFORMATION CALL 1-800-282-4404
                               ------------------

    Morgan  Stanley Fund, Inc. (the "Fund") is an open-end management investment
company,  or   mutual   fund,  which   consists   of  eleven   diversified   and
non-diversified   investment  portfolios.  This  prospectus  (the  "Prospectus")
describes the  Class A,  Class  B and  Class C  shares  of the  nine  investment
portfolios  listed  above (each,  an "Investment  Fund").  (The current  Class C
shares were named Class B shares until May 1, 1995 when such shares were renamed
Class C shares  and thereafter new  Class B  shares were created).  The Fund  is
designed  to make available to retail  investors the expertise of Morgan Stanley
Asset Management  Inc., the  Investment Adviser  and Administrator.  Shares  are
available  through  Morgan Stanley  & Co.  Incorporated ("Morgan  Stanley"), the
Distributor, and investment  dealers, banks  and financial  services firms  that
provide  distribution,  administrative or  shareholder  services ("Participating
Dealers"). The Morgan Stanley European Equity Fund and the Morgan Stanley Growth
and Income  Fund  are not  currently  offering shares.  An  eleventh  investment
portfolio,  the Morgan  Stanley Money Market  Fund, which is  also not currently
offering shares, is not described in this Prospectus.

    THE MORGAN STANLEY WORLDWIDE HIGH INCOME FUND INVESTS PREDOMINANTLY IN LOWER
RATED AND UNRATED  BONDS, COMMONLY REFERRED  TO AS "JUNK  BONDS." BONDS OF  THIS
TYPE ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND
RETURN  OF PRINCIPAL AND  ARE SUBJECT TO  GREATER RISK OF  LOSS OF PRINCIPAL AND
INTEREST. PURCHASERS  SHOULD  CAREFULLY  ASSESS THE  RISKS  ASSOCIATED  WITH  AN
INVESTMENT  IN THIS INVESTMENT  FUND. SEE "ADDITIONAL  INVESTMENT INFORMATION --
RISK FACTORS RELATING TO INVESTING IN LOWER RATED SECURITIES."

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

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

    INVESTMENTS IN THE INVESTMENT  FUNDS ARE NEITHER  INSURED NOR GUARANTEED  BY
THE UNITED STATES GOVERNMENT.

    This Prospectus is designed to set forth concisely the information about the
Investment Funds that a prospective investor should know before investing and it
should  be retained for future reference.  Additional information about the Fund
is contained in a "Statement of Additional Information," dated January 2,  1996,
which   is  incorporated  herein  by  reference.  The  Statement  of  Additional
Information is available upon request and  without charge by writing or  calling
the Fund at the address and telephone number set forth above.

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

                THE DATE OF THIS PROSPECTUS IS JANUARY 2, 1996.
<PAGE>
                                 FUND EXPENSES

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

<TABLE>
<CAPTION>
                                  GLOBAL      GLOBAL
                                  EQUITY      FIXED      ASIAN     EMERGING
SHAREHOLDER TRANSACTION         ALLOCATION    INCOME     GROWTH    MARKETS
EXPENSES                           FUND        FUND       FUND       FUND
- ------------------------------  ----------   --------   --------   --------
<S>                             <C>          <C>        <C>        <C>
Maximum Sales Load Imposed on
 Purchases
    Class A...................   4.75%(1)    4.75%(1)   4.75%(1)   4.75%(1)
    Class B...................     None        None       None       None
    Class C...................     None        None       None       None
Maximum Sales Load Imposed on
 Reinvested Dividends
    Class A...................     None        None       None       None
    Class B...................     None        None       None       None
    Class C...................     None        None       None       None
Deferred Sales Load
  For Purchases up to $999,999
    Class A...................     None        None       None       None
    Class B...................   5.00%(2)    5.00%(2)   5.00%(2)   5.00%(2)
    Class C...................   1.00%(3)    1.00%(3)   1.00%(3)   1.00%(3)
  For Purchases of $1,000,000
   or more
    Class A...................   1.00%(1)    1.00%(1)   1.00%(1)   1.00%(1)
    Class B...................   5.00%(2)    5.00%(2)   5.00%(2)   5.00%(2)
    Class C...................   1.00%(3)    1.00%(3)   1.00%(3)   1.00%(3)
Redemption Fees (4)
    Class A...................     None        None       None       None
    Class B...................     None        None       None       None
    Class C...................     None        None       None       None
Exchange Fees
    Class A...................     None        None       None       None
    Class B...................     None        None       None       None
    Class C...................     None        None       None       None
</TABLE>

- ------------------
(1) Percentage shown is the maximum sales  load. Certain large purchases may  be
    subject  to  a  reduced sales  load.  Purchases  of Class  A  shares  of the
    Investment Funds  which, when  combined  with the  net  asset value  of  the
    purchaser's  existing investment in Class A shares of these Funds, aggregate
    $1 million  or more  are not  subject to  a sales  load (an  "initial  sales
    charge").  A  contingent deferred  sales charge  ("CDSC")  of 1.00%  will be
    imposed, however, on shares from any such purchase that are redeemed  within
    one  year  following  such purchase.  Any  such  CDSC will  be  paid  to the
    Distributor. Certain other  purchases are  not subject to  an initial  sales
    charge. See "Purchase of Shares."

                                       2
<PAGE>

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION         LATIN AMERICAN   EUROPEAN EQUITY   AMERICAN VALUE   AGGRESSIVE    WORLDWIDE HIGH   GROWTH AND
 EXPENSES                            FUND             FUND              FUND        EQUITY FUND    INCOME FUND     INCOME FUND
- ------------------------------  --------------   ---------------   --------------   -----------   --------------   -----------
<S>                             <C>              <C>               <C>              <C>           <C>              <C>
Maximum Sales Load Imposed on
 Purchases
    Class A...................     4.75%(1)         4.75%(1)          4.75%(1)       4.75%(1)        4.75%(1)       4.75%(1)
    Class B...................       None             None              None           None            None           None
    Class C...................       None             None              None           None            None           None
Maximum Sales Load Imposed on
 Reinvested Dividends
    Class A...................       None             None              None           None            None           None
    Class B...................       None             None              None           None            None           None
    Class C...................       None             None              None           None            None           None
Deferred Sales Load
  For Purchases up to $999,999
    Class A...................       None             None              None           None            None           None
    Class B...................     5.00%(2)         5.00%(2)          5.00%(2)       5.00%(2)        5.00%(2)       5.00%(2)
    Class C...................     1.00%(3)         1.00%(3)          1.00%(3)       1.00%(3)        1.00%(3)       1.00%(3)
  For Purchases of $1,000,000
   or more
    Class A...................     1.00%(1)         1.00%(1)          1.00%(1)       1.00%(1)        1.00%(1)       1.00%(1)
    Class B...................     5.00%(2)         5.00%(2)          5.00%(2)       5.00%(2)        5.00%(2)       5.00%(2)
    Class C...................     1.00%(3)         1.00%(3)          1.00%(3)       1.00%(3)        1.00%(3)       1.00%(3)
Redemption Fees (4)
    Class A...................       None             None              None           None            None           None
    Class B...................       None             None              None           None            None           None
    Class C...................       None             None              None           None            None           None
Exchange Fees
    Class A...................       None             None              None           None            None           None
    Class B...................       None             None              None           None            None           None
    Class C...................       None             None              None           None            None           None
</TABLE>

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

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

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

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                            GLOBAL     GLOBAL
ANNUAL FUND OPERATING EXPENSES                                              EQUITY     FIXED    ASIAN    EMERGING
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE                      ALLOCATION   INCOME   GROWTH   MARKETS
 REIMBURSEMENT AND/OR FEE WAIVER)                                            FUND       FUND     FUND      FUND
                                                                          ----------   ------   ------   --------
<S>                                                                       <C>          <C>      <C>      <C>
Investment Advisory Fee (5)
    Class A.............................................................       0.67%      0.00%    1.00%     0.46%
    Class B.............................................................       0.67%      0.00%    1.00%     0.46%
    Class C.............................................................       0.67%      0.00%    1.00%     0.46%
12b-1 Fee
    Class A.............................................................       0.25%      0.25%    0.25%     0.25%
    Class B.............................................................       0.75%      0.75%    0.75%     0.75%
    Class C.............................................................       0.75%      0.75%    0.75%     0.75%
Other Expenses
    Class A.............................................................       0.78%      1.20%    0.65%     1.44%
    Class B.............................................................       1.03%      1.45%    0.90%     1.69%
    Class C.............................................................       1.03%      1.45%    0.90%     1.69%
Total Operating Expenses (5)
    Class A.............................................................       1.70%      1.45%    1.90%     2.15%
    Class B.............................................................       2.45%      2.20%    2.65%     2.90%
    Class C.............................................................       2.45%      2.20%    2.65%     2.90%
</TABLE>

- ------------------
(5) The  Adviser  has agreed  to  waive its  advisory  fees and/or  to reimburse
    expenses of the Investment Funds, if necessary, if such fees would cause the
    total annual operating expenses of the Investment Funds, as a percentage  of
    average  daily net assets, to exceed the  percentages set forth in the table
    above. The following sets  forth, for each  Investment Fund, (i)  investment
    advisory  fees absent advisory fee waivers and (ii) expected total operating
    expenses absent fee waivers and/or expense reimbursements.

<TABLE>
<CAPTION>
                                      INVESTMENT                   TOTAL
                                     ADVISORY FEES          OPERATING EXPENSES
                                     -------------   ---------------------------------
                                     (ALL CLASSES)   CLASS A    CLASS B      CLASS C
                                     -------------   -------   ----------   ----------
<S>                                  <C>             <C>       <C>          <C>
Global Equity Allocation Fund......      1.00%        2.03%     2.78%        2.78%
Global Fixed Income Fund...........      0.75%        2.22%     2.97%        2.97%
Asian Growth Fund..................      1.00%        1.90%     2.65%        2.65%
Emerging Markets Fund..............      1.25%        3.10%     3.90%        3.90%
Latin American Fund................      1.25%        4.30%     5.20%        5.20%
European Equity Fund...............      1.00%        1.90%     2.65%        2.65%
American Value Fund................      0.85%        1.96%     2.71%        2.71%
Aggressive Equity Fund.............      0.90%        1.55%     2.30%        2.30%
Worldwide High Income Fund.........      0.75%        1.97%     2.74%        2.74%
Growth and Income Fund.............      0.75%        1.50%     2.25%        2.25%
</TABLE>

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

                                       4
<PAGE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS AFTER EXPENSE         LATIN
 REIMBURSEMENT AND/OR FEE       AMERICAN  EUROPEAN EQUITY   AMERICAN VALUE   AGGRESSIVE    WORLDWIDE HIGH    GROWTH AND
WAIVER)                          FUND           FUND             FUND        EQUITY FUND    INCOME FUND      INCOME FUND
                                -------   ----------------  --------------   -----------   --------------   -------------
<S>                             <C>       <C>               <C>              <C>           <C>              <C>
Investment Advisory Fee (5)
    Class A...................  0.00   %        1.00      %    0.39%          0.50%           0.32%           0.75%
    Class B...................  0.00   %        1.00      %    0.39%          0.50%           0.32%           0.75%
    Class C...................  0.00   %        1.00      %    0.39%          0.50%           0.32%           0.75%
12b-1 Fee
    Class A...................  0.25   %        0.25      %    0.25%          0.25%           0.25%           0.25%
    Class B...................  0.75   %        0.75      %    0.75%          0.75%           0.75%           0.75%
    Class C...................  0.75   %        0.75      %    0.75%          0.75%           0.75%           0.75%
Other Expenses
    Class A...................  1.85   %        0.45      %    0.86%          0.75%           0.98%           0.45%
    Class B...................  2.10   %        0.70      %    1.11%          1.00%           1.23%           0.70%
    Class C...................  2.10   %        0.70      %    1.11%          1.00%           1.23%           0.70%
Total Operating Expenses (5)
    Class A...................  2.10   %        1.70      %    1.50%          1.50%           1.55%           1.45%
    Class B...................  2.85   %        2.45      %    2.25%          2.25%           2.30%           2.20%
    Class C...................  2.85   %        2.45      %    2.25%          2.25%           2.30%           2.20%
</TABLE>

    The  purpose of the above  table is to assist  the investor in understanding
the various expenses that an investor in  any of the Investment Funds will  bear
directly or indirectly. The Class A and Class C expenses and fees for the Global
Equity  Allocation, Global Fixed  Income, Asian Growth,  Emerging Markets, Latin
American, American Value  and Worldwide High  Income Funds are  based on  actual
figures  for the period  ended June 30, 1995.  The Class A, Class  B and Class C
expenses and fees  for the  European Equity,  Aggressive Equity  and Growth  and
Income  Funds are  based on estimates.  The Class  B expenses and  fees for each
remaining Investment Fund are  based on estimates.  For purposes of  calculating
the  estimated expenses and  fees set forth  above, the table  assumes that each
Investment Fund's average daily net assets will be $50,000,000. "Other Expenses"
include,  among   others,  Directors'   fees  and   expenses,  amortization   of
organizational  costs, filing fees, professional fees, and the costs for reports
to shareholders. Due  to the  continuous nature  of Rule  12b-1 fees,  long-term
shareholders  may pay  more than the  equivalent of the  maximum front-end sales
charges otherwise  permitted by  the  Rules of  Fair  Practice of  the  National
Association of Securities Dealers, Inc. ("NASD").

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

<TABLE>
<CAPTION>
                                                                         GLOBAL     GLOBAL
                                                                         EQUITY      FIXED     ASIAN    EMERGING
                                                                       ALLOCATION   INCOME    GROWTH    MARKETS
                                                                          FUND       FUND      FUND       FUND
                                                                       ----------   -------   -------   --------
<S>                                                                    <C>          <C>       <C>       <C>
Class A shares
 (If it is assumed there are no redemptions, the expenses are the
 same.)
    1 Year...........................................................   $ 64(1)     $ 62(1)   $ 66(1)   $ 68(1)
    3 Years..........................................................     99          91       104       112
    5 Years..........................................................    135         123       145       157
    10 Years.........................................................    239         213       259       284
Class B shares
 (Assuming complete redemption at end of period)
    1 Year...........................................................     75          72        77        79
    3 Years..........................................................    106          99       112       120
    5 Years..........................................................    151         138       161       173
    10 Years.........................................................    279         253       298       322
(Assuming no redemption)
    1 Year...........................................................     25          22        27        29
    3 Years..........................................................     76          69        82        90
    5 Years..........................................................    131         118       141       153
    10 Years.........................................................    279         253       298       322
Class C shares
 (Whether or not complete redemption occurs at end of period)
    1 Year...........................................................     25(2)       22(2)     27(2)     29(2)
    3 Years..........................................................     76          69        82        90
    5 Years..........................................................    131         118       141       153
    10 Years.........................................................    279         253       298       322
</TABLE>

- --------------
 *   Because the European Equity, Aggressive Equity and Growth and Income  Funds
     were  either not operational or had just  become 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.

                                       6
<PAGE>
which  have a CDSC, but no initial sales charge and (iii) Class C shares of each
Investment Fund, which have a CDSC, but no initial sales charge.

<TABLE>
<CAPTION>
                                LATIN AMERICAN   EUROPEAN EQUITY   AMERICAN VALUE   AGGRESSIVE    WORLDWIDE HIGH   GROWTH AND
                                     FUND             FUND              FUND        EQUITY FUND    INCOME FUND     INCOME FUND
                                --------------   ---------------   --------------   -----------   --------------   -----------
<S>                             <C>              <C>               <C>              <C>           <C>              <C>
Class A shares
 (If it is assumed there are
 no redemptions, the expenses
 are the same.)
    1 Year....................     $ 68(1)           $ 64(1)          $ 62(1)         $ 62(1)        $ 63(1)         $62(1)
    3 Years...................      110                99               93              93             94             91
    5 Years...................      155             *                  125            *               128            *
    10 Years..................      279             *                  218            *               223            *
Class B shares
 (Assuming complete redemption
 at end of period)
    1 Year....................       79                75               73              74             73             72
    3 Years...................      118               106              100             103            102             99
    5 Years...................      170             *                  140            *               143            *
    10 Years..................      318             *                  258            *               264            *
(Assuming no redemption)
    1 Year....................       29                25               23              23             23             22
    3 Years...................       88                76               70              70             72             69
    5 Years...................      150             *                  120            *               123            *
    10 Years..................      318             *                  258            *               264            *
Class C shares
 (Whether or not complete
 redemption occurs at end of
 period)
    1 Year....................       29(2)             25(2)            23(2)           23(2)          23(2)          22(2)
    3 Years...................       88                76               70              70             72             69
    5 Years...................      150             *                  120            *               123            *
    10 Years..................      318             *                  258            *               264            *
</TABLE>

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

                                       7
<PAGE>
    THIS EXAMPLE SHOULD  NOT BE CONSIDERED  A REPRESENTATION OF  PAST OR  FUTURE
EXPENSES  OR  PERFORMANCE. ACTUAL  EXPENSES MAY  BE GREATER  OR LESS  THAN THOSE
SHOWN. The Adviser in its discretion may terminate voluntary fee waivers  and/or
reimbursements  at  any time.  Absent  the waiver  of  fees or  reimbursement of
expenses, the amounts in the example above would be greater.

    The Fund intends  to comply  with all  state laws  that restrict  investment
company  expenses. Currently, the  most restrictive state  law requires that the
aggregate annual expenses  of an  investment company  shall not  exceed two  and
one-half  percent (2 1/2%) of  the first $30 million  of average net assets, two
percent (2%) of the next $70 million of average net assets, and one and one-half
percent (1 1/2%)  of the remaining  net assets of  such investment company.  The
Adviser has agreed to a reduction in the amounts payable to it, and to reimburse
the  Investment  Funds, if  necessary,  if in  any fiscal  year  the sum  of the
Investment Funds' expenses exceeds the limit set by applicable state law.

                                       8
<PAGE>
                              FINANCIAL HIGHLIGHTS

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

                                       9
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                         GLOBAL EQUITY ALLOCATION FUND

<TABLE>
<CAPTION>
                                                                                              CLASS C
                                          CLASS A                                   (CLASS B UNTIL MAY 1, 1995)
                      ------------------------------------------------   -------------------------------------------------
                         JANUARY 4,                       YEAR ENDED                                          YEAR ENDED
SELECTED PER SHARE     1993** TO JUNE     YEAR ENDED       JUNE 30,      JANUARY 4, 1993**    YEAR ENDED       JUNE 30,
 DATA AND RATIOS          30, 1993       JUNE 30, 1994       1995        TO JUNE 30, 1993    JUNE 30, 1994       1995
- --------------------  ----------------   -------------   -------------   -----------------   -------------   -------------
<S>                   <C>                <C>             <C>             <C>                 <C>             <C>
NET ASSET VALUE,
 BEGINNING OF
 PERIOD.............      $ 10.00           $ 11.09         $ 11.99           $ 10.00           $ 11.05         $ 11.90
                         --------        -------------   -------------       --------        -------------   -------------
INCOME FROM
 INVESTMENT
 OPERATIONS
  Net Investment
   Income...........         0.04              0.10            0.12              0.01              0.06            0.04
  Net Realized and
   Unrealized Gain
   On Investments...         1.05              0.90            0.67              1.04              0.86            0.65
                         --------        -------------   -------------       --------        -------------   -------------
    Total From
     Investment
     Operations.....         1.09              1.00            0.79              1.05              0.92            0.69
                         --------        -------------   -------------       --------        -------------   -------------

DISTRIBUTIONS
  Net Investment
   Income...........           --             (0.03)             --                --                --              --
  In Excess of Net
   Investment
   Income...........           --                --          (0.05)                --                --          (0.03)
  Net Realized
   Gain.............           --             (0.07)         (0.13)                --            (0.07)          (0.13)
                         --------        -------------   -------------       --------        -------------   -------------
    Total
    Distributions...           --             (0.10)         (0.18)                --            (0.07)          (0.16)
                         --------        -------------   -------------       --------        -------------   -------------
NET ASSET VALUE, END
 OF PERIOD..........      $ 11.09           $ 11.99         $ 12.60           $ 11.05           $ 11.90         $ 12.43
                         --------        -------------   -------------       --------        -------------   -------------
                         --------        -------------   -------------       --------        -------------   -------------
TOTAL RETURN (1)....       10.90%***          9.02%           6.69%            10.50%***          8.34%           5.84%
                         --------        -------------   -------------       --------        -------------   -------------
                         --------        -------------   -------------       --------        -------------   -------------
RATIOS AND
 SUPPLEMENTAL DATA
  Net Assets, End of
   Period
   (Thousands)......      $10,434           $33,425         $42,586            $6,995           $29,892         $40,460
  Ratio of Expenses
   to Average Net
   Assets...........        1.70%*            1.70%           1.70%             2.45%*            2.45%           2.45%
  Ratio of Net
   Investment
   Income/(Loss) to
   Average Net
   Assets...........        1.04%*            0.98%           1.01%             0.29%*            0.23%           0.25%
  Portfolio Turnover
   Rate.............          14%***            30%             39%               14%***            30%             39%
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE LIMITATION
 DURING THE PERIOD
  Per Share Benefit
   to Net Investment
   Income...........      $  0.08           $  0.09         $  0.04           $  0.07           $  0.12         $  0.05
RATIOS BEFORE
 EXPENSE LIMITATION:
  Expenses to
   Average Net
   Assets...........        3.65%*            2.58%           2.03%             4.40%*            3.34%           2.78%
  Net Investment
   Income (Loss) to
   Average Net
   Assets...........      (0.91)%*            0.10%           0.68%           (1.66)%*          (0.66)%         (0.08)%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total  Return is  calculated exclusive of  sales charges  or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  1.00% of the average  daily net assets of  the Global Equity Allocation
     Fund. The  Adviser  has  agreed to  waive  a  portion of  this  fee  and/or
     reimburse  expenses of  the Investment  Fund to  the extent  that the total
     operating expenses of the Investment Fund exceed 1.70% of the average daily
     net assets relating to the  Class A shares and  2.45% of the average  daily
     net  assets relating to  the Class C  shares. For the  fiscal periods ended
     June 30, 1993, June 30, 1994 and June 30, 1995, the Adviser waived advisory
     fees and/or reimbursed expenses  totaling approximately $130,000,  $353,000
     and $247,000, respectively, for the Global Equity Allocation Fund.

                                       10
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                            GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
                                                                                                CLASS C
                                           CLASS A                                    (CLASS B UNTIL MAY 1, 1995)
                     ---------------------------------------------------  ----------------------------------------------------
SELECTED PER SHARE   JANUARY 4, 1993**   YEAR ENDED       YEAR ENDED      JANUARY 4, 1993**    YEAR ENDED       YEAR ENDED
 DATA AND RATIOS     TO JUNE 30, 1993   JUNE 30, 1994    JUNE 30, 1995    TO JUNE 30, 1993   JUNE 30, 1994     JUNE 30, 1995
- -------------------- -----------------  -------------  -----------------  -----------------  --------------  -----------------
<S>                  <C>                <C>            <C>                <C>                <C>             <C>
NET ASSET VALUE,
 BEGINNING OF
 PERIOD.............      $10.00           $10.55           $ 9.53             $10.00            $10.56           $ 9.54
                          ------           ------          -------             ------            ------          -------
INCOME FROM
 INVESTMENT
 OPERATIONS
  Net Investment
   Income...........        0.25             0.52             0.56               0.21              0.43             0.49
  Net Realized and
   Unrealized Gain
   On Investments...        0.55            (0.42)            0.50               0.55             (0.40)            0.47
                          ------           ------          -------             ------            ------          -------
    Total From
     Investment
     Operations.....        0.80             0.10             1.06               0.76              0.03             0.96
                          ------           ------          -------             ------            ------          -------

DISTRIBUTIONS
  Net Investment
   Income...........       (0.25)           (0.50)           (0.36)             (0.20)            (0.44)           (0.30)
  In Excess of Net
   Investment
   Income...........          --            (0.12)              --                 --             (0.11)              --
  Net Realized
   Gain.............          --            (0.47)              --                 --             (0.47)              --
  In Excess of Net
   Realized Gain....          --            (0.03)              --                 --             (0.03)              --
                          ------           ------          -------             ------            ------          -------
    Total
    Distributions...       (0.25)           (1.12)           (0.36)             (0.20)            (1.05)           (0.30)
                          ------           ------          -------             ------            ------          -------
NET ASSET VALUE, END
 OF PERIOD..........      $10.55           $ 9.53           $10.23             $10.56            $ 9.54           $10.20
                          ------           ------          -------             ------            ------          -------
                          ------           ------          -------             ------            ------          -------
TOTAL RETURN (1)....       8.02%***         0.41%           11.41%              7.61%***          (0.25)%         10.24%
                          ------           ------          -------             ------            ------          -------
                          ------           ------          -------             ------            ------          -------
RATIOS AND
 SUPPLEMENTAL DATA
  Net Assets, End of
   Period
   (Thousands)......      $6,633          $10,369          $11,092             $6,120            $5,407           $5,965
  Ratio of Expenses
   to Average Net
   Assets...........       1.45%*           1.45%            1.45%              2.20%*            2.20%            2.20%
  Ratio of Net
   Investment
   Income/(Loss) to
   Average Net
   Assets...........       5.00%*           4.70%            5.84%              4.25%*            3.95%            5.09%
  Portfolio Turnover
   Rate.............         55%***          168%             169%                55%***           168%             169%
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE
 LIMITATION DURING
 THE PERIOD
  Per Share Benefit
 to Net
   Investment
 Income.............      $ 0.07           $ 0.11           $ 0.07             $ 0.07            $ 0.12           $ 0.08
RATIOS BEFORE
 EXPENSE LIMITATION:
  Expenses to
   Average Net
   Assets...........       2.88%*           2.48%            2.22%              3.63%*            3.29%            2.97%
  Net Investment
   Income (Loss) to
   Average Net
   Assets...........       3.57%*           3.67%            5.07%              2.82%*            2.86%            4.32%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total  Return is  calculated exclusive of  sales charges  or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  0.75% of the average daily net  assets of the Global Fixed Income Fund.
     The Adviser has  agreed to  waive a portion  of this  fee and/or  reimburse
     expenses  of the  Investment Fund  to the  extent that  the total operating
     expenses of  the Investment  Fund exceed  1.45% of  the average  daily  net
     assets  relating to the Class  A shares and 2.20%  of the average daily net
     assets relating to the  Class C shares. For  the fiscal periods ended  June
     30, 1993, June 30, 1994 and June 30, 1995, the Adviser waived advisory fees
     and/or  reimbursed  expenses totaling  approximately $77,000,  $150,000 and
     $121,000, respectively, for the Global Fixed Income Fund.

                                       11
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                               ASIAN GROWTH FUND

<TABLE>
<CAPTION>
                                                                                                     CLASS C
                                                CLASS A                                    (CLASS B UNTIL MAY 1, 1995)
                          ---------------------------------------------------  ----------------------------------------------------
SELECTED PER SHARE DATA   JANUARY 4, 1993**   YEAR ENDED       YEAR ENDED      JANUARY 4, 1993**    YEAR ENDED       YEAR ENDED
 AND RATIOS               TO JUNE 30, 1993   JUNE 30, 1994    JUNE 30, 1995    TO JUNE 30, 1993   JUNE 30, 1994     JUNE 30, 1995
- ------------------------- -----------------  -------------  -----------------  -----------------  --------------  -----------------
<S>                       <C>                <C>            <C>                <C>                <C>             <C>
NET ASSET VALUE,
 BEGINNING OF PERIOD.....      $12.00           $12.00           $15.50             $12.00              $12.00         $15.40
                               ------        -------------       ------             ------           -------           ------
INCOME FROM INVESTMENT
 OPERATIONS
  Net Investment
   Income................          --            (0.03)              --                 --             (0.10)           (0.12)
  Net Realized and
   Unrealized Gain On
   Investments...........          --             3.53             1.43                 --              3.50             1.42
                               ------        -------------       ------             ------           -------           ------
    Total From Investment
     Operations..........          --             3.50             1.43                 --              3.40             1.30
                               ------        -------------       ------             ------           -------           ------

DISTRIBUTIONS
  Net Realized Gain......          --               --            (0.49)                --                --            (0.49)
  In Excess of Net
   Realized Gain.........          --               --            (0.02)                --                --            (0.02)
    Total
     Distributions.......          --               --            (0.51)                --                --            (0.51)
                               ------        -------------       ------             ------           -------           ------

NET ASSET VALUE, END OF
 PERIOD..................      $12.00           $15.50           $16.42             $12.00            $15.40           $16.19
                               ------        -------------       ------             ------           -------           ------
                               ------        -------------       ------             ------           -------           ------
TOTAL RETURN (1).........       0.00%***        29.17%            9.50%              0.00%***         28.33%            8.71%
                               ------        -------------       ------             ------           -------           ------
                               ------        -------------       ------             ------           -------           ------
RATIOS AND SUPPLEMENTAL
 DATA
  Net Assets, End of
   Period (Thousands)....     $11,770         $138,212         $178,667             $8,491          $116,889         $139,497
  Ratio of Expenses to
   Average Net Assets....       1.90%*           1.90%            1.90%              2.65%*            2.65%            2.65%
  Ratio of Net Investment
   Income/(Loss) to
   Average Net Assets....     (0.81)%*         (0.24)%            0.04%*           (1.56)%           (0.99)%          (0.77)%
  Portfolio Turnover
   Rate..................          0%***           34%              34%                 0%***            34%              34%
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY
 EXPENSE
 LIMITATION DURING THE
 PERIOD
  Per Share Benefit to
 Net
   Investment Loss.......      $ 0.01           $ 0.03               --             $ 0.02            $ 0.03               --
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net
   Assets................      11.83%*           2.17%            1.90%             12.64%*            2.92%            2.65%
  Net Investment Loss to
   Average Net Assets....    (10.74)%*         (0.51)%            0.04%           (11.55)%*          (1.26)%          (0.77)%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

  *  Annualized.
 **  Commencement of Operations.
***  Not Annualized.
 (1) Total return is calculated exclusive of sales charges or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  1.00% of  the average daily  net assets  of the Asian  Growth Fund. The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of the Investment Fund to the  extent that the total operating expenses  of
     the  Investment Fund exceed 1.90% of  the average daily net assets relating
     to the Class A shares and 2.65% of the average daily net assets relating to
     the Class C shares. For  the fiscal periods ended  June 30, 1993, June  30,
     1994  and June 30, 1995, the Adviser waived advisory fees and/or reimbursed
     expenses totaling approximately $29,000, $464,000 and $0, respectively, for
     the Asian Growth Fund.

                                       12
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                             EMERGING MARKETS FUND

<TABLE>
<CAPTION>
                                                                                                    CLASS C
                                                                           CLASS A        (CLASS B UNTIL MAY 1, 1995)
                                                                       ----------------   ---------------------------
                                                                        JULY 6, 1994**          JULY 6, 1994**
SELECTED PER SHARE DATA AND RATIOS                                     TO JUNE 30, 1995        TO JUNE 30, 1995
- ---------------------------------------------------------------------  ----------------   ---------------------------
<S>                                                                    <C>                <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................      $ 12.00                  $ 12.00
                                                                           -------                  -------
LOSS FROM INVESTMENT OPERATIONS
  Net Investment Loss................................................         0.05                       --
  Net Realized and Unrealized Loss On Investments....................        (1.44)                   (1.47)
                                                                           -------                  -------
    Total From Investment Operations.................................        (1.39)                   (1.47)
                                                                           -------                  -------
NET ASSET VALUE, END OF PERIOD.......................................      $ 10.61                  $ 10.53
                                                                           -------                  -------
                                                                           -------                  -------
TOTAL RETURN (1).....................................................       (11.58)%                 (12.25)%
                                                                           -------                  -------
                                                                           -------                  -------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)..............................      $26,091                  $22,245
  Ratio of Expenses to Average Net Assets............................        2.33%*+                  3.08%*+
  Ratio of Net Investment Loss to Average Net Assets.................        0.81%*                   0.06%*
  Portfolio Turnover Rate............................................          32%***                   32%***
- -------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
  Per Share Benefit to Net Investment Loss...........................      $  0.04                  $  0.04

RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets (Including Brazilian Tax Expense)...        3.10%*                   3.90%*
  Net Investment Loss to Average Net Assets..........................        0.04%*                 (0.76)%*
- -------------------------------------------------------------------------------------------
</TABLE>

  + The ratio of expenses to average net assets includes Brazilian tax  expense.
    Without  the effect of the  Brazilian tax expense, the  ratio of expenses to
    average net assets would have been 2.15%* and 2.90%*, for Class A and  Class
    C, respectively.
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1) Total  Return is  calculated exclusive of  sales charges  or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  1.25% of the average daily net assets of the Emerging Markets Fund. The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of the Investment Fund to the  extent that the total operating expenses  of
     the  Investment Fund exceed 2.15% of  the average daily net assets relating
     to the Class A shares and 2.90% of the average daily net assets relating to
     the Class C shares. For the fiscal period ended June 30, 1995, the  Adviser
     waived  advisory  fees  and/or reimbursed  expenses  totaling approximately
     $197,000 for the Emerging Markets Fund.

                                       13
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED

                              LATIN AMERICAN FUND

<TABLE>
<CAPTION>
                                                                                                                 CLASS C
                                                                                                          (CLASS B UNTIL MAY 1,
                                                                                 CLASS A                          1995)
                                                                        --------------------------      --------------------------
                                                                              JULY 6, 1994**                  JULY 6, 1994**
SELECTED PER SHARE DATA AND RATIOS                                           TO JUNE 30, 1995                TO JUNE 30, 1995
- ----------------------------------------------------------------------  --------------------------      --------------------------
<S>                                                                     <C>                             <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................  $                   12.00       $                   12.00
                                                                                           ------                          ------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Loss.................................................                      (0.02)                          (0.08)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS                                             (2.70)                          (2.73)
                                                                                           ------                          ------
    Total From Investment Operations..................................                      (2.72)                          (2.81)
                                                                                           ------                          ------
DISTRIBUTIONS
  Net Realized Gain...................................................                      (0.20)                          (0.20)
                                                                                           ------                          ------
NET ASSET VALUE, END OF PERIOD........................................  $                    9.08       $                    8.99
                                                                                           ------                          ------
                                                                                           ------                          ------
TOTAL RETURN (1)......................................................                     (23.07)%                        (23.83)%
                                                                                           ------                          ------
                                                                                           ------                          ------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)...............................  $                   7,658       $                   4,085
  Ratio of Expenses to Average Net Assets.............................                      2.46%*+                         3.20%*+
  Ratio of Net Investment Loss to Average Net Assets..................                      (0.44)%*                        (1.16)%*
  Portfolio Turnover Rate.............................................                       107%***                         107%***
- -----------------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD
  Per Share Benefit to Net Investment Loss............................  $                    0.13       $                    0.12
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets (Including Brazilian Tax Expense)....                      4.30%*                          5.20%*
  Net Investment Loss to Average Net Assets...........................                      (2.26)%*                        (3.16)%*
- -----------------------------------------------------------------------------------------------------
</TABLE>

  + The ratio of expenses to average net assets includes Brazilian tax  expense.
    Without  the effect of the  Brazilian tax expense, the  ratio of expenses to
    average net assets would have been 2.10%* and 2.85%*, for Class A and  Class
    C, respectively.
  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1) Total  Return is  calculated exclusive of  sales charges  or deferred sales
     charges.
 (2) Under the  terms  of  an  Investment Advisory  Agreement,  the  Adviser  is
     entitled to receive an investment advisory fee calculated at an annual rate
     of  1.25% of the average  daily net assets of  the Latin American Fund. The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of the Investment Fund to the  extent that the total operating expenses  of
     the  Investment Fund exceed 2.10% of  the average daily net assets relating
     to the Class A shares and 2.85% of the average daily net assets relating to
     the Class C shares. For the fiscal period ended June 30, 1995, the  Adviser
     waived  advisory  fees  and/or reimbursed  expenses  totaling approximately
     $165,000 for the Latin American Fund.

                                       14
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED

                               AMERICAN VALUE FND

<TABLE>
<CAPTION>
                                                                                                           CLASS C
                                                               CLASS A                           (CLASS B UNTIL MAY 1, 1995)
                                                --------------------------------------      --------------------------------------
                                                  OCTOBER 18,                                 OCTOBER 18,
                                                   1993** TO             YEAR ENDED            1993** TO             YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS               JUNE 30, 1994         JUNE 30, 1995         JUNE 30, 1994         JUNE 30, 1995
- ----------------------------------------------  ----------------      ----------------      ----------------      ----------------
<S>                                             <C>                   <C>                   <C>                   <C>
NET ASSET VALUE, BEGINNING OF PERIOD..........  $         12.00       $         11.70       $         12.00       $         11.69
                                                        -------               -------                ------               -------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income.......................             0.17                  0.27                  0.11                  0.17
  Net Realized and Unrealized Gain/(Loss) On
   Investments................................            (0.30)                 1.44                 (0.31)                 1.44
                                                        -------               -------                ------               -------
    Total From Investment Operations..........            (0.13)                 1.71                 (0.20)                 1.61
                                                        -------               -------                ------               -------
DISTRIBUTIONS
  Net Investment Income.......................            (0.17)                (0.28)                (0.11)                (0.17)
  Net Realized Gain...........................                                  (0.24)                                       0.24)
                                                        -------               -------                ------               -------
  Total Distributions.........................            (0.17)                (0.52)                (0.11)                (0.41)
                                                        -------               -------                ------               -------
NET ASSET VALUE, END OF PERIOD................  $         11.70       $         12.89       $         11.69       $         12.89
                                                        -------               -------                ------               -------
                                                        -------               -------                ------               -------
TOTAL RETURN (1)..............................            (1.12)%***           15.01%                 (1.70)%***           14.13%
                                                        -------               -------                ------               -------
                                                        -------               -------                ------               -------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands).......  $        10,717       $        20,675       $         7,237       $        13,867
  Ratio of Expenses to Average Net Assets.....            1.50%*                1.50%                 2.25%*                2.25%
  Ratio of Net Investment Income to Average
   Net Assets.................................            2.14%*                2.29%                 1.39%*                1.54%
  Portfolio Turnover Rate.....................              17%***                23%                   17%***                23%
- -----------------------------------------------------------------------------------------------------

EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING
 THE PERIOD
  Per Share Benefit to Net Investment Income..  $          0.08       $          0.05       $          0.08       $          0.05
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets..............            2.48%*                1.96%                 3.28%*                2.71%
  Net Investment Income to Average Net
   Assets.....................................            1.16%*                1.83%                 0.36%*                1.08%
- -----------------------------------------------------------------------------------------------------
</TABLE>

  * Annualized.
 ** Commencement of Operations.
*** Not Annualized.
 (1) Total Return is  calculated exclusive  of sales charges  or deferred  sales
     charges.
 (2) Under  the  terms  of  an Investment  Advisory  Agreement,  the  Adviser is
     entitled to receive an investment advisory fee calculated at an annual rate
     of 0.85% of the average  daily net assets of  the American Value Fund.  The
     Adviser has agreed to waive a portion of this fee and/or reimburse expenses
     of  the Investment Fund to the extent  that the total operating expenses of
     the Investment Fund exceed 1.50% of  the average daily net assets  relating
     to the Class A shares and 2.25% of the average daily net assets relating to
     the Class C shares. For the fiscal periods ended June 30, 1994 and June 30,
     1995,  the Adviser waived advisory fees and/or reimbursed expenses totaling
     approximately $102,000 and $110,000,  respectively, for the American  Value
     Fund.

                                       15
<PAGE>
                         FINANCIAL HIGHLIGHTS CONTINUED
                           WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
                                                                                                   CLASS C
                                                                 CLASS A                 (CLASS B UNTIL MAY 1, 1995)
                                                     --------------------------------  --------------------------------
                                                     APRIL 21, 1994**    YEAR ENDED    APRIL 21, 1994**    YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS                   TO JUNE 30, 1994   JUNE 30, 1995  TO JUNE 30, 1994   JUNE 30, 1995
- ---------------------------------------------------  -----------------  -------------  -----------------  -------------
<S>                                                  <C>                <C>            <C>                <C>
NET ASSET VALUE, BEGINNING OF PERIOD...............      $   12.00        $   12.17        $   12.00        $   12.16
                                                            ------      -------------         ------      -------------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income............................           0.18             1.26             0.17             1.17
  Net Realized and Unrealized Gain/(Loss) On
   Investments.....................................           0.16            (0.52)            0.15            (0.50)
                                                            ------      -------------         ------      -------------
    Total From Investment Operations...............           0.34             0.74             0.32             0.67
                                                            ------      -------------         ------      -------------
DISTRIBUTIONS
  Net Investment Income............................          (0.17)           (1.22)           (0.16)           (1.13)
  Net Realized Gain................................             --            (0.12)              --            (0.12)
                                                            ------      -------------         ------      -------------
    Total Distributions............................          (0.17)           (1.34)           (0.16)           (1.25)
                                                            ------      -------------         ------      -------------
NET ASSET VALUE, END OF PERIOD.....................      $   12.17        $   11.57        $   12.16        $   11.58
                                                            ------      -------------         ------      -------------
                                                            ------      -------------         ------      -------------
TOTAL RETURN (1)...................................          2.86%***         6.87%            2.62%***         6.20%
                                                            ------      -------------         ------      -------------
                                                            ------      -------------         ------      -------------
RATIOS AND SUPPLEMENTAL DATA
  Net Assets, End of Period (Thousands)............      $   6,857        $  14,819        $   6,081        $  11,880
  Ratio of Expenses to Average Net Assets..........          1.55%*           1.55%            2.30%*           2.30%
  Ratio of Net Investment Income to Average Net
   Assets..........................................          8.29%*          11.53%            7.54%*          10.72%
  Portfolio Turnover Rate..........................            19%***          178%              19%***          178%
- -----------------------------------------------------------------------------------------------------------------------
EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
 PERIOD
  Per Share Benefit to Net Investment Income.......      $    0.02        $    0.05        $    0.06        $    0.05
RATIOS BEFORE EXPENSE LIMITATION:
  Expenses to Average Net Assets...................          3.23%*           1.97%            4.00%*           2.74%
  Net Investment Income to Average Net Assets......          6.61%*          11.11%            5.84%*          10.28%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

  *  Annualized.

 **  Commencement of Operations.

***  Not Annualized.

 (1)  Total  Return is calculated  exclusive of sales  charges or deferred sales
      charges.

 (2)  Under the  terms  of an  Investment  Advisory Agreement,  the  Adviser  is
      entitled  to receive  an investment advisory  fee calculated  at an annual
      rate of 0.75% of the average daily net assets of the Worldwide High Income
      Fund. The  Adviser  has agreed  to  waive a  portion  of this  fee  and/or
      reimburse  expenses of  the Investment Fund  to the extent  that the total
      operating expenses  of the  Investment Fund  exceed 1.55%  of the  average
      daily  net assets relating to the Class  A shares and 2.30% of the average
      daily net assets relating  to the Class C  shares. For the fiscal  periods
      ended  June 30, 1994 and  June 30, 1995, the  Adviser waived advisory fees
      and/or reimbursed  expenses totaling  approximately $39,000  and  $88,000,
      respectively, for the Worldwide High Income Fund.

                                       16
<PAGE>
                               PROSPECTUS SUMMARY

THE FUND

    The  Fund  currently  consists  of eleven  investment  portfolios  which are
designed to offer investors  a range of investment  choices with Morgan  Stanley
providing  services as  Adviser, Administrator and  Distributor. Each investment
portfolio has its own  investment objectives and policies  designed to meet  its
specific  goals. This Prospectus  pertains to the  Class A, Class  B and Class C
shares of the ten Investment Funds as follows:

GLOBAL AND INTERNATIONAL EQUITY FUNDS:

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

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

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

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

    - The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
      primarily in equity securities of European issuers.

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

UNITED STATES EQUITY FUND:

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

    - The  AGGRESSIVE  EQUITY  FUND  seeks  capital  appreciation  by  investing
      primarily  in  a  non-diversified   portfolio  of  corporate  equity   and
      equity-linked securities.

GLOBAL FIXED INCOME FUNDS:

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

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

                                       17
<PAGE>
INVESTMENT MANAGEMENT

    Morgan   Stanley   Asset   Management   Inc.   (the   "Adviser"   and    the
"Administrator"), a wholly owned subsidiary of Morgan Stanley Group Inc., which,
together with its affiliated asset management companies, had approximately $55.2
billion  in assets under management  as an investment manager  or as a fiduciary
adviser at September 30, 1995, acts as  investment adviser to the Fund and  each
of  its Investment Funds. See "Management of the Fund -- Investment Adviser" and
"-- Administrator."

HOW TO INVEST

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

HOW TO REDEEM

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

RISK FACTORS

    The  investment policies  of each Investment  Fund entail  certain risks and
considerations of  which  an  investor  should be  aware.  The  American  Value,
Aggressive  Equity and Growth and Income Funds may, and the remaining Investment
Funds will,  invest in  securities  of foreign  issuers. Securities  of  foreign
issuers  are subject  to certain  risks not  typically associated  with domestic
securities, including, among other risks, changes in

                                       18
<PAGE>
currency rates and  in exchange  control regulations, costs  in connection  with
conversions  between various currencies,  limited publicly available information
regarding foreign  issuers,  lack  of uniformity  in  accounting,  auditing  and
financial  standards  and requirements,  potential  price volatility  and lesser
liquidity of shares  traded on securities  markets, less government  supervision
and  regulation of securities markets, changes in taxes on income on securities,
possible seizure,  nationalization or  expropriation of  the foreign  issuer  or
foreign  deposits,  the  risk  of  war  and  potentially  greater  difficulty in
obtaining a judgment  in a  court outside the  U.S. The  Asian Growth,  Emerging
Markets,  Latin American, European Equity and Worldwide High Income Funds invest
in securities of issuers located  in developing countries and emerging  markets.
These  securities  may  impose  greater  liquidity  risks  and  other  risks not
typically associated with  investing in more  established markets. The  American
Value and Aggressive Equity 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
Emerging Markets, Latin American and Worldwide High Income Funds' investments in
emerging markets may also be in small- to medium-sized companies. The Investment
Funds, except for the American Value and Growth and Income Funds, may invest  in
sovereign  debt. The  Emerging Markets,  Latin American,  Growth and  Income and
Worldwide High  Income  Funds  may  invest  in  lower  rated  and  unrated  debt
securities  (including in the  case of the Latin  American Fund, sovereign debt)
which are considered  speculative with  regard to  the payment  of interest  and
return  of principal. In addition, each Investment Fund may invest in repurchase
agreements, borrow money, lend its portfolio securities, and purchase securities
on a when-issued or delayed delivery  basis. The Latin American, Worldwide  High
Income  and Growth and Income Funds may invest in reverse repurchase agreements.
The Investment Funds may invest in forward foreign currency exchange  contracts,
and  the  Worldwide  High  Income, Emerging  Markets,  American  Value, European
Equity, Growth  and  Income and  Latin  American  Funds may  invest  in  foreign
currency  exchange futures and  options, to hedge  the currency risks associated
with investment in non-U.S. dollar denominated securities. The Emerging Markets,
Latin American, European  Equity, Growth  and Income and  Worldwide High  Income
Funds  may  invest in  options. The  Worldwide  High Income  Fund may  invest in
structured investments and the Emerging Markets, Latin American, European Equity
and Worldwide High  Income Funds  may engage in  short selling.  The Growth  and
Income  and Aggressive Equity Funds may invest in PERCS, ELKS, LYONs and similar
securities which are convertible upon  various terms and conditions into  equity
securities.  Each of these  investment strategies involves  specific risks which
are  described  under  "Investment  Objectives  and  Policies"  and  "Additional
Investment Information" herein and under "Investment Objectives and Policies" in
the  Statement  of Additional  Information. See  "Investment Limitations"  for a
description of  the risks  associated  with the  non-diversified status  of  the
Global  Fixed  Income, Emerging  Markets, Latin  American and  Aggressive Equity
Funds.

                                       19
<PAGE>
                       INVESTMENT OBJECTIVES AND POLICIES

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

THE GLOBAL EQUITY ALLOCATION FUND

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

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

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

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

                                       20
<PAGE>
Adviser's purchasing-power parity exchange rate  model to arrive at an  expected
total  return in  U.S. dollars.  The final  country allocation  decision is then
reached by considering  the expected total  return in light  of various  country
specific  considerations such as market  size, volatility, liquidity and country
risk.

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

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

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

    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 GLOBAL FIXED INCOME FUND

    The  investment objective of the  Global Fixed Income Fund  is to produce an
attractive real rate of  return while preserving capital  by investing in  fixed
income securities of U.S. and foreign issuers denominated in U.S. Dollars and in
other  currencies.  The Investment  Fund will,  under normal  market conditions,
invest at least 65%

                                       21
<PAGE>
of the value of  its total assets  in fixed income securities  of issuers in  at
least  three  different  countries. The  Investment  Fund seeks  to  achieve its
objectives  by  investing  in  United  States  government  securities,   foreign
government  securities,  securities  of supranational  entities,  Eurobonds, and
corporate bonds with  varying maturities denominated  in various currencies.  In
selecting  portfolio securities, the Adviser evaluates the currency, market, and
individual features of  the securities  being considered for  investment. For  a
description   of  special  considerations  and  certain  risks  associated  with
investments in foreign issuers, see "Additional Investment Information."

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

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

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

                                       22
<PAGE>
Investment  Fund seeks  to invest in  currencies currently  undervalued based on
purchasing power  parity.  The  Adviser analyzes  current  account  and  capital
account  performance and real interest rates to adjust for shorter-term currency
flows.

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

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

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

    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 ASIAN GROWTH FUND

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

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

                                       23
<PAGE>
    Under  normal  circumstances,  at  least  65% of  the  total  assets  of the
Investment Fund  will be  invested  in equity  securities  of issuers  in  Asian
countries, excluding Japan. The remaining portion of the Investment Fund will be
kept  in any  combination of debt  instruments, bills and  bonds of governmental
entities in Asia and the U.S., in  notes, debentures, and bonds of companies  in
Asia  and in money market instruments in the U.S. With respect to the Investment
Fund,  equity  securities  include  common  and  preferred  stocks,  convertible
securities,  and rights and warrants to  purchase common stocks. Debt securities
convertible into common  stocks will be  investment grade (rated  in one of  the
four  highest rating categories by a NRSRO) or, if unrated will be of comparable
quality as  determined by  the Adviser  under the  supervision of  the Board  of
Directors.

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

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

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

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

                                       24
<PAGE>
    Because  of the lack of hedging facilities  in the currency markets of Asia,
no active  currency hedging  strategy is  anticipated currently.  Instead,  each
investment will be considered on a total currency adjusted basis with the United
States  dollar as  a base  currency. The Investment  Fund may  engage in foreign
currency exchange contracts. See  "Additional Investment Information --  Forward
Foreign Currency Exchange Contracts and Futures Contracts" in this Prospectus.

    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 EMERGING MARKETS FUND

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

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

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

                                       25
<PAGE>
Fund has a reasonable expectation at the  time the investment is made that  such
governmental  licensing or other appropriately  licensed or sanctioned guarantee
would be obtained or that the currency in which the security is quoted would  be
freely  convertible at  the time  of any  proposed sale  of the  security by the
Investment Fund.

    An emerging country security is one issued by a company that, in the opinion
of the  Adviser, has  one or  more  of the  following characteristics:  (i)  its
principal  securities trading market is in an emerging country; (ii) alone or on
a consolidated basis it derives  50% or more of  its annual revenue from  either
goods produced, sales made or services performed in emerging countries; or (iii)
it  is organized under the  laws of, and has a  principal office in, an emerging
country. The  Adviser will  base determinations  as to  eligibility on  publicly
available  information  and  inquiries  made  to  the  companies.  (See "Foreign
Investment Risk Factors" for a discussion of the nature of information  publicly
available for non-U.S. companies).

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

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

    The Investment Fund intends  to purchase and  hold securities for  long-term
capital  appreciation and does not expect to trade for short-term gain. The rate
of   portfolio   turnover   will   not   be   a   limiting   factor   when   the

                                       26
<PAGE>
Investment  Fund deems it  appropriate to purchase  or sell securities. However,
the U.S. federal tax requirement that  the Investment Fund derive less than  30%
of  its gross income from  the sale or disposition  of securities held less than
three months  may  limit  the  Investment  Fund's  ability  to  dispose  of  its
securities.

    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 LATIN AMERICAN FUND

    The  investment objective  of the Latin  American Fund  is long-term capital
appreciation. The Investment Fund seeks  to achieve this objective by  investing
primarily  in equity securities (i)  of companies organized in  or for which the
principal securities trading market is in  Latin America, (ii) denominated in  a
Latin  American  currency issued  by companies  to  finance operations  in Latin
America, or (iii) of companies that alone or on a consolidated basis derive  50%
or  more of  their annual  revenues from  either goods  produced, sales  made or
services performed in Latin America (collectively, "Latin American issuers") and
by investing, from time to  time, in debt securities  issued or guaranteed by  a
Latin  American government or governmental  entity ("Sovereign Debt"). Income is
not a consideration in selecting investments or an investment objective.

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

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

    The economies of individual Latin American countries may differ favorably or
unfavorably  from the  U.S. economy in  such respects  as the rate  of growth of
gross domestic product,  the rate of  inflation, capital reinvestment,  resource
self-sufficiency  and balance  of payments  position. Governments  of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector.

                                       27
<PAGE>
In some cases, the government owns or controls many companies, including some of
the largest in the country. Accordingly, government actions in the future  could
have  a significant effect  on economic conditions in  a Latin American country,
which could  affect  private  sector  companies and  the  Fund,  and  on  market
conditions,   prices  and  yields   of  securities  in   the  Fund's  portfolio.
Expropriation, confiscatory  taxation, nationalization,  political, economic  or
social  instability or other  developments could adversely  affect the assets of
the Fund held in particular Latin American countries.

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

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

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

    The  governments  of  some Latin  American  countries have  been  engaged in
programs of  selling  part  or  all  of their  stakes  in  government  owned  or
controlled    enterprises   ("privatization").   The   Adviser   believes   that
privatization  may  offer  investors   opportunities  for  significant   capital
appreciation   and  intends  to   invest  assets  of   the  Investment  Fund  in
privatization in appropriate circumstances. In certain Latin American countries,
the ability of foreign entities, such as the Investment Fund, to participate  in
privatization  may be limited by local law, or the terms on which the Investment
Fund may be  permitted to participate  may be less  advantageous than those  for

                                       28
<PAGE>
local  investors. There can be no assurance that Latin American governments will
continue to sell  companies currently owned  or controlled by  them or that  any
privatization  programs  in  which  the  Investment  Fund  participates  will be
successful.

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

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

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

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

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

                                       29
<PAGE>
    The Investment  Fund  may  enter  into  forward  foreign  currency  exchange
contracts  and foreign currency futures contracts, may purchase and write (sell)
put and call  options on securities,  foreign currency and  on foreign  currency
futures  contracts, and  may enter  into stock  index and  interest rate futures
contracts and options  thereon. See "Additional  Investment Information."  There
currently are limited options and futures markets for Latin American currencies,
securities  and indexes, and the nature of the strategies adopted by the Adviser
and the extent to which those strategies are used depends on the development  of
those  markets. The Investment Fund  may also from time  to time lend securities
(but not in excess of  20% of its total assets)  from its portfolio to  brokers,
dealers  and financial  institutions. See "Additional  Investment Information --
Loans of Portfolio Securities."

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

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

    The  Investment Fund intends  to purchase and  hold securities for long-term
capital appreciation and does not expect to trade for short-term gain. The  rate
of   portfolio   turnover   will   not   be   a   limiting   factor   when   the

                                       30
<PAGE>
Investment Fund deems it  appropriate to purchase  or sell securities.  However,
the  U.S. federal tax requirement that the  Investment Fund derive less than 30%
of its gross income from  the sale or disposition  of securities held less  than
three  months  may  limit  the  Investment  Fund's  ability  to  dispose  of its
securities.

    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.

    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

                                       31
<PAGE>
stocks which it believes to be  undervalued in relation to the issuer's  assets,
cash  flow, earnings and revenues,  and then evaluates the  future value of such
stocks by running  the results  of an  in-depth study  of the  issuer through  a
dividend  discount  model. The  Adviser  utilizes the  research  of a  number of
sources,  including   its   affiliate   in  Geneva,   Morgan   Stanley   Capital
International,  in identifying  attractive securities,  and applies  a number of
proprietary screening criteria to  identify those securities  it believes to  be
undervalued.  Investment Fund holdings  are regularly reviewed  and subjected to
fundamental analysis  to  determine whether  they  continue to  conform  to  the
Adviser's  value  criteria. 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.

THE AMERICAN VALUE FUND

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

                                       32
<PAGE>
    The Adviser  invests with  the philosophy  that a  diversified portfolio  of
undervalued,  small- to medium-sized companies will provide high total return in
the long run.

    Companies considered attractive will have the following characteristics:

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

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

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

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

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

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

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

    The  Investment Fund invests  primarily in small-  to medium-sized companies
domiciled in the United  States. The Investment Fund  may, to a limited  extent,
invest  in  non-publicly traded  securities,  private placements  and restricted
securities.  See  "Additional  Investment  Information  --  Non-Publicly  Traded
Securities,  Private Placements and Restricted  Securities." The Investment Fund
may on occasion invest in 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.

                                       33
<PAGE>
THE AGGRESSIVE EQUITY FUND

    The Aggressive  Equity Fund's  investment objective  is to  provide  capital
appreciation  by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to the Investment Fund, equity
and equity-linked  securities include  common and  preferred stock,  convertible
securities,  rights and warrants to purchase common stock, options, futures, and
specialty securities, such as ELKS,  LYONs and PERCS of  U.S., and to a  limited
extent, as described below, foreign issuers. As a non-diversified portfolio, the
Investment  Fund can be more heavily weighted in fewer stocks than a diversified
portfolio.  See  "Investment  Limitations."  Under  normal  circumstances,   the
Investment  Fund will invest  at least 65% of  the value of  its total assets in
equity and equity-linked securities.

    The Adviser employs a flexible and eclectic investment process in pursuit of
the Investment  Fund's investment  objective. In  selecting securities  for  the
Investment Fund, the Adviser concentrates on a universe of rapidly 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 but smaller market capitalization
securities  may  be purchased  from time  to  time. The  Investment Fund  is not
restricted to  investments in  specific markets  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 investments for the  Investment Fund. The Adviser concentrates
on  companies  with  strong,  communicative  managements  and  clearly   defined
strategies  for growth.  In addition,  the Adviser  rigorously assesses earnings
results. The  Adviser seeks  companies which  will deliver  surprisingly  strong
earnings  growth. Valuation  is of  secondary importance  to the  Adviser and is
viewed in  the context  of prospects  for sustainable  earnings growth  and  the
potential for positive earnings surprises in relation to consensus expectations.
The  Investment Fund is free  to invest in any  equity or equity-linked security
that, in the  Adviser's judgment, provides  above-average potential for  capital
appreciation.

    The  Investment Fund  may from time  to time and  consistent with applicable
legal requirements sell securities short that it owns (i.e., "against the  box")
or borrows. See "Additional Investment Information".

    In  selecting investments  for the  Investment Fund,  the Adviser emphasizes
individual  security  selection.  Overweighted   sector  positions  and   issuer
positions  may result from the investment process. See "Investment Limitations."
The Investment Fund has a long-term investment perspective; however, the Adviser
may take  advantage of  short-term opportunities  that are  consistent with  the
Investment  Fund's objective by selling recently purchased securities which have
increased in value.

    The Investment Fund  may invest  in equity and  equity-linked securities  of
domestic  and foreign corporations. However, the Investment Fund does not expect
to invest  more  than 25%  of  its  total assets  at  the time  of  purchase  in
securities of foreign companies. The Investment Fund may invest in securities of
foreign issuers directly or in the form of ADRs. 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 Objective and Policies -- Forward
Foreign Currency Exchange Contracts" in the Statement of Additional Information.

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

    The  Investment Fund 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."

    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 WORLDWIDE HIGH INCOME FUND

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

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

                                       35
<PAGE>
    From time to time, a portion of the Investment Fund's investments, which may
be up to 100% of  the Investment Fund's investments,  may be considered to  have
credit   quality  below  investment  grade   as  determined  by  internationally
recognized credit rating agency  organizations, such as  Moody's and Standard  &
Poor's, or be unrated but determined to be of comparable quality by the Adviser.
Such  lower rated bonds are commonly referred  to as "junk bonds." Securities in
such lower rating categories may have predominantly speculative  characteristics
or  may be in default. Appendix A to this Prospectus sets forth a description of
Moody's and  Standard &  Poor's corporate  bond ratings.  Ratings represent  the
opinions of rating agencies as to the quality of bonds and other debt securities
they  undertake  to rate  at  the time  of  issuance. However,  ratings  are not
absolute standards  of  quality and  may  not  reflect changes  in  an  issuer's
creditworthiness.  Accordingly, while the Adviser will consider ratings, it will
perform its own  analysis and  will not  rely principally  on ratings.  Emerging
country  debt securities in which the Investment Fund may invest will be subject
to high risk and will not be required to meet a minimum rating standard and  may
not  be  rated for  creditworthiness  by any  internationally  recognized credit
rating organization. The Investment Fund's  investments in U.S. corporate  lower
rated  and  unrated debt  securities and  emerging  country debt  securities are
expected  to  be   rated  in  the   lower  and  lowest   rating  categories   of
internationally   recognized  credit  rating  organizations  or  to  be  unrated
securities of comparable quality. Ratings of a non-U.S. debt instrument, to  the
extent  that those  ratings are  undertaken, are  related to  evaluations of the
country in which the issuer of the instrument is located. Ratings generally take
into account the currency  in which a non-U.S.  debt instrument is  denominated;
instruments issued by a foreign government in other than the local currency, for
example,  typically have a  lower rating than local  currency instruments due to
the existence of an additional risk that the government will be unable to obtain
the required foreign currency to service its foreign currency-denominated  debt.
In  general, the ratings of debt securities  or obligations issued by a non-U.S.
public or private entity will not be  higher than the rating of the currency  or
the  foreign currency debt of the central government of the country in which the
issuer is located, regardless of  the intrinsic creditworthiness of the  issuer.
To   mitigate  the  risks  associated  with  investments  in  such  lower  rated
securities, the Investment Fund will  diversify its holdings by market,  issuer,
industry and credit quality. Investors should carefully review the section below
entitled   "Additional  Investment  Information  --  Risk  Factors  Relating  to
Investing in Lower Rated Debt Securities."

    The chart below indicates the Investment Fund's weighted average composition
of debt securities graded by  Standard & Poor's for  the period from the  Fund's
inception (April 21, 1994) through June 30, 1995.

<TABLE>
<CAPTION>
DEBT SECURITIES RATINGS                                                                      PERCENTAGE OF
(STANDARD & POOR'S)                                                                           NET ASSETS
- ------------------------------------------------------------------------------------------  ---------------
<S>                                                                                         <C>
AA........................................................................................          0.17%
A.........................................................................................         22.83%
BB........................................................................................         15.71%
B.........................................................................................         20.70%
CCC.......................................................................................          2.59%
Unrated...................................................................................         38.00%
</TABLE>

                                       36
<PAGE>
    The  weighted average  indicated above was  calculated on  a dollar weighted
basis and was computed as  at the end of each  month through June 30, 1995.  The
chart  does  not necessarily  indicate what  the  composition of  the Investment
Fund's portfolio  will be  in the  current and  subsequent fiscal  years. For  a
description  of  Standard  &  Poor's ratings  of  fixed  income  securities, see
Appendix A to this Prospectus.

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

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

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

                                       37
<PAGE>
becomes  payable  at regular  intervals. Zero  coupon, pay-in-kind  and deferred
payment securities may  be subject to  greater fluctuation in  value and  lesser
liquidity  in  the  event of  adverse  market conditions  than  comparably rated
securities paying cash interest at regular interest payment periods.

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

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

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

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

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

                                       38
<PAGE>
    EMERGING  COUNTRY FIXED INCOME SECURITIES.   A portion of the Worldwide High
Income  Fund's  assets  will  be  invested  in  emerging  country  fixed  income
securities,  which  are  debt securities  of  government  and government-related
issuers located in emerging countries (including participation in loans  between
governments   and  financial   institutions),  and  of   entities  organized  to
restructure outstanding debt of  such issuers and  debt securities of  corporate
issuers located in or organized under the laws of emerging countries. As used in
this  Prospectus, an emerging country is any country that the International Bank
for Reconstruction and Development (more commonly  known as the World Bank)  has
determined  to have a low or middle income economy. There are currently over 130
countries which are  considered to  be emerging countries,  approximately 40  of
which  currently have established securities  markets. These countries generally
include every  nation in  the world  except the  United States,  Canada,  Japan,
Australia, New Zealand and most nations located in Western Europe.

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

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

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

    The  Investment Fund's investments in  government and government-related and
restructured debt securities will consist of (i) debt securities or  obligations
issued  or guaranteed by governments, governmental agencies or instrumentalities
and  political   subdivisions   located   in   emerging   countries   (including
participation  in loans  between governments  and financial  institutions), (ii)
debt securities  or  obligations  issued  by  government  owned,  controlled  or
sponsored entities located in emerging countries, and (iii) interests in issuers
organized   and  operated  for  the  purpose  of  restructuring  the  investment
characteristics of instruments issued by any of the

                                       39
<PAGE>
entities described above. Such type  of restructuring involves the deposit  with
or purchase by an entity of specific instruments and the issuance by that entity
of  one or more classes  of securities backed by,  or representing interests in,
the underlying instruments. Certain issuers of such structured securities may be
deemed to be "investment companies" as defined in the Investment Company Act  of
1940  (the "1940 Act").  As a result,  the Investment Fund's  investment in such
securities may be limited  by certain investment  restrictions contained in  the
1940 Act. See "Additional Investment Information -- Structured Investments."

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

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

    GLOBAL FIXED INCOME SECURITIES.  The global fixed income securities in which
a  portion of the Worldwide  High Income Fund's assets  may be invested are debt
securities denominated in currencies of  countries displaying high real  yields.
Such  securities include government obligations issued  or guaranteed by U.S. or
foreign governments and their  political subdivisions, authorities, agencies  or
instrumentalities,  and by supranational  entities (such as  the World Bank, The
European Economic Community, The Asian Development Bank

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

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

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

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

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<PAGE>
    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 GROWTH AND INCOME FUND

    The  Growth and Income Fund seeks capital appreciation and current income by
investing primarily in equity and equity-linked securities. The Investment  Fund
seeks to achieve its investment objective, consistent with reasonable investment
risk,  by  investing  in  equity securities  of  rapidly  growing  companies, or
convertible securities  or  other  equity-linked,  income-generating  securities
(e.g.,  PERCS, ELKS,  LYONs) of  such companies.  The Investment  Fund will also
invest in slower-growth companies with  stable or accelerating earnings and/  or
dividend  growth. The equity securities of  the foregoing companies in which the
Investment Fund will invest  consist of common stock  (dividend- paying, and  to
the  extent it  is consistent with  the Investment  Fund's investment objective,
nondividend-paying), preferred  stock  and securities  convertible  into  common
stock,  such as convertible preferred stock, convertible bonds and warrants. The
Investment Fund will, under normal market conditions, invest at least 65% of the
value of its total assets in such equity securities. The Investment Fund is  not
subject  to any  limit on  the size  of companies  in which  it may  invest, but
intends to be primarily invested, under normal circumstances, in companies  with
equity  market  capitalizations of  approximately  $750 million  and  above. The
Investment  Fund  is  designed  for  investors  who  want  an  actively  managed
diversified portfolio of selected equity securities that seeks to outperform the
total return of the S&P 500 Index, while providing a yield higher than the yield
of the S&P 500 Index.

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

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

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

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

                                       42
<PAGE>
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.

                       ADDITIONAL INVESTMENT INFORMATION

BORROWING AND OTHER FORMS OF LEVERAGE

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

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

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

CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES

    The Worldwide High Income, Growth and Income and Aggressive 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.

    The   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. In addition, it is not

                                       43
<PAGE>
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
mandatory convertible into common  stock after a period  of time, usually  three
years,  during which  the investors' capital  gains are capped,  usually at 30%.
Commonly, PERCS may be  redeemed by the  issuer at any time  or if the  issuer's
common  stock is trading  at a specified  price level or  better. The redemption
price starts at the beginning  of the PERCS duration period  at a price that  is
above  the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative  to the  common stock  over the  duration of  the PERCS  and
declines  to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and  giving the issuer the option to redeem  the
PERCS  at any time or at the  specified common stock price level, the Investment
Fund may be compensated with a substantially higher dividend yield than that  on
the underlying common stock. Investors, such as the 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.

    ELKS.    Equity-Linked  Securities   ("ELKS")  differ  from  ordinary   debt
securities,  in that the principal amount received  at maturity is not fixed but
is based on the  price of the  issuer's common stock.  ELKS are debt  securities
commonly  issued in  fully registered form  for a  term of three  years under an
indenture trust. At maturity, the holder of  ELKS will be entitled to receive  a
principal  amount equal to the lesser of a  cap amount, commonly in the range of
30% to 55% greater than the current  price of the issuer's common stock, or  the
average  closing  price  per share  of  the  issuer's common  stock,  subject to
adjustment as  a result  of certain  dilution events,  for the  10 trading  days
immediately  prior to maturity.  Unlike PERCS, ELKS are  commonly not subject to
redemption prior to maturity. ELKS  usually bear interest during the  three-year
term  at a substantially higher  rate than the dividend  yield on the underlying
common stock. In exchange for having the cap on the return that might have  been
received  as capital gains  on the underlying common  stock, the Investment Fund
may be compensated with the higher yield, contingent on how well the  underlying
common  stock does.  Investors, such as  the Investment Fund,  that seek current
income, find ELKS attractive because ELKS provide a higher dividend income  than
that paid with respect to a company's common stock.

    LYONS.    Liquid  Yield Option  Notes  ("LYONs") differ  from  ordinary debt
securities, in that the amount  received prior to maturity  is not fixed but  is
based  on the price  of the issuer's  common stock. LYONs  are zero-coupon notes
that sell at a large discount from  face value. For an investment in LYONs,  the
Investment Fund will

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<PAGE>
not  receive any interest payments until the notes mature, typically in 15 to 20
years, when the notes are redeemed at  face, or par, value. The yield on  LYONs,
typically,  is lower-than-market rate for debt  securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of  the
issuer at any time at the option of the holder of the LYONs. Commonly, the LYONs
are  redeemable by  the issuer  at any time  after an  initial period  or if the
issuer's common stock is trading  at a specified price  level or better, or,  at
the  option  of  the holder,  upon  certain  fixed dates.  The  redemption price
typically is  the  purchase price  of  the  LYONs plus  accrued  original  issue
discount  to  the date  of redemption,  which  amounts to  the lower-than-market
yield. The Investment Fund will receive only the lower-than-market yield  unless
the  underlying common stock increases in value at a substantial rate. LYONs are
attractive to investors,  like the Investment  Fund, when it  appears that  they
will increase in value due to the rise in value of the underlying common stock.

DEPOSITARY RECEIPTS

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

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

DERIVATIVES

    Certain of  the  Investment  Funds  may invest  in  derivatives,  which  are
financial  products or instruments that derive their  value from the value of an
underlying asset,  reference  rate  or index.  The  following  are  derivatives:
forward  foreign currency  exchange contracts,  options (e.g.,  puts and calls),
futures  contracts,  options  on  futures  contracts,  convertible   securities,
warrants,  equity-linked securities  (e.g., PERCS,  ELKS and  LYONS), structured
securities, when-issued and delayed delivery securities and depositary receipts.
See elsewhere in this

                                       45
<PAGE>
"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 Investment  Funds  may  enter into  forward  foreign  currency  exchange
contracts  ("forward contracts"). Forward contracts  provide for the purchase or
sale of an amount of a specified foreign currency at a future date. Purposes for
which such  contracts may  be used  include protecting  against a  decline in  a
foreign  currency against the U.S. dollar  between the trade date and settlement
date when such Investment  Funds purchases or sells  securities, locking in  the
U.S.  dollar value  of dividends declared  on securities held  by the Investment
Fund and generally protecting  the U.S. dollar value  of securities held by  the
Investment Fund against exchange rate fluctuations. While such forward contracts
may  limit  losses  to  the  Investment  Fund  as  a  result  of  exchange  rate
fluctuations, they will also limit any exchange rate gains that might  otherwise
have  been realized. The Global Equity Allocation, Asian Growth, American Value,
Growth and Income and Worldwide High Income Funds will enter into such contracts
only to protect against  the effects of fluctuating  rates of currency  exchange
and exchange control regulations.

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

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

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

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

FOREIGN INVESTMENT

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

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

    In order  to remain  fully invested  and to  reduce transaction  costs,  the
Emerging  Markets, Latin  American, European Equity,  American Value, Aggressive
Equity,  Growth  and  Income  and  Worldwide  High  Income  Funds  may   utilize
appropriate  securities index futures contracts  and options on securities index
futures contracts to a  limited extent and the  Latin American Fund may  utilize
appropriate interest rate futures contracts and options on interest rate futures
contracts to a limited extent. Because transaction costs associated with futures
and  options may be lower than the costs of investing in securities directly, it
is expected that the use of index  futures and options to facilitate cash  flows
may  reduce  an  Investment  Fund's overall  transaction  costs.  Each  of these

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Investment Funds may sell indexed financial futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value  of
securities  in its  portfolio that might  otherwise result.  When the Investment
Fund is not  fully invested  and the  Adviser anticipates  a significant  market
advance,  it may  purchase stock  index futures  in order  to gain  rapid market
exposure that may in part or entirely offset increases in the cost of securities
that it intends to  purchase. In a substantial  majority of these  transactions,
the  Investment  Fund  will purchase  such  securities upon  termination  of the
futures position but, under unusual market conditions, a futures position may be
terminated without  the corresponding  purchase  of securities.  The  Investment
Funds will engage in futures and options transactions only for hedging purposes.

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

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

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

INVESTMENT COMPANIES

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

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

LOANS OF PORTFOLIO SECURITIES

    Each  of the Investment Funds may lend their securities to brokers, dealers,
domestic and foreign banks  or other financial institutions  for the purpose  of
increasing  its net investment income. These  loans must be secured continuously
by cash or equivalent collateral or by a letter of credit at least equal to  the
market  value of  the securities  loaned plus  accrued interest.  The Investment
Funds will  not  enter  into  securities  loan  transactions  exceeding  in  the
aggregate  33 1/3%  of the  market value  of an  Investment Fund's  total assets
(exceeding in the aggregate 20% of such value with respect to the Latin American
Fund). As with other extensions of credit, there are risks of delay in  recovery
or  even  loss of  rights in  collateral  should the  borrower of  the portfolio
securities fail  financially. For  more  detailed information  about  securities
lending, see "Investment Objectives and Policies" in the Statement of Additional
Information.

LOAN PARTICIPATIONS AND ASSIGNMENTS

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

LOWER RATED AND UNRATED DEBT SECURITIES

    The Worldwide High  Income, Emerging  Markets, Growth and  Income and  Latin
American  Funds may invest  in lower rated or  unrated debt securities, commonly
referred to as "junk bonds." In  addition, the emerging country debt  securities
in  which such Investment Funds  may invest are subject to  risk and will not be

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

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

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

    Lower  rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the  Investment
Fund  may have to replace the security with a lower yielding security, resulting
in a  decreased  return  for  investors.  If  the  Investment  Fund  experiences
unexpected  net  redemptions,  it  may  be  forced  to  sell  its  higher  rated
securities, resulting  in  a  decline  in the  overall  credit  quality  of  the
Investment  Fund's  investment  portfolio  and increasing  the  exposure  of the
Investment Fund to the risks of lower rated and unrated debt securities.

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<PAGE>
MONEY MARKET INSTRUMENTS

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

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES

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

OPTIONS TRANSACTIONS

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

    The  Investment Fund may write (i.e.,  sell) covered call options which give
the purchaser the  right to buy  the underlying security  covered by the  option
from  the Investment Fund at the stated  exercise price. A "covered" call option
means that so  long as the  Investment Fund is  obligated as the  writer of  the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the

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<PAGE>
payment  of any consideration  into the securities  subject to the  option. As a
matter of operating  policy, the  value of  the underlying  securities on  which
options  will be written at any one time  will not exceed 5% of the total assets
of the Investment Fund.

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

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

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

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

REPURCHASE AGREEMENTS

    The  Investment  Funds may  enter into  repurchase agreements  with brokers,
dealers or  banks  that  meet the  credit  guidelines  of the  Fund's  Board  of
Directors.   In   a   repurchase   agreement,   an   Investment   Fund   buys  a

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

REVERSE REPURCHASE AGREEMENTS

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

SHORT SALES

    The Emerging Markets, Latin American, European Equity, Aggressive Equity and
Worldwide High Income Funds may from time to time sell securities short  without
limitation,  although none of  such Investment Funds  intends to sell securities
short on a regular basis. A short sale is a transaction in which the  Investment
Fund would sell 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.

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

STRUCTURED INVESTMENTS

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

TEMPORARY INVESTMENTS

    During periods in which the Adviser believes changes in economic,  financial
or political conditions make it advisable, for temporary defensive purposes each
of  the Emerging Markets Fund and Latin American Fund may reduce its holdings in
equity and other  securities and  may invest  in certain  short-term (less  than
twelve  months  to maturity)  and medium-term  (not greater  than five  years to
maturity) debt securities or may hold cash. The short-term and medium-term  debt
securities  in which such Investment Funds may invest consist of (a) obligations
of the U.S.  or emerging  country governments (Latin  American governments  with
respect   to   the  Latin   American   Fund),  their   respective   agencies  or
instrumentalities;  (b)   bank   deposits  and   bank   obligations   (including
certificates  of deposit,  time deposits  and bankers'  acceptances) of  U.S. or
emerging country banks (Latin American banks with respect to the Latin  American
Fund)  denominated  in  any currency;  (c)  floating rate  securities  and other
instruments denominated  in any  currency  issued by  international  development
agencies;   (d)  finance  company  and  corporate  commercial  paper  and  other
short-term corporate debt obligations of U.S. and emerging country  corporations
(Latin  American corporations with  respect to the  Latin American Fund) meeting
the Investment Fund's  credit quality standards;  and (e) repurchase  agreements
with  banks and broker-dealers with respect  to such securities. See "Additional
Investment Information -- Repurchase Agreements."

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<PAGE>
For temporary defensive purposes, the Investment Fund intends to invest only  in
short-term  and medium-term debt  securities that the Adviser  believes to be of
high quality,  i.e., subject  to relatively  low  risk of  loss of  interest  or
principal  (there  is currently  no rating  system for  debt securities  in most
emerging countries, including most Latin American countries.)

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

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

                             INVESTMENT LIMITATIONS

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

    The Investment Funds also operate under certain investment restrictions that
are  deemed fundamental policies and  may be changed by  an Investment Fund only
with the  approval  of  the holders  of  a  majority of  the  Investment  Fund's
outstanding shares. In addition to other restrictions listed in the Statement of
Additional  Information, an  Investment Fund may  not (i)  enter into repurchase
agreements with more than seven days to maturity if, as a result, more than  15%
of  the market value of the Investment  Fund's total assets would be 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

                                       55
<PAGE>
hypothecate any assets except in connection  with any such borrowing in  amounts
up  to 10% of  the value of  the Investment Fund's  total assets at  the time of
borrowing; except  that  each  of  the Latin  American,  Aggressive  Equity  and
Worldwide  High Income Funds may borrow, and mortgage, pledge or hypothecate its
assets to secure such borrowings, in amounts equal to up to 33 1/3% of its total
assets (including the  amount borrowed), less  all liabilities and  indebtedness
other  than the  borrowing; and except  that the Latin  American, Worldwide High
Income and Growth and Income Funds may enter into reverse repurchase  agreements
in  accordance with  their investment objectives  and policies;  (iii) invest in
fixed time deposits with a duration of over seven calendar days; (iv) invest  in
fixed  time deposits with a duration of from two business days to seven calendar
days if more than 10% of the Investment Fund's total assets would be invested in
these deposits;  or (v)  invest more  than 25%  of the  Investment Fund's  total
assets  in securities  of companies  in any one  industry, except  for the Latin
American Fund.

                                       56
<PAGE>
                             MANAGEMENT OF THE FUND

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

<TABLE>
<S>                         <C>
Global Equity Allocation
Fund                            1.00%
Global Fixed Income Fund        0.75%
Asian Growth Fund               1.00%
Emerging Markets Fund           1.25%
Latin American Fund             1.25%
European Equity Fund            1.00%
American Value Fund             0.85%
Aggressive Equity Fund          0.90%
Worldwide High Income Fund      0.75%
Growth and Income Fund          0.75%
</TABLE>

    The Adviser, with  principal offices  at 1221  Avenue of  the Americas,  New
York,  NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At  September 30,  1995, the  Adviser together  with its  affiliated
asset  management  companies  managed investments  totaling  approximately $55.2
billion, including approximately $40.1 billion under active management and $15.1
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Fund  --
Investment   Advisory  and  Administrative  Agreements"   in  the  Statement  of
Additional Information.

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

                                       57
<PAGE>
    PORTFOLIO  MANAGERS  --  The following  individuals  have  primary portfolio
management responsibility for the Investment Funds noted below:

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

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

                                       58
<PAGE>
    ASIAN  GROWTH FUND -- EAN WAH CHIN, JAMES CHENG, AND SEAH KIAT SENG. Ean Wah
Chin is  a  Managing Director  of  Morgan Stanley  and  is responsible  for  the
Adviser's  regional Asia  ex-Japan operations  based in  Singapore. She  has had
primary management responsibility for the  Investment Fund since its  inception.
Prior  to joining Morgan  Stanley in 1986,  Ms. Chin spent  eight years with the
Monetary Authority  of  Singapore and  the  Government of  Singapore  Investment
Corporation,  where she was a portfolio manager on one of the largest portfolios
in Asia. Ms. Chin was an ASEAN scholar educated at the University of  Singapore.
James  Cheng is a Principal  of Morgan Stanley. Mr.  Cheng joined the Adviser in
1988 as a portfolio  manager for Asian  markets and is a  Vice President of  the
Adviser,  currently responsible for investments in Hong Kong, China, Taiwan, and
South Korea. He  has had  primary management responsibility  for the  Investment
Fund  since its  inception. Prior to  joining Morgan Stanley,  he was affiliated
with American Express and with Arthur Andersen, where he spent three years as an
auditor/consultant. Mr. Cheng holds an  M.B.A. from the University of  Michigan,
Ann  Arbor. Seah Kiat  Seng joined the  Adviser's Singapore office  in 1990 as a
portfolio manager/analyst specializing  in the  Southeast Asian  markets. He  is
currently  a Vice President, responsible for investments in Thailand. He has had
primary management responsibility for the  Investment Fund since its  inception.
Previously,  Kiat Seng worked  at Barclays de  Zoete Wedd (BZW),  where he was a
senior investment analyst who helped pioneer BZW's research effort in Singapore.
Kiat Seng is a  Chartered Financial Analyst and  a qualified real estate  valuer
who  has worked  for the Singapore  Ministry of  Finance. He was  a Colombo Plan
Scholar educated in New Zealand.

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

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

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

    AMERICAN  VALUE FUND  -- MICHAEL A.  CROWE AND CHRISTIAN  K. STADLINGER. Mr.
Crowe is a Managing Director of Morgan  Stanley and head of its Chicago  office.
He  also has overall responsibility for  the Adviser's U.S. large capitalization
value  equity,  U.S.  small  capitalization  value  equity  and  value  balanced
products.  He has had primary management  responsibility for the Investment Fund
since its  inception.  Mr.  Crowe's  equity  research  responsibilities  include
energy,  banking and  financial diversified  sectors. Mr.  Stadlinger is  a Vice
President of the Adviser and manages  the small-cap value equity product of  the
Adviser's  Chicago affiliate. He is also a member of the Adviser's Chicago large
cap  value  portfolio   management  team,  specializing   in  quantitative   and
fundamental  research.  He has  had  primary management  responsibility  for the
Investment  Fund  since  its  inception.  Upon  completion  of  his  Ph.D.,  Mr.
Stadlinger  was the catalyst in the  development of the small-cap value product,
and he  continues to  research and  develop structured  valuation techniques  in
small  cap  investing.  Mr. Stadlinger  has  a  degree in  Computer  Science and
Economics from the University of Vienna, Austria, and a Ph.D. in Economics  from
Northwestern University, where he also taught statistics and economics.

                                       59
<PAGE>
    AGGRESSIVE  EQUITY FUND  -- KURT  A. FEUERMAN.  Kurt Feuerman  is a Managing
Director of the Adviser  and has had primary  management responsibility for  the
Aggressive Equity Fund since its inception. Prior to joining the Adviser in July
1993, he spent over three years in Morgan Stanley's Research Department where he
was  responsible  for  restaurant,  gaming and  emerging  growth  stocks. Before
joining Morgan Stanley, Mr. Feuerman was  a Managing Director at Drexel  Burnham
Lambert,  where he had been an equity analyst since 1984. From 1982 to 1984, Mr.
Feuerman was  at  the Bank  of  New York,  following  the auto  and  auto  parts
industries.  Mr Feuerman  earned a B.A.  degree from McGill  University, an M.A.
from Syracuse University, and an M.B.A. from Columbia University.

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

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

    ADMINISTRATOR.   The  Adviser also  provides  the Fund  with  administrative
services  pursuant to a separate Administration Agreement. The services provided
under the  Administration  Agreement  are  subject to  the  supervision  of  the
officers   and  Board   of  Directors  of   the  Fund   and  include  day-to-day
administration of  matters  related to  the  corporate existence  of  the  Fund,
maintenance   of   its   records,  preparation   of   reports,   supervision  of

                                       60
<PAGE>
the Fund's arrangements with its custodian and assistance in the preparation  of
the   Fund's  registration  statements   under  federal  and   state  laws.  The
Administration Agreement also provides that the Adviser through its agents  will
provide  the  Fund  dividend disbursing  and  transfer agent  services.  For its
services under the Administration Agreement, the Fund pays the Adviser a monthly
fee which on an  annual basis equals  0.25% of the average  daily net assets  of
each Investment Fund.

    In  a merger completed on September 1,  1995, The Chase Manhattan Bank, N.A.
("Chase") succeeded to all of the rights and obligations under the United States
Trust Administration Agreement between the  Adviser and the United States  Trust
Company  of New York ("U.S. Trust"), pursuant  to which U.S. Trust had agreed to
provide certain administrative services  to the Fund.  Pursuant to a  delegation
clause  in the  U.S. Trust  Administration Agreement,  U.S. Trust  delegated its
administration  responsibilities  to   Chase  Global   Funds  Services   Company
("CGFSC"),  formerly Mutual Funds  Service Company, which  after the merger with
Chase  is  a  subsidiary  of  Chase   and  will  continue  to  provide   certain
administrative  services to the  Fund. The Adviser  supervises and monitors such
administrative services  provided  by CGFSC.  The  services provided  under  the
Administration  Agreement and the  U.S. Trust Administration  Agreement are also
subject to the supervision of the Board  of Directors of the Fund. The Board  of
Directors  of the  Fund has approved  the provision of  services described above
pursuant to  the  Administration Agreement  and  the U.S.  Trust  Administration
Agreement  as being in the best interests  of the Fund. CGFSC's business address
is  73  Tremont  Street,   Boston,  Massachusetts  02108-3913.  For   additional
information  on the Administration  Agreement and the  U.S. Trust Administration
Agreement,  see  "Management  of  the  Fund"  in  the  Statement  of  Additional
Information.

    ADMINISTRATORS FOR THE LATIN AMERICAN FUND.  The Investment Fund is required
under Brazilian law to have a local administrator in Brazil. Unibanco-Uniao (the
"Brazilian  Administrator"),  a Brazilian  corporation,  acts as  the Investment
Fund's Brazilian administrator pursuant to an agreement with the Investment Fund
(the "Brazilian Administration Agreement").  Under the Brazilian  Administration
Agreement,  the  Brazilian  Administrator  performs  various  services  for  the
Investment Fund, including effecting the  registration of the Investment  Fund's
foreign  capital with the Central Bank of Brazil, effecting all foreign exchange
transactions  related  to  the  Investment  Fund's  investments  in  Brazil  and
obtaining  all approvals required for the Investment Fund to make remittances of
income and capital  gains and  for the  repatriation of  the Fund's  investments
pursuant to Brazilian law. For its services, the Brazilian Administrator is paid
an  annual fee equal to .125% of the Investment Fund's average weekly net assets
invested in  Brazil,  paid  monthly.  The  principal  office  of  the  Brazilian
Administrator  is  located  at Avenida  Eusebio  Matoso, 891,  Sao  Paulo, S.P.,
Brazil. The Brazilian  Administration Agreement is  terminable upon six  months'
notice  by either party; the Brazilian Administrator  may be replaced only by an
entity authorized to act as a joint manager of a managed portfolio of bonds  and
securities under Brazilian law.

    The  Investment  Fund  is  required  under Colombian  law  to  have  a local
administrator in  Colombia. CitiTrust  S.A. (the  "Colombian Administrator"),  a
Colombian  Trust Company, acts as  the Investment Fund's Colombian administrator
pursuant to an agreement with  the Investment Fund (the "Colombian  Agreement").
Under  the  Colombian Agreement,  the  Colombian Administrator  performs various
services for the Investment  Fund, including effecting  the registration of  the
Investment  Fund's foreign capital with the  Central Bank of Colombia, effecting
all foreign exchange transactions related  to the Investment Fund's  investments
in Colombia and obtaining all approvals required for the Investment Fund to make
remittances  of income and capital gains and  for the repatriation of the Fund's
investments  pursuant  to  Colombian  law.  For  its  services,  the   Colombian
Administrator  is paid  an annual  fee of $1000  plus .20%  per transaction. The
principal office of the Colombian

                                       61
<PAGE>
Administrator  is located at Sociedad  Fiduciaria International S.A., 8-89, Piso
2, Santa Fe de Bogota, Colombia.  The Colombian Agreement is terminable upon  30
days'  notice by either party; the  Colombian Administrator may be replaced only
by an entity  authorized to act  as a joint  manager of a  managed portfolio  of
bonds and securities under Colombian law.

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

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

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

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

    In  addition to  the distribution  and shareholder  servicing fees described
above, Morgan Stanley also receives a sales  charge of up to 4.75% of the  sales
price  of Class A shares of each  Investment Fund. Morgan Stanley may reallow up
to the full  applicable sales  charge, as  shown in  the table  in "Purchase  of
Shares"   below,  to  certain  Participating  Dealers  during  periods  and  for
transactions specified  in "Purchase  of Shares"  and such  reallowances may  be
based  upon attainment of minimum sales levels.  During periods when 90% or more
of the sales charge is reallowed, certain Participating Dealers may be deemed to
be underwriters  as that  term is  defined in  the Securities  Act of  1933,  as
amended.  Morgan Stanley may receive a CDSC of up to 1.00% of the sales price of
the Class A  shares and Class  C shares  of the Investment  Funds, as  described
below  under "Purchase of Shares." Morgan Stanley  may also receive a CDSC of up
to 5.00% of the sales  price of shares of the  Class B shares of the  Investment
Funds,  as described below under "Purchase of  Shares." In addition to the sales
charges described above, Morgan Stanley may from  time to time and from its  own
resources  pay or allow  additional discounts or  promotional incentives, in the
form of cash or other compensation, to Participating Dealers. In some instances,
such discounts or other incentives may be offered only to certain  Participating
Dealers  that sell or are expected to sell during specified time periods certain
minimum amounts of shares of the

                                       62
<PAGE>
Fund, or other funds  underwritten by Morgan Stanley.  In some instances,  these
incentives  may be offered only to  certain Participating Dealers that have sold
or may sell  significant amounts  of shares.  In addition,  Morgan Stanley  pays
ongoing  trail  commissions  to  Participating Dealers.  At  the  option  of the
Participating Dealer, such  bonuses or  other incentives  may take  the form  of
payment for travel expenses, including lodging incurred in connection with trips
taken  by persons associated with the  Participating Dealer and members of their
families to places within  or outside of the  United States. The Distributor  or
Participating Dealers and their investment representatives may receive different
levels of compensation depending on which class of shares they sell.

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

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

    PAYMENTS TO  FINANCIAL INSTITUTIONS.    The Adviser  or its  affiliates  may
compensate  certain financial institutions for the continued investment of their
customers' assets  in  the Investment  Funds  pursuant  to the  advice  of  such
financial  institutions. These payments will be  made directly by the Adviser or
its affiliates from their assets,  and will not be made  from the assets of  the
Fund  or  by  the  assessment  of  a  sales  charge  on  shares.  Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed  by CGFSC. The  Adviser may elect  to enter into  a
contract to pay the financial institutions for such services.

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

                             PORTFOLIO TRANSACTIONS

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

                                       63
<PAGE>
    Shares  of the Investment  Funds are marketed  through Participating Dealers
and the Fund may allocate brokerage or principal business on the basis of  sales
of  shares of  the Investment Funds  which may  be made through  such firms. The
Adviser may place portfolio orders  with qualified broker-dealers who  recommend
the  Investment Funds  or who  act as agents  in the  purchase of  shares of the
Investment Funds for their clients.

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

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

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

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

                                       64
<PAGE>
                               PURCHASE OF SHARES

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

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

OFFERING PRICE OF CLASS A SHARES

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

<TABLE>
<CAPTION>
                             SALES CHARGE AS    SALES CHARGE AS    DEALER RETENTION
      CLASS A SHARES          PERCENTAGE OF    PERCENTAGE OF NET   AS PERCENTAGE OF
    AMOUNT OF PURCHASE       OFFERING PRICE     AMOUNT INVESTED    OFFERING PRICE**
- ---------------------------  ---------------   -----------------   ----------------
<S>                          <C>               <C>                 <C>
Less than $100,000                4.75%              4.99%               4.25%
$100,000 - $249,999               3.50%              3.63%               3.00%
$250,000 - $499,999               2.50%              2.56%               2.00%
$500,000 - $999,999               2.00%              2.04%               1.50%
$1,000,000 and over               None*              None**                  *++
</TABLE>

- --------------
 * Purchases  of $1  million or more  may be  subject to a  redemption fee. (See
   below.) Morgan Stanley may make payments to Participating Dealers in  amounts
   up to 1.00% of the Offering Price.

** The  Distributor  may, in  its  discretion, permit  Participating  Dealers to
   retain the full amount of the sales charge in connection with certain sales.

 + The amount of  purchase includes  net asset value  of the  purchase plus  the
   sales charge.

++ Commission is payable by Morgan Stanley as discussed below.

    Morgan  Stanley  may in  its discretion  compensate Participating  Dealers n
connection with  the sale  of  Class A  shares of  the  Investment Funds  in  an
aggregate amount of $1 million or more up to the following amounts: 1.00% of the
net  asset value of shares sold on amounts up to $3 million, .50% on the next $2
million and

                                       65
<PAGE>
 .25% on amounts  over $5 million.  For purposes of  determining the  appropriate
commission  percentage to  be applied to  a particular sale  under the foregoing
schedule, Morgan Stanley  will consider  the cumulative amount  invested by  the
purchaser in Class A shares of the Investment Funds.

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

    For purposes of reduced sales charges based on amount of purchase, the  term
"purchase"  refers  to purchases  made  at one  time  by any  "purchaser," which
includes an individual; a group composed of an individual and his or her  spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate  or single fiduciary account; an  organization exempt from federal income
tax under Section 501(c)(3)  or (13) of  the Internal Revenue  Code of 1986,  as
amended  (the "Code"); a pension, profit-sharing or other employee benefit plan,
whether or not qualified under Section 401 of the Code; or other organized group
of persons, whether incorporated or not,  provided the organization has been  in
existence  for at least six months and  has some purpose other than the purchase
of redeemable securities of  a registered investment company  at a discount.  In
order  to qualify for a  lower sales charge on purchases  of the Class A shares,
all orders from  an organized  group will  have to  be placed  through a  single
Participating Dealer and identified as originating from a qualifying purchaser.

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

                                       66
<PAGE>
shares of the Investment Funds  held of record as  of the initial purchase  date
under  the Letter as an "accumulation credit" toward the completion of the terms
of the Letter, but no price adjustment will be made on such shares.

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

    As  disclosed above, no sales charge will be payable at the time of purchase
of Class A shares on investments of $1 million or more. However, a CDSC will  be
imposed  on such investments in the event of a redemption of such Class A shares
of the Investment Fund within 12 months  following the purchase, at the rate  of
1.00%  of the lesser of  the current market value of  the shares redeemed or the
total cost of such shares. In determining whether a CDSC is payable, and, if so,
the amount of the fee or charge, it  is assumed that shares not subject to  such
fee  or charge  are the first  redeemed, followed  by other shares  held for the
longest period of time. The Fund may also sell Class A shares of the  Investment
Funds  at net  asset value (without  a sales  charge) to Directors  of the Fund,
directors  and  employees  of  Morgan  Stanley,  Participating  Dealers,   their
respective  affiliates and their  immediate families and  employees of agents of
the Fund. In addition, Class  A shares may be sold  without a sales charge  when
purchased  (i) through bank trust departments;  (ii) for investors whose account
is managed  by  certain  investment advisers  registered  under  the  Investment
Advisers   Act  of  1940,  as  amended;  (iii)  for  investors  through  certain
broker/dealers and other financial services firms that have entered into certain
agreements with the  Fund which may  include a requirement  that such shares  be
sold  for the benefit of clients participating  in a "wrap account" or a similar
program under which such clients pay a fee to such broker/dealer or other  firm;
(iv)  with  redemption proceeds  from other  investment  companies on  which the
investor had  paid a  front-end  or contingent  deferred  sales charge;  or  (v)
through  a  broker that  maintains an  omnibus  account with  the Fund  and such
purchases are  made  by the  following:  (1) investment  advisers  or  financial
planners  who  place trades  for their  own  accounts or  the accounts  of their
clients and who charge a management, consulting or other fee for their services,
(2) clients of such investment advisers  or financial planners who place  trades
for  their own accounts if the accounts are linked to the master account of such
investment adviser or financial planner on  the books and records of the  broker
or  agent, or (3) retirement and deferred  compensation plans and trusts used to
fund such plans, including, but not limited to, those defined in Section 401(a),
403(b) or 457 of the Code and  "rabbi trusts." Investors who purchase or  redeem
shares  through a  trust department,  broker, dealer,  agent, financial planner,
financial services  firm, or  investment adviser  may be  charged an  additional
service or transaction fee by that institution.

PURCHASE OF CLASS B SHARES

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

                                       67
<PAGE>
    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 the CDSC  are paid to  Morgan Stanley and  are used by  Morgan
Stanley   to  defray  the  expenses  of  Morgan  Stanley  related  to  providing
distribution-related services to  the Fund in  connection with the  sale of  the
Class  B shares. Morgan Stanley will  make payments to the Participating Dealers
that handle the purchases of  such shares at the rate  of 4.00% of the  purchase
price of such shares at the time of purchase and expects to reallocate a portion
of  its distribution fee, with respect to such shares, under the Rule 12b-1 Plan
for such  class  of  shares, as  described  under  "Management of  the  Fund  --
Distributor"  above. The combination  of the CDSC  and the distribution services
fee facilitates the ability  of the Fund  to sell the Class  B shares without  a
sales charge being deducted at the time of purchase.

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

                                       68
<PAGE>
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 Investment Funds  may be purchased  at the net  asset
value  per share and such shares  are subject to a CDSC  at the rate of 1.00% of
the lesser of the current market value of the shares redeemed or the total  cost
of  such shares for shares that are redeemed within one year of purchase. Morgan
Stanley will  make  payments  to  the  Participating  Dealers  that  handle  the
purchases  of such  shares at the  rate of 1.00%  of the purchase  price of such
shares  at  the  time  of  purchase  and  expects  to  reallocate  most  of  its
distribution  fee, with respect  to such shares,  under the Rule  12b-1 Plan for
such class of shares, as described under "Management of the Fund -- Distributor"
above. In determining whether a CDSC is  payable, and, if so, the amount of  the
fee  or charge, it is assumed that shares  not subject to such fee or charge are
the first redeemed,  followed by  other shares held  for the  longest period  of
time.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

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

REINVESTMENT PRIVILEGE OF EACH CLASS

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

                                       69
<PAGE>
RETIREMENT PLANS

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

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

INITIAL PURCHASES DIRECTLY FROM THE FUND

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

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

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

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

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

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

          Chase Manhattan Bank, N.A.
         One Chase Manhattan Plaza
         New York, NY 10081-1000
         ABA# 021000021
         DDA# 910-2-732907
         Attn: Morgan Stanley Fund, Inc.
         Ref: (Fund name, your account number, your account name)

      Please call the Fund at 1-800-282-4404 prior to wiring funds.

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

      Purchase orders  for shares  of the  Investment Funds  which are  received
     prior  to the regular close of the  NYSE (currently 4:00 p.m. Eastern Time)
     will be executed at the  price computed on the date  of receipt as long  as
     the  Transfer Agent receives payment by check  or in Federal Funds prior to
     the regular close of the NYSE on such day.

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

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

ADDITIONAL INVESTMENTS

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

AUTOMATIC INVESTMENT PLAN

    After  establishing an account with the  Fund, investors may purchase shares
of the  Fund  through  an  Automatic Investment  Plan,  under  which  an  amount
specified  by the shareholder  equal to at  least the applicable  minimum for an
investment amount on a monthly basis will be sent to the Transfer Agent from the
investor's bank for investment  in the Fund. Investors  who are participants  in
the Fund's Systematic Withdrawal Plan

                                       71
<PAGE>
should  not  at the  same  time participate  in  the Automatic  Investment Plan.
Investors interested  in  the  Automatic  Investment  Plan  or  seeking  further
information should contact a Participating Dealer or fund representative. Shares
to  be held  in broker street  name may  not be purchased  through the Automatic
Investment Plan.

OTHER PURCHASE INFORMATION

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

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

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

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

                                       72
<PAGE>
                              REDEMPTION OF SHARES

    You may  withdraw all  or  any portion  of the  amount  in your  account  by
redeeming  shares at any time. Please note  that purchases made by check are not
permitted to  be  redeemed until  the  Fund's  depository bank  has  made  fully
available  for withdrawal the  check amount used to  purchase Fund shares, which
generally will be within  15 days. The  Fund will redeem shares  of each of  the
Investment Funds at its next determined net asset value. A CDSC of 1.00% will be
imposed  on certain Class A  shares of the Investment  Funds that were purchased
without payment of the initial sales charge due to the size of the purchase  and
are  redeemed  within  one year  of  purchase.  A maximum  CDSC  of  5.00% which
decreases in steps to  0% after six  years, will be imposed  on certain Class  B
shares of the Investment Funds that are redeemed within six years of purchase. A
CDSC  of 1.00% will be imposed on certain Class C shares of the Investment Funds
that are redeemed  within one year  of purchase. See  "Purchase of Shares."  The
CDSC will be imposed on the lesser of the current market value or the total cost
of  the shares being  redeemed. In determining  whether either of  such CDSCs is
payable, and, if so,  the amount of  the charge, it is  assumed that shares  not
subject  to such charge are the first redeemed followed by other shares held for
the longest period of time.  On days that both the  NYSE and the Custodian  Bank
are  open for business, the net asset value per share of the Investment Funds is
determined at the  regular close  of trading of  the NYSE  (currently 4:00  p.m.
Eastern  Time).  Shares  of  an  Investment Fund  may  be  redeemed  by  mail or
telephone. Any redemption may be  more or less than  the purchase price of  your
shares  depending on the market  value of the investment  securities held by the
Investment Fund at the time of purchase and of redemption, among other factors.

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

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

BY MAIL

    The  Investment Funds will redeem  their shares at the  net asset value next
determined after your request is received, if your request is received in  "good
order"  by the  Transfer Agent.  If applicable,  a CDSC  will be  deducted. Your
request should be  addressed to Chase  Global Funds Services  Company, P.O.  Box
2798,  Boston,  Massachusetts 02208-2798,  except  that deliveries  by overnight
courier should be addressed to Morgan Stanley Fund, Inc. c/o Chase Global  Funds
Services Company, 73 Tremont Street, Boston, Massachusetts 02108-3913.

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

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

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

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

                                       73
<PAGE>
    Shareholders who are uncertain of requirements for redemption should consult
with their Participating Dealers or with a Fund representative.

BY TELEPHONE

    Unless you have elected on the New Account Application or on a separate form
supplied by  the Transfer  Agent not  to utilize  the telephone  redemption  and
exchange  privileges, you or your Participating  Dealer can request a redemption
of your shares  by calling the  Fund and requesting  the redemption proceeds  be
mailed  to  you  or  wired  to  your bank.  Please  contact  one  of  the Fund's
representatives for further details. In times of drastic market conditions,  the
telephone  redemption option  may be difficult  to implement.  If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier,  and it  will be  implemented  at the  net asset  value  next
determined  after it is received minus the CDSC, if any. The Fund and the Fund's
Transfer Agent will  employ reasonable procedures  to confirm that  instructions
communicated  by telephone are  genuine. These procedures  include requiring the
investor to provide certain personal  identification information at the time  an
account  is  opened  and  prior  to  effecting  each  transaction  requested  by
telephone. In addition, all telephone transaction requests will be recorded  and
investors  may be required to provide additional telecopied written instructions
of such transaction requests. The Fund or the Transfer Agent may be  responsible
for   losses,  liabilities,  costs   or  expenses  for   acting  upon  telephone
transactions if procedures are  not followed to  confirm that such  transactions
are genuine.

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

    The  purchase of Class A shares of an Investment Fund while participating in
a systematic withdrawal plan ordinarily will be disadvantageous to the  investor
because  the investor will be paying a sales charge on the purchase of shares at
the same time that the  investor is redeeming shares  upon which a sales  charge
may already

                                       74
<PAGE>
have  been paid. The purchase of certain Class  B shares or Class C shares of an
Investment Fund while  participating in  the Systematic Withdrawal  Plan may  be
disadvantageous because the new shares will be subject to up to a 5.00% CDSC for
up  to  six years  after purchase,  or a  1.00%  CDSC for  the first  year after
purchase, respectively. Therefore, the Fund will not knowingly permit additional
investments of less than $2,000 in an Investment Fund if the investor is at  the
same  time making  systematic withdrawals.  The right  is reserved  to amend the
Systematic Withdrawal Plan on thirty days' notice. The plan may be terminated at
any time by the investor or the Fund.

    The CDSC on Class  B shares is waived  for withdrawals under the  Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12%   annually,  of  a  shareholder's  investment   in,  and  any  dividends  or
distributions on, Class B shares of a Fund at the time the Systematic Withdrawal
Plan commences, provided that the shareholder  elects to have all dividends  and
distributions  on the shareholder's  Class B shares  automatically reinvested in
additional Class B shares. Under this CDSC waiver policy, amounts withdrawn each
month will be  paid by  redeeming first  Class B shares  not subject  to a  CDSC
because  the shares were  purchased by the reinvestment  of dividends or capital
gains distributions, the  CDSC period has  elapsed or some  other waiver of  the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
enough  such shares are available, Class B shares having a CDSC will be redeemed
next, beginning with such shares held for the longest period of time (having the
lowest CDSC payable upon  redemption) and continuing with  shares held the  next
longest  period  of time  until  shares held  the  shortest period  of  time are
redeemed. Under  this  policy,  the least  amount  of  CDSC will  be  waived  by
withdrawals under the Systematic Withdrawal Plan.

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

FURTHER REDEMPTION INFORMATION

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

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

                                       75
<PAGE>
    Due  to the relatively  high cost of maintaining  smaller accounts, the Fund
reserves the right  to redeem shares  in any account  invested in an  Investment
Fund  having a  value of less  than $1,000.  The Fund, however,  will not redeem
shares based solely upon market  reductions in net asset  value. If at any  time
your total investment does not equal or exceed the stated minimum value, you may
be  notified of this fact  and you will be  allowed at least 60  days to make an
additional investment before the redemption is processed.

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

                              SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

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

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

    CLASS A SHARES.  As described above  and as permitted pursuant to any  rule,
regulation or order promulgated by the SEC, shareholders of Investment Funds may
tender  their Class A shares of any Investment Fund for exchange into the number
of Class A shares of another Investment Fund (including fractions thereof) which

                                       76
<PAGE>
have a value equal to the  total redemption proceeds of shares tendered  divided
by  the net asset value per share  next determined after such order is received.
Class A shares  purchased pursuant  to such exchange  will not  be assessed  the
initial sales charges described above or any other charge at purchase.

    CLASS  B SHARES.  As described above  and as permitted pursuant to any rule,
regulation or order promulgated by the SEC, shareholders of Investment Funds may
tender their Class B shares of any Investment Fund for exchange into the  number
of Class B shares of another Investment Fund (including fractions thereof) which
have  a value equal to the total  redemption proceeds of shares tendered divided
by the net asset value per share  next determined after such order is  received.
Class  B shares redeemed pursuant to such exchange will not be assessed the CDSC
described above or any other charge at purchase.

    CLASS C SHARES.  As described above  and as permitted pursuant to any  rule,
regulation or order promulgated by the SEC, shareholders of Investment Funds may
tender  their Class C shares of any Investment Fund for exchange into the number
of Class C shares of another Investment Fund (including fractions thereof) which
have a value equal to the  total redemption proceeds of shares tendered  divided
by  the net asset value per share  next determined after such order is received.
Class C shares redeemed pursuant to such exchange will not be assessed the  CDSC
described above or any other charge at purchase.

    Morgan Stanley will tender the shares offered for exchange for redemption by
the  Fund  and  will use  the  proceeds  to purchase  shares  of  the designated
Investment Fund on the shareholder's behalf. Under normal circumstances,  Morgan
Stanley will use the proceeds from shares redeemed on any day to purchase shares
on the same Business Day.

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

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

BY MAIL

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

BY TELEPHONE

    When exchanging shares by  telephone, have ready the  name and your  account
number of the Investment Fund, the name of the Investment Fund and class of such
Fund,  if applicable, from which  and into which you  intend to exchange shares,
your Social  Security number  or  Tax I.D.  number,  and your  account  address.
Requests  for telephone exchanges received prior to 4:00 p.m. (Eastern Time) are
processed at the close of business that same day based on the net asset value of
the applicable Investment Funds at such time. Requests received after 4:00  p.m.
(Eastern  Time) are processed the next Business Day based on the net asset value
determined at the close  of business on  such day. For shares  that are held  in
broker street name, you cannot request exchange by

                                       77
<PAGE>
telephone  or by  mail; such  shares may  be exchanged  only by  contacting your
Participating Dealer. For  additional information  regarding responsibility  for
the  authenticity of  telephoned instructions, see  "Redemption of  Shares -- By
Telephone" above.

TRANSFER OF REGISTRATION

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

                              VALUATION OF SHARES

    The net  asset value  per share  of each  Investment Fund  is determined  by
dividing  the total fair  market value of the  Investment Fund's investments and
other assets, less all liabilities, by the total number of outstanding shares of
the Investment Fund. Net asset value is calculated separately for each class  of
the  Investment Funds.  Net asset  value per  share of  the Investment  Funds is
determined as of the regular close of the NYSE on each day that the NYSE is open
for business. Securities listed on a United States securities exchange for which
market quotations are available are valued at the last quoted sale price on  the
day  the valuation is made. Price information on listed securities is taken from
the exchange where  the security  is primarily  traded. Securities  listed on  a
foreign  exchange are  valued at  their closing  price. Unlisted  securities and
listed securities not traded on the  valuation date for which market  quotations
are not readily available are valued at a price within a range not exceeding the
current  asked price nor  less than the  current bid price.  The current bid and
asked prices are  determined either based  on the average  bid and asked  prices
quoted  on such  valuation date  by two  reputable brokers  or as  provided by a
reliable pricing service.

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

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

                                       78
<PAGE>
    The value of other assets and securities for which no quotations are readily
available (including  restricted  and  unlisted foreign  securities)  and  those
securities  for which it is inappropriate to determine prices in accordance with
the above procedures are  determined in good faith  at fair value using  methods
determined  by the  Board of  Directors. For  purposes of  calculating net asset
value per  share, all  assets  and liabilities  initially expressed  in  foreign
currencies  will be converted into U.S. Dollars at the mean of the bid price and
asked price of  such currencies against  the U.S.  Dollar as quoted  by a  major
bank.

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

                            PERFORMANCE INFORMATION

    The  Fund may  from time  to time advertise  total return  of the Investment
Funds. THESE FIGURES ARE  BASED ON HISTORICAL EARNINGS  AND ARE NOT INTENDED  TO
INDICATE  FUTURE PERFORMANCE. The "total return"  shows what an investment in an
Investment Fund would have earned over a specified period of time (such as  one,
three,  five or ten years)  assuming that all distributions  and dividends by an
Investment Fund were  reinvested on  the reinvestment dates  during the  period.
Total  return does not take into account  any federal or state income taxes that
may be payable upon redemption by shareholders subject to tax. The Fund may also
include comparative  performance  information  in advertising  or  marketing  an
Investment  Fund's shares.  Such performance  information may  include data from
Lipper Analytical Services, Inc. and Morgan Stanley Capital International.

    From time to time  the Global Fixed Income,  American Value, Worldwide  High
Income  and Growth  and Income  Funds may  advertise "yield."  Yield figures are
based on  historical  performance  and  are  not  intended  to  indicate  future
performance. The "yield" of such Investment Funds refers to the income generated
by an investment in the Investment Funds over a 30-day period (which period will
be  stated in  the advertisement). The  30-day yield is  further described under
"Performance Information" in the Statement  of Additional Information. The  Fund
may  also use comparative performance information from time to time in marketing
Fund shares,  including  data  from  Lipper  Analytical  Services,  Inc.  and/or
Donoghue's Money Fund Report.

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

                          DIVIDENDS AND DISTRIBUTIONS

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

                                       79
<PAGE>
    Each  of the Global Equity Allocation, Asian Growth, Emerging Markets, Latin
American and European Equity  Funds expects to  distribute substantially all  of
its  net investment income in the form  of annual dividends. Net realized gains,
if any, after  reduction for any  available tax loss  carryforward, may also  be
distributed annually.

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

    Each  of the  American Value Fund,  Aggressive Equity and  Growth and Income
Funds expects to distribute  substantially all of its  net investment income  in
the form of quarterly dividends. Net realized gains, if any, will be distributed
annually.  Confirmations  of  the purchase  of  shares of  each  Investment Fund
through the  automatic  reinvestment  of  income  dividends  and  capital  gains
distributions  will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act  of  1934, as  amended,  on  the next  quarterly  client  statement
following such purchase of shares. Consequently, confirmations of such purchases
will  not be  provided at  the time  of completion  of such  purchases, as might
otherwise be required by Rule 10b-10.

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

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

                                     TAXES

TAX STATUS OF THE INVESTMENT FUND

    The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or  administrative  action.  See  also  the tax  sections  in  the  Statement of
Additional Information.

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

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

                                       80
<PAGE>
    Each  Investment  Fund  intends to  qualify  for the  special  tax treatment
afforded "regulated investment  companies" ("RICs")  under Subchapter  M of  the
Code  so that it will be relieved of federal  income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which is distributed to its shareholders.

TAX STATUS OF DISTRIBUTIONS

    Each Investment Fund  distributes substantially  all of  its net  investment
income  (including,  for  this purpose,  net  short-term capital  gain),  to its
shareholders. Dividends  paid by  an  Investment Fund  from its  net  investment
income  will be taxable to the shareholders  of such Investment Fund as ordinary
income, whether received in cash or in additional shares, if the shareholder  is
subject  to tax. Such  dividends paid by  an Investment Fund  generally will not
qualify for the dividends-received deduction to corporations.

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

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

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

    A sale, exchange or  redemption of shares  held as a  capital asset will  be
capital  gain or  loss and  such gain  or loss  will be  a taxable  event to the
shareholder.

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

                              GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

    The  Fund was organized  as a Maryland  corporation on August  14, 1992. The
Amended Articles  of Incorporation  currently permit  the Fund  to issue  13.375
billion  shares of  common stock,  par value  $.001 per  share. Pursuant  to the
Fund's By-Laws, the  Board of Directors  may increase the  number of shares  the
Fund  is authorized  to issue  without the approval  of the  shareholders of the
Fund. The Board of Directors has the  power to designate one or more classes  of
shares  of common stock and to classify  and reclassify any unissued shares with
respect to such classes. The current Class C shares of the Investment Funds were
named Class B shares  until May 1,  1995 when such shares  were renamed Class  C
shares and thereafter new Class B shares were created.

                                       81
<PAGE>
    The  shares  of  the Investment  Funds,  when  issued, will  be  fully paid,
nonassessable, fully transferable and  redeemable at the  option of the  holder.
The  shares have no preference as to conversion, exchange, dividends, retirement
or other features and  have no preemptive rights.  The shares of the  Investment
Funds  have non-cumulative voting  rights, which means that  the holders of more
than 50% of the shares  voting for the election of  Directors can elect 100%  of
the  Directors if  they choose  to do so.  Under Maryland  law, the  Fund is not
required to hold an annual meeting of its shareholders unless required to do  so
under  the 1940  Act. A  Director may  be removed  by shareholders  at a special
meeting called upon written request of  shareholders owning at least 10% of  the
outstanding shares of the Fund. Any person or organization owning 25% or more of
the  outstanding shares of an  Investment Fund may be  presumed to "control" (as
that term is defined in the 1940  Act) such Investment Fund. As of December  18,
1995, The Morgan Stanley Group, Inc., 1221 Avenue of the Americas, New York, New
York  10020, was  presumed to "control"  the Class A  and Class C  shares of the
Global Fixed Income  Fund; Principal  Financial Customer, FBO  Mike A.  LePrino,
P.O.  Box 508, Dallas, Texas 75221, was presumed to "control" the Class B shares
of the Latin  American Equity  Fund; and The  Morgan Stanley  Group, Inc.,  1221
Avenue  of the Americas, New York, New York 10020, was presumed to "control" the
Class C shares of the American Value  Fund based solely on its ownership of  25%
or more of the outstanding voting shares of such funds.

REPORTS TO SHAREHOLDERS

    The  Fund will send to its  shareholders annual and 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

    As  of September 1,  1995, domestic securities  and cash are  held by Chase,
which replaced U.S.  Trust, as the  Fund's domestic custodian.  Chase is not  an
affiliate  of  the Adviser  or the  Distributor.  Morgan Stanley  Trust Company,
Brooklyn, New York ("Morgan  Stanley Trust"), acts as  the Fund's custodian  for
foreign assets held outside the United States and employs subcustodians who were
approved  by the Directors of the Fund in accordance with regulations of the SEC
for the purpose of providing custodial services for such assets. Morgan  Stanley
Trust  may also hold certain domestic assets  for the Fund. Morgan Stanley Trust
is an affiliate of the Adviser and the Distributor. For more information on  the
custodians,  see "General Information --  Custody Arrangements" in the Statement
of Additional Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

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

INDEPENDENT ACCOUNTANTS

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

                                       82
<PAGE>
                                   APPENDIX A
                     DESCRIPTION OF CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The  minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the  minimum amounts are $250 and $50,  respectively.
Attach a check payable to MORGAN STANLEY FUND, INC.--Investment Fund name.
<TABLE>
<S>                                            <C>              <C>         <C>              <C>         <C>              <C>
Morgan Stanley Global Equity                   Class A (2600)   $           Class B (2625)   $           Class C (2650)   $
 Allocation Fund                                                ----------                   ----------                   ----------
Morgan Stanley Global Fixed                    Class A (2601)   $           Class B (2626)   $           Class C (2651)   $
 Income Fund                                                    ----------                   ----------                   ----------
Morgan Stanley Asian Growth                    Class A (2602)   $           Class B (2627)   $           Class C (2652)   $
 Fund                                                           ----------                   ----------                   ----------
Morgan Stanley Emerging                        Class A (2605)   $           Class B (2630)   $           Class C (2655)   $
 Markets Fund                                                   ----------                   ----------                   ----------
Morgan Stanley Latin American                  Class A (2609)   $           Class B (2633)   $           Class C (2659)   $
 Fund                                                           ----------                   ----------                   ----------
Morgan Stanley American Value                  Class A (2603)   $           Class B (2628)   $           Class C (2653)   $
 Fund                                                           ----------                   ----------                   ----------
Morgan Stanley Aggressive                      Class A (2610)   $           Class B (2634)   $           Class C (2660)   $
 Equity Fund                                                    ----------                   ----------                   ----------
Morgan Stanley Worldwide High                  Class A (2604)   $           Class B (2629)   $           Class C (2654)   $
 Income Fund                                                    ----------                   ----------                   ----------
                                                                          Total
                                                                          Initial
- -----------NOTE: IF INVESTING BY WIRE, YOU      A.  By Mail: Enclosed is  Investment: $
MUST OBTAIN A BANK WIRE CONTROL NUMBER. TO DO   a check in the amount of
SO, PLEASE CALL 800-282-4404.                   $ payable to Morgan
                                                Stanley Fund, Inc.
                                                B.  By Wire: A bank wire
                                                in the amount of $has
                                                been sent to Morgan
                                                Stanley Fund, Inc.
                                                Bankfrom         Name of      Wire
                                                Control
                                                Number

<CAPTION>
MUST OBTAIN A BANK WIRE CONTROL NUMBER. TO DO
SO, PLEASE CALL 800-282-4404.
</TABLE>

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

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

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

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

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

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

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

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

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

LIST OF OTHER ACCOUNTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
Fund Name

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY

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

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

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

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

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

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

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

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

                               TABLE OF CONTENTS

<TABLE>
<S>                                                <C>
                                                      PAGE
                                                      -----
Fund Expenses....................................           2
Financial Highlights.............................           9
Prospectus Summary...............................          17
Investment Objectives and Policies...............          20
Additional Investment Information................          43
Investment Limitations...........................          55
Management of the Fund...........................          57
Portfolio Transactions...........................          63
Purchase of Shares...............................          65
Redemption of Shares.............................          73
Shareholder Services.............................          76
Valuation of Shares..............................          78
Performance Information..........................          79
Dividends and Distributions......................          79
Taxes............................................          80
General Information..............................          81
Appendix A.......................................         A-1
New Account Application
</TABLE>

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

                               PORTFOLIOS OF THE

                                 MORGAN STANLEY
                                   FUND, INC.

                                  COMMON STOCK
                               ($.001 PAR VALUE)
                                 --------------
                                   PROSPECTUS
                                 --------------

                               INVESTMENT ADVISER

                                 MORGAN STANLEY
                             ASSET MANAGEMENT INC.

                                  DISTRIBUTOR

                              MORGAN STANLEY & CO.

                                  INCORPORATED

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


                            MORGAN STANLEY FUND, INC.
                       STATEMENT OF ADDITIONAL INFORMATION

     Morgan Stanley Fund, Inc. (the "Fund") is an open-end management investment
company. The Fund currently consists of eleven diversified and non-diversified
investment portfolios designed to offer a range of investment choices. The Fund
is designed to provide clients with attractive alternatives for meeting their
investment needs. This Statement of Additional Information ("SAI") addresses
information of the Fund applicable to the Class A shares, Class B shares and
Class C shares of the ten investment portfolios listed below (each, an
"Investment Fund"). An eleventh investment portfolio, the Morgan Stanley Money
Market Fund, which is not currently offering shares, is not described in this
SAI.

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

                                 1-800-282-4404

                                TABLE OF CONTENTS

                                                                            PAGE
- --------------------------------------------------------------------------------

Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Tax Treatment of Forward Currency Contracts and Exchange
  Rate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .16
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48


Statement of Additional Information dated January 2, 1996, relating to the
Prospectus dated  January 2, 1996 for:

     Morgan Stanley Global Equity Allocation Fund
     Morgan Stanley Global Fixed Income Fund
     Morgan Stanley Asian Growth Fund
     Morgan Stanley Emerging Markets Fund
     Morgan Stanley Latin American Fund
     Morgan Stanley European Equity Fund
     Morgan Stanley American Value Fund
     Morgan Stanley Aggressive Equity Fund
     Morgan Stanley Worldwide High Income Fund
     Morgan Stanley Growth and Income Fund


<PAGE>

                       INVESTMENT OBJECTIVES AND POLICIES

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

EQUITY-LINKED SECURITIES

     The 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 Investment Fund may invest in the
securities described below or other similar equity-linked securities.

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

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

     The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-marked yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based on
the price of underlying common stock.  If the common stock is trading at a price
that is at or below the purchase price of the LYONs plus accrued original issue
discount, the Investment Fund receives only the


                                        2
<PAGE>

lower-than-market yield, assuming the LYONs are not in default.  If the common
stock is trading at a price that is above the purchased price of the LYONs plus
accrued original issue discount, the Investment Fund will receive an amount
above the lower-than-market yield on the LYONs, based on how well the underlying
common stock does.  LYONs also present risks based on payment expectations.  If
a LYONs issuer redeems the LYONs, the Investment Fund may have to replace the
LYONs with a lower yielding security, resulting in a decreased return for
investors.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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

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

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

     Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Investment Fund will thereby be served. Except in circumstances where
segregated accounts are not required by the 1940 Act and the rules adopted


                                        3
<PAGE>

thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
liquid, high-grade debt securities into a segregated account of an Investment
Fund in an amount equal to the value of such Investment Fund's total assets
committed to the consummation of forward contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will be at least equal to the amount of such Investment Fund's
commitments with respect to such contracts.

     The Investment Funds generally will not enter into a forward contract with
a term of greater than one year. At the maturity of a forward contract, an
Investment Fund may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency.

     It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for an Investment Fund to purchase additional foreign currency
on the spot market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency that such Investment
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency.

     If an Investment Fund retains the portfolio security and engages in an
offsetting transaction, such Investment Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in forward contract
prices. Should forward prices decline during the period between an Investment
Fund entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, such Investment Fund will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, such Investment Fund would
suffer a loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.

     The Investment Funds are not required to enter into such transactions with
regard to their foreign currency-denominated securities. It also should be
realized that this method of protecting the value of portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.

FUTURES CONTRACTS

     The Emerging Markets, Latin American, European Equity, 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.  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


                                        4
<PAGE>

or taking of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an identical contract to
terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold.

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

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

     After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Investment
Fund expects to earn interest income on its margin deposits.

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

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


                                        5
<PAGE>

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

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

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

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

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

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

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


                                        6
<PAGE>

occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

GLOBAL INVESTING

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

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

LOAN PARTICIPATIONS AND ASSIGNMENTS

     The Worldwide High Income Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
debt obligations and one or more financial institutions ("Lenders").  The
Investment Fund's investments in Loans are expected in most instances to be in
the form of participations in Loans ("Participations") and assignments of all or
a portion of Loans ("Assignments") from third parties.  The Investment Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. In the event of the
insolvency of the Lender selling a Participation, the Investment Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. Certain Participations may be structured in
a manner designed to avoid purchasers of the Participation being subject to the
credit risk of the Lender with respect to the Participation, but even under such
a structure, in the event of the Lender's insolvency, the Lender's servicing of
the Participation may be delayed and the assignability of the Participation
impaired.  The Investment Fund will acquire a Participation only if the Lender
interpositioned between the Investment Fund and the borrower is determined by
the Adviser to be creditworthy.

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

MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX

     The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of United States and
non-United States issuers. The Adviser determines country allocations for the
Investment Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Investment Fund will invest
in the United States and industrialized countries throughout the world that
comprise


                                        7
<PAGE>

the Morgan Stanley Capital International World Index (the "World Index"). The
World Index is one of seven International Indices, twenty National Indices and
thirty-eight International Industry Indices making up the Morgan Stanley Capital
International Indices.

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

OPTIONS ON FOREIGN CURRENCIES

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

OPTIONS TRANSACTIONS

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

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

PORTFOLIO TURNOVER

     It is anticipated that the annual portfolio turnover rate for each of
the Investment Funds, except the Growth and Income 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 each of the Investment Funds. In addition to portfolio trading costs,
higher rates of portfolio turnover may result in the realization of capital
gains, See "Taxes" in the Prospectus for more information on taxation. The
portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value
of the Investment Fund for the year, excluding U.S. Government securities and
securities with maturities of one year or less.  The portfolio turnover rate
for a year is calculated by dividing the lesser of sales or the average
monthly value of the Investment Fund's portfolio purchases of portfolio
securities during that year by securities, excluding money market
instruments.  The rate of portfolio turnover will not be a limiting factor
when the Investment Fund deems it appropriate to purchase or sell securities
for the portfolio.  However, the U.S. federal tax requirement that the
Investment Fund derive less than 30% of its gross income from the sale or
disposition of securities held less than three months may limit the
Investment Fund's ability to dispose of its securities. See "Federal Income

                                        8
<PAGE>

Tax." The tables set forth in the Prospectus under "Financial Highlights"
present each of the Investment Funds historical portfolio turnover ratios.

SECURITIES LENDING

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

     At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.

                               FEDERAL INCOME TAX

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

     Each Investment Fund is generally treated as a separate corporation for
federal income tax purposes, and thus the provisions of the Code generally will
be applied to each Investment Fund separately, rather than to the Fund as a
whole. Each Investment Fund intends to qualify and elect to be treated for each
taxable year as a regulated investment company ("RIC") under subchapter M of the
Code.

     The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Legislation and administrative changes or court decisions may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.



                                        9
<PAGE>

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

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

     If an Investment Fund fails to qualify as a RIC for any taxable year, it
will be taxable at regular corporate rates. In such case, distributions
(including capital gain distributions) will be taxable as ordinary dividends to
the extent of the Investment Fund's current and accumulated earnings and profits
and such distributions generally will be eligible for the corporate dividends
received deductions.

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

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

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


                                       10
<PAGE>

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

FOREIGN INCOME TAX

     It is expected that each Investment Fund will be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, and the Investment Fund may be subject to foreign income or other
taxes with respect to other income. So long as more than 50% in value of each
Investment Fund's total assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Investment Fund may elect to
treat certain foreign income taxes imposed on it under U.S. federal income tax
law as paid directly by its shareholders. An Investment Fund will make such an
election only if it deems it to be in the best interest of its shareholders and
will notify shareholders in writing each year if it makes an election and of the
amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If an Investment Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Investment Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if they itemize deductions, a deduction for their shares of the foreign
income taxes in computing their federal income tax liability. (No deductions
will be allowed in computing alternative minimum tax liability.)

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

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

                        FEDERAL TAX TREATMENT OF FORWARD
                  CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES

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


                                       11
<PAGE>

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

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

                         TAXES AND FOREIGN SHAREHOLDERS

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

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

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

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

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

                               PURCHASE OF SHARES

     For Class A shares of the Investment Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Investment Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Investment Funds an order received prior to the regular close of the New
York Stock Exchange (the "NYSE") will be executed at the price computed on the
date of receipt; and an order received after the regular close of the NYSE will
be executed at the price computed


                                       12
<PAGE>

on the next day the NYSE is open. The purchase price of shares of the Investment
Funds is based on such price as further described in the Prospectus under
"Purchase of Shares." Class A shares of the Investment Funds purchased without
an initial sales charge that are redeemed within one year of purchase are
subject to a 1.00% contingent deferred sales charge ("CDSC"), certain Class B
shares of the Investment Funds that are redeemed within six years of purchase
are subject to a  CDSC of up to 5.00% and certain Class C shares of the
Investment Funds that are redeemed within one year of purchase are subject to a
1.00% CDSC, as described in the Prospectus under "Purchase of Shares." The
initial sales charge and CDSC are not applicable to shares of any class of any
Investment Fund purchased through the automatic reinvestment of dividends or
distributions paid by any Investment Fund. Shares of the Fund may be purchased
on any day the NYSE is open. The NYSE is closed on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

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

                              REDEMPTION OF SHARES

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

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

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

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

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


                                       13
<PAGE>

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

                             INVESTMENT LIMITATIONS

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

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

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

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

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

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

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

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

     (8)  borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 10%
of the Investment Fund's total assets valued at the lower of market or cost
and an Investment Fund may not purchase additional securities when borrowings
exceed 5% of total assets, except that the Worldwide High Income Fund, Latin
American Fund and Growth and Income Fund may enter into reverse repurchase
agreements in accordance with their investment objectives and policies and
except that each of the Latin American Fund, Aggressive Equity 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;

                                       14
<PAGE>

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

     (10) underwrite the securities of other issuers;

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

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

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

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

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

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

     (17) issue senior securities.

     Each of the Global Fixed Income, Emerging Markets, Latin American and
Aggressive Equity Funds will diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of the
Investment Fund's total assets is represented by cash (including cash items
and receivables), U.S. Government securities, and other securities, with such
other securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Investment
Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities);

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

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

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

                                       15
<PAGE>

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

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

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

                  DETERMINING MATURITIES OF CERTAIN INSTRUMENTS

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

                             MANAGEMENT OF THE FUND

OFFICERS AND DIRECTORS

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


                                       16
<PAGE>

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

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

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



                                       17
<PAGE>

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

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

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

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

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

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


                                       18

<PAGE>

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

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

Frederick B. Whittemore*     Director              Advisory Director of Morgan
1251 Avenue of the                                 65 Stanley & Co.,
Americas                                           Incorporated; Vice-Chariman
30th Flr.                                          and Director of The Brazilian
New York, NY 10020                                 Investment Fund, Inc., The
(65)                                               Latin American Discovery
                                                   Fund, Inc., The Malaysia
                                                   Fund, Inc., Morgan Stanley
                                                   Africa Investment Fund, Inc.,
                                                   Morgan Stanley Asia-Pacific
                                                   Fund, Inc., Morgan Stanley
                                                   Emerging Markets Debt Fund,
                                                   Inc., Morgan Stanley Emerging
                                                   Markets Fund, Inc., Morgan
                                                   Stanley Fund, Inc., Morgan
                                                   Stanley Global Opportunity
                                                   Bond Fund, Inc., Morgan
                                                   Stanley High Yield Fund,
                                                   Inc., Morgan Stanley India
                                                   Investment Fund, Inc., Morgan
                                                   Stanley Institutional Fund,
                                                   Inc., The Pakistan Investment
                                                   Fund, Inc., The PCS Cash
                                                   Fund, Inc., The Thai Fund,
                                                   Inc. and The Turkish
                                                   Investment Fund, Inc.

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


                                       19

<PAGE>

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

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

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


                                       20

<PAGE>

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

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

Karl O. Hartmann             Assistant             Senior Vice President,
73 Tremont Street            Secretary             Secretary and General Counsel
Boston, MA 02108-3913                              of Chase Global Funds
(40)                                               Services Company; Previously
                                                   with Leland, O'Brien,
                                                   Rubinstein Associates, Inc.
                                                   (investments).

James R. Rooney              Treasurer             Assistant Vice President,
73 Tremont Street                                  Chase Global Funds Services
Boston, MA 02108-3913                              Company; Manager of Fund
(37)                                               Administration; Previously
                                                   with Scudder, Stevens &
                                                   Clark, Inc. (investment)
                                                   and Ernst & Young LLP
                                                   (accounting); Treasurer
                                                   of The Brazilian Investment
                                                   Fund, Inc., The Latin
                                                   American Discovery
                                                   Fund, Inc., The Malaysia
                                                   Fund, Inc., Morgan Stanley
                                                   Africa Investment Fund, Inc.,
                                                   Morgan Stanley Asia-Pacific
                                                   Fund, Inc., Morgan Stanley
                                                   Emerging Markets Debt Fund,
                                                   Inc., Morgan Stanley Emerging
                                                   Markets Fund, Inc., Morgan
                                                   Stanley Fund, Inc., Morgan
                                                   Stanley Global Opportunity
                                                   Bond Fund, Inc., Morgan
                                                   Stanley High Yield Fund,
                                                   Inc., Morgan Stanley India
                                                   Investment Fund, Inc., Morgan
                                                   Stanley Institutional Fund,
                                                   Inc., The Pakistan Investment
                                                   Fund, Inc., The Thai Fund,
                                                   Inc. and The Turkish
                                                   Investment Fund, Inc.


                                       21

<PAGE>

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

Joanna Haigney               Assistant             Supervisor of Fund
73 Tremont Street            Treasurer             Administration and
Boston, MA 02108-3913                              Compliance, Chase Global
(29)                                               Funds Services Company;
                                                   Previously with Coopers &
                                                   Lybrand LLP; Assistant
                                                   Treasurer of The Brazilian
                                                   Investment Fund, Inc., The
                                                   Latin American Discovery
                                                   Fund, Inc., The Malaysia
                                                   Fund, Inc., Morgan Stanley
                                                   Africa Investment Fund, Inc.,
                                                   Morgan Stanley Asia-Pacific
                                                   Fund, Inc., Morgan Stanley
                                                   Emerging Markets Debt Fund,
                                                   Inc., Morgan Stanley Emerging
                                                   Markets Fund, Inc., Morgan
                                                   Stanley Fund, Inc., Morgan
                                                   Stanley Global Opportunity
                                                   Bond Fund, Inc., Morgan
                                                   Stanley High Yield Fund,
                                                   Inc., Morgan Stanley India
                                                   Investment Fund, Inc., Morgan
                                                   Stanley Institutional Fund,
                                                   Inc., The Pakistan Investment
                                                   Fund, Inc., The Thai Fund,
                                                   Inc. and The Turkish
                                                   Investment Fund, Inc.

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

REMUNERATION OF DIRECTORS AND OFFICERS

     Effective June 28, 1995, the Open-End Fund Complex will pay each of the
nine Directors who is not an "interested person" an annual aggregate fee of
$55,000, plus out-of-pocket expenses. The Open-End Fund Complex will pay each
of the members of the Fund's Audit Committee, which consists of the Fund's
Directors who are not "interested persons" an additional annual aggregate fee
of $10,000 for serving on such a committee, The allocation of such fees will
be among the three funds in the Open-End Fund Complex in direct proportion to
their respective average net assets. For the fiscal period ended June 30,
1995, the Fund paid approximately $77,000 in Directors' fees and expenses.
Directors who are also officers or affiliated persons receive no remuneration
for their services as Directors. The Fund's officers and employees are paid
by the Adviser or its agents. As of December 18, 1995, to Fund management's
knowledge, the Directors and officers of the Fund, as a group, owned less
than 1% of the outstanding common stock of each Investment Fund of the Fund.
The following table shows aggregate compensation paid to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, for the fiscal year
from July 1, 1994 to June 30, 1995.

                                       22
<PAGE>

                               COMPENSATION TABLE

- --------------------------------------------------------------------------------
(1)                       (2)           (3)         (4)         (5)
Name of                   Aggregate     Pension or  Estimated   Total
Person,                   Compensation  Retirement  Annual      Compensation
Position                  From          Benefits    Benefits    From Registrant
                          Registrant    Accrued     Upon        and Fund
                                        as Part of  Retirement  Complex
                                        Fund                    Paid to
                                        Expenses                Directors

- --------------------------------------------------------------------------------
Barton M. Biggs*                $0          $0         $0             $0
Director and Chairman of
the Board

John D. Barret, II,*            $0          $0         $0             $0
Director

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

Gerard E. Jones,*             $8,700        $0         $0          $93,977
Director

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

Andrew McNally IV,*             $0          $0         $0          $13,630
Director

Samuel T. Reeves,*              $0          $0         $0             $0
Director

Fergus Reid,*                   $0          $0         $0             $0
Director

Frederick O. Robertshaw,**   $11,152+       $0         $0          $32,002
Director

Frederick B. Whittemore,**   $21,254+       $0         $0          $69,904
Director (Chairman of the
Board until June 28, 1995)
- -------------------------------------------------------------------------------

*Elected (Director) as of June 28, 1995.

**Reelected as of June 28, 1995.

***Resigned as of June 28, 1995.

+The total amount of deferred compensation for Frederick O. Robertshaw and
Frederick B. Whittemore was $3,652 and $13,754, respectively.

INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS

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


                                       23
<PAGE>

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

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

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

     As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with Morgan
Stanley's long-standing tradition of integrity and prudence, puts MSAM in a
unique position to offer investment management services. As compensation for
advisory services for the fiscal years ended June 30, 1993, June 30, 1994 and
June 30, 1995, the Adviser earned fees of approximately $126,000 (and
voluntarily waived all such fees), $2,322,000 (and voluntarily waived a portion
of such fees equal to approximately $1,026,000) and $4,571,000 (and voluntarily
waived a portion of such fees equal to approximately $868,000), respectively.

     Pursuant to the Administration Agreement between the Adviser and the Fund,
the Adviser provides administrative services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.25% of the average daily net assets of each Investment
Fund. For the fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995,
the Fund paid administrative fees to MSAM of approximately $58,000, $852,000 and
$1,154,000, respectively.

     Under an Agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase," successor in interest to United States Trust Company of New York),
Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds Service
Company, a Chase subsidiary) provides certain administrative services to the
Fund. CGFSC provides operational and administrative services to investment
companies with approximately $61 billion in assets and having approximately
217,452 shareholder accounts as of  September 30, 1995. CGFSC's business address
is 73 Tremont Street, Boston, Massachusetts 02108-3913.


DISTRIBUTION OF FUND SHARES

     Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Group, serves as the Distributor of the Fund's shares pursuant
to a Distribution Agreement for the Fund and a Plan of Distribution for each
class of the Investment Funds pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan" and collectively, the "Plans").  Under each Plan the
Distributor is entitled to receive from these Investment Funds a distribution
fee, which is accrued daily and paid quarterly, of up to 0.25% for the Class
A shares of each of the Investment Funds, the Class B shares and Class C
shares of each of the Investment Funds, on an annualized basis, of the
average daily net assets of such Investment Fund or classes. The Distributor
expects to allocate most of its fee to investment dealers, banks or financial
service firms that provide distribution, administrative or shareholder
services ("Participating Dealer").  The actual amount of such compensation is
agreed upon by the Fund's Board of Directors and by the Distributor.


                                       24
<PAGE>

The Distributor may, in its discretion, voluntarily waive from time to time all
or any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.

     The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do not
obligate the Investment Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the Plan.
Thus, under each Plan, even if the Distributor's actual expenses exceed the fee
payable to it thereunder at any given time, the Investment Funds will not be
obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee. The Plans for the Class A, Class B and Class C shares were most
recently approved by the Fund's Board of Directors, including those directors
who are not "interested persons" of the Fund as that term is defined in the 1940
Act and who have no direct or indirect financial interest in the operation of a
Plan or in any agreements related thereto, on September 20, 1995.

     As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1995, the Distributor received aggregate fees of
approximately $2,697,893 which were attributable approximately as follows:


                                                                  Fiscal Year
                                                                     Ended
                                                                 June 30, 1995
                                                                 -------------

Global Equity Allocation Fund-Class A. . . . . . . . . . . . . .       $97,885
Global Equity Allocation Fund-Class B+ . . . . . . . . . . . . .           N/A
Global Equity Allocation Fund-Class C+ . . . . . . . . . . . . .       366,778
Global Fixed Income Fund-Class A . . . . . . . . . . . . . . . .        24,803
Global Fixed Income Fund-Class B+. . . . . . . . . . . . . . . .           N/A
Global Fixed Income Fund-Class C+. . . . . . . . . . . . . . . .        56,785
Asian Growth Fund-Class A. . . . . . . . . . . . . . . . . . . .       402,870
Asian Growth Fund-Class B+ . . . . . . . . . . . . . . . . . . .           N/A
Asian Growth Fund-Class C+ . . . . . . . . . . . . . . . . . . .     1,314,505
Emerging Markets Fund-Class A* . . . . . . . . . . . . . . . . .        34,453
Emerging Markets Fund-Class B* . . . . . . . . . . . . . . . . .           N/A
Emerging Markets Fund-Class C* . . . . . . . . . . . . . . . . .       110,688
Latin American Fund-Class A* . . . . . . . . . . . . . . . . . .        14,697
Latin American Fund-Class B* . . . . . . . . . . . . . . . . . .           N/A
Latin American Fund-Class C* . . . . . . . . . . . . . . . . . .        28,402
American Value Fund-Class A. . . . . . . . . . . . . . . . . . .        35,886
American Value Fund-Class B+ . . . . . . . . . . . . . . . . . .           N/A
American Value Fund-Class C+ . . . . . . . . . . . . . . . . . .        93,416
Worldwide High Income Fund-Class A . . . . . . . . . . . . . . .        28,283
Worldwide High Income Fund-Class B . . . . . . . . . . . . . . .           N/A
Worldwide High Income Fund-Class C+. . . . . . . . . . . . . . .        88,442

     None of the three classes of the  European Equity and Growth and Income
Funds were in operation in the fiscal year ended June 30, 1995.

- ---------------
*    The Emerging Markets and Latin American Funds commenced operations on July
     6, 1994.

+    The Class B shares listed above were created on May 1, 1995.  The original
     Class B shares were renamed Class C shares, as listed above, on May 1,
     1995. The Class B shares commenced operations on August 1, 1995. Therefore,
     no fees were incurred for the fiscal year ended June 30, 1995.


                                       25
<PAGE>

CODE OF ETHICS

     The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal investing
activities of all employees of the Adviser and, as described below, impose
additional, more onerous, restrictions on the Fund's investment personnel.

     The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

     The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of  December 18, 1995 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:

     GLOBAL FIXED INCOME FUND: The Morgan Stanley Group, Inc. ("The Group"),
1221 Avenue of the Americas, New York, NY 10020, owned 30% of the total
outstanding Class A shares and 53% of the total outstanding Class C shares of
such Investment Fund; Steve M. Barnett, 666 Dundee Road Suite 1704, Northbrook,
IL  60062, owned 10% of the total outstanding Class A shares of such Investment;
Raymond James & Associates Inc., for Elite Account # 50071735, FAO Fredmar Inc.,
P.O. Box 7669, Warwick, RI  02887, owned 22% of the total outstanding Class B
shares of such Investment Fund; Smith Barney Inc., 388 Greenwich Street, New
York, NY  10013, owned 20% of the total outstanding Class B shares of such
Investment Fund; Gerald Schmitz & Gerald Newcomb, Petroleum MKTRS Equip PSP,
2010 Exchange, Oklahoma City, OK  73108, owned 19% of the total outstanding
Class B shares of such Investment Fund and Bernard Tabor IRA Rollover, MSTC
Custodian, 15320 SW 298 Street, Homestead, FL 33033, owned 5% of the total
outstanding Class B shares of such Investment Fund.

     ASIAN GROWTH FUND:  Advest Inc., Mutual Fund Operations, 18th floor, 280
Trumbull Street, Hartford, CT  06103, owned 6% of the total outstanding Class A
shares of such Investment Fund.


                                       26
<PAGE>

     AMERICAN VALUE FUND:  Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY  10020, owned 24% of the total outstanding Class A
shares and 31% of the total outstanding Class C shares of such Investment
Fund; Smith Barney Inc., 388 Greenwich Street, New York, NY  10013, owned 5%
of the total outstanding Class A shares of such Investment Fund; James G.
McMurray, M.D. Profit Sharing Plan, 303 Williams Avenue, Suite 411,
Huntsville, AL 35801, owned 12% of the total outstanding Class B shares of
such Investment Fund and Cuddy Pup I & Thompson Associates Profit Sharing
Plan, C/O Joan Ciufo, 1300 5th Street Ext., Beaver, PA  15009, owned 5% of
the total outstanding Class B shares of such Investment Fund.

     WORLDWIDE HIGH INCOME FUND:  FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO  80217, owned 22% of the total outstanding Class A shares
of such Investment Fund; Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY  10020, owned 13% of the total outstanding Class A
shares and 22% of the total outstanding Class C shares of such Investment
Fund and Charles Schwab & Company Inc., Exclusive Benefit of its Customers,
101 Montgomery Street, San Francisco, CA  94104, owned 11% of the total
outstanding Class A shares of such Investment Fund.

     EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 16% of the
total outstanding Class A shares of such Investment Fund; Crester Bank Trust
Department, Sheltering Arms Foundation, A/C #10091700, P.O. Box 26246,
Richmond, VA 23260, owned 6% of the total outstanding Class A shares of such
Investment Fund; Advest, Inc., 280 Trumbull Street, Hartford, CT 06103, owned
5% of the total outstanding Class A shares and 6% of the total outstanding
Class C shares of such Investment Fund and Central Fidelity Bank Cust., FBO
Obici Foundation, 5th floor, P.O. Box 27602, Richmond, VA  23261, owned 5% of
the total outstanding Class C shares of such Investment Fund.

     LATIN AMERICAN FUND:  Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 15% of
the total outstanding Class A shares of such Investment Fund; FTC & Co. Attn.
Datalynx #190, P.O. Box 173736, Denver, CO 80217, owned 10% of the total
outstanding Class A shares of such Investment Fund; The Group owned 8% of the
total outstanding Class A shares and 17% of the total outstanding Class C
shares of such Investment Fund; Principal Financial Customer FBO Mike A.
LePrino, P.O. Box 508, Dallas, TX 75221, owned 28% of the total outstanding
Class B shares of such Investment Fund; Principal Financial Customer FBO Jon
F. Hrabe, P.O. Box 508, Dallas, Texas 75221, owned 20% of the total
outstanding Class B shares of such Investment Fund; Principal Financial, IRA
Cust FBO Jon F. Hrabe, P.O. Box 215132, Dallas, Texas 75221 owned 11% of the
total outstanding Class B shares of such Investment Fund; Paine Webber for
the benefit of Paine Webber CDN FBO Franklin Mirroff IRA, P.O. Box 3321,
Weehawken, NJ 07087, owned 9% of the total outstanding Class B shares of such
Investment Fund and Prudential Securities FBO J.P. Barger, 600 W. Cummings
Park, Suite 3500, Woburn, MA 01801-6349, owned 11% of the total outstanding
Class C shares of such Investment Fund.

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

                             PORTFOLIO TRANSACTIONS

     The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Investment Fund and directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Investment Fund. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage


                                       27
<PAGE>

services which, in the opinion of the Adviser, are necessary for the achievement
of better execution, provided the Adviser believes this to be in the best
interest of the Fund.

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

     Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Fund's portfolio
brokerage transactions to Morgan Stanley or broker affiliates of Morgan Stanley.
In order for Morgan Stanley or its affiliates to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. Furthermore, the
Directors of the Fund, including a majority of the Directors who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Morgan Stanley
or such affiliates are consistent with the foregoing standard. For the  three
fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995, the Fund paid
brokerage commissions of approximately $2,497, $618,000 and $115,622,
respectively, to the Distributor, an affiliated broker-dealer.  For the fiscal
years ended June 30, 1993, June 30, 1994 and June 30, 1995, commissions paid to
the Distributor represented approximately 6.8%, 30%, and 7%, respectively, of
the total amount of brokerage commissions paid in such period and which were
paid on transactions that represented 8.9%, 21%, and 3%, respectively, of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund during such period.

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

                             PERFORMANCE INFORMATION

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

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


                                       28
<PAGE>

TOTAL RETURN

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

Total return figures are calculated according to the following formula:

               P(1 + T)to the nth power = ERV
where:
    P     =    a hypothetical initial payment of $1,000
    T     =    average annual total return
    n     =    number of years
    ERV   =    ending redeemable value of hypothetical $1,000 payment made at
               the beginning of the 1-, 5-, or 10-year periods at the end of the
               1-, 5-, or 10-year periods (or fractional portion thereof).

     Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Investment
Funds for the one-year period ended June 30, 1995 and for the period from the
inception of each Investment Fund through June 30, 1995 are as follows:

                                    One-Year Period
                                         Ended                  Since
                                     June 30, 1995            Inception
                                    ---------------           ---------

Global Equity Allocation Fund
  (commenced operations on
  January 4, 1993)

     Class A Shares . . . . . . . .      6.69%                 10.79%
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .      5.84%                  9.99%

Global Fixed Income Fund
  (commenced operations on
  January 4, 1993)

     Class A Shares . . . . . . . .      11.41%                 7.92%
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .      10.24%                 7.01%

Asian Growth Fund
  (commenced operations on
  June 23, 1993)

     Class A Shares . . . . . . . .      9.50%                 18.73%
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .      8.71%                 17.93%


                                       29
<PAGE>

American Value Fund
  (commenced operations on
  Oct. 18, 1993)

     Class A Shares . . . . . . . .      15.01%                 7.86%
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .      14.13%                 7.00%

Worldwide High Income Fund
  (commenced operations on
   April 21, 1994)

     Class A Shares . . . . . . . .      6.87%                  8.26%
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .      6.20%                  7.49%

Emerging Markets Fund
  (commenced operations on
  July 6, 1994)

     Class A Shares . . . . . . . .       N/A                 (11.58)%*
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .       N/A                 (12.25)%*

Latin American Fund
  (commenced operations on
  July 6, 1994)

     Class A Shares . . . . . . . .       N/A                 (23.07)%*
     Class B Shares+. . . . . . . .       N/A                    N/A
     Class C Shares+. . . . . . . .       N/A                 (23.83)%*

     The European Equity and Growth and Income Funds had not commenced
operations in the fiscal year ended June 30, 1995.

+    The Class B shares listed above were created on May 1, 1995. The original
     Class B shares were renamed Class C shares, as listed above, on May 1,
     1995. The Class B shares commenced operations on August 1, 1995. Therefore,
     no total return information is available.

*    Not Annualized.

YIELD FOR CERTAIN INVESTMENT FUNDS

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

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

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

     Current yield figures are obtained using the following formula:


                                       30
<PAGE>

Yield = 2[(a - b + 1)to the 6th power - 1]
           -----
            cd


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

     The 30-day yield for the Global Fixed Income Fund as of  June 30, 1995 was
5.19% for Class A shares and  4.69% for Class  C shares. The 30-day yield for
the Worlwide High Income Fund as of June 30, 1995 was 10.55% for Class A shares
and 10.47% for Class C shares.

COMPARISONS

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

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

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

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

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

     (e)  Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.

     (f)  Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.

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

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


                                       31
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

     (s)  Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,
Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal and
Weisenberger Investment Companies Service - publications that rate fund
performance over specified time periods.

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


                                       32
<PAGE>

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

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

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

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

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

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

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

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

     (cc) IFC Global Total Return Composite Index - An unmanaged index of common
stocks and includes 18 developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (net of dividends reinvested).

     (dd) EMBI+ - Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments.  A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.

     (ee) The MSCI Latin America Global Index - is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends.

     In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Investment Funds, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance.


                                       33
<PAGE>

In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.

AMERICAN VALUE FUND

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

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

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

             [THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES
                  GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]

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

                        For Small Cap Value Portfolio:
              Return of 19.5% at risk (standard deviation) of 15.9%

                 For Small Cap Mean Between Value and Growth:
              Return of 15.9% at risk (standard deviation) of 20.6%

                          Small Cap Growth Portfolio:
              Return of 15.6% at risk (standard deviation) of 24.3%

       For S&P 500:  Return of 14.3% at risk (standard deviation) of 14.9%

          Source:  Wilshire Associates style performance data 1978-1994

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

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


                                       34
<PAGE>

capitalization ranges characterized by both indices are consistent with each
other and represent the MSAM/Chicago definition of the small capitalization
universe.

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

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

A graph entitled "Growth of a $10,000 investment on January 1, 1971 through
September 30, 1995"  indicates returns of $10,000 to $710,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1995 on the horizontal axis.  Every sixth quarter is presented instead of
lines covering each quarter.

<TABLE>
<CAPTION>


In Thousands (except last column)

<S>        <C>    <C>     <C>    <C>     <C>    <C>    <C>   <C>     <C>     <C>    <C>     <C>    <C>    <C>    <C>  <C>   <C>

70Q4       72Q2   73Q4    75Q2   76Q4    78Q2   79Q4   81Q2  82Q4    84Q2    85Q4   87Q2    88Q4   90Q2   91Q4   93Q2 94Q4  9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap  $10    $10     $10    $20     $30    $35    $55   $70     $110    $170   $240    $270   $270   $390   $525 $539  $657
Value
$10
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap  10     10      10     15      20     30     45    55      70      100    120     110    135    160    210  $237  $304
10
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap  10     10      10     15      15     15     15    30      35      50     65      65     85     110    130  $130  $169
10
- -----------------------------------------------------------------------------------------------------------------------------------
10 Year    10     10      10     12      15     15     15    30      30      35     40      45     50     60     75   $ 74  $ 85
Govt Bond
10
- -----------------------------------------------------------------------------------------------------------------------------------
T-Bill     10     10      10     12      15     15     20    30      35      35     40      45     50     55     58   $  60 $ 62
10
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

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

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


                                       35
<PAGE>


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

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

THE ASIAN GROWTH POTENTIAL

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

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

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

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

                              ESTIMATED GNP GROWTH
                                    1990-2000

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

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

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


                                       36
<PAGE>

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

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

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

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

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

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

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

                   PRICE EARNINGS/RATIO* AS OF DECEMBER, 1994

               Japan                                      97.3%
               Taiwan (E)                                 36.0
               Philippines                                28.0
               Malaysia                                   24.2
               World                                      23.2
               Korea (E)                                  22.0
               Indonesia                                  20.9
               Thailand                                   20.1


                                       37
<PAGE>

               Singapore                                  19.5
               CFEFxJ(E)                                  19.4
               USA                                        16.9
               Hong Kong                                  13.3

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

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

EMERGING MARKETS' GROWTH POTENTIAL

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

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

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

                        GROWTH - HIGH SAVINGS RATE (1991)

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

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

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


                                       38
<PAGE>

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

                                   Total Population     Middle Classes
                                           (Percent Per Annum)

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

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

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

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

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

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

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

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

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


                                       39
<PAGE>

                          THE CASE FOR EMERGING MARKETS

- --------------------------------------------------------------------------------
            RETURNS   GROWTH       VALUE       UNDER-        DIVERSI-
                                               REPRESEN-     FICATION
                                               TATION
- --------------------------------------------------------------------------------

            Annual    Real                           Foreign
            Returns   GNP     Real                   Inv.
            (1940-    Growth  EPS              Mkt   % of
            1993)     (1994-  Growth   P/E     Cap/  Institutional   Average
                      2000)   (1994)   1994E   GNP   Assets          Correlation

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

Developed   13%       2.5%    5%       26.5x   70%   99.4%           0.51%
Markets

                         SOURCE: MORGAN STANLEY RESEARCH

             THE RETURNS DO NOT REFLECT ANY ASSET-BASED CHARGES FOR
                    INVESTMENT MANAGEMENT OR OTHER EXPENSES.

              ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS.

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

MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS

     Over one-third of Morgan Stanley's 9,200 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.

     At June 30, 1995, MSAM, together with its affiliated asset management
companies, had approximately $52 billion in assets under management and
fiduciary advice, including over $824 million in Latin America markets and over
$3 billion in equities and fixed income in emerging markets, making it one of
the largest investment managers in emerging markets.

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

GROWTH POTENTIAL IN LATIN AMERICA

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

          Old (Protected)                    New (Open)
          ---------------                    ----------
          High import tariffs                Low tariffs
          Regulated exchange rates           Free exchange rates
          Regulated interest rates           Market interest rates
          Investment restrictions            Open foreign investment
          High tax rates                     Competitive tax rates
          Command economy                    Market economy
          Employment priority                Efficiency priority


                                       40
<PAGE>

          Subsidies                          Competitive market prices
          State-owned industry               Privatization
          Deficit spending                   Fiscal austerity
          Capital flight                     Return capital
          High inflation                     Lower inflation

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

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

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

                           EMERGING MARKET LIFE CYCLE

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


                                       41
<PAGE>

- ------------------------------------------------------------------------------
Iran            X
- ------------------------------------------------------------------------------

Source: Morgan Stanley Research

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

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

                                                   Real GDP Growth
                                             1965-93             1993-2000
                                                                 Forecast
          Latin America                        4.3%                 5.0%
          Industrial Countries                 3.1%                 2.5%
          SOURCE: WORLD BANK

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

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

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

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

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

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

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


                                       42
<PAGE>

                                         Price/Earnings Ratio

          Developed Markets*                    28.4X
          Emerging Markets*                     13.9X
          LATIN AMERICA**                       17.2X
          SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX, DEVELOPED
MARKETS BY MSCI WORLD
          *    PROSPECTIVE 1995
          **   TRAILING AS OF DECEMBER 31, 1994

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

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

                               GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS

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

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

DIVIDENDS AND DISTRIBUTIONS

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

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

     As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of an Investment Fund are automatically
reinvested in additional shares of that Investment Fund at net asset value as of
the business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares


                                       43
<PAGE>

at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales charge or CDSC is imposed on shares of any of the
Investment Funds, including the Investment Funds, that are purchased through the
automatic reinvestment of dividends and distributions of an Investment Fund.

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

CUSTODY ARRANGEMENTS

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

                      DESCRIPTION OF SECURITIES AND RATINGS

I.  DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

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

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


                                       44
<PAGE>

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

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

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

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

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

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

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

II.  DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES

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

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


                                       45
<PAGE>

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

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

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

III.  FOREIGN INVESTMENTS

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

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

     Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund and
Worldwide High Income Fund, it is not expected that an Investment Fund or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. However, these foreign withholding taxes may not have
a significant impact on any such Investment Fund because its investment
objective is to seek long-term capital appreciation and any dividend or interest
income should be considered incidental.

IV.  EMERGING COUNTRY EQUITY AND DEBT SECURITIES


                                       46
<PAGE>

     The definition of emerging country equity or debt securities of each of the
Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging Markets,
Latin American, European Equity and Worldwide High Income Funds includes
securities of companies that may have characteristics and business relationships
common to companies in a country or countries other than an emerging country. As
a result, the value of the securities of such companies may reflect economic and
market forces applicable to other countries, as well as to an emerging country.
The Adviser believes, however, that investment in such companies will be
appropriate because the Investment Fund will invest only in those companies
which, in its view, have sufficiently strong exposure to economic and market
forces in an emerging country such that their value will tend to reflect
developments in such emerging country to a greater extent than developments in
another country or countries.  The Investment Fund may invest in companies
organized and located in countries other than an emerging country, including
companies having their entire production facilities outside of an emerging
country, when securities of such companies meet one or more elements of the
Investment Fund's definition of an emerging country debt security and so long as
the Adviser believes at the time of investment that the value of the company's
securities will reflect principally conditions in such emerging country.

     The value of debt securities held by the Investment Fund generally will
vary inversely to changes in prevailing interest rates.  The Investment Fund's
investments in fixed-rated debt securities with longer terms to maturity are
subject to greater volatility than the Investment Fund's investments in shorter-
term obligations.  Debt obligations acquired at a discount are subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which are not subject to such
discount.

     Investments in emerging country government debt securities involve special
risks.  Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt.  As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, the Investment Fund may
have limited legal recourse against the issuer and/or guarantor. Remedies must,
in some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country.  In addition,
no assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign government debt obligations in
the event of default under their commercial bank loan agreements.

     The Investment Fund may invest in certain debt obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan").  Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the over-the-
counter secondary market.  The Investment Fund may purchase Brady Bonds either
in the primary or secondary markets.  The price and yield of Brady Bonds
purchased in the secondary market will reflect the market conditions at the time
of purchase, regardless of the stated face amount and the stated interest rate.
With respect to Brady Bonds with no or limited collateralization, the Investment
Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.

     U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals


                                       47
<PAGE>

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

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

                              FINANCIAL STATEMENTS

     The Fund's audited financial statements and notes thereto for the fiscal
year ended June 30, 1995 , and the report thereon of Price Waterhouse LLP,
independent accountants, which appear in the June 30, 1995 Annual Report to
Shareholders  are on the following pages.  The European Equity Fund,
Aggressive Equity Fund and Growth and Income Fund were not operational as of
the date of the Annual Report.

                                       48
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

COMMON STOCKS (96.9%)
AUSTRALIA (4.2%)
  21,500  Amcor Ltd. .......................................  $   159
   9,500  Ampolex Ltd. .....................................       22
  17,500  Australian National Industries Ltd. ..............       15
  40,100  Boral Ltd. .......................................      100
   7,400  Brambles Industries Ltd. .........................       70
  56,401  Broken Hill Proprietary Ltd. .....................      694
  18,472  Burns, Philip & Co. Ltd. .........................       39
  10,876  Coca-Cola Amatil Ltd. ............................       67
  47,800  Coles Myer Ltd. ..................................      150
  18,300  CRA Ltd. .........................................      249
  32,600  CSR Ltd. .........................................      102
 103,500  Foster Brewing Group Ltd. ........................       92
  23,930  General Property Trust ...........................       40
  43,400  Goodman Fielder Ltd. .............................       36
  11,800  ICI Australia Ltd. ...............................       77
   7,548  Lend Lease Corp. Ltd. ............................       96
  43,712  MIM Holdings Ltd. ................................       54
  43,500  National Australia Bank Ltd. .....................      344
  +8,700  Newcrest Mining Ltd. .............................       37
  53,795  News Corp. Ltd. ..................................      300
  23,400  North Broken Hill Peko Ltd. ......................       57
  35,300  Pacific Dunlop Ltd. ..............................       74
  30,400  Pioneer International Ltd. .......................       76
  10,486  Renison Goldfields Consolidated Ltd. .............       33
   2,432  Renison Goldfields Consolidated Ltd. (New) .......        6
  26,600  Santos Ltd. ......................................       64
  20,700  Southcorp Holdings Ltd. ..........................       41
 +12,700  TNT Ltd. .........................................       17
  29,700  Western Mining Corp. .............................      163
  60,000  Westpac Banking Corp. Ltd. .......................      217
                                                              -------
                                                                3,491
                                                              -------
BELGIUM (2.0%)
      70  Bekaert S.A. .....................................       55
     125  CBR ..............................................       51
   1,600  Delhaize Freres et Cie 'Le Lion' S.A. ............       72
   1,350  Electrabel S.A. ..................................      285
     300  Electrabel S.A. (New) ............................       64
   1,130  Fortis AG ........................................      120
     450  Generale de Banque ...............................      145
     775  Gevaert Photo-Production N.V. ....................       42
     156  Glaverbel S.A. ...................................       21
     700  Groupe Bruxelles Lambert S.A. ....................       94
     400  Kredietbank N.V. .................................       95
     720  Petrofina S.A. ...................................      217
     400  Reunies Electrobel & Tractebel S.A. ..............      145
     400  Royale Belge .....................................       75
     250  Solvay et Cie ....................................      138
    +800  Union Miniere S.A. ...............................       52
                                                              -------
                                                                1,671
                                                              -------
CANADA (5.1%)
   5,600  Alcan Aluminum Ltd. ..............................      169
   9,712  American Barrick Resources Corp. .................      246
   6,300  Bank of Montreal .................................      132
   5,900  Bank of Nova Scotia ..............................      127
   8,100  BCE, Inc. ........................................      260
   4,100  Bombardier, Inc. 'B' .............................      100
   2,600  Brascan Ltd. 'A' .................................       41
   5,600  Canadian Imperial Bank of Commerce ...............      135
   2,200  Canadian Occidental Petroleum Ltd. ...............       68
   9,600  Canadian Pacific Ltd. ............................      165
   2,700  Canadian Tire Corp. 'A' ..........................       29
                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------
   2,800  Cominco Ltd. .....................................  $    51
   1,500  Cott Corp. .......................................       18
   2,800  Dofasco, Inc. ....................................       35
   1,200  Du Pont Canada, Inc. 'A' .........................       17
   3,200  Echo Bay Mines Ltd. ..............................       29
   2,000  George Weston Ltd. ...............................       67
   5,200  Gulf Canada Resources Ltd. .......................       21
   7,600  Imasco Ltd. ......................................      135
   6,000  Imperial Oil Ltd. ................................      223
   2,600  Inco Ltd. ........................................       73
   1,100  Interprovincial Pipeline ADR .....................       24
   5,600  Laidlaw, Inc. 'B' ................................       54
   5,200  MacMillan Bloedel Ltd. ...........................       73
   1,200  Magna International, Inc. 'A' ....................       53
   3,600  Moore Corp. Ltd. .................................       79
   2,200  Newbridge Networks Corp. .........................       77
  +5,200  Noranda, Inc. ....................................      102
   2,400  Norcen Energy Resources Ltd. .....................       32
   6,500  Northern Telecom Ltd. ............................      235
  13,800  Nova Corp. of Alberta ............................      117
   5,800  Placer Dome, Inc. ................................      152
   1,100  Potash Corp. of Saskatchewan, Inc. ...............       61
   4,000  Ranger Oil Ltd. ..................................       25
  +2,300  Renaissance Energy Ltd. ..........................       48
  +4,200  Rogers Communications ............................       49
   7,700  Royal Bank of Canada .............................      172
  10,500  Seagram Co. Ltd. .................................      361
  +1,600  Talisman Energy, Inc. ............................       30
   2,400  Teck Corp. 'B' ...................................       47
  16,400  Thomson Corp. ....................................      224
   6,300  Transcanada Pipelines Ltd. .......................       84
                                                              -------
                                                                4,240
                                                              -------
FRANCE (4.0%)
     300  Accor S.A. .......................................       40
   1,850  Alcatel Alsthom...................................      167
   1,845  AXA S.A. .........................................      100
     105  AXA S.A. RFD......................................        6
   2,300  Banque Nationale de Paris ........................      111
     100  BIC ..............................................       16
     350  Bouygues .........................................       42
     300  Carrefour S.A. ...................................      154
      85  Chargeurs S.A. ...................................       17
     249  Cie Bancaire S.A. ................................       30
   1,350  Cie Generale des Eaux ............................      150
   1,350  Cie de Financiere de Paribas 'A' .................       81
   1,000  Cie de Saint-Gobain ..............................      121
   1,950  Cie de Suez S.A. .................................      108
   3,000  Elf Aquitaine ....................................      222
   1,000  Elf Sanofi S.A. ..................................       55
     400  Eridania Beghin-Say S.A. .........................       62
     950  Etablissements Economiques du Casion
            Guichard-Perrachon .............................       28
     950  Groupe Danone RFD ................................      160
     650  Havas S.A. .......................................       51
     850  L'Air Liquide ....................................      136
   1,100  Lafarge Coppee S.A. ..............................       86
     400  Legrand S.A. .....................................       63
     750  L'Oreal ..........................................      188
     950  LVMH Moet Hennessy Louis Vuitton .................      171
     850  Lyonnaise des Eaux S.A. ..........................       80
  +1,350  Michelin (C.G.D.E.) 'B' ..........................       60
     135  Paribas S.A. RFD .................................        8
     650  Pernod-Ricard ....................................       43
    +225  Pinault S.A. .....................................       48
     250  Promodes .........................................       57

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

                                       49
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

FRANCE (CONT.)
    +600  PSA Peugeot Citroen S.A. .........................  $    83
   3,000  Rhone-Poulenc S.A. 'A' ...........................       68
      60  Sagem ............................................       34
     130  Saint Louis ......................................       40
     650  Schneider S.A. ...................................       51
     350  Simco (Registered) ...............................       30
      60  Societe Eurafrance S.A. ..........................       20
   1,000  Societe Generale .................................      117
  +1,700  Thomson CSF S.A. .................................       38
   2,500  Total S.A. 'B' ...................................      150
                                                              -------
                                                                3,292
                                                              -------
GERMANY (2.0%)
      30  Agiv AG ..........................................       10
     110  Allianz AG Holding ...............................      197
      20  AMB Aachener & Muenchener Beteiligungs AG ........       14
      20  Asko Deutsche Kaufhaus AG ........................       12
     330  BASF AG ..........................................       70
     360  Bayer AG .........................................       89
     120  Bayer Hypotheken-und Wechsel-Bank AG .............       33
     130  Bayer Vereinsbank AG .............................       39
      25  Beiersdorf AG ....................................       20
      20  Brau und Brunnen AG ..............................        4
     270  Daimler-Benz AG ..................................      124
      50  Degussa AG .......................................       16
   2,420  Deutsche Bank AG .................................      118
    +180  Deutsche Lufthansa AG ............................       26
   2,230  Dresdner Bank AG .................................       64
      20  Heidelberger Zement AG ...........................       17
      60  Hochtief AG ......................................       34
      50  Karstadt AG ......................................       22
      30  Kaufhof Holding AG ...............................       11
     +90  Kloeckner-Humboldt-Deutz AG ......................        3
      50  Linde AG .........................................       30
      70  MAN AG ...........................................       18
     210  Mannesmann AG ....................................       64
      40  Muenchener Rueckversicherungs-Gesellschaft
            (Registered) ...................................       88
      80  Preussag AG ......................................       24
     180  RWE AG ...........................................       62
      30  SAP AG ...........................................       40
     350  Schering AG ......................................       24
     290  Siemens AG .......................................      144
    +170  Thyssen AG .......................................       32
     250  Veba AG ..........................................       98
     110  Viag AG ..........................................       43
     150  Volkswagen AG ....................................       43
                                                              -------
                                                                1,633
                                                              -------
HONG KONG (5.1%)
  18,000  Applied International Holdings Ltd................        2
  22,257  Bank of East Asia.................................       67
  84,000  Cathay Pacific Airways Ltd........................      123
  63,000  Cheung Kong Holdings Ltd..........................      312
  56,500  China Light and Power Co. Ltd.....................      291
  46,000  Chinese Estate Holdings Ltd.......................       33
  22,000  Dickson Concepts International Ltd................       13
   6,000  Giordano Holdings Ltd.............................        4
  12,000  Giordano International Ltd........................        9
  36,000  Hang Lung Development Corp........................       57
  54,600  Hang Seng Bank Ltd................................      416
  55,400  Hong Kong & China Gas Co..........................       88
  36,000  Hong Kong & Shanghai Hotels.......................       44
   5,600  Hong Kong Aircraft Engineering Co. Ltd............       15
                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------
 308,400  Hong Kong Telecommunications Ltd..................  $   610
 121,420  Hopewell Holdings Ltd.............................      103
 102,000  Hutchison Whampoa Ltd.............................      493
  30,000  Hysan Development Co..............................       69
  12,000  Johnson Electric Holdings Ltd.....................       24
  17,000  Miramar Hotel Investment Ltd......................       35
  44,335  New World Development Co. Ltd.....................      148
  40,000  Oriental Press Group..............................       16
  11,300  Peregrine Investment Holdings.....................       16
  30,905  Shangri-La Asia Ltd...............................       37
  46,000  Shun Tak Holdings Ltd.............................       37
  52,000  South China Morning Post..........................       31
  30,000  Stelux Holdings Ltd...............................        9
  65,000  Sun Hung Kai Properties Ltd.......................      481
  46,000  Swire Pacific Ltd. 'A'............................      351
  12,000  Television Broadcasting Ltd.......................       42
  62,000  Wharf Holdings Ltd................................      202
  10,000  Windsor Industrial................................       13
   4,280  Wing Lung Bank....................................       24
                                                              -------
                                                                4,215
                                                              -------
ITALY (2.0%)
 +10,000  Alitalia S.p.A....................................        5
  12,975  Assicurazioni Generali S.p.A......................      305
  27,000  Banca Commerciale Italiana........................       61
  +6,500  Banca Nazionale dell'Agricoltura S.p.A............        5
   8,000  Banco Ambrosiano Veneto...........................       26
   3,000  Benetton Group S.p.A..............................       30
   2,000  Burgo Cartiere S.p.A..............................       13
  36,500  Credito Italiano S.p.A............................       42
  10,000  Edison S.p.A......................................       45
  +1,000  Falck Acciaierie & Ferriere Lombarde..............        1
 +52,000  Fiat S.p.A........................................      183
  12,000  Fiat S.p.A. Di Risp (NCS).........................       26
   4,000  Fidis Finanziaria di Sviluppo S.p.A...............        9
   3,000  Impreglio S.p.A...................................        3
  12,000  Istituto Bancario San Paolo di Torina S.p.A.......       65
  +3,500  Italcementi Fabbriche Riunit S.p.A................       24
  +1,500  Italcementi S.p.A.................................        5
  11,000  Italgas...........................................       29
   2,565  La Rinascente S.p.A...............................       15
   9,500  Magneti Marelli S.p.A.............................       18
   7,800  Mediobanca S.p.A..................................       57
 +90,000  Montedison S.p.A..................................       64
+15,000.. Montedison S.p.A. Di Risp (NCS)...................        9
 +20,000  Olivetti Group....................................       20
  19,200  Parmalat Finanziaria S.p.A........................       17
 +25,000  Pirelli S.p.A.....................................       33
   4,410  R.A.S.............................................       47
   1,690  R.A.S. di Risp....................................       11
     300  Risanamento Di Napoli S.p.A.......................        4
  +1,000  Saffa S.p.A. 'A'..................................        3
   1,500  S.A.I.............................................       16
   7,500  Saipem S.p.A......................................       15
   2,000  Sasib S.p.A.......................................        9
   4,000  Sirti S.p.A.......................................       30
   7,000  SME Meridionale...................................       17
+10,000.. Snia BPD S.p.A....................................       11
 107,200  Telecom Italia S.p.A..............................      291
  25,000  Telecom Italia Di Risp S.p.A......................       53
                                                              -------
                                                                1,617
                                                              -------
JAPAN (17.7%)
   1,000  Advantest Corp....................................       38
  11,000  Ajinomoto Co., Inc................................      113
   6,000  Aoki Corp.........................................       22

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

                                       50
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

JAPAN (CONT.)
   1,000  Aoyama Trading Co. Ltd............................  $    17
  22,000  Asahi Bank Ltd....................................      235
   5,000  Asahi Breweries Ltd...............................       58
  16,000  Asahi Chemical Industry Co. Ltd...................      105
  16,000  Asahi Glass Co....................................      177
  17,000  Bank of Tokyo.....................................      273
   5,000  Bridgestone Co....................................       74
  10,000  Canon, Inc........................................      163
   3,000  Casio Computer Co. Ltd............................       27
  11,000  Chiba Bank........................................      100
   2,000  Chiyoda Corp......................................       17
   5,000  Chugai Pharmaceutical Ltd.........................       51
  25,000  Dai Ichi Kangyo Bank..............................      451
  11,000  Dai Nippon Printing Co. Ltd.......................      175
   6,000  Daikin Industries Ltd.............................       48
  +2,000  Daishowa Paper Manufacturing Co. Ltd..............        9
   5,000  Daiwa House Industry..............................       77
  11,000  Daiwa Securities Co., Ltd.........................      116
   4,000  Ebara Corp........................................       49
   3,200  Fanuc Co..........................................      138
  25,000  Fuji Bank.........................................      504
   5,000  Fuji Photo Film Ltd...............................      118
  18,000  Fujitsu Ltd.......................................      179
   9,000  Furukawa Electric.................................       42
  11,000  Hankyu Corp.......................................       66
   6,000  Hazama-Gumi.......................................       25
  33,000  Hitachi Ltd.......................................      329
   9,000  Honda Motor Co....................................      138
  19,000  Industrial Bank of Japan..........................      495
   4,000  Ito-Yokado Co. Ltd................................      211
 +22,000  Japan Airlines Co.................................      146
  14,000  Japan Energy Corp.................................       45
   6,000  Joyo Bank.........................................       51
   6,000  Jusco Co..........................................      124
  11,000  Kajima Corp.......................................      109
   3,600  Kansai Electric Power Co..........................       97
  11,000  KAO Corp..........................................      132
 +28,000  Kawasaki Steel Corp...............................       92
  16,000  Kinki Nippon Railway..............................      140
  11,000  Kirin Brewery Co. Ltd.............................      117
 +33,000  Kobe Steel Ltd....................................       78
  11,000  Komatsu Ltd.......................................       84
  16,000  Kubota Corp.......................................      102
  11,000  Kumagai Gumi Co. Ltd..............................       46
   6,000  Kyowa Hakko Kogyo.................................       58
  16,000  Marubeni Corp.....................................       81
   5,000  Marui Co..........................................       80
  17,000  Matsushita Electric Industries Ltd................      265
  15,000  Mitsubishi Corp...................................      171
  20,000  Mitsubishi Electric Corp..........................      141
  12,000  Mitsubishi Estate Co. Ltd.........................      135
  44,000  Mitsubishi Heavy Industries Ltd...................      299
  16,000  Mitsubishi Kasei Co...............................       68
  11,000  Mitsubishi Materials Corp.........................       49
  11,000  Mitsubishi Trust and Banking Corp.................      156
  16,000  Mitsui & Co.......................................      125
 +11,000  Mitsui Engineering & Shipbuilding Co. Ltd.........       24
   9,000  Mitsui Fudosan Co. Ltd............................      103
  11,000  Mitsukoshi........................................       79
   1,200  Mochida Pharmaceutical Co. Ltd....................       18
  16,000  NEC Corp..........................................      175
   6,000  NGK Insulators Ltd................................       54
   5,000  Nippon Denso Co. Ltd..............................       91
  11,000  Nippon Express Co. Ltd............................      100
                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------
   6,000  Nippon Fire & Marine Insurance Co.................  $    38
   5,000  Nippon Light Metal Co.............................       23
   5,000  Nippon Meat Packers...............................       73
  16,000  Nippon Oil Co.....................................      101
  11,000  Nippon Paper Industries Co........................       71
  41,000  Nippon Steel Corp.................................      133
  16,000  Nippon Yusen Kabushiki Kaisha.....................       90
  21,000  Nissan Motor Co. Ltd..............................      134
 +32,000  NKK Corp..........................................       75
  17,000  Nomura Securities Co. Ltd.........................      297
  11,000  Obayashi Corp.....................................       85
  11,000  Odakyu Electric Railway Co........................       80
  11,000  Oji Paper Ltd.....................................      106
  33,000  Osaka Gas Co......................................      122
   6,000  Penta-Ocean Construction..........................       38
   1,000  Rohm Co...........................................       52
  27,000  Sakura Bank.......................................      282
   4,600  Sankyo Co. Ltd....................................      107
  16,000  Sanyo Electric Co. Ltd............................       79
   1,000  Secom Co..........................................       63
   1,300  Sega Enterprises..................................       46
   5,000  Sekisui House Ltd.................................       62
   3,000  Seven-Eleven Japan................................      215
  11,000  Sharp Corp........................................      145
   5,000  Shin-Etsu Chemical Co.............................       88
   8,000  Shinizu Corp......................................       77
   2,000  Shiseido Co. Ltd..................................       22
  11,000  Shizuoka Bank.....................................      137
 +11,000  Showa Denko K.K...................................       32
   3,000  Sony Corp.........................................      144
  28,000  Sumitomo Bank.....................................      485
  22,000  Sumitomo Chemical Co..............................       86
  11,000  Sumitomo Corp.....................................      100
   7,000  Sumitomo Electric Industries......................       83
   2,000  Sumitomo Forestry.................................       33
  38,000  Sumitomo Metal Industries.........................       99
   5,000  Sumitomo Metal Mining Co..........................       37
   6,000  Sumitomo Osaka Cement Co. Ltd.....................       22
  11,000  Taisei Corp., Ltd.................................       65
  11,000  Takeda Chemical Industries........................      145
  11,000  Teijin Ltd........................................       53
  11,000  Tobu Railway Co...................................       69
  17,000  Tokai Bank........................................      188
  16,000  Tokio Marine & Fire Industries....................      183
   3,000  Tokyo Dome Corp...................................       46
  12,100  Tokyo Electric Power Co...........................      371
   2,000  Tokyo Electron Ltd................................       68
  33,000  Tokyo Gas Co......................................      130
  11,000  Tokyu Corp........................................       70
   8,000  Toppan Printing Co. Ltd...........................      105
  16,000  Toray Industries, Inc.............................       99
   5,000  Toto Ltd..........................................       71
  11,000  Toyobo Ltd........................................       36
  25,000  Toyota Motor Corp.................................      495
 +11,000  Ube Industries Ltd................................       38
  11,000  Yamaichi Securities...............................       59
   5,000  Yamanuchi Pharmaceutical Co.......................      112
  11,000  Yasuda Trust & Banking............................       72
                                                              -------
                                                               14,712
                                                              -------
NETHERLANDS (4.0%)
   5,718  ABN-Amro Holdings N.V.............................      221
   1,350  Akzo Nobel........................................      161
  11,500  Elsevier N.V......................................      136
   1,100  Heineken N.V......................................      166
     578  Hoogovens N.V.....................................       23

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

                                       51
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

NETHERLANDS (CONT.)
   5,058  Internationale Nederlanden Groep N.V..............  $   280
  +1,450  KLM Royal Dutch Airlines N.V......................       47
   2,200  Koninklijke Ahold N.V.............................       79
   8,700  Koninklijke PTT Nederland N.V.....................      313
     400  Nedlloyd Groep N.V................................       14
   1,800  N.V. Koninklijke KNP BT...........................       54
   5,800  Phillips Electronics N.V..........................      246
   9,400  Royal Dutch Petroleum Co..........................    1,148
     531  Stork N.V.........................................       14
   2,800  Unilever N.V......................................      364
   1,233  Wolters Kluwer N.V................................      109
                                                              -------
                                                                3,375
                                                              -------
SINGAPORE (3.9%)
  13,000  Amcol Holdings Ltd................................       38
  35,000  City Developments Ltd.............................      214
  10,000  Cycle & Carriage Ltd..............................       89
  37,000  DBS Land Ltd......................................      116
  29,000  Development Bank of Singapore.....................      330
   9,000  First Capital Corp................................       28
  11,000  Fraser & Neave Ltd................................      127
  28,000  Hai Sun Hup Group Ltd.............................       17
  19,000  Hotel Properties Ltd..............................       34
   8,000  Inchcape Bhd......................................       26
   5,000  Jurong Shipyard Ltd...............................       36
  23,000  Keppel Corp.......................................      188
  12,000  NatSteel Ltd......................................       25
  36,000  Neptune Orient Lines Ltd..........................       42
  39,000  Oversea-Chinese Banking Corp......................      432
   7,000  Overseas Union Enterprise Ltd.....................       43
  14,000  Parkway Holdings Ltd..............................       34
   2,000  Robinson & Co. Ltd................................        8
   8,000  Shangri-La Hotel Ltd..............................       32
  58,000  Singapore Airlines Ltd. (Foreign).................      535
  15,600  Singapore Press Holdings (Foreign)................      233
  27,000  Straits Steamship Land Ltd........................       94
  18,000  Straits Trading Co. Ltd...........................       45
  71,000  United Industrial Corp. Ltd.......................       68
  40,000  United Overseas Bank Ltd..........................      378
                                                              -------
                                                                3,212
                                                              -------
SPAIN (3.4%)
     400  Acerinox S.A......................................       49
   4,200  Argentaria S.A....................................      155
   6,800  Autopistas Concesionaria Espanola S.A.............       66
   8,100  Banco Bilbao Vizcaya (Registered).................      234
   5,300  Banco Central Hispanoamericano S.A................      112
  +3,466  Banco Espanol de Credito S.A......................       24
   5,200  Banco Santander S.A...............................      205
     700  Corporacion Financiera Alba S.A...................       36
     900  Corporacion Mapfre CIA Internacional de Reaseguros
            S.A.............................................       45
   2,600  Dragados & Construcciones S.A.....................       38
   1,950  Ebro Agricolas, Compania de Alimentacion S.A......       20
   8,900  Empresa Nacional de Electricidad S.A..............      440
    +317  Energia e Indsutrias Aragonesas...................        2
   3,500  Ercros S.A........................................        4
     850  Fabricacion de Automoviles Renault de Espana
            S.A.............................................       25
     500  Fomento de Construcciones y Contratas S.A.........       43
   1,300  Gas Natural SDG 'E'...............................      155
     200  Gines Navarro Construction Co.....................        3
  30,300  Iberdrola S.A.....................................      228
     125  Inmobiliaria Metropolitana Vasco Central S.A......        4
                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------
     400  Portland Vaderrivas S.A...........................  $    27
  10,800  Repsol S.A........................................      340
   1,300  Tabacalera S.A. 'A'...............................       49
  31,800  Telefonica de Espana..............................      410
  10,500  Union Electrica Fenosa S.A........................       49
  +1,400  Uralita S.A.......................................       17
   1,550  Vallehermoso S.A..................................       26
   1,000  Viscofan Industria Navarra De Envolturas
            Celulosicas S.A.................................       15
     300  Zardoya-Otis S.A..................................       31
                                                              -------
                                                                2,852
                                                              -------
SWITZERLAND (2.0%)
     +25  Adia S.A. (Bearer)................................        5
      25  Alusuisse-Lonza Holding AG (Bearer)...............       16
      50  Alusuisse-Lonza Holding AG (Registered)...........       31
      60  BBC Brown Boveri AG (Bearer)......................       62
      30  Ciba-Geigy AG (Bearer)............................       22
     160  Ciba-Geigy AG (Registered)........................      117
     800  CS Holding AG (Registered)........................       73
      10  Georg Fischer AG (Bearer).........................       14
      45  Holderbank Financiere Glaris AG (Bearer)..........       37
      30  Merkur Holding AG (Registered)....................        9
     250  Nestle S.A. (Registered)..........................      260
      10  Roche Holding AG (Bearer).........................      111
      45  Roche Holding AG-Genusshein.......................      290
      10  SGS Societe Generale de Surveillance Holding S.A.
            (Bearer)........................................       18
      25  SMH AG (Bearer)...................................       16
     100  SMH AG (Registered)...............................       14
     225  Sandoz AG (Registered)............................      155
     100  Schweizerische Rueckversicherungs-Gesellschaft
            (Registered)....................................       77
      25  Sulzer AG (Registered)............................       17
     150  Swiss Bank Corp. (Bearer).........................       53
     250  Swiss Bank Corp. (Registered).....................       44
     +25  SwissAir AG (Registered)..........................       17
     140  Union Bank of Switzerland (Bearer)................      145
     150  Union Bank of Switzerland (Registered)............       33
      50  Zurich Versicherungs-Gesellschaft (Registered)....       63
                                                              -------
                                                                1,699
                                                              -------
UNITED KINGDOM (8.7%)
  17,900  Abbey National plc ...............................      133
  13,000  Argyll Group plc .................................       69
  12,600  Arjo Wiggins Appleton plc ........................       52
   5,100  Associated British Foods plc .....................       54
  14,900  Barclays plc .....................................      160
   9,400  Bass plc .........................................       90
  30,675  BAT Industries plc ...............................      235
   6,000  BICC plc .........................................       28
  11,000  Blue Circle Industries plc .......................       49
   5,400  BOC Group plc ....................................       69
  11,000  Boots Co. plc ....................................       89
   5,000  Bowater plc ......................................       38
   7,600  BPB Industries plc ...............................       38
   4,400  British Aerospace plc ............................       39
  10,300  British Airways plc ..............................       68
  50,300  British Gas plc ..................................      232
  54,900  British Petroleum Co. plc ........................      393
  19,500  British Steel plc ................................       53
  59,600  British Telecommunications plc ...................      372
  37,200  BTR plc ..........................................      189
   2,518  Burmah Castrol plc ...............................       36
  22,300  Cable & Wireless plc .............................      153

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

                                       52
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

UNITED KINGDOM (CONT.)
  10,600  Cadbury Schweppes plc ............................  $    77
   6,900  Caradon plc ......................................       26
   7,714  Coats Viyella plc ................................       23
   4,585  Commercial Union plc .............................       43
   4,400  Courtaulds plc ...................................       31
   3,100  De La Rue plc ....................................       46
   4,800  Eastern Group plc ................................       50
  11,100  Forte plc ........................................       40
   6,200  General Accident plc .............................       57
  33,600  General Electric plc .............................      164
   4,764  GKN plc ..........................................       49
  30,900  Glaxo Holdings plc ...............................      372
  24,200  Grand Metropolitan plc ...........................      151
  10,700  Great Universal Stores plc .......................      100
  14,575  Guardian Royal Exchange plc ......................       48
  18,300  Guinness plc .....................................      138
  53,526  Hanson plc .......................................      187
  10,700  Harrisons & Crosfield plc ........................       24
  21,151  HSBC Holdings plc ................................      273
   7,600  Imperial Chemical Industries plc .................       93
  14,991  Ladbroke Group plc ...............................       40
   6,600  Land Securities plc ..............................       64
   9,400  Lasmo plc ........................................       26
  12,674  Lloyds Bank plc ..................................      126
   7,788  Lonrho plc .......................................       18
  30,500  Marks & Spencer plc ..............................      211
   5,000  MEPC plc .........................................       30
  13,500  National Power plc ...............................       96
   5,700  North West Water plc .............................       50
   9,100  Peninsular & Oriental Steam Navigation Co. .......       84
  12,600  Pilkington plc ...................................       35
  22,677  Prudential Corp. plc .............................      121
   4,700  Rank Organisation plc ............................       30
   7,017  Redland plc ......................................       46
   8,300  Reed International plc ...........................      117
  16,500  Reuters Holdings plc .............................      138
   2,800  RMC Group plc ....................................       47
   9,400  Royal Bank of Scotland Group plc .................       64
   7,642  Royal Insurance Holdings plc .....................       38
  12,900  RTZ Corp. plc (Registered) .......................      168
  17,600  Sainsbury (J) plc ................................      124
   7,900  Scottish Power plc ...............................       41
  16,400  Sears plc ........................................       26
   5,200  Sedgwick Group plc ...............................       11
   2,800  S.G. Warburg Group plc ...........................       32
   3,800  Slough Estates plc ...............................       13
  12,800  SmithKline Beecham plc 'A' .......................      116
   3,400  Southern Electricity plc .........................       35
  11,860  Tarmac plc .......................................       21
   6,349  Taylor Woodrow plc ...............................       12
  16,825  Tesco plc ........................................       78
   6,000  Thames Water plc .................................       45
   5,300  Thorne EMI plc ...................................      110
   4,462  TI Group plc .....................................       28
  11,300  Trafalgar House plc ..............................        8
   6,800  Unilever plc .....................................      138
  11,000  Vodafone Group plc ...............................       41
   8,900  Zeneca Group plc .................................      150
                                                              -------
                                                                7,209
                                                              -------
UNITED STATES (32.8%)
   8,400  Abbott Laboratories ..............................      340
   2,700  Aluminum Co. of America ..........................      135
   5,400  American Express Co. .............................      190
   3,700  American Home Products Corp. .....................      286
                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------
   4,100  American International Group, Inc. ...............  $   467
  15,900  American Telephone & Telegraph Co. ...............      845
   5,700  Amoco Corp. ......................................      380
  +2,700  AMR Corp. ........................................      201
   2,000  Atlantic Richfield Co. ...........................      220
   2,700  Automatic Data Processing, Inc. ..................      170
   5,300  Banc One Corp. ...................................      171
   5,300  BankAmerica Corp. ................................      279
   4,900  Bell Atlantic Corp. ..............................      274
   5,700  BellSouth Corp. ..................................      362
   5,300  Boeing Co. .......................................      332
   5,200  Bristol-Myers Squibb Co. .........................      354
   4,500  Campbell Soup Co. ................................      221
     200  Capital Cities/ABC, Inc. .........................       22
   2,700  Caterpillar, Inc. ................................      173
   3,600  Chevron Corp. ....................................      168
   4,400  Chrysler Corp. ...................................      211
   2,700  Chubb Corp. ......................................      216
  +3,600  Cisco Systems, Inc. ..............................      182
   4,300  Citicorp .........................................      249
  11,300  Coca-Cola Co. ....................................      720
   4,800  Columbia/HCA Healthcare Corp. ....................      208
   2,700  Computer Associates International, Inc. ..........      183
   5,300  Consolidated Edison Co. of New York, Inc. ........      156
   2,700  Cooper Industries, Inc. ..........................      107
   2,700  Corning, Inc. ....................................       88
   1,900  CSX Corp. ........................................      143
   1,300  Deere & Co. ......................................      111
   3,900  Dow Chemical Co. .................................      280
   7,800  Du Pont (EI) de Nemours Co. ......................      536
   5,300  Duke Power Co. ...................................      220
   5,300  Eastman Kodak Co. ................................      321
   3,200  Eli Lilly & Co. ..................................      251
   3,500  Enron Corp. ......................................      123
   5,600  Entergy Corp. ....................................      135
  13,100  Exxon Corp. ......................................      925
   5,300  Federal National Mortgage Association ............      500
   5,300  FPL Group, Inc. ..................................      205
   2,000  Gannett Co., Inc. ................................      109
  17,000  General Electric Co. .............................      958
   8,500  General Motors Corp. .............................      399
   2,700  General Motors Corp. 'E' .........................      118
   1,600  General RE Corp. .................................      214
   2,700  Goodyear Tire & Rubber Co. .......................      111
   5,300  Hewlett-Packard Co. ..............................      395
   4,900  H.J. Heinz Co. ...................................      218
   5,200  Home Depot, Inc. .................................      211
   7,900  Intel Corp. ......................................      500
   6,000  International Business Machines Corp. ............      576
   1,800  International Game Technology ....................       28
   2,700  International Paper Co. ..........................      232
   1,500  ITT Corp. ........................................      176
   3,100  J.C. Penney Co., Inc. ............................      149
   6,000  Johnson & Johnson ................................      406
   8,000  Kmart Corp. ......................................      117
   2,700  May Department Stores Co. ........................      112
   6,600  McDonald's Corp. .................................      258
   2,700  Melville Corp. ...................................       93
  13,200  Merck & Co., Inc. ................................      647
  +5,300  Microsoft Corp. ..................................      479
   5,300  Minnesota Mining & Manufacturing Co. .............      303
   4,600  Mobil Corp. ......................................      442
   1,600  Monsanto .........................................      144
   2,700  Morgan (J.P.) & Co., Inc. ........................      189

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

                                       53
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

  SHARES                                                        VALUE)
                                                                 (000
- ---------------------------------------------------------------------
  UNITED STATES (CONT.)
   6,400  Motorola, Inc. ...................................  $   430
   1,100  Nucor Corp. ......................................       59
   5,300  NationsBank Corp. ................................      284
   2,100  Norfolk Southern Corp. ...........................      141
   5,700  Norwest Corp. ....................................      164
  +4,100  Novell, Inc. .....................................       82
  +2,650  Oracle System Corp. ..............................      102
   7,700  Pacific Gas & Electric Co. .......................      223
   8,900  PepsiCo, Inc. ....................................      406
   2,800  Pfizer, Inc. .....................................      259
   8,400  Philip Morris Cos., Inc. .........................      625
   1,700  PPG Industries, Inc. .............................       73
   7,900  Procter & Gamble Co. .............................      568
  +1,400  Promus Co., Inc. .................................       55
   8,000  Public Service Enterprise Group, Inc. ............      222
   5,300  Rockwell International Corp. .....................      242
   2,700  SCE Corp. ........................................       46
   5,100  Schering-Plough Corp. ............................      225
   5,200  Sprint Corp. .....................................      175
   5,300  Sears, Roebuck & Co. .............................      317
   8,000  Southern Co. .....................................      179
   6,000  Southwestern Bell Corp. ..........................      286
   2,700  Suntrust Banks, Inc. .............................      157
   5,300  Texas Utilities Co. ..............................      182
   2,700  The Dun & Bradstreet Corp. .......................      142
   5,300  The Limited, Inc. ................................      117
   5,300  Time Warner, Inc. ................................      218
  +5,300  Toys 'R' Us, Inc. ................................      155
   4,100  Travelers, Inc. ..................................      179
   2,600  Union Pacific Corp. ..............................      144
   1,350  U.S. Healthcare, Inc. ............................       41
     338  U.S. Industries, Inc. ............................        5
   3,000  Viacom, Inc. 'B' .................................      139
  15,900  Wal-Mart Stores, Inc. ............................      425
   5,700  Walt Disney Co. ..................................      317
     800  Wells Fargo & Co. ................................      144
   8,000  Westinghouse Electric Corp. ......................      117
   5,300  Weyerhaeuser Co. .................................      250
   4,800  WMX Technologies, Inc. ...........................      136
                                                              -------
                                                               27,275
                                                              -------
TOTAL COMMON STOCKS (COST $75,752)..........................   80,493
                                                              -------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
  27,069  News Corp. Ltd. ..................................      134
                                                              -------
GERMANY (0.0%)
     100  RWE AG ...........................................       27
      20  SAP AG ...........................................       25
                                                              -------
                                                                   52
                                                              -------
ITALY (0.1%)
 +16,000  Fiat S.p.A. ......................................       35
                                                              -------
TOTAL PREFERRED STOCKS (COST $202)..........................      221
                                                              -------
  NO. OF                                                        VALUE
  RIGHTS                                                        (000)
- ---------------------------------------------------------------------
RIGHTS (0.0%)
AUSTRALIA (0.0%)
 *+2,719  Coca-Cola Amatil Ltd. ............................  $     3
                                                              -------
FRANCE (0.0%)
   *+664  Cie Bancaire S.A. ................................        8
                                                              -------
SPAIN (0.0%)
    +300  Zardoya-Otis S.A. ................................        3
                                                              -------
TOTAL RIGHTS (COST $0)......................................       14
                                                              -------

  NO. OF
   UNITS
- --------
UNITS (0.2%)
AUSTRALIA (0.1%)
  +1,622  Westfield Trust ..................................        2
  25,700  Westfield Trust ..................................       45
                                                              -------
                                                                   47
                                                              -------
UNITED KINGDOM (0.1%)
     119  British Aerospace (1 share cumulative loan stock
            plus 1 warrant) ................................        1
  12,400  SmithKline Beecham plc (1 'B' share common plus 1
            preferred share) ...............................      110
                                                              -------
                                                                  111
                                                              -------
TOTAL UNITS (COST $139).....................................      158
                                                              -------

  NO. OF
WARRANTS
- --------
WARRANTS (0.0%)
BELGIUM (0.0%)
     +61  Petrofina S.A., expiring 6/3/97 ..................        1
                                                              -------
CANADA (0.0%)
    +121  Trizec Corp., expiring 7/25/99 ...................       --
                                                              -------
HONG KONG (0.0%)
  +2,000  Applied International Holdings Ltd., expiring
            12/30/99 .......................................       --
                                                              -------
ITALY (0.0%)
    +420  R.A.S. S.p.A. Savings Shares, expiring
            12/31/97 .......................................        1
    +880  R.A.S. S.p.A., expiring 11/30/97 .................        4
                                                              -------
                                                                    5
                                                              -------
TOTAL WARRANTS (COST $4)....................................        6
                                                              -------

    FACE
  AMOUNT
   (000)
- --------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
$     29  Sanofi 4.00%, 1/1/00 (COST $18)...................       18
                                                              -------
TOTAL FOREIGN & U.S. SECURITIES (97.4%) (COST $76,115)......   80,910
                                                              -------

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

                                       54
<PAGE>
                                 MORGAN STANLEY
                         GLOBAL EQUITY ALLOCATION FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

    FACE
  AMOUNT                                                        VALUE
   (000)                                                        (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.4%)
 REPURCHASE AGREEMENT
 UNITED STATES
  $4,465  U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
            repurchased at $4,467, collateralized by $4,630
            United States Treasury Bills, due 7/27/95,
            valued at $4,612 (COST $4,465)..................  $ 4,465
                                                              -------
TOTAL INVESTMENT IN SECURITIES (COST $80,580)...............   85,375
                                                              -------

FOREIGN CURRENCY (0.1%)
 A$    9  Australian Dollar.................................        6
 BF  478  Belgian Franc.....................................       17
L      3  British Pound Sterling............................        5
 C$    5  Canadian Dollar...................................        4
  DM   1  Deutsche Mark.....................................        1
IL 22,189 Italian Lira......................................       13
Y  2,002  Japanese Yen......................................  $    24
 S$    6  Singapore Dollar..................................        5
 SP  842  Spanish Peseta....................................        7
  CHF  2  Swiss Franc.......................................        1
                                                              -------
TOTAL FOREIGN CURRENCY (COST $83)...........................       83
                                                              -------
TOTAL INVESTMENTS (102.9%) (COST $80,663)...................   85,458
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%)...............   (2,412)
                                                              -------
Net Assets (100%)...........................................  $83,046
                                                              -------
                                                              -------
<TABLE>
<S>        <C>      <C>
- ---------------
+                 --
*                 --
ADR               --
NCS               --
RFD               --

<CAPTION>
- ---------
<S>        <C>
+          Non-income producing securities

*          Fair valued securities -- See Note A-1

ADR        American Depositary Receipt

NCS        Non Convertible Shares

RFD        Ranked for Dividends

</TABLE>

FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:

Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund  is obligated to deliver or is  to receive foreign currency in exchange for
U.S. dollars as indicated below:

<TABLE>
<CAPTION>
 CURRENCY                           IN EXCHANGE              NET UNREALIZED
TO DELIVER    VALUE    SETTLEMENT       FOR        VALUE          GAIN
  (000)       (000)       DATE         (000)       (000)          (000)
- ----------  ---------  -----------  -----------  ---------  -----------------
<S>         <C>        <C>          <C>          <C>        <C>
$    2,616  $   2,616      7/6/95    L   1,660   $   2,642      $      26
IL   2,385          1     7/31/95    $       1           1             --
BF 126,707      4,485     4/30/96    $   4,500       4,500             15
$    2,900      2,900     4/30/96    BF 82,839       2,932             32
 Y 796,000      9,781     4/30/96    $  10,000      10,000            219
            ---------                            ---------          -----
            $  19,783                            $  20,075      $     292
            ---------                            ---------          -----
            ---------                            ---------          -----
</TABLE>

BF     --   Belgian Franc
IL     --   Italian Lira
L      --   British Pound Sterling
Y      --   Japanese Yen

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

     SUMMARY OF FOREIGN & U.S. EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                     VALUE   PERCENT OF
INDUSTRY                                             (000)   NET ASSETS
- --------------------------------------------------  -------  -----------
<S>                                                 <C>      <C>
Finance...........................................  $17,388        21.0%
Services..........................................   15,425        18.6
Consumer Goods....................................   15,364        18.5
Energy............................................   10,849        13.1
Capital Equipment.................................    9,650        11.6
Materials.........................................    8,243         9.9
Multi-Industry....................................    3,528         4.2
Mining............................................      463         0.5
                                                    -------         ---
                                                    $80,910        97.4%
                                                    -------         ---
                                                    -------         ---
</TABLE>

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

                                       55
<PAGE>
                                 MORGAN STANLEY
                            GLOBAL FIXED INCOME FUND

- -------------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

       FACE
     AMOUNT                                                               VALUE
      (000)                                                               (000)
- -------------------------------------------------------------------------------

FIXED INCOME SECURITIES (94.8%)
  AUSTRALIAN DOLLAR (2.5%)
    GOVERNMENT BOND (2.5%)
A$       600 Government of Australia 9.00%, 9/15/04.................    $   422
                                                                      ---------
BRITISH POUND STERLING (5.6%)
  GOVERNMENT BOND (5.6%)
L        600 United Kingdom 8.00%, 12/7/00..........................        946
                                                                      ---------
CANADIAN DOLLAR (3.3%)
  EUROBOND (3.3%)
C$       800 The Export-Import Bank of Japan 7.75%, 10/8/02.........        566
                                                                      ---------
DANISH KRONE (5.0%)
  GOVERNMENT BOND (5.0%)
DK     5,050 Kingdom of Denmark 7.00%, 12/15/04.....................        843
                                                                      ---------
DEUTSCHE MARK (13.4%)
  EUROBONDS (10.9%)
DM      500  Treuhandanstalt 6.25%, 7/29/99.........................        364
        850  Treuhandanstalt 6.875%, 6/11/03........................        609
      1,250  Treuhandanstalt 6.75%, 5/13/04.........................        886
                                                                      ---------
                                                                          1,859
                                                                      ---------
  GOVERNMENT BOND (2.5%)
        600  Bundesrepublik 6.50%, 7/15/03..........................        420
                                                                      ---------
  TOTAL DEUTSCHE MARK...............................................      2,279
                                                                      ---------
FINNISH MARKKA (1.4%)
  GOVERNMENT BOND (1.4%)
FM     1,000 Republic of Finland 9.50%, 3/15/04.....................        244
                                                                      ---------
FRENCH FRANC (5.5%)
  GOVERNMENT BOND (5.5%)
FF     4,800 Government of France O.A.T. 6.75%, 10/25/03............        943
                                                                      ---------
ITALIAN LIRA (3.9%)
  GOVERNMENT BOND (3.9%)
IL  1,220,000 Republic of Italy 8.50%, 8/1/99........................       661
                                                                      ---------
JAPANESE YEN (9.5%)
  EUROBONDS (9.5%)
Y     70,000 Japan Development Bank 6.50%, 9/20/01..................      1,015
     45,000  Republic of Austria 4.75%, 12/20/04....................        611
                                                                      ---------
  TOTAL JAPANESE YEN................................................      1,626
                                                                      ---------
NETHERLANDS GUILDER (5.1%)
  GOVERNMENT BONDS (5.1%)
NG      650  Government of the Netherlands 7.25%, 10/1/04...........        427
        690  Government of the Netherlands 7.00%, 6/15/05...........        444
                                                                      ---------
  TOTAL NETHERLANDS GUILDER.........................................        871
                                                                      ---------
NEW ZEALAND DOLLAR (1.9%)
  GOVERNMENT BONDS (1.9%)
NZ$     250  Government of New Zealand 6.50%, 2/15/00...............        159
        250  Government of New Zealand 8.00%, 4/15/04...............        171
                                                                      ---------
  TOTAL NEW ZEALAND DOLLAR..........................................        330
                                                                      ---------
       FACE
     AMOUNT                                                               VALUE
      (000)                                                               (000)
- -------------------------------------------------------------------------------
SPANISH PESETA (3.9%)
  GOVERNMENT BONDS (3.9%)
SP    65,000 Government of Spain 10.25%, 11/30/98...................    $   517
     20,000  Government of Spain 10.30%, 6/15/02....................        154
                                                                      ---------
  TOTAL SPANISH PESETA..............................................        671
                                                                      ---------
SWEDISH KRONA (1.6%)
  GOVERNMENT BONDS (1.6%)
SK     2,000 Government of Sweden 10.25%, 5/5/00....................        272
                                                                      ---------
UNITED STATES DOLLAR (32.2%)
  EUROBOND (1.0%)
$        200 Republic of Italy 6.875%, 9/27/23......................        178
                                                                      ---------
  U.S. GOVERNMENT AND AGENCY OBLIGATIONS (31.2%)
      FEDERAL HOME LOAN MORTGAGE CORPORATION
        497  Gold 9.00%, 3/1/25.....................................        517
        350  Gold TBA 9.00%, 7/1/25.................................        365
                                                                      ---------
                                                                            882
                                                                      ---------
      GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
        247  ARM 7.00%, 1/1/25......................................        252
         97  ARM 7.50%, 1/20/25.....................................        102
        150  TBA 30 Yr 9.00%, 7/15/25...............................        157
                                                                      ---------
                                                                            511
                                                                      ---------
      U.S. TREASURY BONDS
        140  8.875%, 8/15/17........................................        175
         30  8.125%, 8/15/19........................................         35
         20  8.00%, 11/15/21........................................         23
                                                                      ---------
                                                                            233
                                                                      ---------
      U.S. TREASURY NOTES
        475  7.875%, 2/15/96........................................        481
      1,865  7.50%, 11/15/01........................................      2,001
      1,210  6.25%, 2/15/03.........................................      1,213
                                                                      ---------
                                                                          3,695
                                                                      ---------
                                                                          5,321
                                                                      ---------
TOTAL UNITED STATES DOLLAR..........................................      5,499
                                                                      ---------
TOTAL FIXED INCOME SECURITIES (COST $15,661)........................     16,173
                                                                      ---------
SHORT-TERM INVESTMENTS (4.2%)
  DEUTSCHE MARK (0.8%)
    POOLED TIME DEPOSIT (0.8%)
DM      187  ING Bank 4.75%, 7/5/95.................................        135
                                                                      ---------
UNITED STATES DOLLAR (3.4%)
  REPURCHASE AGREEMENT (3.4%)
$        586 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to be
               repurchased at $586, collateralized by $615 U.S.
               Treasury Bills, due 7/27/95, valued at $613..........        586
                                                                      ---------
TOTAL SHORT-TERM INVESTMENTS (COST $721)............................        721
                                                                      ---------
TOTAL INVESTMENTS (99.0%) (COST $16,382)............................     16,894
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)........................        163
                                                                      ---------
NET ASSETS (100%)...................................................    $17,057
                                                                      ---------
                                                                      ---------

<TABLE>
<S>   <C>   <C>
- ---------------
ARM   --    Adjustable Rate Mortgage
TBA   --    Security is subject to delayed delivery.
</TABLE>

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

                                       56
<PAGE>
                                 MORGAN STANLEY
                            GLOBAL FIXED INCOME FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:

Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund  is obligated to deliver or is  to receive foreign currency in exchange for
U.S. dollars or foreign currency as indicated below:

<TABLE>
<CAPTION>
CURRENCY
   TO                              IN EXCHANGE
 DELIVER     VALUE    SETTLEMENT       FOR        VALUE     NET UNREALIZED
  (000)      (000)       DATE         (000)       (000)    GAIN(LOSS) (000)
- ---------  ---------  -----------  -----------  ---------  -----------------
<S>        <C>        <C>          <C>          <C>        <C>
 NG 1,300  $     839     7/13/95    $     821   $     822      $     (17)
 DM 1,000        725      9/6/95    $     701         701            (24)
 DK 2,800        518      9/7/95    $     508         508            (10)
A$    500        354     9/20/95    NZ$   546         362              8
           ---------                            ---------            ---
           $   2,436                            $   2,393      $     (43)
           ---------                            ---------            ---
           ---------                            ---------            ---
</TABLE>

A$    --    Australian Dollar
DK    --    Danish Krone
DM    --    Deutsche Mark
NG    --    Netherlands Guilder
NZ$   --    New Zealand Dollar

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

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

                                       57
<PAGE>
                                 MORGAN STANLEY
                               ASIAN GROWTH FUND

- -------------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

                                                                    VALUE
     SHARES                                                         (000)
- -------------------------------------------------------------------------
COMMON STOCKS (100.0%)
  AUSTRALIA (0.0%)
    +79,500  Odin Mining & Investment Co. Ltd. ................  $     24
                                                                 --------
  CHINA (2.0%)
    396,000  China Merchants Shokou Port Services 'B' .........       215
   *630,000  Chiwan Petroleum Supply 'B' ......................       230
     30,000  Jilin Chemical Industrial Co. ADR ................       578
    709,800  Jinqiao Export Processing Zone Development Co.
               Ltd. 'B' .......................................       341
  5,519,000  Maanshan Iron & Steel Co. Ltd. ...................     1,155
     59,000  Shandong Huaneng Power Co. Ltd. ..................       450
    568,100  Shanghai Diesel Engine Co. Ltd. 'B' ..............       352
    315,000  Shanghai Erfanji Co. Ltd. 'B' ....................        47
    500,000  Shanghai Industrial Sewing Machine Co. Ltd. ......        92
    215,670  Shanghai Jin Jiang Tower 'B' .....................        69
  1,000,000  Shanghai Narcissus Electric Appliances Industrial
               Co. Ltd. 'B' ...................................       260
      8,800  Shanghai Petrochemical Co. ADR ...................       276
    608,000  Shanghai Phoenix Bicycle 'B' .....................       131
   +221,000  Shanghai Refrigerator Compressor Co. Ltd. 'B' ....        79
    335,500  Shanghai Tire & Rubber 'B' .......................       101
     75,000  Shanghai Yaohua Pilkington Glass 'B' .............        75
     81,400  Shenzhen Chiwan Wharf Holdings 'B' ...............        41
 *1,100,000  Shenzhen North Jainshe Motorcycle ................       533
  3,670,000  Yizheng Chemical Fibre Co. 'H' ...................     1,281
                                                                 --------
                                                                    6,306
                                                                 --------
  HONG KONG (27.2%)
  8,020,000  Charoen Pokphand Co. .............................     2,824
  2,665,000  Cheung Kong Holdings Ltd. ........................    13,191
    593,000  China Light & Power Co. Ltd. .....................     3,050
  1,769,000  Citic Pacific Ltd. ...............................     4,447
 12,056,000  Guangdong Investments Ltd. .......................     6,583
  2,822,000  Harbin Power Equipment Co. .......................       903
    861,000  Hong Kong Electric Holdings ......................     2,926
    628,756  Hong Kong & Shanghai Bank ........................     8,065
  6,030,800  Hong Kong Telecommunications Ltd. ................    11,925
  2,698,000  Hopewell Holdings Ltd. ...........................     2,284
  2,108,000  Hutchison Whampoa Ltd. ...........................    10,189
  1,645,000  New World Development Co. Ltd. ...................     5,474
    430,000  Peregrine Investment Holdings ....................       611
    300,000  Sum Cheong International .........................       171
    601,100  Sun Hung Kai Properties Ltd. .....................     4,447
    795,300  Swire Pacific Ltd. 'A' ...........................     6,064
    972,000  Varitronix International Ltd. ....................     1,702
    554,000  Wharf Holdings Ltd. ..............................     1,808
                                                                 --------
                                                                   86,664
                                                                 --------
  INDIA (0.8%)
     38,000  Grasim Industries Ltd. GDR .......................       912
     49,000  Hindalco Industries Ltd. .........................     1,421
                                                                 --------
                                                                    2,333
                                                                 --------
  INDONESIA (6.6%)
   *300,000  Asiana Imi Industries (Foreign) ..................       128
   *504,000  Bank International Indonesia (Foreign) ...........     1,556
   *770,000  Barito Pacific Timber (Foreign) ..................     1,106
 *5,600,000  Bimantara Citra ..................................     3,143
   *594,000  Charoen Pokphand Co. Ltd.(Foreign) ...............     1,294
   *375,000  Duta Pertiwi (Foreign) ...........................       379
   *462,000  Indocement Tunggal (Foreign) .....................     1,815
   *763,500  Indosat (Foreign) ................................     2,897
   *393,000  Kalbe Farma (Foreign) ............................     1,800
                                                                    VALUE
     SHARES                                                         (000)
- -------------------------------------------------------------------------
   *378,500  Kermika Indonesia Associasi (Foreign) ............  $    510
 *1,000,000  Ometraco (Foreign) ...............................       719
   *962,400  Sona Topas Tourism Industry (Foreign) ............     1,296
   *311,000  Sorini Corp. (Foreign) ...........................     1,487
 *1,375,000  Ultra Jaya Milk IDR (Foreign) ....................     1,235
   *679,000  United Tractors (Foreign) ........................     1,448
                                                                 --------
                                                                   20,813
                                                                 --------
  KOREA (3.6%)
     49,560  Hyundai Engineering & Construction Co. ...........     2,307
     40,000  Korea Electric Power .............................     1,498
      *+900  Korea Mobile Telecommunications Corp. ............       949
     69,600  Pohang Iron & Steel Ltd. .........................     2,053
    *11,870  Samsung Electronics Co. ..........................     2,445
    #10,000  Samsung Electronics Co. GDR (New) ................       962
       #991  Samsung Electronics Co. GDS ......................        71
    #23,958  Samsung Electronics Co. GDS (Euro 1/2
               non-voting).....................................     1,264
                                                                 --------
                                                                   11,549
                                                                 --------
  MALAYSIA (21.9%)
    758,000  Bandar Raya Developments Bhd. ....................     1,648
    822,000  Genting Bhd. .....................................     8,126
    794,000  Land & General Bhd. ..............................     2,654
    420,000  Magnum Corp. Bhd. ................................       982
  1,495,500  Malayan Banking Bhd. .............................    11,839
  1,038,000  Malaysian International Shipping (Foreign) .......     3,044
  1,317,000  Malaysian Resources Corp. Bhd. ...................     2,323
    479,000  Mulpha International Bhd. ........................       582
  2,570,000  Renong Bhd. ......................................     4,786
  1,215,000  Resorts World Bhd. ...............................     7,127
    650,000  Sime Darby Bhd. ..................................     1,813
  1,024,000  Tan & Tan Development ............................     1,277
    233,000  Tanjong plc ......................................       803
   +564,000  Technology Resources Industries ..................     1,619
  1,171,000  Telekom Malaysia Bhd. ............................     8,886
  1,264,000  Tenaga Nasional Bhd. .............................     5,159
    460,000  Time Engineering Bhd. ............................     1,547
    864,000  United Engineers Bhd. ............................     5,493
                                                                 --------
                                                                   69,708
                                                                 --------
  PAKISTAN (0.2%)
      7,200  Pakistan Telecommunications ......................       731
                                                                 --------
  PHILIPPINES (5.9%)
   +321,200  Aboitiz Equity Ventures ..........................        65
    860,600  Ayala Corp. 'B' ..................................       960
  1,408,125  Ayala Land, Inc. 'B' .............................     1,626
  #+289,440  Benpres Holdings Corp. GDR .......................     2,460
  7,638,000  JG Summit Holding 'B' ............................     2,273
    402,465  Manilla Electric 'B' .............................     3,231
  4,981,500  Petron Corp. .....................................     3,218
     15,500  Philippine Long Distance Telephone Co. ...........     1,108
      9,800  Philippine Long Distance Telephone Co. ADR .......       703
     59,678  Philippine National Bank 'B' .....................       695
  *+228,000  Pilipino Telephone Corp. .........................       179
    289,380  San Miguel Corp. 'B' .............................     1,201
 +4,304,300  SM Prime Holdings, Inc. ..........................     1,180
                                                                 --------
                                                                   18,899
                                                                 --------
  SINGAPORE (14.8%)
    260,000  British-American Tobacco .........................     1,186
    871,800  City Developments Ltd. ...........................     5,334

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

                                       58
<PAGE>
                                 MORGAN STANLEY
                               ASIAN GROWTH FUND

- -------------------------------------------------------------------
                        PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995
<TABLE>
<C>          <S>                                                 <C>
                                                                    VALUE
     SHARES                                                         (000)
- -------------------------------------------------------------------------
  SINGAPORE (CONT.)
    749,000  DBS Land Ltd. ....................................  $  2,347
    421,500  Development Bank of Singapore ....................     4,796
    237,000  Fraser & Neave Ltd. ..............................     2,730
     87,500  Jurong Engineering Ltd. ..........................       513
    658,000  Keppel Corp. .....................................     5,368
    696,666  Oversea-Chinese Banking Corp. ....................     7,727
    195,000  Overseas Union Bank Ltd. .........................     1,228
    391,000  Sembawang Corp. Ltd. .............................     2,378
    115,000  Singapore Airlines Ltd. (Foreign) ................     1,062
    200,400  Singapore Press Holdings (Foreign) ...............     2,997
  1,964,000  Singapore Technologies Industrial Corp. ..........     2,979
    400,000  Straits Steamship Land Ltd. ......................     1,385
    561,000  Straits Trading Co. Ltd. .........................     1,405
    397,000  United Overseas Bank Ltd. ........................     3,750
                                                                 --------
                                                                   47,185
                                                                 --------
  TAIWAN (2.4%)
   +612,000  Advanced Semiconductor Engineering, Inc. .........     1,777
   +738,000  Taiwan Semiconductor Co. .........................     3,586
   +445,000  United Micro Electronics Corp. Ltd. ..............     2,283
                                                                 --------
                                                                    7,646
                                                                 --------
  THAILAND (14.6%)
     24,300  Advanced Information Services Co. Ltd. ...........       360
     69,800  Advanced Information Services Co. Ltd.
               (Foreign) ......................................     1,035
    677,300  Bangkok Bank Co. Ltd. (Foreign) ..................     7,463
    144,300  Charoen Pokphand Feedmill Co. Ltd. (Foreign) .....       859
     13,800  Charoen Popkhand Feedmill Co. Ltd. ...............        84
    752,044  Finance One Co. Ltd. (Foreign) ...................     5,545
    239,400  International Engineering Co. ....................     1,794
     69,400  Land & House Co. Ltd. (Foreign) ..................     1,462
    207,800  National Finance & Securities Co. Ltd.
               (Foreign) ......................................     1,027
    201,600  Phatra Thanakit Co. Ltd. (Foreign) ...............     1,682
     96,000  Shinawatra Computer Co. Ltd. .....................     2,380
     53,000  Siam Cement Co. Ltd. (Foreign) ...................     3,384
    315,500  Siam Commercial Bank Co. Ltd. ....................     3,016
  1,500,000  Telecomasia Co. Ltd. (Foreign) ...................     5,621
    511,200  Thai Farmer's Bank Co. ...........................     4,887
    466,400  Thai Telephone & Telecommunications ..............     3,817
     92,000  United Communication Industry (Foreign) ..........     1,386
    403,000  Wongpaitoon Footwear Co. Ltd. (Foreign) ..........       620
                                                                 --------
                                                                   46,422
                                                                 --------
TOTAL COMMON STOCKS (COST $289,705)............................  318,280
                                                                 --------

     NO. OF                                                         VALUE
     RIGHTS                                                         (000)
- -------------------------------------------------------------------------
RIGHTS (0.0%)
  INDONESIA (0.0%)
  *+400,000  Ometraco, expiring 8/29/95 .......................  $     --
                                                                 --------
*+1,924,800  Sona Topas Tourism Industry, expiring 7/13/95 ....        --
                                                                 --------
TOTAL RIGHTS (COST $0).........................................        --
                                                                 --------
     NO. OF
      UNITS
- -----------
UNITS (0.1%)
  INDIA (0.1%)
     34,000  SIV Industries Ltd. (3 GDR's + 1 Warrant) (COST
               $649) ..........................................       357
                                                                 --------
     NO. OF
   WARRANTS
- -----------
WARRANTS (0.0%)
  THAILAND (0.0%)
  *+132,200  National Finance & Securities Co. Ltd., expiring
               11/15/99 (COST $0) .............................        --
                                                                 --------
TOTAL FOREIGN SECURITIES (100.1%) (COST $290,354)..............   318,637
                                                                 --------
       FACE
     AMOUNT
      (000)
- -----------
SHORT-TERM INVESTMENT (0.3%)
  REPURCHASE AGREEMENT
  UNITED STATES
$        883 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to
               be repurchased at $883, collateralized by $920
               United States Treasury Bills, due 7/27/95,
               valued at $916 (COST $883) .....................       883
                                                                 --------
TOTAL INVESTMENT IN SECURITIES (COST $291,237).................  319,520
                                                                 --------
FOREIGN CURRENCY (0.0%)
HK$     213  Hong Kong Dollar .................................        27
 MYR      4  Malaysian Ringgit ................................         2
S$        70 Singapore Dollar .................................        50
T$       519 Taiwan Dollar ....................................        20
                                                                 --------
TOTAL FOREIGN CURRENCY (COST $99)..............................  99
                                                                 --------
TOTAL INVESTMENTS (100.4%) (COST $291,336).....................  319,619
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.4%)..................   (1,455)
                                                                 --------
NET ASSETS (100%)..............................................  $318,164
                                                                 --------
                                                                 --------
</TABLE>

- ---------------
+      --  Non income producing securities
*      --  Fair valued securities -- See Note A-1
#      --  144A Security -- Certain conditions for public
           sale may exist
ADR    --  American Depositary Receipt
GDR    --  Global Depositary Receipt
GDS    --  Global Depositary Shares
IDR    --  International Depositary Receipt

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

            SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
                                  (UNAUDITED)

INDUSTRY                                   VALUE        PERCENTAGE OF
- -----------------------------------        (000)           NET ASSETS
                                        --------     ----------------
Banking............................     $ 56,141              17.6   %
Real Estate........................       51,417              16.2
Telecommunications.................       40,699              12.8
Services...........................       39,294              12.3
Multi-Industry.....................       34,572              10.9
Capital Equipment..................       30,291               9.5
Materials..........................       21,128               6.6
Energy.............................       18,974               6.0
Consumer Goods.....................       15,244               4.8
Financial Services.................       10,877               3.4
                                        --------             -----
                                        $318,637             100.1   %
                                        --------             -----
                                        --------             -----

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

                                       59
<PAGE>
                                 MORGAN STANLEY
                              AMERICAN VALUE FUND

- -------------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

COMMON STOCKS (91.8%)
  AEROSPACE (3.1%)
  24,400  AAR Corp..........................................  $   436
  10,800  Thiokol Corp......................................      327
  45,200  United Industrial Corp............................      322
                                                              -------
                                                                1,085
                                                              -------
  BANKING (9.4%)
  12,700  First Security Corp...............................      356
  16,000  Greenpoint Financial Corp.........................      378
  12,700  Onbankcorp., Inc..................................      360
  22,000  Peoples Heritage Financial Group, Inc.............      330
  11,200  Standard Federal Bank.............................      377
  18,120  Summit Bancorp., Inc..............................      385
   9,000  Union Bank of San Francisco.......................      380
  13,000  Union Planters Corp...............................      348
  14,000  Washington Mutual, Inc............................      328
                                                              -------
                                                                3,242
                                                              -------
  BUILDING (3.3%)
  10,200  Ameron, Inc.......................................      370
  31,000  Gilbert Associates, Inc. 'A'......................      403
  15,200  Pratt & Lambert, Inc..............................      355
                                                              -------
                                                                1,128
                                                              -------
  CAPITAL GOODS (2.8%)
  13,600  Binks Manufacturing Corp..........................      345
  19,400  Cascade Corp......................................      310
  13,900  Starret (L.S.) Co. 'A'............................      315
                                                              -------
                                                                  970
                                                              -------
  CHEMICALS (3.8%)
  20,400  Aceto Corp........................................      301
  16,500  Dexter Corp.......................................      390
  14,700  LeaRonal, Inc.....................................      310
  18,400  Quaker Chemical Corp..............................      299
                                                              -------
                                                                1,300
                                                              -------
  COMMUNICATIONS (1.1%)
  18,500  Comsat Corp.......................................      363
                                                              -------
  CONSUMER--DURABLES (3.1%)
  17,900  Arvin Industries, Inc.............................      400
  23,320  Knape & Vogt Manufacturing Co.....................      350
  21,000  Oneida Ltd........................................      310
                                                              -------
                                                                1,060
                                                              -------
  CONSUMER--RETAIL (6.3%)
  19,200  CPI Corp..........................................      367
   4,620  Dave & Busters, Inc...............................       92
  27,100  Deb Shops, Inc....................................       88
  23,100  Edison Brothers Stores............................      277
  14,300  Guilford Mills, Inc...............................      348
  29,000  Ross Stores, Inc..................................      341
   9,100  Springs Industries, Inc. 'A'......................      339
  33,000  Venture Stores, Inc...............................      326
                                                              -------
                                                                2,178
                                                              -------
  CONSUMER--STAPLES (4.0%)
   9,798  Block Drug Co. 'A'................................      331
  19,000  Coors (Adolph) 'B'................................      311
  15,300  International Multifoods Corp.....................      344
  23,400  Nash Finch Co.....................................      380
                                                              -------
                                                                1,366
                                                              -------
ENERGY (2.0%)
  13,700  Diamond Shamrock, Inc.............................  $   353
  13,800  Ultramar Corp.....................................      348
                                                              -------
                                                                  701
                                                              -------
FINANCIAL--DIVERSIFIED (3.2%)
  10,900  FINOVA Group, Inc.................................      381
   8,100  GATX Corp.........................................      382
  22,900  Manufactured Home Communities, Inc................      352
                                                              -------
                                                                1,115
                                                              -------
HEALTH CARE (4.0%)
  12,700  Beckman Instruments, Inc..........................      354
  19,000  Bindley Western Industries, Inc...................      301
  52,600  Kinetic Concepts, Inc.............................      375
  18,500  United Wisconsin Services, Inc....................      370
                                                              -------
                                                                1,400
                                                              -------
INDUSTRIAL (5.6%)
   9,500  American Filtrona Corp............................      280
   6,900  Barnes Group, Inc.................................      278
  28,100  Gencorp, Inc......................................      302
  28,100  Kaman Corp. 'A'...................................      358
  27,600  Zero Corp.........................................      414
  15,700  Zurn Industries Inc...............................      314
                                                              -------
                                                                1,946
                                                              -------
INSURANCE (5.3%)
  12,100  Argonaut Group, Inc...............................      384
  20,000  Enhance Financial Services Group..................      387
  15,600  Provident Life & Accident Insurance Co............      363
  10,600  Selective Insurance Group, Inc....................      350
   8,900  US Life Corp......................................      358
                                                              -------
                                                                1,842
                                                              -------
METALS (2.2%)
   5,300  Carpenter Technology Corp.........................      361
  10,300  Cleveland-Cliffs Iron Co..........................      397
                                                              -------
                                                                  758
                                                              -------
PAPER & PACKAGING (3.0%)
  11,300  Ball Corp.........................................      394
   7,700  Potlatch Corp.....................................      321
  18,600  Sealright Co., Inc................................      312
                                                              -------
                                                                1,027
                                                              -------
SERVICES (11.0%)
  15,400  ABM Industries, Inc...............................      356
  15,600  Angelica Corp.....................................      390
  19,300  Bowne & Co........................................      331
  22,200  Cross A.T. Co. 'A'................................      330
  28,900  Handleman Co......................................      278
  37,500  Jackpot Enterprises, Inc..........................      380
  11,400  National Service Industries, Inc..................      329
  17,100  New England Business Services, Inc................      338
  40,500  Piccadilly Cafeterias, Inc........................      354
  26,500  Russ Berrie & Co., Inc............................      368
   9,200  Wallace Computer Services, Inc....................      353
                                                              -------
                                                                3,807
                                                              -------
TECHNOLOGY (9.7%)
  18,000  Augat, Inc........................................      369
   6,900  Avnet, Inc........................................      334
  35,000  Core Industries, Inc..............................      376

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

                                       60
<PAGE>
                                 MORGAN STANLEY
                              AMERICAN VALUE FUND

- -------------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

                                                                VALUE
  SHARES                                                        (000)
- ---------------------------------------------------------------------

  TECHNOLOGY (CONT.)
  15,400  Cubic Corp........................................  $   346
  21,000  Gerber Scientific, Inc............................      352
  15,000  Joslyn Corp.......................................      394
  13,100  MTS Systems Corp..................................      354
  20,900  National Computer Systems, Inc....................      434
  18,500  Scitex Corp.......................................      398
                                                              -------
                                                                3,357
                                                              -------
TRANSPORTATION (2.3%)
  18,600  Overseas Shipholding Group, Inc...................      386
  17,800  SkyWest, Inc......................................      403
                                                              -------
                                                                  789
                                                              -------
UTILITIES (6.6%)
  13,600  Central Hudson Gas & Electric Corp................      367
   8,500  Commonwealth Energy Systems.......................      321
  11,000  Eastern Entreprises...............................      329
  17,100  Oneok, Inc........................................      366
   9,400  Orange & Rockland Utilities, Inc..................      317
   6,500  SJW Corp..........................................      233
  20,600  Washington Water Power Co.........................      330
                                                              -------
                                                                2,263
                                                              -------
TOTAL COMMON STOCKS (COST $29,742)..........................   31,697
                                                              -------

    FACE
  AMOUNT                                                        VALUE
   (000)                                                        (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (7.7%)
  REPURCHASE AGREEMENT
$   2,677 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
            repurchased at $2,678, collateralized by $2,695
            United States Treasury Bills, due 7/20/95,
            valued at $2,687 (COST $2,677)..................  $ 2,677
                                                              -------
TOTAL INVESTMENTS (99.5%) (COST $32,419)....................  34,374
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%)................      168
                                                              -------
NET ASSET VALUE (100%)......................................  $34,542
                                                              -------
                                                              -------

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

                                        61
<PAGE>
                                 MORGAN STANLEY
                           WORLDWIDE HIGH INCOME FUND

- ---------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

        FACE
      AMOUNT                                                         VALUE
       (000)                                                         (000)
- --------------------------------------------------------------------------
FIXED INCOME SECURITIES (100.0%)
  CORPORATE BONDS (23.9%)
    UNITED STATES (23.9%)
$        500  AES Corp. 9.75%, 6/15/00 .........................  $    511
         500  Armco, Inc. 9.375%, 11/1/00 ......................       481
       ++200  Columbia Gas Systems, Inc. 10.50%, 6/1/12 ........       292
         500  Comcast Corp. 9.50%, 1/15/08 .....................       501
       1,000  Marcus Cable Co. 0.00% to 6/15/00, 14.25% to
                12/15/05 .......................................       533
         500  Owens Illinois, Inc. 10.50%, 6/15/02 .............       519
         300  Plastic Specialties & Technologies, Inc. 11.25%,
                12/1/03 ........................................       282
         500  Primark Corp. 8.75%, 10/15/00 ....................       488
         500  Sherritt, Inc. 10.50%, 3/31/14 ...................       486
        #350  Six Flags Theme Park, Inc. 0.00% to 6/15/98,
                12.25% to 6/1/05 ...............................       254
         500  Tracor, Inc. 10.875%, 8/15/01 ....................       513
         518  Trump Taj Mahal PIK 11.35%, 11/15/99 .............       411
         500  Viacom International Subordinate Note 8.00%,
                7/7/06 .........................................       487
        #150  Weirton Steel 10.75%, 6/1/05 .....................       142
         500  Westpoint Stevens, Inc. 9.375%, 12/15/05 .........       484
                                                                  --------
  TOTAL CORPORATE BONDS (COST $6,286)...........................     6,384
                                                                  --------
  EUROBONDS (57.8%)
    ARGENTINA (1.3%)
        #400  Transport de Gas del Sur 7.75%, 12/23/98 .........       354
                                                                  --------
    BRAZIL (27.5%)
       1,300  Ceval Overseas Ltd. 10.75%, 7/11/96 ..............     1,300
      #1,000  Compania Brasil de Projertos 12.50%, 12/22/97 ....       972
      +++780  Federal Republic of Brazil 'C' Bond PIK 8.00%,
                4/15/14 ........................................       385
    +++2,000  Federal Republic of Brazil New Money Bond 7.31%,
                4/15/09 ........................................     1,078
      #1,000  Iochpe Maxion S.A. 12.375%, 11/8/02 ..............       880
       1,500  Klabin Fabricadora Papel 10.00%, 12/20/01 ........     1,357
       1,750  Minas Gerais 'B' 8.25%, 2/10/00 ..................     1,365
                                                                  --------
                                                                     7,337
                                                                  --------
    BULGARIA (4.7%)
    +++3,000  Bulgaria IAB 7.56%, 7/28/11 ......................     1,268
                                                                  --------
    ECUADOR (4.2%)
    +++2,250  Republic of Ecuador 7.25%, 2/28/25 ...............     1,119
                                                                  --------
    MEXICO (9.4%)
       1,500  Cemex S.A. 8.875%, 6/10/98 .......................     1,297
        #200  Cemex S.A. 9.50%, 9/20/01 ........................       156
         500  Empresas La Moderna 10.25%, 11/12/97 .............       455
        #216  MC-Cuernavaca Trust 9.25%, 7/25/01 ...............       158
         750  Mexico Par Bond 'B' (Value Recovery Rights
                Attached) 6.25%, 12/31/19 ......................       457
                                                                  --------
                                                                     2,523
                                                                  --------
    NIGERIA (5.0%)
       3,000  Central Bank of Nigeria (Warrants Attached) 6.25%,
                11/15/20 .......................................     1,328
                                                                  --------
    VENEZUELA (5.7%)
    +++3,000  Republic of Venezuela 'B' (Oil Warrants Attached)
                6.75%, 3/31/20 .................................     1,511
                                                                  --------
        FACE
      AMOUNT                                                         VALUE
       (000)                                                         (000)
- --------------------------------------------------------------------------
  TOTAL EUROBONDS (COST $15,585)................................  $ 15,440
                                                                  --------
  LOAN AGREEMENTS (8.9%)
    MOROCCO (2.2%)
$   p+++1,000 Kingdom of Morocco Restructuring and Consolidation
                Agreement 'A' 1990 7.38%, 1/1/09 (Participation:
                Salomon Brothers)...............................       589
                                                                  --------
    RUSSIA (6.7%)
  ++/+++5,500 Bank for Foreign Economic Affairs.................     1,787
                                                                  --------
  TOTAL LOAN AGREEMENTS (COST $2,316) ..........................     2,376
                                                                  --------
  YANKEE BONDS (9.4%)
    ARGENTINA (1.2%)
        #350  Bridas Corp. 12.50%, 11/15/99 ....................       313
                                                                  --------
    INDONESIA (0.6%)
         150  Polysindo Eka Perkasa 13.00%, 6/15/01 ............       152
                                                                  --------
    MEXICO (5.9%)
      #1,500  Petro Mexicanos 8.625%, 12/1/23 ..................     1,018
         800  Tolmex S.A. 8.375%, 11/1/03 ......................       566
                                                                  --------
                                                                     1,584
                                                                  --------
    UNITED STATES (1.7%)
         500  Algoma Steel, Inc. 12.375%, 7/15/05 ..............       460
                                                                  --------
  TOTAL YANKEE BONDS (COST $2,552) .............................     2,509
                                                                  --------
TOTAL FIXED INCOME SECURITIES (COST $26,739) ...................    26,709
                                                                  --------

      NO. OF
       UNITS
- ------------
UNITS (0.4%)
  UNITED STATES (0.4%)
        #100  Gulf States Steel ($1 million 1st Mortgage Note +
                1 Warrant) 13.50%, 4/15/03 (COST $100) .........        97
                                                                  --------

TOTAL INVESTMENTS IN SECURITIES (COST $26,839)..................    26,806
                                                                  --------

        FACE
      AMOUNT
       (000)
- ------------
SHORT-TERM INVESTMENT (26.2%)
  REPURCHASE AGREEMENT
  UNITED STATES
$       6,983 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95 to be
                repurchased at $6,986, collateralized by $7,235
                U.S. Treasury Bills, due 7/27/95, valued at
                $7,207 (COST $6,983) ...........................     6,983
                                                                  --------
TOTAL INVESTMENTS (126.6%) (COST $33,822).......................    33,789
LIABILITIES IN EXCESS OF OTHER ASSETS (-26.6%)..................    (7,090)
                                                                  --------
NET ASSETS (100%)...............................................  $ 26,699
                                                                  --------
                                                                  --------

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

++    --   Non-income producing securities -- in
           default
+++   --   Variable or floating rate securities --
           rate disclosed is as of June 30, 1995.
#     --   144A Security -- Certain conditions for
           public sale may exist.
IAB   --   Interest Arrears Bond
PIK   --   Payment-in-kind. Income may be received
           in additional securities or cash at the
           discretion of the issuer.
p     --   Participation interests were acquired
           through the financial institutions
           indicated parenthetically.

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

                                       62
<PAGE>
                                 MORGAN STANLEY
                           WORLDWIDE HIGH INCOME FUND

- ---------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

         SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
                                  (UNAUDITED)

                                                     PERCENT
                                           VALUE      OF NET
INDUSTRY                                   (000)      ASSETS
- ----------------------------------------  --------   --------
Foreign Government Bonds................  $  7,146        26.8%
Consumer Goods..........................     3,748        14.0
Energy..................................     3,343        12.5
Materials...............................     3,306        12.4
Loan Agreements.........................     2,376         8.9
Capital Equipment.......................     1,904         7.1
Telecommunications......................     1,520         5.7
Metals..................................     1,083         4.1
Services................................     1,153         4.3
Industrial..............................       972         3.6
Finance.................................       158         0.6
                                          --------   --------
                                          $ 26,709       100.0%
                                          --------   --------
                                          --------   --------

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

                                       63
<PAGE>
                                 MORGAN STANLEY
                              LATIN AMERICAN FUND

- ---------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995
<TABLE>
<CAPTION>
                                                         VALUE
     SHARES                                              (000)
<C>          <S>                                     <C>
- --------------------------------------------------------------
COMMON STOCKS (60.2%)
  ARGENTINA (8.9%)
      1,851  Banco del Sud Argentina ..............  $      11
   +126,607  Banco del Suquia S.A. 'B' ............        184
        395  Buenos Aires Embotelladora ADR .......         10
     14,900  Capex S.A. 'A' .......................        116
    #22,865  Capex S.A. ADR .......................        352
     23,610  CIADEA (Renault) .....................        115
     13,545  Quilmes Industrial ...................        264
                                                     ---------
                                                         1,052
                                                     ---------
  BRAZIL (18.8%)
 25,550,000  Acesita ..............................        166
     15,119  Brahma ...............................          5
  6,340,820  Cia Energetica de Sao Paulo ..........        207
  1,108,000  Cia Paulista De Forca e Luz ..........         55
  9,400,000  Cia Siderurgica Nacional .............        214
     #6,313  Cemig GDR ............................        123
  1,770,000  Eletrobras ...........................        461
      8,300  Eletrobras ADR .......................        112
    305,000  Light ................................         96
    #15,930  Rhodia-Ster S.A. GDR .................        223
  4,600,000  Telebras .............................        131
      6,300  Telebras ADR .........................        208
  1,303,000  Telesp ...............................        166
     #3,907  Usiminas ADR .........................         43
                                                     ---------
                                                         2,210
                                                     ---------
  CHILE (2.6%)
      7,915  Empresa Nacional de Electricidad
               ADR ................................        210
      5,000  Maderas y Sinteticos S.A. ADR ........         94
                                                     ---------
                                                           304
                                                     ---------
  MEXICO (26.9%)
      9,600  ALFA S.A. de C.V. ....................        117
    +56,800  Apasco S.A. de C.V. ..................        225
     96,270  Banacci 'B' ..........................        148
    106,588  Banacci 'L' ..........................        162
    #24,080  Cemex ADR ............................        164
     19,400  Cemex 'CPO' ..........................         67
     16,150  Empresas ICA Sociedad Controladora
               S.A. de C.V. .......................        166
    186,250  FEMSA 'B' ............................        435
     #4,300  Grupo Carso S.A. ADR .................         47
   +157,000  Grupo Financiero Bancomer 'B' ........         46
    +37,015  Grupo Financiero Bancomer 'L' ........         10
    #49,790  Grupo Financiero Bancomer ADS ........        299
   +107,000  Grupo Financiero Probursa 'C' ........         47
    +12,950  Grupo Mexicano de Desarollo 'B'
               ADR ................................         50
     +5,000  Grupo Simec S.A. de C.V. 'B' ADR .....         49
     #9,550  Hylsamex ADR .........................        174
      8,275  Pan American Beverages, Inc. 'A' .....        248
     30,450  Sidek 'B' ............................         27
     10,660  Telefonos de Mexico 'L' ADR ..........        316
     89,450  Tolmex 'B2' ..........................        349
     +1,150  Tribasa ADR ..........................         10
                                                     ---------
                                                         3,156
                                                     ---------

<CAPTION>
                                                         VALUE
     SHARES                                              (000)
<C>          <S>                                     <C>
- --------------------------------------------------------------

  PERU (3.0%)
     67,600  Banco de Credito del Peru 'C' ........  $     119
    136,061  Telefonica del Peru 'B' ..............        232
                                                     ---------
                                                           351
                                                     ---------
TOTAL COMMON STOCKS (COST $7,930)..................  7,073
                                                     ---------
PREFERRED STOCKS (36.2%)
  BRAZIL (36.2%)
    670,000  Acesita ..............................          5
 60,940,000  Banco Bradesco .......................        516
  2,790,000  Banco Nacional .......................         54
 15,950,000  Banco do Brasil ......................        191
  3,940,000  Banco do Estado ......................         22
        164  Bardella S.A. ........................         25
 +1,134,700  Brahma ...............................        372
    293,000  Brasmotor S.A. .......................         54
    800,000  Cemig ................................         16
     #3,539  Cemig ADR ............................         70
   +181,000  Centrais Eletricas de Santa Catarina
               'B' ................................        146
     65,400  Cia Energetica de Sao Paulo ..........          3
  6,040,000  Cia Paulista de Forca e Luz ..........        199
     20,000  Confab Industrial S.A. ...............         15
    400,000  Coteminas ............................        126
  3,200,000  Continental 2001 .....................         69
    144,064  Dixie Lalekla S.A. ...................        113
    939,000  Eletrobras 'B' .......................        250
  1,639,100  Itaubanco ............................        499
  8,166,000  Lojas Renner .........................        138
     85,000  Multibras S.A. .......................         70
  4,528,000  Petrobras ............................        384
 49,500,000  Refripar .............................         96
 10,000,000  Tec Toy Industria Brinquedos .........          6
  5,889,383  Telebras .............................        194
  1,867,000  Telesp ...............................        231
 62,800,000  Usiminas .............................         71
  1,080,000  Vale do Rio Doce .....................        163
   +325,000  WEG S.A. .............................        148
                                                     ---------
TOTAL PREFERRED STOCKS (COST $4,733)...............  4,246
                                                     ---------
PURCHASED OPTIONS (0.0%)
  BRAZIL (0.0%)
 +4,000,000  Cia Paulista De Forza e Luz call,
               expiring 10/16/95, strike price BR
               70.00 (COST $0).....................          6
                                                     ---------
</TABLE>

<TABLE>
<CAPTION>
     NO. OF
     RIGHTS
      (000)
<C>          <S>                                    <C>
- -----------
RIGHTS (0.0%)
  BRAZIL (0.0%)
*+1,100,455  Banco Bradesco (COST $0).............          1
                                                    ---------
</TABLE>

<TABLE>
<CAPTION>
       FACE
     AMOUNT
      (000)
<C>          <S>                                    <C>
- -----------
CONVERTIBLE DEBENTURES (3.2%)
  COLOMBIA (3.2%)
 $     #500  Banco de Colombia 5.20%, 2/1/99 (COST
               $489) .............................        380
                                                    ---------
TOTAL FOREIGN SECURITIES (99.6%) (COST $13,152)...     11,706
                                                    ---------
</TABLE>

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

                                       64
<PAGE>
                                 MORGAN STANLEY
                              LATIN AMERICAN FUND

- ---------------------------------------------------------------
                          PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995

<TABLE>
<CAPTION>
     AMOUNT                                             VALUE
      (000)                                             (000)
<C>          <S>                                    <C>
- -------------------------------------------------------------
FOREIGN CURRENCY (0.7%)
 APS     33  Argentine Peso ......................  $      33
 BR      21  Brazilian Real ......................         22
  ME    136  Mexican New Peso ....................         22
 PS       2  Peruvian Sol ........................          1
                                                    ---------
TOTAL FOREIGN CURRENCY (COST $78).................  78
                                                    ---------
TOTAL INVESTMENTS (100.3%) (COST $13,230).........  11,784
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%).....        (41)
                                                    ---------
NET ASSETS (100%).................................  $11,743
                                                    ---------
                                                    ---------
- ---------------
</TABLE>

<TABLE>
<S>        <C>        <C>
+                 --  Non-income producing securities
*                 --  Fair valued securities -- See Note A-1
                      144A Security -- certain conditions for public sale
#                 --  may exist
ADR               --  American Depositary Receipt
ADS               --  American Depositary Shares
GDR               --  Global Depositary Receipt
</TABLE>

FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:

  Under the terms of forward foreign currency contracts open at June 30, 1995,
  the Fund is obligated to deliver U.S. dollars in exchange for foreign currency
  as indicated below:

<TABLE>
<CAPTION>
                                                                           NET
  CURRENCY                                IN EXCHANGE                  UNREALIZED
 TO DELIVER       VALUE     SETTLEMENT        FOR          VALUE       GAIN (LOSS)
    (000)         (000)        DATE          (000)         (000)          (000)
- -------------     -----     -----------  -------------     -----     ---------------
<S>            <C>          <C>          <C>            <C>          <C>
  $  72         $      72       7/3/95         BR 66     $      72             --
                       --                                       --
                       --                                       --
                                              ------                          ---
                                              ------                          ---
</TABLE>

<TABLE>
<S>        <C>      <C>
- ---------------
BR            --    Brazilian Real
</TABLE>

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

            SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       VALUE     PERCENTAGE OF
INDUSTRY                                                               (000)      NET ASSETS
<S>                                                                  <C>        <C>
- -----------------------------------------------------------------------------------------------
Finance............................................................  $   2,738          23.3%
Consumer Goods.....................................................      2,009          17.1
Materials..........................................................      1,974          16.8
Utilities..........................................................      1,954          16.6
Services...........................................................      1,477          12.6
Energy Sources.....................................................        999           8.5
Multi-Industry.....................................................        329           2.8
Capital Equipment..................................................        226           1.9
                                                                     ---------         ---
                                                                     $  11,706          99.6%
                                                                     ---------         ---
                                                                     ---------         ---
</TABLE>

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

                                       65
<PAGE>
                                 MORGAN STANLEY
                             EMERGING MARKETS FUND

- ---------------------------------------------------------------
                            PORTFOLIO OF INVESTMENTS
                                 JUNE 30, 1995

<TABLE>
<CAPTION>
                                                                   VALUE
      SHARES                                                       (000)
<C>            <S>
- ---------------------------------------------------------------------
COMMON STOCKS (71.7%)
  ARGENTINA (2.1%)
       2,200   Banco Frances del Rio de la Plata.................  $13
         705   Banco Frances del Rio de la Plata ADR.............  13
       3,420   Banco de Galicia y Buenos Aires 'B'...............  14
       8,227   Banco de Galicia y Buenos Aires ADR...............  130
       1,410   Banco del Sud Argentina...........................   9
         960   Buenos Aires Embotelladora ADR....................  24
      32,467   CIADEA (Renault)..................................  157
       1,500   Capex S.A. 'A'....................................  12
      #6,575   Capex S.A. ADR....................................  101
      18,133   Cia Naviera Perez Companc S.A. 'B'................  76
      23,352   Quilmes Industrial................................  455
                                                                   --
                                                                   1,004
                                                                   --
  BRAZIL (5.4%)
      16,099   Brahma............................................   5
      #5,702   Cemig.............................................  111
   5,963,260   Cia Energetica de Sao Paulo.......................  194
   2,275,000   Cia Paulista de Forca e Luz.......................  114
   9,950,000   Cia Siderurgica Nacional..........................  227
   1,513,000   Eletrobras........................................  395
     404,000   Light.............................................  127
      #8,782   Rhodia-Ster S.A. GDR..............................  123
   5,260,000   Telebras..........................................  149
      28,070   Telebras ADR......................................  926
     740,000   Telesp............................................  94
     #15,100   Usiminas ADR......................................  168
                                                                   --
                                                                   2,633
                                                                   --
  CHINA (1.1%)
       4,300   Jilin Chemical Industrial Co. ADR.................  83
      50,000   Maanshan Iron & Steel Co. Ltd.....................  10
      50,000   Shanghai Diesel Engine Co. Ltd. 'B'...............  31
     150,000   Shenzhen Chiwan Wharf Holdings 'B'................  75
    *160,000   Shenzhen North Jainshe Motorcycle.................  78
     630,000   Yizheng Chemical Fibre 'H'........................  220
     +40,000   Zhuhai Pharmaceutical 'B'.........................  18
                                                                   --
                                                                   515
                                                                   --
  GREECE (3.1%)
      +7,500   Aegek.............................................  167
       6,000   Alpha Credit Bank.................................  333
      17,000   Delta Dairy S.A...................................  354
       7,000   Ergo Bank S.A.....................................  322
      11,000   Hellenic Bottling Co. S.A.........................  327
                                                                   --
                                                                   1,503
                                                                   --
  HONG KONG (8.2%)
     680,000   Charoen Pokphand Co...............................  239
      72,000   Cheung Kong Holdings Ltd..........................  356
      90,000   Citic Pacific Ltd.................................  226
     650,000   Guangdong Investments Ltd.........................  355
      46,000   Hang Seng Bank Ltd................................  351
     262,000   Harbin Power Equipment Co.........................  84
     132,800   Hong Kong Telecommunications Ltd..................  263
     420,000   Hopewell Holdings Ltd.............................  355
     137,000   Hutchison Whampoa Ltd.............................  662
     113,000   New World Development Co. Ltd.....................  376
      11,000   Sun Hung Kai Properties Ltd.......................  81
      49,000   Swire Pacific Ltd. 'A'............................  374
     140,000   Varitronix International Ltd......................  245
                                                                   --
                                                                   3,967
                                                                   --
  HUNGARY (0.2%)
       5,350   Gedeon Richter (Austrian Certificates)............  86
                                                                   --
  INDIA (6.1%)
       3,255   Century Textiles & Industries GDR.................  505
      90,000   Great Eastern Shipping GDR........................  641
      20,250   Indian Aluminum Co. GDR...........................  220
      #4,480   JCT Ltd. GDR......................................  80
    @108,700   Morgan Stanley India Investment Fund..............  1,114
      60,000   Tube Investments of India.........................  $405
                                                                   --
                                                                   2,965
                                                                   --
  INDONESIA (6.1%)
    *840,000   Bimantara Citra...................................  471
     *80,000   Bank International Indonesia (Foreign)............  247
     *55,500   Charoen Pokphand Co. Ltd.(Foreign)................  121
     *72,000   Duta Pertiwi (Foreign)............................  73
    *109,500   Indocement Tunggal (Foreign)......................  430
     *60,000   Indosat (Foreign).................................  228
       5,800   Indosat ADR.......................................  222
     *79,000   Kalbe Farma (Foreign).............................  362
     *16,000   Kermika Indonesia Association (Foreign)...........  21
     *35,166   Sorini Corp. (Foreign)............................  168
      44,800   Tempo Scan Pacific (Foreign)......................  231
    *173,000   United Tractors (Foreign).........................  369
                                                                   --
                                                                   2,943
                                                                   --
  ISRAEL (3.1%)
       4,000   Elbit Ltd.........................................  300
         680   First International Bank of Israel Ltd. '1'.......  84
       2,000   First International Bank of Israel Ltd. '5'.......  247
      44,327   Israel Land Development Co. Ltd...................  133
       5,100   Koor Industries Ltd...............................  434
      16,900   Osem Investment Ltd...............................  130
       9,000   Super Sol Ltd.....................................  172
                                                                   --
                                                                   1,500
                                                                   --
  KOREA (1.3%)
       1,000   Pohang Iron & Steel...............................  86
      *1,500   Samsung Electronics Co............................  309
       6,000   Shinhan Bank Co. Ltd..............................  123
       3,000   Yukong Ltd........................................  125
                                                                   --
                                                                   643
                                                                   --
  MEXICO (9.1%)
     +37,200   Apasco S.A. de C.V................................  148
     221,655   Banacci 'B'.......................................  340
     137,082   Banacci 'L'.......................................  208
     #70,021   Cemex 'CPO' ADR...................................  476
      51,500   Cemex 'CPO'.......................................  178
      34,625   Empresas ICA Sociedad Controladora S.A. de C.V....  355
    +214,000   Grupo Financiero Bancomer 'B'.....................  63
     +54,403   Grupo Financiero Bancomer 'L'.....................  14
     #95,510   Grupo Financiero Bancomer ADS.....................  573
     +59,000   Grupo Financiero Probursa 'C'.....................  26
     +17,200   Grupo Mexicano de Desarollo 'B' ADR...............  67
     #10,720   Hylsamex ADR......................................  196
      +4,800   Internacional de Ceramica ADR.....................  38
      14,280   Pan American Beverages, Inc. 'A'..................  428
      +7,200   Sidek 'A'.........................................   6
     +21,000   Sidek 'B'.........................................  19
       5,700   Sidek ADR.........................................  26
      17,325   Telefonos de Mexico 'L' ADR.......................  513
     129,850   Tolmex 'B2'.......................................  507
     +26,420   Tribasa ADR.......................................  225
                                                                   --
                                                                   4,406
                                                                   --
  MOROCCO (0.3%)
       2,000   ONA S.A...........................................  83
       2,000   Wafabank..........................................  82
                                                                   --
                                                                   165
                                                                   --
  PAKISTAN (3.2%)
      95,000   Dewan Salman Fibre................................  313
     143,000   D.G. Khan Cement Ltd..............................  202
     100,000   Fauji Fertilizer Co. Ltd..........................  197
     100,000   Karachi Electric..................................  86
      35,000   Nishat Mills Ltd..................................  32
      27,000   Pakistan State Oil Co. Ltd........................  327
       3,450   Pakistan Telecommunication Co.....................  368
      10,000   Sui Northern Gas Pipelines........................  10
                                                                   --
                                                                   1,535
                                                                   --
</TABLE>

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

                                       66
<PAGE>
                                 MORGAN STANLEY
                             EMERGING MARKETS FUND

- ---------------------------------------------------------------
                        PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995
<TABLE>
<CAPTION>
                                                                   VALUE
      SHARES                                                       (000)
- ---------------------------------------------------------------------
<C>            <S>
  PHILIPPINES (3.5%)
     184,125   Ayala Land, Inc. 'B'..............................  $213
     749,000   JG Summit Holding 'B'.............................  223
      30,000   Manilla Electric 'B'..............................  241
     737,500   Petron Corp.......................................  476
         600   Philippine Long Distance Telephone ADR............  43
      32,000   Pilipino Telephone Corp...........................  25
     841,100   SM Prime Holdings, Inc............................  231
      57,900   San Miguel Corp. 'B'..............................  240
                                                                   --
                                                                   1,692
                                                                   --
  POLAND (1.9%)
      12,500   Bank Rozwoju Eksportu S.A.........................  200
      15,750   Debica S.A........................................  222
       1,650   E. Wedel S.A......................................  97
     +31,300   Electrim..........................................  110
     +48,000   Mostostal Export 'A'..............................  121
       2,100   Zywiec............................................  159
                                                                   --
                                                                   909
                                                                   --
  PORTUGAL (1.0%)
       6,500   Banco Totta & Acores 'B' (Registered).............  138
       6,000   Filmes Lusomundo..................................  66
      15,000   UNICER-Uniao Cervejeira S.A.......................  253
                                                                   --
                                                                   457
                                                                   --
  SINGAPORE (0.2%)
       6,600   Asia Pulp & Paper Co. Ltd. ADR....................  83
                                                                   --
  SOUTH AFRICA (2.9%)
       1,324   Anglo American Industrial Corp. Ltd...............  66
      69,000   Gencor Ltd........................................  237
      75,000   Murray & Roberts Holdings Ltd.....................  433
     400,000   SA Iron & Steel Corp. Ltd.........................  454
      17,933   SASOL Ltd.........................................  172
       5,530   Trans-Natal Coal..................................  43
                                                                   --
                                                                   1,405
                                                                   --
  TAIWAN (2.3%)
     +88,400   Advanced Semiconductor Engineering, Inc...........  257
     +82,800   Taiwan Semiconductor Co...........................  402
     +88,000   United Micro Electronics Corp. Ltd................  451
                                                                   --
                                                                   1,110
                                                                   --
  THAILAND (6.9%)
      14,800   Advanced Information Services Co. Ltd.
                 (Foreign).......................................  219
      63,400   Bangkok Bank Co. Ltd..............................  555
      68,000   Bangkok Bank Co. Ltd. (Foreign)...................  749
      75,700   Finance One Co. Ltd. (Foreign)....................  558
      22,000   Phatra Thanakit Co. Ltd. (Foreign)................  184
      10,300   Shinawatra Computer Co. Ltd.......................  255
       2,900   Siam Cement Co. Ltd. (Foreign)....................  185
      67,000   Thai Farmer's Bank Public Co......................  641
                                                                   --
                                                                   3,346
                                                                   --
  TURKEY (3.7%)
     350,000   Aksa Akrilik Kimya Sanayii A.S....................  309
     300,000   Borusan Birmesik..................................  117
    +405,000   Ege Biracilik Ve Malt Sanayii.....................  476
     190,000   Ege Seramik Co., Inc..............................  92
     250,000   Koc Yatirim Ve Sanayii Mamulleri..................  78
     130,000   Migros Turk.......................................  146
     250,000   Tat Konserve......................................  195
    +230,000   Tofas Turk Otomobil Fabrikasi.....................  203
   2,428,400   Yapi Ve Kredi Bankasi.............................  156
                                                                   --
                                                                   1,772
                                                                   --
TOTAL COMMON STOCKS (COST $35,785)...............................  34,639
                                                                   --
PREFERRED STOCKS (11.6%)
  BRAZIL (10.3%)
   9,234,000   Acesita...........................................  60
  77,680,000   Banco Bradesco....................................  $658
  12,067,000   Banco Nacional....................................  235
  21,630,000   Banco do Brasil...................................  258
   6,400,000   Banco do Estado...................................  36
  +1,649,000   Brahma............................................  541
     386,000   Brasmotor.........................................  71
       2,847   Cemig ADR.........................................  56
     +19,000   Centrais Eletricas de Santa Catarina 'B'..........  15
   1,560,000   Cia Energetica de Sao Paulo.......................  62
     #18,110   Cia Energetica de Sao Paulo ADR...................  206
   1,350,000   Cia Paulista de Forca e Luz.......................  44
 +45,000,000   Cosipa 'B'........................................  75
   2,070,000   Eletrobras 'B'....................................  551
   1,935,200   Itaubanco.........................................  589
      93,000   Multibras S.A.....................................  77
   4,991,000   Petrobras.........................................  423
   2,105,000   Petrobras Distribuidora...........................  73
  11,698,390   Telebras..........................................  385
   1,991,000   Telesp............................................  247
  96,360,000   Usiminas..........................................  109
   1,480,000   Vale do Rio Doce..................................  224
                                                                   --
                                                                   4,995
                                                                   --
  MEXICO (1.1%)
     224,900   FEMSA 'B'.........................................  525
                                                                   --
  PORTUGAL (0.2%)
     *11,780   Filmes Lusomundo..................................  109
                                                                   --
TOTAL PREFERRED STOCKS (COST $6,477).............................  5,629
                                                                   --
<CAPTION>
      NO. OF
      RIGHTS
<C>            <S>
- ------------
RIGHTS (0.1%)
  BRAZIL (0.0%)
 *+1,402,746   Banco Bradesco....................................   2
                                                                   --
  PAKISTAN (0.0%)
       *+750   Dewan Salman Fibre................................  --
     *+5,250   Nishat Mills......................................   2
                                                                   --
                                                                    2
                                                                   --
  TURKEY (0.1%)
    *+65,000   Migros Turk.......................................  71
                                                                   --
TOTAL RIGHTS (COST $74)..........................................  75
                                                                   --
<CAPTION>
      NO. OF
    WARRANTS
<C>            <S>
- ------------
WARRANTS (0.0%)
  THAILAND
     *+3,800   National Finance & Securities Co. Ltd., expiring
                 11/15/99 (COST $0)..............................  --
                                                                   --
<CAPTION>
      SHARES
<C>            <S>
- ------------
PURCHASED OPTIONS (0.0%)
  BRAZIL (0.0%)
    +900,000   Cia Paulista De Forza e Luz call, expiring
                 10/16/95, strike price BR 70.00 (COST $0).......   1
                                                                   --
<CAPTION>
        FACE
      AMOUNT
       (000)
<C>            <S>
- ------------
FIXED INCOME SECURITIES (4.9%)
  CONVERTIBLE DEBENTURES (0.5%)
  COLOMBIA (0.3%)
  $     #170   Banco de Colombia 5.20%, 2/1/99...................  129
                                                                   --
  INDIA (0.2%)
         120   Tata Iron & Steel Co. 2.25%, 4/1/99...............  112
                                                                   --
TOTAL CONVERTIBLE DEBENTURES (COST $303).........................  241
                                                                   --
</TABLE>

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

                                       67
<PAGE>
                                 MORGAN STANLEY
                             EMERGING MARKETS FUND

- ---------------------------------------------------------------
                        PORTFOLIO OF INVESTMENTS (CONT.)
                                 JUNE 30, 1995
<TABLE>
<CAPTION>
        FACE
      AMOUNT                                                       VALUE
       (000)                                                       (000)
- ---------------------------------------------------------------------
<C>            <S>
LOAN AGREEMENTS (4.4%)
  RUSSIA (4.4%)
++/+++$6,500   Bank for Foreign Economic Affairs
                 (COST $1,741)...................................  $2,113
                                                                   --
TOTAL FIXED INCOME SECURITIES (COST $2,044)......................  2,354
                                                                   --
TOTAL FOREIGN SECURITIES (88.3%) (COST $44,380)..................  42,698
                                                                   --
SHORT TERM INVESTMENTS (13.9%)
  REPURCHASE AGREEMENT
  UNITED STATES
       6,706   U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
                 repurchased at $6,709, collateralized by $6,950
                 United States Treasury Bills, due 7/27/95,
                 valued at $6,923 (COST $6,706)                    6,706
                                                                   --
TOTAL INVESTMENT IN SECURITIES (COST $51,086)....................  49,404
                                                                   --
FOREIGN CURRENCY (1.1%)
   APS    66   Argentine Peso....................................  66
   BR     58   Brazilian Real....................................  63
  GR  14,091   Greek Drachma.....................................  62
   HK$     3   Hong Kong Dollar..................................  --
 IDN 518,430   Indonesian Rupiah.................................  $233
    MXN    5   Mexican New Peso..................................   1
   PKR 2,660   Pakistani Rupee...................................  86
   PLZ    14   Polish Zloty......................................   6
  T$     198   Taiwan Dollar.....................................   8
   TB    369   Thai Baht.........................................  15
                                                                   --
TOTAL FOREIGN CURRENCY (COST $540)...............................  540
                                                                   --
TOTAL INVESTMENTS (103.3%) (COST $51,626)........................  49,944
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.3%)....................  (1,608)
                                                                   --
NET ASSETS (100%)................................................  $48,336
                                                                   --
                                                                   --
</TABLE>

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

<TABLE>
<S>   <C> <C>
+       -- Non-income producing
          securities
++      -- Non-income producing
          securities -- in default
+++     -- Variable or floating rate
          securities.
*       -- Fair valued securities -- See
          Note A-1
@       -- The Fund is advised by an
          affiliate.
#       -- 144A Security -- certain
          conditions for pubic sale may
          exist.
ADR     -- American Depositary Receipt
ADS     -- American Depositary Shares
GDR     -- Global Depositary Receipt
</TABLE>

FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:

Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund  is obligated to deliver  U.S. dollars in exchange  for foreign currency as
indicated below:

<TABLE>
<CAPTION>
 CURRENCY                            IN EXCHANGE            NET UNREALIZED
TO DELIVER   VALUE    SETTLEMENT         FOR        VALUE        GAIN
  (000)      (000)       DATE           (000)       (000)       (000)
- ----------  -------   -----------   -------------- ------- ----------------
<S>         <C>       <C>           <C>            <C>     <C>
$     71    $   71        7/3/95        GR 16,193  $   72  $             1
$     51        51        7/3/95        PKR 1,573      51               --
$     77        77        7/3/95       PTE 11,198      77               --
$    150       150        7/3/95         ZAR  547     151                1
                                                                        --
            -------                                -------
            $  349                                 $  351  $             2
                                                                        --
                                                                        --
            -------                                -------
            -------                                -------
</TABLE>

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

<TABLE>
<S>   <C>   <C>
GR      --  Greek Drachma
PKR     --  Pakistani Rupee
PTE     --  Portuguese Escudo
ZAR     --  South African Rand
</TABLE>

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

            SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                           VALUE      PERCENT OF
INDUSTRY                                   (000)      NET ASSETS
<S>                                       <C>        <C>
- ------------------------------------------------------------------
Finance.................................  $ 12,619           26.1%
Consumer Goods..........................     7,904           16.4
Materials...............................     5,533           11.4
Capital Equipment.......................     4,347            9.0
Services................................     4,323            8.9
Energy..................................     3,666            7.6
Multi-Industry..........................     2,193            4.5
Loan Agreements.........................     2,113            4.4
                                          --------            ---
                                          $ 42,698           88.3%
                                          --------            ---
                                          --------            ---
</TABLE>

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

                                       68
<PAGE>
                              MORGAN STANLEY FUNDS
                      STATEMENT OF ASSETS AND LIABILITIES

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

                                 JUNE 30, 1995

<TABLE>
<CAPTION>
                                                                                       WORLDWIDE
                           GLOBAL EQUITY        GLOBAL         ASIAN      AMERICAN          HIGH         LATIN      EMERGING
                              ALLOCATION         FIXED        GROWTH         VALUE        INCOME      AMERICAN       MARKETS
                                    FUND   INCOME FUND          FUND          FUND          FUND          FUND          FUND
                                   (000)         (000)         (000)         (000)         (000)         (000)         (000)
<S>                        <C>             <C>           <C>           <C>           <C>           <C>           <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
  Investments in
   Securities, at Value*
   (Note 1) -- See
   accompanying
   portfolios              $      85,375   $    16,894   $   319,520   $    34,374   $    33,789   $    11,706   $    49,404
  Foreign Currency at
   Value                              83            --            99            --            --            78           540
  Cash                               134           399             1            --             1            --           332
  Receivable for:
    Investments Sold                 140            --           955            --         1,241           585           156
    Fund Shares Sold                 223             5           858           241           143           154           544
    Dividends                        278            --           714            57            --            21           103
    Interest                           1           410            --            --           522            11             5
    Foreign Withholding
     Tax Reclaim                      58            --            11            --            --            --            --
  Unrealized Gain on
   Forward Foreign
   Currency Contracts                292            --            --            --            --            --             2
  Deferred Organization
   Costs                              49            48            32            54            60            59            58
  Other                                4            --            26            --            --            --            --
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
    Total Assets                  86,637        17,756       322,216        34,726        35,756        12,614        51,144
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
LIABILITIES:
  Payable for:
    Investments Purchased          2,903           524         1,509            --         8,762           432         2,531
    Fund Shares Redeemed             221            26           926            11            16           183            27
    Bank Overdraft                    83            --            --            --            --           174            --
    Dividends                         --            28            --            50           148            --            --
    Investment Advisory
     Fees                            127            --           762            30            30             2            78
    Administrative Fees               25             5            82             8             7             4            12
    Custody Fees                      26             5           126             4             3            13            31
    Professional Fees                 30            30            40            19            30            30            28
    Distribution Fees                126            21           435            42            36            14            61
    Shareholder Reporting
     Expenses                         37             5           135            10             9            --            11
    Directors' Fees and
     Expenses                          2             2             2             2             2             2             2
    Filing and
     Registration Fees                11            10            35             8            14            17            27
  Unrealized Loss on
   Forward Foreign
   Currency Contracts                 --            43            --            --            --            --            --
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
    Total Liabilities              3,591           699         4,052           184         9,057           871         2,808
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
NET ASSETS                 $      83,046   $    17,057   $   318,164   $    34,542   $    26,699   $    11,743   $    48,336
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
Net Assets Consist Of:
  Capital Stock at Par     $           6   $         2   $        19   $         3   $         2   $         1   $         5
  Paid in Capital in
   Excess of Par                  76,810        16,770       291,244        32,428        27,093        15,494        50,944
  Undistributed
   (Distribution in
   excess of) Net
   Investment Income                (990)          330            --            13           165            --            94
  Accumulated
   (Distribution in
   excess of) Net
   Realized Gain (Loss)            2,162          (524)       (1,382)          143          (528)       (2,306)       (1,025)
  Unrealized Appreciation
   (Depreciation) on
   Investments and
   Foreign Currency                5,058           479        28,283         1,955           (33)       (1,446)       (1,682)
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
NET ASSETS                 $      83,046   $    17,057   $   318,164   $    34,542   $    26,699   $    11,743   $    48,336
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
CLASS A SHARES:
  Net Assets               $      42,586   $    11,092   $   178,667   $    20,675   $    14,819   $     7,658   $    26,091
  Shares Issued and
   Outstanding ($.001 par
   value) (Authorized
   2,625,000,000)                  3,379         1,084        10,878         1,604         1,281           844         2,459
  Net Asset Value and
   Redemption Price Per
   Share                   $       12.60   $     10.23   $     16.42   $     12.89   $     11.57   $      9.08   $     10.61
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
  Maximum Sales Charge             4.75%         4.75%         4.75%         4.75%         4.75%         4.75%         4.75%
  Maximum Offering Price
   Per Share (Net Asset
   Value Per Share x
   100/95.25)              $       13.23   $     10.74   $     17.24   $     13.53   $     12.15   $      9.53   $     11.14
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
CLASS C SHARES:+
  Net Assets               $      40,460   $     5,965   $   139,497   $    13,867   $    11,880   $     4,085   $    22,245
  Shares Issued and
   Outstanding ($.001 par
   value) (Authorized
   2,625,000,000)                  3,256           585         8,615         1,076         1,026           454         2,112
  Net Asset Value and
   Offering Price Per
   Share                   $       12.43   $     10.20   $     16.19   $     12.89   $     11.58   $      8.99   $     10.53
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
  Investments at Cost,
   Including Foreign
   Currency                $      80,663   $    16,382   $   291,336   $    32,419   $    33,822   $    13,230   $    51,626
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------
                           -------------   -----------   -----------   -----------   -----------   -----------   -----------

<FN>

*  Includes  repurchase agreements  aggregating $4,465,000,  $586,000, $883,000,
  $2,677,000, $6,983,000  and  $6,706,000  for Global  Equity  Allocation  Fund,
  Global  Fixed Income Fund,  Asian Growth Fund,  American Value Fund, Worldwide
  High Income Fund and Emerging Markets Fund, respectively.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       69
<PAGE>
                              MORGAN STANLEY FUNDS
                            STATEMENT OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                                 LATIN     EMERGING
                                                                                              AMERICAN      MARKETS
                               GLOBAL       GLOBAL                              WORLDWIDE         FUND         FUND
                               EQUITY        FIXED        ASIAN     AMERICAN         HIGH       PERIOD       PERIOD
                           ALLOCATION       INCOME       GROWTH        VALUE       INCOME         FROM         FROM
                                 FUND         FUND         FUND         FUND         FUND      JULY 6,      JULY 6,
                           YEAR ENDED   YEAR ENDED   YEAR ENDED   YEAR ENDED   YEAR ENDED        1994*        1994*
                             JUNE 30,     JUNE 30,     JUNE 30,     JUNE 30,     JUNE 30,      TO JUNE      TO JUNE
                                 1995         1995         1995         1995         1995     30, 1995     30, 1995
                                (000)        (000)        (000)        (000)        (000)        (000)        (000)
<S>                        <C>          <C>          <C>          <C>          <C>          <C>          <C>
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
  Dividends                $    2,067   $       --   $    5,353   $      819   $       --   $      156   $      376
  Interest                        219        1,147          740           82        2,648           35          440
  Less Foreign Taxes
   Withheld                      (231)          (9)        (500)          --           (3)         (12)         (30)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Total Income                2,055        1,138        5,593          901        2,645          179          786
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
EXPENSES:
  Investment Advisory
   Fees
    Basic Fee                     759          117        2,920          202          152          109          312
    Less: Fees Waived            (247)        (117)          --         (110)         (88)        (109)        (197)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
  Investment Advisory
   Fees -- Net                    512           --        2,920           92           64           --          115
  Administrative Fees             282           50          895           78           69           41           85
  Custodian Fees                  104           22          498           18           14           54          125
  Filing and Registration
   Fees                             5            2           12            4            4            6           17
  Directors' Fees and
   Expenses                        13           13           13           13            8            8            8
  Professional Fees                51           34           91           25           35           35           37
  Shareholder Reports              77           16          302           23           20           10           26
  Distribution Fees
    Class A                        98           25          403           36           28           15           34
    Class C+                      367           57        1,315           93           88           29          111
  Amortization of
   Organizational Costs            19           19           11           16           16           15           14
  Blue Sky Fees
    Class A                        16           16           25           13           16           16           16
    Class C+                       16           16           25           13           16           16           16
  Brazilian Tax Expense            --           --           --           --           --           32           46
  Other                             8            3           27            3            3           16           17
  Expenses Reimbursed by
   Adviser                         --           (4)          --           --           --          (56)          --
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Net Expenses                1,568          269        6,537          427          381          237          667
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------

Net Investment Income
 (Loss)                           487          869         (944)         474        2,264          (58)         119
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
NET REALIZED GAIN (LOSS)
 ON INVESTMENTS
  Securities Sold               2,238         (502)       4,934          362         (494)      (2,306)        (996)
  Foreign Currency
   Transactions                (2,101)          67          318           --           24          (34)         (68)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Total Net Realized
     Gain (Loss)                  137         (435)       5,252          362         (470)      (2,340)      (1,064)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
CHANGE IN UNREALIZED
 APPRECIATION
 (DEPRECIATION)                 3,795        1,228       19,182        2,637           82       (1,446)      (1,682)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
Total Net Realized Gain
 (Loss) and Change in
 Unrealized Appreciation
 (Depreciation)                 3,932          793       24,434        2,999         (388)      (3,786)      (2,746)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
NET INCREASE (DECREASE)
 IN NET ASSETS RESULTING
 FROM OPERATIONS           $    4,419   $    1,662   $   23,490   $    3,473   $    1,876   ($   3,844)  ($   2,627)
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
                           ----------   ----------   ----------   ----------   ----------   ----------   ----------
</TABLE>

- ---------------
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.

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

                                       70
<PAGE>
                              MORGAN STANLEY FUNDS
                       STATEMENT OF CHANGES IN NET ASSETS

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

                         GLOBAL EQUITY ALLOCATION FUND

<TABLE>
<CAPTION>
                                              YEAR ENDED       YEAR ENDED
                                           JUNE 30, 1994    JUNE 30, 1995
                                                   (000)            (000)
<S>                                       <C>              <C>
- -------------------------------------------------------------------------
OPERATIONS:
  Net Investment Income                   $          262   $          487
  Net Realized Gain on Investments                   632              137
  Change in Unrealized Appreciation                   86            3,795
                                          --------------   --------------
  Net Increase in Net Assets from
   Operations                                        980            4,419
                                          --------------   --------------
DISTRIBUTIONS:
  Net Investment Income:
  Class A                                            (50)              --
  Class C +                                           --               --
  In Excess of Net Investment Income:
  Class A                                             --             (168)
  Class C+                                            --              (82)
                                          --------------   --------------
                                                     (50)            (250)
                                          --------------   --------------
  Net Realized Gain:
  Class A                                           (127)            (427)
  Class C +                                          (85)            (407)
                                          --------------   --------------
                                                    (212)            (834)
                                          --------------   --------------
  Net Decrease in Net Assets Resulting
   from Distributions                               (262)          (1,084)
                                          --------------   --------------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                          59,445           32,645
  Distributions Reinvested                           243              996
  Redeemed                                       (14,518)         (17,247)
                                          --------------   --------------
  Net Increase in Net Assets Resulting
   from Capital Share Transactions                45,170           16,394
                                          --------------   --------------
  Total Increase in Net Assets                    45,888           19,729
NET ASSETS -- Beginning of Period                 17,429           63,317
                                          --------------   --------------
NET ASSETS -- End of Period (Including
  distributions in excess of net
  investment income of
  $104 and $990, respectively)            $       63,317   $       83,046
                                          --------------   --------------
                                          --------------   --------------
- -------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                        2,528            1,341
     Distributions Reinvested                         14               45
     Redeemed                                       (696)            (794)
                                          --------------   --------------
   Net Increase in Class A Shares
   Outstanding                                     1,846              592
                                          --------------   --------------
                                          --------------   --------------
   Dollars:
     Issued                               $       30,362   $       16,461
     Distributions Reinvested                        164              546
     Redeemed                                     (8,163)          (9,697)
                                          --------------   --------------
   Net Increase in Class A Shares
   Outstanding                            $       22,363   $        7,310
                                          --------------   --------------
                                          --------------   --------------
  Class C +
   Shares:
     Issued                                        2,421            1,329
     Distributions Reinvested                          6               38
     Redeemed                                       (548)            (623)
                                          --------------   --------------
   Net Increase in Class C Shares
   Outstanding                                     1,879              744
                                          --------------   --------------
                                          --------------   --------------
   Dollars:
     Issued                               $       29,083   $       16,184
     Distributions Reinvested                         79              450
     Redeemed                                     (6,355)          (7,550)
                                          --------------   --------------
   Net Increase in Class C Shares
   Outstanding                            $       22,807   $        9,084
                                          --------------   --------------
                                          --------------   --------------
- -------------------------------------------------------------------------
</TABLE>

+Class B Shares were renamed Class C Shares on May 1, 1995.

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

                                       71
<PAGE>
                              MORGAN STANLEY FUNDS
                       STATEMENT OF CHANGES IN NET ASSETS

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

                            GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
                                              YEAR ENDED           YEAR ENDED
                                           JUNE 30, 1994        JUNE 30, 1995
                                                   (000)                (000)
<S>                                       <C>              <C>
- -----------------------------------------------------------------------------
OPERATIONS:
  Net Investment Income                   $          619   $              869
  Net Realized Gain (Loss)                           504                 (435)
  Change in Unrealized Appreciation
   (Depreciation)                                 (1,219)               1,228
                                          --------------              -------
  Net Increase (Decrease) in Net Assets
   Resulting from Operations                         (96)               1,662
                                          --------------              -------
DISTRIBUTIONS:
  Net Investment Income:
  Class A                                           (371)                (369)
  Class C+                                          (248)                (173)
  In Excess of Net Investment Income:
  Class A                                            (93)                  --
  Class C+                                           (62)                  --
                                          --------------              -------
                                                    (774)                (542)
                                          --------------              -------
  Net Realized Gain:
  Class A                                           (267)                  --
  Class C+                                          (237)                  --
  In Excess of Net Realized Gain:
  Class A                                            (14)                  --
  Class C+                                           (13)                  --
                                          --------------              -------
                                                    (531)                  --
                                          --------------              -------
  Net Decrease in Net Assets Resulting
   from Distributions                             (1,305)                (542)
                                          --------------              -------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                          15,880                8,903
  Distributions Reinvested                           737                  328
  Redeemed                                       (12,193)              (9,070)
                                          --------------              -------
  Net Increase in Net Assets Resulting
   from Capital Share Transactions                 4,424                  161
                                          --------------              -------
  Total Increase in Net Assets                     3,023                1,281
NET ASSETS -- Beginning of Period                 12,753               15,776
                                          --------------              -------
NET ASSETS -- End of Period (Including
  undistributed (distributions in excess
  of) net investment income of $(28) and
  $330, respectively)                     $       15,776   $           17,057
                                          --------------              -------
                                          --------------              -------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                          989                  682
     Distributions Reinvested                         41                   27
     Redeemed                                       (572)                (712)
                                          --------------              -------
   Net Increase (Decrease) in Class A
   Shares Outstanding                                458                   (3)
                                          --------------              -------
                                          --------------              -------
   Dollars:
     Issued                               $       10,128   $            6,628
     Distributions Reinvested                        426                  258
     Redeemed                                     (5,980)              (6,878)
                                          --------------              -------
   Net Increase in Class A Shares
   Outstanding                            $        4,574   $                8
                                          --------------              -------
                                          --------------              -------
 Class C+:
   Shares:
     Issued                                          549                  239
     Distributions Reinvested                         30                    7
     Redeemed                                       (591)                (228)
                                          --------------              -------
   Net Increase (Decrease) in Class C
   Shares Outstanding                                (12)                  18
                                          --------------              -------
                                          --------------              -------
   Dollars:
     Issued                               $        5,752   $            2,275
     Distributions Reinvested                        311                   70
     Redeemed                                     (6,213)              (2,192)
                                          --------------              -------
   Net Increase (Decrease) in Class C
   Shares Outstanding                     $         (150)  $              153
                                          --------------              -------
                                          --------------              -------
- -----------------------------------------------------------------------------
</TABLE>

+Class B Shares were renamed Class C Shares on May 1, 1995.

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

                                       72
<PAGE>
                              MORGAN STANLEY FUNDS
                       STATEMENT OF CHANGES IN NET ASSETS

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

                               ASIAN GROWTH FUND

<TABLE>
<CAPTION>
                                               YEAR ENDED            YEAR ENDED
                                            JUNE 30, 1994         JUNE 30, 1995
                                                    (000)                 (000)
<S>                                       <C>               <C>
- -------------------------------------------------------------------------------
OPERATIONS:
  Net Investment Loss                     $          (984)  $              (944)
  Net Realized Gain on Investments                  4,723                 5,252
  Change in Unrealized Appreciation                 9,101                19,182
                                          ---------------              --------
  Net Increase in Net Assets Resulting
   from Operations                                 12,840                23,490
                                          ---------------              --------
DISTRIBUTIONS:
  Net Realized Gain:
  Class A                                              --                (4,935)
  Class C+                                             --                (4,055)
  In Excess of Net Realized Gain:
  Class A                                              --                  (241)
  Class C+                                             --                  (198)
                                          ---------------              --------
  Net Decrease in Net Assets Resulting
   from Distributions                                  --                (9,429)
                                          ---------------              --------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                          285,430               109,249
  Distributions Reinvested                             --                 8,260
  Redeemed                                        (63,430)              (68,507)
                                          ---------------              --------
  Net Increase in Net Assets Resulting
   from Capital Share Transactions                222,000                49,002
                                          ---------------              --------
  Total Increase in Net Assets                    234,840                63,063

NET ASSETS -- Beginning of Period                  20,261               255,101
                                          ---------------              --------
NET ASSETS -- End of Period               $       255,101   $           318,164
                                          ---------------              --------
                                          ---------------              --------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                        10,025                 3,855
     Distributions Reinvested                          --                   299
     Redeemed                                      (2,090)               (2,192)
                                          ---------------              --------
   Net Increase in Class A Shares
   Outstanding                                      7,935                 1,962
                                          ---------------              --------
                                          ---------------              --------
   Dollars:
     Issued                               $       150,145   $            62,609
     Distributions Reinvested                          --                 4,563
     Redeemed                                     (32,820)              (35,024)
                                          ---------------              --------
   Net Increase in Class A Shares
   Outstanding                            $       117,325   $            32,148
                                          ---------------              --------
                                          ---------------              --------
  Class C+
   Shares:
     Issued                                         8,840                 2,904
     Distributions Reinvested                          --                   245
     Redeemed                                      (1,959)               (2,123)
                                          ---------------              --------
   Net Increase in Class C Shares
   Outstanding                                      6,881                 1,026
                                          ---------------              --------
                                          ---------------              --------
   Dollars:
     Issued                               $       135,285   $            46,640
     Distributions Reinvested                          --                 3,697
     Redeemed                                     (30,610)              (33,483)
                                          ---------------              --------
   Net Increase in Class C Shares
   Outstanding                            $       104,675   $            16,854
                                          ---------------              --------
                                          ---------------              --------
- -------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       73
<PAGE>
                              MORGAN STANLEY FUNDS

                       STATEMENT OF CHANGES IN NET ASSETS

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

                              AMERICAN VALUE FUND

<TABLE>
<CAPTION>
                                                                                       OCTOBER 18, 1993* TO         YEAR ENDED
                                                                                              JUNE 30, 1994      JUNE 30, 1995
                                                                                                      (000)              (000)
<S>                                                                                    <C>                   <C>
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
  Net Investment Income                                                                $                183  $             474
  Net Realized Gain                                                                                     208                362
  Change in Unrealized Appreciation (Depreciation)                                                     (682)             2,637
                                                                                                    -------            -------
  Net Increase (Decrease) in Net Assets Resulting from Operations                                      (291)             3,473
                                                                                                    -------            -------
DISTRIBUTIONS:
  Net Investment Income:
  Class A                                                                                              (120)              (350)
  Class C+                                                                                              (59)              (143)
                                                                                                    -------            -------
                                                                                                       (179)              (493)
                                                                                                    -------            -------
  Net Realized Gain:
  Class A                                                                                                --               (260)
  Class C+                                                                                               --               (167)
                                                                                                    -------            -------
                                                                                                         --               (427)
                                                                                                    -------            -------
  Net Decrease in Net Assets Resulting from Distributions                                              (179)              (920)
                                                                                                    -------            -------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                                                                             18,925             15,936
  Distributions Reinvested                                                                               55                472
  Redeemed                                                                                             (556)            (2,373)
                                                                                                    -------            -------
  Net Increase in Net Assets Resulting from Capital Share Transactions                               18,424             14,035
                                                                                                    -------            -------
  Total Increase in Net Assets                                                                       17,954             16,588
NET ASSETS -- Beginning of Period                                                                        --             17,954
                                                                                                    -------            -------
NET ASSETS -- End of Period (Including undistributed net investment income of $16 and
  $13, respectively)                                                                   $             17,954  $          34,542
                                                                                                    -------            -------
                                                                                                    -------            -------
- ------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                                                                             940                794
     Distributions Reinvested                                                                             4                 29
     Redeemed                                                                                           (28)              (135)
                                                                                                    -------            -------
   Net Increase in Class A Shares Outstanding                                                           916                688
                                                                                                    -------            -------
                                                                                                    -------            -------
   Dollars:
     Issued                                                                            $             11,269  $           9,738
     Distributions Reinvested                                                                            42                351
     Redeemed                                                                                          (336)            (1,647)
                                                                                                    -------            -------
   Net Increase in Class A Shares Outstanding                                          $             10,975  $           8,442
                                                                                                    -------            -------
                                                                                                    -------            -------
  Class C+
   Shares:
     Issued                                                                                             636                506
     Distributions Reinvested                                                                             1                 11
     Redeemed                                                                                           (18)               (60)
                                                                                                    -------            -------
   Net Increase in Class C Shares Outstanding                                                           619                457
                                                                                                    -------            -------
                                                                                                    -------            -------
   Dollars:
     Issued                                                                            $              7,656  $           6,198
     Distributions Reinvested                                                                            13                121
     Redeemed                                                                                          (220)              (726)
                                                                                                    -------            -------
   Net Increase in Class C Shares Outstanding                                          $              7,449  $           5,593
                                                                                                    -------            -------
                                                                                                    -------            -------
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       74
<PAGE>
                              MORGAN STANLEY FUNDS

                       STATEMENT OF CHANGES IN NET ASSETS

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

                           WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
                                                                                                    YEAR ENDED     YEAR ENDED
                                                                                                 JUNE 30, 1994  JUNE 30, 1995
                                                                                                         (000)          (000)
<S>                                                                                              <C>            <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
  Net Investment Income                                                                          $         183  $       2,264
  Net Realized Gain (Loss) on Investments                                                                  192           (470)
  Change in Unrealized Appreciation (Depreciation)                                                        (115)            82
                                                                                                 -------------  -------------
  Net Increase in Net Assets Resulting from Operations                                                     260          1,876
                                                                                                 -------------  -------------
DISTRIBUTIONS:
  Net Investment Income:
  Class A                                                                                                  (94)        (1,262)
  Class C+                                                                                                 (76)          (906)
                                                                                                 -------------  -------------
                                                                                                          (170)        (2,168)
                                                                                                 -------------  -------------
  Net Realized Gain:
  Class A                                                                                                   --           (104)
  Class C+                                                                                                  --            (97)
                                                                                                 -------------  -------------
                                                                                                            --           (201)
                                                                                                 -------------  -------------
  Net Decrease in Net Assets Resulting from Distributions                                                 (170)        (2,369)
                                                                                                 -------------  -------------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                                                                                12,701         21,132
  Distributions Reinvested                                                                                 161            918
  Redeemed                                                                                                 (14)        (7,796)
                                                                                                 -------------  -------------
  Net Increase in Net Assets Resulting from Capital Share Transactions                                  12,848         14,254
                                                                                                 -------------  -------------
  Total Increase in Net Assets                                                                          12,938         13,761

NET ASSETS -- Beginning of Period                                                                           --         12,938
                                                                                                 -------------  -------------
NET ASSETS -- End of Period (Including undistributed net investment income of $15 and $165,
  respectively)                                                                                  $      12,938  $      26,699
                                                                                                 -------------  -------------
                                                                                                 -------------  -------------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                                                                                557          1,277
     Distributions Reinvested                                                                                7             51
     Redeemed                                                                                               --           (611)
                                                                                                 -------------  -------------
   Net Increase in Class A Shares Outstanding                                                              564            717
                                                                                                 -------------  -------------
                                                                                                 -------------  -------------
   Dollars:
     Issued                                                                                      $       6,729  $      14,466
     Distributions Reinvested                                                                               88            542
     Redeemed                                                                                               (2)        (6,987)
                                                                                                 -------------  -------------
   Net Increase in Class A Shares Outstanding                                                    $       6,815  $       8,021
                                                                                                 -------------  -------------
                                                                                                 -------------  -------------
   Class C+
   Shares:
     Issued                                                                                                495            564
     Distributions Reinvested                                                                                6             35
     Redeemed                                                                                               (1)           (73)
                                                                                                 -------------  -------------
   Net Increase in Class C Shares Outstanding                                                              500            526
                                                                                                 -------------  -------------
                                                                                                 -------------  -------------
   Dollars:
     Issued                                                                                      $       5,972  $       6,666
     Distributions Reinvested                                                                               73            376
     Redeemed                                                                                              (12)          (809)
                                                                                                 -------------  -------------
   Net Increase in Class C Shares Outstanding                                                    $       6,033  $       6,233
                                                                                                 -------------  -------------
                                                                                                 -------------  -------------
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       75
<PAGE>
                              MORGAN STANLEY FUNDS

                       STATEMENT OF CHANGES IN NET ASSETS

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

                              LATIN AMERICAN FUND

<TABLE>
<CAPTION>
                                                               JULY 6, 1994* TO
                                                                  JUNE 30, 1995
                                                                          (000)
<S>                                                           <C>
- -------------------------------------------------------------------------------
OPERATIONS:
  Net Investment Loss                                         $             (58)
  Net Realized Loss on Investments                                       (2,340)
  Change in Unrealized Depreciation                                      (1,446)
                                                                        -------
  Net Decrease in Net Assets Resulting from Operations                   (3,844)
                                                                        -------
DISTRIBUTIONS:
  Paid in Capital:
  Class A                                                                  (124)
  Class C+                                                                  (50)
                                                                        -------
  Net Decrease in Net Assets Resulting from Distributions                  (174)
                                                                        -------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                                                 21,076
  Distributions Reinvested                                                  135
  Redeemed                                                               (5,450)
                                                                        -------
  Net Increase in Net Assets Resulting from Capital Share
   Transactions                                                          15,761
                                                                        -------
  Total Increase in Net Assets                                           11,743

NET ASSETS -- Beginning of Period                                            --
                                                                        -------
NET ASSETS -- End of Period                                   $          11,743
                                                                        -------
                                                                        -------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                                               1,235
     Distributions Reinvested                                                 9
     Redeemed                                                              (400)
                                                                        -------
   Net Increase in Class A Shares Outstanding                               844
                                                                        -------
                                                                        -------
   Dollars:
     Issued                                                   $          14,271
     Distributions Reinvested                                               103
     Redeemed                                                            (3,781)
                                                                        -------
   Net Increase in Class A Shares Outstanding                 $          10,593
                                                                        -------
                                                                        -------
  Class C+
   Shares:
     Issued                                                                 613
     Distributions Reinvested                                                 3
     Redeemed                                                              (162)
                                                                        -------
   Net Increase in Class C Shares Outstanding                               454
                                                                        -------
                                                                        -------
   Dollars:
     Issued                                                   $           6,805
     Distributions Reinvested                                                32
     Redeemed                                                            (1,669)
                                                                        -------
   Net Increase in Class C Shares Outstanding                 $           5,168
                                                                        -------
                                                                        -------
- -------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       76
<PAGE>
                              MORGAN STANLEY FUNDS

                       STATEMENT OF CHANGES IN NET ASSETS

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

                             EMERGING MARKETS FUND

<TABLE>
<CAPTION>
                                                            JULY 6, 1994* TO
                                                              JUNE 30, 1995
                                                                  (000)
<S>                                                         <C>
- -----------------------------------------------------------------------------
OPERATIONS:
  Net Investment Income                                     $             119
  Net Realized Loss on Investments                                     (1,064)
  Change in Unrealized Depreciation                                    (1,682)
                                                                      -------
  Net Decrease in Net Assets Resulting from Operations                 (2,627)
                                                                      -------
CAPITAL SHARE TRANSACTIONS (1):
  Issued                                                               57,700
  Redeemed                                                             (6,737)
                                                                      -------
  Net Increase in Net Assets Resulting from Capital Share
   Transactions                                                        50,963
                                                                      -------
  Total Increase in Net Assets                                         48,336
NET ASSETS -- Beginning of Period                                          --
                                                                      -------
NET ASSETS -- End of Period (Including undistributed net
  investment income of $94)                                 $          48,336
                                                                      -------
                                                                      -------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
   Shares:
     Issued                                                             2,800
     Redeemed                                                            (341)
                                                                      -------
   Net Increase in Class A Shares Outstanding                           2,459
                                                                      -------
                                                                      -------
   Dollars:
     Issued                                                 $          31,244
     Redeemed                                                          (3,679)
                                                                      -------
   Net Increase in Class A Shares Outstanding               $          27,565
                                                                      -------
                                                                      -------
   Class C+
   Shares:
     Issued                                                             2,392
     Redeemed                                                            (280)
                                                                      -------
   Net Increase in Class C Shares Outstanding                           2,112
                                                                      -------
                                                                      -------
   Dollars:
     Issued                                                 $          26,456
     Redeemed                                                          (3,058)
                                                                      -------
   Net Increase in Class C Shares Outstanding               $          23,398
                                                                      -------
                                                                      -------
- -----------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>

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

                                       77
<PAGE>
                              MORGAN STANLEY FUNDS
                              FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
                                              CLASS A                                         CLASS C+
                           ----------------------------------------------  ----------------------------------------------
SELECTED PER SHARE DATA    JANUARY 4, 1993*     YEAR ENDED     YEAR ENDED  JANUARY 4, 1993*     YEAR ENDED     YEAR ENDED
  AND RATIOS               TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995  TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995
<S>                        <C>               <C>            <C>            <C>               <C>            <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
  BEGINNING OF PERIOD      $          10.00  $       11.09  $       11.99  $          10.00  $       11.05  $       11.90
                                    -------  -------------  -------------            ------  -------------  -------------
INCOME FROM INVESTMENT
  OPERATIONS
  Net Investment Income                0.04           0.10           0.12              0.01           0.06           0.04
  Net Realized and
   Unrealized Gain                     1.05           0.90           0.67              1.04           0.86           0.65
                                    -------  -------------  -------------            ------  -------------  -------------
  Total From Investment
   Operations                          1.09           1.00           0.79              1.05           0.92           0.69
                                    -------  -------------  -------------            ------  -------------  -------------
DISTRIBUTIONS
  Net Investment Income                  --          (0.03)            --                --             --             --
  In Excess of Net
   Investment Income                     --             --          (0.05)               --             --          (0.03)
  Net Realized Gain                      --          (0.07)         (0.13)               --          (0.07)         (0.13)
                                    -------  -------------  -------------            ------  -------------  -------------
  Total Distributions                    --          (0.10)         (0.18)               --          (0.07)         (0.16)
                                    -------  -------------  -------------            ------  -------------  -------------
NET ASSET VALUE, END OF
  PERIOD                   $          11.09  $       11.99  $       12.60  $          11.05  $       11.90  $       12.43
                                    -------  -------------  -------------            ------  -------------  -------------
                                    -------  -------------  -------------            ------  -------------  -------------
TOTAL RETURN(1)                       10.90%          9.02%          6.69%            10.50%          8.34%          5.84%
                                    -------  -------------  -------------            ------  -------------  -------------
                                    -------  -------------  -------------            ------  -------------  -------------
RATIOS AND SUPPLEMENTAL
  DATA
Net Assets, End of Period
  (000's)                  $         10,434  $      33,425  $      42,586  $          6,995  $      29,892  $      40,460
Ratio of Expenses to
  Average Net Assets                   1.70%**          1.70%          1.70%             2.45%**          2.45%          2.45%
Ratio of Net Investment
  Income to Average Net
  Assets                               1.04%**          0.98%          1.01%             0.29%**          0.23%          0.25%
Portfolio Turnover Rate                  14%            30%            39%               14%            30%            39%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to
   Net Investment Income   $           0.08  $        0.09  $        0.04  $           0.07  $        0.12  $        0.05
Ratios Before Expense
  Limitation:
  Expenses to Average Net
   Assets                              3.65%**          2.58%          2.03%             4.40%**          3.34%          2.78%
  Net Investment Income
   (Loss) to Average Net
   Assets                             (0.91 %**          0.10%          0.68%            (1.66 %**         (0.66)%         (0.08)%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

                            GLOBAL FIXED INCOME FUND

<TABLE>
<CAPTION>
                                                   CLASS A                                         CLASS C+
                                ----------------------------------------------  ----------------------------------------------
SELECTED PER SHARE DATA AND     JANUARY 4, 1993*     YEAR ENDED     YEAR ENDED  JANUARY 4, 1993*     YEAR ENDED     YEAR ENDED
  RATIOS                        TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995  TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995
<S>                             <C>               <C>            <C>            <C>               <C>            <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
  PERIOD                        $          10.00  $       10.55  $        9.53  $          10.00  $       10.56  $        9.54
                                          ------  -------------  -------------            ------         ------         ------
INCOME FROM INVESTMENT
  OPERATIONS
  Net Investment Income                     0.25           0.52           0.56              0.21           0.43           0.49
  Net Realized and Unrealized
   Gain (Loss)                              0.55          (0.42)          0.50              0.55          (0.40)          0.47
                                          ------  -------------  -------------            ------         ------         ------
  Total From Investment
   Operations                               0.80           0.10           1.06              0.76           0.03           0.96
                                          ------  -------------  -------------            ------         ------         ------
DISTRIBUTIONS
  Net Investment Income                    (0.25)         (0.50)         (0.36)            (0.20)         (0.44)         (0.30)
  In Excess of Net Investment
   Income                                     --          (0.12)            --                --          (0.11)            --
  Net Realized Gain                           --          (0.47)            --                --          (0.47)            --
  In Excess of Net Realized
   Gain                                       --          (0.03)            --                --          (0.03)            --
                                          ------  -------------  -------------            ------         ------         ------
  Total Distributions                      (0.25)         (1.12)         (0.36)            (0.20)         (1.05)         (0.30)
                                          ------  -------------  -------------            ------         ------         ------
NET ASSET VALUE, END OF PERIOD  $          10.55  $        9.53  $       10.23  $          10.56  $        9.54  $       10.20
                                          ------  -------------  -------------            ------         ------         ------
                                          ------  -------------  -------------            ------         ------         ------
TOTAL RETURN(1)                             8.02%          0.41%         11.41%             7.61%         (0.25)%         10.24%
                                          ------  -------------  -------------            ------         ------         ------
                                          ------  -------------  -------------            ------         ------         ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
  (000's)                       $          6,633  $      10,369  $      11,092  $          6,120  $       5,407  $       5,965
Ratio of Expenses to Average
  Net Assets                                1.45%**          1.45%          1.45%             2.20%**          2.20%          2.20%
Ratio of Net Investment Income
  to Average Net Assets                     5.00%**          4.70%          5.84%             4.25%**          3.95%          5.09%
Portfolio Turnover Rate                       55%           168%           169%               55%           168%           169%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to Net
   Investment Income            $           0.07  $        0.11  $        0.07  $           0.07  $        0.12  $        0.08
Ratios Before Expense
  Limitation:
  Expenses to Average Net
   Assets                                   2.88%**          2.48%          2.22%             3.63%**          3.29%          2.97%
  Net Investment Income to
   Average Net Assets                       3.57%**          3.67%          5.07%             2.82%**          2.86%          4.32%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
 * Commencement of operations
 ** Annualized
 + Class B Shares were renamed Class C Shares on May 1, 1995.
   (1) Total return is calculated exclusive of sales charges or deferred sales
       charges. Total returns for periods of less than one year are not
       annualized.
</TABLE>

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

                                       78
<PAGE>
                              MORGAN STANLEY FUNDS
                              FINANCIAL HIGHLIGHTS

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

                               ASIAN GROWTH FUND

<TABLE>
<CAPTION>
                                         CLASS A                                         CLASS C+
                      ----------------------------------------------  ----------------------------------------------
SELECTED PER SHARE      JUNE 23, 1993*     YEAR ENDED     YEAR ENDED    JUNE 23, 1993*     YEAR ENDED     YEAR ENDED
  DATA AND RATIOS     TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995  TO JUNE 30, 1993  JUNE 30, 1994  JUNE 30, 1995
<S>                   <C>               <C>            <C>            <C>               <C>            <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
  BEGINNING OF
  PERIOD              $          12.00  $       12.00  $       15.50  $          12.00  $       12.00  $       15.40
                               -------  -------------  -------------           -------  -------------  -------------
INCOME FROM
  INVESTMENT
  OPERATIONS
  Net Investment
   Loss                             --          (0.03)            --                --          (0.10)         (0.12)
  Net Realized and
   Unrealized Gain                  --           3.53           1.43                --           3.50           1.42
                               -------  -------------  -------------           -------  -------------  -------------
  Total From
   Investment
   Operations                       --           3.50           1.43                --           3.40           1.30
                               -------  -------------  -------------           -------  -------------  -------------
DISTRIBUTIONS
  Net Realized Gain                 --             --          (0.49)               --             --          (0.49)
  In Excess of Net
   Realized Gain                    --             --          (0.02)               --             --          (0.02)
                               -------  -------------  -------------           -------  -------------  -------------
                                    --             --          (0.51)               --             --          (0.51)
                               -------  -------------  -------------           -------  -------------  -------------
NET ASSET VALUE, END
  OF PERIOD           $          12.00  $       15.50  $       16.42  $          12.00  $       15.40  $       16.19
                               -------  -------------  -------------           -------  -------------  -------------
                               -------  -------------  -------------           -------  -------------  -------------
TOTAL RETURN(1)                   0.00%         29.17%          9.50%             0.00%         28.33%          8.71%
                               -------  -------------  -------------           -------  -------------  -------------
                               -------  -------------  -------------           -------  -------------  -------------
RATIOS AND
  SUPPLEMENTAL DATA
Net Assets, End of
  Period (000's)      $         11,770  $     138,212  $     178,667  $          8,491  $     116,889  $     139,497
Ratio of Expenses to
  Average Net Assets              1.90%**          1.90%          1.90%             2.65%**          2.65%          2.65%
Ratio of Net
  Investment Income
  (Loss) to Average
  Net Assets                     (0.81 %**         (0.24)%          0.04%            (1.56 %**         (0.99)%         (0.77)%
Portfolio Turnover
  Rate                               0%            34%            34%                0%            34%            34%
- --------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit
   to Net Investment
   Loss               $           0.01  $        0.03             --  $           0.02  $        0.03             --
Ratios Before
  Expense Limitation
  Expenses to
   Average Net
   Assets                        11.83%**          2.17%          1.90%            12.64%**          2.92%          2.65%
  Net Investment
   Income (Loss) to
   Average Net
   Assets                       (10.74 %**         (0.51)%          0.04%           (11.55 %**         (1.26)%         (0.77)%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

                              AMERICAN VALUE FUND

<TABLE>
<CAPTION>
                                                           CLASS A                           CLASS C+
                                               --------------------------------  --------------------------------
                                               OCTOBER 18, 1993*     YEAR ENDED  OCTOBER 18, 1993*     YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS              TO JUNE 30, 1994  JUNE 30, 1995   TO JUNE 30, 1994  JUNE 30, 1995
<S>                                            <C>                <C>            <C>                <C>
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD           $           12.00  $       11.70  $           12.00  $       11.69
                                                         -------  -------------             ------  -------------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income                                     0.17           0.27               0.11           0.17
  Net Realized and Unrealized Gain (Loss)                  (0.30)          1.44              (0.31)          1.44
                                                         -------  -------------             ------  -------------
  Total from Investment Operations                         (0.13)          1.71              (0.20)          1.61
                                                         -------  -------------             ------  -------------
DISTRIBUTIONS
  Net Investment Income                                    (0.17)         (0.28)             (0.11)         (0.17)
  Net Realized Gain                                           --          (0.24)                --          (0.24)
                                                         -------  -------------             ------  -------------
  Total Distributions                                      (0.17)         (0.52)             (0.11)         (0.41)
                                                         -------  -------------             ------  -------------
NET ASSET VALUE, END OF PERIOD                 $           11.70  $       12.89  $           11.69  $       12.89
                                                         -------  -------------             ------  -------------
                                                         -------  -------------             ------  -------------
TOTAL RETURN(1)                                            (1.12)%         15.01%             (1.70)%         14.13%
                                                         -------  -------------             ------  -------------
                                                         -------  -------------             ------  -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)              $          10,717  $      20,675  $           7,237  $      13,867
Ratio of Expenses to Average Net Assets                     1.50%**          1.50%              2.25%**          2.25%
Ratio of Net Investment Income to Average Net
  Assets                                                    2.14%**          2.29%              1.39%**          1.54%
Portfolio Turnover Rate                                       17%            23%                17%            23%
- -----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to Net Investment Income   $            0.08  $        0.05  $            0.08  $        0.05
Ratios Before Expense Limitation:
  Expenses to Average Net Assets                            2.48%**          1.96%              3.28%**          2.71%
  Net Investment Income to Average Net Assets               1.16%**          1.83%              0.36%**          1.08%
- -----------------------------------------------------------------------------------------------------------------
<FN>
  * Commencement of operations
 ** Annualized
  +   Class  B   Shares  were   renamed  Class   C  Shares   on  May   1,  1995.
 (1) Total return  is calculated exclusive  of sales charges  or deferred  sales
charges.  Total returns for  periods of less  than one year  are not annualized.
</TABLE>

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

                                       79
<PAGE>
                              MORGAN STANLEY FUNDS
                              FINANCIAL HIGHLIGHTS

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

                           WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
                                                      CLASS A                         CLASS C+
                                          -------------------------------  -------------------------------
                                           APRIL 21, 1994*     YEAR ENDED   APRIL 21, 1994*     YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS        TO JUNE 30, 1994  JUNE 30, 1995  TO JUNE 30, 1994  JUNE 30, 1995
<S>                                       <C>               <C>            <C>               <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD      $          12.00  $       12.17  $          12.00  $       12.16
                                                    ------  -------------            ------  -------------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income                               0.18           1.26              0.17           1.17
  Net Realized and Unrealized Gain
   (Loss)                                             0.16          (0.52)             0.15          (0.50)
                                                    ------  -------------            ------  -------------
  Total From Investment Operations                    0.34           0.74              0.32           0.67
                                                    ------  -------------            ------  -------------
DISTRIBUTIONS
  Net Investment Income                              (0.17)         (1.22)            (0.16)         (1.13)
  Net Realized Gain                                     --          (0.12)               --          (0.12)
                                                    ------  -------------            ------  -------------
  Total Distributions                                (0.17)         (1.34)            (0.16)         (1.25)
                                                    ------  -------------            ------  -------------
NET ASSET VALUE, END OF PERIOD            $          12.17  $       11.57  $          12.16  $       11.58
                                                    ------  -------------            ------  -------------
                                                    ------  -------------            ------  -------------
TOTAL RETURN(1)                                       2.86%          6.87%             2.62%          6.20%
                                                    ------  -------------            ------  -------------
                                                    ------  -------------            ------  -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)         $          6,857  $      14,819  $          6,081  $      11,880
Ratio of Expenses to Average Net Assets               1.55%**          1.55%             2.30%**          2.30%
Ratio of Net Investment Income to
  Average Net Assets                                  8.29%**         11.53%             7.54%**         10.72%
Portfolio Turnover Rate                                 19%           178%               19%           178%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to Net Investment
   Income                                 $           0.02  $        0.05  $           0.06  $        0.05
Ratios Before Expense Limitation:
  Expenses to Average Net Assets                      3.23%**          1.97%             4.00%**          2.74%
  Net Investment Income to Average Net
   Assets                                             6.61%**         11.11%             5.84%**         10.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>

                              LATIN AMERICAN FUND

<TABLE>
<CAPTION>
                                                                                      CLASS A           CLASS C+
                                                                                  ----------------  ----------------
                                                                                     JULY 6, 1994*     JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS                                                TO JUNE 30, 1995  TO JUNE 30, 1995
<S>                                                                               <C>               <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD                                              $          12.00  $          12.00
                                                                                          --------          --------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Loss                                                                        (0.02)            (0.08)
  Net Realized and Unrealized Loss                                                           (2.70)            (2.73)
                                                                                          --------          --------
  Total From Investment Operations                                                           (2.72)            (2.81)
                                                                                          --------          --------
DISTRIBUTIONS
  Paid in Capital                                                                            (0.20)            (0.20)
                                                                                          --------          --------
NET ASSET VALUE, END OF PERIOD                                                    $           9.08  $           8.99
                                                                                          --------          --------
                                                                                          --------          --------
TOTAL RETURN(1)                                                                             (23.07)%           (23.83)%
                                                                                          --------          --------
                                                                                          --------          --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)                                                 $          7,658  $          4,085
Ratio of Expenses to Average Net Assets                                                       2.46%**/\             3.20%**/\
Ratio of Net Investment Loss to Average Net Assets                                           (0.44 %**            (1.16)%**
Portfolio Turnover Rate                                                                        107%              107%
- --------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to Net Investment Loss                                        $           0.13  $           0.12
Ratios Before Expense Limitation:
  Expenses to Average Net Assets (Including Brazilian Tax Expense)                            4.30%**             5.20%**
  Net Investment Loss to Average Net Assets                                                  (2.26 %**            (3.16)%**
 /\ The ratio of expenses to average net assets includes Brazilian tax expense. Without the effect of the  Brazilian
    tax  expense, the ratio of expenses to  average net assets would have been  2.10%** and 2.85%**, for Class A and
    Class C+, respectively.
- --------------------------------------------------------------------------------------------------------------------
<FN>
 * Commencement of operations.
 ** Annualized
 + Class B Shares were renamed Class C Shares on May 1, 1995.
   (1) Total return is calculated exclusive of sales charges or deferred sales
       charges. Total returns for periods of less than one year are not
       annualized.
</TABLE>

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

                                       80
<PAGE>
                              MORGAN STANLEY FUNDS
                              FINANCIAL HIGHLIGHTS

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

                             EMERGING MARKETS FUND

<TABLE>
<CAPTION>
                                                                            CLASS A           CLASS C+
                                                                        ----------------  ----------------
                                                                           JULY 6, 1994*     JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS                                      TO JUNE 30, 1995  TO JUNE 30, 1995
<S>                                                                     <C>               <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD                                    $          12.00  $          12.00
                                                                                 -------           -------
INCOME FROM INVESTMENT OPERATIONS
  Net Investment Income                                                             0.05                --
  Net Realized and Unrealized Loss                                                 (1.44)            (1.47)
                                                                                 -------           -------
  Total From Investment Operations                                                 (1.39)            (1.47)
                                                                                 -------           -------
NET ASSET VALUE, END OF PERIOD                                          $          10.61  $          10.53
                                                                                 -------           -------
                                                                                 -------           -------
TOTAL RETURN(1)                                                                   (11.58)%           (12.25)%
                                                                                 -------           -------
                                                                                 -------           -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)                                       $         26,091  $         22,245
Ratio of Expenses to Average Net Assets                                             2.33%**/\             3.08%**/\
Ratio of Net Investment Income to Average Net Assets                                0.81%**             0.06%**
Portfolio Turnover Rate                                                               32%               32%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
  Per Share Benefit to Net Investment Income                            $           0.04  $           0.04
Ratios Before Expense Limitation:
  Expenses to Average Net Assets                                                    3.10%**             3.90%**
  Net Investment Income (Loss) to Average Net Assets                                0.04%**            (0.76)%**

 /\ The ratio of expenses to average net assets includes Brazilian tax expense. Without the effect of  the
    Brazilian  tax  expense, the  ratio of  expenses to  average net  assets would  have been  2.15%** and
    2.90%**, for Class A and Class C, respectively.
- ----------------------------------------------------------------------------------------------------------
<FN>
  * Commencement of operations
 ** Annualized
  + Class B Shares were renamed Class C Shares on May 1, 1995.
 (1) Total return is calculated exclusive of sales charges or deferred sales
     charges. Total returns for periods of less than one year are not
    annualized.
</TABLE>

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

                                       81
<PAGE>
                              MORGAN STANLEY FUNDS
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1995

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

Morgan  Stanley  Fund, Inc.  (the  "Fund") was  incorporated  under the  laws of
Maryland on August  14, 1992 and  commenced operations on  January 4, 1993.  The
Fund  is registered under the Investment Company  Act of 1940, as amended, as an
open-end  management  investment  company  which  offers  redeemable  shares  of
diversified  and non-diversified investment portfolios. As of June 30, 1995, the
Fund had  seven separate  active investment  portfolios: Morgan  Stanley  Global
Equity  Allocation Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley
Asian Growth Fund, Morgan Stanley American Value Fund, Morgan Stanley  Worldwide
High Income Fund, Morgan Stanley Latin American Fund and Morgan Stanley Emerging
Markets  Fund  (referred to  herein  respectively as  "Global  Equity Allocation
Fund", "Global Fixed Income Fund",  "Asian Growth Fund", "American Value  Fund",
"Worldwide  High  Income Fund",  "Latin  American Fund",  and  "Emerging Markets
Fund", and collectively as the "Portfolios"). The Fund currently offers Class  A
and  Class C  shares of each  Portfolio. The  current Class C  shares were named
Class B shares until May 1, 1995 when such shares were renamed Class C.

A. ACCOUNTING POLICIES:  The following  is a summary  of significant  accounting
policies  for the Fund. Such policies  are in conformity with generally accepted
accounting principles for investment companies and are consistently followed  by
the Fund in the preparation of the financial statements.

1.  SECURITY  VALUATION:  Equity securities  listed  on an  exchange  and equity
securities traded on NASDAQ are valued at  the latest quoted sales price on  the
valuation  date. Securities  listed on  a foreign  exchange are  valued at their
closing price.  Unlisted securities  and  listed securities  not traded  on  the
valuation  date for which market quotations  are readily available are valued at
the average of the  mean between the  current bid and asked  prices, if any,  of
reputable  brokers. Bonds and other fixed income securities are valued according
to the broadest  and most representative  market. In addition,  bonds and  other
fixed  income securities are valued on the basis of prices provided by a pricing
service which  are based  primarily  on institutional  size trading  in  similar
groups  of securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value.  All
other  securities and assets for which  market values are not readily available,
including restricted securities, are valued at fair value as determined in  good
faith by the Board of Directors, although the actual calculations may be done by
others.

2.  INCOME TAXES:  It is  each Portfolio's intention  to qualify  as a regulated
investment company and  distribute all  of its taxable  income. Accordingly,  no
provision for Federal income taxes is required in the financial statements.

The  Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are  generally based  on either  income earned  or repatriated,  or  gains
realized. The Fund accrues such taxes when the related income is earned or gains
are  realized. In addition, effective January  1, 1994, the Brazilian government
announced a 0.25% tax on banking transaction debits (withdrawals). This tax  was
subsequently  repealed  as of  January 1,  1995.  The Brazilian  government also
assessed a 1% tax on all settlements of foreign currency used to purchase listed
equity securities. This tax was repealed on March 9, 1995.

Paid in capital in excess of par, undistributed (distributions in excess of) net
investment income and accumulated (distributions in excess of) net realized gain
have  been  adjusted  for  permanent  book-tax  differences,  if  any,  for  the
Portfolios.

At  June 30, 1995, Global Fixed Income  Fund had a capital loss carryforward for
Federal income tax purposes of approximately $366,000 which will expire June 30,
2003. To  the  extent  that  such carryforward  is  utilized,  no  capital  gain
distribution will be made.

For  the  year ended  June 30,  1995,  Emerging Markets  Fund and  Global Equity
Allocation Fund deferred for Federal income  tax purposes to July 1, 1995,  post
October  currency losses  of approximately  $44,000 and  $715,000, respectively.
Emerging Markets Fund,  American Value Fund  and Global Fixed  Income Fund  also
deferred to July 1, 1995, post October capital losses of approximately $928,000,
$60,000 and $154,000, respectively.

3.   REPURCHASE  AGREEMENTS:  In  connection  with  transactions  in  repurchase
agreements, a bank  acting as  custodian for the  Fund takes  possession of  the
underlying  securities, the value  of which is  at least equal  to the principal
amount of the repurchase transaction, including accrued interest. To the  extent
that  any  repurchase transaction  exceeds one  business day,  the value  of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event  of default on the  obligation to repurchase, the  Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of  the obligation. In the event of default  or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.

                                       82
<PAGE>
                              MORGAN STANLEY FUNDS
                     NOTES TO FINANCIAL STATEMENTS (CONT.)
                                 JUNE 30, 1995

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

4. FOREIGN CURRENCY TRANSLATION AND  FOREIGN INVESTMENTS: The books and  records
of  the Fund are  maintained in United States  dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars  last quoted by a  major bank. Although the  net
assets of the Fund are presented at the foreign exchange rates and market values
at  the close  of the  period, the  Fund does  not isolate  that portion  of the
results of operations  arising as a  result of changes  in the foreign  exchange
rates  from the fluctuations  arising from changes  in the market  prices of the
securities held at period end. Similarly,  the Fund does not isolate the  effect
of  changes in foreign exchange rates from the fluctuations arising from changes
in the market prices of securities sold during the period. Accordingly, realized
and unrealized foreign currency gains (losses) are included in the reported  net
realized  and unrealized gains  (losses) on security  transactions and balances.
However, pursuant to U.S. Federal income tax regulations, gains and losses  from
certain  foreign  currency transactions  and sales  of foreign  denominated debt
securities are treated as ordinary income for U.S. Federal income tax purposes.

Net realized  gains  (losses) on  foreign  currency transactions  represent  net
foreign  exchange  gains  (losses)  from  forward  foreign  currency  contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement  dates on securities  transactions, the difference  between
the  amount of investment  income and foreign withholding  taxes recorded on the
Fund's books and the  U.S. dollar equivalent amount  actually received or  paid,
and  certain currency related amounts of realized  gains or losses from the sale
of foreign denominated debt securities.

Foreign security and  currency transactions may  involve certain  considerations
and  risks  not  typically  associated with  those  of  U.S.  dollar denominated
transactions as a result  of, among other factors,  the possibly lower level  of
governmental  supervision and regulation  of foreign securities  markets and the
possibility of political or economic instability.

Prior governmental  approval  for  foreign investments  may  be  required  under
certain  circumstances in  some emerging  countries, and  the extent  of foreign
investment in domestic companies may be subject to limitation in other  emerging
countries.  Foreign ownership limitations also may be imposed by the charters of
individual companies in  emerging countries  to prevent,  among other  concerns,
violation of foreign investment limitations. As a result, an additional class of
shares  (identified as "foreign" in the Portfolio of Investments) may be created
and offered for investment. The "local" and "foreign" shares' market values  may
vary.
5.  FORWARD FOREIGN  CURRENCY CONTRACTS: Each  Portfolio may  enter into forward
foreign  currency  contracts  to  attempt  to  protect  securities  and  related
receivables  and payables  against changes in  future foreign  exchange rates. A
forward currency contract  is an agreement  between two parties  to buy or  sell
currency  at a set price on a future date. The market value of the contract will
fluctuate  with   changes  in   currency  exchange   rates.  The   contract   is
marked-to-market  daily using the forward rate and the change in market value is
recorded by the  Portfolio as  unrealized gain  or loss.  The Portfolio  records
realized  gains or losses  when the contract  is closed equal  to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise  upon entering into these contracts from  the
potential  inability of counterparties to meet  the terms of their contracts and
is generally limited to the amount of unrealized gain on the contracts, if  any,
at the date of default. Risks may also arise from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.

6.  PURCHASED OPTIONS. Certain Portfolios may purchase call or put options which
are traded on  a recognized  securities or  futures exchange.  When a  Portfolio
purchases a call option, it acquires the right to buy a designated security at a
designated price ("exercise price"); when a Portfolio purchases a put option, it
acquires  the  right to  sell a  designated  security at  the exercise  price. A
Portfolio may purchase call options to close  out a covered call position or  to
protect  against  an  increase  in  the  price  of  a  security  it  anticipates
purchasing. A Portfolio may purchase put options on securities which it holds to
protect against a decline  in the value  of the security.  Risks may arise  from
imperfect  correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities  purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for  an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.

7. DELAYED DELIVERY  COMMITMENTS: Each  Portfolio may purchase  securities on  a
when-issued  or forward commitment basis. Payment  and delivery may take place a
month or more after  the date of  the transaction. The  price of the  underlying
securities  and the date when the securities  will be delivered and paid for are
fixed at the time the transaction is negotiated.

8. ORGANIZATIONAL COSTS: The  organizational costs of  the Portfolios are  being
amortized on a straight line basis

                                       83
<PAGE>
                              MORGAN STANLEY FUNDS
                     NOTES TO FINANCIAL STATEMENTS (CONT.)
                                 JUNE 30, 1995
- --------------------------------------------------------------------------------

over  a period  of five  years beginning  with each  Portfolio's commencement of
operations. Morgan Stanley Asset Management, Inc.  has agreed that in the  event
any  of  its  initial  shares  in a  Portfolio  are  redeemed,  the  proceeds on
redemption  will  be  reduced  by  the  pro-rata  portion  of  any   unamortized
organizational  costs in  the same proportion  as the number  of shares redeemed
bears to the initial shares held at time of redemption.

9. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs  used in determining realized  gains and losses on  the
sale  of  investment  securities  are those  of  the  specific  securities sold.
Dividend income  is  recorded  on  the  ex-dividend  date.  Interest  income  is
recognized  on the accrual basis except  where collection is in doubt. Discounts
and premiums on securities  purchased are amortized  according to the  effective
yield  method over  their respective  lives. Most  expenses of  the Fund  can be
directly attributed to a particular Portfolio. Expenses which cannot be directly
attributed are apportioned among the Portfolios based upon relative net  assets.
Income,   expenses  (other  than  class  specific  expenses)  and  realized  and
unrealized gains or  losses are  allocated to each  class of  shares based  upon
their relative net assets. Distributions from the Portfolios are recorded on the
ex-distribution date.

Income  and capital  gain distributions are  determined in  accordance with U.S.
Federal  income  tax  regulations  which  may  differ  from  generally  accepted
accounting   principles.  These  differences  are  primarily  due  to  differing
treatments for  foreign currency  transactions  and deferral  of wash  sale  and
post-October losses.

B.  ADVISER: Morgan Stanley Asset Management,  Inc. (the "Adviser" or "MSAM"), a
wholly-owned subsidiary of Morgan  Stanley Group, Inc.,  provides the Fund  with
investment  advisory  services at  a fee  paid quarterly  and calculated  at the
annual rates of average daily net assets indicated below. The Adviser has agreed
to reduce  operating fees  payable to  it and  to reimburse  the Portfolios,  if
necessary,  if  the  annual operating  expenses,  expressed as  a  percentage of
average daily net assets, exceed the maximum ratios indicated below.

<TABLE>
<CAPTION>
                                                                                                       CLASS A   CLASS C
                                                                                                       MAXIMUM   MAXIMUM
                                                                                                       OPERATING OPERATING
                                                                                            ADVISORY   EXPENSE   EXPENSE
FUND                                                                                          FEE       RATIO     RATIO
- ------------------------------------------------------------------------------------------  --------   -------   -------
<S>                                                                                         <C>        <C>       <C>
Global Equity Allocation Fund.............................................................      1.00%      1.70%     2.45%
Global Fixed Income Fund..................................................................      0.75%      1.45%     2.20%
Asian Growth Fund.........................................................................      1.00%      1.90%     2.65%
American Value Fund.......................................................................      0.85%      1.50%     2.25%
Worldwide High Income Fund................................................................      0.75%      1.55%     2.30%
Latin American Fund.......................................................................      1.25%      2.10%     2.85%
Emerging Markets Fund.....................................................................      1.25%      2.15%     2.90%
</TABLE>

C. ADMINISTRATOR:  MSAM  also provides  the  Fund with  administrative  services
pursuant  to an Administrative  Agreement for a  monthly fee which  on an annual
basis equals 0.25% of the average daily  net assets of each Portfolio. Under  an
agreement between MSAM and U.S. Trust Company of New York ("U.S. Trust"), Mutual
Funds  Service Company  ("MFSC"), a subsidiary  of U.S.  Trust, provides certain
administrative services to the  Fund. MFSC is compensated  for such services  by
MSAM  from the fee it receives from the Fund, subject to certain fee minimums as
defined in  the agreement,  which for  the  year ended  June 30,  1995,  totaled
$182,000  for Global  Equity Allocation  Fund, Global  Fixed Income  Fund, Asian
Growth Fund, American Value Fund, and  Worldwide High Income Fund, and  $178,000
for  Latin  American  Fund  and  Emerging  Markets  Fund,  respectively. Certain
employees of MFSC are officers of the Fund.

D. DISTRIBUTOR:  Morgan  Stanley  &  Co.  Incorporated  (the  "Distributor"),  a
wholly-owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM,
serves  as  the  distributor of  the  Fund  and provides  both  classes  of each
Portfolio  with  distribution  services  pursuant  to  a  Distribution  Plan  in
accordance  with  Rule  12b-1 under  the  Investment  Company Act  of  1940. The
Distributor is entitled to receive from the Portfolios a distribution fee, which
is accrued daily and paid  quarterly, of up to 0.25%  for the Class A shares  of
each  Portfolio and up to 1.00%  of the Class C shares  of each Portfolio, on an
annualized basis, of the average daily net assets of such class.

The Distributor may  receive a deferred  sales charge for  certain purchases  of
Class  A and Class C shares of each Portfolio redeemed within one year following
such purchase. For the year ended June 30, 1995, the Distributor has advised the
Fund that it earned  deferred sales charges on  Class C shares of  approximately
$26,000,  $5,000, $130,000, $2,000, $4,000, $5,000 and $15,000 for Global Equity
Allocation Fund, Global  Fixed Income  Fund, Asian Growth  Fund, American  Value
Fund, Worldwide High Income Fund, Latin American Fund and Emerging Markets Fund,
respectively. There were no deferred sales charges earned on Class A shares.

E. PURCHASES AND SALES: For the year ended June 30, 1995, purchases and sales of
investment securities other than long-term U.S. Government securities and short-
term investments were:

<TABLE>
<CAPTION>
                                                                                                      PURCHASES    SALES
FUND                                                                                                    (000)      (000)
- ----------------------------------------------------------------------------------------------------  ---------   -------
<S>                                                                                                   <C>         <C>
Global Equity Allocation Fund.......................................................................  $ 42,019    $28,655
Global Fixed Income Fund............................................................................    12,889     17,056
Asian Growth Fund...................................................................................   158,562     93,194
American Value Fund.................................................................................    17,396      5,095
Worldwide High Income Fund..........................................................................    47,817     32,975
Latin American Fund.................................................................................    23,839      8,378
Emerging Markets Fund...............................................................................    50,907      5,528
</TABLE>

                                       84
<PAGE>
                              MORGAN STANLEY FUNDS
                     NOTES TO FINANCIAL STATEMENTS (CONT.)
                                 JUNE 30, 1995

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

Purchases  and  sales during  the year  ended  June 30,  1995 of  long-term U.S.
Government securities  occurred in  the  Global Fixed  Income Fund  and  totaled
$10,175,000 and $5,296,000, respectively.

F.  CUSTODIANS: Morgan Stanley Trust Company ("MSTC"), a wholly-owned subsidiary
of Morgan Stanley Group, Inc., acts as custodian for the Fund's non-U.S.  assets
held  outside the United  States in accordance with  a custodian agreement. U.S.
Trust acts as  custodian for  the Fund's domestic  assets in  accordance with  a
custodian  agreement. Custodian fees  are computed and  payable monthly based on
assets held, investment  purchases and  sales activity,  an account  maintenance
fee,  plus reimbursement for  certain out-of-pocket expenses.  Fees incurred for
custody services provided  by MSTC  for the  year ended  June 30,  1995 were  as
follows:

<TABLE>
<CAPTION>
                                                                                                          MSTC
                                                                                              MSTC      CUSTODIAN
                                                                                            CUSTODIAN     FEES
                                                                                              FEES       PAYABLE
FUND                                                                                          (000)       (000)
- ------------------------------------------------------------------------------------------  ---------   ---------
<S>                                                                                         <C>         <C>
Global Equity Allocation Fund.............................................................    $ 96        $ 24
Global Fixed Income Fund..................................................................      12           3
Asian Growth Fund.........................................................................     487         126
Worldwide High Income Fund................................................................       4           1
Latin American Fund.......................................................................      52          13
Emerging Markets Fund.....................................................................     116          29
</TABLE>

G.  OTHER: At June 30, 1995, net assets of certain Portfolios were substantially
comprised of foreign  denominated securities and  currency. Changes in  currency
rates will affect the value of and investment income from such securities.
Portfolio  securities  and  foreign  currency holdings  were  translated  at the
following exchange rates as of June 30, 1995:

<TABLE>
<S>                                                                                         <C>            <C>  <C>
Argentine Peso............................................................................       0.999750  =    $1.00
Australian Dollar.........................................................................       1.407360  =    $1.00
Belgian Franc.............................................................................      28.460000  =    $1.00
Brazilian Real............................................................................       0.920500  =    $1.00
British Pound Sterling....................................................................       0.628540  =    $1.00
Canadian Dollar...........................................................................       1.373350  =    $1.00
Danish Krone..............................................................................       5.402000  =    $1.00
Deutsche Mark.............................................................................       1.383950  =    $1.00
Finnish Markka............................................................................       4.274500  =    $1.00
French Franc..............................................................................       4.850750  =    $1.00
Greek Drachma.............................................................................     225.040000  =    $1.00
Hong Kong Dollar..........................................................................       7.737800  =    $1.00
Indonesian Rupiah.........................................................................   2,227.000000  =    $1.00
Italian Lira..............................................................................   1,635.500000  =    $1.00
Israeli Shekel............................................................................       2.953500  =    $1.00
Japanese Yen..............................................................................      84.825000  =    $1.00
Korean Won................................................................................     758.250000  =    $1.00
Malaysian Ringgit.........................................................................       2.438000  =    $1.00
Mexican New Peso..........................................................................       6.250000  =    $1.00
Morocco Dhiram............................................................................       8.330500  =    $1.00
Netherlands Guilder.......................................................................       1.549400  =    $1.00
New Zealand Dollar........................................................................       1.496890  =    $1.00
Pakistani Rupee...........................................................................      30.979000  =    $1.00
Peruvian Sol..............................................................................       2.224500  =    $1.00
Philippine Peso...........................................................................      25.540000  =    $1.00
Polish Zloty..............................................................................       2.341000  =    $1.00
Portuguese Escudo.........................................................................     146.300000  =    $1.00
Singapore Dollar..........................................................................       1.397500  =    $1.00
South African Rand........................................................................       3.636250  =    $1.00
Spanish Peseta............................................................................     121.050000  =    $1.00
Swedish Krona.............................................................................       7.276850  =    $1.00
Swiss Franc...............................................................................       1.151500  =    $1.00
Taiwan Dollar.............................................................................      25.828000  =    $1.00
Thai Baht.................................................................................      24.685000  =    $1.00
Turkish Lira..............................................................................  44,215.000000  =    $1.00
</TABLE>

At June  30, 1995,  Global  Equity Allocation  Fund,  Asian Growth  Fund,  Latin
American Fund and Emerging Markets Fund incurred approximately $6,000, $107,000,
$1,000  and $2,000, respectively, as brokerage commissions with Morgan Stanley &
Co. Incorporated, an affiliated broker/dealer.

At June 30, 1995,  cost and unrealized  appreciation (depreciation) for  Federal
income tax purposes of the securities of each Portfolio were:

<TABLE>
<CAPTION>
                                                                                                                      NET
                                                                                                                  APPRECIATION
                                                                                    COST    APPREC.  (DEPREC.)   (DEPRECIATION)
FUND                                                                               (000)     (000)     (000)         (000)
- --------------------------------------------------------------------------------  --------  -------  ---------   --------------
<S>                                                                               <C>       <C>      <C>         <C>
Global Equity Allocation Fund...................................................  $ 80,786  $6,661   $ (2,072)      $ 4,589
Global Fixed Income Fund........................................................    16,386     622       (114)          508
Asian Growth Fund...............................................................   292,284  41,905    (14,669)       27,236
American Value Fund.............................................................    32,419   2,824       (869)        1,955
Worldwide High Income Fund......................................................    33,822     676       (709)          (33)
Latin American Fund.............................................................    13,729     533     (2,556)       (2,023)
Emerging Markets Fund...........................................................    51,190   3,123     (4,909)       (1,786)
</TABLE>

                                       85


<PAGE>
                              MORGAN STANLEY FUNDS

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

SHAREHOLDER MEETING: (UNAUDITED)

During  the year  ended June  30, 1995,  Morgan Stanley  Fund, Inc. shareholders
voted on proposals at a special meeting  held on June 28, 1995. The  description
of each proposal and number of shares voted are as follows:

<TABLE>
<CAPTION>
                                                    VOTED FOR   WITHHOLD
                                                      (000)      (000)
                                                    ---------   --------
<S>                                                 <C>         <C>
1. To elect the following Directors to serve the
 Fund until such time as their successors have
 been duly appointed.
  Barton M. Biggs                                    21,814        294
  John D. Barrett II                                 21,814        294
  Gerald E. Jones                                    21,800        308
  Andrew McNally IV                                  21,806        302
  Warren J. Olsen                                    21,813        295
  Samuel T. Reeves                                   21,840        268
  Fergus Reid                                        21,817        291
  Frederick O. Robertshaw                            21,837        271
  Frederick B. Whittemore                            21,798        310
</TABLE>

FEDERAL INCOME TAX INFORMATION: (UNAUDITED)

For  the year ended June 30, 1995,  the percentage of dividends that qualify for
the 70% dividend  received deduction  for corporate shareholders  of the  Global
Equity   Allocation  Fund  and  American  Value  Fund  are  27.11%  and  87.17%,
respectively.

Global  Equity  Allocation   Fund  and   Asian  Growth   Fund  have   designated
approximately  $2,376,000 and $867,000 as long-term  capital gain for the fiscal
year ended June 30, 1995.

Foreign taxes  paid during  the fiscal  year ended  June 30,  1995 amounting  to
$9,000  and  $30,000 for  Global Fixed  Income Fund  and Emerging  Markets Fund,
respectively are expected to  be passed through to  shareholders as foreign  tax
credits  on Form 1099-DIV for  the year ending December  31, 1995, which will be
sent to shareholders in late January 1996.

                                                                             86



<PAGE>
                              MORGAN STANLEY FUNDS
                       REPORT OF INDEPENDENT ACCOUNTANTS

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

To the Shareholders and Board of Directors of
Morgan Stanley Fund, Inc.

In our opinion, the accompanying statements of assets and liabilities, including
the  portfolios of investments, and the  related statements of operations and of
changes in  net assets  and  the financial  highlights  present fairly,  in  all
material  respects, the financial position of the Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide High
Income Fund, Latin  American Fund  and Emerging Markets  Fund (constituting  the
Morgan  Stanley Fund,  Inc., hereafter  referred to as  the "Fund")  at June 30,
1995, the results of each of their operations, the changes in each of their  net
assets  and  the financial  highlights for  each of  the Funds  for each  of the
respective periods presented, in  conformity with generally accepted  accounting
principles.  These  financial  statements  and  financial  highlights (hereafter
referred to  as "financial  statements") are  the responsibility  of the  Fund's
management;  our  responsibility is  to express  an  opinion on  these financial
statements based  on our  audits. We  conducted our  audits of  these  financial
statements  in  accordance  with  generally  accepted  auditing  standards which
require that we plan and perform the audit to obtain reasonable assurance  about
whether  the financial  statements are free  of material  misstatement. An audit
includes examining,  on  a  test  basis, evidence  supporting  the  amounts  and
disclosures  in the  financial statements,  assessing the  accounting principles
used and significant estimates  made by management,  and evaluating the  overall
financial  statement presentation.  We believe  that our  audits, which included
confirmation  of  securities  at  June  30,  1995  by  correspondence  with  the
custodians  and brokers and  the application of  alternative auditing procedures
where confirmations from brokers were  not received, provide a reasonable  basis
for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036

August 11, 1995

                                       87


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