<PAGE>
File No. 33-51294
File No. 811-7140
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
and
REGISTRATION STATEMENT UNDER THE / /
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 16
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MORGAN STANLEY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 548-7786
Harold J. Schaaff, Esquire
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas, New York, New York 10020
(Name and Address of Agent for Service)
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COPIES TO:
Warren J. Olsen Richard W. Grant, Esquire
Morgan Stanley Asset Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 2000 One Logan Square
New York, NY 10020 Philadelphia, PA 19103
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IT IS PROPOSED THAT THIS FILING BE EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON (DATE) PURSUANT TO PARAGRAPH (B)
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)
------------------------------------------------------------------------
REGISTRANT HAS PREVIOUSLY ELECTED TO AND HEREBY CONTINUES ITS ELECTION TO
REGISTER AN INDEFINITE NUMBER OF SHARES OF ITS COMMON STOCK, PAR VALUE
$.001 PER SHARE, PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDED JUNE 30, 1995 ON AUGUST 23, 1995.
<PAGE>
MORGAN STANLEY FUND, INC.
CROSS REFERENCE SHEET
PART A - INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
ITEM NUMBER LOCATION IN PROSPECTUS FOR MORGAN STANLEY GLOBAL FIXED INCOME,
MORGAN STANLEY WORLDWIDE HIGH INCOME AND MORGAN STANLEY HIGH
YIELD FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- * (See June 30, 1995
Annual Report to Shareholders)
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
ITEM NUMBER LOCATION IN PROSPECTUS FOR MORGAN STANLEY AMERICAN VALUE,
MORGAN STANLEY AGGRESSIVE EQUITY AND MORGAN STANLEY U.S. REAL
ESTATE FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- * (See June 30, 1995
Annual Report to Shareholders)
<PAGE>
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number LOCATION IN PROSPECTUS FOR MORGAN STANLEY GLOBAL EQUITY
ALLOCATION, MORGAN STANLEY ASIAN GROWTH, MORGAN STANLEY
EMERGING MARKETS, MORGAN STANLEY LATIN AMERICAN, MORGAN STANLEY
INTERNATIONAL MAGNUM AND MORGAN STANLEY JAPANESE EQUITY FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- * (See June 30, 1995
Annual Report to Shareholders)
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number LOCATION IN PROSPECTUS FOR MORGAN STANLEY GROWTH AND INCOME,
MORGAN STANLEY EUROPEAN EQUITY AND MORGAN STANLEY MONEY MARKET
FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
ii
<PAGE>
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
Form N-1A
Item Number LOCATION IN PROSPECTUS FOR MORGAN STANLEY MONEY MARKET, MORGAN
STANLEY TAX-FREE MONEY MARKET AND MORGAN STANLEY GOVERNMENT
OBLIGATIONS MONEY MARKET FUNDS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Fund Expenses; Prospectus Summary
Item 3. Condensed Financial Information -- Financial Highlights; Performance
Information
Item 4. General Description of Registrant -- Prospectus Summary; Investment
Objectives and Policies; Additional Investment Information;
Investment Limitations; General Information
Item 5. Management of the Fund -- Management of the Fund; Portfolio
Transactions; General Information
Item 5A. Management's Discussion of Fund Performance -- *
Item 6. Capital Stock and Other Securities -- Purchase of Shares; Redemption
of Shares; Shareholder Services; Valuation of Shares; Dividends and
Distributions; Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Prospectus
Summary; Management of the Fund; Purchase of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase -- Redemption of Shares; Shareholder
Services
Item 9. Pending Legal Proceedings -- *
iii
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- ---------------
* Omitted since the answer is negative or the Item is not applicable.
iv
<PAGE>
PART B -INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A
Item Number LOCATION IN STATEMENT OF ADDITIONAL INFORMATION FOR MORGAN
STANLEY GLOBAL FIXED INCOME, MORGAN STANLEY WORLDWIDE HIGH
INCOME, MORGAN STANLEY HIGH YIELD, MORGAN STANLEY GLOBAL EQUITY
ALLOCATION, MORGAN STANLEY ASIAN GROWTH, MORGAN STANLEY
EMERGING MARKETS, MORGAN STANLEY LATIN AMERICAN, MORGAN STANLEY
INTERNATIONAL MAGNUM, MORGAN STANLEY JAPANESE EQUITY, MORGAN
STANLEY AMERICAN VALUE, MORGAN STANLEY AGGRESSIVE EQUITY,
MORGAN STANLEY U.S. REAL ESTATE, MORGAN STANLEY GROWTH AND
INCOME, MORGAN STANLEY EUROPEAN EQUITY, MORGAN STANLEY MONEY
MARKET, MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET AND
MORGAN STANLEY TAX-FREE MONEY MARKET FUNDS
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History --
Item 13. Investment Objectives and Policies -- Investment Objectives and
Policies; Investment Limitations; Determining Maturities of Certain
Instruments; Description of Securities and Ratings
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund;
General Information
Item 17. Brokerage Allocation and Other Practices -- Portfolio Transactions
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Shareholder Services;
Money Market Fund Net Asset Value; General Information
Item 20. Tax Status -- Investment Objectives and Policies; Federal Income
Tax; Federal Tax Treatment of Forward Currency Contracts and
Exchange Rate Changes; Taxes and Foreign Shareholders; General
Information
Item 21. Underwriters -- Management of the Fund
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
PART C - OTHER INFORMATION
v
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Part C contains the information required by the Items of the Form N-1A under
such Items as set forth in the Form N-1A.
vi
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P R O S P E C T U S
- --------------------------------------------------------------------------------
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 2798, BOSTON, MASSACHUSETTS 02208-2798
FOR INFORMATION CALL 1-800-282-4404
------------------
Morgan Stanley Fund, Inc. (the "Fund") is an open-end management investment
company, or mutual fund, which consists of seventeen diversified and
non-diversified investment portfolios. This prospectus (the "Prospectus")
describes the shares of the Morgan Stanley Money Market Fund, the Morgan Stanley
Tax-Free Money Market Fund and the Morgan Stanley Government Obligations Money
Market Fund (collectively, the "Money Market Funds" and each an "Investment
Fund"). The Fund is designed to make available to retail investors the expertise
of Morgan Stanley Asset Management Inc., the investment adviser (the "Adviser")
and administrator (the "Administrator"). Shares are available through Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), the Distributor, and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). The Tax-Free
Money Market Fund is not currently offering shares.
The Money Market Funds are subject to certain special risk factors. For
information about these risk factors, see "Prospectus Summary -- Risk Factors."
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT AN INVESTMENT FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus is designed to set forth concisely the information about
the Money Market Funds that a prospective investor should know before investing
and it should be retained for future reference. The Fund offers additional
portfolios which are described in other prospectuses and under "Prospectus
Summary" below. The Fund currently consists of the following portfolios:
(i) GLOBAL AND INTERNATIONAL EQUITY -- Morgan Stanley Global Equity Allocation,
Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan Stanley
European Equity, Morgan Stanley Latin American, Morgan Stanley International
Magnum and Morgan Stanley Japanese Equity Funds; (ii) U.S. EQUITY -- Morgan
Stanley American Value, Morgan Stanley Aggressive Equity, Morgan Stanley Growth
and Income and Morgan Stanley U.S. Real Estate Funds; and (iii) GLOBAL FIXED
INCOME -- Morgan Stanley Global Fixed Income, Morgan Stanley Worldwide High
Income and Morgan Stanley High Yield Funds. The Morgan Stanley European Equity
and Morgan Stanley Growth and Income Funds are not currently offering shares.
Additional information about the Fund is contained in a "Statement of Additional
Information," dated ___________, 1996, which is incorporated herein by
reference. The Statement of Additional Information and the prospectuses
pertaining to the other portfolios of the Fund are available upon request and
without charge by writing or calling the Fund at the address and telephone
number set forth above.
THE MONEY MARKET FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF OR
ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE
FEDERAL DEPOSIT
1
<PAGE>
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN THE FUND INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS _________, 1996.
2
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
an Investment Fund may incur:
<TABLE>
<CAPTION>
GOVERNMENT
MONEY MARKET TAX-FREE MONEY OBLIGATIONS MONEY
SHAREHOLDER TRANSACTION EXPENSES FUND MARKET FUND MARKET FUND
- -------------------------------- ---- -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None
Maximum Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
GOVERNMENT
ANNUAL FUND OPERATING EXPENSES MONEY MARKET TAX-FREE MONEY OBLIGATIONS MONEY
(AS A PERCENTAGE OF AVERAGE NET ASSESTS FUND MARKET FUND MARKET FUND
---- -----------
Investment Advisory Fee (after expense reimbursement
and/or fee waiver) (1)............................. .40% .14% .43%
12b-1 Fees (after fee waivers)....................... .35% .35% .25%
Other Expenses (after expense reimbursement and/or
fee waiver)*(1).................................... .23% .46% .27%
Total Operating Expenses (after expense reimbursement
and/or fee waiver)................................. .98% .95% .95%
</TABLE>
__________________
* The caption "Other Expenses" does not include extraordinary expenses as
determined by use of generally accepted accounting principles.
(1) The Adviser and the Distributor will voluntarily waive a portion of
their respective fees and/or reimburse fund expenses until such time
as they determine that the particular Investment Fund's performance is
competitive with other comparable funds without such waivers. However,
such fee waivers are voluntary and may be terminated at any time.
There can be no assurances that any future waivers will not vary from
the figures reflected in the expense table. Absent fee waivers,
investment advisory fees would be 0.45% and 12b-1 fees would be 0.50%
for each Investment Fund and total operating expenses would be 1.18%
for the Money Market Fund, 1.41% for the Tax-Free Money Market Fund
and 1.22% for the Government Obligations Money Market Fund.
(Investment advisory fees are contractually reduced when average daily
net assets exceed $250 million. (See "Management of the Fund".)) The
percentages shown above representing Annual fund operating expenses
are based on net operating expenses for the PCS Money Market Portfolio
(the "Predecessor Money Market Portfolio") the predecessor portfolio to
the Money Market Fund for the fiscal year ended June 30, 1996
and the PCS Government Obligations Money Market Portfolio (the
"Predecessor Government Obligations Money Market Portfolio"), the
predecessor portfolio to the Government Obligations Money Market Fund
for the fiscal year ended June 30, 1996. The expenses for the
Tax-Free Money Market Fund, which is not in operation, are estimates
based on an estimated average net asset level for the first year of
$______.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Money Market Funds will
bear directly or indirectly. "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. (the "NASD").
3
<PAGE>
The following example illustrates the expenses that you would pay on a
$1,000 investment, assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. (If it is assumed there are no redemptions, the
expenses are the same.)
GOVERNMENT
MONEY MARKET TAX-FREE MONEY OBLIGATIONS MONEY
FUND(1) MARKET FUND MARKET FUND(1)
1Year...................... $10 $10 $10
3 Years.................... $31 $30 $30
5 Years.................... $54 * $53
10 Years................... $120 * $117
_________________
(1) The projected expenses are based upon the respective operating histories
of the Predecessor Money Market Portfolio and the Predecessor Government
Obligations Money Market Portfolio.
* Because the Tax-Free Money Market Fund was not operational as of the date
of this Prospectus, the Fund has not projected expenses beyond the
three-year period shown.
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 continue 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 an Investment Fund, if necessary, if
in any fiscal year the sum of the Investment Fund's expenses exceeds the
limit set by applicable state laws.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the PCS Money
Market Portfolio and PCS Government Obligations Portfolio (the "Predecessor
Portfolios"), the predecessors of the Morgan Stanley Money Market Fund and
Morgan Stanley Government Obligations Money Market Fund, respectively, for
each of the periods presented. The audited financial highlights for the
shares for the fiscal year ended June 30, 1995 are part of the Fund's
financial statements which appear in the PCS Cash Fund, Inc.'s June 30, 1995
Annual Report to Shareholders and which are incorporated by reference into
the Fund's Statement of Additional Information. The Predecessor Portfolios'
financial highlights for each of the periods presented have been derived from
financial statements audited by Coopers & Lybrand L.L.P., whose unqualified
report thereon is also incorporated by reference into the Statement of
Additional Information. Additional performance information for the shares of
the Predecessor Portfolios is included in the Annual Report. The Annual
Report and the financial statements 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
following financial highlights should be read in conjunction with the
financial statements and notes thereto.
PREDECESSOR MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
For the period
August 4, 1989
For the Fiscal Year Ended June 30, (Commencement
---------------------------------------------------------------------- of Operations)
1995 1994 1993 1992 1991 to June 30, 1990
--------- -------- -------- --------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD 1996 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income .0446 .0246 .0243 .0402 .0652 .0690
Net realized gains on
investments .0001 --- .0001 --- --- ---
-------- -------- -------- -------- -------- --------
Less dividends to
shareholders from:
Net investment income (.0446) (.0246) (.0243) (.0402) (.0652) (.0690)
Net realized gains (.0001) --- (.0001) --- --- ---
-------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Total return 4.55% 2.49% 2.47% 4.11% 6.72% 7.12%(c)
Ratio of expenses to average
net assets .98%(b) .98%(b) .98%(b) .98%(b) .98%(b) .98%(a)(b)
Ratio of net investment
income to average net assets 4.45%(b) 2.45%(b) 2.44%(b) 3.97%(b) 6.40%(b) 7.53%(a)(b)
Net assets at end of
period (000) $171,515 $176,599 $156,310 $190,034 $140,594 $ 76,463
</TABLE>
- -----------------
(a) Annualized.
(b) Without voluntary fee waiver of advisory and distribution fees, the ratios
of expenses to average net assets would have been 1.18%, 1.19%,
1.20%, 1.27%, 1.27% and 1.48% (annualized), respectively. The ratio of net
investment income to average net assets would have been 4.25%,
2.24%, 2.22%, 3.68%, 6.11% and 7.03% (annualized), respectively.
(c) Not annualized. Total return, if on an annualized basis, would have been
7.90%.
5
<PAGE>
PREDECESSOR GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
For the period
August 4, 1989
For the Fiscal Year Ended June 30, (Commencement
---------------------------------------------------------------------- of Operations)
1995 1994 1993 to June 30, 1990
--------- -------- -------- ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Income from investment operations:
Net investment income 0.448 .0243 .0246 .0094
Net realized gains on investments --- .0011 .0002 ---
Less dividends to shareholders from:
-------- -------- -------- -------
Net investment income (.0448) (.0243) (.0246) (1.0094)
Net realized gains --- .0011 (.0002) ---
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Total return 4.58% 2.45% 2.51% .094%(c)
Ratio of expenses to average net assets .95%(b) .95%(b) .95%(b) .95%(a)(b)
Ratio of net investment income to average net assets 4.61%(b) 2.40%(b) 2.50%(b) 3.07%(a)(b)
Net assets at end of period (000) $ 67,705 $102,551 $101,736 $269,627
</TABLE>
- -----------------
(a) Annualized.
(b) Without voluntary fee waiver of advisory and distribution fees, the
ration of expenses to average net assets would have been 1.12%, 1.22%,
1.19% and 1.29% annualized and the ratio of net investment income to
average net assets would have been 4.44%, 2.13%, 2.26% and 2.73%
annualized.
(c) Not annualized. Total return, if on an annualized basis, would have
been 3.16%.
6
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund currently consists of seventeen investment portfolios which are
designed to offer investors a range of investment choices with Morgan Stanley
Asset Management Inc. providing services as Adviser and Administrator and Morgan
Stanley & Co. Incorporated providing services as Distributor. Each investment
portfolio has its own investment objective and policies designed to meet its
specific goals. The investment objective of each Investment Fund described in
this Prospectus is as follows:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent with
maintaining liquidity and stability of principal.
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal.
The other investment portfolios of the Fund that are being offered
currently are described in other prospectuses which may be obtained from the
Fund at the address and telephone number noted on the cover page of this
Prospectus. The objectives of these other investment portfolios are listed
below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation by investing
primarily in equity securities of Asian issuers, excluding Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by investing
primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance with
country weightings determined by the Adviser and with stock selection within
each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance with
EAFE country (as defined in "Investment Objective and Policies" below)
weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
7
<PAGE>
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in debt
securities issued or guaranteed by Latin American governments or governmental
entities.
U.S. EQUITY FUNDS:
- The 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.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income by
investing primarily in equity and equity-linked securities.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income and
long-term capital appreciation by investing primarily in equity securities of
companies in the U.S. real estate industry, including real estate investment
trusts.
GLOBAL FIXED INCOME FUNDS:
- The 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.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a yield
above that generally available on debt securities in the three highest rating
categories of the recognized rating services.
The Growth and Income, European Equity and Tax-Free Money Market Funds
currently are not being offered.
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 $97.4
billion in assets under management as an investment manager or as a fiduciary
adviser at March 31, 1996, acts as investment adviser to the Fund and each of
its Money Market Funds. See "Management of the Fund -- Investment Adviser" and
"-- Administrator." On June 24, 1996, Morgan Stanley Group Inc. entered into
a definitive agreement to purchase the parent company of Van Kampen American
Capital, Inc. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with $57 billion
in assets under management. The acquisition is expected to close by
November 30, 1996.
RISK FACTORS
The investment policies of each Investment Fund entail certain risks and
considerations of which an investor should be aware. Investments in the Money
Market Funds are neither insured nor guaranteed by the U.S. Government, and
there is no assurance that an Investment Fund will be able to maintain a stable
net asset value of $1.00 per share. The Money Market and Government Obligations
Money Market Funds, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase
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of mortgage-related securities, the purchase of securities on a "when-issued"
basis and the purchase of securities on a "forward commitment" basis. The
Money Market Fund may also invest in securities of foreign issuers, which are
subject to certain risks not typically associated with U.S. securities. All of
these transactions involve certain special risks, as set forth under "Investment
Objectives and Policies."
HOW TO INVEST
Shares of each of the Money Market Funds are offered at net asset value.
Share purchases may be made through Morgan Stanley, through Participating
Dealers or by sending payments directly to 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. 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."
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Investment Fund is described below, together
with the policies the Fund employs in its efforts to achieve its objective.
Each Investment Fund's investment objective is a fundamental policy which may
not be changed by the Investment Fund without the approval of a majority of the
Investment Fund's outstanding voting securities. The investment policies
described below are not fundamental policies and may be changed without
shareholder approval. There is no assurance that an Investment Fund will attain
its objective. For more information about certain investment practices common
to two or more of the Money Market Funds and applicable quality requirements,
see "Additional Investment Information."
THE MONEY MARKET FUND
The Money Market Fund's investment objective is to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. Obligations held by the Money Market Fund will have
remaining maturities of 397 days or less (except that portfolio securities which
are subject to repurchase agreements may bear maturities exceeding 397 days).
In pursuing its investment objective, the Money Market Fund invests in a broad
range of U.S. dollar-denominated instruments, such as government, bank and
commercial obligations, that may be available in the money markets and that
satisfy strict credit quality standards imposed by the Investment Fund in
accordance with applicable law ("Money Market Instruments"). The following
descriptions illustrate the types of Money Market Instruments in which the
Money Market Fund invests.
BANK OBLIGATIONS. The Investment Fund may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Investment Fund may invest substantially
in U.S. dollar-denominated obligations of foreign banks or foreign branches of
U.S. banks where the Adviser deems the instrument to present minimal credit
risks and to otherwise satisfy applicable quality standards. Such investments
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may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Investment Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The
Investment Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Investment Fund may purchase commercial paper rated
(at the time of purchase) "A-1" or "A-1+" by Standard & Poor's Ratings Group
("S&P") or "Prime-1" by Moody's Investors Service, Inc. ("Moody's") or when
deemed advisable by the Adviser and to the extent permitted under applicable
regulations, limited amounts of issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively that the Adviser believes to be of high quality. The
Investment Fund may also purchase commercial paper not rated by S&P or
Moody's provided that such paper is determined by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. The applicable short-term corporate ratings are described in the
Appendix to the Statement of Additional Information.
UNITED STATES GOVERNMENT OBLIGATIONS. The Money Market Fund may invest in
obligations issued or guaranteed by the United States Government, including
United States Treasury securities and other securities backed by the full faith
and credit of the United States, such as obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank. The Investment Fund may also invest in obligations issued or
guaranteed by United States Government agencies or instrumentalities, such as
the Federal Farm Credit System and the Federal Home Loan Banks, where the
Investment Fund must look principally to the issuing or guaranteeing agency for
ultimate repayment. For a more complete discussion of United States Government
Obligations, see the description of the Government Obligations Money Market
Fund.
MUNICIPAL OBLIGATIONS. "Municipal Obligations" are obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. The Investment Fund may invest without
limitation in high quality, short-term Municipal Obligations issued by state
and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, when deemed appropriate by the
Adviser in light of the Investment Fund's investment objective, and provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see the description of the Tax-Free
Money Market Fund. In addition, the Investment Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio.
Under a stand-by commitment, a dealer would agree to purchase at the
Investment Fund's option specified Municipal Obligations at a specified
price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Investment Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes.
THE TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's investment objective is to provide as high a
level of current interest income exempt from regular federal income taxes as is
consistent with maintaining liquidity and stability of principal. The Tax-Free
Money Market Fund invests substantially all of its assets in a diversified
portfolio of high quality, short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Tax-Free
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Money Market Fund will be invested in short-term Municipal Obligations, the
interest on which is exempt from regular federal income tax and is not an item
of tax preference for noncorporate shareholders for purposes of the alternative
minimum tax ("Tax-Exempt Interest"). All portfolio investments must satisfy
strict credit quality standards imposed by the Fund in accordance with
applicable law.
MUNICIPAL OBLIGATIONS. The Fund invests in short-term Municipal Obligations
which are determined by the Adviser to present minimal credit risks and to
otherwise satisfy applicable quality standards pursuant to guidelines
established by the Fund's Board of Directors and which at the time of
purchase are considered to be "first-tier" securities -- e.g., rated
"AAA" or higher by S&P or "Aaa" or higher by Moody's in the case of bonds;
rated "SP-1" by S&P or "MIG-1" by Moody's in the case of notes; rated
"VMIG-1" by Moody's in the case of variable rate demand notes; or rated "A-1"
or "A-1+" by S&P or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. The Fund may also purchase securities that are not rated by S&P or
Moody's at the time of purchase provided that the securities are determined
to be of comparable quality by the Adviser pursuant to guidelines approved by
the Fund's Board of Directors. The applicable Municipal Obligations ratings
are described in the Appendix to the Statement of Additional Information.
The Investment Fund may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Adviser,
suitable obligations bearing Tax-Exempt Interest are unavailable. There is no
percentage limitation on the amount of assets which may be held uninvested
during temporary defensive periods. Uninvested cash reserves will not earn
income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Municipal Obligations
may also include "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer of moral obligation bonds is unable
to meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer. Municipal
Obligations may include variable rate demand notes, which are described below
under "Additional Investment Information."
Current federal tax law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest. Such limitations may have an
effect on the ability of the Investment Fund to purchase sufficient amounts of
tax-exempt securities. In addition, interest on certain bonds, although exempt
from the regular federal income tax, may be subject to alternative minimum tax.
See the discussion below under "Taxes" and the Statement of Additional
Information.
Although the Tax-Free Money Market Fund may invest more than 25% of its net
assets in (i) Municipal Obligations whose issuers are in the same state, (ii)
Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Tax-Free Money Market Fund's assets are concentrated in Municipal Obligations
that are payable from the revenues of similar projects or are issued by issuers
located in the same state, the Investment Fund will be subject to the peculiar
risks presented by the laws and economic conditions relating to such states or
projects to a greater extent than it would be if its assets were not so
concentrated.
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THE GOVERNMENT OBLIGATIONS MONEY MARKET FUND
The Government Obligations Money Market Fund's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. Purchases of portfolio securities must satisfy strict credit
quality standards imposed by the Investment Fund in accordance with applicable
law. The types of U.S. Government obligations in which the Investment Fund may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and time of issuance, and obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as GNMA and the Export-Import
Bank of the United States, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so under law. The Investment
Fund will invest in the obligations of such agencies or instrumentalities only
when the Adviser believes that the credit risk with respect thereto is minimal
and that applicable quality standards have been satisfied.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares
representing an interest in the Investment Fund. Certain government securities
held by the Investment Fund may have remaining maturities exceeding 397 days if
such securities provide for adjustments in their interest rates not less
frequently than annually and the adjustments are sufficient to cause the
securities to have market values, after adjustment, which approximate their par
values.
ADDITIONAL INVESTMENT INFORMATION
ILLIQUID SECURITIES
Each Investment Fund may invest up to 10% of the value of its net assets in
illiquid securities. Illiquid securities include repurchase agreements with
maturities greater than seven days and certain restricted securities other
than those Rule 144A restricted securities determined to be liquid pursuant
to procedures approved by the Fund's Board of Directors.
LOANS OF PORTFOLIO SECURITIES
Each of the Money Market and Government Obligations Money Market Funds may
lend its securities to brokers, dealers, domestic and foreign banks or other
financial institutions for the purpose of increasing its net investment income.
These loans must be secured continuously by cash or equivalent collateral or by
a letter of credit at least equal to the market value of the securities loaned
plus accrued interest. 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.
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MORTGAGE-BACKED SECURITIES
The Money Market and Government Obligations Money Market Funds may invest in
mortgage-backed securities. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-backed securities."
One such type of mortgage-backed security in which the Investment Funds may
invest is a GNMA Certificate. GNMA Certificates are backed as to the timely
payment of principal and interest by the full faith and credit of the U.S.
Government. Another type is a FNMA Certificate. Principal and interest
payments on FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of
mortgage-backed security in which such Investment Funds may invest is a
Federal Home Loan Mortgage Association ("FHLMC") Participation Certificate.
This type of security is guaranteed by FHLMC as to timely payment of
principal and interest but, like a FNMA security it is not guaranteed by the
full faith and credit of the U.S. Government. For a further discussion of
GNMA, FNMA and FHLMC, see "Mortgage-Related Debt Securities" in the Statement
of Additional Information.
Each of the mortgage-backed securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as an Investment Fund), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as twenty or thirty years, the
borrowers can, and typically do, repay them sooner. Thus, the security holders
frequently receive prepayments of principal, in addition to the principal which
is part of the regular monthly payments. A borrower is more likely to prepay a
mortgage which bears a relatively high rate of interest. This means that, in
times of declining interest rates, some of an Investment Fund's higher yielding
securities might be repaid and thereby converted to cash and the Investment Fund
will be forced to accept lower interest rates when that cash is used to purchase
additional securities. An Investment Fund normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by each Investment Fund will, however, be distributed to shareholders
in the form of dividends.
REPURCHASE AGREEMENTS
The Money Market and Government Obligations Money Market Funds may enter into
repurchase agreements with brokers, dealers or banks that meet the credit
guidelines of the Fund's Board of Directors. In a repurchase agreement, an
Investment Fund buys a security from a seller that has agreed to repurchase it
at a mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The term of these agreements is usually from
overnight to one week and never exceeds one year. A repurchase agreement may be
viewed as a fully collateralized loan of money by an Investment Fund to the
seller. An Investment Fund always receives securities as collateral with a
market value at least equal to the purchase price, including accrued interest,
and this value is maintained during the term of the agreement. If the seller
defaults and the collateral value declines, 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 Money Market and Government Obligations Money Market Funds may enter into
reverse repurchase agreements with brokers, dealers, banks or other financial
institutions that have been determined by the Adviser to be creditworthy. In a
reverse repurchase agreement, an Investment Fund sells
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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 a
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."
STAND-BY COMMITMENTS. The Money Market and Tax-Free Money Market Funds may
each acquire "stand-by commitments" with respect to Municipal Obligations held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at an Investment Fund's option specified Municipal Obligations at a specified
price. The acquisition of a stand-by commitment may increase the cost, and
thereby reduce the yield, of the Municipal Obligation to which such commitment
relates. Each Investment Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
VARIABLE RATE DEMAND NOTES. The Money Market and Tax-Free Money Market Funds
may purchase variable rate demand notes, which are unsecured instruments that
permit the indebtedness thereunder to vary and provide for periodic adjustment
in the interest rate. Although the notes are not normally traded and there may
be no active secondary market in the notes, each Investment Fund will be able
(at any time or during the specified periods not exceeding 397 days, depending
upon the note involved) to demand payment of the principal of a note. The notes
are frequently not rated by credit rating agencies, but notes not rated by S&P
or Moody's purchased by an Investment Fund will have been determined by the
Adviser to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Investment Fund. Where necessary to ensure that
a note is of sufficiently high quality, the Investment Fund will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to
lend. While there may be no active secondary market with respect to a
particular variable rate demand note purchased by an Investment Fund, the
Investment Fund may, upon the notice specified in the note, demand payment of
the principal of the note at any time or during specified periods not
exceeding 397 days, depending upon the instrument involved. The absence of
such an active secondary market, however, could make it difficult for an
Investment Fund to dispose of a variable rate demand note if the issuer
defaulted on its payment obligation or during the periods that the Investment
Fund is not entitled to exercise its demand rights. An Investment Fund could,
for this or other reasons, suffer a loss to the extent of the default. An
Investment Fund will invest in variable rate demand notes only when the
Investment Fund's Adviser deems the investment to involve minimal credit risk
and to otherwise satisfy applicable quality standards. The Adviser also
monitors the continuing creditworthiness of issuers of such notes to
determine whether the Investment Fund should continue to hold such notes.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Money Market Fund and Government Obligations Money Market Fund may
purchase securities on a when-issued or delayed delivery basis. In such
transactions, instruments are bought with payment and
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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 each Investment Fund not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 25% of
the Investment Fund's net assets other than the obligations created by these
commitments.
QUALITY INFORMATION. The Money Market Funds utilize the amortized cost
method of valuation in accordance with regulations issued by the SEC. See
"Valuation of Shares." Accordingly, each Investment Fund will limit its
portfolio investments to those instruments which present minimal credit risks
and which are of eligible quality, as determined by the Adviser under the
supervision of the Board of Directors and in accordance with regulations of
the SEC, as such regulations may from time to time be amended. Eligible
quality for this purpose means a security (i) rated in one of the two highest
rating categories by at least two nationally recognized statistical rating
organizations ("NRSROs") assigning a rating to the security or issuer or, if
only one rating organization assigned a rating, by that rating organization
or (ii) if unrated, determined to be of comparable quality by the Adviser
under the supervision of the Board of Directors. Each of the Government
Obligations Money Market and Money Market Funds will not invest more than 5%
of its total assets in securities of issuers having the second highest rating
from any NRSRO; and these Investment Funds will not invest more than the
greater of one percent of its total assets or $1 million in securities issued
by an issuer, having at the time of acquisition or roll over, the second
highest rating from any NRSRO. The Tax-Exempt Money Market Fund will not
invest more than 5% of its total assets in conduit securities (not subject to
unconditional demand features) of issuers having the second highest rating
from any NRSRO. Additionally, the Tax-Exempt Money Market Fund will not
invest more than the greater of one percent of its total assets or $1 million
in conduit securities (not subject to unconditional demand features) of an
issuer which, at the time of acquisition or roll over, has the second
highest rating from an NRSRO. Among the criteria adopted by the Board of
Directors, an Investment Fund will not purchase any bank or corporate
obligation unless it is rated at least Aa or Prime-1 by Moody's or AA, A-1+
or A-1 by S&P or, if not rated by S&P or Moody's, it is determined to be of
comparable quality by the Adviser under the supervision of the Board of
Directors. Ratings, however, are not the only criteria utilized under the
procedures adopted by the Board of Directors. For a more detailed discussion
of other quality requirements applicable to the Fund, see "Description of
Securities and Ratings" in the Statement of Additional Information.
These quality standards must be satisfied at the time an investment is
made. In the event that an investment held by the Fund is assigned a lower
rating or ceases to be rated, the Adviser, under the supervision of the Board
of Directors, will promptly reassess whether such security presents minimal
credit risks and whether the Investment Fund should continue to hold the
security in its portfolio. If a portfolio security no longer presents minimal
credit risks, is in default or its rating is downgraded, the Investment Fund
will dispose of the security as soon as reasonably practicable unless the
Board of Directors determines that to do so is not in the best interests of
the Investment Fund.
INVESTMENT LIMITATIONS
Each Investment Fund is a diversified investment company under the 1940
Act, and is subject to the following limitations: (a) the Investment Fund may
not invest more than 5% of its total assets in the securities of any one
issuer, except obligations of the U.S. Government, its agencies and
instrumentalities and securities subject to unconditional demand features
issued by non-controlled persons, and (b) the Investment Fund may not own more
than 10% of the outstanding voting securities of any one issuer. Under
applicable regulations, however, a Fund may invest more than 5% of its assets
in any one issuer for no more than three days.
The Money Market 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
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with more than seven days to maturity if, as a result, more than 10% of the
market value of its total assets would be invested in these agreements and
other investments for which market quotations are not readily available or
which are otherwise illiquid; or (ii) invest more than 25% of the Investment
Fund's total assets in securities of companies in any one industry, except
that there is no limitation with respect to investments in securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or,
for the Money Market Fund, obligations of U.S. banks or their domestic
branches.
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 Money
Market 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.
The Adviser is entitled to receive from each Investment Fund an annual
management fee, payable monthly, equal to the percentages of average daily net
assets set forth in the table below. However, the Adviser will waive a portion
of its fees and/or reimburse expenses of an Investment Fund, if necessary, if
such fees would cause the total annual operating expenses of the Investment Fund
to exceed the percentage of average daily net assets set forth in the "Fund
Expenses" table on page 3 above.
Assets Above
Assets Up To $250 Million Up Assets Exceeding
$250 Million To $500 Million $500 Million
------------ --------------- ---------------
Money Market Fund 0.45% 0.40% 0.35%
Tax-Free Money Market Fund 0.45% 0.40% 0.35%
Government Obligations
Money Market Fund 0.45% 0.40% 0.35%
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 March 31, 1996, the Adviser together with its affiliated asset
management companies managed investments totaling approximately $97.4 billion,
including approximately $81.5 billion under active management and $15.9 billion
as Named Fiduciary or Fiduciary Adviser. See "Management of the Fund --
Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
The Money Market Funds have adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan, which is described
in more detail under "Distributor" below, the Distributor is entitled to receive
from each Money Market Fund payments of 0.50% of such Investment Fund's annual
average net assets. The 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
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construed to be financing the sale of these Money Market Funds' shares. The 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).
ADMINISTRATOR. The Adviser also provides the Fund with administrative services
pursuant to a separate administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Fund
and include day-to-day administration of matters related to the corporate
existence of the Fund, maintenance of its records, preparation of reports,
supervision of the Fund's arrangements with its custodian and assistance in the
preparation of the Fund's registration statements under federal and state laws.
The Administration Agreement also provides that the Adviser through its agents
will provide the Fund dividend disbursing and transfer agent services. For its
services under the Administration Agreement, the Fund pays the Adviser a monthly
fee which on an annual basis equals .10% of the first $200 million of the Fund's
average daily net assets, 0.75% on the next $200 million of average daily net
assets, .05% on the next $200 million of average daily net assets, and .03% on
the average daily net assets over $600 million of each Investment Fund.
Under an agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase"), Chase Global Funds Services Company ("CGFSC"), a subsidiary of Chase,
provides certain administrative services to the Fund. The Adviser supervises
and monitors such administrative services provided by CGFSC. The services
provided under the administration agreement are subject to the supervision of
the Board of Directors of the Fund. The Board of Directors of the Fund has
approved the provision of services described above pursuant to the
administration agreement as being in the best interests of the Fund. CGFSC's
business address is 73 Tremont Street, Boston, Massachusetts 02108-3913. For
additional information on the administration agreement, see "Management of the
Fund" in the Statement of Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Fund's Articles of Incorporation, the
Board of Directors decides upon matters of general policy and reviews the
actions of the Fund's Adviser, Administrator and Distributor. The Officers of
the Fund conduct and supervise its daily business operations.
DISTRIBUTOR. Morgan Stanley serves as the distributor (the "Distributor") of
the shares of the Fund. Under its distribution agreement (the "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.
Each Investment Fund currently offers only one class of shares. The Fund
may in the future offer one or more classes of shares for each Investment Fund
that may have different sales charges or other distribution charges or a
combination thereof than the class currently offered.
The Board of Directors of the Fund has approved and adopted the
Distribution Agreement for the Fund and a Plan for the Money Market Funds
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is
entitled to receive from these Money Market Funds a distribution fee, which is
accrued daily and paid monthly, of 0.50% for each of the Money Market Funds on
an annualized basis of the average daily net assets of such Investment Fund.
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.
The Plan obligates the Money Market Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plan does
not obligate the Money Market Funds to reimburse Morgan Stanley for the actual
expenses Morgan Stanley may incur in fulfilling its obligations under the Plan.
Thus, under the Plan, even if Morgan Stanley's actual expenses exceed the fee
payable to it
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thereunder at any given time, the Money Market 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.
The Plan, 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 the Plan or in any agreements related thereto ("12b-1 Directors").
The 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 to Morgan Stanley unless and until the Plan is terminated or
not renewed. The Fund intends to operate the 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 Money Market 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 Money Market Funds are responsible for payment of certain other
fees and expenses (including professional fees, custodial fees and printing and
mailing costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
PURCHASES BY PRIME RESOURCE ACCOUNT HOLDERS
GENERAL. Shares are sold without a sales load on a continuous basis by the
Distributor. Investors may purchase shares through an account maintained by the
investor with his brokerage firm (the "Account"). The minimum initial
investment is $1,000, 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. The Distributor may waive such minimums in its sole discretion.
The Fund in its sole discretion may accept or reject any order for purchases of
shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined
after CGFSC, the Fund's Transfer Agent, has received a purchase order in
proper form and the Fund's custodian has Federal Funds immediately available
to it. In those cases where payment is made by check, Federal Funds will
generally become available two Business Days after the check is received.
Orders which are accompanied by Federal Funds, or are converted into Federal
Funds, by 12:00 noon Eastern Time, will be executed as of 12:00 noon that
Business Day. Orders which are accompanied by Federal Funds, or are
converted into Federal Funds, after 12:00 noon Eastern Time but prior to 4:00
p.m. Eastern Time on any Business Day, will be executed as of the close of
the New York Stock Exchange (the "NYSE") on that Business Day. Orders which
are accompanied by Federal Funds or are converted to Federal Funds after 4:00
p.m. Eastern Time on a Business Day will be processed as of 12:00 noon
Eastern Time on the following Business Day. A "Business Day" is any day that
both the NYSE and the Federal Reserve Bank (the "FRB") are open.
PURCHASES THROUGH AN ACCOUNT. Share purchases may be effected through an
investor's Account with his broker through procedures established in connection
with the requirements of Accounts at such broker.
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In such event, beneficial ownership of shares will be recorded by the broker and
will be reflected in the Account statements provided by the broker to such
investors. A broker may impose minimum investor Account requirements. Although
a broker does not impose a sales charge for purchases of shares, depending on
the terms of an investor's Account with his broker, the broker may charge an
investor's Account fees for automatic investment and other service provided to
the Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker. This Prospectus should be read in
conjunction with any information received from a broker.
A broker may offer investors maintaining Accounts the ability to purchase
shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
shares of the Investment Fund which he has designated (the "Designated
Investment Fund") under the Purchase Program. The frequency of investments and
the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation Investment Fund at any time by so instructing his
broker.
If a broker makes special arrangements under which orders for shares are
received by the Transfer Agent or PFPC, Inc. (the "Sub-Transfer Agent") prior
to 12:00 noon Eastern Time, and the broker guarantees that payment for such
shares will be made in Federal Funds to the Fund's custodian prior to
4:00 p.m. Eastern Time, on the same day, such purchase orders will be
effective and shares will be purchased at the offering price in effect as
of 12:00 Eastern Time on the date the purchase order is received by the
Transfer Agent or Sub-Transfer Agent.
For information on each Money Market Fund's seven-day yields call the
Transfer Agent at 1-800-282-4404.
PURCHASES BY ALL OTHER SHAREHOLDERS
GENERAL. Shares of the Money Market Funds may be purchased through
Participating Dealers or directly from 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 below and the failure to do so will result in
the investors being unable to obtain that day's dividends, if any.
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) to be purchased should
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be designated on the New Account Application. For purchases by check, the Fund
is ordinarily credited with Federal Funds within one Business Day.
2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Fund's bank account ($1,000 minimum for each
Investment Fund, except for IRAs, for which the initial minimum is $250).
To help ensure prompt receipt of your Federal Funds Wire, it is important
that you follow these steps:
A. Telephone the Fund (toll free: 1-800-282-4404) and provide your name,
address, telephone number, Social Security or Tax Identification Number, the
Investment Fund(s) and the class(es) selected, the amount being wired, and by
which bank. The Fund will then provide you with a bank wire control number.
(Investors with existing accounts must also notify the Fund prior to wiring
funds.)
B. Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account (be sure to have your bank include the name of the
Investment Fund(s) selected and the bank wire control number assigned to you):
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: (Investment 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 Money Market Funds which are
received and accepted no later than 12:00 p.m. (Eastern Time) on any day that
the NYSE and Federal Reserve Banks are open for business (a "Business Day") will
be effective as of 12:00 p.m. (Eastern Time) the same day and will receive, if
applicable, the dividend declared on the day of purchase as long as the Transfer
Agent receives payment in Federal Funds prior to the close of trading hours on
the NYSE (currently 4:00 p.m. Eastern Time.) Purchase orders received after
12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time), on any Business
Day for which payment in Federal Funds has been received by 4:00 p.m. (Eastern
Time), will be effective as of 4:00 p.m. (Eastern Time) the same day, and will
begin receiving dividends, if applicable, the following day.
Federal Funds purchase orders will be accepted only on a day on
which the Fund and PNC Bank, N.A. (the "Custodian Bank") are open for business.
Your bank may charge a service fee for wiring funds.
3) BY BANK WIRE. The same procedure outlined under "By Federal Funds Wire"
above must be followed in purchasing shares by bank wire. However, money
transferred by bank wire may or may not be converted into Federal Funds the
same day, depending on the time the money is received and the bank handling
the wire. With respect to investment in the Money Market Fund, prior to
such conversion, an investor's money will not be invested and, therefore,
will not be earning dividends. The timing of effectiveness of purchase of
shares and receipt of dividends is subject to the same timing
considerations as described above with respect to purchase by Federal Funds
wire and depends on when payment in Federal Funds is received. Your bank
may charge a service fee for wiring funds.
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ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment
$100, except for IRAs, for which the minimum additional investment is $50, and
automatic reinvestment of dividends and capital gains distributions, for which
there is no minimum and no sales charge) by purchasing shares through your
Participating Dealer, by mailing a check to the Fund (payable to "Morgan Stanley
Fund, Inc. -- [Investment Fund name]") at the above address or by wiring monies
to the Custodian Bank as outlined above. It is very important that your account
number or wire control number be specified in the letter or wire to better
assure proper crediting to your account. In order to ensure that your wire
orders are invested promptly, you are requested to notify one of the Fund's
representatives (toll-free 1-800-282-4404) prior to the wire.
AUTOMATIC INVESTMENT PLAN
After establishing an account with the Fund, investors may purchase shares
of the Fund through an Automatic Investment Plan, under which an amount
specified by the shareholder equal to at least the applicable minimum for an
investment amount on a monthly basis will be sent to the Transfer Agent from the
investor's bank for investment in the Fund. Investors who are participants in
the Fund's Systematic Withdrawal Plan should not at the same time participate in
the Automatic Investment Plan. Investors interested in the Automatic Investment
Plan or seeking further information should contact a Participating Dealer or
fund representative. Shares to be held in broker street name may not be
purchased through the Automatic Investment Plan.
OTHER PURCHASE INFORMATION
Orders for the purchase of shares of the Money Market Funds become
effective on the Business Day Federal Funds are received, and the purchase will
be effected at the net asset value next computed after receipt of Federal Funds.
Purchase of shares of the Money Market Funds by check is credited to your
account at the price next determined after receipt of Federal Funds on the day
of receipt and will begin receiving dividends the following day. If you purchase
shares of an Investment Fund directly, you must make payment by check or Federal
Funds to effect your purchase of the shares and obtain the price for the shares
as described above. Purchasing shares of an Investment Fund is different from
placing a trade for securities at a given price and having a certain number of
days in which to make settlement or payment for the securities.
In the interest of economy and convenience and because of the operating
procedures of the Fund, certificates representing shares of the Money Market
Funds will normally not be issued. 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.
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REDEMPTION OF SHARES
REDEMPTIONS BY MORGAN STANLEY PRIME RESOURCE ACCOUNT HOLDERS
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Transfer Agent or
Sub-Transfer Agent. Investors may redeem all or some of their shares in
accordance with one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns shares
may redeem such shares in his Account in accordance with instructions and
limitations pertaining to his Account by contacting his broker. If such notice
is received by the Transfer Agent or Sub-Transfer Agent by 12:00 noon Eastern
Time on any Business Day, the redemption will be effective as of 12:00 noon
Eastern Time on that day. Payment of the redemption proceeds will be made after
12:00 noon Eastern Time on the day the redemption is effected, provided that the
Fund's custodian is open for business. If the custodian is not open, payment
will be made on the next bank business day. If the redemption requested is
received after 12:00 noon but before 4:00 p.m. Eastern Time will be effected as
of 12:00 noon Eastern Time on the next Business Day and payment of the
redemptions proceeds will be made after 12:00 noon Eastern Time on the day the
redemption is effected, provided that the Fund's custodian is open for business.
If the custodian is not open, payment will be made on the next bank business
day. If all shares are redeemed, all accrued but unpaid dividends on those
shares will be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a sufficient number
of shares of the Designated Investment Fund to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Investment
Fund shares will be redeemed on the same day that a transaction occurs that
results in such a debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION BY CHECK. Upon request, the Fund will provide any investor with
forms of drafts ("checks") payable through PNC Bank (the "Bank"). These checks
may be made payable to the order of anyone. The minimum amount of a check is
$500. An investor wishing to use this check writing redemption procedure should
complete specimen signature cards, and then forward such signature cards to his
broker or in accordance with the broker's instructions. Upon receipt, the
Transfer Agent or Sub-Transfer Agent will then arrange for the checks to be
honored by the Bank. Investors who own shares through an Account should contact
their brokers for signature cards. Investors with joint accounts may elect to
have checks honored with a single signature. Check redemptions will be subject
to the Bank; rules governing checks. An investor will be able to stop payment
on a check redemption. The Fund, Transfer Agent or Sub-Transfer Agent may
terminate this redemption service at any time, and neither shall incur any
liability for honoring checks, for effecting redemptions to pay checks, or for
returning checks which have not been accepted.
When a check is presented to the Bank for clearance, the Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those shares
equalling the amount being redeemed by check until such time as the check is
presented to the Bank. Checks may not be presented for cash payment at the
offices of the Bank because, under 1940 Act rules, redemptions may be effected
only at the redemption price next determined after the redemption requested is
presented to the Transfer Agent or Sub-Transfer Agent. This limitation does not
affect checks used for the payment of bills or to obtain cash at other banks.
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REDEMPTION BY ALL OTHER SHAREHOLDERS
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
Money Market Funds at its next determined net asset value. Shares of an
Investment Fund may be redeemed by mail or telephone.
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 Money Market 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. 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.
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. 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,
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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.
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, other than a Prime Resource Account holder, 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 gains 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 right is reserved to amend the Systematic Withdrawal Plan on thirty
days' notice. The plan may be terminated at any time by the investor or the
Fund.
FURTHER REDEMPTION INFORMATION
The Fund will pay for shares redeemed through broker-dealers using
electronic purchase and redemption systems within seven days after receipt of a
redemption request through such system. In other situations, the Fund normally
will make payment for all shares redeemed under this procedure within one
business day of receipt of the request, but in no event will payment be made
more than seven days after receipt of a redemption request in good order.
Payment for redeemed shares will be sent to the shareholder within seven days
after 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 Money Market Funds in lieu of cash in conformity with applicable rules of
the SEC. Shareholders may incur brokerage charges upon the sale of portfolio
securities so received in payment of redemptions. Due to the relatively high
cost of maintaining smaller accounts, the Fund reserves the right to redeem
shares in any account invested in an Investment Fund having a value of less than
$1,000. The Fund, however, will not redeem shares based solely upon market
reductions in net asset value. If at any time your total investment does not
equal or exceed the stated minimum value, you may be notified of
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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.
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SHAREHOLDER SERVICES
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, including shares held by Prime Resource Account holders,
may be transferred only by contacting your Participating Dealer.
VALUATION OF SHARES
The net asset value per share of each of the Money Market Funds is
determined at 12:00 p.m. (Eastern Time) on the days on which the NYSE and
Federal Reserve Banks are open. For the purpose of calculating the Investment
Fund's net asset value per share, securities are valued by the "amortized cost"
method of valuation, which does not take into account unrealized gains or
losses. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Investment Fund would receive if it sold the instrument.
PERFORMANCE INFORMATION
From time to time the Money Market Funds may advertise "yield," and may
advertise "effective 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 seven-day period and the income generated over the
seven-day period is then "annualized." That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned on an
investment in an Investment Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Tax-Free Money Market Fund may also
quote its "tax-equivalent yield" from time to time. The tax-equivalent yield
shows the level of taxable yield needed to produce an after-tax equivalent to
the Fund's tax-free yield. This is done by increasing
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the Investment Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal income tax at a stated tax rate. For further
information concerning these figures, see "Performance Information" in the
Statement of Additional Information. The Fund may also use comparative
performance information from time to time in marketing Fund shares, including
data from Lipper Analytical Services, Inc. and/or Donoghue's Money Fund Report.
For information on each Fund's seven-day yield call the Transfer Agent at 1-
800-282-4404.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, 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.
For the Money Market Funds, net investment income is computed and dividends
declared as of 1:00 p.m. (Eastern Time) on each day. Such dividends are payable
to Investment Fund shareholders of record as of 12:00 p.m. (Eastern Time) on
that day, if the Fund and the Custodian Bank are open for business. This means
that shareholders whose purchase orders become effective as of 12:00 p.m.
(Eastern Time) receive the dividend for that day. Dividends declared for
Saturdays, Sundays and holidays are payable to shareholders of record as of
4:00 p.m. (Eastern Time) on the last preceding day the Fund and the Custodian
Bank were open for business. Net realized gains, if any, after reduction for any
available tax loss carry forward may be distributed annually.
It is an objective of management to maintain the price per share of each
Money Market Fund as computed for the purpose of sales and redemptions at
exactly $1.00. In the event the Directors determine that a deviation from the
$1.00 per share price may exist which may result in a material dilution or other
unfair results to investors or existing shareholders, they will take corrective
action they regard as necessary and appropriate, including the sale of
instruments from the Investment Fund prior to maturity to realize gains or
losses, shortening average portfolio maturity, withholding dividends, making a
special capital distribution, or redemptions of shares in kind.
TAXES
TAX STATUS OF THE INVESTMENT FUNDS
The following summary of certain federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial, or administrative action. See also the tax sections in the Statement
of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of 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 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.
27
<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 the Money Market Fund and Government Obligations
Money Market Fund from their respective 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.
The Tax-Free Money Market Fund intends to qualify to pay "exempt interest
dividends" by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of securities the interest on which is exempt from federal income tax.
So long as this and certain other requirements are satisfied, the Investment
Fund's "exempt interest dividends" will be exempt from regular federal income
tax. Investors in this Investment Fund should note, however, that in certain
circumstances such amounts, while exempt from regular federal income tax, are
subject to alternative minimum tax. In addition, this Investment Fund may not
be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development or private activity bonds. See
the Statement of Additional Information for a description of the application of
the alternative minimum tax and certain other collateral tax consequences.
Current federal income tax law limits the types and volume of bonds
qualifying for the federal income tax exemption of interest, which may affect
the ability of the Tax-Free Money Market Fund to purchase sufficient amounts of
tax-exempt securities to qualify to pay exempt interest dividends." Investors
should note that interest on indebtedness incurred or continued by shareholders
to purchase or carry shares of the Tax-Free Money Market Fund will not be
deductible for federal income tax purposes.
The Tax-Free Money Market Fund will determine annually the percentages of
its net investment income which are exempt form the regular federal income tax
and will apply such percentages uniformly to all distributions declared from net
investment income during that year. These percentages may differ significantly
form the actual percentages for any particular day.
Shareholders may also be subject to state and local taxes on distributions
from the Fund. Shareholders are advised to consult their own tax advisers with
respect to tax consequences to them of an investment in the Fund.
Dividends and other distributions declared in October, November and
December by an Investment Fund payable as of a record date in such month and
paid at any time during January of the following year are treated as having been
paid by an Investment Fund and received by the shareholders on December 31 of
the year declared.
28
<PAGE>
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN AN INVESTMENT FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Fund to issue 21.75
billion shares of common stock, par value $.001 per share. Pursuant to the
Fund's By-Laws, the Board of Directors may increase the number of shares the
Fund is authorized to issue without the approval of the shareholders of the
Fund. The Board of Directors has the power to designate one or more classes of
shares of common stock and to classify and reclassify any unissued shares with
respect to such classes.
The shares of the Investment Funds, when issued, will be fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
The shares have no preference as to conversion, exchange, dividends, retirement
or other features and have no preemptive rights. The shares of the Investment
Funds have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can elect 100% of
the Directors if they choose to do so. Under Maryland law, the Fund is not
required to hold an annual meeting of its shareholders unless required to do so
under the 1940 Act. A Director may be removed by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Fund. Any person or organization owning 25% or more of
the outstanding shares of an Investment Fund may be presumed to "control" (as
that term is defined in the 1940 Act) such Investment Fund.
REPORTS TO SHAREHOLDERS
The Fund and Sub-Transfer Agent will send to shareholders of the Fund
annual and semi-annual reports; the financial statements appearing in annual
reports are audited by independent accountants.
In addition, the Fund, the Transfer Agent or Sub-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, the Transfer Agent or Sub-Transfer Agent
will send the shareholder a confirmation statement showing the same information.
CUSTODIAN
PNC Bank, N.A. acts as custodian for each of the Money Market Funds. For
more information on the Fund's custodians, see "General Information -- Custody
Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING, TRANSFER AGENT AND SUB-TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Fund. PFPC, Inc., an indirect wholly-owned subsidiary of PNC Financial Corp., a
multi-bank holding company, serves as sub-transfer agent for Morgan Stanley
Prime Resource Account shareholders. PFPC's address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
29
<PAGE>
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.
30
<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
PAGE
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies. . . . . . . . . . . . . . . . . . . . . .
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Investment Information . . . . . . . . . . . . . . . . . . . . . .
Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Account Application
MORGAN STANLEY
MONEY MARKET FUND
MORGAN STANLEY
TAX-FREE MONEY MARKET FUND
MORGAN STANLEY
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
<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 seventeen 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 Morgan Stanley
Money Market Fund, Morgan Stanley Tax-Exempt Money Market Fund, and Morgan
Stanley Government Obligations Money Market Fund and to the Class A shares,
Class B shares and Class C shares of the remaining investment portfolios
listed below (each, an "Investment Fund") (collectively, the "Investment
Funds"). The Morgan Stanley Growth and Income, Morgan Stanley European
Equity, Morgan Stanley Money Market, Morgan Stanley Tax-Exempt Money Market,
and Morgan Stanley Government Obligations Money Market Funds are not
currently offering shares.
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. . . . . . . . . . . . . . . . . . . 3
FEDERAL INCOME TAX. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FEDERAL TAX TREATMENT OF FORWARD. . . . . . . . . . . . . . . . . . . . 16
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES. . . . . . . . . . . . . . 16
TAXES AND FOREIGN SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . 17
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 18
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 19
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS . . . . . . . . . . . . . 22
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . . . 22
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 34
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 35
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 51
DESCRIPTION OF SECURITIES AND RATINGS . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statement of Additional Information dated __________ ____, 1996, relating to:
The Prospectus for the Morgan Stanley Global Fixed Income Fund, Morgan
Stanley Worldwide High Income Fund and Morgan Stanley High Yield Fund,
dated May 1, 1996
The Prospectus for the Morgan Stanley American Value Fund, Morgan Stanley
Aggressive Equity Fund and Morgan Stanley U.S. Real Estate Fund, dated May
1, 1996
The Prospectus for the Morgan Stanley Global Equity Allocation Fund, Morgan
Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley International Magnum Fund and
Morgan Stanley Japanese Equity Fund, dated May 1, 1996
The Prospectus for the Morgan Stanley Growth and Income Fund and Morgan
Stanley European Equity Fund dated ____, 1996
The Prospectus for the Morgan Stanley Money Market Fund, Morgan Stanley
Tax-Exempt Money Market Fund and Morgan Stanley Government Obligations
Money Market Fund, dated __________, 1996.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectus with respect to the Fund's seventeen
Investment Funds: Morgan Stanley Global Fixed Income Fund, Morgan Stanley
Worldwide High Income Fund, Morgan Stanley High Yield Fund, Morgan Stanley
American Value Fund, Morgan Stanley Aggressive Equity Fund, Morgan Stanley
U.S. Real Estate Fund, Morgan Stanley Global Equity Allocation Fund, Morgan
Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley International Magnum Fund, Morgan
Stanley Japanese Equity Fund, Morgan Stanley Growth and Income Fund, Morgan
Stanley European Equity Fund (collectively, the "Non-Money Funds") and Morgan
Stanley Money Market Fund, Morgan Stanley Tax-Exempt Money Market Fund and
Morgan Stanley Government Obligations Money Market Fund (collectively, the
"Money Market Funds") (referred to herein respectively as the "Global Fixed
Income Fund," "Worldwide High Income Fund," "High Yield Fund," "American
Value Fund," "Aggressive Equity Fund," "U.S. Real Estate Fund," "Global
Equity Allocation Fund," "Asian Growth Fund," "Emerging Markets Fund," "Latin
American Fund," "International Magnum Fund," "Japanese Equity Fund," "Growth
and Income Fund," "European Equity Fund," "Money Market Fund," "Tax-Exempt
Money Market Fund" and "Government Obligations Money Market 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
2
<PAGE>
Fund is subject to the risk that if the price of the common stock is below the
cap price at the maturity of the ELKS, the Investment Fund will lose the amount
of the difference between the price of the common stock and the cap. Such a
loss could substantially reduce the Investment Fund's initial investment in the
ELKS and any dividends that were paid on the ELKS. An additional risk is that
the issuer may "reopen" the issue of ELKS and issue additional ELKS at a later
time or issue additional debt securities or other securities with terms similar
to those of the ELKS, and such issuances may affect the trading value of the
ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-marked yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based on
the price of underlying common stock. If the common stock is trading at a price
that is at or below the purchase price of the LYONs plus accrued original issue
discount, the Investment Fund receives only the lower-than-market yield,
assuming the LYONs are not in default. If the common stock is trading at a
price that is above the purchased price of the LYONs plus accrued original issue
discount, the Investment Fund will receive an amount above the lower-than-market
yield on the LYONs, based on how well the underlying common stock does. LYONs
also present risks based on payment expectations. If a LYONs issuer redeems the
LYONs, the Investment Fund may have to replace the LYONs with a lower yielding
security, resulting in a decreased return for investors.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the Global Equity Allocation, Global
Fixed Income, Asian Growth, Emerging Markets, Latin American, European Equity,
Japanese Equity and International Magnum Funds and to the extent they invest in
foreign currencies, the American Value, Aggressive Equity, Growth and Income,
Worldwide High Income and High Yield Funds may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the 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
3
<PAGE>
of securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. An Investment Fund will not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate such Investment Fund to
deliver an amount of foreign currency in excess of the value of such Investment
Fund securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Investment Fund will thereby be served. Except in circumstances where
segregated accounts are not required by the 1940 Act and the rules adopted
thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
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
4
<PAGE>
The Emerging Markets, Latin American, European Equity, International
Magnum, American Value, Aggressive Equity, Growth and Income and Worldwide High
Income Funds may enter into securities index futures contracts and options on
securities index futures contracts to a limited extent and the Latin American
Fund may utilize appropriate interest rate futures contracts and options on
interest rate futures contracts to a limited extent. In addition, the Emerging
Markets, Latin American, European Equity, American Value, Aggressive Equity,
Growth and Income and Worldwide High Income Funds may enter into foreign
currency futures contracts and options thereon. The U.S. Real Estate Fund may
enter into futures contracts and options on futures contracts for the purpose of
remaining fully invested and reducing transaction costs. The High Yield and
U.S. Real Estate Funds may also enter into futures contracts for hedging
purposes. No Portfolio will enter into futures contracts or options thereon for
speculative purposes. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
or a specific currency at a specified future time and at a specified price.
Futures contracts, which are standardized as to maturity date and underlying
financial instrument, index or currency, traded in the United States are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
The Emerging Markets, Latin American, European Equity, American Value,
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 Value,
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.
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After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Investment
Fund expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Investment Funds intend to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Investment Funds require that all
futures transactions constitute bona fide hedging transactions or transactions
for other purposes so long as the aggregate initial margin and premiums required
for such transaction will not exceed 5% of the liquidation value of the
Investment Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into. The Investment
Funds will only sell futures contracts to protect securities owned against
declines in price or purchase contracts to protect against an increase in the
price of securities intended for purchase. As evidence of this hedging interest,
the Investment Funds expect that approximately 75% of their respective futures
contracts will be "completed"; that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Investment Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Investment Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Investment Funds will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
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.
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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 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
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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 EAFE INDEX
The International Magnum Fund seeks to achieve its objective by investing
primarily in equity securities of non-U.S. issuers in accordance with the EAFE
country (defined below) weightings determined by the Adviser. After
establishing regional allocation strategies, the Adviser then selects equity
securities among issuers of a region. The Investment Fund invests in countries
(each an "EAFE country") comprising the Morgan Stanley Capital International
EAFE (Europe, Australia and the Far East) Index (the "EAFE Index.")
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy, The Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom. "Far East" includes Japan,
Hong Kong and Singapore/Malaysia.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of United States and
non-United States issuers. The Adviser determines country allocations for the
Investment Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Investment Fund will invest
in the United States and industrialized countries throughout the world that
comprise the Morgan Stanley Capital International World Index (the "World
Index"). The World Index is one of seven International Indices, twenty National
Indices and thirty-eight International Industry Indices making up the Morgan
Stanley Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
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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, International
Magnum, Aggressive Equity, U.S. Real Estate, 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 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
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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.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the
sale of securities held by an Investment Fund pursuant to the Investment Fund's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940, as amended (the "1940 Act"). While reverse repurchase
transactions are outstanding, the Investment Funds will maintain in a segregated
account cash, U.S. Government securities or other liquid, high-grade debt
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments held by
each Money Market Fund may have maturities of more than 397 days, provided: (i)
the Investment Fund is entitled to the payment of principal at any time, or
during specified intervals not exceeding 397 days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397 days.
In determining the average weighted maturity of the Investment Fund and whether
a variable rate demand instrument has a remaining maturity of 397 days or less,
each instrument will be deemed by the Investment Fund to have a maturity equal
to the longer of the period remaining until its next interest rate adjustment or
the period remaining until the principal amount can be recovered through demand.
In determining whether an unrated variable rate demand instrument is of
comparable quality at the time of purchase to instruments rated "high quality,"
the Advisor will follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when issued"
and delayed delivery securities purchased for delivery beyond the normal
settlement date at a stated price and yield. While an Investment Fund has firm
commitments outstanding, the Investment Fund will maintain in a segregated
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account cash, U.S. government securities or other liquid, high grade debt
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for an Investment Fund will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, an
Investment Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Investment Fund's commitment. It may be expected that an
Investment Fund's net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. Because an Investment Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, it is expected that commitments to purchase
"when issued" securities will not exceed 25% of the value of a Money Market
Fund's total assets absent unusual market conditions. When an Investment Fund
engages in when-issued transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in an Investment Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
STAND-BY COMMITMENTS. An Investment Fund may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at an Investment Fund's option a
specified Municipal Obligation at its amortized cost value to the Investment
Fund plus accrued interest, if any. Stand-by commitments may be exercisable by
an Investment Fund at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
The Investment Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, an Investment Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by an Investment Fund
will not exceed 1/2 of 1% of the value of that Investment Fund's total assets
calculated immediately after each stand-by commitment is acquired.
The Investment Funds intend to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Advisor's opinion, present
minimal credit risks and otherwise satisfy applicable quality standards. The
Investment Funds' reliance upon the credit of these dealers, banks and
broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.
The Investment Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their right thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where an Investment Fund pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by that Investment Fund and will be
reflected in realized gain or loss when the commitment is exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S.
BANKS. For purposes of the Investment Funds' investment policies with respect
to bank obligations, the assets of a bank or savings institution will be deemed
to include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks.
These risks may include future unfavorable political and economic developments,
possible withholding taxes on interest income, seizure or nationalization of
foreign deposits, currency
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controls, interest limitations, or other governmental restrictions which might
affect the payment of principal or interest on the securities held in an
Investment Fund. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Money Market Funds will invest in U.S. dollar-denominated
obligations of domestic branches of foreign banks and foreign branches of
domestic banks only when the Advisor believes that the risks associated with
such investment are minimal and that all applicable quality standards have been
satisfied.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by an
Investment Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by an Investment Fund under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt securities
represent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and
principal to the investor. Each mortgagor's monthly payment to his lending
institution on his residential mortgage is "passed-through" to investors.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions which originate
mortgages for the pools are subject to certain standards, including credit and
underwriting criteria for individual mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than
the interest rates paid on the mortgages included in the underlying pool, but
only by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor of payment of the securities for the guarantee of the services of
passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
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.
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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.
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
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for the shares exceeds one year, and otherwise will be short-term. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of. Any loss realized by a
shareholder on the disposition of shares held 6 months or less is treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares or any
inclusion of undistributed capital gain with respect to such shares.
Each Investment Fund will generally be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income and 98% of its capital gain
net income (the excess of short and long-term capital gains over short and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
Each Investment Fund is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital gains distributions,
and redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Investment Fund, that
the Social Security or Taxpayer Identification Number provided is correct and
that the shareholder is exempt from backup withholding or is not currently
subject to backup withholding.
ADDITIONAL CONSIDERATIONS FOR THE TAX-FREE MONEY MARKET FUND
In order for the Tax-Free Money Market Fund to pay exempt interest
dividends during any taxable year, at the close of each quarter of its taxable
year at least 50% of the value of the Investment Fund's assets must consist of
certain tax-exempt obligations. Exempt-interest dividends distributed to
shareholders are not included in the shareholder's gross income for regular
federal income tax purposes. Exempt-interest dividends may, however, be subject
to the alternative minimum tax (the "AMT") imposed by Section 55 and, in the
case of corporate taxpayers, the Code or the environmental tax (the
"Environmental Tax") imposed by Section 59A of the Code. The AMT and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference (and therefore potentially
subject to the AMT and the Environmental Tax) for both corporate and
non-corporate taxpayers. Second, in the case of exempt-interest dividends
received by corporate shareholders, all exempt-interest dividends, regardless of
when the bonds from which they are derived were issued or whether they are
derived from private activity bonds, will be included in the corporation's
"adjusted current earnings," as defined in Section 56(g) of the Code, in
calculating the corporation's alternative minimum taxable income for purposes of
determining the AMT and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter
S corporations may also be subject to taxes on their "passive investment
income," which could include exempt-interest dividends. Up to 85% (depending on
the taxpayer's income) of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual depending upon the individual's "modified
adjusted gross income" (which includes exempt-interest dividends).
The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users) of facilities financed by
industrial development or private activity bonds. A "substantial user" is
defined generally to include certain persons who regularly use such a facility
in their trade or business. Such entities or persons should consult their tax
advisors before purchasing Shares of this Investment Fund.
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Issuers of bonds purchased by the Tax-Free Money Market Fund (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date of
issuance thereof if such representations are determined to have been inaccurate
or if the issuer of such bonds (or the beneficiary of such bonds) fails to
comply with such covenants.
Distributions of net investment income received by the Tax-Free Money
Market Fund from investments in debt securities (other than interest on
tax-exempt Municipal Obligations) and any net short-term capital gains
distributed by the Investment Fund will be taxable to shareholders as ordinary
income and will not be eligible for the dividends received deduction for
corporate shareholders. Although the Tax-Free Money Market Fund generally does
not expect to receive net investment income other than Tax-Exempt Interest, up
to 20% of the net assets of the Investment Fund may be invested in Municipal
Obligations that do not bear Tax-Exempt Interest, and any taxable income
recognized by the Investment Fund will be distributed and taxed to its
shareholders.
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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 (determine without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by an Investment Fund from its
foreign source income will be treated as foreign source income. An Investment
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income," such as the portion of
dividends received from an Investment Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations as individuals. Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income taxes paid by an Investment
Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES
Except for certain hedging transactions, each Investment Fund is required
for federal income tax purposes to recognize as gain or loss for each taxable
year its net unrealized gains and losses on certain forward currency and futures
contracts as of the end of each taxable year, as well as those actually realized
during the year. In most cases, any such gain or loss recognized with respect to
a regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Gain or loss attributable to a foreign currency forward
contract is treated as 100% ordinary income. Furthermore, forward currency
futures contracts which are intended to hedge against a change in the value of
securities held by an Investment Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, the Investment Fund will
have to avoid realizing gains on futures contracts and certain forward contracts
held less than three months and may be required to defer the closing out of
futures contracts beyond the time
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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 Non-Money Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Investment Funds an order received prior to the regular close of the New
York Stock Exchange (the "NYSE") will be executed at the price computed on the
date of receipt; and an order received after the regular close of the NYSE will
be executed at the price computed on the next day the NYSE is open. The purchase
price of shares of the Non-Money Funds is based on such price as further
described in the Prospectus under "Purchase of Shares." Class A shares of the
Non-Money Funds purchased without an initial sales charge that
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are redeemed within one year of purchase are subject to a 1.00% contingent
deferred sales charge ("CDSC"), certain Class B shares of the Non-Money Funds
that are redeemed within six years of purchase are subject to a CDSC of up
to 5.00% and certain Class C shares of the Non-Money Funds that are redeemed
within one year of purchase are subject to a 1.00% CDSC, as described in the
Prospectus under "Purchase of Shares." The initial sales charge and CDSC are
not applicable to shares of any class of any Investment Fund purchased
through the automatic reinvestment of dividends or distributions paid by any
Investment Fund. The price of shares of the Money Market Funds is the net
asset value per share next determined after Federal Funds are available to
such Investment Fund. A purchase of a Money Market Fund's shares by check is
credited to the shareholder's account at the price next determined after
receipt of Federal Funds on the day of receipt and will begin receiving
dividends the following day. Shares of the Fund may be purchased on any day
the NYSE and the Federal Reserve Banks are open. The NYSE and/or the Federal
Reserve Banks are closed when the following holidays are observed: New Year's
Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each Investment Fund reserves the right in its sole discretion (i) to
suspend the offering of its shares, (ii) to reject purchase orders when in the
judgment of management such rejection is in the best interest of the Fund, and
(iii) to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts such as employee benefit plans or under circumstances
where certain economies can be achieved in sales of an Investment Fund's shares.
REDEMPTION OF SHARES
Each Investment Fund may suspend redemption privileges or postpone the date
of payment (i) during any period that the NYSE is closed, or trading on the NYSE
is restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for an Investment Fund to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit.
Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the
Investment Fund. Class A shares of the Non-Money Funds purchased without an
initial sales charge due to the size of the purchase that are redeemed within
one year of purchase are subject to a 1.00% CDSC, certain Class B shares of the
Non-Money Funds that are redeemed within six years of purchase are subject to a
CDSC of up to 5.00% that decreases to 0% after six years, and certain Class C
shares of the Non-Money Funds that are redeemed within one year of purchase are
subject to a 1.00% CDSC as described in the Prospectus under "Purchase of
Shares." Such initial sales charge and CDSC are not applicable to shares of any
class of any Investment Fund purchased through the automatic reinvestment of
dividends or distributions paid by any Investment Fund.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with: (1) all redemptions,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (2) share
transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.
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Redemption of shares held in broker street name may not be accomplished by
mail or telephone as described above. Shares held in broker street name may be
redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
INVESTMENT LIMITATIONS
Each current Investment Fund of the Fund has adopted the following
restrictions which are fundamental policies and may not be changed without the
approval of the lesser of: (1) at least 67% of the voting securities of the
Investment Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Investment Fund are present or represented
by proxy, or (2) more than 50% of the outstanding voting securities of the
Investment Fund. Each current Investment Fund of the Fund will not:
(1) invest in commodities, except that each of the Emerging Markets Fund,
Latin American Fund, European Equity Fund, American Value Fund, Aggressive
Equity Fund, Growth and Income and Worldwide High Income Fund may invest in
futures contracts and options to the extent that not more than 5% of its total
assets are required as deposits to secure obligations under futures contracts
and not more than 20% of its total assets are invested in futures contracts and
options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation, except that the Tax-Free Money Market Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations;
(6) with respect to all the Investment Funds, except the Latin American
Fund and U.S. Real Estate Fund, acquire any securities of companies within one
industry if, as a result of such acquisition, more
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than 25% of the value of the Investment Fund's total assets would be invested in
securities of companies within such industry; provided, however, that there
shall be no limitation on the purchase of obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or (in the case of the
Money Market Fund) instruments issued by U.S. banks or their domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases; or
With respect to limitation (6) above concerning industry concentration,
the Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry. The
policy and practices stated in this paragraph may be changed without the
affirmative vote of the holders of a majority of the Investment Fund's
outstanding shares, but any such change may require the approval of the
Securities and Exchange Commission (the "SEC") and would be disclosed in the
Prospectus prior to being made.
In addition, the following are fundamental investment limitations with
respect to the Non-Money Market Investment Funds. No Non-Money Market
Investment Fund May:
(1) 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, Aggressive Equity Fund and Worldwide High Income Fund may enter into short
sales in accordance with its investment objectives and policies;
(2) 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;
(3) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Investment
Fund's total assets valued at the lower of market or cost and an Investment Fund
may not purchase additional securities when borrowings exceed 5% of total
assets, except that the Worldwide High Income Fund, Latin American Fund, Growth
and Income Fund and Money Market Fund may enter into reverse repurchase
agreements in accordance with their investment objectives and policies and
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;
(4) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except that each of
the Latin American, Aggressive Equity and Worldwide High Income Funds may
pledge, mortgage or hypothecate its assets to secure borrowings in amounts up to
33 1/3% of its assets (including the amount borrowed);
(5) 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;
(6) 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;
(7) issue senior securities.
(8) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (5) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
(9) with respect to all of the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund, Latin American Fund, Aggressive Equity Fund
and U.S. Real Estate Fund, purchase more than 10% of any class of the
outstanding securities of any issuer;
(10) with respect to all the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund, Latin American Fund, U.S. Real Estate Fund
purchase securities of an issuer (except obligations of the U.S. Government and
its instrumentalities) if as the result, with respect to 75% of its total
assets, more than 5% of the Investment Fund's total assets, at market, would be
invested in the securities of such issuer;
The following are fundamental investment limitations with respect to the
Money Market Funds. No Money Market Fund may:
(1) issue senior securities or borrow money, except for borrowing money
from banks for temporary purposes or (with respect to the Money Market Fund and
Government Obligations Fund) for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Investment Fund's total assets
at the time of such borrowing, and only if after such borrowing there is asset
coverage
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of at least 300 percent for all borrowings of the Investment Fund; or mortgage,
pledge, hypothecate or in any manner transfer as security for indebtedness any
securities owned or held by the Investment Fund, any assets except as may be
necessary in connection with permitted borrowings and then, in amounts not in
excess of 10% of the value of the Investment Fund's total assets at the time of
the borrowing; or purchase portfolio securities while borrowings in excess of 5%
of the Investment Fund's net assets are outstanding. (This borrowing provision
is not for investment leverage, but solely to facilitate management of the
Investment Fund's securities by enabling the Investment Fund to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.);
(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(3) make short sales of securities or maintain a short position or write
or sell puts, calls, straddles, spreads or combinations thereof;
(4) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the
Investment Fund may invest only in investment companies that are unaffiliated
with the Fund; and with respect to the Tax-Free Money Market Fund and Government
Obligations Money Market Fund, invest more than 10% of the value of the
Investment Fund's assets in other investment companies that are unaffiliated
with the Fund and then no more than 5% of the Investment Fund's assets may be
invested in any one money market fund;
(5) with respect to the Money Market Fund, purchase any securities other
than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Investment Fund may make interest-bearing savings deposits
in amounts not in excess of 5% of the value of the Investment Fund's assets and
may make time deposits;
(6) with respect to the Tax-Exempt Money Market Fund, under normal market
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
(7) with respect to the Government Obligations Money Market Fund, purchase
securities other than U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There is no limit on the
amount of the Investment Fund's assets which may be invested in the securities
of any one issuer of obligations that the Investment Fund is permitted to
purchase;
(8) purchase the securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or securities subject to unconditional demand features issued by a non-
controlled person) if immediately after and as a result at the time of purchase
more than 5% of the Investment Fund's total assets would be invested in the
securities of such issuer; except that, under applicable regulations, the
Investment Fund may invest more than 5% of its total assets in any one issuer
for up to three business days;
(9) enter into repurchase agreements with more than seven days maturity
if, as a result, more than 10% of the value of its total assets would be
invested in these agreements and other investments for which market
quotations are not readily available or which are otherwise illiquid; and
(10) make loans, except that an Investment Fund may purchase or hold
debt obligations in accordance with its investment objectives, policies and
limitations and, with respect to the Money Market and Government Obligations
Money Market Funds, may enter into repurchase agreements for securities, and
may lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Investment Fund's permitted
investments, which is equal at all times to at least 100% of the value of the
securities loaned. There is no investment restriction on the amount of
securities that may be loaned.
In addition, the Fund has adopted the following limitations which are not
fundamental policies and may be changed without shareholder approval:
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(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,
Aggressive Equity, Growth and Income and Worldwide High Income Funds may
purchase puts and calls on foreign currencies and may write covered call options
in accordance with its investment objective and policies;
(2) 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;
(3) no Investment Fund will invest in oil, gas or other mineral leases;
Each of the Global Fixed Income, Emerging Markets, Latin American,
Aggressive Equity and U.S. Real Estate Funds will diversify its holdings so
that, at the close of each quarter of its taxable year, (i) at least 50% of the
market value of the 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); 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.
22
<PAGE>
MANAGEMENT OF THE FUND
Officers and Directors
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. The other Directors have no
affiliation with the Fund's adviser, distributor or administrative services
provider. 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
23
<PAGE>
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:
<TABLE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
Barton M. Biggs* Chairman and Chairman and Director of Morgan Stanley Asset Management Inc.
1221 Avenue of the Director and Morgan Stanley Asset Management Limited; Managing Director of Morgan
Americas Stanley & Co. Incorporated; Director of Morgan Stanley Group Inc.; Member
New York, NY 10020 of Investment Advisory Counsel of the Thailand Fund; Member of the
11/26/32 Yale Development Board; Director of the Rand McNally Company; Director
and Officer of various investment companies managed by Morgan Stanley
Asset Management Inc.
Warren J. Olsen* Director and Principal of Morgan Stanley Asset Management Inc.; President and
1221 Avenue of the President Director of various investment companies managed by Morgan Stanley
Americas Asset Management Inc.
New York, NY 10020
12/21/56
24
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
John D. Barrett, II Director Chairman and Director of Barrett Associates, Inc. (investment
521 Fifth Avenue counseling); Director of the Ashforth Company (real estate); Director
New York, NY 10135 of the Morgan Stanley Institutional Fund, Inc. and PCS Cash Fund, Inc.
8/21/35
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm); Director of the Morgan
43 Arch Street Stanley Institutional Fund, Inc. and PCS Cash Fund, Inc.
Greenwich, CT 06830
1/23/37
Andrew McNally IV Director Chairman and Chief Executive Officer of Rand McNally (publication);
8255 North Central Director of Allendale Insurance Co., Mercury Finance (consumer finance);
Park Avenue Zenith Electronics, Hubbell, Inc. (industrial electronics); Director
Skokie, IL 60076 of the Morgan Stanley Fund, Inc., Morgan Stanley Institutional Fund,
11/11/39 Inc. and PCS Cash Fund, Inc.; Director of the Morgan Stanley
Institutional Fund, Inc. and PCS Cash Fund, Inc.
Samuel T. Reeves Director Chairman of the Board and CEO, Pinacle Trading L.L.C. (investment firm);
8211 North Fresno Street Director, Pacific Gas and Electric and PG&E Enterprises (utilities);
Fresno, CA 93720 Director of the Morgan Stanley Institutional Fund, Inc. and PCS Cash
7/28/34 Fund, Inc.
Fergus Reid Director Chairman and Chief Executive Officer of LumeLite Corporation
85 Charles Colman Blvd. (injection molding firm); Trustee and Director of Vista Mutual Fund
Pawling, NY 12564 Group; Director of the Morgan Stanley Institutional Fund, Inc. and
8/12/32 PCS Cash Fund, Inc.
25
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin & Boehm, P.C. and Rake,
2800 North Central Avenue Copple, Downey & Black, P.C. (law firms); Director of the
Phoenix, AZ 85004 Morgan Stanley Institutional Fund, Inc. and PCS Cash Fund,
1/24/34 Inc.
Frederick B. Whittemore* Director Advisory Director of Morgan Stanley & Co. Incorporated; Vice-Chairman
1251 Avenue of the and Director of various investment companies managed by Morgan Stanley
Americas, 30th Flr. Asset Management Inc.
New York, NY 10020
11/12/30
James W. Grisham* Vice President Principal of Morgan Stanley Asset Management Inc.; Officer of various
1221 Avenue of the investment companies managed by Morgan Stanley Asset Management Inc.
Americas
New York, NY 10020
10/24/41
Michael F. Klein* Vice President Vice President of Morgan Stanley Asset Management Inc; Officer of
1221 Avenue of the various investment companies managed by Morgan Stanley Asset
Americas Management Inc. Previously associated with Rogers & Wells (law firm).
New York, NY 10020
12/12/58
26
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley & Co. Incorporated; General Counsel and
1221 Avenue of the Secretary of Morgan Stanley Asset Management Inc.; Officer of various
Americas investment companies managed by Morgan Stanley Asset Management Inc.
New York, NY 10020
6/10/60
Joseph P. Stadler* Vice President Vice President of Morgan Stanley Asset Management Inc.; Officer of
1221 Avenue of the various investment companies managed by Morgan Stanley Asset
Americas Management Inc. Previously with Price Waterhouse LLP (accounting).
New York, NY 10020
6/7/54
27
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
Valerie Y. Lewis* Secretary Vice President of Morgan Stanley Asset Management Inc.; Officer of
1221 Avenue of the various investment companies managed by Morgan Stanley Asset Management
Americas Inc. Previously with Citicorp (banking).
New York, NY 10020
3/26/56
Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General Counsel of Chase Global
73 Tremont Street Funds Services Company; Previously with Leland, O'Brien, Rubinstein
Boston, MA 02108-3913 Associates, Inc. (investments).
3/7/55
James R. Rooney Treasurer Vice President, Chase Global Funds Services Company; Director of Fund
73 Tremont Street Administration; Officer of various investment companies managed by
Boston, MA 02108-3913 Morgan Stanley Asset Management Inc. Previously with Scudder, Stevens &
10/21/58 Clark, Inc. (investment) and Ernst & Young LLP (accounting).
28
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Fund Past Five Years
- ------------------------------- ------------------ ---------------------------
<S> <C> <C>
Joanna Haigney Assistant Treasurer Supervisor of Fund Administration and Compliance, Chase Global Funds
73 Tremont Street Services Company; Officer of various investment companies managed by
Boston, MA 02108-3913 Morgan Stanley Asset Management Inc. Previously with Coopers & Lybrand
10/10/66 LLP.
</TABLE>
_______
*"Interested Person" within the meaning of the 1940 Act.
REMUNERATION OF DIRECTORS AND OFFICERS
The Open-End Fund Complex pays each of the nine Directors who is not an
"interested person" an annual aggregate fee of $55,000, plus out-of-pocket
expenses. The Open-End Fund Complex will pay each of the members of the
Fund's Audit Committee, which consists of three 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 two funds in the Open-End Fund Complex in direct proportion to their
respective average net assets. For the fiscal period ended June 30, 1996,
the Fund paid approximately $______ in Directors' fees and expenses.
Directors who are also officers or affiliated persons receive no remuneration
for their services as Directors. The Fund's officers and employees are paid
by the Adviser or its agents. As of June 24, 1996, 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, 1995 to June 30, 1996.
29
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
(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 Complex
as Part of Retirement Paid to Directors
Fund
Expenses
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 $______ and $________, respectively.
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
30
<PAGE>
The Adviser is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020.
The Group, a renowned global financial services firm, is distinguished by
quality, service and a commitment to excellence. Tracing its roots to the
founding of the U.S. securities industry, the Group remains a leader in the
field. The Group's premier list of clients includes some of the largest
multinational corporations and institutions, governments, nation-states, royal
households and very high-net-worth individuals.
The Group with its subsidiaries ("Morgan Stanley") maintains a major global
presence with offices in Chicago, Frankfurt, Hong Kong, London, Los Angeles,
Luxembourg, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore,
Taipei, Tokyo, Toronto and Zurich. With over 9,800 employees, approximately 35%
of which are located outside the U.S., and members of the portfolio management
teams which are native to the countries in which they are investing, Morgan
Stanley is in an exceptional position to interpret the forces that will impact
the world's capital markets today, over the next decade and beyond.
The investment management division of Morgan Stanley was formed in 1975
under the leadership of Barton Biggs and incorporated as a wholly-owned
subsidiary of the Group in 1981. MSAM was formed to offer investment management
and fiduciary services to institutions and high-net-worth individuals. MSAM
offers its clients the same superior service and high standards of integrity
that have been the hallmark of Morgan Stanley since its founding in 1935.
As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with
Morgan Stanley's long-standing tradition of integrity and prudence, puts MSAM
in a unique position to offer investment management services. As compensation
for advisory services [to the Fund] for the fiscal years ended June 30, 1994,
June 30, 1995 and June 30, 1996, the Adviser earned fees of approximately
$_______________ (and voluntarily waived a portion of such fees equal to
approximately $1,026,000), $4,571,000 (and voluntarily waived a portion of
such fees equal to approximately $868,000), $______________ (and voluntarily
waived a portion of such fees equal to approximately $____________)
respectively. Further, for the fiscal years ended June 30, 1994, June 30,
1995 and June 30, 1996, MSAM, as adviser for the PCS Money Market Portfolio
(the "Predecessor Money Market Portfolio") the predecessor to the Money Market
Fund received $686,138, $611,754 and $____________, respectively (net of
voluntary fee waivers of $109,879, $87,105 and $___________ respectively) and
as adviser for the PCS Government Obligations Money Market Portfolio (the
"Predecessor Government Obligations Portfolio") the predecessor to the
Government Obligations Fund received $412,757, $897,867 and $_________
respectively (net of voluntary fee waivers of $25,448, $0 and $ ____________,
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
Non-Money Market Fund and 0.10% of the first $200 million of each Money
Market Fund's average daily net assets, 0.75% of the next $200 million of
average daily net assets, .05% of the next $200 million of average daily net
assets, and .03% on average daily net assets over $600 million. For the
fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996, the Fund
paid administrative fees to MSAM of approximately $852,000, $1,154,000, and
$____________ respectively. For the same fiscal years PFPC Inc., which
served as administrator to the Predecessor Money Market Portfolio and
Predecessor Government Obligations Money Market Portfolio (the "Predecessor
Portfolios"), was paid aggregate administrative fees of $283,085, $346,829
and $__________ 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
31
<PAGE>
approximately $_________ billion in assets and having approximately _________
shareholder accounts as of March 31, 1996. 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 the Money
Market Funds and each class of the Non-Money Funds pursuant to Rule 12b-1 under
the 1940 Act (each, a "Plan" and collectively, the "Plans"). 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, up to 0.50% for each of the Money Market Finds Class A shares of each
of the Non-Money Funds, and up to 0.75% of the Class B shares and Class C
shares of each of the Non-Money Funds, on an annualized basis, of the average
daily net assets of such Investment Fund or classes. The Distributor expects
to allocate most of its fee to investment dealers, banks or financial service
firms that provide distribution, administrative or shareholder services
("Participating Dealer"). The actual amount of such compensation is agreed
upon by the Fund's Board of Directors and by the Distributor. The
Distributor may, in its discretion, voluntarily waive from time to time all
or any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do not
obligate the Investment Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the Plan.
Thus, under each Plan, even if the Distributor's actual expenses exceed the fee
payable to it thereunder at any given time, the Investment Funds will not be
obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee. The Plans for the 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 and the Plan
for the Money Market Funds was most recently approved on ________________.
As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1996, the Distributor received aggregate fees of
approximately $______________ which were attributable approximately as follows:
Fiscal Year
Ended
June 30, 1996
-------------
Global Equity Allocation Fund-Class A. . . . . . . . .
Global Equity Allocation Fund-Class B+ . . . . . . . .
Global Equity Allocation Fund-Class C+ . . . . . . . .
Global Fixed Income Fund-Class A . . . . . . . . . . .
Global Fixed Income Fund-Class B+. . . . . . . . . . .
Global Fixed Income Fund-Class C+. . . . . . . . . . .
Asian Growth Fund-Class A. . . . . . . . . . . . . . .
Asian Growth Fund-Class B+ . . . . . . . . . . . . . .
Asian Growth Fund-Class C+ . . . . . . . . . . . . . .
Emerging Markets Fund-Class A. . . . . . . . . . . . .
Emerging Markets Fund-Class B. . . . . . . . . . . . .
Emerging Markets Fund-Class C. . . . . . . . . . . . .
Latin American Fund-Class A. . . . . . . . . . . . . .
Latin American Fund-Class B. . . . . . . . . . . . . .
32
<PAGE>
Latin American Fund-Class C. . . . . . . . . . . . . .
American Value Fund-Class A. . . . . . . . . . . . . .
American Value Fund-Class B+ . . . . . . . . . . . . .
American Value Fund-Class C+ . . . . . . . . . . . . .
Worldwide High Income Fund-Class A . . . . . . . . . .
Worldwide High Income Fund-Class B . . . . . . . . . .
Worldwide High Income Fund-Class C+. . . . . . . . . .
Aggressive Equity Fund-Class A** . . . . . . . . . . .
Aggressive Equity Fund-Class B** . . . . . . . . . . .
Aggressive Equity Fund-Class C** . . . . . . . . . . .
High Yield Fund-Class A**. . . . . . . . . . . . . . .
High Yield Fund-Class B**. . . . . . . . . . . . . . .
High Yield Fund-Class C**. . . . . . . . . . . . . . .
U.S. Real Estate Fund-Class A**. . . . . . . . . . . .
U.S. Real Estate Fund-Class B**. . . . . . . . . . . .
U.S. Real Estate Fund-Class C**. . . . . . . . . . . .
International Magnum Fund-Class A**. . . . . . . . . .
International Magnum Fund-Class B**. . . . . . . . . .
International Magnum Fund-Class C**. . . . . . . . . .
Japanese Equity Fund-Class A** . . . . . . . . . . . .
Japanese Equity Fund-Class B** . . . . . . . . . . . .
Japanese Equity Fund-Class C** . . . . . . . . . . . .
Growth and Income Fund-Class A** . . . . . . . . . . .
Growth and Income Fund-Class B** . . . . . . . . . . .
Growth and Income Fund-Class C** . . . . . . . . . . .
European Equity Fund-Class A** . . . . . . . . . . . .
European Equity Fund Class B** . . . . . . . . . . . .
European Equity Fund Class C** . . . . . . . . . . . .
Money Market Fund**++. . . . . . . . . . . . . . . . .
Tax-Free Money Market Fund **. . . . . . . . . . . . .
Global Obligations Money Market Fund**++ . . . . . . .
________________________
+ 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.
** Not operational as of June 30, 1995.
++ As compensation for providing distribution services to the Predecessor
Portfolios for the fiscal years ended June 30, 1995, the Distributor
received fees from the Predecessor Money Market Portfolio in the amount of
$545,816 and from the Predecessor Government Obligations Money Market
Portfolio in the amount of $661,194.
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.
33
<PAGE>
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 June 24, 1996 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
GLOBAL EQUITY ALLOCATION FUND: Scott & Stringfellow PSP, C/O David
Plageman, P.O. Box 1575, Richmond, VA 23213, owned 5% of the total outstanding
Class A shares of such Investment Fund.
GLOBAL FIXED INCOME FUND: The Private Bank & Trust Co., 10 Dearborn
Street, Chicago, IL 60602, owned 26% of the total outstanding Class A shares
and Oppenheimer Co., Inc., P.O. Box 3484, Church Street Station, New York, NY
10008, owned 10% of the total outstanding Class B shares of such Investment
Fund.
ASIAN GROWTH FUND: Charles Schwab & Co. Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 6% of the
total outstanding Class A shares of such Investment Fund. Smith Barney Inc.,
388 Greenwich Street, New York, NY 10013, owned 7% of the total outstanding
Class A shares of such Investment Fund;
AMERICAN VALUE FUND: Smith Barney Inc., 388 Greenwich Street, New York,
N.Y. 10013, owned 7% 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 19% of the total outstanding Class C shares of such Investment
Fund and James G. McMurray, M.D. Profit Sharing Plan, 303 Williams Avenue,
Suite 411, Huntsville, AL 35801, owned 7% of the total outstanding Class B
shares of such Investment Fund.
WORLDWIDE HIGH INCOME FUND: FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO 80217, owned 14% of the total outstanding Class A shares of
such Investment Fund.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 36% of the
total outstanding Class A shares of such Investment Fund.
HIGH YIELD FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 85% of the total outstanding Class A
shares of such Investment Fund, 97% of the total outstanding Class B shares
of such Investment Fund and 100% 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 18% of
the total outstanding Class A shares of such Investment Fund; Smith Barney
Inc., 388 Greenwich Street, New York, NY 10013, owned 8% of the total
outstanding Class B shares of such Investment Fund; and the Group owned 16%
of the total outstanding Class C shares of such Investment Fund.
U.S. REAL ESTATE FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 95% of the total outstanding Class A
shares of such Investment Fund, 86% of the total outstanding Class B shares
of such Investment Fund and 98% of the total outstanding Class C shares of
such Investment Fund.
34
<PAGE>
AGGRESSIVE EQUITY FUND: Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 38% of the total outstanding Class A shares
of such Investment Fund, 83% of the total outstanding Class B shares of such
Investment Fund and 80% 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.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset value
per share of $1.00. Each Investment Fund uses the amortized cost method of
valuing its securities, which does not take into account unrealized gains or
losses. The use of amortized cost and the maintenance of an Investment Fund's
per share net asset value at $1.00 is based on the Investment Fund's election to
operate under the provisions of Rule 2a-7 under the 1940 Act. As a condition of
operating under that Rule, each of the Money Market Funds must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less, and invest only in
securities which are of "eligible quality" as determined in accordance with
regulations of the SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Investment Funds' investment objectives, to stabilize the net asset value per
share as computed for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield available for such securities or for
securities of comparable maturity, quality and type as obtained from one or more
of the major market makers for the securities to be valued. Other investments
and assets are valued at fair value, as determined in good faith by, or under
procedures adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between an Investment Fund's
net asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will also take such action
as they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise from
differences between the two. Such action may include redemption in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
the average maturity, withholding dividends, paying distributions from capital
or capital gains or utilizing a net asset value per share as determined by using
available market quotations.
There are various methods of valuing the assets and of paying dividends and
distributions from a money market fund. Each of Money Market Funds values its
assets at amortized cost while also monitoring the available market bid price,
or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of such
Investment Fund will ordinarily remain at $1.00, but the Investment Fund's daily
dividends will vary in amount. Net realized short-term capital gains, if any,
less any capital loss carryforwards, will be distributed whenever the Directors
determine that such distributions would be in the best interest of shareholders,
but in any event, at least once a year. The Money Market Funds do not expect to
realize any long-term capital gains. Should any such gains be realized, they
will be distributed annually, less any capital loss carryforwards.
35
<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Investment Fund and directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Investment Fund. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage services which, in
the opinion of the Adviser, are necessary for the achievement of better
execution, provided the Adviser believes this to be in the best interest of the
Fund.
In purchasing and selling securities for the Investment Fund, it is the
Fund's policy to seek to obtain quality execution at the most favorable prices,
through responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Investment Fund, consideration will be given to
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Investment Fund may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Investment Fund and
one or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Investment Fund and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Directors.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Fund's
portfolio brokerage transactions to Morgan Stanley or broker affiliates of
Morgan Stanley. In order for Morgan Stanley or its affiliates to effect any
portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Morgan Stanley or such affiliates must be reasonable
and fair compared to the commissions, fees or other remuneration paid to
other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Directors of the Fund, including
a majority of the Directors who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions,
fees or other remuneration paid to Morgan Stanley or such affiliates are
consistent with the foregoing standard. For the three fiscal years ended
June 30, 1994, June 30, 1995 and June 30, 1996, the Fund paid brokerage
commissions of approximately $618,000, $116,000 and $____________,
respectively, to the Distributor, an affiliated broker-dealer. For the
fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996,
commissions paid to the Distributor represented approximately 30%, 7% and
___%, respectively, of the total amount of brokerage commissions paid in
such period and which were paid on transactions that represented 21%, 3% and
____% 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
36
<PAGE>
performance quotations may be furnished by the Fund but must be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual compounded total return quotations used by the
Fund are based on the standardized methods of computing performance mandated by
the SEC. An explanation of those and other methods used by the Fund to compute
or express performance follows.
TOTAL RETURN
From time to time the Investment Funds may advertise total return. Total
return figures are based on historical earnings and are not intended to indicate
future performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Investment Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assumes that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1-, 5-, and 10- year
period (or over the life of the Investment Fund) and the deduction of all
applicable Fund expenses on an annual basis.
Total return figures are calculated according to the following formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof).
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Investment
Funds for the one-year period ended June 30, 1996 and for the period from the
inception of each Investment Fund through June 30, 1996 are as follows:
One-Year Period
Ended Since
June 30, 1996 Inception
Global Equity Allocation Fund
(commenced operations on January 4, 1993)
Class A Shares
Class B Shares+
Class C Shares+
Global Fixed Income Fund
(commenced operations on January 4, 1993)
Class A Shares
37
<PAGE>
Class B Shares+
Class C Shares+
Asian Growth Fund
(commenced operations on June 23, 1993)
Class A Shares
Class B Shares+
Class C Shares+
American Value Fund
(commenced operations on Oct. 18, 1993)
Class A Shares
Class B Shares+
Class C Shares+
Worldwide High Income Fund
(commenced operations on April 21, 1994)
Class A Shares
Class B Shares+
Class C Shares+
Emerging Markets Fund
(commenced operations on July 6, 1994)
Class A Shares
Class B Shares+
Class C Shares+
38
<PAGE>
Latin American Fund
(commenced operations on July 6, 1994)
Class A Shares
Class B Shares+
Class C Shares+
The Funds had not commenced operations in the fiscal year ended June
30, 1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995.
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:
6
Yield = 2[(a - b + 1) - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period
The 30-day yield for the Global Fixed Income Fund as of June 30, 1996
was ____% for Class A shares and _____% for Class C shares. The 30-day
yield for the Worldwide High Income Fund as of June 30, 1996 was _____%
for Class A shares and ______% 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:
39
<PAGE>
(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.
(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.
40
<PAGE>
(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.
(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) C.S. 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.
41
<PAGE>
(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).
(ff) Morgan Stanley Capital International Japan Index - An unmanaged index
of common stocks (assumes dividends reinvested).
(gg) NAREIT Index - An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Investment Funds, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance. In addition, there can be
no assurance that the Fund will continue this performance as compared to such
other averages.
AMERICAN VALUE FUND
The American Value Fund's portfolio managers are "value" investors, and as
such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value. This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.
Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized. Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.
42
<PAGE>
Wilshire Associates reports small cap value stocks (an index made up of the
lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap growth stock during the period of 1978 to 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).
[TO BE INSERTED]
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
43
<PAGE>
indices are composed of nearly all common stocks traded on the NYSE, AMEX, and
NASDAQ within a given market-cap range. The size cutoffs are determined by
ranking all NYSE stocks by market cap, forming deciles, and then adding all the
issues that fit the size range from the other deciles. The CRSP Decile 6-8
represents the sixth through eighth deciles. The market capitalization ranges
characterized by both indices are consistent with each other and represent the
MSAM/Chicago definition of the small capitalization universe.
44
<PAGE>
$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:
[TO BE INSERTED]
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.
45
<PAGE>
This type of discrepancy between a company's market price and its intrinsic
worth (based on its earnings, cash flow, and/or asset values) is viewed by the
portfolio managers as an opportunity.
The managers of the American Value Fund are long-term investors, not short-
term traders. They recognize that the potentially higher rate of return
available from small stocks cannot be achieved overnight. Value takes time to
be realized.
The Fund's portfolio managers seek companies paying high, sustainable
dividends. Dividends are important because they provide a good indication that
a company has not only quality, shareholder-oriented management, but also
financial strength.
THE ASIAN GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 5.3% in Asia as compared with 2% in both North America and
Europe, according to the World Bank Atlas. According to Morgan Stanley
research, the economies in this region are less mature and are expected to have
a higher rate of sustainable growth well into the next century.
According to research conducted by J. Walter Thompson, by the year 2000,
Asia will have two-thirds of the world's population; only four of the world's
largest cities will be non-Asian; affluent Asian households will rise by 50% to
51 million; and per capita Gross Domestic Product ("GDP") will double. In
addition, 240 million Asian households will have televisions (a 70% increase in
the past 5 years, as compared with a 4.3% increase in Britain and a 6.7%
increase in the U.S.). China currently has one-quarter of the world's
population and is projected to have 200 million middle-class consumers by the
year 2000. By 2012, China, alone, is projected to have the world's largest
economy.
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
46
<PAGE>
[TO BE INSERTED]
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.
[TO BE INSERTED]
47
<PAGE>
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:
[TO BE INSERTED]
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.
48
<PAGE>
[TO BE INSERTED]
Historically, the average annual total return of emerging markets has
exceeded that of developed countries, and other indicators point to significant
future growth in the emerging markets:
THE CASE FOR EMERGING MARKETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
RETURNS GROWTH VALUE UNDER- DIVERSI-
REPRESEN- FICATION
TATION
- ---------------------------------------------------------------------------------------------------------------
Real
GNP Real Foreign Inv.
Annual Growth EPS Mkt % of
Returns (1994- Growth P/E Cap/ Institutional Average
(1940-1993) 2000) (1994) 1994 GNP Assets Correlation
E
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets 17% 6.5% 15% 24.0x 30% 0.6% 0.07
Developed Markets 13% 2.5% 5% 26.5x 70% 99.4% 0.51%
</TABLE>
SOURCE: MORGAN STANLEY RESEARCH
THE RETURNS DO NOT REFLECT ANY ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT OR
OTHER EXPENSES.
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS.
THE PAST PERFORMANCE OF EMERGING MARKETS, HOWEVER, IS NO GUARANTEE OF
49
<PAGE>
THE EMERGING MARKETS FUND'S FUTURE PERFORMANCE.
50
<PAGE>
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 ______, 1995, MSAM, together with its affiliated asset management
companies, had approximately ___ billion in assets under management and
fiduciary advice, including over ______ million in Latin America markets and
over _ billion in equities and fixed income in emerging markets, making it one
of the largest investment managers in emerging markets.
Morgan Stanley portfolio managers have access to proprietary research
through Morgan Stanley Capital International (MSCI), the generally recognized
standard for measuring the performance of international securities worldwide.
MSCI monitors approximately 4,000 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.
GROWTH POTENTIAL IN LATIN AMERICA
An economic transformation is occurring in Latin America today, which we
believe is creating a positive environment for investors. Old (protected)
economies are being transformed into new (open) free market economies, as
evidenced by many changes, including:
OLD (PROTECTED) NEW (OPEN)
- --------------- ----------
High import tariffs Low tariffs
Regulated exchange rates Free exchange rates
Regulated interest rates Market interest rates
Investment restrictions Open foreign investment
High tax rates Competitive tax rates
Command economy Market economy
Employment priority Efficiency priority
Subsidies Competitive market prices
State-owned industry Privatization
Deficit spending Fiscal austerity
Capital flight Return capital
High inflation Lower inflation
According to Morgan Stanley research, the economies in this region are less
mature and are expected to have higher rates of sustainable growth well into the
next century. We believe the greatest potential for gain is when situations are
improving and not when they are mature.
51
<PAGE>
[TO BE INSERTED]
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
Total Growth of
Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
53
<PAGE>
According to Morgan Stanley research, historically, annualized returns of
stock markets in this region have been superior, and on a relative basis, stock
prices in this region are significantly lower than developed markets as well as
other emerging markets, as measured by price/earnings ratios.
1988-93
Annualized 1993
Return Return
S & P 500 14.5% 10.0%
T-Bills 5.7% 3.1%
Emerging Growth Stocks 18.4% 21.0%
U.S. Government Bonds 10.7% 8.2%
EAFE 2.0% 32.6%
Japanese Stocks -7.0% 25.5%
Emerging Market Equities 16.5% 67.5%
MSCI LATIN AMERICA 42.4% 49.1%
SOURCE: MORGAN STANLEY RESEARCH
The returns do not reflect any asset-based charges for investment
management or other expenses. Assumes reinvestment of all
dividends/distribution. Past Performance is no guarantee of the Latin American
Fund's future performance.
Price/Earnings Ratio
Developed Markets* 28.4X
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
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<PAGE>
authorized to offer shares of fifteen Investment Funds, fourteen of which have
Class A, Class B and Class C shares.
The shares of each Investment Fund of the Fund are fully paid and
non-assessable, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Investment Fund of the Fund
have no pre-emptive rights. The shares of the Fund have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so. A shareholder is entitled to one vote for each full share owned (and a
fractional vote for each fractional share owned), then standing in his name on
the books of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each Investment
Fund's net investment income, if any. Each Investment Fund may choose to make
sufficient distributions of net capital gains to avoid liability for federal
excise tax. An Investment Fund will not be subject to federal income tax on
capital gains or ordinary income distributed to shareholders so long as it
qualifies as a RIC (see discussion under "Dividends and Distributions" and
"Taxes" in the Prospectus). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or distributions cannot be predicted.
Any dividend or distribution paid shortly after an investor purchases
shares of an Investment Fund will reduce the per share net asset value of that
Investment Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes to shareholders subject to taxes as set
forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of an Investment Fund are automatically
reinvested in additional shares of that Investment Fund at net asset value as of
the business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales charge or CDSC is imposed on shares of any of the
Investment Funds, including the Non-Money Funds, that are purchased through the
automatic reinvestment of dividends and distributions of an Investment Fund.
Each Investment Fund generally will be treated as a separate corporation
(and hence as a separate "regulated investment company") for federal tax
purposes. Any net capital gains of any Investment Fund, whether or not
distributed to investors, cannot be offset against net capital losses of any
other Investment Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Fund's domestic custodian except with respect to the
Money Market Funds. Chase is not affiliated with Morgan Stanley & Co.
Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as the 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. PNC Bank, N.A. serves as the Fund's custodian for each of
the Money Market Funds.
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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 contract over any long period of time may be small. CAA -
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest. AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only to a
small degree. A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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C - The rating C is reserved for income bonds on which no interest is being
paid. D - Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- - best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 - high quality with margins of protection ample
although not so large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") -
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ - very strong
capacity to pay principal and interest; SP-1 - strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ - this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 - this designation indicates the degree of safety regarding
timely payment is very strong.
WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
II. DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and credit"
of the United States. Securities issued or guaranteed by federal agencies and
United States Government sponsored instrumentalities may or may not be backed by
the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities, such
as the Government National Mortgage Associates, are, in effect, backed by the
full faith and credit of the United States through provisions in their charters
that they may make "indefinite and unlimited" drawings on the Treasury, if
needed to service debt. Debt from certain other agencies and instrumentalities,
including the Federal Home Loan Bank and Federal National Mortgage Association,
are not guaranteed by the United States, but those institutions are protected by
the discretionary authority for the United States Treasury to purchase certain
amounts of their securities to assist the institution in meeting its debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the United
States Government.
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Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
III. FOREIGN INVESTMENTS
The Investment Funds may invest in securities of foreign issuers. Investors
should recognize that investing in such foreign securities involves certain
special considerations which are not typically associated with investing in
United States issuers. For a description of the effect on the Investment Funds
of currency exchange rate fluctuations, see "Investment Objectives and Policies
- - Forward Foreign Currency Exchange Contracts" above. As foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards and may have policies that are not comparable to those of domestic
issuers, there may be less information available about certain foreign companies
than about domestic issuers. Securities of some foreign issuers are generally
less liquid and more volatile than securities of comparable domestic issuers.
There is generally less government supervision and regulation of stock
exchanges, brokers and listed issuers than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States investments in those
countries. Foreign securities not listed on a recognized domestic or foreign
exchange are regarded as not readily marketable and therefore such investments
will be limited to 15% of an Investment Fund's net asset value at the time of
purchase.
Although the Investment Funds will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
United States exchanges.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund and
Worldwide High Income Fund, it is not expected that an Investment Fund or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. However, these foreign withholding taxes may not have
a significant impact on any such Investment Fund because its investment
objective is to seek long-term capital appreciation and any dividend or interest
income should be considered incidental.
IV. EMERGING COUNTRY EQUITY AND DEBT SECURITIES
The definition of emerging country equity or debt securities of each of the
Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging Markets,
Latin American, European Equity and Worldwide High Income Funds includes
securities of companies that may have characteristics and business relationships
common to companies in a country or countries other than an emerging country. As
a result, the value of the securities of such companies may reflect economic and
market forces 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
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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 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
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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 incorporated herein by reference. The High Yield Fund, U.S.
Real Estate Fund, International Magnum Fund, Japanese Equity Fund, European
Equity Fund, Aggressive Equity Fund, Growth and Income Fund, Money Market
Fund, Tax-Free Money Market Fund and Global Obligations Money Market Fund were
not operational as of the date of the Annual Report.
The Fund's unaudited financial statements and notes thereto for the six
months ended December 31, 1995, which appear in the December 31, 1995
Semi-Annual Report to Shareholders are also incorporated herein by reference.
The High Yield Fund, U.S. Real Estate Fund, International Magnum Fund,
Japanese Equity Fund, European Equity Fund, Aggressive Equity Fund, Growth
and Income Fund, Money Market Fund, Tax-Free Money Market Fund and Global
Obligations Money Market Fund were not operational as of the date of the
Semi-Annual Report.
The PCS Cash Fund, Inc.'s audited financial statements and notes
thereon for the fiscal year ended June 30, 1995, and the report thereon of
Coopers & Lybrand, L.L.P., which appear in the PCS Cash Fund, Inc.'s Annual
Report to Shareholders are incorporated herein by reference.
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PART C
Morgan Stanley Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS (included in Part A)
Audited financial highlights for the Morgan Stanley Global Equity
Allocation, Morgan Stanley Global Fixed Income, Morgan Stanley Asian
Growth, Morgan Stanley American Value, Morgan Stanley Worldwide High
Income, Morgan Stanley Latin American and Morgan Stanley Emerging
Markets Funds are included in Part A (the prospectuses). As of June 30,
1995, the Morgan Government Obligations Money Market, Morgan Stanley
Tax-Free Money Market, Morgan Stanley European Equity, Morgan Stanley
Growth and Income, Morgan Stanley Aggressive Equity, Morgan Stanley High
Yield, Morgan Stanley U.S. Real Estate, Morgan Stanley International
Magnum and Morgan Stanley Japanese Equity Funds had not yet commenced
operations and the Morgan Stanley Money Market Fund has ceased
operations. Accordingly, no audited financial highlights for these
Funds are included in the prospectus relating to such Funds.
Registrant's unaudited financial highlights for the Morgan Stanley
Global Equity Allocation, Morgan Stanley Global Fixed Income, Morgan
Stanley Asian Growth, Morgan Stanley American Value, Morgan Stanley
Worldwide High Income, Morgan Stanley Latin American, and Morgan
Stanley Emerging Markets Funds, respectively, for the six-month period
ended December 31, 1995 are included in Part A (the prospectuses). As
of December 31, 1995, the Morgan Stanley Government Obligations Money
Market, Morgan Stanley Tax-Free Money Market, Morgan Stanley European
Equity, Morgan Stanley Growth and Income, Morgan Stanley Aggressive
Equity, Morgan Stanley High Yield, Morgan Stanley U.S. Real Estate,
Morgan Stanley International Magnum and Morgan Stanley Japanese Equity
Funds had not yet commenced operations and the Morgan Stanley Money
Market Fund has ceased operations. Accordingly, no unaudited financial
highlights for these Funds are included in the prospectus relating to
such Funds.
Registrant's unaudited financial highlights for the period ended
March 31, 1996 for the Morgan Stanley Aggressive Equity Fund are
included in Part A (the prospectus).
[Financial Statements for fiscal year ended June 30, 1996 to be filed by
amendment]
[PCS Cash Fund, Inc. financials]*
(2) FINANCIAL STATEMENTS (included in Part B)
The registrant's audited financial statements for the Morgan Stanley
Global Equity Allocation, Morgan Stanley Global Fixed Income, Morgan
Stanley Asian Growth, Morgan Stanley American Value, Morgan Stanley
Worldwide High Income, Morgan Stanley Latin American and Morgan
Stanley Emerging Markets Funds, respectively, for the fiscal year ended
June 30, 1995, including Price Waterhouse LLP's report thereon, are
incorporated by reference into Part B (the Statement of Additional
Information) and are part of the Registrant's June 30, 1995 Annual
Report to Shareholders. The financial statements incorporated by
reference into Part B are:
1. Statement of Assets and Liabilities
2. Statement of Operations
3. Statement of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
As of June 30, 1995, the Morgan Stanley Government Obligations Money
Market, Morgan Stanley Tax-Free Money Market, Morgan Stanley European
Equity, Morgan Stanley Growth and Income, Morgan Stanley Aggressive
Equity, Morgan Stanley High Yield, Morgan Stanley U.S. Real Estate,
Morgan Stanley International Magnum and Morgan Stanley Japanese Equity
Funds had not yet commenced operations and the Morgan Stanley Money
Market Fund has ceased operations. Accordingly, no audited financial
statements are being filed for these Funds at this time.
Registrant's unaudited financial statements for the Morgan Stanley Global
Equity Allocation, Morgan Stanley Global Fixed Income, Morgan Stanley Asian
Growth, Morgan Stanley American Value, Morgan Stanley Worldwide High Income,
Morgan Stanley Latin American and Morgan Stanley Emerging Markets Funds,
respectively, for the six-month period ended December 31, 1995 are
incorporated by reference into Part B (the Statement of Additional Information)
and are a part of the Registrant's December 31, 1995 Semi-Annual Report to
Shareholders. The financial statements included in Part B are:
1. Statement of Assets and Liabilities
2. Statement of Operations
3. Statement of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
As of December 31, 1995, the Morgan Stanley Government Obligations Money
Market, Morgan Stanley Tax-Free Money Market, Morgan Stanley European Equity,
Morgan Stanley Growth and Income and Morgan Stanley Aggressive Equity, Morgan
Stanley High Yield, Morgan Stanley U.S. Real Estate, Morgan Stanley
International Magnum and Morgan Stanley Japanese Equity Funds had not yet
commenced operations and the Morgan Stanley Money Market Fund has ceased
operations. Accordingly, no unaudited financial statements are being filed for
these Funds at this time.
Registrant's unaudited financial statements for the period ended March 31,
1996 for the Morgan Stanley Aggressive Equity Fund are incorporated by
reference into Part B (the Statement of Additional Information). The financial
statements incorporated by reference into Part B are:
1. Statement of Assets and Liabilities
2. Statement of Operations
3. Statement of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
[Financial Statements for fiscal year ended June 30, 1996 to be filed by
amendment]
[PCS Cash Fund, Inc. Financials]*
____________________________
* To be filed by amendment.
<PAGE>
(B) EXHIBITS
1 (a) Amended and Restated Articles of Incorporation are incorporated
by reference to Post Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(b) Form of Articles Supplementary (adding Registrant's International
Magnum, Japanese Equity, U.S. Real Estate and High Yield Funds)to
the Amended and Restated Articles of Incorporation are filed
herewith.
(c) Form of Articles Supplementary (adding Registrant's Government
Obligations Money Market and Tax-Free Money Market Funds)to the
Amended and Restated Articles of Incorporation is filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(b) Amended Schedule A and Supplement to Investment Advisory
Agreement between Registrant and Morgan Stanley Asset
Management Inc. (adding Registrant's Asian Growth Fund and
Small Cap Value Equity Fund (currently the American Value
Fund)) is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(c) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Worldwide High Income Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(d) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Growth and Income Fund, European Equity Fund,
Latin American Fund and Emerging Markets Fund) is incorporated
by reference to Post-Effective Amendment No. 10 to the
Registrant's
<PAGE>
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(e) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Aggressive Equity Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(f) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's International Magnum, Japanese Equity, U.S. Real
Estate and High Yield Funds) is to be filed by amendment.
(g) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Morgan Stanley Government Obligations Money
Market, Morgan Stanley Money Market and Morgan Stanley Tax-Free
Money Market Funds) is filed herewith.
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase
Manhattan Bank, N.A. dated March 11, 1994 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(b) Registrant's Custody Agreement (Global) with Morgan Stanley
Trust Company dated January 4, 1993 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(c) Form of Registrant's Custody Agreement with PNC Bank, N.A.
(with respect to the Money Market Funds) is to be filed by
amendment.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
(b) Chase Administration Agreement is incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 30, 1995.
(c) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
<PAGE>
Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
11 (a) Consent of Price Waterhouse LLP, Independent Accountants (Morgan
Stanley Fund, Inc.), filed herewith.
(b) Consent of Coopers & Lybrand LLP, Independent Accountants (PCS
Cash Fund, Inc.), filed herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Morgan Stanley Money Market Fund ("Money Market Plans") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995. [The following Money Market Plans have been
omitted because they are substantially identical to the one
filed herewith. The omitted Money Market Plans differ from the
Money Market Plans filed herewith only in references to the
Investment Fund to which the Money Market Plan relates: Morgan
Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund.]
(b) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Aggressive Equity
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995. The following Class A Plans have
been omitted because they are substantially identical to the
one filed herewith. The omitted Class A Plans differ from the
Class A Plan filed herewith only in references to the
Investment Fund to which the Class A Plan relates: Morgan
Stanley Global Fixed Income Fund, Morgan Stanley Asian Growth
Fund, Morgan Stanley Small Cap Value Equity Fund (currently the
Morgan Stanley American Value Fund), Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan
Stanley High Yield Fund, Morgan Stanley U.S. Real Estate Fund,
Morgan Stanley International Magnum Fund, Morgan Stanley
Japanese Equity Fund.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares (the "Class B Plan") of the Morgan Stanley Aggressive
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-51294 and 811-7140), as filed with the
SEC via EDGAR on October 4, 1995. The following Class B Plans
have been omitted because they are substantially identical to
the one filed herewith. The omitted Class B Plans differ from
the Class B Plan filed herewith only in references to the
Investment Fund to which the Plan relates: Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund,
Morgan Stanley Small Cap Value Equity Fund (currently the
<PAGE>
Morgan Stanley American Value Fund), Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan
Stanley High Yield Fund, Morgan Stanley U.S. Real Estate Fund,
Morgan Stanley International Magnum Fund, Morgan Stanley
Japanese Equity Fund.
(d) Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(now known as Class C Shares) and referred to as the "Class C
Plan" of the Morgan Stanley Aggressive Equity Fund is
incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 4, 1995. The following Class C Plans have been omitted
because they are substantially identical to the one filed
herewith. The omitted Class C Plans differ from the Class C
Plan filed herewith only in references to the Investment Fund
to which the Plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small
Cap Value Equity Fund (currently the Morgan Stanley American
Value Fund), Morgan Stanley Worldwide High Income Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American
Fund, Morgan Stanley European Equity Fund, Morgan Stanley
Global Equity Allocation Fund, Morgan Stanley High Yield Fund,
Morgan Stanley U.S. Real Estate Fund, Morgan Stanley
International Magnum Fund, Morgan Stanley Japanese Equity Fund.
16 Schedules of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 30, 1995.
19 Registrant's Form of Rule 18f-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
27 Financial data schedules for the fiscal year ended June 30, 1996,
filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of June 26, 1996.
Number of
Title of Class Record Holders
-------------- ---------------
Morgan Stanley Global Equity Allocation Fund-Class A . . . . 4,436
Morgan Stanley Global Equity Allocation Fund-Class B . . . . 1,211
<PAGE>
Morgan Stanley Global Equity Allocation Fund-Class C . . . . 4,508
Morgan Stanley Global Fixed Income Fund-Class A. . . . . . . 334
Morgan Stanley Global Fixed Income Fund-Class B. . . . . . . 54
Morgan Stanley Global Fixed Income Fund-Class C. . . . . . . 194
Morgan Stanley Asian Growth Fund-Class A . . . . . . . . . . 21,356
Morgan Stanley Asian Growth Fund-Class B . . . . . . . . . . 5,501
Morgan Stanley Asian Growth Fund-Class C . . . . . . . . . . 14,218
Morgan Stanley Emerging Markets Fund-Class A . . . . . . . . 3,187
Morgan Stanley Emerging Markets Fund-Class B . . . . . . . . 937
Morgan Stanley Emerging Markets Fund-Class C . . . . . . . . 3,209
Morgan Stanley Latin American Fund-Class A . . . . . . . . . 998
Morgan Stanley Latin American Fund-Class B . . . . . . . . . 144
Morgan Stanley Latin American Fund-Class C . . . . . . . . . 539
Morgan Stanley European Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley American Value Fund-Class A . . . . . . . . . 1,256
Morgan Stanley American Value Fund-Class B . . . . . . . . . 223
Morgan Stanley American Value Fund-Class C . . . . . . . . . 1,241
Morgan Stanley Worldwide High Income Fund-Class A. . . . . . 1,551
Morgan Stanley Worldwide High Income Fund-Class B. . . . . . 1,356
Morgan Stanley Worldwide High Income Fund-Class C. . . . . . 1,452
Morgan Stanley Aggressive Equity Fund-Class A. . . . . . . . 145
Morgan Stanley Aggressive Equity Fund-Class B. . . . . . . . 47
Morgan Stanley Aggressive Equity Fund-Class C. . . . . . . . 36
Morgan Stanley Growth and Income Fund-Class A. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class B. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class C. . . . . . . . 0
Morgan Stanley High Yield Fund-Class A . . . . . . . . . . . 5
Morgan Stanley High Yield Fund-Class B . . . . . . . . . . . 4
Morgan Stanley High Yield Fund-Class C . . . . . . . . . . . 2
Morgan Stanley U.S. Real Estate Fund-Class A . . . . . . . . 5
Morgan Stanley U.S. Real Estate Fund-Class B . . . . . . . . 4
Morgan Stanley U.S. Real Estate Fund-Class C . . . . . . . . 5
Morgan Stanley International Magnum Fund-Class A . . . . . . 0
Morgan Stanley International Magnum Fund-Class B . . . . . . 0
Morgan Stanley International Magnum Fund-Class C . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley Money Market Fund . . . . . . . . . . . . . . 0
Morgan Stanley Government Obligations Money Market Fund. . . 0
Morgan Stanley Tax-Free Money Market Fund. . . . . . . . . . 0
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the 1933 Act and is,
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Management of the Fund--Investment
Adviser" in the Prospectus constituting Part A of this Registration Statement
and "Management of the Fund" in Part B of this Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in by the
Chairman, President and Directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form ADV filed by MSAM
pursuant to the Advisers Act (SEC File No. 801-15757).
Barton M. Biggs, Chairman and Director
Peter A. Nadosy, President, Director and Managing Director
James M. Allwin, Chief Operating Officer and Managing Director
F. Dominic Caldecott, Managing Director (MSAM) - UK
A. Macdonald Caputo, Managing Director
Ean Wah Chin, Managing Director (MSAM) and Vice President - Singapore
Garry B. Crowder, Managing Director and Vice President
Michael A. Crowe, Managing Director and Vice President
Madhav Dhar, Vice President and Managing Director
Kurt A. Feuerman, Managing Director
Gordon S. Gray, Vice President, Managing Director and Director
Gary D. Latainer, Managing Director
Dennis G. Sherva, Vice President, Managing Director and Director
Richard G. Woolworth, Jr., Vice President and Managing Director
Richard B. Fisher, Director
Donald H. McAllister, Director
Robert E. Angevine, Vice President and Principal
Gerald P. Barth, Vice President and Principal
S. Nicoll Benjamin, Jr., Vice President
Josephine M. Glass, Vice President
Richard S. Brody, Vice President
Terence P. Carmichael, Vice President and Principal
Mary T. Coughlin, Vice President
Eileen F. Cresham, Vice President and Principal
Pierre J. deVegh, Vice President
Abigail J. Feder, Vice President
Robert P. Follert, Vice President
George W. Gardner, Vice President
Geoffrey C. Getman, Vice President
<PAGE>
James W. Grisham, Vice President and Principal
Perry E. Hall, II, Vice President and Principal
Bruce S. Ives, Vice President and Principal
Paul J. Jackson, Vice President
Margaret A. Kinsley, Vice President and Principal
John D. Knox, Vice President
Christopher A. H. Lewis, Vice President
Marianne J. Lippmann, Vice President and Principal
Gary J. Mangino, Vice President and Principal
Winslow M. Marston, Vice President
Walter Maynard, Jr., Vice President and Principal
Amr M. Nosseir, Vice President
Warren J. Olsen, Vice President and Principal
Anthony J. Pesce, Vice President
Christopher G. Petrow, Vice President and Principal
Robin H. Prince, Vice President
Gail H. Reeke, Vice President and Principal
Thomas A. Rorro, Vice President
Bruce R. Sandberg, Vice President and Principal
Vinod R. Sethi, Vice President and Principal
Steven C. Sexauer, Vice President and Principal
Kim I. Spellman, Vice President
Joseph P. Stadler, Vice President
Kenneth E. Tanaka, Vice President
Susan I. Tuomi, Vice President
Philip W. Warner, Vice President and Principal
Philip W. Winters, Vice President and Principal
Alford E. Zick, Jr., Vice President and Principal
Marshall T. Bassett, Vice President
Jeffrey G. Boudy, Vice President
L. Kenneth Brooks, Vice President
Andrew C. Brown, Vice President (MSAM) - UK
Frances Campion, Vice President (MSAM) - UK
Carl Kuo-Wei Chien, Vice President (MSAM) - Hong Kong
Lori A. Cohane, Vice President
James Colmenares, Vice President
Kate Cornish-Bowden, Vice President (MSAM) - UK
Bertr and Le PanDe Ligny, Vice President (MSAM) - UK
Christine H. du Bois, Vice President
Raye L. Dube, Vice President
Maureen A. Grover, Vice President
Kenneth R. Holley, Vice President
Nan B. Levy, Vice President
Valerie Y. Lewis, Vice President
Gordon W. Loery, Vice President
Yvonne Longley, Vice President (MSAM) - UK
Jeffrey Margolis, Vice President
Paula J. Morgan, Vice President (MSAM) - UK
Clare K. Mutone, Vice President
Martin O. Pearce, Vice President (MSAM) - UK
Alexander A. Pena, Vice President
<PAGE>
David J. Polansky, Vice President
Denise Saber, Vice President (MSAM) - UK
Michael James Smith, Vice President (MSAM) - UK
Christian K. Stadlinger, Vice President
Catherine Steinhardt, Vice President
Kunihiko Sugio, Vice President (MSAM) - Tokyo
Joseph Y.S. Tern, Vice President (MSAM) - Singapore
Ann D. Thivierge, Vice President
Richard Boon Hwee Toh, Vice President (MSAM) - Singapore
K.N. Vaidyanathan, Vice President (MSAM) - Bombay
Kevin V. Wasp, Vice President
Warren Ackerman, III, Principal
John R. Alkire, Principal (MSAM) - Tokyo
Francine J. Bovich, Principal
Stuart J.M. Breslow, Principal
Arthur Certosimo, Principal
James K.K. Cheng, Principal (MSAM) - Singapore
Stephen C. Cordy, Principal
Jacqueline A. Day, Principal (MSAM) - UK
Paul B. Ghaffari, Principal
Marianne, Laing Hay, Principal (MSAM) - UK
Kathryn Jonas Kasanoff, Principal
Debra A.F. Kushma, Principal
M. Paul Martin, Principal
Robert L. Meyer, Principal
Margaret P. Naylor, Principal (MSAM) - UK
Russell C. Platt, Principal
Christine T. Reilly, Principal
Robert A. Sargent, Principal (MSAM) - UK
Harold J. Schaaff, Jr., Secretary, Principal and General Counsel
Kiat Seng Seah, Principal (MSAM) - Singapore
Robert M. Smith, Principal
Charles B. Hintz, Treasurer
Madeline D. Barkhorn, Assistant Secretary
Charlene R. Herzer, Assistant Secretary
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity
Fund; The Brazilian Investment Fund, Inc.; The Enterprise Group of Funds, Inc.
- - Tax-Exempt Income Portfolio; Fortis Series Fund, Inc. - Global Asset
Allocation Series; Fountain Square International Equity Fund; General American
Capital Company; The Latin American Discovery Fund, Inc.; certain portfolios
of The Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa
Investment Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley
Emerging Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.;
Morgan Stanley European Emerging Markets Fund, Inc.; all funds of the Morgan
Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund, Inc.; The
Morgan Stanley High Yield Fund, Inc.; Morgan Stanley India Investment Fund,
Inc.; Morgan Stanley Institutional Fund, Inc.; The Pakistan Investment Fund,
Inc.; PCS Cash Fund, Inc.; Principal Aggressive Growth Fund, Inc.; Principal
Asset Allocation Fund, Inc.; certain portfolios of Sun America Series Trust;
SEI Institutional Managed Trust - Balanced Portfolio; The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
<PAGE>
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for
Morgan Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc., and PCS
Cash Fund, Inc. The information required by this Item 29 with respect to each
Director and officer of MS&Co. is incorporated by reference to Schedule A of
Form BD filed by MS&Co. pursuant to the Securities and Exchange Act of 1934
(SEC File No. 8-15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained in the physical possession of the
Registrant; Registrant's Transfer Agent and Sub-Administrator, Chase Global
Funds Services Company, 73 Tremont Street, P.O. Box 2798, Boston,
Massachusetts 02208-2798; and the Registrant's custodian banks, including
sub-custodians. [Sub-Transfer Agent]
ITEM 31. MANAGEMENT SERVICES
Morgan Stanley Asset Management Inc. ("MSAM") has entered into a
Chase Administration Agreement with The Chase Manhattan Bank, N.A. ("Chase"),
successor in interest to United States Trust Company of New York (which is
incorporated herein by reference to Exhibit No. 9(b) to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement) pursuant to which
Chase will provide the following services to the Registrant: (i) managing,
administering and conducting the general business activities of the
Registrant, other than those which are contracted to third parties; (ii)
providing personnel and facilities to perform the foregoing; (iii) accounting
services, including the preparation of statements and reports; (iv) transfer
agent services, including processing correspondence from shareholders,
recording transfers, issuing stock certificates and handling checks; (v)
handling dividends and distributions, including disbursing, withholding and
tax reporting; and (vi) providing office facilities, statistical and research
data, office supplies and assisting the Registrant to comply with regulatory
developments.
ITEM 32. UNDERTAKINGS
1. Registrant undertakes to file a post-effective amendment
containing reasonably current financial statements, which need not be
certified, for the Morgan Stanley High Yield Fund, Morgan Stanley U.S. Real
Estate Fund, Morgan Stanley International Magnum Fund, Morgan Stanley Japanese
Equity Fund, Morgan Stanley Growth and Income Fund, Morgan Stanley European
Equity Fund, Morgan Stanley Money Market Fund, Morgan Stanley Tax-Free Money
Market Fund and Morgan Stanley Government Obligations Money Market Fund,
within four to six months of their effective date or the commencement of
operations of each such Investment Fund, whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act inform
the Board of Directors of his or their desire to communicate with other
Shareholders of the Fund, the Directors will inform such Shareholder(s) as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.
3. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the 2nd day of July, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Warren J. Olsen Director, President July 2, 1996
- ----------------------------- ------------
Warren J. Olsen (Principal Executive Date
Officer)
*/s/ Barton M. Biggs Director (Chairman) July 2, 1996
- ------------------------------ ------------
Barton M. Biggs Date
*/s/ Fergus Reid Director July 2, 1996
- ----------------------------- ------------
Fergus Reid Date
*/s/ Frederick O. Robertshaw Director July 2, 1996
- ----------------------------- ------------
Frederick O. Robertshaw Date
*/s/ Andrew McNally IV Director July 2, 1996
- ----------------------------- ------------
Andrew McNally IV Date
*/s/ John D. Barrett II Director July 2, 1996
- ----------------------------- ------------
John D. Barrett II Date
*/s/ Gerard E. Jones Director July 2, 1996
- ----------------------------- ------------
Gerard E. Jones Date
*/s/ Samuel T. Reeves Director July 2, 1996
- ----------------------------- ------------
Samuel T. Reeves Date
*/s/ Frederick B. Whittemore Director July 2, 1996
- ----------------------------- ------------
Frederick B. Whittemore Date
*/s/ James R. Rooney Treasurer July 2, 1996
- ----------------------------- ------------
James R. Rooney (Principal Date
Accounting
Officer)
*By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Ex-99.B(1)(b) Form of Articles Supplementary (adding Registrant's
International Magnum, Japanese Equity, U.S. Real Estate
and High Yield Funds) to the Amended and Restated Articles
of Incorporation.
Ex-99.B(1)(c) Form of Articles Supplementary (adding Registrant's
Government Obligations Money Market and Tax-Free Money
Market Funds) to the Amended and Restated Articles of
Incorporation.
Ex-99.B(5)(g) Form of Supplements to Investment Advisory Agreement
(adding Registrant's Money Market, Government Obligations
Money Market and Tax-Free Money Market Funds).
Ex-99.B(11)(a) Consent of Price Waterhouse LLP, Independent Accountants
(Morgan Stanley Fund, Inc.).
Ex-99.B(11)(b) Consent of Coopers & Lybrand LLP, Independent Accountants
(PCS Cash Fund, Inc.).
Ex-99.B(27) Financial data schedules.
<PAGE>
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on April 22, 1996 adopted a resolution increasing the total number of shares of
stock that the Corporation shall have the authority to issue from thirteen
billion three hundred seventy-five million (13,375,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of thirteen
million three hundred seventy-five thousand dollars ($13,375,000) designated and
classified as follows:
NUMBER OF SHARES OF
COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
<PAGE>
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
2
<PAGE>
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
to sixteen billion seven hundred fifty million (16,750,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of sixteen
million seven hundred fifty thousand dollars ($16,750,000) and designating three
additional investment funds, each offering Class A, Class B and Class C shares
of common stock, so that the common stock, par value $.001 per share of the
Corporation authorized to be issued is designated and classified as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
3
<PAGE>
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
4
<PAGE>
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
5
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this 2nd day of May, 1996.
MORGAN STANLEY FUND, INC.
By:
------------------------
Warren J. Olsen
President
Attest:
------------------------------
Valerie Y. Lewis
Secretary
6
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed on
behalf of said corporation the foregoing Articles Supplementary to the Articles
of Amendment and Restatement of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles Supplementary to the Articles of Amendment and Restatement to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
--------------------
Warren J. Olsen
7
<PAGE>
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on July 16, 1996 adopted a resolution increasing the total number of shares of
stock that the corporation shall have the authority to issue from sixteen
billion seven hundred fifty million (16,750,000,000) shares of common
stock, par value $.001 per share, having an aggregate par value of sixteen
million seven hundred fifty thousand dollars ($16,750,000) designated and
classified as follows:
NUMBER OF SHARES OF
COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
<PAGE>
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
2
<PAGE>
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
to twenty-one billion seven hundred fifty million (21,750,000,000) shares of
common stock, par value $.001 per share, having an aggregate par value of
twenty-one million seven hundred fifty thousand dollars ($21,750,000) and
designating two additional investment funds, each offering Class A shares of
common stock, so that the common stock, par value $.001 per share of the
Corporation authorized to be issued is designated and classified as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
3
<PAGE>
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
4
<PAGE>
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund
- Class A 2,000,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund
- Class B 2,000,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualification and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
5
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this ___ day of _____, 1996.
MORGAN STANLEY FUND, INC.
By:
------------------------
Warren J. Olsen
President
Attest:
------------------------------
Valerie Y. Lewis
Secretary
6
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed on
behalf of said corporation the foregoing Articles Supplementary to the Articles
of Amendment and Restatement of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles Supplementary to the Articles of Amendment and Restatement to be the
corporate act of said corporation and further certifies that, to the beat of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
--------------------
Warren J. Olsen
7
<PAGE>
ANNEX __
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY MONEY MARKET FUND)
Supplement dated as of _____________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November
17, 1992, between the Fund and the Adviser. The Agreement sets forth the
rights and obligations of the parties with respect to the management of the
investment funds of the Fund. The Fund has created an additional investment
fund: the Morgan Stanley Money Market Fund (the "Money Market Fund");
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows
with respect to the Money Market Fund:
Money Market Fund [0. %]
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
The parties listed below have executed this Supplement as of the ____
day of ________, 1996
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
------------------------
Name:
Title:
<PAGE>
ANNEX __
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY TAX-FREE MONEY MARKET FUND)
Supplement dated as of _____________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November
17, 1992, between the Fund and the Adviser. The Agreement sets forth the
rights and obligations of the parties with respect to the management of the
investment funds of the Fund. The Fund has created an additional investment
fund: the Morgan Stanley Tax-Free Money Market Fund (the "Tax-Free Money
Market Fund");
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows
with respect to the Tax-Free Money Market Fund:
Tax-Free Money Market Fund [0. %]
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
The parties listed below have executed this Supplement as of the ____
day of ________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
------------------------
Name:
Title:
<PAGE>
ANNEX __
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND)
Supplement dated as of _____________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund") and Morgan Stanley Asset Management Inc. (the "Adviser").
RECITALS
The Fund has executed and delivered the Agreement, dated as of November
17, 1992, between the Fund and the Adviser. The Agreement sets forth the
rights and obligations of the parties with respect to the management of the
investment funds of the Fund. The Fund has created an additional investment
fund: the Morgan Stanley Government Obligations Money Market Fund (the
"Government Obligations Money Market Fund");
AGREEMENTS
NOW, THEREFORE, the parties agree as follows:
The percentage rate in Paragraph 3 of the Agreement will be as follows
with respect to the Government Obligations Money Market Fund:
Government Obligations Money Market Fund [0. %]
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
The parties listed below have executed this Supplement as of the ____
day of ________, 1996.
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
------------------------
Name:
Title:
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment
No. 14 to the registration statement of Form N-1A (the "Registration
Statement") of our report dated August 11, 1995, relating to the financial
statements and financial highlights appearing in the June 30, 1995 Annual
Report to Shareholders of Morgan Stanley Fund, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Independent Accountants" in such
Prospectus which is part of this Registration Statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 28, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to this Post-Effective Amendment No.
14 to the Registration Statement (File No. 33-51294) on Form N-1A under the
Securities Act of 1933, as amended, of Morgan Stanley Fund, Inc. (PCS Money
Market and PCS Government Obligations Portfolios):
- The incorporation by reference of our report dated July 28, 1995
accompanying the financial statements and financial highlights in the
Statement of Additional Information.
- The incorporation by reference of our report dated July 28, 1995 into
the Prospectus.
- The reference to our Firm under the heading "Financial Highlights" in
the Prospectus and "Financial Statements" in the Statement of Additional
Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 8, 1996
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